UNITED STATES
 SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-K/A
 (Amendment No. 1)
 
 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the fiscal year ended April 30, 2019
 or
 [  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 
 Commission File No. 000-49760
 
 Petro River Oil Corp.
 (Exact
name of registrant as specified in its charter)
 
 Delaware

98-0611188(State
or other jurisdiction of
incorporation
or organization)

(I.R.S.
Employer
Identification
No.)
 
 55 5th Avenue, Suite 1702, New York, NY 10003
 (Address
of Principal Executive Offices, Zip Code)
 
 (469) 828-3900
 (Registrant’s
telephone number, including area code)
 
 Securities
registered pursuant to Section 12(b) of the Act: None
 
 Securities
registered pursuant to Section 12(g) of the Act:
 
 Title of each
class
Trading
Symbol(s)
Name of each
exchange on which registeredCommon
Stock, par value $0.00001 per share
PTRC
OTC
Pink Marketplace
 
 Indicate
by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes [  ] No
[X]
 
 Indicate
by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes
[  ] No [X]
 
 Indicate
by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [  ]
 
 Indicate
by check mark whether the registrant has submitted electronically
every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T during the preceding 12 months (or for
such shorter period that the registrant was required to submit such
files). Yes [X] No [  ]
 
 Indicate
by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [  ]














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





Large accelerated
filer [  ]


Accelerated filer
[  ]Non-accelerated
filer [X]


Smaller reporting
company [X]Emerging growth company
[  ]





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





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








Indicate the number
of shares outstanding of each of the issuer’s classes of
common stock, as of the latest practicable date.





Class

Outstanding at
August 9, 2019Common Stock,
$0.00001 par value per share

17,938,540
shares

















EXPLANATORY
NOTE





We are filing this Amendment No. 1 to our Annual Report on Form
10-K for the year ended April 30, 2019, as filed with the
Securities and Exchange Commission on August 13, 2019 (the
“Original Form
10-K”), solely to correct
an error in Note 14 to the footnotes to the financial statements,
captioned “Subsequent Events”, to remove the bracketed
language and in lieu thereof, to insert “None”. 
Except as described above, this Amendment No. 1 does not alter or
affect any other part or other information set forth in the
Original Form 10-K. This Amendment does not modify or update in any
way disclosures made in the Original Form
10-K.

















TABLE OF
CONTENTS





Page
No.PART IItem
1.
Business

2Item
1A.
Risk
Factors

8Item
1B.
Unresolved Staff
Comments

15Item
2.
Properties

15Item
3.
Legal
Proceedings

20Item
4.
Mine Safety
Disclosures

20PART IIItem
5.
Market for
Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities

21Item
6.
Selected Financial
Data

21Item
7.
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations

21Item
7A.
Quantitative and
Qualitative Disclosures About Market Risk

30Item
8.
Financial
Statements and Supplementary Data

30Item
9.
Changes in and
Disagreements with Accountants on Accounting and Financial
Disclosure

30Item
9A.
Controls and
Procedures

31PART IIIItem
10.
Directors,
Executive Officers and Corporate Governance

32Item
11.
Executive
Compensation

32Item
12.
Security Ownership
of Certain Beneficial Owners and Management and Related Stockholder
Matters

32Item
13.
Certain
Relationships and Related Transactions, and Director
Independence

32Item
14.
Principal
Accounting Fees and Services

32PART IVItem
15.
Exhibits and
Financial Statement Schedules

32Item
16.
Form 10-K
SummarySignatures

35Index to Financial
Statements

F-1

















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FORWARD-LOOKING
STATEMENTS





This report,
including information included in future filings by us with the
Securities and Exchange Commission (the “SEC”), as well as information
contained in written material, press releases and oral statements
issued by us or on our behalf, contain, or may contain, certain
statements that are “forward-looking statements” within
the meaning of federal securities laws that are subject to a number
of risks and uncertainties, many of which are beyond our control.
This report modifies and supersedes documents filed by us before
this report. In addition, certain information that we file with the
SEC in the future will automatically update and supersede
information contained in this report. All statements, other than
statements of historical fact, included in this report regarding
our strategy, future operations, financial position, estimated
revenues and losses, projected costs, prospects, plans and
objectives of management are forward-looking statements. When used
in this report, the words “could,”
“believe,” “anticipate,”
“intend,” “estimate,” “expect,”
“project,” “will” and similar expressions
are intended to identify forward-looking statements, although not
all forward-looking statements contain such identifying
words.





Forward-looking
statements may include statements about our business strategy,
reserves, technology, financial strategy, oil and natural gas
realized prices, timing and amount of future production of oil and
natural gas, the amount, nature and timing of capital expenditures,
drilling of wells, competition and government regulations,
marketing of oil and natural gas, property acquisitions, costs of
developing our properties and conducting other operations, general
economic conditions, uncertainty regarding our future operating
results and plans, objectives, expectations and intentions
contained in this report that are not historical.





All forward-looking
statements speak only as of the date of this report, and, except as
required by law, we do not intend to update any of these
forward-looking statements to reflect changes in events or
circumstances that arise after the date of this report. You should
not place undue reliance on these forward-looking statements.
Although we believe that our plans, intentions and expectations
reflected in or suggested by the forward-looking statements we make
in this report are reasonable, we can give no assurance that these
plans, intentions or expectations will be achieved. We disclose
important factors that could cause our actual results to differ
materially from our expectations under “Risk Factors” and
“Management’s
Discussion and Analysis of Financial Condition and Results of
Operations” and elsewhere in this report. These
cautionary statements qualify all forward-looking statements
attributable to us or persons acting on our behalf.











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PART I





ITEM
1. BUSINESS





Business
Overview





Petro River Oil Corp. (the “Company”) is an independent energy company focused
on the exploration and development of conventional oil and gas
assets with low discovery and development costs, utilizing modern
technology. The Company is currently focused on moving forward with
drilling wells on several of its properties owned directly and
indirectly through its interest in Horizon Energy Partners, LLC
(“Horizon
Energy”), as well as
entering highly prospective plays with Horizon Energy and other
industry-leading partners. Diversification over a number of
projects, each with low initial capital expenditures and strong
risk reward characteristics, reduces risk and provides
cross-functional exposure to a number of attractive risk adjusted
opportunities.





The Company’s core holdings are in the Mid-Continent Region
in Oklahoma, including in Osage County and Kay County, Oklahoma.
Following the acquisition of Horizon I Investments, LLC
(“Horizon
Investments”) in December
2015, the Company has additional exposure to a portfolio of
domestic and international oil and gas assets consisting of highly
prospective conventional plays diversified across project type,
geographic location and risk profile, as well as access to a broad
network of industry leaders from Horizon Investment’s
interest in Horizon Energy. Horizon Energy is an oil and gas
exploration and development company owned and managed by former
senior oil and gas executives. It has a portfolio of domestic
and international assets. Each of the assets in the Horizon Energy
portfolio is characterized by low initial capital expenditure
requirements and strong risk reward
characteristics.





The Company’s prospects in Oklahoma are owned directly by the
Company and indirectly through Spyglass Energy Group, LLC
(“Spyglass”), a wholly owned subsidiary of Bandolier
Energy, LLC (“Bandolier”). As of January 31, 2018, Bandolier became
wholly-owned by the Company. Bandolier has a 75% working interest
in an 87,754-acre concession in Osage County, Oklahoma. The
remaining 25% working interest is held by the operator, Performance
Energy, LLC.





Effective September 24, 2018, the Company acquired a 66.67%
membership interest in LBE Partners, LLC, a Delaware limited
liability company (“LBE
Partners”), from ICO
Liquidating Trust, LLC, in exchange for 300,000 restricted shares
of the Company’s common stock. LBE Partners has varying
working interests in multiple oil and gas producing wells located
in Texas.





The execution of the Company’s business plan is dependent on
obtaining necessary working capital. While no assurances can
be given, in the event management is able to obtain additional
working capital, the Company plans to continue drilling additional
wells on its existing concessions, and to acquire additional
high-quality oil and gas properties, primarily proved producing,
and proved undeveloped reserves. The Company also intends to
explore low-risk development drilling and work-over
opportunities. Management is also exploring farm-in and joint
venture opportunities for the Company’s oil and gas
assets.





Recent Developments





Horizon Subscription Agreement





On February 25, 2019, the Company executed
a Subscription Agreement, pursuant to which the Company
purchased 145.454 membership units in
Horizon Energy Acquisition, LLC (“Horizon Acquisition”), representing an approximate 14.6% membership
interest in Horizon Acquisition, for $400,000 (the
“Acquisition of
Interest”). Horizon
Acquisition is a company focused on oil and gas exploration
activities. As a result, the Company acquired an additional 5.63%
working interest in an international, offshore exploration project
in the North Sea, which is in addition to a 5.63% interest in the
same project indirectly held by the Company through its investments
in Horizon Energy.





In
connection with the Acquisition of Interest, the Company also
executed the Limited Liability Company Agreement for Horizon, which
provides the Company with the right to appoint one Manager to
Horizon Acquisition’s three-member Board of Managers. The
Company appointed Mr. Cohen, the Company’s Executive
Chairman, to the Board of Managers. Mr. Cohen purchased 36.363
membership units in Horizon Acquisition in a separate transaction,
representing an approximate 3.6% membership interest.








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Creation of a New Series A Convertible Preferred Stock





On
January 31, 2019, the Company filed the Certificate of Designations
of Preferences and Rights of Series A Convertible Preferred Stock
with the Secretary of State for the State of Delaware –
Division of Corporations, which it thereafter amended on March 13,
2019 (collectively, the “Series A COD”). The Series A COD
designates 500,000 shares of the Company’s preferred stock as
Series A Convertible Preferred, par value $0.00001 per share
(“Series A
Preferred”), each share with a stated value of $20.00
per share.’ Shares of Series A Preferred are not entitled to dividends unless
the Company elects to pay dividends to holders of its common
stock. Shares of Series A Preferred rank senior to the
Company’s common stock and Series B Cumulative Convertible
Preferred Stock.





Holders
of Series A Preferred have the right to vote, subject to a 9.999%
voting limitation (which does not apply to Scot Cohen), on an
as-converted basis with the holders of the Company’s common
stock on any matter presented to the Company’s stockholders
for their action or consideration; provided, however, that so
long as shares of Series A Preferred remain outstanding, the
Company may not, without first obtaining the affirmative consent of
a majority of the shares of Series A Preferred outstanding, voting
as a separate class, take the following actions: (i) alter or
change adversely the power, preferences and rights provided to the
holders of the Series A Preferred under the Series A COD, (ii)
authorize or create a class of stock that is senior to the Series A
Preferred, (iii) amend its Certificate of Incorporation so as to
adversely affect any rights of the holders of the Series A
Preferred, (iv) increase the number of authorized shares of Series
A Preferred, or (v) enter into any agreements with respect to the
foregoing.





Each share of Series A Preferred has a liquidation preference equal
to the Stated Value plus all accrued and unpaid dividends. Each
share of Series A Preferred is convertible into that number of
shares of the Company’s common stock (“Conversion Shares”) equal to the
stated value, divided by $0.40 per share , which conversion rate is
subject to adjustment in accordance with the terms of the Series A
COD; provided, however, that holders of the Series A Preferred
may not convert their shares of Series A Preferred in the event
that such conversion would result in such holder’s ownership
exceeding 4.999% of the Company’s outstanding common stock
(the “Ownership
Limitation”), which Ownership Limitation may be
increased up to 9.999% at the sole election of the holder (the
“Maximum
Percentage”); provided, further, that the
Ownership Limitation and Maximum Percentage do not apply to Mr.
Cohen. Holders of Series A Preferred may elect to convert shares of
Series C Preferred into Conversion Shares at any
time.





Series A Financing





On
January 31, 2019, the Company sold and issued an aggregate of
178,101 units of its securities, for an aggregate purchase price of
$3,562,015, to certain accredited investors (the
“New
Investors”) pursuant to a Securities Purchase
Agreement (“SPA”) and to certain debtholders
(the “Debt
Holders”) pursuant to Debt Conversion Agreements (the
“Debt Conversion
Agreements”) (the “Offering” and the “Series A Financing”). The
sale of the units resulted in net cash proceeds of approximately
$2.8 million. The units sold and issued in the Offering consisted
of an aggregate of (i) 178,101 shares of the Company’s newly
created Series A Preferred shares, convertible into 8,905,037
shares of the Company’s common stock, and (ii) five-year
warrants to purchase 8,905,037 shares of Company’s common
stock, at an exercise price of $0.50 per share. Pursuant to the
Debt Conversion Agreements, the Debt Holders, consisting of Mr.
Cohen and Fortis Oil & Gas (“Fortis”), agreed to convert all
outstanding debt owed to the Debt Holders, amounting to $300,000
and $321,836, respectively, into units issued pursuant to the SPA.
In addition to the conversion of outstanding debt, the Company and
the Debt Holders also agreed to convert all accrued interest
totaling $18,853 and $62,523, respectively.





The
Offering resulted in net cash proceeds to the Company of
approximately $2.8 million, which net proceeds do not include the
amount of debt converted into units by the Debt Holders. The
Company currently intends to use the net proceeds to fund the
drilling of ten additional development and exploration wells in its
Osage County concession (the “New Drilling Program”), and a
large exploration venture in the North Sea, United Kingdom with
Horizon Energy Partners, LLC.





In
connection with the Offering, on January 31, 2019, Bandolier
entered into Assignment of Net Profit Interest agreements (the
“Assignment
Agreements”) with each of the New Investors and Debt
Holders, pursuant to which (i) Bandolier assigned and transferred
to the New Investors and Debt Holders a 75% interest in profits, if
any, derived from the ten new wells the Company intends to drill
pursuant to the New Drilling Program, payments of which shall be
made to the New Investors and Debt Holders, pro rata, on a
quarterly basis following the full completion of the New Drilling
Program, and (ii) in the event the Company elects to drill
additional wells on its Osage County concession in the next two
years, the New Investors and Debt Holders shall have the right to
participate in and fund the drilling and production of the next ten
wells on the same terms and conditions set forth in the Assignment
Agreements.





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Senior Secured Debt Exchange





On January 31,
2019, the Company entered into agreements (the “Secured Debt Conversion
Agreements”) with Petro Exploration Funding, LLC and
Petro Exploration Funding II, LLC (together, the
“Secured Debt
Holders”), pursuant to which they agreed to convert
approximately $2.3 million and $2.8 million, respectively, of
outstanding senior secured debt (including accrued and unpaid
interest) (the “Senior
Secured Debt”) owed under the terms of their
respective Senior Secured Promissory Notes into 116,503 and 140,799
shares of the Company’s newly created Series A Preferred,
respectively (the “Senior
Secured Debt Exchange”). As a result of the Senior
Secured Debt Exchange, all indebtedness, liabilities and other
obligations arising under the respective Senior Secured Promissory
Notes were cancelled and deemed satisfied in full.





As additional
consideration for the conversion of the Senior Secured Debt, the
Company agreed to (i) reduce the exercise price of warrants issued
to the Secured Debt Holders on June 15, 2017 and November 6, 2017
from $2.38 and $2.00, respectively, to $0.50 per share of common
stock issuable upon the exercise of such warrants, and (ii) to
extend the expiration date of such warrants to five years from the
Closing Date. The Company computed the
fair value of the warrants directly preceding the modification and
compared the fair value to that of the modified warrants with new
terms. The fair value of the modified warrants was lower than the
fair value of the warrants preceding the modification; therefore,
no accounting treatment resulted from the
modification.





Acquisition of Membership Interest in LBE Partners,
LLC





On October 2, 2018, the Company, ICO
and LBE, which owns various working interests in several oil and
gas wells located in the Hardin oil field in Liberty, Texas,
entered into a Membership Interest Purchase Agreement (the
“LBE Purchase
Agreement”),
effective September 24, 2018, pursuant to which the Company
purchased a 66.67% membership interest in LBE Partners from ICO in
exchange for 300,000 shares of the Company’s common stock.
Both ICO and LBE Partners are managed by Scot Cohen, the
Company’s Executive Chairman.





Recent Oil Discoveries





In
April of 2019, the Company successfully completed the West
Blackland 3-35 well, in addition to the West Blackland 4-34, and
South Red Eagle 1-34, located on its concession in Osage County,
Oklahoma.





On July 24, 2018,
the Company announced the successful drilling of the Arsaga 25-2
exploration well, located on its concession in Osage County,
Oklahoma.





On May 22, 2018,
the Company announced the discovery of a new oil field, the N.
Blackland Field, in its concession in Osage County, Oklahoma, upon
successfully testing of the 2-34 exploration well.





In May 2017,
Bandolier discovered two new oil fields with the successful
drilling of the W. Blackland 1-3 and S. Blackland 2-11 exploration
wells. On December 15, 2017, the Company received permits from the
Bureau of Indian Affairs to drill eight additional wells in the W.
Blackland Field, which were successfully completed in April 2018.
The Company’s W. Blackland concessions are currently
producing, and, with the drilling of additional wells, the Company
currently anticipates that its revenue will significantly increase
throughout the remainder of the current fiscal year.





In addition to the
Company’s current development plans, within its current 3-D
seismic data, additional structures in Osage County have been
identified. Assuming that it is able to obtain sufficient
working capital, the Company currently plans to drill ten
additional wells in calendar year 2019: seven in the N. Blackland
Field, two in the Arsaga structure and one in the Section 13
structure. The Company anticipates financing the drilling of
these wells using the cash flows from current production of its
existing wells.





Our
Objective





Our primary
objective is to enhance shareholder value by increasing our net
asset value, net reserves and cash flow through development,
exploitation, exploration, and acquisition of oil and gas
properties.





Our
Strategy





We intend to follow
a balanced risk strategy by allocating capital expenditures to a
combination of lower risk development and high potential
exploration prospects. Key elements of our business strategy
include the following:








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Develop and exploit our existing oil and
natural gas properties. Our principal growth strategy has
been to explore, develop and exploit our acquired and leased
properties to add proven reserves.





Pursue selective acquisitions. The
Company has acquired leasehold positions that it believes contain
substantial resource potential and meet its targeted returns on
invested capital. Management intends to continue to pursue
strategic acquisitions that meet the Company’s operational
and financial targets. We seek to acquire developed and undeveloped
oil and gas properties that will provide us with additional
development and exploratory prospect opportunities. We may also
acquire a working interest in one or more prospects from others and
participate with the other working interest owners in drilling and,
if warranted, completing oil or gas wells on a prospect. We may
purchase producing oil or gas properties.





Use the latest 3-D seismic technology to
maximize returns. Technical advances in imaging and modeling
can lower risk and enhance productivity. The Company intends to
utilize 3-D seismic and other technological advancements that
benefit its exploratory and developmental drilling
program.





Plan
of Operation





The Company is
currently engaged in oil and natural gas acquisition, exploration,
development and production, with activities principally in Oklahoma
in the United States, and Northern Ireland, Denmark and the U.K. in
Western Europe. We focus on developing our existing properties,
while continuing to pursue acquisitions of oil and gas properties
with upside potential.





The Company intends
to grow its resources and production through exploration activities
and development of identified potential drilling locations, and
through acquisitions that meet the Company’s strategic and
financial objectives. Our plan includes:





Leveraging our management experience.
The Company’s executive team, along with Horizon Energy, the
Company’s operating partner, has extensive and proven
experience in the oil and gas industry. We believe that the
experience of our executive team will help reduce the time and cost
associated with drilling and completing exploration and development
of our conventional assets and potentially increasing recovery.
Collectively, our management team and engineering professionals
identify and evaluate acquisition opportunities, negotiate and
close purchases and manage acquired properties. Our key management
team possesses an average of over thirty years of experience in oil
and gas exploration and production in multiple resource plays,
including exploration and production in the Company’s core
regions of Osage, Oklahoma, Kay County, Oklahoma, Liberty, Texas
and the North Sea.





Leveraging our established business
relationships. Our executive team, along with Horizon
Energy, has many relationships with operators and service providers
in our core asset regions. We believe that leveraging our
relationships will provide us with a competitive advantage in
developing our acreage and identifying acquisition
targets.





De-risking our acreage position and build a
vertical drilling program. The Company has identified a
multi-year inventory of potential drilling locations that will
drive reserves and production growth and provide attractive return
opportunities. The Company views its Osage County, Kay County and
Horizon Energy projects as de-risked because of the significant
production history in the areas and well-established industry
activity surrounding the acreage.





Partnership with Horizon Energy.
Following the acquisition of Horizon Investments, the Company has,
through its now wholly-owned subsidiary Horizon Investment, a
14.52% ownership in Horizon Energy, which includes a portfolio of
several domestic and international oil and gas assets consisting of
highly prospective conventional plays diversified across project
type, geographic location and risk profile, as well as access to a
broad network of industry leaders. On February 25, 2019, the
Company purchased approximately 14.6% direct interest in Horizon
Energy Acquisition, LLC, an entity controlled by Horizon Energy
which is focused on an international,
offshore oil and gas exploration project in the North
Sea.





Competitive
Strengths





Financial flexibility. Our capital
structure and high degree of operational control continue to
provide us with significant financial flexibility. On January 31,
2019, we entered into a Senior Secured Debt Exchange whereby we
converted all our outstanding debt, including interest, into Series
A Preferred shares. Following this restructuring, we have no
corporate debt, enabling us to make capital decisions with no
restrictions imposed by debt covenants, lender oversight and/or
mandatory repayment schedules. Additionally, in concert with our
partner, Horizon Energy, we control the majority of our anticipated
future net drilling locations, including the timing and selection
of drilling locations as well as completion schedules. This allows
us to modify our capital spending program depending on financial
resources, leasehold requirements and market
conditions.








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Cost-efficient operators. In the past,
our management team has shown an ability to drill wells in a
cost-efficient way and to successfully integrate acquired assets
without incurring significant increases in overhead.





History





The
Company was originally incorporated under the Company Act (British
Columbia) on February 8, 2000 under the name Brockton Capital Corp.
We then changed our name to MegaWest Energy Corp. (“MegaWest”) effective
February 27, 2010, before changing our name to Gravis Oil Corp. on
June 20, 2011. On September 11, 2012, we re-organized under the
laws of the State of Delaware. Prior to September 11, 2012,
and at April 30, 2012, we were organized under the laws of Alberta,
Canada.





Petro
River Oil LLC (“Petro”), a wholly-owned
subsidiary of MegaWest, was formed under the laws of the State of
Delaware on March 3, 2011. Through proceeds received from the
issuance of various promissory notes, on February 1, 2012, Petro
purchased various interests in oil and gas leases, wells, records,
data and related personal property located along the play in the
state of Kansas (“Mississippi
Assets”).  Effective December 23, 2015, Petro
divested the Mississippi Assets. In connection with the
divestiture, the assignee and purchaser of the Mississippi Assets
agreed to pay outstanding liabilities, including unpaid taxes, and
assume certain responsibilities to plug any abandoned wells. No
cash consideration was paid for the interests.





Acquisition of Interest in Bandolier Energy
LLC.





On May 30, 2014,
the Company entered into a Subscription Agreement pursuant to which
the Company was issued a 50% interest in Bandolier in exchange for
a capital contribution of $5.0 million (the “Bandolier Acquisition”). In
connection with the Bandolier Acquisition, the Company had the
right to appoint a majority of the board of managers of Bandolier.
The Company’s Executive Chairman was a manager of, and owned
a 20% membership interest in, Pearsonia West Investment Group, LLC
(“Pearsonia
West”), a special purpose vehicle formed for the
purpose of investing in Bandolier with the Company and Ranger
Station, LLC (“Ranger
Station”). Concurrent with the Bandolier Acquisition,
Pearsonia West was issued a 44% interest in Bandolier for cash
consideration of $4.4 million, and Ranger Station was issued a 6%
interest in Bandolier for cash consideration of $600,000. In
connection with Pearsonia West’s investment in Bandolier, the
Company and Pearsonia West entered into an agreement, dated
May 30, 2014, granting the members of Pearsonia West an
option, exercisable at any time prior to May 30, 2017, to exchange
their pro rata share of the Bandolier membership interests for
shares of the Company’s common stock, at a price of $16.00
per share, subject to adjustment (the “Option”). The Option was never
exercised by the members of Pearsonia West. On November 6, 2017,
the Company acquired all of Pearsonia West’s interest in
Bandolier for 1,466,667 shares of the Company’s common stock
and thereafter owned 100% interest in Bandolier.





Until the execution
of the Contribution Agreement, described below, the Company had
operational control along with a 50% ownership interest in
Bandolier. As a result, the Company consolidated Bandolier. The
remaining 50% non-controlling interest represented the equity
investment from Pearsonia West and Ranger Station. The Company
allocated the proportionate share of the net operating income/loss
to both the Company and the non-controlling interest.








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Subsequent to the
initial capitalization of Bandolier, Bandolier acquired, for
$8,712,893 less a $407,161 claw back, all of the issued and
outstanding equity of Spyglass, the owner of oil and gas leases,
leaseholds, lands, and options and concessions thereto located in
Osage County, Oklahoma. Spyglass controlled a significant
contiguous oil and gas acreage position in Northeastern Oklahoma,
consisting of 87,754 acres, with substantial original oil in-place,
stacked reservoirs, as well as exploratory and development
opportunities that could be accessed through both horizontal and
vertical drilling. Significant infrastructure was already in place,
including 32 square miles of 3-D seismic, 3 phase power, a
dedicated sub-station as well as multiple oil producing horizontal
wells.





The Company
recorded the purchase of Spyglass by Bandolier using the
acquisition method of accounting as specified in ASC 805 “Business Combinations.” This
method of accounting requires the acquirer to (i) record purchase
consideration issued to sellers in a business combination at fair
value on the date control is obtained, (ii) determine the fair
value of any non-controlling interest, and (iii) allocate the
purchase consideration to all tangible and intangible assets
acquired and liabilities assumed based on their acquisition date
fair values. Further, the Company commenced reporting the results
of Spyglass on a consolidated basis with those of the Company
effective upon the date of the acquisition.





Acquisition and Dilution of Horizon Investments.





On December 1, 2015, the Company entered into a
conditional purchase agreement with Horizon Investments (as
amended, the “Purchase
Agreement”), pursuant to
which the Company acquired, on May 3, 2016, (i) a 20% membership
interest in Horizon Energy; (ii) three promissory notes
issued by the Company to Horizon Investments in the aggregate
principal amount of $1.6 million (the
“Horizon
Notes”); (iii)
approximately $690,000 held in escrow pending closing under the
Purchase Agreement (the “Closing
Proceeds”); and (iv)
certain bank, investment and other accounts maintained by Horizon
Investments, in an amount which, together with the principal amount
of the Horizon Note and the Closing Proceeds, totaled not less than
$5.0 million (collectively, the “Purchased
Assets”). The
consideration for the Purchased Assets was 11,564,249 shares of the
Company’s common stock, $0.00001 par value
(“Common
Stock”), which shares
were issued to Horizon Investments at closing.





On February 2,
2018, Horizon Investments received from Horizon Energy a capital
call in the amount of $600,227. Horizon Investments did not have
the required funds to fund the capital call. The capital
call was not mandatory and the consequence of Horizon
Investments’ failure to fund the capital call was a dilution
in Horizon Investments’ interest in Horizon Energy by 27.43%,
therefore reducing Horizon Investments’ interest in Horizon
Energy from 20.01% to 14.52%. Scot Cohen, a member of the
Company’s Board of Directors, a substantial stockholder, and
a member of Horizon Energy, participated with other Horizon Energy
members to make the requested capital call in light of Horizon
Investment’s inability to make the requested capital call.
The determination not to make the requested capital call, and
therefore allow Mr. Cohen to increase his membership interest in
Horizon Energy, was discussed and approved by the independent
members of the Company’s Board of Directors.





Acquisition of Membership Interest in LBE Partners,
LLC





On October 2, 2018, the Company, ICO and LBE, which owns various
working interests in several oil and gas wells located in the
Hardin oil field in Liberty, Texas, entered into the LBE Purchase
Agreement pursuant to which the Company purchased a 66.67%
membership interest in LBE.





Competition





We operate in a highly competitive environment. We compete with
major and independent oil and natural gas companies, many of whom
have financial and other resources substantially in excess of those
available to us. These competitors may be better positioned to take
advantage of industry opportunities and to withstand changes
affecting the industry, such as fluctuations in oil and natural gas
prices and production, the availability of alternative energy
sources and the application of government regulation.





