UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-K
 
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended April 30, 2016
 
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 5 th Avenue, Suite 1704, New York, New York 10003
(Address of Principal Executive Offices, Zip Code)
 
(347) 491-4011
(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: Common Stock, $0.00001 par value
 
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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [  ]
 
Indicate by check mark 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. (Check one):
 
Large accelerated filer [  ] Accelerated filer [  ] Non-accelerated filer [  ] Smaller reporting company [X]
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]
 
As of October 31, 2015, the aggregate market value of the registrant’s common stock held by non-affiliates was $4,382,387, based on the closing bid price of $1.96 per share on October 31, 2015, as reported on OTC Pink Marketplace.
 
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 July 29, 2016
Common Stock, $0.00001 par value per share
 
 15,827,997 shares
 
 


 

 
 
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-i-

 
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.
 
 
-ii-

 
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. The Company is focused on taking advantage of the current downturn in oil prices to enter highly prospective plays with industry-leading partners. Management believes that the Company’s diversification across multiple projects, each with low initial capital expenditures and strong risk reward characteristics, reduces risk and provides exposure to a number of attractive risk adjusted opportunities. Further, we seek to reduce costs and risks by adopting a conventional approach to our drilling program and developing our traditional core areas, as well as seeking new growth opportunities. Our current projects do not involve horizontal drilling or hydraulic fracking.
 
The Company’s core holdings are in the Mid-Continent Region in Oklahoma, Kern County, California and Larne Basin, Northern Ireland. The Company also holds indirect onshore and offshore acreage positions in Denmark and Dorsett, U.K. We believe that these opportunities have considerable future potential for the development of proven oil and gas reserves.
 
The execution of our 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, we plan to acquire high-quality oil and gas properties, primarily proved producing and proved undeveloped reserves. We also intend to explore low-risk development drilling and work-over opportunities.   Management is also exploring farm-in and joint venture opportunities for our oil and gas assets.
 
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:
 
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.
 
Limit our current exploration and acquisition activities to conventional oil plays with a projected breakeven price of $30 per barrel or less.   We intend to focus our resources on more easily recoverable conventional reserves.
 
During the current downturn, obtain price concessions from third party vendors , specifically those involved in our drilling and completion activities and day-to-day well maintenance.
 
Plan of Operation
 
The Company is currently engaged in oil and natural gas acquisition, exploration, development and production, with activities in Oklahoma and California 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 Partners, LLC (“ 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.
 
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 be 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, Kern County and Grapevine projects as de-risked because of the significant production history in the area and well-established industry activity surrounding the acreage.
 
Partnership with Horizon Energy . Following the acquisition of Horizon I Investments, LLC (“ Horizon Investments ”), the Company has an indirect interest, through Horizon Investment’s 20% ownership in Horizon Energy, in 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.
 
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, including two assets located in the United Kingdom, adjacent to the giant Wytch Farm