Compliance
with Government Regulation





The availability of
a ready market for future oil and gas production from possible U.S.
assets depends upon numerous factors beyond our control. These
factors may include, amongst others, regulation of oil and natural
gas production, regulations governing environmental quality and
pollution control, and the effects of regulation on the amount of
oil and natural gas available for sale, the availability of
adequate pipeline and other transportation and processing
facilities and the marketing of competitive fuels. These
regulations generally are intended to prevent waste of oil and
natural gas and control contamination of the
environment.





We expect that our
sales of crude oil and other hydrocarbon liquids from our future
U.S.-based production will not be regulated and will be made at
market prices. However, the price we would receive from the sale of
these products may be affected by the cost of transporting the
products to market via pipeline.








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Environmental
Regulations





Our U.S. assets are subject to numerous laws and regulations
governing the discharge of materials into the environment or
otherwise relating to environmental protection. These laws and
regulations may require the acquisition of a permit before drilling
commences; restrict the types, quantities and concentration of
various substances that can be released into the environment in
connection with drilling and production activities; limit or
prohibit drilling activities on certain lands within wilderness,
wetlands and other protected areas; require remedial measures to
mitigate pollution from former operations, such as pit closure and
plugging abandoned wells; and impose substantial liabilities for
pollution resulting from production and drilling operations. Public
interest in the protection of the environment has increased
dramatically in recent years. The worldwide trend of more expansive
and stricter environmental legislation and regulations applied to
the oil and natural gas industry could continue, resulting in
increased costs of doing business and consequently affecting
profitability. To the extent laws are enacted or other governmental
action is taken that restricts drilling or imposes more stringent
and costly waste handling, disposal and cleanup requirements, our
business and prospects could be adversely affected.





Operating
Hazards and Insurance





The oil and natural
gas business involves a variety of operating hazards and risks such
as well blowouts, craterings, pipe failures, casing collapse,
explosions, uncontrollable flows of oil, natural gas or well
fluids, fires, formations with abnormal pressures, pipeline
ruptures or spills, pollution, releases of toxic gas and other
environmental hazards and risks. These hazards and risks could
result in substantial losses to us from, among other things, injury
or loss of life, severe damage to or destruction of property,
natural resources and equipment, pollution or other environmental
damage, clean-up responsibilities, regulatory investigation and
penalties and suspension of operations.





In accordance with
customary industry practices, we expect to maintain insurance
against some, but not all, of such risks and losses. There can be
no assurance that any insurance we obtain would be adequate to
cover any losses or liabilities. We cannot predict the continued
availability of insurance or the availability of insurance at
premium levels that justify its purchase. The occurrence of a
significant event not fully insured or indemnified against could
materially and adversely affect our financial condition and
operations.





Pollution and
environmental risks generally are not fully insurable. The
occurrence of an event not fully covered by insurance could have a
material adverse effect on our future financial condition. If we
were unable to obtain adequate insurance, we could be forced to
participate in all of our activities on a non-operated basis, which
would limit our ability to control the risks associated with oil
and natural gas operations.





Employees





At April 30, 2019, we employed
four
full-time employees and two part-time
employees. We also retained several consultants to provide both
operational, investor relations and marketing
support.





Geographical
Area of the Company’s Business





The principal
market that we compete in is the North American and Western Europe.
The Company is currently contemplating expansion into additional
international energy markets via its investments in Horizon
Energy.





ITEM 1A. RISK FACTORS





You should
carefully consider the following risk factors, in addition to the
other information set forth in this Report, in connection with any
investment decision regarding shares of our common stock. Each of
these risk factors could adversely affect our business, operating
results and financial condition, as well as adversely affect the
value of an investment in our common stock. Some information in
this Report may contain “forward-looking” statements
that discuss future expectations of our financial condition and
results of operation. The risk factors noted in this section and
other factors could cause our actual results to differ materially
from those contained in any forward-looking
statements.








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Risks
Relating to Our Business





Our results of operations as well as the carrying value of our oil
and gas properties are substantially dependent upon the prices of
oil and natural gas. In the event the prices for oil and natural
gas decrease, our results of operations could be adversely
affected, and our ability to continue our planned development and
acquisition activities could be substantially
curtailed.





Currently, our costs to maintain our
unproved properties include non-producing leasehold, geological and
geophysical costs associated with leasehold or drilling interests
and in process exploration drilling costs. In the future, our
results of operations and the ceiling on the carrying value of our
oil and gas properties will be dependent on the estimated present
value of proved reserves, which depends on the prevailing prices
for oil and gas. Various factors beyond our control affect prices
of oil and natural gas, including political and economic
conditions; worldwide and domestic supplies of and demand for oil
and gas; weather conditions; the ability of the members of the
Organization of Petroleum Exporting Countries
(“OPEC”)
to agree on and maintain price and production controls; political
instability or armed conflict in oil-producing regions; the price
of foreign imports; the level of consumer demand; the price and
availability of alternative fuels; and changes in existing federal
and state regulations. In the event oil and gas prices fall from
current levels, our operations and financial condition could be
materially and adversely affected, and the level of development and
exploration expenditures could be substantially
curtailed. These conditions could ultimately result in a
reduction in the carrying value of our oil and gas properties. A
decline in prices for oil and gas would also likely cause a
reduction in the amount of any reserves and, in turn, in the amount
that we might be able to borrow to fund development and acquisition
activities.





We own certain assets unrelated to our traditional oil and gas
properties. The acquired technologies are in development
stage, have not been proven, and require additional capital to
develop. We may not be able to successfully
raise sufficient capital or otherwise successfully develop
these technology assets.





In 2015, wepurchased
certain assets to produce gasoline-like liquid and high-purity
hydrogen from natural gas, at low temperature and at low pressure,
as well as to reduce the methane from coal mines and other
wells. The purchased assets require additional capital or a
strategic partner in order to develop. Management currently intends
to defer development of these assets while it focuses on its
drilling activities. No assurances can be given that the Company
will be able to successfully raise sufficient capital to develop
the assets, or otherwise find a strategic or development partner to
develop the same. In addition, the purchased assets are in the
development stage and are unproven, and no assurances can be given
that we will be able to commercialize the assets.





We have a limited operating history and if we are not successful in
continuing to grow our business, then we may have to scale back or
even cease our ongoing business operations.





We have received a
limited amount of revenue from operations and have limited assets.
To date, we have acquired certain interests in oil and gas
properties, but have only recently developed and commenced
production of wells drilled on those properties. Furthermore,
although we have announced additional oil field discoveries in the
last year with the potential to generate commercial revenue, there
can be no assurance that they will yield significant production. We
have a limited operating history. Our success is significantly
dependent on a successful acquisition, drilling, completion and
production program. Our operations will be subject to all the risks
inherent in the establishment of a developing enterprise and the
uncertainties arising from the absence of a significant operating
history. We may be unable to locate additional recoverable reserves
or operate on a profitable basis. Since we are principally in the
exploration stage, with minimal development and production
activities, potential investors should be aware of the difficulties
normally encountered by enterprises in the exploration stage. If
our business plan is not successful, and we are not able to operate
profitably, investors may lose some or all of their
investment.





Our independent auditors’ report
for the fiscal years ended April 30, 2019 and 2018 have expressed
doubts about our ability to continue as a going
concern





Due to the uncertainty of our ability to meet our current operating
and capital expenses, in our audited annual financial statements as
of and for the years ended April 30, 2019 and 2018 our independent
auditors included a note to our financial statements regarding
concerns about our ability to continue as a going
concern. The Company has
incurred recurring losses and has generated limited revenue since
inception. These factors and the need for additional financing in
order for the Company to meet its business plan, raise substantial
doubt about the ability to continue as a going
concern. The presence of the
going concernnote to our
financial statements may have an adverse impact on the
relationships we are developing and plan to develop with third
parties as we continue the commercialization of our products and
could make it challenging and difficult for us to raise additional
financing, all of which could have a material adverse impact on our
business and prospects and result in a significant or complete loss
of your investment.





Because we are small and have a limited amount of capital, we may
have to limit our exploration and development activity, which may
result in a loss of your investment.





Because we are
small and our capital available for operations is limited, we must
limit our exploration and development activity. As such, we may not
be able to complete an exploration and development program that is
as thorough as we would like. In that event, existing reserves may
go undiscovered and undeveloped. Without additional capital, we
cannot generate sufficient revenue and you may lose your
investment.





We had cash and
cash equivalents at April 30, 2019 and 2018 of $1,214,858 and
$47,330, respectively. At April 30, 2019, we had working capital of
approximately $170,000. We are
dependent on obtaining, and are continuing to pursue, the necessary
funding from outside sources, including obtaining additional
funding from the sale of securities in order to continue our
operations. Without adequate funding, we may not be able to meet
our obligations. To further develop the Company’s
assets, management currently intends to raise additional capital
through debt and equity instruments.





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Exploratory drilling is a speculative activity that may not result
in commercially productive reserves and may require expenditures in
excess of budgeted amounts.





Drilling activities
are subject to many risks, including the risk that no commercially
productive oil or gas reservoirs will be encountered. There can be
no assurance that new wells drilled by us or in which we have an
interest will be productive or that we will recover all or any
portion of our investment. Drilling for oil and gas may involve
unprofitable efforts, not only from dry wells, but also from wells
that are productive but do not produce sufficient net revenues to
return a profit after drilling, operating and other costs. The cost
of drilling, completing and operating wells is often uncertain. Our
drilling operations may be curtailed, delayed or canceled as a
result of a variety of factors, many of which are beyond our
control, including economic conditions, mechanical problems,
pressure or irregularities in formations, title problems, weather
conditions, compliance with governmental requirements and shortages
in or delays in the delivery of equipment and services. Such
equipment shortages and delays sometimes involve drilling rigs
where inclement weather prohibits the movement of land rigs causing
a high demand for rigs by a large number of companies during a
relatively short period of time. Our future drilling activities may
not be successful. Lack of drilling success could have a material
adverse effect on our financial condition and results of
operations.





Our operations are
also subject to all of the hazards and risks normally incident to
the development, exploitation, production and transportation of,
and the exploration for, oil and gas, including unusual or
unexpected geologic formations, pressures, down hole fires,
mechanical failures, blowouts, explosions, uncontrollable flows of
oil, gas or well fluids and pollution and other environmental
risks. These hazards could result in substantial losses to us due
to injury and loss of life, severe damage to and destruction of
property and equipment, pollution and other environmental damage
and suspension of operations. Insurance for wells in which we
participate is generally obtained, although there can be no
assurances that such coverage will be sufficient to prevent a
material adverse effect to us if any of the foregoing events
occur.





We may not identify all risks associated with the acquisition of
oil and natural gas properties, or existing wells, and any
indemnifications we receive from sellers may be insufficient to
protect us from such risks, which may result in unexpected
liabilities and costs to us.





Our business
strategy focuses on acquisitions of undeveloped and unproven oil
and natural gas properties that we believe are capable of
production. We may make additional acquisitions of undeveloped oil
and gas properties from time to time, subject to available
resources. Any future acquisitions will require an assessment of
recoverable reserves, title, future oil and natural gas prices,
operating costs, potential environmental hazards, potential tax and
other liabilities and other factors.





Generally, it is
not feasible for us to review in detail every individual property
involved in a potential acquisition. In making acquisitions, we
generally focus most of our title and valuation efforts on the
properties that we believe to be more significant, or of
higher-value. Even a detailed review of properties and records may
not reveal all existing or potential problems, nor would it permit
us to become sufficiently familiar with the properties to assess
fully their deficiencies and capabilities. In addition, we do not
inspect in detail every well that we acquire. Potential problems,
such as deficiencies in the mechanical integrity of equipment or
environmental conditions that may require significant remedial
expenditures, are not necessarily observable even when we perform a
detailed inspection. Any unidentified problems could result in
material liabilities and costs that negatively impact our financial
condition and results of operations.





Even if we are able
to identify problems with an acquisition, the seller may be
unwilling or unable to provide effective contractual protection or
indemnity against all or part of these problems. Even if a seller
agrees to provide indemnity, the indemnity may not be fully
enforceable or may be limited by floors and caps, and the financial
wherewithal of such seller may significantly limit our ability to
recover our costs and expenses. Any limitation on our ability to
recover the costs related any potential problem could materially
impact our financial condition and results of
operations.





We are and will continue to be subject to various operating and
other casualty risks that could result in liability exposure or the
loss of production and revenue.





Our oil and gas
business involves a variety of operating risks, including, but not
limited to, unexpected formations or pressures, uncontrollable
flows of oil, gas, brine or well fluids into the environment
(including groundwater contamination), blowouts, fires, explosions,
pollution and other risks, any of which could result in personal
injuries, loss of life, damage to properties and substantial
losses. Although we carry insurance at levels that we believe are
reasonable, we are not fully insured against all risks. We do not
carry business interruption insurance. Losses and liabilities
arising from uninsured or under-insured events could have a
material adverse effect on our financial condition and
operations.





The cost of
operating wells is often uncertain. Our drilling operations may be
curtailed, delayed or canceled as a result of numerous factors,
including title problems, weather conditions, compliance with
governmental requirements and shortages or delays in the delivery
of equipment. Furthermore, completion of a well does not assure a
profit on the investment or a recovery of drilling, completion and
operating costs.








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We face significant competition, and many of our competitors have
resources in excess of our available resources.





The oil and gas
industry is highly competitive. We encounter competition from other
oil and gas companies in all areas of our operations, including the
acquisition of producing properties and exploratory prospects and
sale of crude oil, natural gas and natural gas liquids. Our
competitors include major integrated oil and gas companies and
numerous independent oil and gas companies, individuals and
drilling and income programs. Many of our competitors are large,
well established companies with substantially larger operating
staffs and greater capital resources than us. Such companies may be
able to pay more for productive oil and gas properties and
exploratory prospects and to define, evaluate, bid for and purchase
a greater number of properties and prospects than our financial or
human resources permit. Our ability to acquire additional
properties and to discover reserves in the future will depend upon
our ability to evaluate and select suitable properties and to
consummate transactions in this highly competitive
environment.





Strategic relationships upon which we may rely are subject to
change, which may diminish our ability to conduct our
operations.





Our ability to
successfully acquire additional properties, to discover and develop
reserves, to participate in drilling opportunities and to identify
and enter into commercial arrangements with customers will depend
on developing and maintaining close working relationships with
industry participants and on our ability to select and evaluate
suitable properties and to consummate transactions in a highly
competitive environment. These realities are subject to change and
may impair our ability to grow.





To develop our
business, we will endeavor to use the business relationships of our
management to enter into strategic relationships, which may take
the form of joint ventures with other private parties and
contractual arrangements with other oil and gas companies,
including those that supply equipment and other resources that we
will use in our business. We may not be able to establish these
strategic relationships, or if established, we may not be able to
maintain them. In addition, the dynamics of our relationships with
strategic partners may require us to incur expenses or undertake
activities we would not otherwise be inclined to in order to
fulfill our obligations to these partners or maintain our
relationships. If our strategic relationships are not established
or maintained, our business prospects may be limited, which could
diminish our ability to conduct our operations.





We may not have satisfactory title or rights to all of our current
or future properties.





Prior to acquiring
undeveloped properties, our contract land professionals review
title records or other title review materials relating to
substantially all of such properties. The title investigation
performed by us prior to acquiring undeveloped properties is
thorough, but less rigorous than that conducted prior to drilling,
consistent with industry standards. Prior to drilling we obtain a
title opinion on the drill site. However, a title opinion does not
necessarily ensure satisfactory title. We believe we have
satisfactory title to our producing properties in accordance with
standards generally accepted in the oil and gas industry. Our
properties are subject to customary royalty interests, liens
incident to operating agreements, liens for current taxes and other
burdens, which we believe do not materially interfere with the use
of or affect the value of such properties. In the normal course of
our business, title defects and lease issues of varying degrees
arise, and, if practicable, reasonable efforts are made to cure
such defects and issues.





We may be responsible for additional costs in connection with
abandonment of properties.





We are responsible
for payment of plugging and abandonment costs on our oil and gas
properties pro rata to our working interest. There can be no
assurance that we will be successful in avoiding additional
expenses in connection with the abandonment of any of our
properties. In addition, abandonment costs and their timing may
change due to many factors, including actual production results,
inflation rates and changes in environmental laws and
regulations.





Governmental regulations could adversely affect our
business.





Our business is
subject to certain federal, state and local laws and regulations on
taxation, the exploration for, and development, production and
marketing of, oil and natural gas, and environmental and safety
matters. Many laws and regulations require drilling permits and
govern the spacing of wells, rates of production, prevention of
waste and other matters. These laws and regulations have increased
the costs of our operations. In addition, these laws and
regulations, and any others that are passed by the
jurisdictions where we have production, could limit the total
number of wells drilled or the allowable production from successful
wells, which could limit our revenue.





Our interests in the Horizon Entities could be adversely affected
as a result of Britain’s vote to leave the European
Union.





In June 2016 the United Kingdom voted to exit the European Union
(“EU”).  This event is now popularly
referred to as “Brexit”. The Company has exposure to
Brexit through its investment in Horizon Energy and Horizon Energy
Acquisition, LLC (collectively, "Horizon
Entities").  While
management considers the risk relating to Brexit from licenses held
by the Horizon Entities not to be significant, including from
certain supplies for UK licenses which are obtained from European
Union suppliers outside of the UK, there is a possibility for
either customs-related delays or tariffs. In addition, should
Brexit create a reduction in the value of the British Pound
Sterling against the US Dollar, such a result may have an impact on
future revenue and expense.  While management acknowledges
that Brexit does present some risk to its business in the UK, these
risks are manageable, and the resulting impact is unlikely to have
a material impact on the Company.











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Laws and regulations relating to our business frequently change,
and future laws and regulations, including changes to existing laws
and regulations, could adversely affect our business.





In particular and
without limiting the foregoing, various tax proposals currently
under consideration could result in an increase and acceleration of
the payment of federal income taxes assessed against independent
oil and natural gas producers, for example by eliminating the
ability to expense intangible drilling costs, removing the
percentage depletion allowance and increasing the amortization
period for geological and geophysical expenses. Any of these
changes would increase our tax burden.





All states in which
the Company owns leases require permits for drilling operations,
drilling bonds and reports concerning operations and impose other
requirements relating to the exploration for and production of oil
and gas. Such states also have statutes or regulations addressing
conservation matters, including provisions for the unitization or
pooling of oil and gas properties, the establishment of maximum
rates of production from wells and the regulation of spacing,
plugging and abandonment of such wells. The statutes and
regulations of these states limit the rate at which oil and gas can
be produced from our properties. However, we do not believe we will
be affected materially differently by these statutes and
regulations than any other similarly situated oil and gas
company.





Environmental liabilities could adversely affect our
business.





In the event of a
release of oil, natural gas or other pollutants from our operations
into the environment, we could incur liability for any and all
consequences of such release, including personal injuries, property
damage, cleanup costs and governmental fines. We could potentially
discharge these materials into the environment in several ways,
including:





●
from a well or
drilling equipment at a drill site;





●
leakage from
gathering systems, pipelines, transportation facilities and storage
tanks;





●
damage to oil and
natural gas wells resulting from accidents during normal
operations; and●
blowouts, cratering
and explosions.





In addition,
because we may acquire interests in properties that have been
operated in the past by others, we may be liable for environmental
damage, including historical contamination, caused by such former
operators. Additional liabilities could also arise from continuing
violations or contamination that we have not yet discovered
relating to the acquired properties or any of our other
properties.





To the extent we
incur any environmental liabilities, it could adversely affect our
results of operations or financial condition.





Climate change legislation, regulation and litigation could
materially adversely affect us.





There is an
increased focus by local, state and national regulatory bodies on
greenhouse gas (“GHG”) emissions and climate
change. Various regulatory bodies have announced their intent to
regulate GHG emissions, including the United States Environmental
Protection Agency, which promulgated several GHG regulations in
2010 and late 2009. As these regulations are under development or
are being challenged in the courts, we are unable to predict the
total impact of these potential regulations upon our business, and
it is possible that we could face increases in operating costs in
order to comply with GHG emission legislation.





Passage of
legislation or regulations that regulate or restrict emissions of
GHG, or GHG-related litigation instituted against us, could result
in direct costs to us and could also result in changes to the
consumption and demand for natural gas and carbon dioxide produced
from our oil and natural gas properties, any of which could have a
material adverse effect on our business, financial position,
results of operations and prospects.





Risks
Relating to Our Financial Position and Capital
Requirements





We will require additional capital to execute our business
plan. If we are unable to obtain funding, our business
operations will be harmed.





We will require
additional capital to execute our business plan, further expand our
exploration and continue with our development programs. We may
be unable to obtain additional capital required. Furthermore,
inability to maintain capital may damage our reputation and
credibility with industry participants. Our inability to raise
additional funds when required would have a negative impact on our
consolidated results of operations and financial
condition.








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Future acquisitions
and future exploration, development, production, leasing activities
and marketing activities, as well as our administrative
requirements (such as salaries, insurance expenses and general
overhead expenses, as well as legal compliance costs and accounting
expenses) will require a substantial amount of additional capital
and cash flow.





We may pursue
sources of additional capital through various financing
transactions or arrangements, including joint venturing of
projects, debt financing, equity financing or other means. We may
not be successful in raising the capital needed and we may not
obtain the capital we require by other means. This would adversely
affect our consolidated financial results and financial
condition.





We have a history of losses, which may continue, which may
negatively impact our ability to achieve our business
objectives.





We generated total
revenue of $1,622,077 and $723,409 for the years ended April 30,
2019 and 2018, respectively, generated from oil and gas sales. In
addition, we recorded royalty revenue of $23,093 and $0 for the
years ended April 30, 2019 and 2018, respectively. We incurred a
net loss of $5,501,966 and $20,337,681 for the years ended April
30, 2019 and 2018, respectively. To date, we have acquired
interests in oil and gas properties, but have only recently
developed and commenced production of wells drilled on those
properties. Furthermore, although we have announced additional oil
field discoveries in the last year with the potential to generate
commercial revenue, there can be no assurance that they will yield
significant production. Our operations are subject to the risks and
competition inherent in the establishment of a business enterprise.
There can be no assurance that future operations will be
profitable. Revenue and profits, if any, will depend upon various
factors, including whether we will be able to continue expansion of
our revenue. We may not achieve our business objectives, and the
failure to achieve such goals would have an adverse impact on
us.





As our properties
are in early stages of development, we may not be able to establish
commercial reserves on these projects, and/or such projects may not
result in sufficient reserves to fund future operations and/or
development activities. Exploration for commercial reserves of oil
is subject to a number of risk factors. Few of the properties that
are explored are ultimately developed into producing oil and/or gas
fields. Since we may not be able to establish commercial reserves,
we are therefore considered to be an exploration stage
company.





Our results of operations as well as the carrying value of our oil
and gas properties are substantially dependent upon the prices of
oil and natural gas, which historically have been volatile and are
likely to continue to be volatile.





Our future
financial condition, access to capital, cash flows and results of
operations depend upon the prices we receive for our oil and
natural gas. Historically, oil and natural gas prices have been
volatile and are subject to fluctuations in response to changes in
supply and demand, market uncertainty and a variety of additional
factors that are beyond our control. Factors that affect the prices
we receive for our oil and natural gas include:





●
the level of
domestic production;●
the availability of
imported oil and natural gas;●
political and
economic conditions and events in foreign oil and natural gas
producing nations, including embargoes, continued hostilities in
the Middle East and other sustained military campaigns, and acts of
terrorism or sabotage;●
the ability of
members of OPEC to agree to and maintain oil price and production
controls;●
the cost and
availability of transportation and pipeline systems with adequate
capacity;





●
the cost and
availability of other competitive fuels;●
fluctuating and
seasonal demand for oil, natural gas and refined
products;●
concerns about
global warming or other conservation initiatives and the extent of
governmental price controls and regulation of
production;●
weather;●
foreign and
domestic government relations; and●
overall economic
conditions.





Any prolonged
decline in oil or gas prices could have a material adverse effect
on our operations, financial condition, and level of development
and exploration expenditures and could result in a reduction in the
carrying value of our oil and gas properties.








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Risks
Related to Our Common Stock





The liquidity, market price and volume of our stock are
volatile.





Our common stock is
not traded on any exchange, but is currently quoted on the OTC Pink
Marketplace (“OTC
Pink”). The liquidity of our common stock may be
adversely affected, and purchasers of our common stock may have
difficulty selling our common stock, particularly if our common
stock does not continue to be quoted on the OTC Pink or another
recognized quotation services or exchange.





The trading price
of our common stock could be subject to wide fluctuations in
response to quarter-to-quarter variations in our operating results,
announcements of our drilling results and other events or factors.
In addition, the U.S. stock markets have from time to time
experienced extreme price and volume fluctuations that have
affected the market price for many companies and which often have
been unrelated to the operating performance of these companies.
These broad market fluctuations may adversely affect the market
price of our securities.





Our stock is categorized as a penny stock. Trading of our stock may
be restricted by the SEC’s penny stock regulations, which may
limit a stockholder’s ability to buy and sell our
stock.





Our stock is
categorized as a “penny stock.” The SEC has adopted
Rule 15g-9 which generally defines “penny stock” to be
any equity security that has a market price (as defined) less than
$5.00 per share or an exercise price of less than $5.00 per share,
subject to certain exceptions. Our securities are covered by the
penny stock rules, which impose additional sales practice
requirements on broker-dealers who sell to persons other than
established customers and accredited investors. The penny stock
rules require a broker-dealer, prior to a transaction in a penny
stock not otherwise exempt from the rules, to deliver a
standardized risk disclosure document in a form prepared by the
SEC, which provides information about penny stocks and the nature
and level of risks in the penny stock market. The broker-dealer
also must provide the customer with current bid and offer
quotations for the penny stock, the compensation of the
broker-dealer and its salesperson in the transaction and monthly
account statements showing the market value of each penny stock
held in the customer’s account. The bid and offer quotations,
and the broker-dealer and salesperson compensation information,
must be given to the customer orally or in writing prior to
effecting the transaction and must be given to the customer in
writing before or with the customer’s confirmation. In
addition, the penny stock rules require that prior to a transaction
in a penny stock not otherwise exempt from these rules, the
broker-dealer must make a special written determination that the
penny stock is a suitable investment for the purchaser and receive
the purchaser’s written agreement to the transaction. These
disclosure requirements may have the effect of reducing the level
of trading activity in the secondary market for the stock that is
subject to these penny stock rules. Consequently, these penny stock
rules may affect the ability of broker-dealers to trade our
securities. We believe that the penny stock rules discourage
investor interest in and limit the marketability of our common
stock.





FINRA sales practice requirements may also limit a
stockholder’s ability to buy and sell our stock.





In addition to the “penny stock” rules
described above, the Financial Industry Regulatory Authority
(“FINRA”) has adopted rules that require that in
recommending an investment to a customer, a broker-dealer must have
reasonable grounds for believing that the investment is suitable
for that customer. Prior to recommending speculative low-priced
securities to their non-institutional customers, broker-dealers
must make reasonable efforts to obtain information about the
customer’s financial status, tax status, investment
objectives and other information. Under interpretations of these
rules, FINRA believes that there is a high probability that
speculative low-priced securities will not be suitable for at least
some customers. The FINRA requirements make it more difficult for
broker-dealers to recommend that their customers buy our Common
Stock, which may limit your ability to buy and sell our stock and
have an adverse effect on the market for our
shares.





We may issue preferred stock in the future with rights senior to
our common stock, and the terms of the preferred stock may reduce
the value of your common stock.





We
are authorized to issue up to 5,000,000 shares of preferred stock
in one or more series, of which, 29,500 shares of have been
designated as Series B Convertible Preferred Stock and 500,000
shares have been designated as Series A Convertible Preferred
Stock. Our Board of Directors may determine the terms of future
preferred stock offerings without further action by our
stockholders. If we issue additional share of preferred stock, it
could affect your rights or reduce the value of your common stock.
In particular, specific rights granted to future holders of
preferred stock could be used to restrict our ability to merge with
or sell our assets to a third party. Preferred stock terms may
include voting rights, preferences as to dividends and liquidation,
conversion and redemption rights and sinking fund
provisions.








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We have never paid dividends on our capital stock, and we do not
anticipate paying any cash dividends in the foreseeable
future.





We have paid no
cash dividends on any of our classes of capital stock to date and
currently intend to retain our future earnings, if any, to fund the
development and growth of our business. As a result, capital
appreciation, if any, of our common stock will be your sole source
of gain for the foreseeable future. Any payment of cash dividends
will depend upon our financial condition, contractual restrictions,
financing agreement covenants, solvency tests imposed by corporate
law, results of operations, anticipated cash requirements and other
factors and will be at the discretion of our Board of Directors.
Furthermore, we may incur indebtedness that may severely restrict
or prohibit the payment of dividends.





ITEM 1B. UNRESOLVED STAFF COMMENTS





None.





ITEM 2. PROPERTIES





Kern County





On March 4, 2016, the Company executed
an Asset Purchase and Sale and Exploration Agreement (the
“KernAgreement”)
to acquire a 13.7% working interest in certain oil and gas leases
in 5,000 gross acres located in southern Kern County, California
(the “Project”).
Horizon Energy also purchased a 27.5% working interest in the
Project.





Under the terms of the Kern Agreement, the Company paid $108,333 to
the sellers on the closing date, and was obligated to pay certain
other costs and expenses after the closing date related to existing
and new leases as more particularly set forth in the Kern
Agreement. In addition, the sellers were entitled to an overriding
royalty interest in certain existing and new leases acquired after
the Closing Date, and the Company was required to make certain
other payments, each in amounts set forth in the Kern
Agreement.





On July 18, 2017,
the Company announced a new oil field discovery in its Sunset
Boulevard prospect in Kern County, California upon successfully
drilling the Cattani-Rennie 47X-15 exploration well
(“CR 47X”). The
CR 47X was drilled to a depth of approximately 8,500 feet and
confirmed at least two commercially successful pay
zones.





In February 2018,
the Company transferred its working interest in the Kern County
prospect for additional interests in Oklahoma, as more particularly
discussed below, but retained an overriding royalty interest in the
project. Horizon Energy’s interests in Kern County were not
affected by the transaction.





Kay County





On February 14, 2018, the Company entered into a
Purchase and Exchange Agreement with Red Fork, pursuant to which
(i) the Company agreed to convey to Mountain View Resources, LLC,
an affiliate of Red Fork, 100% of its 13.7% working interest in and
to the project in Kern County, California, and (ii) Red Fork agreed
to convey to the Company 64.7% of its 85% working interest in and
to an AMI situated in Kay County, Oklahoma (the
“Red
ForkExchange”). The fair value of the assets acquired
was $108,333 as of the date of the Agreement. Following the Red
Fork Exchange, the Company and Red Fork each retained a 2%
overriding royalty interest in the projects that they respectively
conveyed.





The
acquisition of the additional concessions in Kay County, Oklahoma
added additional prospect locations adjacent to the Company’s
87,754-acre concession in Osage County, Oklahoma. The similarity of
the prospects in Kay and Kern County allows for the leverage of
assets, infrastructure and technical expertise.





Osage County





On May 30, 2014,
the Company entered into a Subscription Agreement, pursuant to
which the Company purchased a 50% interest in Bandolier.
Bandolier’s oil and gas assets are located in in Osage
County, Oklahoma and comprise a significant contiguous oil and gas
acreage position in Northeastern Oklahoma, approximately 87,754
acres, with substantial original oil in place, stacked reservoirs,
as well as exploratory and development opportunities that can be
accessed through both horizontal and vertical drilling. Significant
infrastructure is already in place, including 32 square miles of
3-D seismic, 3 phase power, a dedicated sub-station as well as
multiple oil producing horizontal wells.








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In
May 2017, Bandolier discovered a new oil field with the successful
drilling of the W. Blackland 1-3 and S. Blackland 2-11 exploration
wells. On December 15, 2017, the Company received permits from the
Bureau of Indian Affairs to drill eight additional wells in the W.
Blackland Field, which were successfully completed in April 2018.
The Company has received additional permits, and is currently in
the process of drilling an additional two wells. Our W. Blackland
concessions are currently producing, and, with the drilling of
additional wells, we anticipate substantially increasing revenue
throughout the remainder of the current fiscal year.





On May 22, 2018, the Company announced the
discovery of a new oil field, the N. Blackland Field, in its
concession in Osage County, Oklahoma upon successfully testing of
the 2-34 exploration well (the “2-34”). The 2-34 was drilled to a depth of
approximately 2,850 feet, and initial results indicate both
Mississippian Chat and Burges formations were discovered and have
been comingled to increase production rates. The N. Blackland Field
is approximately 200 acres, and the Company expects to drill an
additional eight to ten wells to develop the structure. This
structure was identified using 3-D seismic technology. This
development project is anticipated to result in production revenue
prior to the end of the current fiscal year.





On July 24, 2018, the Company announced the
successful drilling of the Arsaga 25-2 exploration well, located on
its concession in Osage County, Oklahoma. In April of 2019, the Company successfully
completed the West Blackland 3-35 well, in addition to the West
Blackland 4-34, and South Red Eagle 1-34, located on its concession
in Osage County, Oklahoma.





In
addition to our current development plans, within our current 3-D
seismic data, additional structures in Osage County have been
identified. The Company plans to drill seven additional wells in
calendar years 2019 & 2020: three in the N. Blackland Field,
three in the Arsaga structure and one in the Section 13 structure.
The Company anticipates drilling these wells out of cash flows from
current production of its existing wells.





The Osage County
drilling program is the result of a Joint Exploration and
Development Agreement (the “Exploration Agreement”), dated
August 19, 2016, between Spyglass, Phoenix 2016, LLC
(“Phoenix”) and
Mackey Consulting & Leasing, LLC (“Mackey”). Pursuant to the
Exploration Agreement, Phoenix and Mackey operate and provide
certain services, including obtaining permits and providing
technical services, at cost, in connection with a Phase I
Development Program as agreed to by the parties (the
“Phase I
Program”). Phoenix and Mackey will earn a 25%
working interest on all wells drilled in the Phase I
Program. Following success and completion of the Phase I
Program, Phoenix and Mackey shall earn a 25% working interest in
the Osage County, Oklahoma Concession held by Spyglass. Under the
Exploration Agreement, Bandolier has agreed commit up to $2.1
million towards costs of the Phase I Program, which has been
completed.





As discussed above,
in connection with the Series A Financing, Bandolier entered into
Assignment Agreements with each of the New Investors and Debt
Holders, pursuant to which (i) Bandolier assigned and transferred
to the New Investors and Debt Holders a 75% interest in profits, if
any, derived from the ten new wells the Company plans to drill in
the Osage County concession in 2019, payments of which shall be
made to the New Investors and Debt Holders, pro rata, on a
quarterly basis following the full completion of the New Drilling
Program, and (ii) in the event the Company elects to drill
additional wells on its Osage County concession in the next two
years, the New Investors and Debt Holders shall have the right to
participate in and fund the drilling and production of the next ten
wells on the same terms and conditions set forth in the Assignment
Agreements.





In connection with
each of the $2.0 million and $2.5 million secured note financings
consummated on June 13, 2017 and November 6, 2017, respectively,
the Company issued an overriding royalty interest equal to 2% in
all production from the Company’s interest in the
Company’s concessions located in Osage County,
Oklahoma.





As a result of the
above transactions, the Company currently has approximately $4.7
million in oil and gas assets in Osage County.





Horizon Energy





Horizon Energy Acquisition.
On May 3, 2016, the Company
consummated the acquisition of Horizon Investments. As a
result of the acquisition, the Company acquired: (i) a 20%
membership interest in Horizon Energy; (ii) three promissory notes
issued by the Company to Horizon Investments in the aggregate
principal amount of $1.6 million (the “Horizon
Notes”); (iii)
approximately $690,000 (the “Closing
Proceeds”);
and (iv) certain bank, investment and other accounts maintained by
Horizon Investments, in an
amount which, together with the principal amount of the Horizon
Note and the Closing Proceeds, totaled not less than $5.0
million (collectively, the
“Purchased
Assets”) (the
“Horizon
Acquisition”).
The Horizon Acquisition was completed in accordance with the terms
and conditions set forth in the Conditional Purchase Agreement
first entered into by the Company and Horizon Investments on
December 1, 2015 (the “Purchase
Agreement”).
Also, on the May 3, 2016, the Company and Horizon Investments
entered into an amended and restated Purchase Agreement, pursuant
to which the Company agreed to provide for additional advances by
Horizon Investments to the Company.








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As consideration for the Horizon Acquisition, and in accordance
with the Purchase Agreement, as amended, the Company issued
11,564,249 shares of its common stock to Horizon Investments on the
Closing Date, which amount included 1,395,916 additional shares of
common stock in consideration for the additional cash, receivables
and other assets reflected on Horizon Investment’s balance
sheet on the May 3, 2016.





On February 2,
2018, Horizon Investments received from Horizon Energy a capital
call in the amount of $600,227. Horizon Investments did not have
the required funds to fund the capital call. The capital
call was not mandatory and the consequence of Horizon
Investments’ failure to fund the capital call was a dilution
in Horizon Investments’ interest in Horizon Energy by 27.43%,
therefore reducing Horizon Investments’ interest in Horizon
Energy from 20.01% to 14.52%. Scot Cohen, a member of the
Company’s Board of Directors, a substantial stockholder, and
a member of Horizon Energy, participated with other Horizon Energy
members to make the requested capital call in light of Horizon
Investment’s inability to make the requested capital call.
The determination not to make the requested capital call, and
therefore allow Mr. Cohen to increase his membership interest in
Horizon Energy, was discussed and approved by the independent
members of the Company’s Board of Directors.





Horizon Energy is
an oil and gas exploration and development company owned and
managed by former senior oil and gas executives with access to a
broad network of industry insiders. It has a portfolio of
domestic and international assets, including two assets located in
the United Kingdom, adjacent to the giant Wytch Farm oil field, the
largest onshore oil field in Western Europe.  Each of the
assets in the Horizon Energy portfolio is characterized by low
initial capital expenditure requirements and strong risk reward
characteristics.





LBE Partners LLC





Effective on
September 24, 2018, the Company acquired a 66.67% membership
interest in LBE Partners from ICO in exchange for 300,000
restricted shares of the Company’s common stock. LBE Partners
has varying working interest in multiple oil and gas producing
wells located in the Hardin Field, Texas.





As a result of the
above transactions, the Company currently has approximately $1.2
million in oil and gas assets in Texas.





Operational
and Project Review





The following table
summarizes the costs incurred in oil and gas property acquisition,
exploration, and development activities for the Company for the
years ended April 30, 2019 and 2018:





Cost
Oklahoma
Texas
Larne
Basin
Other
(1)
TotalBalance, May 1,
2017
$1,232,192
$-
$761,444
$100,000
$2,093,636Additions
3,665,851
-
-
-
3,665,851Depreciation,
depletion and amortization
(146,141)
-
-
-
(146,141)Impairment of oil
and gas assets
(972,488)
-
(761,444)
-
(1,733,932)Balance, April 30,
2018
3,779,414
-
-
100,000
3,879,414Additions
1,307,720
2,431,419
-
-
3,739,139Depreciation,
depletion and amortization
(380,873)
(283,974)
-
-
(494,295)Impairment of oil
and gas assets
-
(984,774)
-
-
(664,847)Balance, April 30,
2019
$4,706,261
$1,162,707
$-
$100,000
$5,968,968





(1)
Other property consists primarily of four, used steam generators
and related equipment that will be assigned to future projects. As
of April 30, 2019 and 2018, management concluded that impairment
was not necessary as all other assets were carried at salvage
value.





For the year ended
April 30, 2019, the Company recognized an impairment charge of
$984,774 on the Texas assets.For the year ended April 30, 2018,
the Company performed a ceiling test and recognized impairment
charges of $972,488 on the Oklahoma assets. In addition, the
Company recognized an impairment charge of $761,444 on the Larne
Basin assets.








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Oil
Wells, Properties, Operations, and Acreage





The following table
sets forth the number of oil wells in which we held a working
interest as of April 30, 2019 and 2018:





Producing
Non-ProducingApril
30, 2019
April
30, 2018
April
30, 2019
April
30, 2018Gross
Net
Gross
Net
Gross
Net
Gross
NetOsage County,
OK
15
15
12
12
56
56
42
42Kay County,
OK
-
-
-
-
-
-
-
-Texas
3
3
-
-
10
10
-
-Total
18
18
12
12
66
66
42
42





The following table
sets forth the lease acreage we have an interest in, by area, as of
April 30, 2019 and 2018:





Project
Areas
April
30, 2019
April
30, 2018Gross
Net
Gross
NetLarne
Basin
-
-
-
-Kern
County
-
-
-
-Osage County,
OK
87,754
65,816
87,754
65,816Kay County,
OK
-
-
-
-Texas
(1)
9,685
8,681
-
-Total
97,439
74,497
87,754
65,816





(1)
Management concluded that as of April 30, 2019, the Texas assets
were impaired by $984,774.





Oil
and Natural Gas Reserves





Oil and natural gas
information is provided in accordance with ASC Topic 932 -
“Extractive Activities - Oil
and Gas.”





The Company had
approximately $5.9 million and $9.9 million in proven and probable
oil and gas reserves as of April 30, 2019 and 2018,
respectively. For the year ended April 30, 2019 the reports by
Cawley, Gillespie & Associates (“CGA”) covered 100% of the
Company’s oil reserves.





Proved oil and
natural gas reserves, as defined within SEC Rule 4-10(a)(22) of
Regulation S-X, are those quantities of oil and gas, which, by
analysis of geoscience and engineering data can be estimated with
reasonable certainty to be economically producible from a given
date forward from known reservoirs, and under existing economic
conditions, operating methods and government regulations prior to
the time of which contracts providing the right to operate expire,
unless evidence indicates that renewal is reasonably certain,
regardless of whether determinable or probabilistic methods are
used for the estimation. The project to extract the hydrocarbons
must have commenced or the operator must be reasonably certain that
it will commence the project within a reasonable time. Developed
oil and natural gas reserves are reserves that can be expected to
be recovered from existing wells with existing equipment and
operating methods or in which the cost of the required equipment is
relatively minor compared to the cost of a new well; and through
installed extraction equipment and infrastructure operational at
the time of the reserves estimate is the extraction is by means not
involving a well. Estimates of the Company’s oil reserves are
subject to uncertainty and will change as additional information
regarding producing fields and technology becomes available and as
future economic and operating conditions change.





Our undeveloped
acreage includes leased acres on which wells have not been drilled
or completed to a point that would permit the production of
commercial quantities of oil and natural gas, regardless of whether
or not such acreage is held by production or contains proved
reserves. A gross acre is an acre in which we own an interest. A
net acre is deemed to exist when the sum of fractional ownership
interests in gross acres equals one. The number of net acres is the
sum of the fractional interests owned in gross acres.








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Net
Production, Unit Prices and Costs





The following table
presents certain information with respect to our oil and natural
gas production and prices and costs attributable to all oil and
natural gas properties owned by us for the periods
shown.





For the Years Ended
April
30,2019
2018Production
volumes:Oil
(Bbls)
29,935
12,054Natural gas
(Mcf)
22,802
5,893Total
(Boe)
33,735
13,036Average realized
prices:Oil (per
Bbl)
$52.66
$59.16Natural gas (per
Mcf)
$2.00
$1.75Total per
Boe
$48.08
$55.49Average production
cost:Total per
Boe
$12.34
$1.41





Drilling
and Other Exploratory and Development Activities





Osage
County, OK. The
Company plans to drill seven additional wells in 2019: three in the
N. Blackland Field, three in the Arsaga structure and one in the
Section 13 structure. Each well will cost the Company approximately
$200,000. The Company
anticipates drilling these wells out of funds received in
connection with the Series A Financing as well as cash flows from
current production of its existing
wells.





Liberty, Texas – In
September 2018, the Company acquired a 66.67% membership interest
in LBE Partners. LBE Partners has varying working interests in
multiple oil and gas producing wells located in the Hardin Field in
Texas. The Company currently anticipates that this acquisition will
provide additional positive cashflow to the Company and increase
its oil and gas asset portfolio.





The
Company’s Direct Working Interest Projects





Pearsonia West – Osage County,
Oklahoma. The Company is pursuing its core strategy in this
well-known basin, drilling vertical wells in relatively shallow
conventional legacy reservoirs using modern 3-D seismic surveys.
The Company has acquired approximately 87,754 acres in Osage County
in an area that was the focus of a deeper horizontal play and is
reprocessing 36 square miles of 3-D seismic data to refocus on a
shallow (3,000 to 4,000 ft.) vertical program. The Company is
targeting the Mississippian-aged Chat formation and
Pennsylvanian-aged formations. Pearsonia West is a low-cost
conventional project surrounded by 800 million barrels of
historical production. The Company plans to drill up to 10 vertical
development wells this year at a cost of $200,000 per well, and up
to 3 exploration wells at a cost of $200,000 per well. The Company
has drilled three development wells as of July 30,
2019.





Kay County, Oklahoma - In February
2018, the Company, through an exchange transaction and no cash
consideration, acquired a 55% interest in an exploration project in
Kay County, Oklahoma, the county adjoining and just to the west
Osage County, the Company’s current core area. The
acquisition included rights to newly reprocessed 50 square mile 3D
seismic survey. The primary exploration objectives are the
Pennsylvanian-aged Red Fork channels. Historically these have been
prolific producers in nearby fields.





Horizon Energy
Projects





Denmark Offshore. The Denmark project
is a prospective, underexplored oil basin on trend with the major
oil and gas fields offshore in Norway and the United Kingdom. We
are currently evaluating the four licenses awarded in the year
ended April 30, 2018 to Ardent Oil Denmark (“Ardent”) (Horizon Energy owns
50% of Ardent). Horizon Energy is in the process of interpreting
the high-quality 3-D seismic survey we acquired last year. Ardent
will thereafter commence marketing efforts to farm-out the prospect
to a major oil company. The other three licenses are being
high-graded and are in various stages of
evaluation.





Dorset, U.K. Onshore. The Dorset
project is south of and adjacent to the giant Wytch Farm oil field,
the largest onshore oil field in Western Europe, which has produced
approximately 500 million barrels of oil and 175 billion cubic feet
of natural gas since production first began in 1979. Horizon Energy
was recently awarded two onshore blocks. Seven wells were
previously drilled within the license area, including the first UK
offshore well in 1963 on Lulworth Banks. Six of these wells
encountered oil or gas shows and three flowed oil or gas on test. A
new 3-D seismic survey is planned in calendar year 2019 over new
blocks to more clearly image prospects/leads identified on older
2-D data.





Horizon Energy Acquisition, LLC





North Sea U.K. ("The U.K. Project"). The U.K. Project
includes three (3) Seaward Production Licenses (P2300, P2329, and
P2427, collectively, the "Licenses"), encompassing approximately
455,000 net acres with the potential of being awarded a fourth
license adjacent to the Licenses comprising approximately 150,000
net acres. These licenses are located in the heart of a large
Zechstein and Carboniferous exploration trend on the Mid North Sea
High in the UK southern North Sea. Horizon Energy is in the process
of sponsoring a new3-D seismic survey to be acquired
commencing in the early 2nd quarter of 2019 covering the Mid North
Sea High area.  Petro River has a 14.52% direct interest in
Horizon Energy Acquisition.








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ITEM
3. LEGAL PROCEEDINGS





(a)
In January 2010, the Company experienced a flood in its Calgary
office premises as a result of a broken water pipe. There was
significant damage to the premises, rendering them unusable until
the landlord had completed remediation. Pursuant to the lease
contract, the Company asserted that rent should be abated during
the remediation process and accordingly, the Company did not pay
any rent after December 2009. During the remediation process, the
Company engaged an independent environmental testing company to
test for air quality and for the existence of other potentially
hazardous conditions. The testing revealed the existence of
potentially hazardous mold and the consultant provided specific
written instructions for the effective remediation of the premises.
During the remediation process, the landlord did not follow the
consultant’s instructions and correct the potentially
hazardous mold situation, and subsequently in June 2010 gave notice
and declared the premises to be ready for occupancy. The Company
re-engaged the consultant to re-test the premises and the testing
results again revealed the presence of potentially hazardous mold.
The Company determined that the premises were not fit for
re-occupancy and considered the landlord to be in default of the
lease. The Landlord subsequently terminated the lease.





On January 30, 2014, the landlord filed a
Statement of Claim against the Company for rental arrears in the
amount aggregating CAD $759,000 (approximately USD $564,000 as of
April 30, 2019). The Company filed a defense and on October 20,
2014, it filed a summary judgment application stating that the
landlord’s claim is barred, as it was commenced outside the
2-year statute of limitation period under the Alberta Limitations
Act. The landlord subsequently filed a cross-application to amend
its Statement of Claim to add a claim for loss of prospective rent
in an amount of CAD $665,000 (approximately USD $494,000 as of
April 30, 2019). The applications were heard on June 25,
2015and the court
allowed both the Company’s summary judgment application and
the landlord’s amendment application. Both of these orders
were appealed though two levels of the Alberta courts and the
appeals were dismissed at both levels. The net effect is that the
landlord's claim for loss of prospective rent is to proceed. On
October 4, 2018, the Company and the landlord entered into a
settlement agreement under which all actions by the landlord and
the Company were dismissed for a payment by the Company to the
landlord of 68,807 shares of its common stock.





(b) In September 2013, the Company was notified by
the Railroad Commission of Texas (the “Railroad
Commission”) that the
Company was not in compliance with regulations promulgated by the
Railroad Commission. The Company was therefore deemed to have lost
its corporate privileges within the State of Texas, and as a
result, all wells within the state would have to be plugged. The
Railroad Commission therefore collected $25,000 from the Company,
which was originally deposited with the Railroad Commission, to
cover a portion of the estimated costs of $88,960 to plug the
wells. In addition to the above, the Railroad Commission also
reserved its right to separately seek any remedies against the
Company resulting from its noncompliance.





(c) On August 11, 2014, Martha Donelson and John
Friend amended their complaint in an existing lawsuit by filing a
class action complaint styled:Martha Donelson and John
Friend, et al. v. United States of America, Department of the
Interior, Bureau of Indian Affairs and Devon Energy Production, LP,
et al.,Case No.
14-CV-316-JHP-TLW, United States District Court for the Northern
District of Oklahoma (the “Proceeding”). The plaintiffs added as defendants
twenty-seven (27) specifically named operators, including
Spyglass, as well as all Osage County lessees and operators
who have obtained a concession agreement, lease or drilling permit
approved by the Bureau of Indian Affairs
(“BIA”) in
Osage County allegedly in violation of National Environmental
Policy Act (“NEPA”). Plaintiffs seek a declaratory
judgment that the BIA improperly approved oil and gas leases,
concession agreements and drilling permits prior to August 12,
2014, without satisfying the BIA’s obligations under federal
regulations or NEPA, and seek a determination that such oil and gas
leases, concession agreements and drilling permits are
voidab initio. Plaintiffs are seeking damages against the
defendants for alleged nuisance, trespass, negligence and unjust
enrichment. The potential consequences of such complaint could
jeopardize the corresponding
leases.





On
October 7, 2014, Spyglass, along with other defendants, filed a
Motion to Dismiss the August 11, 2014 Amended Complaint on various
procedural and legal grounds. Following the significant briefing,
the Court, on March 31, 2016, granted the Motion to Dismiss as to
all defendants and entered a judgment in favor of the defendants
against the plaintiffs. On April 14, 2016, Spyglass with the other
defendants, filed a Motion seeking its attorneys’ fees and
costs. The motion remains pending. On April 28, 2016, the
Plaintiffs filed three motions: a Motion to Amend or Alter the
Judgment; a Motion to Amend the Complaint; and a Motion to Vacate
Order. On November 23, 2016, the Court denied all three of
Plaintiffs’ motions. On December 6, 2016, the Plaintiffs
filed a Notice of Appeal to the Tenth Circuit Court of
Appeals. That
appeal is pending as of the filing date of these financial
statements. There is no specific timeline by which the Court of
Appeals must render a ruling. Spyglass intends to continue to
vigorously defend its interest in this matter.





(d) MegaWest Energy Missouri Corp.
(“MegaWest
Missouri”), a wholly
owned subsidiary of the Company, is involved in two cases related
to oil leases in West Central, Missouri. The first case
(James Long
and Jodeane Long v. MegaWest Energy Missouri and Petro River Oil
Corp., case number
13B4-CV00019) is a case for unlawful detainer, pursuant to
which the plaintiffs contend that the MegaWest Missouri oil and gas
lease has expired and MegaWest Missouri is unlawfully possessing
the plaintiffs’ real property by asserting that the leases
remain in effect. The case was originally filed in Vernon
County, Missouri on September 20, 2013. MegaWest Missouri
filed an Answer and Counterclaims on November 26, 2013, and the
plaintiffs filed a motion to dismiss the counterclaims. MegaWest
Missouri filed a motion for Change of Judge and Change of Venue and
the case was transferred to Barton County, Missouri. The court
granted the motion to dismiss the counterclaims on February 3,
2014.





The
Company is from time to time involved in legal proceedings in the
ordinary course of business. It does not believe that any of these
claims and proceedings against it is likely to have, individually
or in the aggregate, a material adverse effect on its financial
condition or results of operations.





ITEM 4. MINE SAFETY DISCLOSURES





Not
applicable.











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PART
II





ITEM 5. MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES





Shares of our
common stock trade in the United States on the OTC Pink Marketplace
under the symbol “PTRC.”


Holders





As of August 12,
2019, we had 166 holders of record of our registered common stock,
and our common stock had a closing bid price of $0.30 per
share.





Transfer
Agent and Registrar





Our transfer agent
is Computershare, Inc., located at 462 South 4th Street, 11th
Floor, Louisville, KY 40202. Their telephone number is (502)
625-0400.





Recent
Sales of Unregistered Securities





None.





Purchases
of Equity Securities by the Issuer and Affiliated
Purchasers.





None.





ITEM 6. SELECTED FINANCIAL DATA





Not
applicable.





ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION





Forward
Looking Statements





The following is
management’s discussion and analysis of certain significant
factors which have affected our financial position and operating
results during the periods included in the accompanying
consolidated financial statements, as well as information relating
to the plans of our current management and should be read in
conjunction with the accompanying financial statements and their
related notes included in this Report. References in this section
to “we,” “us,” “our,” or the
“Company” are to the consolidated business of Petro
River Oil Corp. and its wholly owned and majority owned
subsidiaries.





This Report
contains forward-looking statements. Generally, the words
“believes,” “anticipates,”
“may,” “will,” “should,”
“expects,” “intends,”
“estimates,” “continues,” and similar
expressions or the negative thereof or comparable terminology are
intended to identify forward-looking statements. Such statements
are subject to certain risks and uncertainties, including the
matters set forth in this Report or other reports or documents we
file with the SEC from time to time, which could cause actual
results or outcomes to differ materially from those projected.
Undue reliance should not be placed on these forward-looking
statements which speak only as of the date hereof. We undertake no
obligation to update these forward-looking statements.








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Business
Overview





Petro River Oil Corp. (the “Company”) is an independent energy company focused
on the exploration and development of conventional oil and gas
assets with low discovery and development costs, utilizing modern
technology. The Company is currently focused on moving forward with
drilling wells on several of its properties owned directly and
indirectly through its interest in Horizon Energy Partners, LLC
(“Horizon
Energy”), as well as
entering highly prospective plays with Horizon Energy and other
industry-leading partners. Diversification over a number of
projects, each with low initial capital expenditures and strong
risk reward characteristics, reduces risk and provides
cross-functional exposure to a number of attractive risk adjusted
opportunities.





The Company’s core holdings are in the Mid-Continent Region
in Oklahoma, including in Osage County and Kay County, Oklahoma.
Following the acquisition of Horizon I Investments, LLC
(“Horizon
Investments”) in December
2015, the Company has additional exposure to a portfolio of
domestic and international oil and gas assets consisting of highly
prospective conventional plays diversified across project type,
geographic location and risk profile, as well as access to a broad
network of industry leaders from Horizon Investment’s
interest in Horizon Energy. Horizon Energy is an oil and gas
exploration and development company owned and managed by former
senior oil and gas executives. It has a portfolio of domestic
and international assets. Each of the assets in the Horizon Energy
portfolio is characterized by low initial capital expenditure
requirements and strong risk reward
characteristics.





The Company’s prospects in Oklahoma are owned directly by the
Company and indirectly through Spyglass Energy Group, LLC
(“Spyglass”), a wholly owned subsidiary of Bandolier
Energy, LLC (“Bandolier”). As of January 31, 2018, Bandolier became
wholly-owned by the Company. Bandolier has a 75% working interest
in an 87,754-acre concession in Osage County, Oklahoma. The
remaining 25% working interest is held by the operator, Performance
Energy, LLC.





Effective September 24, 2018, the Company acquired a 66.67%
membership interest in LBE Partners, LLC, a Delaware limited
liability company (“LBE
Partners”), from ICO
Liquidating Trust, LLC, in exchange for 300,000 restricted shares
of the Company’s common stock. LBE Partners has varying
working interests in multiple oil and gas producing wells located
in Texas.





The execution of the Company’s business plan is dependent on
obtaining necessary working capital. While no assurances can
be given, in the event management is able to obtain additional
working capital, the Company plans to continue drilling additional
wells on its existing concessions, and to acquire additional
high-quality oil and gas properties, primarily proved producing,
and proved undeveloped reserves. The Company also intends to
explore low-risk development drilling and work-over
opportunities. Management is also exploring farm-in and joint
venture opportunities for the Company’s oil and gas
assets.





Recent Developments





Horizon Subscription Agreement





On February 25, 2019, the Company executed a Subscription
Agreement, pursuant to which the Company purchased 145.454 membership units in Horizon
Energy Acquisition, LLC (“Horizon Acquisition”), representing an approximate 14.6% membership
interest in Horizon Acquisition, for $400,000 (the
“Acquisition of
Interest”). Horizon
Acquisition is a company focused on oil and gas exploration
activities. As a result, the Company acquired an additional 5.63%
working interest in an international, offshore exploration project
in the North Sea, which is in addition to an 5.63% interest in the
same project indirectly held by the Company through its investments
in Horizon Energy.





In
connection with the Acquisition of Interest, the Company also
executed the Limited Liability Company Agreement for Horizon, which
provides the Company with the right to appoint one Manager to
Horizon Acquisition’s three-member Board of Managers. The
Company appointed Mr. Cohen, the Company’s Executive
Chairman, to the Board of Managers. Mr. Cohen purchased 36.363
membership units in Horizon Acquisition in a separate transaction,
representing an approximate 3.6% membership interest.





Creation of a New Series A Convertible Preferred Stock





On January 31,
2019, the Company filed the Certificate of Designations of
Preferences and Rights of Series A Convertible Preferred Stock with
the Secretary of State for the State of Delaware – Division
of Corporations, which it thereafter amended on March 13, 2019. The
Series A COD designates 500,000 shares of the Company’s
preferred stock as Series A Preferred, each share with a stated
value of $20.00 per share. Shares of Series A
Preferred are not
entitled to dividends unless the Company elects to pay dividends to
holders of its common stock. Shares of Series A
Preferred rank senior to the Company’s common stock and
Series B Cumulative Convertible Preferred Stock.








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Holders of Series A
Preferred have the right to vote, subject to a 9.999% voting
limitation (which does not apply to Scot Cohen), on an as-converted
basis with the holders of the Company’s common stock on any
matter presented to the Company’s stockholders for their
action or consideration; provided, however, that so long as
shares of Series A Preferred remain outstanding, the Company may
not, without first obtaining the affirmative consent of a majority
of the shares of Series A Preferred outstanding, voting as a
separate class, take the following actions: (i) alter or change
adversely the power, preferences and rights provided to the holders
of the Series A Preferred under the Series A COD, (ii) authorize or
create a class of stock that is senior to the Series A Preferred,
(iii) amend its Certificate of Incorporation so as to adversely
affect any rights of the holders of the Series A Preferred, (iv)
increase the number of authorized shares of Series A Preferred, or
(v) enter into any agreements with respect to the
foregoing.





Each share of
Series A Preferred has a liquidation preference equal to the Stated
Value plus all accrued and unpaid dividends. Each share of Series A
Preferred is convertible into that number of shares of the
Company’s common stock (“Conversion Shares”) equal to the
Stated Value, divided by $0.40 per share, which conversion rate is
subject to adjustment in accordance with the terms of the Series A
COD; provided, however, that holders of the Series A Preferred
may not convert their shares of Series A Preferred in the event
that such conversion would result in such holder’s ownership
exceeding 4.999% of the Company’s outstanding common stock,
which Ownership Limitation may be increased up to 9.999% at the
sole election of the holder; provided, further, that the
Ownership Limitation and Maximum Percentage do not apply to Mr.
Cohen. Holders of Series A Preferred may elect to convert shares of
Series C Preferred into Conversion Shares at any time.





Series A Financing





On January 31,
2019, the Company sold and issued an aggregate of 178,101 units of
its securities, for an aggregate purchase price of $3,562,015, to
New Investors to an SPA and to certain Debt Holders pursuant to
Debt Conversion Agreements. The sale of the units resulted in net
cash proceeds of approximately $2.7 million. The units sold and
issued in the Offering consisted of an aggregate of (i) 178,101
shares of the Company’s newly created Series A Preferred
shares, convertible into 8,905,037 shares of the Company’s
common stock, and (ii) five-year warrants to purchase 8,905,037
shares of Company’s common stock, at an exercise price of
$0.50 per share. Pursuant to the Debt Conversion Agreements, the
Debt Holders, consisting of Mr. Cohen and Fortis, agreed to convert
all outstanding debt owed to the Debt Holders, amounting to
$300,000 and $321,836, respectively, into units issued pursuant to
the SPA. In addition to the conversion of outstanding debt, the
Company and the Debt Holders also agreed to convert all accrued
interest totaling $18,853 and $62,523, respectively.





The Offering
resulted in net cash proceeds to the Company of approximately $2.7
million, which net proceeds do not include the amount of debt
converted into units by the Debt Holders. The Company currently
intends to use the net proceeds to fund the drilling of ten
additional development and exploration wells in its Osage County
concession and a large exploration venture in the North Sea, United
Kingdom with Horizon Energy Partners, LLC.





In connection with
the Offering, on January 31, 2019 Bandolier entered into Assignment
Agreements with each of the New Investors and Debt Holders,
pursuant to which (i) Bandolier assigned and transferred to the New
Investors and Debt Holders a 75% interest in profits, if any,
derived from the ten new wells the Company intends to drill
pursuant to the New Drilling Program, payments of which shall be
made to the New Investors and Debt Holders, pro rata, on a
quarterly basis following the full completion of the New Drilling
Program, and (ii) in the event the Company elects to drill
additional wells on its Osage County concession in the next two
years, the New Investors and Debt Holders shall have the right to
participate in and fund the drilling and production of the next ten
wells on the same terms and conditions set forth in the Assignment
Agreements.





Senior Secured Debt Exchange





On January 31,
2019, the Company entered into the Secured Debt Conversion
Agreements with the Secured Debt Holders, pursuant to which they
agreed to convert approximately $2.3 million and $2.8 million,
respectively, of outstanding Senior Secured Debt (including accrued
and unpaid interest) owed under the terms of their respective
Senior Secured Promissory Notes into 116,503 and 140,799 shares of
the Company’s newly created Series A Preferred, respectively.
As a result of the Senior Secured Debt Exchange, all indebtedness,
liabilities and other obligations arising under the respective
Senior Secured Promissory Notes were cancelled and deemed satisfied
in full.





As additional
consideration for the conversion of the Senior Secured Debt, the
Company agreed to (i) reduce the exercise price of warrants issued
to the Secured Debt Holders on June 15, 2017 and November 6, 2017
from $2.38 and $2.00, respectively, to $0.50 per share of Common
Stock issuable upon the exercise of such warrants, and (ii) to
extend the expiration date of such warrants to five years from the
Closing Date.








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Acquisition of Membership Interest in LBE Partners,
LLC





On October 2, 2018, the Company, ICO and LBE, which owns various
working interests in several oil and gas wells located in the
Hardin oil field in Liberty, Texas, entered into the LBE Purchase
Agreement, effective September 24, 2018, pursuant to which the
Company purchased a 66.67% membership interest in LBE Partners from
ICO in exchange for 300,000 shares of the Company’s common
stock. Both ICO and LBE Partners are managed by Scot Cohen, the
Company’s Executive Chairman.





Financial
Condition and Results of Operations





For the Years Ended April 30, 2019 and 2018:





Oil and Natural Gas Sales





During the year
ended April 30, 2019, the Company recognized $1,622,077 in oil and
gas sales, and revenue from royalty interests, compared to $723,409
for the year ended April 30, 2018. The overall increase in sales of
$898,668 is primarily due to the commencement of
production inOsage
County, Oklahoma in addition to the acquisition of LBE. While no
assurances can be given, the Company anticipates increasing revenue in
subsequent quarters as a result of the Company’s discoveries
in Osage County, Oklahoma and revenue resulting from the
Company’s drilling program for calendar year
2019.





We have listed
below the total production volumes and total revenue net to the
Company for the years ended April 30, 2019 and 2018.





For
the Year
Ended
April
30, 2019
For
the Year
Ended
April
30, 2018Oil volume
(BBL)
29,935
12,054Gas volume
(MCF)
22,802
5,893Volume equivalent
(BOE)(1)
33,735
13,036Revenue
$1,622,077
$723,409





(1) Assumes 6 Mcf
of natural gas is equivalent to 1 barrel of oil.





Royalty Revenue





In connection with
the Purchase and Exchange Agreement dated February 14, 2018 between
Petro River and Red Fork Resources (“Red Ford”), a subsidiary of
Horizon Energy, Petro River conveyed to Red Fork its 13.75%
interest in the Mountain View Project and received a 64.70%
interest from Red Fork in a new project in Kay County. Petro
River also retained a 2% royalty interest in the membership
interest conveyed to Red Fork in the Mountain View Project. In
relation to this agreement, the Company recognized $23,093 in
revenue during the year ended April 30, 2019.





Lease Operating Expenses





During the year
ended April 30, 2019, lease operating expense was $416,445,
compared to lease operating expenses of $127,814 for the year ended
April 30, 2018. The overall increase
in lease operating expense of $288,631 was primarily attributable
to increased activity in the Company’s drilling activity in
Osage County, Oklahoma and the acquisition of
LBE.





Depreciation, Depletion and Accretion





During
the year ended April 30, 2019, depreciation, depletion and
accretion expense was $683,163, compared to depreciation, depletion
and accretion expense of $157,386 for the year ended April 30,
2018. The overall increase in
depreciation, depletion and accretion expense of $525,777 was primarily attributable to
increased activity in the Company’s drilling activity in
Osage County, Oklahoma and the acquisition of
LBE.





Impairment of Oil and Gas Assets





The Company
assesses all items classified as unproved property on an annual
basis for possible impairment. The Company assesses properties on
an individual basis or as a group if properties are individually
insignificant. The assessment includes consideration of the
following factors, among others: land relinquishment; intent to
drill; remaining lease term; geological and geophysical
evaluations; drilling results and activity; the assignment of
proved reserves; and the economic viability of development if
proved reserves are assigned. Significant changes in these factors
could reduce our estimates of future net proceeds, and accordingly
could result in an impairment of our oil and gas assets. During the
year ended April 30, 2019, the Company reviewed the oil and gas
assets for impairment and recognized an impairment charge of
$984,774 on the Texas properties. During the year ended April 30,
2018, the Company reviewed the oil and gas assets for impairment
and recognized an impairment charge of $1,733,932 on the Oklahoma
properties.








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General and Administrative Expense





General and
administrative expense for the year ended April 30, 2019 was
$1,727,670, compared to $3,644,751 for the year ended April 30,
2018.The decrease was primarily attributable to
decreases in salaries and benefits, and office and administrative
expenses. These
changes are outlined below:





For
the Year
Ended
For
the Year
EndedApril
30, 2019
April
30, 2018Salaries and
benefits
$628,752
$1,109,190Professional
fees
845,761
1,980,152Office and
administrative
253,157
555,409Total
$1,727,670
$3,644,751





Salaries and
benefits include non-cash stock-based compensation of $497,672 for
year ended April 30, 2019, compared to $906,591 for the year ended
April 30, 2018. The decrease in stock-based compensation of
$408,919 from the prior year was due to fewer awards made during the current
period. General and administrative expense decreased
due to management’s
commitment to substantially reduce expense. Professional fees
decreased to $845,761 for the year ended April 30, 2019 compared to
$1,980,152 for the year end April 30, 2018 as a result of the
divestiture of the Mountainview Properties during the 2019 fiscal
year.





Interest Income (Expense)





During the year
ended April 30, 2019, the Company recognized $3,124,286 of net
interest expense, compared to $65,569 for the year ended April 30,
2018. The interest expense for the year ended April 30, 2019
included $2,139,251 and $467,183, which included the amortization
of the debt discount and interest expense, respectively, related to
the June 2017 $2.0 million and November 2017 $2.5 million Secured
Note financings. In addition, during the year ended April 30, 2019,
the Company recognized $75,000 of expense from a legal settlement.
In addition, in relation to the debt restructuring, during the year
ended April 30, 2019, the Company recognized interest expense of
$525,352 related to the excess fair value of its derivative
liabilities, and a loss on extinguishment of debt of $64,853. The
net interest expense recorded in the 2018 period was attributable
to $597,053 of interest income accrued on the related party notes
receivable, which was offset by $363,977 and $294,613, the
accretion of the debt discount and interest expense related to the
June 2017 $2.0 million and November 2017 $2.5 million Secured Note
Financings.





Loss on Assumption of Pearsonia Interests





On November 6, 2017, the Company entered into the
Membership Interest Assignment with Pearsonia, the owner of a
46.81% membership interest in Bandolier. Pursuant to the Membership
Interest Assignment, the Company issued 1,466,667 shares of its
Common Stock to Pearsonia in exchange for all membership interests
in Bandolier held by Pearsonia, resulting in the Company acquiring
an additional 46.81% stake in Bandolier’s 106,500-acre
concession in Osage County, Oklahoma. Upon recording this
transaction, the Company recorded a loss on assumption of
$3,351,965. The Company did not incur a similar transaction during
the year ended April 30, 2019.





Loss on Redetermination





On
January 31, 2018, the Company entered into the Assignment
Agreement with MegaWest, whereby the Company transferred its
interest in MegaWest in exchange for MegaWest’s membership
interests in Bandolier. The Exchange Transaction followed the
receipt by the Company of a notice of Redetermination of
MegaWest’s Assets conducted by Fortis. Upon execution of the
agreement, the Company wrote-off the MegaWest Assets and recorded a
loss of $11,914,204. The Company did not incur a similar
transaction during the year ended April 30, 2019.





Change in Derivative Liability





In
relation to the Series A Financing in January 2019, the Company
identified certain features in the warrants that required the
Company to classify the warrants as a derivative liability. For the
year ended April 30, 2019, the Company recorded a change in the
value of the derivative liability of $41,410.





Net Gain on Real Estate Rights





During
the year ended April 30, 2018, the Company recognized $267,734
net gain on its interest in real estate rights. The net gain on
interest in real estate rights during the year ended April 30,
2018 was due to the sale of one condominium unit by Fortis and the
resulting profits which were assigned to MegaWest pursuant to the
Contribution Agreement, less the book value recorded by MegaWest.
The Company did not incur a similar transaction during the year
ended April 30, 2019.





Liquidity
and Capital Resources





At April 30,
2019, the Company had working capital of $169,943, consisting
of $1,605,171 of current assets and $1,435,228 of current
liabilities.





As a result of the
utilization of cash in its operating activities, and the
development of its assets, the Company has incurred losses since it
commenced operations. In addition, the Company has a
limited operating history. At April 30, 2019, the Company had
cash and cash equivalents of approximately $1.2 million. The
Company’s primary source of operating funds since inception
has been equity and note financings, as well as through the
consummation of the Horizon Acquisition.








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On January 31,
2019, the Company consummated the Series A Financing, pursuant to
which the Company sold and issued an aggregate of 178,101 Units,
for an aggregate purchase price of $3,562,015, to certain
accredited investors pursuant to an SPA and to certain debtholders
pursuant to Debt Conversion Agreements, resulting in net cash
proceeds to the Company of approximately $2.7 million and the
termination of the Cohen Loan Agreement and debt owed to
Fortis. In addition, on January 31, 2019, the Company entered
into the Secured Debt Conversion Agreements, pursuant to which
Funding Corp. and Funding Corp. II converted all outstanding debt
due to them under the June 2017 Secured Note and November 2017
Secured Note, together amounting to an aggregate of approximately
$5.1 million, into shares of Series A Preferred. As a result, the
Company increased its current assets and decreased its current
liabilities significantly.





On June 18, 2018,
the Company entered into a Loan Agreement with Scot Cohen (the
“Cohen Loan
Agreement”), the Company’s Executive Chairman,
pursuant to which Mr. Cohen loaned the Company $300,000 at a 10%
annual interest rate due September 30, 2018. On December 17, 2018,
the maturity date of the Cohen Loan Agreement was extended to March
31, 2019. As noted above, the Cohen Loan Agreement was terminated
on January 31, 2019 in exchange for the issuance of units,
consisting of 15,000 shares of Series A Preferred and warrants to
purchase 750,000 shares of Company Common Stock sold and issued in
the Series A Financing.





In June and
November 2017, the Company consummated the Secured Note financings
for an aggregate of $4.5 million, which Secured Notes accrued
interest at a rate of 10% per annum and were scheduled to mature on
June 13, 2020. On May 17, 2018, the parties executed an extension
of the due date of the first interest payment due pursuant to each
of the Secured Notes from June 1, 2018 to December 31, 2018.
As consideration for the interest payment extension, the Company
agreed to pay the holders an additional 10% of the interest due on
June 1, 2018 on December 31, 2018. On December 17, 2018, the
parties executed a second extension of the due date of the first
interest payment due pursuant to each of the Secured Notes from
December 31, 2018 to March 31, 2019. As a result of the Series A
Financing discussed above, the outstanding balances of the Secured
Notes were converted into shares of Series A
Preferred.





The current level
of working capital, along with results from operations, may be
insufficient to maintain current operations as well as the planned
added operations for the next 12 months. These factors raise
substantial doubt about the ability to continue as a going concern.
Management intends to raise additional capital through debt and
equity instruments, if necessary, in order to execute its business
and operating plans. Management can provide no assurances that the
Company will be successful in any capital raising efforts. In order
to conserve capital, from time to time, management may defer
certain development activity.





Operating Activities





During the year ended April 30, 2019,
operating activities used cash of $468,512, compared to $346,354
used in operating activities during the year ended April 30,
2018. The Company incurred a net loss during the year ended
April 30, 2019 of $5,501,966, compared to a loss of $20,337,681 for
the year ended April 30, 2018. For the year ended April 30, 2019,
the net loss was offset by non-cash items such as stock-based
compensation, impairment of oil and gas assets, change in fair
value of derivative liabilities, depreciation, depletion and
accretion of asset retirement obligation, accretion of debt
discount, derivative liabilities in excess of face value of equity
instruments, loss on extinguishment of debt and loss on legal
settlement. Cash used in operations was also influenced by changes
in accounts receivable, accrued interest on notes receivable,
prepaid expense and accounts payable and accrued expense. For the
year ended April 30, 2018, the net loss was offset by non-cash
items such as stock-based compensation, depreciation, depletion and
accretion of asset retirement obligation and the deferred tax
liability. Cash used in operations was also influenced by changes
in accounts receivable, accrued interest on notes receivable,
prepaid expenses and accounts payable and accrued
expenses.





Investing Activities





Investing activities during the year
ended April 30, 2019 resulted in cash used of
$1,764,144, compared to
cash used of $4,487,548 during the year ended April 30, 2018.
During the year ended April 30, 2019, the Company invested an
$844,733 in Horizon Energy Partners and Horizon Energy Acquisition
LLC, compared to $379,418 in the comparable period in 2018. During
the year ended April 30, 2018, the Company received proceeds
of $1,553,884 from
profits in its real estate rights. As a result of the Exchange
Transaction entered into by and between the Company and MegaWest on
January 31, 2018, the Company no longer has any interest in real
estate rights, and thus did not receive any profits in real estate
rights for the year ended April 30, 2019. During the year ended
April 30, 2019, the Company incurred $1,058,097 of expenditures on oil and gas assets,
compared to $3,536,935 for the year ended April 30, 2018. During
the year ended April 30, 2019, the Company executed no new notes
receivable agreements with related parties, compared to
$1,558,501 during
the corresponding period ended April 30, 2018. During the year
ended April 30, 2019, the Company received cash of
$138,686 from
the acquisition of LBE Partners.








-26-


Table of Contents





Financing Activities





Financing activities during the year
ended April 30, 2019 resulted in cash provided of
$3,400,184, compared to
cash provided of $4,250,000 during the year ended April 30, 2018.
During the year ended April 30, 2019, the Company received
$2,800,184, $300,000 and $300,000 from the issuance of Series A
Preferred stock and Warrants issued in connection with the Series A
Financing, proceeds from a related party note payable and cash
received from the non-controlling interest contribution,
respectively. During the year ended April 30, 2018, the Company
received net proceeds of $4,250,000 from a related party note
payable.





Capitalization





The number of
outstanding shares and the number of shares that could be issued if
all common stock equivalents are converted to shares is as
follows:





As of
April
30,
2019
April
30,
2018Convertible
preferred shares
21,770,137
-Common
shares
17,938,540
17,309,733Stock
options
2,607,385
2,555,385Stock purchase
warrants
11,128,706
2,223,66953,444,768
22,088,787





Critical
Accounting Policies and Estimates





The Company’s
significant accounting policies are described in Note 3 to the
annual consolidated financial statements for the year ended April
30, 2019 and 2018. The consolidated financial statements are
prepared in conformity with generally accepted accounting
principles in the United States (“U.S. GAAP”).





Our discussion and
analysis of our financial condition and results of operations are
based upon our consolidated financial statements. These
consolidated financial statements are prepared in accordance with
U.S. GAAP, which requires us to make estimates and assumptions that
affect the reported amounts of our assets and liabilities and
revenues and expenses, to disclose contingent assets and
liabilities as of the date of the consolidated financial
statements, and to disclose the reported amounts of revenues and
expenses incurred during the financial reporting period. The most
significant estimates and assumptions include the valuation of
accounts receivable, and the useful lives and impairment of
property and equipment, goodwill and intangible assets, the
valuation of deferred tax assets and inventories and the provision
for income taxes. We continue to evaluate these estimates and
assumptions that we believe to be reasonable under the
circumstances. We rely on these evaluations as the basis for making
judgments about the carrying values of assets and liabilities that
are not readily apparent from other sources. Because the use of
estimates is an integral component of the financial reporting
process, actual results could differ from those estimates. Some of
our accounting policies require higher degrees of judgment than
others in their application.





The following
critical accounting policies rely upon assumptions and estimates
and were used in the preparation of our consolidated financial
statements:





Oil and Gas Operations





The Company follows
the full cost method of accounting for oil and gas operations,
whereby all costs related to exploration and development of oil and
gas reserves are capitalized. Under this method, the Company
capitalizes all acquisition, exploration and development costs
incurred for the purpose of finding oil and natural gas reserves,
including salaries, benefits and other internal costs directly
attributable to these activities. Costs associated with production
and general corporate activities, however, are expensed in the
period incurred. Costs are capitalized on a country-by-country
basis. To date, there has only been one cost center, the United
States.





The present value
of estimated future net cash flows is computed by applying the
average first-day-of-the-month prices during the previous
twelve-month period of oil and natural gas to estimated future
production of proved oil and natural gas reserves as of year-end
less estimated future expenditures to be incurred in developing and
producing the proved reserves and assuming continuation of existing
economic conditions. Prior to December 31, 2009, prices and costs
used to calculate future net cash flows were those as of the end of
the appropriate quarterly period.








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Following the
discovery of reserves and the commencement of production, the
Company will compute depletion of oil and natural gas properties
using the unit-of-production method based upon production and
estimates of proved reserve quantities. Costs associated with
unproved properties are excluded from the depletion calculation
until it is determined whether or not proved reserves can be
assigned to such properties. Unproved properties are assessed for
impairment annually. Significant properties are assessed
individually.





The Company
assesses all items classified as unproved property on an annual
basis for possible impairment. The Company assesses properties on
an individual basis or as a group if properties are individually
insignificant. The assessment includes consideration of the
following factors, among others: land relinquishment; intent to
drill; remaining lease term; geological and geophysical
evaluations; drilling results and activity; the assignment of
proved reserves; and the economic viability of development if
proved reserves are assigned. During any period in which these
factors indicate impairment, the related exploration costs incurred
are transferred to the full cost pool and are then subject to
depletion and the ceiling limitations on development oil and
natural gas expenditures.





Proceeds from the
sale of oil and gas assets are applied against capitalized costs,
with no gain or loss recognized, unless a sale would alter the rate
of depletion and depreciation by 25% or more.





Significant changes
in these factors could reduce our estimates of future net proceeds,
and accordingly could result in an impairment of our oil and gas
assets. Management will perform annual assessments of the carrying
amounts of its oil and gas assets as additional data from ongoing
exploration activities becomes available.





Revenue Recognition





ASU 2014-09,
“Revenue from Contracts with
Customers (Topic 606),” supersedes the revenue
recognition requirements and industry-specific guidance under
Revenue Recognition (Topic
605). Topic 606 requires an entity to recognize revenue when
it transfers promised goods or services to customers in an amount
that reflects the consideration the entity expects to be entitled
to in exchange for those goods or services. The Company adopted
Topic 606 on May 1, 2018, using the modified retrospective method
applied to contracts that were not completed as of January 1, 2018.
Under the modified retrospective method, prior period financial
positions and results will not be adjusted. The cumulative effect
adjustment recognized in the opening balances included no
significant changes as a result of this adoption. While the Company
does not expect 2018 net earnings to be materially impacted by
revenue recognition timing changes, Topic 606 requires certain
changes to the presentation of revenues and related expenses
beginning May 1, 2018. Refer to Note 10 – Revenue from Contracts with Customers
for additional information.





The Company’s
revenue is comprised revenue from exploration and production
activities as well as royalty revenues related to a royalty
interest agreement executed in February 2018. The Company’s
oil is sold primarily to marketers, gatherers, and refiners.
Natural gas is sold primarily to interstate and intrastate
natural-gas pipelines, direct end-users, industrial users, local
distribution companies, and natural-gas marketers. NGLs are sold
primarily to direct end-users, refiners, and marketers. Payment is
generally received from the customer in the month following
delivery.





Contracts with
customers have varying terms, including spot sales or
month-to-month contracts, contracts with a finite term, and
life-of-field contracts where all production from a well or group
of wells is sold to one or more customers. The Company recognizes
sales revenues for oil, natural gas, and NGLs based on the amount
of each product sold to a customer when control transfers to the
customer. Generally, control transfers at the time of delivery to
the customer at a pipeline interconnect, the tailgate of a
processing facility, or as a tanker lifting is completed. Revenue
is measured based on the contract price, which may be index-based
or fixed, and may include adjustments for market differentials and
downstream costs incurred by the customer, including gathering,
transportation, and fuel costs.





Revenues are
recognized for the sale of the Company’s net share of
production volumes. Sales on behalf of other working interest
owners and royalty interest owners are not recognized as
revenues.





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  Table of Contents





Off-Balance
Sheet Arrangements





None.





Recent
Accounting Pronouncements





In February 2016,
the FASB issued ASU 2016-02, “Leases (Topic 842),” which
will require recognition on the balance sheet for the rights and
obligations created by leases with terms greater than twelve
months. The new standard is effective for fiscal years and interim
periods within those years beginning after December 15, 2018, with
early adoption permitted. The Company plans to adopt this guidance
at the beginning of its first quarter of fiscal 2020 and plans to
utilize the transition option which does not require application of
the guidance to comparative periods in the year of adoption. While
the Company continues to evaluate this standard and the effect on
related disclosures, the primary effect of adoption will be
recording right-of-use assets and corresponding lease obligations
for current operating leases. The adoption is expected to have an
impact on the Company’s consolidated balance sheets, but not
on the consolidated statements of income or cash flows. However,
the ultimate impact of adopting ASU 2016-02 will depend on the
Company’s lease portfolio as of the adoption date.
Additionally, the Company is in the process of reviewing current
accounting policies, changes to business processes, systems and
controls to support adoption of the new standard.





In September
2016,the FASB issued
ASU 2016-13,Financial
Instruments - Credit Losses. ASU 2016-13 was
issued to provide more decision-useful information about the
expected credit losses on financial instruments and changes the
loss impairment methodology. ASU 2016-13 is effective for
reporting periods beginning after December 15, 2019 using
a modified retrospective adoption method. A prospective transition
approach is required for debt securities for which an
other-than-temporary impairment had been recognized before the
effective date. The Company is currently assessing the impact this
accounting standard will have on its financial statements and
related disclosures.





In June 2018, the
FASB issued Accounting Standards Update (ASU) No. 2018-07,
Compensation – Stock
Compensation (Topic 718): Improvements to Nonemployee Share-Based
Payment Accounting. Under the new standard, companies will
no longer be required to value non-employee awards differently from
employee awards. Companies will value all equity classified awards
at their grant-date under ASC 718 and forgo revaluing the award
after the grant date. ASU 2018-07 is effective for annual reporting
periods beginning after December 15, 2018, including interim
reporting periods within that reporting period. Early adoption is
permitted, but no earlier than the Company’s adoption date of
Topic 606, Revenue from Contracts
with Customers (as described above under “Revenue
Recognition”). The Company does not believe the new standard
will have a significant impact on its consolidated financial
statements.


In August 2018, the
FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820):
Disclosure Framework—Changes to the Disclosure Requirements
for Fair Value Measurement”. This update is to improve
the effectiveness of disclosures in the notes to the financial
statements by facilitating clear communication of the information
required by U.S. GAAP that is most important to users of each
entity’s financial statements. The amendments in this update
apply to all entities that are required, under existing U.S. GAAP,
to make disclosures about recurring or nonrecurring fair value
measurements. The amendments in this update are effective for all
entities for fiscal years beginning after December 15, 2019, and
interim periods within those fiscal years. The Company is currently
evaluating this guidance and the impact of this update on its
consolidated financial statements.
 
 The Company does
not expect the adoption of any recently issued accounting
pronouncements to have a significant impact on its financial
position, results of operations, or cash flows.


Management does not
believe that any other recently issued, but not yet effective
accounting pronouncements, if adopted, would have a material effect
on the accompanying consolidated financial statements.


-29-
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ITEM 7A. QUANTITATIVE AND QUANTITATIVE DISCLOSURES
ABOUT MARKET RISK





Not
applicable





ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA





Reference is made
to the financial statement pages beginning on page F-1 comprising a
portion of this annual report on Form 10-K.





ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE





On August 21, 2018, the Company accepted the
resignation of GBH CPAs, PC (“GBH”)
and engaged Marcum LLP (“Marcum”)
as its independent registered public accountants. This change
occurred in connection with GBH, the Company’s
prior independent public accountants, resigning as a result of GBH
combining its practice with Marcum effective July 1, 2018. The
engagement of Marcum has been approved by the Audit Committee of
the Company’s
Board of Directors.





Pursuant
to applicable rules, the Company makes the following additional
disclosures:





(a) GBH’s
reports on the consolidated financial statements of the Company at
and for the fiscal years ended April 30, 2018 and 2017 did not
contain any adverse opinion or disclaimer of opinion and were not
qualified or modified as to uncertainty, audit scope or
accounting principles, except that such reports contained an
explanatory paragraph with respect to uncertainty as to the
Company’s
ability to continue as a going concern.





(b) During the fiscal years ended April 30, 2018
and 2017 and through August 21, 2018, there were no disagreements
with GBH on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure,
which if not resolved to GBH’s
satisfaction would have caused it to make reference thereto in
connection with its reports on the Company’s
financial statements for such years. During the fiscal years ended
April 30, 2018 and 2017 and through August 21, 2018, there were no
events of the type described in Item 304(a)(1)(v) of Regulation
S-K.





(c) During the fiscal years ended April 30, 2018
and 2017 and through August 21, 2018, the Company did not consult
with Marcum with respect to any matter whatsoever, including,
without limitation, with respect to any of (i) the application of
accounting principles to a specified transaction, either completed
or proposed; (ii) the type of audit opinion that might be rendered
on the Company’s
financial statements; or (iii) any matter that was either the
subject of a disagreement (as defined in Item 304(a)(1)(iv) of
Regulation S-K) or an event of the type described in Item
304(a)(1)(v) of Regulation S-K.





The
Company has provided GBH with a copy of the foregoing disclosure
and requested that it furnish the Company with a letter addressed
to the Securities and Exchange Commission stating whether it agrees
with the statements made therein. A copy of such letter is attached
as Exhibit 16.1 to this Current Report on Form 8-K, and is
incorporated by reference herein.








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ITEM 9A. CONTROLS AND PROCEDURES TO
DISCUSS





We maintain
disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our reports filed pursuant
to the Securities Exchange Act of 1934, as amended (the
“Exchange
Act”), is recorded, processed, summarized and reported
within the time periods specified in the SEC’s rules and
forms, and that such information is accumulated and communicated to
our Chief Executive Officer and Chief Financial Officer to allow
timely decisions regarding required disclosure. Our management,
including our Chief Executive Officer and Chief Financial Officer,
conducted an evaluation of the effectiveness of our disclosure
controls and procedures, as defined under Exchange Act Rule
13a-15(e), as of April 30, 2019. Based upon that evaluation, our
Chief Executive Officer and Chief Financial Officer have concluded
that our disclosure controls and procedures were not effective as
of April 30, 2019 due to a material weakness in our internal
control over financial reporting, as discussed below.





Management’s
Annual Report on Internal Control over Financial
Reporting





Our management is
responsible for establishing and maintaining adequate internal
control over financial reporting as required under applicable
United States securities regulatory requirements. Internal control
over financial reporting is defined in Rule 13a-15(f) or 15d-15(f)
promulgated under the Exchange Act as a process designed by, or
under the supervision of, the company’s chief executive and
chief financial officers and effected by the company’s board
of directors, management and other personnel, to provide reasonable
assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles and
includes those policies and procedures that:





●
pertain to the
maintenance of records that in reasonable detail accurately and
fairly reflect the transactions and dispositions of the assets of
the company;●
provide reasonable
assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures
of the company are being made only in accordance with
authorizations of management and directors of the company;
and●
provide reasonable
assurance regarding prevention or timely detection of unauthorized
acquisition, use of disposition of the company’s assets that
could have a material effect on the financial
statements.





Because of its
inherent limitations, internal control over financial reporting may
not prevent or detect all misstatements. A system of internal
controls can provide only reasonable, not absolute, assurance that
the objectives of the control system are met, no matter how well
the system is conceived or operated. Projections of any evaluation
of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or
that the degree of compliance with the policies or procedures may
deteriorate.





Our management
assessed the effectiveness of our internal control over financial
reporting as of April 30, 2019. In making this assessment, our
management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission
(“COO”) in the
2013 Internal Control Integrated Framework. Based on that
evaluation under this framework, our management concluded that as
of April 30, 2019, our internal control over financial reporting
was not effective because of the following material weaknesses in
our internal control over financial reporting:





●
Due to our small
number of employees and resources, we have limited segregation of
duties, and as a result there is insufficient independent review of
duties performed.●
As a result of the
limited number of accounting personnel, we rely on outside
consultants for the preparation of our financial reports, including
financial statements and management discussion and analysis, which
could lead to overlooking items requiring disclosure.





This annual report
does not include an attestation report by our independent
registered public accounting firm regarding internal control over
financial reporting. As we are neither a large accelerated filer
nor an accelerated filer, our management’s report was not
subject to attestation by our registered public accounting firm
pursuant to rules of the Securities and Exchange Commission that
permit us to provide only management’s report in this annual
report.





Changes
to Internal Controls and Procedures for Financial
Reporting





There were no
significant changes in the Company’s internal control over
financial reporting that were identified in connection with such
evaluation that occurred during the period covered by this Annual
Report on Form 10-K that has materially affected, or is reasonably
likely to materially affect, the Company’s internal control
over financial reporting. To begin remediating the material
weakness identified in internal control over financial reporting of
the Company, the Company engaged Brio Financial Group and appointed
its Managing Member, David Briones, to act as the Company’s
Chief Financial Officer on August 15, 2013. During the year ended April 30, 2019, Management
intended to hire additional accounting staff, and operational and
administrative executives. However, due to the lack of resources
those hires were delayed until such time additional financing is
received. Management intends to prepare and implement
sufficient written policies and checklists to remedy the material
weaknesses identified above.








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PART III





ITEM 10. DIRECTORS, EXECUTIVE OFFICERS
AND CORPORATE GOVERNANCE





The information
required by this item will be set forth in our definitive proxy
statement for our 2019 annual meeting of stockholders to be filed
within 120 days after our fiscal year end and is incorporated in
this report by reference.





ITEM 11. EXECUTIVE
COMPENSATION





The information
required by this item will be set forth in our definitive proxy
statement for our 2019 annual meeting of stockholders to be filed
within 120 days after our fiscal year end and is incorporated in
this report by reference.





ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERS
MATTERS





The information
required by this item will be set forth in our definitive proxy
statement for our 2019 annual meeting of stockholders to be filed
within 120 days after our fiscal year end and is incorporated in
this report by reference.





ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS, AND DIRECTOR INDEPENDENCE





The information
required by this item will be set forth in our definitive proxy
statement for our 2019 annual meeting of stockholders to be filed
within 120 days after our fiscal year end and is incorporated in
this report by reference.





ITEM
14. ACCOUNTING FEES AND SERVICES





The information
required by this item will be set forth in our definitive proxy
statement for our 2019 annual meeting of stockholders to be filed
within 120 days after our fiscal year end and is incorporated in
this report by reference.





PART IV





ITEM
15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES





(a)
Financial Statements.





Our financial
statements as set forth in the Index to Financial Statements
attached hereto commencing on page F-1 are hereby incorporated by
reference.





(b)
Exhibits.





The following
exhibits, which are numbered in accordance with Item 601 of
Regulation S-K, are filed herewith or, as noted, incorporated by
reference herein:





Exhibit
Number

Exhibit
Description3.1 (1)

Certificate of
Incorporation of the Company.3.2 (1)

Bylaws of the
Company.3.3 (12)

Certificate of
Amendment to the Certificate of Incorporation of Petro River Oil
Corporation, effective December 1, 2015 (Reverse
Split).3.4 (12)

Certificate of
Amendment to the Certificate of Incorporation of Petro River Oil
Corporation, effective December 1, 2015 (Authorized
Increase).3.5 (13)

Certificate of
Amendment to the Certificate of Incorporation of Petro River Oil
Corporation, dated June 15, 2016.10.1 (2)

Securities Purchase
Agreement of Petro River Oil LLC, dated as of April 23, 2013, by
and among Petro River Oil Corp., Petro River Oil, LLC, the
holders of outstanding secured promissory notes of Petro River Oil,
LLC, the members of Petro River Oil, LLC and Mega Partners 1
LLC.10.2 (7)

Amended and
Restated 2012 Equity Compensation Plan.10.3 (6)

Assignment and
Assumption Agreement, dated as of May 30, 2014, by and between
Bandolier Energy, LLC and PO1, LLC.10.4 (6)

Agreement, dated as
of May 30, 2014, by and between Petro River Oil Corp. and Pearsonia
West Investment Group, LLC.10.5 (2)

Employment
Agreement, by and between Petro River Oil Corp. and Scot Cohen,
dated April 23, 2013





-32-
  Table of Contents








10.6
(4)

Amendment No. 1 to
the Employment Agreement, by and between Petro River Oil Corp. and
Scot Cohen, dated November 20, 2013.10.7
(2)

Form of Securities
Purchase Agreement, dated April 23, 2013


10.8
(5)

Securities Purchase
Agreement, by and between Petro River Oil Corp. and Petrol Lakes
Holding Limited, dated December 12, 2013.10.9
(6)

Form of Bandolier
Energy LLC Subscription Agreement, dated May 30, 2014.10.10
(6)

Securities Purchase
Agreement, by and between Spyglass Energy Group, LLC, Nadel and
Gussman, LLC, Charles W. Wickstrom, Shane E. Matson and Bandolier
Energy, LLC, dated January 1, 2014.10.11
(6)

Assignment and
Assumption Agreement, by and between Bandolier Energy, LLC and PO1,
LLC, dated May 30, 2014.10.12
(6)

Agreement, by and
between Petro River Oil Corp. and Pearsonia West Investment Group,
LLC, dated May 30, 2014.10.13
(8)

Asset Purchase
Agreement by and among Petro River Oil Corp, Petro Spring I, LLC,
Havelide GTL LLC and certain shareholders, dated February 18,
2015.10.14
(8)

Employment
Agreement by and between the Company and Stephen Boyd, dated
February 18, 201510.15
(8)

Form of
Warrant.10.16
(9)

Asset Purchase
Agreement by and among Petro River Oil Corp, Petro Spring II, LLC,
Coalthane Tech LLC and certain shareholders, dated February 27,
2015.10.17
(15)

Contribution
Agreement, by and between Petro River Oil Corp., MegaWest Energy
Kansas Corporation and Fortis Property Group, dated October 30,
2015, effective October 15, 2015.10.18
(15)

Employment
Agreement, by and between Petro River Oil Corp. and Stephen
Brunner, dated October 30, 2015.10.19
(12)

Conditional
Purchase Agreement, by and between Petro River Oil Corp. and
Horizon I Investments, LLC, dated December 1, 2015.10.20
(12)

Form of Escrow
Agreement.10.21
(12)

Non-Recourse Note,
by and between Petro River Oil Corp. and Horizon I Investments,
LLC, dated December 1, 2015.10.22
(10)

Farm-Out Agreement,
dated January 19, 2016.10.23
(10)

Escrow Agreement,
dated January 18, 2016.10.24
(10)

Non-Recourse
Promissory Note, in the principal amount of $750,000, dated January
13, 2016.10.25
(11)

Assignment of Oil
and Gas Lease, by and between MegaWest Energy Missouri Corp. and
Paluca Petroleum, Inc., dated July 11, 2016.10.26
(14)

Asset Purchase and
Sale and Exploration Agreement, dated March 4, 2016.10.27
(16)

Securities Purchase
Agreement, dated June 13, 2017.10.28
(17)

Form of Warrant,
dated June 13, 2017.10.29
(18)

Security Agreement,
dated June 13, 2017.10.30
(19)

Assignment of
Overriding Royalty Interests, dated June 13, 2017.10.31
(20)

Promissory Note,
dated June 13, 2017.10.32
(21)

Security Purchase
Agreement, dated September 20, 2017.10.33
(22)

Form of Warrant,
dated November 6, 2017.10.34
(23)

Form of Security
Agreement, dated November 6, 2017.10.35
(24)

Form of Assignment
of Overriding Royalty Interests November 6, 2017.10.36
(25)

Form of Secured
Promissory Note, dated November 6, 2017.10.37
(26)

Assignment and
Assumption of Membership Interest, dated November 6,
2017.10.38
(27)

Modification of
Promissory Notes, dated December 29, 2017.10.39
(28)

Assignment and
Assumption of Membership Interest, dated January 31,
2018.10.40
(29)

Purchase and
Exchange Agreement, dated February 14, 2018.14.1
(3)

Code of Business
Conduct and Ethics.21.1*

Subsidiaries.31.1*

Certification of
Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.31.2*

Certification of
Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.32.1*

Certification of
Chief Executive Officer and Chief Financial Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.99.1
(30)

Report
of Pinnacle Energy Services, LLC with respect to oil and reserves,
dated June 8, 2017.99.2*

Report
of Cawley, Gillespie & Associates with respect to oil and
reserves in Oklahoma – Spyglass/Pearsonia, dated May 1,
2018.99.3*

Report of Cawley, Gillespie &
Associates with respect to oil and
reserves in Osage County, Oklahoma, dated May 1,
2018.101.INS*

XBRL Instance
Document101.SCH*

XBRL Taxonomy
Extension Schema Document101.CAL*

XBRL Taxonomy
Extension Calculation Linkbase Document101.DEF*

XBRL Taxonomy
Extension Definition Linkbase Document101.LAB*

XBRL Taxonomy
Extension Labels Linkbase Document101.PRE*

XBRL Taxonomy
Extension Presentation Linkbase Document








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*
Attached
hereto(1)
Incorporated by
reference to our Form 8-K filed with the Securities and Exchange
Commission on September 13, 2012.(2)
Incorporated by
reference to our Form 8-K filed with the Securities and Exchange
Commission on April 29, 2013.(3)
Incorporated by
reference to our Transition Report on Form 10-K filed with the
Securities and Exchange Commission on August 28, 2013.(4)
Incorporated by
reference to our Form 8-K filed with the Securities and Exchange
Commission on November 22, 2013.(5)
Incorporated by
reference to our Form 8-K filed with the Securities and Exchange
Commission on December 16, 2013.(6)
Incorporated by
reference to our Form 8-K filed with the Securities and Exchange
Commission on June 5, 2014.(7)
Incorporated by
reference to our Annual Report on Form 10-K filed with the
Securities and Exchange Commission on August 13, 2014.





(8)
Incorporated by
reference to our Form 8-K filed with the Securities and Exchange
Commission on February 23, 2015.(9)
Incorporated by
reference to our Form 8-K filed with the Securities and Exchange
Commission on March 5, 2015.(10)
Incorporated by
reference to our Form 8-K filed with the Securities and Exchange
Commission on January 20, 2016.(11)
Incorporated by
reference to our Form 8-K filed with the Securities and Exchange
Commission on July 13, 2016.(12)
Incorporated by
reference to our Form 8-K filed with the Securities and Exchange
Commission on December 7, 2015.(13)
Incorporated by
reference to our Form 8-K filed with the Securities and Exchange
Commission on June 20, 2016.(14)
Incorporated by
reference to our Form 8-K filed with the Securities and Exchange
Commission on March 10, 2016.(15)
Incorporated by
reference to our Form 8-K filed with the Securities and Exchange
Commission on November 5, 2015.(16)
Incorporated by
reference to our Form 8-K filed with the Securities and Exchange
Commission on June 16, 2017.(17)
Incorporated by
reference to our Form 8-K filed with the Securities and Exchange
Commission on June 16, 2017.(18)
Incorporated by
reference to our Form 8-K filed with the Securities and Exchange
Commission on June 16, 2017.(19)
Incorporated by
reference to our Form 8-K filed with the Securities and Exchange
Commission on June 16, 2017.(20)
Incorporated by
reference to our Form 8-K filed with the Securities and Exchange
Commission on June 16, 2017.(21)
Incorporated by
reference to our Form 8-K filed with the Securities and Exchange
Commission on November 6, 2017.(22)
Incorporated by
reference to our Form 8-K filed with the Securities and Exchange
Commission on November 6, 2017.(23)
Incorporated by
reference to our Form 8-K filed with the Securities and Exchange
Commission on November 6, 2017.(24)
Incorporated by
reference to our Form 8-K filed with the Securities and Exchange
Commission on November 6, 2017.(25)
Incorporated by
reference to our Form 8-K filed with the Securities and Exchange
Commission on November 6, 2017.(26)
Incorporated by
reference to our Form 8-K filed with the Securities and Exchange
Commission on November 6, 2017.(27)
Incorporated by
reference to our Form 8-K filed with the Securities and Exchange
Commission on January 5, 2018.(28)
Incorporated by
reference to our Form 8-K filed with the Securities and Exchange
Commission on February 5, 2018.(29)
Incorporated by
reference to our Form 8-K filed with the Securities and Exchange
Commission on February 16, 2018.(30)
Incorporated by
reference to our Form 10-Q filed with the Securities and Exchange
Commission on March 26, 2018.














-34-
  Table of Contents








PETRO RIVER OIL
CORP.


FINANCIAL INFORMATION





PageReports
of Independent Registered Public Accounting Firms


F-2Consolidated
Balance Sheets as of April 30, 2019 and 2018


F-3Consolidated
Statements of Operations for the Years Ended April 30, 2019 and
2018


F-4Consolidated
Statement of Changes in Stockholders’ Equity for the Years
Ended April 30, 2019 and 2018


F-5Consolidated
Statements of Cash Flows for the Years Ended April 30, 2019 and
2018


F-6Notes
to Consolidated Financial Statements


F-7














F-1
  Table of Contents





REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM





To the
Stockholders and the Board of Directors of


Petro
River Oil Corp.


New
York, New York





Opinion on the Financial Statements





We have
audited the accompanying consolidated balance sheet of Petro River
Oil Corp. (the “Company”) as of April 30, 2019,
the related consolidated statements of operations,
stockholders’ equity, and cash flows for the year 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 April 30, 2019, and the results of
its operations and its cash flows for the year ended April 30,
2019, in conformity with accounting principles generally accepted
in the United States of America.





Explanatory Paragraph – Going Concern





The
accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As more
fully described in Note 2, the Company has suffered recurring
losses from operations and cash used in operating activities. These
conditions raise substantial doubt about the Company’s
ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 2. The
consolidated 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 Company’s
management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audit. 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 audit 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 audit we are required to obtain an understanding of
internal control over financial reporting but not for the purpose
of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting.
Accordingly, we express no such opinion.





Our
audit 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 audit 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 audit provide s a reasonable basis for our
opinion.





/s/ Marcum LLP


Marcum
LLP





We have
served as the Company’s auditor since 2015.





Houston,
Texas


August
13, 2019








F-2
  Table of Contents





REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM








To the
Stockholders and the Board of Directors of


Petro
River Oil Corp.


New
York, New York








Opinion
on the Financial Statements





We have
audited the accompanying consolidated balance sheet of Petro River
Oil Corp. (the “Company”) as of April 30, 2018,
the related consolidated statements of operations,
stockholders’ equity, and cash flows for the year 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 April 30, 2018, and the results of
its operations and its cash flows for the year then ended, in
conformity with accounting principles generally accepted in the
United States of America.





Basis for Opinion





These
financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on the
Company’s 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 audit 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 audit we are required to obtain an understanding of
internal control over financial reporting but not for the purpose
of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting.
Accordingly, we express no such opinion.





Our
audit 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 audit 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 audit provides a reasonable basis
for our opinion.





Other Matters





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 suffered recurring
losses from operations and has a net capital deficiency that raise
substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in
Note 2. The financial statements do not include any adjustments
that might result from the outcome of this
uncertainty.





/s/ GBH CPAs, PC





We
served as the Company’s auditor from 2015 to
2018.


GBH
CPAs, PC


www.gbhcpas.com


Houston,
Texas


July
30, 2018











Petro River Oil Corp. and
Subsidiaries


Consolidated Balance Sheets





As
ofApril
30,
2019
April
30,
2018AssetsCurrent
Assets:Cash and cash
equivalents
$1,214,858
$47,330Accounts receivable
- oil and gas
128,987
308,099Prepaid expense and
other current assets
206,210
612Prepaid oil and gas
asset development costs
55,116
-Total
Current Assets
1,605,171
356,041Oil and gas assets,
full cost methodCosts subject to
amortization, net
5,868,932
3,779,414Costs not being
amortized, net
100,000
100,000Property, plant and
equipment, net
63
822Investment in
Horizon Energy Partners
2,037,151
1,592,418Investment in
Horizon Energy Acquisition, LLC
400,000
-Other
assets
5,266
17,133Total
Long-term Assets
8,411,412
5,489,787Total
Assets
$10,016,583
$5,845,828Liabilities
and EquityCurrent
Liabilities:Accounts payable
and accrued expense
$714,786
$908,343Accrued interest on
notes payable – related party
-
298,581Redetermination
liability
-
259,313Asset retirement
obligations, current portion
720,442
413,794Total
Current Liabilities
1,435,228
1,880,031Long-term
Liabilities:Asset retirement
obligations, net of current portion
328,749
246,345Note payable -
related parties, net of debt discount
-
2,360,750Derivative
liabilities
4,191,754
-Total
Long-term Liabilities
4,520,503
2,607,095Total
Liabilities
5,955,731
4,487,126Commitments
and contingenciesEquity:Preferred shares
– 5,000,000 authorized; par value $0.00001; 0 shares issued
and outstanding
-
-Preferred A shares
– 500,000 authorized; par value $0.00001 per share; 435,403
and 0 issued and outstanding, respectively; liquidation preference
of $8,708,060
4
-Preferred B shares
– 29,500 authorized; par value $0.00001; 0 shares issued
and outstanding
-
-Common shares
– 150,000,000 authorized; par value $0.00001; 17,938,540 and
17,309,733 issued and outstanding, respectively
180
173Additional paid-in
capital
59,563,627
52,407,543Accumulated
deficit
(56,154,121)
(51,049,014)Total
Petro River Oil Corp. Equity
3,409,690
1,358,702Non-controlling
interests
651,162
-Total
Equity
4,060,852
1,358,702Total
Liabilities and Equity
$10,016,583
$5,845,828





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





F-3
  Table of Contents





Petro River Oil Corp. and
Subsidiaries


Consolidated Statements of Operations





For the Year
EndedApril 30,
2019
April 30,
2018RevenuesOil
and natural gas sales
$1,622,077
$723,409Royalty
revenue
23,093
-Total Revenue
1,645,170
723,409Operating ExpenseLease
operating expenses
416,445
127,814Depreciation,
depletion and accretion
683,163
157,386Impairment
of oil and gas assets
984,774
1,733,932General
and administrative
1,727,670
3,644,751Total Operating Expense
3,812,052
5,663,883Operating Loss
(2,166,882)
(4,940,474)Other Income (Expense)Interest
income (expense), net
(3,124,286)
(65,569)Loss
on assumption of Pearsonia interests
-
(3,351,965)Loss
on redetermination
-
(11,914,204)Loss
on legal settlement
(75,000)
-Loss
on extinguishment of debt
(94,388)
-Change
in fair value of derivative liabilities
(41,410)
-Net
gain on real estate rights
-
267,734Other Income (Expense)
(3,335,084)
(15,064,004)Net Loss Before Income Tax Provision
(5,501,966)
(20,004,478)Income Tax Provision
-
333,203Net Loss
(5,501,966)
(20,337,681)Net Income (Loss) Attributable to Non-controlling
Interests
(396,859)
101,423Net Loss Attributable to Petro River Oil Corp.
(5,105,107)
(20,439,104)Deemed
Dividend on Series A Preferred Stock
(3,512,021)
-Net
Loss Available for Petro River Oil Corp. Common
Shareholders
$(8,617,128)
$(20,439,104)Loss Per Common Share
– Basic and
Diluted
$(0.48)
$(1.24)Weighted Average Number of
Common Shares Outstanding – Basic and
Diluted
17,772,293
16,546,093





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





F-4
  Table of Contents











Petro River Oil Corp. and Subsidiaries


Consolidated Statement of Changes in Stockholders’
Equity


For the Years Ended April 30, 2019 and 2018





Preferred
Preferred
Common
Common
Additional
Paid-in
Accumulated
Non-controlling
Total
Stockholders’Shares
Amount
Shares
Amount
Capital
Deficit
Interests
EquityBalance
at May 1, 2017
-
$-
15,827,921
$158
$46,681,073
$(30,609,910)
$12,610,470
$28,681,791Stock-based
compensation
-
-
-
-
906,591
-
-
906,591Cashless exercise
of options
-
-
15,145
-
-
-
-
-Warrants issued
with secured promissory note
-
-
-
-
2,003,227
-
-
2,003,227Contribution of
overriding royalty interest
-
-
-
-
250,000
-
-
250,000Acquisition of
Pearsonia interest
-
-
1,466,667
15
2,566,652
-
785,298
3,351,965Acquisition of
Bandolier interest upon redetermination
-
-
-
-
-
-
(13,497,191)
(13,497,191)Net income
(loss)
-
-
-
-
-
(20,439,104)
101,423
(20,337,681)Balance
at April 30, 2018
-
-
17,309,733
173
52,407,543
(51,049,014)
-
1,358,702Stock-based
compensation
-
-
260,000
3
497,669
-
-
497,672Shares issued for
legal settlement
-
-
68,807
1
74,999
-
-
75,000Stock issued for
acquisition of non-controlling interest
-
-
300,000
3
1,496,262
-
748,021
2,244,286Non-controlling
interest contribution
-
-
-
-
-
-
300,000
300,000Deemed
dividend
-
-
-
-
(3,512,021)
-
-
(3,512,021)Preferred A and
warrants issued for:Cash and
services
147,009
1
-
-
2,800,183
-
-
2,800,184Debt
conversion
31,092
-
-
-
621,836
-
-
621,836Secured
debt
257,302
3
-
-
5,177,156
-
-
5,177,159Net
loss
-
-
-
-
-
(5,105,107)
(396,859)
(5,501,966)Balance
at April 30, 2019
435,403
$4
17,938,540
$180
$59,563,627
$(56,154,121)
$651,162
$4,060,852





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





F-5
  Table of Contents





Petro River Oil Corp. and
Subsidiaries


Consolidated Statements of Cash Flows





For
the Year EndedApril
30,
2019
April
30,
2018CASH
FLOWS FROM OPERATING ACTIVITIES:Net
loss
$(5,501,966)
$(20,337,681)Adjustments to
reconcile net loss to net cash used in operating
activities:Stock-based
compensation
497,672
906,591Depreciation,
depletion and accretion
683,163
157,386Amortization of
debt discount
2,139,251
363,977Impairment of oil
and gas assets
984,774
1,733,932Loss on
redetermination
-
11,914,204Loss on assumption
of Pearsonia interests
-
3,351,965Loss on legal
settlement
75,000
-Loss on
extinguishment of debt
94,388
-Net gain on
interest in real estate rights
-
(267,734)Change in fair
value of derivative liability
41,410
-Derivative
liability in excess of face value of equity instrument
525,352
-Deferred income tax
expense
-
333,203Changes in
operating assets and liabilities:Accounts receivable
– oil and gas
179,112
(299,676)Accounts receivable
– other
-
17,449Accrued interest on
notes receivable –  related
party
-
(593,021)Prepaid expenses
and other current assets
(193,731)
1,267,555Accounts payable
and accrued expenses
(324,430)
1,105,496Accrued interest on
notes payable – related party
331,493
-Net
Cash Used in Operating Activities
(468,512)
(346,354)CASH
FLOW FROM INVESTING ACTIVITIES:Proceeds from the
sale of interest in real estate rights
-
1,553,884Prepaid oil and gas
assets
-
(446,856)Issuance of notes
receivable – related party
-
(1,558,501)Capitalized
expenditures on oil and gas assets
(1,058,097)
(3,536,935)Cash received from
acquisition of LBE Partners
138,686
-Cash paid in
MegaWest exchange transaction
-
(119,722)Cash paid for cost
method investment
(844,733)
(379,418)Net
Cash Used in Investing Activities
(1,764,144)
(4,487,548)CASH
FLOW FROM FINANCING ACTIVITIES:Proceeds from the
issuance of Series A Preferred Stock and warrants
2,800,184
-Proceeds from notes
payable - related party
300,000
4,500,000Cash paid for debt
inducement
-
(250,000)Cash received from
non-controlling interest contribution
300,000
-Net
Cash Provided by Financing Activities
3,400,184
4,250,000Change
in cash and cash equivalents
1,167,528
(583,902)Cash
and cash equivalents, beginning of year
47,330
631,232Cash
and cash equivalents, end of year
$1,214,858
$47,330SUPPLEMENTARY
CASH FLOW INFORMATION:Cash paid during
the year for:Income
taxes
$30,782
$86,876Interest
paid
$-
$-NON-CASH
INVESTING AND FINANCING ACTIVITIES:





Receivable for sale
of oil and gas equipment
$-
$17,449Warrants issued
with note payable
$-
$2,003,227Overriding interest
contributed as debt inducement
$-
$250,000Accrued oil and gas
development costs
$239,866
$54,458Change in estimate
of asset retirement obligations
$15,695
$61,633Additions to asset
retirement obligation from new drilling
$-
$29,325Derivative
liability from warrant issuances
$3,512,021
$-Issuance of Series A Preferred Stock for
conversion of debt
$5,798,995
$-





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





F-6
  Table of Contents





PETRO RIVER OIL CORP. AND
SUBSIDIARIES


Notes to the Consolidated Financial Statements





1.
Organization





Petro River Oil Corp. (the “Company”) is an independent energy company focused
on the exploration and development of conventional oil and gas
assets with low discovery and development costs, utilizing modern
technology. The Company is currently focused on moving forward with
drilling wells on several of its properties owned directly and
indirectly through its interest in Horizon Energy Partners, LLC
(“Horizon
Energy”), as well as
entering highly prospective plays with Horizon Energy and other
industry-leading partners. Diversification over a number of
projects, each with low initial capital expenditures and strong
risk reward characteristics, reduces risk and provides
cross-functional exposure to a number of attractive risk adjusted
opportunities.





The Company’s core holdings are in the Mid-Continent Region
in Oklahoma, including in Osage County and Kay County, Oklahoma.
Following the acquisition of Horizon I Investments, LLC
(“Horizon
Investments”) in December
2015, the Company has additional exposure to a portfolio of
domestic and international oil and gas assets consisting of highly
prospective conventional plays diversified across project type,
geographic location and risk profile, as well as access to a broad
network of industry leaders from Horizon Investment’s
interest in Horizon Energy. Horizon Energy is an oil and gas
exploration and development company owned and managed by former
senior oil and gas executives. It has a portfolio of domestic
and international assets. Each of the assets in the Horizon Energy
portfolio is characterized by low initial capital expenditure
requirements and strong risk reward
characteristics.





The Company’s prospects in Oklahoma are owned directly by the
Company and indirectly through Spyglass Energy Group, LLC
(“Spyglass”), a wholly owned subsidiary of Bandolier
Energy, LLC (“Bandolier”). As of January 31, 2018, Bandolier became
wholly-owned by the Company. Bandolier has a 75% working interest
in an 87,754-acre concession in Osage County, Oklahoma. The
remaining 25% working interest is held by the operator, Performance
Energy, LLC.





Effective September 24, 2018, the Company acquired a 66.67%
membership interest in LBE Partners, LLC, a Delaware limited
liability company (“LBE
Partners”), from ICO
Liquidating Trust, LLC, in exchange for 300,000 restricted shares
of the Company’s common stock. LBE Partners has varying
working interests in multiple oil and gas producing wells located
in Texas.





Recent Developments





Horizon Subscription Agreement





On February 25, 2019, the Company executed a Subscription
Agreement, pursuant to which the Company purchased 145.454 membership units in Horizon
Energy Acquisition, LLC (“Horizon Acquisition”), representing an approximate 14.6% membership
interest in Horizon Acquisition, for $400,000 (the
“Acquisition of
Interest”). Horizon
Acquisition is a company focused on oil and gas exploration
activities. As a result, the Company acquired an additional 5.63%
working interest in an international, offshore exploration project
in the North Sea, which is in addition to an 5.63% interest in the
same project indirectly held by the Company through its investments
in Horizon Energy.





In
connection with the Acquisition of Interest, the Company also
executed the Limited Liability Company Agreement for Horizon, which
provides the Company with the right to appoint one Manager to
Horizon Acquisition’s three-member Board of Managers. The
Company appointed Mr. Cohen, the Company’s Executive
Chairman, to the Board of Managers. Mr. Cohen purchased 36.363
membership units in Horizon Acquisition in a separate transaction,
representing an approximate 3.6% membership interest.








F-7
  Table of Contents





Creation of a New Series A Convertible Preferred Stock





On
January 31, 2019, the Company filed the Certificate of Designations
of Preferences and Rights of Series A Convertible Preferred Stock
with the Secretary of State for the State of Delaware –
Division of Corporations, which it thereafter amended on March 13,
2019 (collectively, the “Series A COD”). The Series A COD
designates 500,000 shares of the Company’s preferred stock as
Series A Convertible Preferred, par value $0.00001 per share
(“Series A
Preferred”), each share with a stated value of $20.00
per share (the “Stated
Value”). Shares of Series A
Preferred are not
entitled to dividends unless the Company elects to pay dividends to
holders of its common stock. Shares of Series A
Preferred rank senior to the Company’s common stock and
Series B Cumulative Convertible Preferred Stock.





Holders
of Series A Preferred have the right to vote, subject to a 9.999%
voting limitation (which does not apply to Scot Cohen), on an
as-converted basis with the holders of the Company’s common
stock on any matter presented to the Company’s stockholders
for their action or consideration; provided, however, that so
long as shares of Series A Preferred remain outstanding, the
Company may not, without first obtaining the affirmative consent of
a majority of the shares of Series A Preferred outstanding, voting
as a separate class, take the following actions: (i) alter or
change adversely the power, preferences and rights provided to the
holders of the Series A Preferred under the Series A COD, (ii)
authorize or create a class of stock that is senior to the Series A
Preferred, (iii) amend its Certificate of Incorporation so as to
adversely affect any rights of the holders of the Series A
Preferred, (iv) increase the number of authorized shares of Series
A Preferred, or (v) enter into any agreements with respect to the
foregoing.





Each
share of Series A Preferred has a liquidation preference equal to
the Stated Value plus all accrued and unpaid dividends. Each share
of Series A Preferred is convertible into that number of shares of
the Company’s common stock (“Conversion Shares”) equal to the
Stated Value, divided by $0.40 per share (the “Conversion Price”), which
conversion rate is subject to adjustment in accordance with the
terms of the Series A COD; provided, however, that holders of
the Series A Preferred may not convert their shares of Series A
Preferred in the event that such conversion would result in such
holder’s ownership exceeding 4.999% of the Company’s
outstanding common stock (the “Ownership Limitation”), which
Ownership Limitation may be increased up to 9.999% at the sole
election of the holder (the “Maximum
Percentage”); provided, however, that the
Ownership Limitation and Maximum Percentage do not apply to Mr.
Cohen. Holders of Series A Preferred may elect to convert shares of
Series C Preferred into Conversion Shares at any time.





Series A Financing





On
January 31, 2019 (the “Closing Date”), the Company sold
and issued an aggregate of 178,101 units of its securities, for an
aggregate purchase price of $3,562,015, to certain accredited
investors (the “New
Investors”) pursuant to a Securities Purchase
Agreement (“SPA”) and to certain debtholders
(the “Debt
Holders”) pursuant to Debt Conversion Agreements (the
“Debt Conversion
Agreements”) (the “Offering”). The sale of the units
resulted in net cash proceeds of approximately $2.7 million. The
units sold and issued in the Offering consisted of an aggregate of
(i) 178,101 shares of the Company’s newly created Series A
Preferred shares, convertible into 8,905,037 shares of the
Company’s common stock, and (ii) five-year warrants to
purchase 8,905,037 shares of Company’s common stock, at an
exercise price of $0.50 per share. Pursuant to the Debt Conversion
Agreements, the Debt Holders, consisting of Mr. Cohen and Fortis
Oil & Gas (“Fortis”), agreed to convert all
outstanding debt owed to the Debt Holders, amounting to $300,000
and $321,836, respectively, into units issued pursuant to the SPA.
In addition to the conversion of outstanding debt, the Company and
the Debt Holders also agreed to convert all accrued interest
totaling $18,853 and $62,523, respectively.





The
Offering resulted in net cash proceeds to the Company of
approximately $2.8 million, which net proceeds do not include the
amount of debt converted into units by the Debt Holders. The
Company currently intends to use the net proceeds to fund the
drilling of ten additional development and exploration wells in its
Osage County concession (the “New Drilling Program”), and a
large exploration venture in the North Sea, United Kingdom with
Horizon Energy Partners, LLC.





In
connection with the Offering, on January 31, 2019 Bandolier Energy,
LLC (“Bandolier”), a wholly owned
subsidiary of the Company, entered into Assignment of Net Profit
Interest agreements (the “Assignment Agreements”) with each
of the New Investors and Debt Holders, pursuant to which (i)
Bandolier assigned and transferred to the New Investors and Debt
Holders a 75% interest in profits, if any, derived from the ten new
wells the Company intends to drill pursuant to the New Drilling
Program, payments of which shall be made to the New Investors and
Debt Holders, pro rata, on a quarterly basis following the full
completion of the New Drilling Program, and (ii) in the event the
Company elects to drill additional wells on its Osage County
concession in the next two years, the New Investors and Debt
Holders shall have the right to participate in and fund the
drilling and production of the next ten wells on the same terms and
conditions set forth in the Assignment Agreements.








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Senior Secured Debt Exchange





On
January 31, 2019, the Company entered into agreements (the
“Secured Debt Conversion
Agreements”) with Petro Exploration Funding, LLC and
Petro Exploration Funding II, LLC (together, the
“Secured Debt
Holders”), pursuant to which they agreed to convert
approximately $2.3 million and $2.8 million, respectively, of
outstanding senior secured debt (including accrued and unpaid
interest) (the “Senior
Secured Debt”) owed under the terms of their
respective Senior Secured Promissory Notes into 116,503 and 140,799
shares of the Company’s newly created Series A Preferred,
respectively (the “Senior
Secured Debt Exchange”). As a result of the Senior
Secured Debt Exchange, all indebtedness, liabilities and other
obligations arising under the respective Senior Secured Promissory
Notes were cancelled and deemed satisfied in full.





As
additional consideration for the conversion of the Senior Secured
Debt, the Company agreed to (i) reduce the exercise price of
warrants issued to the Secured Debt Holders on June 15, 2017 and
November 6, 2017 from $2.38 and $2.00, respectively, to $0.50 per
share of common stock issuable upon the exercise of such warrants,
and (ii) to extend the expiration date of such warrants to five
years from the Closing Date. The
Company computed the fair value of the warrants directly preceding
the modification and compared the fair value to that of the
modified warrants with new terms. The fair value of the modified
warrants was lower than the fair value of the warrants preceding
the modification; therefore, no accounting treatment resulted from
the modification.





Acquisition of Membership Interest in LBE Partners,
LLC





On October 2, 2018, the Company, ICO
Liquidating Trust, LLC (“ICO”)
and LBE Partners, which owns various working interests in several
oil and gas wells located in the Hardin oil field in Liberty,
Texas, entered into a Membership Interest Purchase Agreement (the
“LBE Purchase
Agreement”),
effective September 24, 2018, pursuant to which the Company
purchased a 66.67% membership interest in LBE Partners from ICO in
exchange for 300,000 shares of the Company’s common stock
valued at $333,000 based on the market value of the stock on the
grant date. Both ICO and LBE Partners are managed by Scot Cohen,
the Company’s Executive
Chairman.





The
Company recorded the purchase of LBE Partners using the acquisition
method of accounting as specified in ASC 805 “Business Combinations.” This
method of accounting requires the acquirer to record the net assets
and liabilities acquired at the historical cost of LBE Partners
because the Company determined that this acquisition was a related
party transaction.





The following table summarizes fair values of the net assets
acquired and liabilities assumed and the allocation of the
aggregate value of the purchase consideration, and non-controlling
interest:





Purchase
consideration:Common stock
issued
$333,000Total
Purchase Consideration
$333,000Purchase
price allocation:Cash
$138,686Prepaid drilling
costs
55,116Oil and gas assets
– net
2,425,482Liabilities assumed
– accounts payable
(19,198)Liabilities assumed
– asset retirement obligation
(355,800)Non-controlling
interest
(748,021)Contributed
capital
(1,163,265)Net assets
acquired
$333,000





The following table summarizes, on an unaudited pro forma basis,
the results of operations of the Company as though the acquisition
had occurred as of May 1, 2017 and May 1, 2018 (the beginning of
each fiscal year). The pro-forma amounts presented are not
necessarily indicative of either the actual operation results had
the acquisition transaction occurred as of May 1, 2017 and May
1, 2018.





For
the Year Ended
April
30, 2019Petro
River
LBE
Partners
Pro-Forma
CombinedRevenue
$1,645,170
$300,342
$1,975,630Net income
(loss)
(5,105,107)
50,643
(5,054,464)Loss per share of
common share - basic and diluted
(0.48)

$(0.48)Weighted average
number of common shares outstanding - basic and
diluted
17,772,293

17,772,293





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For the Year
Ended
April 30,
2018Petro
River
LBE
Partners
Pro-Forma
CombinedRevenue
$723,409
$351,936
$1,075,345Net income
(loss)
(20,337,681)
8,709
(20,328,972)Loss per share of
common share - basic and diluted
(1.24)

$(1.21)Weighted average
number of common shares outstanding - basic and
diluted
16,546,093

16,846,093





At
April 30, 2019 the non–controlling interest in LBE was as
follows:





Non–controlling
interest at April 30, 2018
$-Acquisition of
non–controlling interest in LBE Partners
acquisition
748,021Contributions from
non–controlling interest
300,000Non–controlling
share of net loss
(396,859)Non–controlling
interest at April 30, 2019
$651,162








MegaWest Exchange Transaction





On January 31, 2018, the Company entered into an Assignment and
Assumption of Membership Interest with MegaWest Energy
Kansas Corp. (“MegaWest”) (the “Assignment
Agreement”), whereby the
Company transferred its interest in MegaWest in exchange for a 50%
membership interest in Bandolier Energy LLC (“Bandolier”) (the“Bandolier
Interest”) then held by
MegaWest (the “Exchange
Transaction”), as a
result of the Bandolier Acquisition, as defined below. The Exchange
Transaction followed the receipt by the Company of a notice of
Redetermination, as defined below, of MegaWest’s assets,
including MegaWest’s interest in the Bandolier Interests
(together, “MegaWest
Assets”), conducted
by Fortis Property Group, LLC, a Delaware limited liability
company (“Fortis”).





The Redetermination was conducted pursuant to the Contribution
Agreement, pursuant to which the Board of MegaWest was entitled to
engage a qualified appraiser to determine the value of the MegaWest
Assets and Bandolier Interests, and upon the completion thereof
(a “Redetermination”),
in the event the MegaWest Assets were determined to be less than
$40.0 million, then a Shortfall, as defined in the
Contribution Agreement, exists. As a result, the Company would
be required to make cash contributions to MegaWest in an amount
equal to the amount of the Shortfall
(the “Shortfall Capital
Contribution”). The
Contribution Agreement further provided that, in the event that the
Company was unable to deliver to MegaWest the Shortfall Capital
Contribution required after the Redetermination, if any, MegaWest
would have the right to exercise certain remedies, including a
right to foreclose on the Company’s entire interest in
MegaWest. In the event of foreclosure, the Bandolier Interest
would revert back to the Company.





In lieu of engaging a qualified appraiser to quantify the Shortfall
Capital Contribution, and in lieu of requiring MegaWest to exercise
its remedies under the terms of the Contribution Agreement, the
Company and MegaWest entered into the Exchange Transaction. As
a result, the Company has no further rights or interest in
MegaWest, and MegaWest has no further rights or interest in any
assets associated with the Bandolier Interests. Pursuant to
the Contribution Agreement and Assignment Agreement, the Company
continues to be responsible for a reimbursement payment to MegaWest
in the amount of $259,313, together with interest accrued thereon
at an annual rate 10%, which will be due and payable one year after
the date of the Assignment Agreement and has been included as a
payable since January 31, 2018.








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As a result of the Redetermination, the Company recorded a loss on
redetermination of $11,914,204 reflecting the write-off of the
related assets, liabilities and non-controlling interests of
Fortis’ interest in MegaWest as shown below:





AssetsCash
and cash equivalents
$119,722Accounts
receivable - real estate - related party
1,146,885Accrued
interest on notes receivable - related party
1,390,731Interest
in Bandolier
259,313Notes
receivable - related party, current portion
26,344,883Total Assets
$29,261,534LiabilitiesAccounts
payable and accrued expenses
$74,212Deferred
tax liability
3,775,927Total Liabilities
3,850,139Non-controlling
interest
13,497,191Loss
on redetermination
$(11,914,204)





At the time the parties entered into the Contribution Agreement,
management anticipated that the market price for crude oil would
return to prices reached prior to 2015, and that additional wells
would be drilled, resulting in greater revenue from the Bandolier
Interests. Subsequent to the execution of the Contribution
Agreement, only two wells had been drilled as of January 2018. That
fact, together with the relatively low price of crude oil and the
anticipated delays in drilling additional wells to demonstrate the
value of the Bandolier Interests contributed to Fortis’
election to terminate the Contribution Agreement at the end of its
term, as amended. Had the market price of oil supported the value
of developing the Bandolier oil and gas properties at that time,
under the terms of the Contribution Agreement, Fortis would have
been required to fund the planned drilling program.





2.
Going Concern and Management’s Plan





The
accompanying consolidated financial statements have been prepared
on a going concern basis, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of
business. The Company has incurred significant operating losses
since its inception. As of April 30, 2019, the Company had an
accumulated deficit of approximately $56.2 million, had working
capital of approximately $170,000, and had cash and cash
equivalents of approximately $1.2 million. As a result of the
utilization of cash in its operating activities, and the
development of its assets, the Company has incurred losses since it
commenced operations. The Company’s primary source of
operating funds since inception has been debt and equity
financings. In addition, the Company has a limited operating
history prior to its acquisition of Bandolier. These
matters raise substantial doubt about the Company’s
ability to continue as a going concern for the twelve months
following the issuance of these financial statements.





The
consolidated financial statements do not include any adjustments
relating to the recoverability and classification of asset amounts
or the classification of liabilities that might be necessary should
the Company be unable to continue as a going concern.





Management
is focusing on specific target acquisitions and investments,
limiting operating expenses, and exploring farm-in and joint
venture opportunities for the Company’s oil and gas assets.
No assurances can be given that management will be successful. In
addition, Management intends to raise additional capital through
debt and equity instruments in order to execute its business,
operating and development plans. Management can provide no
assurances that the Company will be successful in its capital
raising efforts. In order to conserve capital, from time to time,
management may defer certain development activity.





3.
Basis of Preparation





The
accompanying consolidated financial statements are prepared in
accordance with generally accepted accounting principles in the
United States (“U.S.
GAAP”) and include the accounts of the Company and its
wholly owned subsidiaries. All material intercompany balances and
transactions have been eliminated in consolidation.
Non–controlling interest represents the minority equity
investment in the Company’s subsidiaries, plus the minority
investors’ share of the net operating results and other
components of equity relating to the non–controlling
interest.








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These
consolidated financial statements include the Company and the
following subsidiaries:





Bandolier
Energy, LLC; Horizon I Investments, LLC; and MegaWest Energy USA
Corp. and MegaWest Energy USA Corp.’s wholly owned
subsidiaries:





MegaWest
Energy Texas Corp.


MegaWest
Energy Kentucky Corp.


MegaWest
Energy Missouri Corp.





As a
result of the acquisition of membership interest in the Osage
County Concession in November 2017, Bandolier is now a wholly-owned
subsidiary of the Company and the Company consolidates 100% of the
financial information of Bandolier. Bandolier operates the
Company’s Oklahoma oil and gas properties.





As a
result of the acquisition of a 66.67% membership interest in LBE
Partners effective on September 24, 2018, LBE Partners is now a
subsidiary of the Company, and the Company consolidates the
financial information of LBE Partners with a non-controlling
interest in the remaining 33.33% membership interest. LBE Partners
has varying working interest in multiple oil fields located in
Texas.





Also
contained in the consolidated financial statements for the periods
ended April 30, 2019 and 2018 is the financial information of
MegaWest, which prior to January 31, 2018 was 58.51% owned by the
Company. The consolidated financial statements for the year ended
April 30, 2018 include the results of operations of MegaWest;
however, the assets and liabilities were written off in the year
ended April 30, 2018.





4.
Significant Accounting Policies





(a)

Use of
Estimates:





The
preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates.





The
Company’s financial statements are based on a number of
significant estimates, including oil and natural gas reserve
quantities which are the basis for the calculation of depreciation,
depletion and impairment of oil and natural gas properties, and
timing and costs associated with its asset retirement obligations,
as well as those related to the fair value of stock options, stock
warrants and stock issued for services. While we believe that
management’s estimates and assumptions used in preparation of
the financial statements are appropriate, actual results could
differ from those estimates.





(b)

Cash
and Cash Equivalents:





Cash
and cash equivalents include all highly liquid monetary instruments
with original maturities of three months or less when purchased.
These investments are carried at cost, which approximates fair
value. Financial instruments that potentially subject the Company
to concentrations of credit risk consist primarily of cash
deposits. The Company maintains its cash in institutions insured by
the Federal Deposit Insurance Corporation (“FDIC”). At times, the
Company’s cash and cash equivalent balances may be uninsured
or in amounts that exceed the FDIC insurance limits. The Company
has not experienced any loses on such accounts.





As of
April 30, 2019, approximately $752,000 exceed the FDIC insurance
limits.





(c)

Receivables:





Receivables
that management has the intent and ability to hold for the
foreseeable future are reported in the balance sheet at outstanding
principal adjusted for any charge-offs and the allowance for
doubtful accounts. Losses from uncollectible receivables are
accrued when both of the following conditions are met: (a)
information available before the financial statements are issued or
are available to be issued indicates that it is probable that an
asset has been impaired at the date of the financial statements,
and (b) the amount of the loss can be reasonably estimated. These
conditions may be considered in relation to individual receivables
or in relation to groups of similar types of receivables. If the
conditions are met, an accrual shall be made even though the
particular receivables that are uncollectible may not be
identifiable. The Company reviews each receivable individually for
collectability and performs on-going credit evaluations of its
customers and adjusts credit limits based upon payment history and
the customer’s current credit worthiness, as determined by
the review of their current credit information, and determines the
allowance for doubtful accounts based on historical write-off
experience, customer specific facts and general economic conditions
that may affect a client’s ability to pay. Bad debt expense
is included in general and administrative expenses, if
any.








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Credit
losses for receivables (uncollectible receivables), which may be
for all or part of a particular receivable, shall be deducted from
the allowance. The related receivable balance shall be charged off
in the period in which the receivables are deemed uncollectible.
Recoveries of receivables previously charged off shall be recorded
when received. The Company charges off its account receivables
against the allowance after all means of collection have been
exhausted and the potential for recovery is considered
remote.





The
allowance for doubtful accounts at April 30, 2019 and 2018 was
$0.





(d)

Oil and
Gas Operations:





Oil and Gas Properties: The Company uses the full-cost
method of accounting for its exploration and development
activities. Under this method of accounting, the costs of both
successful and unsuccessful exploration and development activities
are capitalized as oil and gas property and equipment. Proceeds
from the sale or disposition of oil and gas properties are
accounted for as a reduction to capitalized costs unless the gain
or loss would significantly alter the relationship between
capitalized costs and proved reserves of oil and natural gas
attributable to a country, in which case a gain or loss would be
recognized in the consolidated statements of operations. All of the
Company’s oil and gas properties are located within the
continental United States, its sole cost center.





Oil and
gas properties may include costs that are excluded from costs being
depleted. Oil and gas costs excluded represent investments in
unproved properties and major development projects in which the
Company owns a direct interest. These unproved property costs
include non-producing leasehold, geological and geophysical costs
associated with leasehold or drilling interests and in process
exploration drilling costs. All costs excluded are reviewed at
least annually to determine if impairment has
occurred.





Long-lived
assets are reviewed for impairment whenever events or changes in
circumstances indicate that the historical cost carrying value of
an asset may no longer be appropriate. As of April 30, 2019 and
2018, management engaged a third party to perform an independent
study of the oil and gas assets. The Company recorded total
impairment of $984,774 and $1,733,932 to the consolidated
statements of operations for the years ended April 30, 2019 and
2018, respectively.





Proved Oil and Gas Reserves: Proved oil and gas reserves are
the estimated quantities of crude oil, natural gas and natural gas
liquids which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known
reservoirs under existing economic and operating conditions. All of
the Company’s oil and gas properties with proved reserves
were impaired to the salvage value prior to the Company’s
acquisition of its interest in Bandolier. The price used to
establish economic viability is the average price during the
12-month period preceding the end of the entity’s fiscal year
and calculated as the un-weighted arithmetic average of the
first-day-of-the-month price for each month within such 12-month
period.





Depletion, Depreciation and Amortization:Depletion,
depreciation and amortization is provided using the
unit-of-production method based upon estimates of proved oil and
gas reserves with oil and gas production being converted to a
common unit of measure based upon their relative energy content.
Investments in unproved properties and major development projects
are not amortized until proved reserves associated with the
projects can be determined or until impairment occurs. If the
results of an assessment indicate that the properties are impaired,
the amount of the impairment is deducted from the capitalized costs
to be amortized. Once the assessment of unproved properties is
complete and when major development projects are evaluated, the
costs previously excluded from amortization are transferred to the
full cost pool and amortization begins. The amortizable base
includes estimated future development costs and, where significant,
dismantlement, restoration and abandonment costs, net of estimated
salvage value.





In
arriving at rates under the unit-of-production method, the
quantities of recoverable oil and natural gas reserves are
established based on estimates made by the Company’s
geologists and engineers, which require significant judgment, as
does the projection of future production volumes and levels of
future costs, including future development costs. In addition,
considerable judgment is necessary in determining when unproved
properties become impaired and in determining the existence of
proved reserves once a well has been drilled. All of these
judgments may have significant impact on the calculation of
depletion expenses. There have been no material changes in the
methodology used by the Company in calculating depletion,
depreciation and amortization of oil and gas properties under the
full cost method during the years ended April 30, 2019 and
2018.





(e)

Impairment
of Long-Lived Assets:





The
Company assesses the recoverability of its long-lived assets when
there are indications that the assets might be impaired. When
evaluating assets for potential impairment, the Company compares
the carrying value of the asset to its estimated undiscounted
future cash flows. If an asset’s carrying value exceeds
such estimated cash flows (undiscounted and with interest charges),
the Company records an impairment charge for the
difference.








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  Table of Contents








(f)

Asset
Retirement Obligations:





The
Company recognizes a liability for the estimated fair value of site
restoration and abandonment costs when the obligations are legally
incurred and the fair value can be reasonably estimated. The fair
value of the obligations is based on the estimated cash flow
required to settle the obligations discounted using the
Company’s credit adjusted risk-free interest rate. The
obligation is recorded as a liability with a corresponding increase
in the carrying amount of the oil and gas assets. The capitalized
amount will be depleted on a unit-of-production method. The
liability is increased each period, or accretes, due to the passage
of time and a corresponding amount is recorded in the consolidated
statements of operations.





Revisions
to the estimated fair value would result in an adjustment to the
liability and the capitalized amount in oil and gas
assets.





(g)
Fair
Value of Financial Instruments:





The
Company follows paragraph 825-10-50-10 of the FASB Accounting
Standards Codification for disclosures about fair value of its
financial instruments and paragraph 820-10-35-37 of the FASB
Accounting Standards Codification (“Paragraph 820-10-35-37”) to
measure the fair value of its financial instruments. Paragraph
820-10-35-37 establishes a framework for measuring fair value in
U.S. GAAP and expands disclosures about fair value measurements. To
increase consistency and comparability in fair value measurements
and related disclosures, Paragraph 820-10-35-37 establishes a fair
value hierarchy that prioritizes the inputs to valuation techniques
used to measure fair value into three (3) broad levels. The fair
value hierarchy gives the highest priority to quoted prices
(unadjusted) in active markets for identical assets or liabilities
and the lowest priority to unobservable inputs. The three (3)
levels of fair value hierarchy defined by Paragraph 820-10-35-37
are described below:





Level 1
     Quoted market prices available in active
markets for identical assets or liabilities as of the reporting
date.





Level
2      Pricing inputs other than quoted
prices in active markets included in Level 1, which are either
directly or indirectly observable as of the reporting
date.





Level 3
     Pricing inputs that are generally observable
inputs and not corroborated by market data.





Financial
assets are considered Level 3 when their fair values are determined
using pricing models, discounted cash flow methodologies or similar
techniques and at least one significant model assumption or input
is unobservable.





The
fair value hierarchy gives the highest priority to quoted prices
(unadjusted) in active markets for identical assets or liabilities
and the lowest priority to unobservable inputs. If the inputs used
to measure the financial assets and liabilities fall within more
than one level described above, the categorization is based on the
lowest level input that is significant to the fair value
measurement of the instrument.





The
carrying amount of the Company’s financial assets and
liabilities, such as cash, prepaid expenses, and accounts payable
and accrued liabilities approximate their fair value because of the
short maturity of those instruments.





Transactions
involving related parties cannot be presumed to be carried out on
an arm’s-length basis, as the requisite conditions of
competitive, free-market dealings may not exist. Representations
about transactions with related parties, if made, shall not imply
that the related party transactions were consummated on terms
equivalent to those that prevail in arm’s-length transactions
unless such representations can be substantiated.





(h)
Preferred
Stock:





The
Company applies the accounting standards for distinguishing
liabilities from equity under U.S. GAAP when determining the
classification and measurement of its preferred stock. Preferred
shares subject to mandatory redemption are classified as liability
instruments and are measured at fair value. Conditionally
redeemable preferred shares (including preferred shares that
feature redemption rights that are either within the control of the
holder or subject to redemption upon the occurrence of uncertain
events not solely within the Company’s control) are
classified as temporary equity. At all other times, preferred
shares are classified as permanent equity.








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(i)
Derivative
Liabilities:





The
Company evaluates its options, warrants, convertible notes, or
other contracts, if any, to determine if those contracts or
embedded components of those contracts qualify as derivatives to be
separately accounted for in accordance with paragraph 815-10-05-4
and Section 815-40-25 of the FASB Accounting Standards
Codification. The result of this accounting treatment is that the
fair value of the embedded derivative is marked-to-market each
balance sheet date and recorded as either an asset or a liability.
The change in fair value is recorded in the consolidated statement
of operations as other income or expense. Upon conversion, exercise
or cancellation of a derivative instrument, the instrument is
marked to fair value at the date of conversion, exercise or
cancellation and then the related fair value is reclassified to
equity.





In
circumstances where the embedded conversion option in a convertible
instrument is required to be bifurcated and there are also other
embedded derivative instruments in the convertible instrument that
are required to be bifurcated, the bifurcated derivative
instruments are accounted for as a single, compound derivative
instrument.





The
classification of derivative instruments, including whether such
instruments should be recorded as liabilities or as equity, is
re-assessed at the end of each reporting period. Equity instruments
that are initially classified as equity that become subject to
reclassification are reclassified to liability at the fair value of
the instrument on the reclassification date. Derivative instrument
liabilities will be classified in the balance sheet as current or
non-current based on whether or not net-cash settlement of the
derivative instrument is expected within 12 months of the balance
sheet date.





The
Company adopted Section 815-40-15 of the FASB Accounting Standards
Codification (“Section
815-40-15”)to determine whether an
instrument (or an embedded feature) is indexed to the
Company’s own stock.  Section 815-40-15 provides
that an entity should use a two-step approach to evaluate whether
an equity-linked financial instrument (or embedded feature) is
indexed to its own stock, including evaluating the
instrument’s contingent exercise and settlement
provisions.





The
Company utilizes a binomial option pricing model to compute the
fair value of the derivative liability and to mark to market the
fair value of the derivative at each balance sheet date. The
Company records the change in the fair value of the derivative as
other income or expense in the consolidated statements of
operations.





The
Company had derivative liabilities of $4,191,754 and $0 as of April
30, 2019 and 2018, respectively.





(j)

Income
Taxes:





Income Tax Provision





The
Company utilizes the asset and liability method in accounting for
income taxes. Under this method, deferred tax assets and
liabilities are recognized for operating loss and tax credit
carry-forwards and for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the year in which
those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in the results of operations in
the period that includes the enactment date. A valuation allowance
is recorded to reduce the carrying amounts of deferred tax assets
unless it is more likely than not that the value of such assets
will be realized.





The
Company may recognize the tax benefit from an uncertain tax
position only if it is more likely than not that the tax position
will be sustained on examination by the taxing authorities, based
on the technical merits of the position. The tax benefits
recognized in the financial statements from such a position should
be measured based on the largest benefit that has a greater than
fifty percent (50%) likelihood of being realized upon ultimate
settlement.





The
estimated future tax effects of temporary differences between the
tax basis of assets and liabilities are reported in the
accompanying consolidated balance sheets, as well as tax credit
carry-backs and carry-forwards. The Company periodically reviews
the recoverability of deferred tax assets recorded on its
consolidated balance sheets and provides valuation allowances as
management deems necessary.





Management
makes judgments as to the interpretation of the tax laws that might
be challenged upon an audit and cause changes to previous estimates
of tax liability. In addition, the Company operates within multiple
taxing jurisdictions and is subject to audit in these
jurisdictions. In management’s opinion, adequate provisions
for income taxes have been made for all years. If actual taxable
income by tax jurisdiction varies from estimates, additional
allowances or reversals of reserves may be necessary.








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Uncertain Tax Positions





The
Company evaluates uncertain tax positions to recognize a tax
benefit from an uncertain tax position only if it is more likely
than not that the tax position will be sustained on examination by
the taxing authorities based on the technical merits of the
position. Those tax positions failing to qualify for initial
recognition are recognized in the first interim period in which
they meet the more likely than not standard or are resolved through
negotiation or litigation with the taxing authority, or upon
expiration of the statute of limitations. De-recognition of a tax
position that was previously recognized occurs when an entity
subsequently determines that a tax position no longer meets the
more likely than not threshold of being sustained.





At April 30, 2019 and 2018, the Company had $0 and $0,
respectively, of liabilities for uncertain tax positions.
Interpretation of taxation rules relating to net operating loss
utilization in real estate transactions give rise to uncertain
positions. In connection with the uncertain tax position, there was
no interest or penalties recorded as the position is expected but
the tax returns are not yet due.





The
Company is subject to ongoing tax exposures, examinations and
assessments in various jurisdictions. Accordingly, the Company may
incur additional tax expense based upon the outcomes of such
matters. In addition, when applicable, the Company will adjust tax
expense to reflect the Company’s ongoing assessments of such
matters, which require judgment and can materially increase or
decrease its effective rate as well as impact operating
results.





The
number of years with open tax audits varies depending on the tax
jurisdiction. The Company’s major taxing jurisdictions
include the United States (including applicable
states).





(k)

Revenue
Recognition:





ASU
2014-09, “Revenue from
Contracts with Customers (Topic 606),” supersedes the
revenue recognition requirements and industry-specific guidance
under Revenue Recognition (Topic
605). Topic 606 requires an entity to recognize revenue when
it transfers promised goods or services to customers in an amount
that reflects the consideration the entity expects to be entitled
to in exchange for those goods or services. The Company adopted
Topic 606 on May 1, 2018, using the modified retrospective method
applied to contracts that were not completed as of January 1, 2018.
Under the modified retrospective method, prior period financial
positions and results will not be adjusted. The cumulative effect
adjustment recognized in the opening balances included no
significant changes as a result of this adoption. Although the
Company does not expect 2018 net earnings to be materially impacted
by revenue recognition timing changes, Topic 606 requires certain
changes to the presentation of revenue and related expense
beginning May 1, 2018. Refer to Note 12 – Revenue from Contracts with Customers
for additional information.





The
Company’s revenue is comprised of revenue from exploration
and production activities as well as royalty revenue related to a
royalty interest agreement executed in February 2018. The
Company’s oil is sold primarily to marketers, gatherers, and
refiners. Natural gas is sold primarily to interstate and
intrastate natural-gas pipelines, direct end-users, industrial
users, local distribution companies, and natural-gas marketers.
NGLs are sold primarily to direct end-users, refiners, and
marketers. Payment is generally received from the customer in the
month following delivery.





Contracts
with customers have varying terms, including spot sales or
month-to-month contracts, contracts with a finite term, and
life-of-field contracts where all production from a well or group
of wells is sold to one or more customers. The Company recognizes
sales revenue for oil, natural gas, and NGLs based on the amount of
each product sold to a customer when control transfers to the
customer. Generally, control transfers at the time of delivery to
the customer at a pipeline interconnect, the tailgate of a
processing facility, or as a tanker lifting is completed. Revenue
is measured based on the contract price, which may be index-based
or fixed, and may include adjustments for market differentials and
downstream costs incurred by the customer, including gathering,
transportation, and fuel costs.





Revenue
is recognized for the sale of the Company’s net share of
production volumes. Sales on behalf of other working interest
owners and royalty interest owners are not recognized as
revenue.





(l)

Stock-Based
Compensation:





Generally,
all forms of stock-based compensation, including stock option
grants, warrants, and restricted stock grants are measured at their
fair value utilizing an option pricing model on the award’s
grant date, based on the estimated number of awards that are
ultimately expected to vest.





Under
fair value recognition provisions, the Company recognizes
equity–based compensation net of an estimated forfeiture rate
and recognizes compensation cost only for those shares expected to
vest over the requisite service period of the award.








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The
fair value of an option award is estimated on the date of grant
using the Black–Scholes option valuation model. The
Black–Scholes option valuation model requires the development
of assumptions that are input into the model. These assumptions are
the expected stock volatility, the risk–free interest rate,
the option’s expected life, the dividend yield on the
underlying stock and the expected forfeiture rate. Expected
volatility is calculated based on the historical volatility of the
Company’s common stock over the expected option life and
other appropriate factors. Risk–free interest rates are
calculated based on continuously compounded risk–free rates
for the appropriate term. The dividend yield is assumed to be zero,
as the Company has never paid or declared any cash dividends on its
common stock and does not intend to pay dividends on the common
stock in the foreseeable future. The expected forfeiture rate is
estimated based on historical experience.





Determining
the appropriate fair value model and calculating the fair value of
equity–based payment awards requires the input of the
subjective assumptions described above. The assumptions used in
calculating the fair value of equity–based payment awards
represent management’s best estimates, which involve inherent
uncertainties and the application of management’s judgment.
As a result, if factors change and the Company uses different
assumptions, the equity–based compensation expense could be
materially different in the future. In addition, the Company is
required to estimate the expected forfeiture rate and recognize
expense only for those shares expected to vest. If the actual
forfeiture rate is materially different from the Company’s
estimate, the equity–based compensation expense could be
significantly different from what the Company has recorded in the
current period.





The
Company determines the fair value of the stock–based payments
to non-employees as either the fair value of the consideration
received or the fair value of the equity instruments issued,
whichever is more reliably measurable. If the fair value of
the equity instruments issued is used, it is measured using the
stock price and other measurement assumptions as of the earlier of
either (1) the date at which a commitment for performance by the
counterparty to earn the equity instruments is reached, or (2) the
date at which the counterparty’s performance is
complete.





The
expense resulting from stock-based compensation is recorded as
general and administrative expenses in the consolidated statement
of operations, depending on the nature of the services
provided.





(m)

Per
Share Amounts:





Basic
net income (loss) per common share is computed by dividing net loss
attributable to stockholders by the weighted-average number of
shares of common stock outstanding during the period. Diluted net
income (loss) per common share is determined using the
weighted-average number of common shares outstanding during the
period, adjusted for the dilutive effect of common stock
equivalents. For the years ended April 30, 2019 and 2018,
potentially dilutive securities were not included in the
calculation of diluted net loss per share because to do so would be
anti-dilutive.





The
Company had the following common stock equivalents at April 30,
2019 and 2018:





April
30,
2019
April
30,
2018Series A Preferred
Shares
21,770,150
-Stock
options
2,607,385
2,555,385Stock purchase
warrants
11,128,706
2,223,669Total
35,506,241
4,779,054





(n)

Recent
Accounting Pronouncements:





In
February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” which
will require recognition on the balance sheet for the rights and
obligations created by leases with terms greater than twelve
months. The new standard is effective for fiscal years and interim
periods within those years beginning after December 15, 2018, with
early adoption permitted. The Company plans to adopt this guidance
at the beginning of its first quarter of fiscal 2020 and plans to
utilize the transition option which does not require application of
the guidance to comparative periods in the year of adoption. While
the Company continues to evaluate this standard and the effect on
related disclosures, the primary effect of adoption will be
recording right-of-use assets and corresponding lease obligations
for current operating leases. The adoption is expected to have an
impact on the Company’s consolidated balance sheets, but not
on the consolidated statements of income or cash flows. However,
the ultimate impact of adopting ASU 2016-02 will depend on the
Company’s lease portfolio as of the adoption date.
Additionally, the Company is in the process of reviewing current
accounting policies, changes to business processes, systems and
controls to support adoption of the new standard.








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  Table of Contents





In September
2016,the FASB issued
ASU 2016-13,Financial
Instruments - Credit Losses. ASU 2016-13 was
issued to provide more decision-useful information about the
expected credit losses on financial instruments and changes the
loss impairment methodology. ASU 2016-13 is effective for
reporting periods beginning after December 15, 2019 using
a modified retrospective adoption method. A prospective transition
approach is required for debt securities for which an
other-than-temporary impairment had been recognized before the
effective date. The Company is currently assessing the impact this
accounting standard will have on its financial statements and
related disclosures.





In June
2018, the FASB issued Accounting Standards Update (ASU) No.
2018-07, Compensation –
Stock Compensation (Topic 718): Improvements to Nonemployee
Share-Based Payment Accounting. Under the new standard,
companies will no longer be required to value non-employee awards
differently from employee awards. Companies will value all equity
classified awards at their grant-date under ASC 718 and forgo
revaluing the award after the grant date. ASU 2018-07 is effective
for annual reporting periods beginning after December 15, 2018,
including interim reporting periods within that reporting period.
Early adoption is permitted, but no earlier than the
Company’s adoption date of Topic 606, Revenue from Contracts with Customers
(as described above under “Revenue Recognition”). The
Company does not believe the new standard will have a significant
impact on its consolidated financial statements.





In
August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820):
Disclosure Framework—Changes to the Disclosure Requirements
for Fair Value Measurement”. This update is to improve
the effectiveness of disclosures in the notes to the financial
statements by facilitating clear communication of the information
required by U.S. GAAP that is most important to users of each
entity’s financial statements. The amendments in this update
apply to all entities that are required, under existing U.S. GAAP,
to make disclosures about recurring or nonrecurring fair value
measurements. The amendments in this update are effective for all
entities for fiscal years beginning after December 15, 2019, and
interim periods within those fiscal years. The Company is currently
evaluating this guidance and the impact of this update on its
consolidated financial statements.





The
Company does not expect the adoption of any recently issued
accounting pronouncements to have a significant impact on its
financial position, results of operations, or cash
flows.





(o)

Subsequent
Events:





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





5.
Oil and Gas Assets





The
following table summarizes the oil and gas assets by
project:





Cost
Oklahoma
Texas
Larne
Basin
Other
(1)
TotalBalance, May 1,
2017
$1,232,192
$-
$761,444
$100,000
$2,093,636Additions
3,665,851
-
-
-
3,665,851Depreciation,
depletion and amortization
(146,141)
-
-
-
(146,141)Impairment of oil
and gas assets
(972,488)
-
(761,444)
-
(1,733,932)Balance, April 30,
2018
3,779,414
-
-
100,000
3,879,414Additions
1,307,720
2,431,419
-
-
3,739,139Depreciation,
depletion and amortization
(380,873)
(283,974)
-
-
(664,847)Impairment of oil
and gas assets
-
(984,774)
-
-
(984,774)Balance, April 30,
2019
$4,706,261
$1,162,671
$-
$100,000
$5,968,932





(1)
Other property consists primarily of four, used steam generators
and related equipment that will be assigned to future projects. As
of April 30, 2019 and 2018, management concluded that impairment
was not necessary as all other assets were carried at salvage
value.





Kern and Kay County Projects.On February 14, 2018, the
Company entered into a Purchase and Exchange Agreement with Red
Fork Resources (“Red
Fork”), pursuant to which (i) the Company agreed to
convey to Mountain View Resources, LLC, an affiliate of Red Fork,
100% of its 13.7% working interest in and to an area of mutual
interest (“AMI”) in the Mountain View
Project in Kern County, California, and (ii) Red Fork agreed to
convey to the Company 64.7% of its 85% working interest in and to
an AMI situated in Kay County, Oklahoma (the “Red Fork Exchange”). The fair value of the
assets acquired was $108,333 as of the effective date of the
agreement. Following the Red Fork Exchange, the Company and Red
Fork each retained a 2% overriding royalty interest in the projects
that they respectively conveyed. Under the terms of the Purchase
and Exchange Agreement, all revenue and costs, expense, obligations
and liabilities earned or incurred prior to January 1, 2018 (the
“Effective
Date”) shall be borne by the original owners of such
working interests, and all of such revenue and costs, expense,
obligations and liabilities that occur subsequent to the effective
date shall be borne by the new owners of such working
interests.





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  Table of Contents





The
acquisition of the additional concessions in Kay County, Oklahoma
added additional prospect locations adjacent to the Company’s
106,000-acre concession in Osage County, Oklahoma. The similarity
of the prospects in Kay and Kern County allows for the leverage of
assets, infrastructure and technical expertise.





Acquisition of Interest in Larne
Basin.On January
19, 2016, Petro River UK Limited, (“Petro UK”), a wholly owned subsidiary of the
Company, entered into a Farmout Agreement to acquire a 9% interest
in Petroleum License PL 1/10 and P2123 (the
“Larne
Licenses”) located in the
Larne Basin in Northern Ireland (the “Larne
Transaction”). The
two Larne Licenses, one onshore and one offshore, together
encompass approximately 130,000 acres covering the large majority
of the prospective Larne Basin. The other parties to the
Farmout Agreement are Southwestern Resources Ltd, a wholly owned
subsidiary of Horizon Energy, which acquired a 16% interest, and
Brigantes Energy Limited, which retained a 10% interest. Third
parties own the remaining 65% interest.





Under the terms of the Farmout Agreement, Petro UK deposited
approximately $735,000 into an escrow agreement
(“Escrow
Agreement”), which amount
represented Petro UK’s obligation to fund the total projected
cost to drill the first well under the terms of the Farmout
Agreement.The
total deposited amount to fund the cost to drill the first well is
approximately $6,159,452, based on an exchange rate of 1.0 British
Pound for 1.44 U.S. Dollars. Petro UK was and will continue to be
responsible for its pro-rata costs of additional wells drilled
under the Farmout Agreement. Drilling of the first well was
completed in June 2016 and was unsuccessful. The initial costs
incurred by the Company were reclassified from prepaid oil and gas
development costs to oil and gas assets not being amortized on the
consolidated balance sheets.





Oklahoma Properties. During the year ended April 30, 2019,
the Company recorded additions related to development costs
incurred of approximately $1.3 million for proven oil and gas
assets.





Texas Properties. Effective on September 24, 2018, the
Company acquired a 66.67% membership interest in LBE Partners from
ICO in exchange for 300,000 restricted shares of the
Company’s common stock. LBE Partners has varying working
interest in multiple oil and gas producing wells located in Texas.
The Company recorded additions of approximately $2,430,000 for oil
and gas assets related to this acquisition.





Impairment of Oil & Gas Properties.As of April 30, 2019,
the Company assessed its oil and gas assets for impairment and
recognized a charge of $984,774 related to its Texas oil and gas
properties. As of April 30, 2018, the Company assessed its oil and
gas assets for impairment and recognized a charge of $1,733,932
related to its Oklahoma and Larne Basin oil and gas
properties.





6.
Asset Retirement Obligations





The
total future asset retirement obligations were estimated based on
the Company’s ownership interest in all wells and facilities,
the estimated legal obligations required to retire, dismantle,
abandon and reclaim the wells and facilities and the estimated
timing of such payments. The Company estimated the present value of
its asset retirement obligations at both April 30, 2019 and 2018
based on a future undiscounted liability of $1,118,249 and
$728,091, respectively. These costs are expected to be incurred
within 1 to 42 years. A credit-adjusted risk-free discount rate of
10% and an inflation rate range of 1.5% to 2.66% were used to
calculate the present value.





Changes
to the asset retirement obligations were as follows:





Year
Ended
April
30,
2019
Year
Ended
April
30,
2018Balance, beginning
of period
$660,139
$558,696Additions
355,800
29,325Change in
estimates
15,695
61,633Disposals
-
-Accretion
17,557
10,4851,049,191
660,139Less: Current
portion for cash flows expected to be incurred within one
year
(720,442)
(413,794)Long-term portion,
end of period
$328,749
$246,345





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  Table of Contents





During
the year ended April 30, 2019 and 2018, the Company recorded
accretion expense of $17,557 and $10,485,
respectively.





Expected
timing of asset retirement obligations:





Year Ending April
30,2019
$720,4422020
-2021
-2022
-2023
-Thereafter
397,807Subtotal
1,118,249Effect of
discount
(69,058)Total
$1,049,191





7.
Related Party Transactions





Series A Financing





On
January 31, 2019, the Company entered into a Securities Purchase
Agreement with Scot Cohen, the Company’s Executive
Chairman, pursuant to which Mr. Cohen purchased $737,616 of
units in connection with the Series A Financing (the
“Cohen
Investment”). In addition, Mr. Cohen also converted
$300,000 and $18,583 of debt and accrued interest, respectively,
owed under the Cohen Loan Agreement, as set forth below, into units
pursuant to a Debt Conversion Agreement (the “Cohen Debt Conversion”). As a
result of the Cohen Investment and the Cohen Debt Conversion, the
Company issued Mr. Cohen an aggregate of 51,881 shares of Series A
Preferred and warrants to purchase 2,594,040 shares of the
Company’s common stock. For more information regarding this
transaction, see Note 1.





Acquisition of Membership Interest in LBE Partners





On October 2, 2018, the Company, ICO and LBE Partners entered into
the LBE Assignment Agreement and the LBE Purchase Agreement,
pursuant to which, effective September 24, 2018, the Company
purchased a 66.67% membership interest in LBE Partners from ICO in
exchange for 300,000 restricted shares of the Company’s
common stock to ICO. Both ICO and LBE Partners are managed by Mr.
Cohen. For more information regarding this transaction,
see Note 1.





Related Party Loan





On June
18, 2018, Bandolier entered into a loan agreement with Scot Cohen
(the “Cohen Loan
Agreement”), pursuant to which Mr. Cohen loaned the
Company $300,000 at a 10% annual interest rate, due on September
30, 2018. The purpose of the Cohen Loan Agreement was to provide
the Company with short-term financing in connection with the
Company’s drilling program in Osage County, Oklahoma. On
December 17, 2018, the maturity date of the loan was extended from
September 30, 2018 to March 31, 2019. On January 31, 2019, the
Company and Mr. Cohen entered into a Debt Conversion Agreement,
pursuant to which Mr. Cohen agreed to convert all outstanding debt
and accrued interest owed under the Cohen Loan Agreement into
units, consisting of an aggregate of 15,000 shares of Series A
Preferred and warrants to purchase 750,000 shares of Company common
stock, sold and issued in the Series A Financing. As a result, the
Cohen Loan Agreement was terminated and deemed satisfied in full.
For more information regarding the debt conversion, see Note 1.
Upon conversion of the note, the Company recorded a total loss on
debt extinguishment totaling $94,388, consisting of $35,920 from
Mr. Cohen’s loan and $58,468 from Fortis Oil &
Gas.





June 2017 $2.0 Million Secured Note Financing





Scot
Cohen owns or controls 31.25% of Funding Corp., the former holder
of the senior secured promissory note in the principal amount of
$2.0 million (the “June 2017
Secured Note”) issued by the Company on June 13, 2017.
The June 2017 Secured Note accrued interest at a rate of 10% per
annum and was scheduled to mature on June 30, 2020. The June 2017
Secured Note is presented as “Note payable – related
party, net of debt discount” on the consolidated balance
sheets.





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  Table of Contents





On May
17, 2018, the parties executed an extension of the due date of the
first interest payment from June 1, 2018 to December 31, 2018.
As consideration for the interest payment extension, the Company
agreed to pay Funding Corp. an additional 10% of the interest due
June 1, 2018 on December 31, 2018. The Company accrued an
additional $19,160 of interest expense related to this extension.
On December 17, 2018, the parties executed a second extension of
the due date of the first interest payment from December 31, 2018
to March 31, 2019.





On
January 31, 2019, the Company and Funding Corp. entered into a
Secured Debt Conversion Agreement, pursuant to which Funding Corp.
agreed to convert the outstanding balance due under the June 2017
Secured Note, amounting to approximately $2.3 million, into 116,503
shares of Series A Preferred. As a result of the Secured Debt
Exchange, all indebtedness, liabilities and other obligations
arising under the June 2017 Secured Note were cancelled and deemed
satisfied in full.





In
connection with the issuance of the June 2017 Secured Note, the
Company issued to Funding Corp. warrants to purchase 840,336 shares
of the Company’s common stock (the “June 2017 Warrant”). Upon
issuance of the June 2017 Secured Note, the Company valued the June
2017 Warrant using the Black-Scholes Option Pricing model and
accounted for it using the relative fair value of $952,056 as debt
discount on the consolidated balance sheet. On January 31,
2019, as additional consideration for the conversion of the amounts
due under the June 2017 Secured Note, the Company agreed to (i)
reduce the exercise price of the June 2017 Warrant from $2.38 per
share to $0.50 per share, and (ii) to extend the expiration date of
the June 2017 Warrant to January 31, 2024. The Company computed the fair value of the
warrants directly preceding the modification and compared the fair
value to that of the modified warrants with new terms. The fair
value of the modified warrants was lower than the fair value of the
warrants preceding the modification; therefore, no accounting
treatment resulted from the modification.





As
additional consideration for the purchase of the June 2017 Secured
Note, the Company issued to Funding Corp. an overriding royalty
interest equal to 2% in all production from the Company’s
interest in the Company’s concessions located in Osage
County, Oklahoma, originally held by Spyglass, valued at $250,000,
which was recorded as contributed capital, since no repayment was
required, and debt discount on the consolidated balance
sheet.





The
debt discount is amortized over the earlier of (i) the term of the
debt or (ii) conversion of the debt, using the effective interest
method. The amortization of debt discount is included as a
component of interest expense in the consolidated statements of
operations. There was unamortized debt discount of $0 as of April
30, 2019. During the years ended April 30, 2019 and 2018, the
Company recorded amortization of debt discount totaling $994,190
and $207,867, respectively.





As of
April 30, 2019 and 2018, the outstanding balance, net of debt
discount, was $0 and $1,005,812, respectively, and accrued interest
on the June 2017 Secured Note due to related party was $0 and
$174,065, respectively. As a result of the Secured Debt
Exchange, the June 2017 Secured Note was terminated as of January
31, 2019.





November 2017 $2.5 Million Secured Note Financing





Scot
Cohen owns or controls 41.20% of Funding Corp. II, the former
holder of the senior secured promissory note in the principal
amount of $2.5 million (the “November 2017 Secured Note”)
issued by the Company on November 6, 2017. The November 2017
Secured Note accrued interest at a rate of 10% per annum and was
scheduled to mature on June 30, 2020. The November 2017 Secured
Note is presented as “Note payable – related party, net
of debt discount” on the consolidated balance
sheets.





On May
17, 2018, the parties executed an extension of the due date of the
first interest payment from June 1, 2018 to December 31, 2018.
As consideration for the interest payment extension, the Company
agreed to pay Funding Corp. II an additional 10% of the interest
due on June 1, 2018 on December 31, 2018. The Company accrued
an additional $14,247 of interest expense related to this
extension. On December 17, 2018, the parties executed a second
extension of the due date of the first interest payment from
December 31, 2018 to March 31, 2019.





On
January 31, 2019, the Company and Funding Corp. II entered into a
Secured Debt Conversion Agreement, pursuant to which Funding Corp.
II agreed to convert the outstanding balance due under the November
2017 Secured Note, amounting to approximately $2.8 million, into
140,799 shares of Series A Preferred stock. As a result of the
Secured Debt Exchange, all indebtedness, liabilities and other
obligations arising under the November 2017 Secured Note were
cancelled and deemed satisfied in full.





In
connection with the issuance of the November 2017 Secured Note, the
Company issued to Funding Corp. II warrants to purchase 1.25
million shares of the Company’s common stock (the
“November 2017
Warrant”). Upon issuance of the November 2017 Note,
the Company valued the November 2017 Warrant using the
Black-Scholes Option Pricing model and accounted for it using the
relative fair value of $1,051,171 as debt discount on the
consolidated balance sheet. In relation to the financing, Scot
Cohen paid $250,000 for an overriding royalty interest from Funding
Corp. (as discussed below), which was recorded as additional debt
discount on the consolidated balance sheet. On January 31, 2019, as
additional consideration for the conversion of the amounts due
under the November 2017 Secured Note, the Company agreed to (i)
reduce the exercise price of the November 2017 Warrant from $2.00
per share to $0.50 per share, and (ii) extend the expiration date
of the November 2017 Warrant to January 31, 2024. The Company computed the fair value of the
warrants directly preceding the modification and compared the fair
value to that of the modified warrants with new terms. The fair
value of the modified warrants was lower than the fair value of the
warrants preceding the modification; therefore, no accounting
treatment resulted from the modification.








F-21
  Table of Contents





As
additional consideration for the purchase of the November 2017
Secured Note, the Company issued to Funding Corp. II an overriding
royalty interest equal to 2% in all production from the
Company’s interest in the Company’s concessions located
in Osage County, Oklahoma, originally held by Spyglass (the
“Existing Osage County Override”) then
transferred to Funding Corp. as inducement for the June 2017
Secured Note. The Existing Osage County Override was then acquired
by the Company from Mr. Cohen. As noted above, the override was
accounted for as a debt discount and amortized over the term of the
debt. In connection with
the January 2019 debt restructuring, Funding II assigned the 2%
overriding interest to the Company.





The
debt discount is amortized over the earlier of (i) the term of the
debt or (ii) conversion of the debt, using the effective interest
method. The amortization of debt discount is included as a
component of interest expense in the consolidated statements of
operations. There was unamortized debt discount of $0 as of April
30, 2019. During the years ended April 30, 2019 and 2018, the
Company recorded amortization of debt discount totaling $1,145,061
and $156,110, respectively.





As of
April 30, 2019 and 2018, the outstanding balance, net of debt
discount, was $0 and $1,354,938, respectively, and accrued interest
on the November 2017 Secured Note due to related party was $0 and
$120,548, respectively. As a result of the Secured Debt Exchange,
the November 2017 Secured Note was terminated as of January 31,
2019.





8.
Derivative Liabilities





As
discussed above in Note 1, on January 31, 2019, the Company sold
and issued an aggregate of 178,101 units, for an aggregate purchase
price of $3,562,015, to certain accredited investors and to certain
debtholders. The units sold and issued in the Offering included
five-year warrants to purchase 8,905,037 shares of Company common
stock, at an exercise price of $0.50 per share.





The
Company identified certain features embedded in the warrants
requiring the Company to classify the warrants as a derivative
liability; specifically, the warrants contain a fundamental
transaction provision that permits their settlement in cash at fair
value of the remaining unexercised portion of this Warrant at the
option of the holder upon the occurrence of a change in
control.





The
fair value of the derivative feature of the warrants on the date of
issuance and balance sheet date were calculated using a binomial
option model valued with the following weighted average
assumptions:





April
30,
2019
April
30,
2018Risk-free interest
rate
2.63% to
3.15%
2.30% to
2.95%Expected life of
grants
4
– 10 years
4
– 10 yearsExpected volatility
of underlying stock
151%
to 156%
159%
to 168%Dividends
0%
0%





As of
April 30, 2019, the derivative liability of the warrants was
$4,191,754. In addition, for the year ended April 30, 2019, the
Company recorded $525,352 as additional interest expense on the
statement of operations for the portion of the fair value of the
warrant that exceeded face value of the Series A Preferred shares
sold. The Company also recorded $41,410 as the change in the value
of the derivative liabilities.





9.
 Stockholders’
Equity





On
January 31, 2019, the Company filed the Series A COD with the
Secretary of State with the State of Delaware, designating 500,000
shares of the Company’s preferred stock as Series A
Preferred. On January 31, 2019, the Company sold and issued 178,101
shares of Series A Preferred to the New Investors and the Debt
Holders in connection with the Series A Financing. In addition, the
Company issued an aggregate of 257,302 shares of Series A Preferred
to Funding Corp. and Funding Corp. II in connection with the Senior
Secured Debt Exchange. See Note 1 for additional information
regarding the Series A Financing and the Senior Secured Debt
Exchange.





F-22
  Table of Contents








In May
2018, the Company granted a total of 260,000 shares of restricted
common stock to Scot Cohen and Steven Brunner in exchange for a
reduction in cash compensation with a fair value of approximately
$325,000, based on the market price of the Company’s common
stock on the grant date. The shares vest monthly in equal
installments over a 12-month period. During the year ended April
30, 2019, the Company recorded stock-based compensation of $297,916
related to these grants.





As
discussed in Note 1, on October 2, 2018, pursuant to the LBE
Purchase Agreement, the Company issued 300,000 shares of restricted
common stock to ICO in exchange for a 66.67% interest in LBE
Partners.





As discussed in Note 13, on October 4, 2018, the Company settled
the dispute with its former landlord in exchange for the issuance
of 68,807 shares of Company common stock, satisfying the
$75,000 liability related to the lease.








During the year ended April 30, 2018, the Company issued
15,145 shares of common stock related to a cashless exercise of
35,000 options.





Stock Options





As of
April 30, 2019, the Company has one equity incentive plan. The
number of shares reserved for issuance in aggregate under the plan
is limited to 120 million shares. The exercise price, term and
vesting schedule of stock options granted are set by the Board of
Directors at the time of grant. Stock options granted under the
plan may be exercised on a cashless basis, if such exercise is
approved by the Board. In a cashless exercise, the employee
receives a lesser amount of shares in lieu of paying the exercise
price based on the quoted market price of the shares on the trading
day immediately preceding the exercise date.





During the year ended April 30, 2019 and 2018, the Company computed
the fair value of the option utilizing a Black-Scholes
option-pricing model using the following assumptions:





April
30,
2019
April
30,
2018Risk-free interest
rate
2.63% to
3.15%
2.30% to
2.95%Expected life of
grants
4
– 10 years
4
– 10 yearsExpected volatility
of underlying stock
151%
to 156%
159%
to 168%Dividends
0%
0%





The
expected stock price volatility for the Company’s stock
options was estimated using the historical volatilities of the
Company’s common stock. Risk free interest rates were
obtained from U.S. Treasury rates for the applicable
periods.





The following table summarizes the option activity for the years
ended April 30, 2019 and 2018:





Options
Weighted
Average
Exercise
PricesOutstanding
– April 30, 2017
2,599,682
$2.13Granted
25,703
1.40Exercised
(35,000)
1.38Forfeited/Cancelled
(35,000)
1.38Outstanding
– April 30, 2018
2,555,385
2.14Granted
52,000
1.45Outstanding
– April 30, 2019
2,607,385
$2.13Exercisable
– April 30, 2019
2,566,619
$2.14





F-23
  Table of Contents





The
following table summarizes information about the options
outstanding and exercisable at April 30, 2019:





Options Outstanding
Options ExercisableExercise Price
Options
Weighted Avg. Life
Remaining
(years)
Options
Weighted Average Exercise Price$1.30
12,000
0.04
12,000
$0.01$1.38
1,795,958
7.34
1,775,192
$0.95$1.40
25,703
8.64
25,703
$0.01$1.50
40,000
9.25
20,000
$0.01$1.98
5,000
7.27
5,000
$0.00$2.00
457,402
6.17
457,402
$0.36$2.87
65,334
5.81
65,334
$0.07$3.00
51,001
6.66
51,001
$0.06$3.39
12,000
6.89
12,000
$0.02$6.00
10,000
5.74
10,000
$0.02$12.00
132,987
4.52
132,987
$0.632,607,385

2,566,619Aggregate Intrinsic Value
$-

$-





During
the years ended April 30, 2019 and 2018, the Company expensed an
aggregate $199,752 and $906,591 to general and administrative
expenses for stock-based compensation pursuant to employment and
consulting agreements.





As of
April 30, 2019, the Company has $33,089 in unrecognized stock-based
compensation expense which will be amortized over a weighted
average exercise period of 6.97 years.





Warrants





As
discussed above, on January 31, 2019, the Company sold and issued
an aggregate of 178,101 units to certain accredited investors and
to certain debtholders. The units sold and issued in the Offering
included five-year warrants to purchase 8,905,037 shares of Company
common stock, at an exercise price of $0.50 per share. The relative
fair value of the warrants were estimated to be $4,209,148 using
the Black-Scholes option-pricing model.





The
relative fair values of $952,056 for the 840,336 June 2017 Warrants
granted in conjunction with the June 2017 Secured Note Financing
and $1,051,171 for the 1.25 million November 2017 Warrants granted
in connection with the November 2017 Secured Note Financing (as
discussed in Note 7) were estimated on the date of grant using the
Black-Scholes option-pricing model.





The assumptions used for the warrants granted during the years
ended April 30, 2019 and 2018 were as follows:





April
30,
2019
April
30,
2018Exercise
price
$0.50
$1.75 to 2.38Risk-free interest
rate
2.24% to
2.43%
1.49% to
1.73%Expected volatility
of underlying stock
141% to
144%
160%
to 170%Expected life of
grants
4
– 10 years
3
yearsDividends
0%
0%





The following table summarizes the warrant activity for the years
ended April 30, 2019 and 2018:





Number
of Warrants
Weighted Average
Exercise Price
Weighted Average Life RemainingOutstanding
and exercisable – April 30, 2017
133,333
$50.00
2.83Forfeited
-
-
-Granted/Expired
2,090,336
2.15
2.57Outstanding
and exercisable – April 30, 2018
2,223,669
5.02
2.57Forfeited
-
-
-Granted/Expired
8,905,037
0.50
3.81Outstanding
and exercisable – April 30, 2019
11,128,706
$1.09
4.71











F-24
  Table of Contents





The
aggregate intrinsic value of the outstanding warrants was
$659,772.





10.
Non-Controlling Interests





For the
years ended April 30, 2019 and 2018, the changes in the
Company’s non–controlling interest was as
follows:





Bandolier
MegaWest
LBE
TotalNon–controlling
interests at May 1, 2017
$(699,873)
$13,310,343
$-
$12,610,470Contribution of
real estate by non-controlling interest holders
785,298
(13,497,191)
-
(12,711,893)Non–controlling
interest share of income (losses)
(85,425)
186,848
-
101,423Non–controlling
interests at April 30, 2018
-
-
-
-Contribution by
non-controlling interest holders
-
-
1,048,021
1,048,021Non–controlling
interest share of income (losses)
-
-
(396,859)
(396,859)Non–controlling
interests at April 30, 2019
$-
$-
651,162
$651,162





As discussed above, as a result of the MegaWest Transaction and the
Membership Interest Assignment, the non-controlling interests in
Bandolier and Fortis’ interest in MegaWest were written down
to $0.





11.
Income Taxes





As of April 30, 2019, the Company had
approximately $30.8 million of net operating loss carryovers
(“NOLs”). The Federal NOLs generated
will not expire due to NOLs having an indefinite life as enacted in
the 2017 Tax Cuts and Jobs Act. The U.S. net operating
loss carryovers are subject to limitation under Internal Revenue
Code Section 382 should there be a greater than 50% ownership
change as determined under the regulations. Management has
determined that a change in ownership occurred as a result of the
Share Exchange on April 23, 2013. Therefore, the net operating loss
carryovers are subject to an annual limitation of approximately
$156,000. The Company impaired the NOLs at the time of the change
of ownership. Further the Company was limited in the recognition of
a pre-acquisition loss deduction due to a net built in loss in 2015
at the time of the ownership change.





The
income tax expense (benefit) consists of the
following:


For
the Year Ended
April
30,
2019
For
the Year Ended
April
30,
2018ForeignCurrent
$-
$-Deferred
-
-U.S.
FederalCurrentDeferred
(1,128,877)
(4,217,889)U.S. State &
LocalCurrent
-
-Deferred
(160,836)
(478,113)Change in valuation
allowance
1,289,713
5,029,205Income tax
provision (benefit)
$-
$333,203





In
assessing the realization of deferred tax assets, management
considers whether it is more likely than not that some portion or
all of the deferred tax assets will be realized. The ultimate
realization of deferred tax assets is dependent upon the generation
of future taxable income during the periods in which those
temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future
taxable income and tax planning strategies in making this
assessment. Based on this assessment management has established a
full valuation allowance against all of the deferred tax assets for
every period, since it is more likely than not that all of the
deferred tax assets will not be realized.





F-25
  Table of Contents





The
Company’s deferred tax assets (liabilities) consisted of the
effects of temporary differences attributable to the
following:





April
30, 2019
April
30, 2018U.S. net operating
loss carryovers
$9,220,074
$8,449,933Depreciation
2,316,141
2,156,408Impairment of oil and gas assets
5,087,832
4,851,566Accretion of asset
retirement obligation
143,716
139,545Stock-based
compensation
2,359,308
2,239,907Total deferred tax
assets
19,127,071
17,837,358Valuation
allowance
(19,127,071)
(17,837,358)Deferred tax asset,
net of valuation allowance
$-
$-





April
30, 2019
April
30, 2018Tax liability
– MegaWest
$-
$-Total deferred tax
liability
$-
$-





The
expected tax expense (benefit) based on the statutory rate is
reconciled with actual tax expense benefit as follows:





For
the Year Ended
April
30, 2019
For
the Year Ended
April
30, 2018U.S. federal
statutory rate
(21.00)%
(27.50)%State income tax,
net of federal benefit
(2.99)%
(3.12)%Change in
rate
0.00%
(1.20)%Other permanent
differences
0.55%
8.94%Change in valuation
allowance
23.44%
24.50%Income tax
provision (benefit)
0.00%
1.62%





12.
Revenue from Contracts with Customers





Change in Accounting Policy. The Company adopted ASU
2014-09, “Revenue from
Contracts with Customers (Topic 606),” on May 1, 2018,
using the modified retrospective method applied to contracts that
were not completed as of May 1, 2018. Refer to Note 4
–Significant Accounting
Policies for additional information.





Exploration and Production. There were no significant
changes to the timing or valuation of revenue recognized for sales
of production from exploration and production
activities.





Disaggregation of Revenue from Contracts with Customers. The
following table disaggregates revenue by significant product type
for the year ended April 30, 2019 and 2018:





For the Year
Ended
April 30,
2019
For the Year
Ended
April 30,
2018Oil
sales
$1,576,432
$713,109Natural gas
sales
45,645
10,300Royalty
revenue
23,093
-Total revenue from
customers
$1,645,170
$723,409





There
were no significant contract liabilities or transaction price
allocations to any remaining performance obligations as of April
30, 2019 and 2018.





F-26
  Table of Contents





13.
Contingency and Contractual Obligations





Pending Litigation





(a) In January 2010, the Company experienced a flood in its Calgary
office premises as a result of a broken water pipe. There was
significant damage to the premises, rendering them unusable until
the landlord had completed remediation. Pursuant to the lease
contract, the Company asserted that rent should be abated during
the remediation process and accordingly, the Company did not pay
any rent after December 2009. During the remediation process, the
Company engaged an independent environmental testing company to
test for air quality and for the existence of other potentially
hazardous conditions. The testing revealed the existence of
potentially hazardous mold and the consultant provided specific
written instructions for the effective remediation of the premises.
During the remediation process, the landlord did not follow the
consultant’s instructions and correct the potentially
hazardous mold situation, and subsequently in June 2010 gave notice
and declared the premises to be ready for occupancy. The Company
re-engaged the consultant to re-test the premises and the testing
results again revealed the presence of potentially hazardous mold.
The Company determined that the premises were not fit for
re-occupancy and considered the landlord to be in default of the
lease. The Landlord subsequently terminated the lease.





On January 30, 2014, the landlord filed a Statement of Claim
against the Company for rental arrears in the amount aggregating
CAD $759,000 (approximately USD $564,000 as of April 30, 2019). The
Company filed a defense and on October 20, 2014, it filed a summary
judgment application stating that the landlord’s claim is
barred, as it was commenced outside the 2-year statute of
limitation period under the Alberta Limitations Act. The landlord
subsequently filed a cross-application to amend its Statement of
Claim to add a claim for loss of prospective rent in an amount of
CAD $665,000 (approximately USD $494,000 as of April 30, 2018). The
applications were heard on June 25, 2015and the court
allowed both the Company’s summary judgment application and
the landlord’s amendment application. Both of these orders
were appealed though two levels of the Alberta courts and the
appeals were dismissed at both levels. The net effect is that the
landlord's claim for loss of prospective rent is to proceed.
On October
4, 2018, the Company and the landlord entered into a settlement
agreement under which all actions by the landlord and the Company
were dismissed for a payment by the Company to the landlord of
68,807 shares of common stock.





(b) In September 2013, the Company was notified by the Railroad
Commission of Texas (the “Railroad
Commission”) that the
Company was not in compliance with regulations promulgated by the
Railroad Commission. The Company was therefore deemed to have lost
its corporate privileges within the State of Texas and as a result,
all wells within the state would have to be plugged. The Railroad
Commission therefore collected $25,000 from the Company, which was
originally deposited with the Railroad Commission, to cover a
portion of the estimated costs of $88,960 to plug the wells. In
addition to the above, the Railroad Commission also reserved its
right to separately seek any remedies against the Company resulting
from its noncompliance.





(c) On August 11, 2014, Martha Donelson and John Friend amended
their complaint in an existing lawsuit by filing a class action
complaint styled:Martha Donelson and John
Friend, et al. v. United States of America, Department of the
Interior, Bureau of Indian Affairs and Devon Energy Production, LP,
et al.,Case No.
14-CV-316-JHP-TLW, United States District Court for the Northern
District of Oklahoma (the “Proceeding”). The plaintiffs added as defendants
twenty-seven (27) specifically named operators, including
Spyglass, as well as all Osage County lessees and operators
who have obtained a concession agreement, lease or drilling permit
approved by the Bureau of Indian Affairs
(“BIA”) in
Osage County allegedly in violation of National Environmental
Policy Act (“NEPA”). Plaintiffs seek a declaratory
judgment that the BIA improperly approved oil and gas leases,
concession agreements and drilling permits prior to August 12,
2014, without satisfying the BIA’s obligations under federal
regulations or NEPA, and seek a determination that such oil and gas
leases, concession agreements and drilling permits are
voidab initio. Plaintiffs are seeking damages against the
defendants for alleged nuisance, trespass, negligence and unjust
enrichment. The potential consequences of such complaint could
jeopardize the corresponding
leases.





On
October 7, 2014, Spyglass, along with other defendants, filed a
Motion to Dismiss the August 11, 2014 Amended Complaint on various
procedural and legal grounds. Following the significant briefing,
the Court, on March 31, 2016, granted the Motion to Dismiss as to
all defendants and entered a judgment in favor of the defendants
against the plaintiffs. On April 14, 2016, Spyglass with the other
defendants, filed a Motion seeking its attorneys’ fees and
costs. The motion remains pending. On April 28, 2016, the
Plaintiffs filed three motions: a Motion to Amend or Alter the
Judgment; a Motion to Amend the Complaint; and a Motion to Vacate
Order. On November 23, 2016, the Court denied all three of
Plaintiffs’ motions. On December 6, 2016, the Plaintiffs
filed a Notice of Appeal to the Tenth Circuit Court of
Appeals. That
appeal is pending as of the filing date of these financial
statements. There is no specific timeline by which the Court of
Appeals must render a ruling. Spyglass intends to continue to
vigorously defend its interest in this matter.








F-27
  Table of Contents





(d) MegaWest Energy Missouri Corp. (“MegaWest
Missouri”), a wholly
owned subsidiary of the Company, is involved in two cases related
to oil leases in West Central, Missouri. The first case
(James Long
and Jodeane Long v. MegaWest Energy Missouri and Petro River Oil
Corp., case number
13B4-CV00019)is a case for unlawful
detainer, pursuant to which the plaintiffs contend that MegaWest
Missouri oil and gas lease has expired and MegaWest Missouri is
unlawfully possessing the plaintiffs’ real property by
asserting that the leases remain in effect. The case was
originally filed in Vernon County, Missouri on September 20,
2013. MegaWest Missouri filed an Answer and Counterclaims on
November 26, 2013 and the plaintiffs filed a motion to dismiss the
counterclaims. MegaWest Missouri filed a motion for Change of Judge
and Change of Venue and the case was transferred to Barton County,
Missouri. In
September 2015, the parties reached a full and final settlement of
the claims and allegations related to the lease
agreements.





14.
Subsequent Events





None.





15.
Supplemental Information on Oil and Gas Operations
(Unaudited)





The
Company retains qualified independent reserves evaluators to
evaluate the Company’s proved oil reserves. For the year
ended April 30, 2019, the reports by Cawley, Gillespie &
Associate, Inc. (“CGA”) covered the percentage
interest of the Company’s proved oil reserves. For the year
ended April 30, 2018, the reports by Cawley, Gillespie &
Associate, Inc. (“CGA”) covered 75% of the
Company’s proved oil reserves.





Proved
oil and natural gas reserves, as defined within the SEC Rule
4-10(a)(22) of Regulation S-X, are those quantities of oil and gas,
which, by analysis of geoscience and engineering data can be
estimated with reasonable certainty to be economically producible
from a given date forward from known reservoirs, and under existing
economic conditions, operating methods and government regulations
prior to the time of which contracts providing the right to operate
expire, unless evidence indicates that renewal is reasonably
certain, regardless of whether determinable or probabilistic
methods are used for the estimation. The project to extract the
hydrocarbons must have commenced or the operator must be reasonably
certain that it will commence the project within a reasonable time.
Developed oil and natural gas reserves are reserves that can be
expected to be recovered from existing wells with existing
equipment and operating methods or in which the cost of the
required equipment is relatively minor compared to the cost of a
new well; and through installed extraction equipment and
infrastructure operational at the time of the reserves estimate is
the extraction is by means not involving a well. Estimates of the
Company’s oil reserves are subject to uncertainty and will
change as additional information regarding producing fields and
technology becomes available and as future economic and operating
conditions change.





F-28
  Table of Contents





The
following tables summarize the Company’s proved developed and
undeveloped reserves within the United States, net of royalties, as
of April 30, 2019 and 2018:





Oil
(MBbls)
2019
2018Proved
reserves as at May 1
496
167Extensions,
acquisitions and discoveries
-
-Purchase
of minerals
69
-Production
(30)
(12)Revisions
of prior estimates
(168)
341Total
Proved reserves as at April 30
368
496





Oil
(MBbls)
2019
2018Proved
developed producing
196
214Non-producing
28
30Proved
undeveloped
144
252Total
Proved reserves as at April 30
368
496





Gas
(MCFs)
2019
2018Proved reserves as
at May 1
511
279Extensions,
acquisitions and discoveries
-
-Dispositions
-
-Production
(22)
(6)Revisions of prior
estimates
186
238Total Proved
reserves as at April 30
675
511





Gas
(MCFs)
2019
2018Proved developed
producing
334
137Non-producing
28
25Proved
undeveloped
313
349Total Proved
reserves as at April 30
675
511





Capitalized Costs
Related to Oil and Gas Assets
2019
2018Proved
properties
$17,328,196
$12,729,430Unproved
properties
100,000
100,00017,428,196
12,829,430Less: accumulated
depletion and impairment
(11,459,264)
(8,950,016)$5,968,932
$3,879,414





Costs Incurred in
Oil and Gas Activities:
2019
2018Development
(1)
$1,313,657
$3,665,851Exploration
-
-Acquisition
2,425,482$3,739,139
$3,665,851





(1)
 The above
development oil and gas costs includes the oil and gas assets
totaling $2,425,482 acquired through the LBE Partners
acquisition.





F-29
  Table of Contents








The
following standardized measure of discounted future net cash flows
from proved oil reserves has been computed using the average
first-day-of-the-month price during the previous 12-month period,
costs as at the balance sheet date and year-end statutory income
tax rates. A discount factor of 10% has been applied in determining
the standardized measure of discounted future net cash flows. The
Company does not believe that the standardized measure of
discounted future net cash flows will be representative of actual
future net cash flows and should not be considered to represent the
fair value of the oil properties. Actual net cash flows will differ
from the presented estimated future net cash flows due to several
factors including:





●
Future
production will include production not only from proved properties,
but may also include production from probable and possible
reserves;●
Future
production of oil and natural gas from proved properties may differ
from reserves estimated;●
Future
production rates may vary from those estimated;●
Future
rather than average first-day-of-the-month prices during the
previous 12-month period and costs as at the balance sheet date
will apply;●
Economic
factors such as changes to interest rates, income tax rates,
regulatory and fiscal environments and operating conditions cannot
be determined with certainty;●
Future
estimated income taxes do not take into account the effects of
future exploration expenditures; and





●
Future
development and asset retirement obligations may differ from those
estimated.





Future
net revenues, development, production and restoration costs have
been based upon the estimates referred to above. The following
tables summarize the Company’s future net cash flows relating
to proved oil reserves based on the standardized measure as
prescribed in FASB ASC Topic 932 - “Extractive Activities - Oil and
Gas”:





Future cash flows
relating to proved reserves:
2019
2018Future cash
inflows
$24,636,000
$30,259,000Future operating
costs
(8,923,000)
(8,239,000)Future development
costs
(1,351,000)
(1,759,000)Future income
taxes
(1,749,000)
(2,147,000)Future net cash
flows
12,613,000
18,114,00010% discount
factor
(5,684,000)
(8,133,000)Standardized
measure
$6,929,000
$9,981,000





Summary of Changes in Standardized Measure of Discounted Future Net
Cash Flows





The
following table summarizes the principal sources of changes in
standardized measure of discounted future estimated net cash flows
at 10% per annum for the years ended April 30, 2019 and
2018:





2019
2018Standardized
measure, beginning of year
$9,981,000
$2,024,000Sales
of oil produced, net of production costs
2,534,000
3,070,000Net
changes in sales and transfer prices and in production costs and
production costs related to future production
(946,000)
(3,091,000)Previously
estimated development costs incurred during the period
-
-Changes
in future development costs
(408,000)
1,144,000Revisions
of previous quantity estimates due to prices and
performance
(671,000)
5,216,000Accretion
of discount
69,000
100,000Discoveries,
net future production and development costs associated with these
extensions and discoveries
-
-Purchases
and sales of minerals in place
2,839,000
-Timing
and other
(6,469,000)
1,518,000Standardized
measure, end of year
$6,929,000
$9,981,000








F-30
  Table of Contents








SIGNATURES





In
accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, as amended, the registrant caused this report to be signed
on its behalf by the undersigned, thereunto duly
authorized.





PETRO RIVER OIL CORP.By:
/s/ Scot CohenName:
Scot
CohenTitle:
Executive
ChairmanBy:
/s/ David BrionesName:
David
BrionesTitle
Chief
Financial OfficerDate:
August 13, 2019











Pursuant
to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the dates
indicated.





Signature

Title

Date/s/ Scot Cohen

Executive
Chairman and Director

August
13, 2019Scot
Cohen

(Principal
Executive Officer)/s/ David Briones

Chief
Financial Officer

August 13, 2019David
Briones

(Principal
Accounting Officer)/s/ Glenn C. Pollack

Director

August 13, 2019Glenn
C. Pollack/s/ John Wallace

Director

August 13, 2019John
Wallace/s/ Fred Zeidman

Director

August 13, 2019Fred
Zeidman














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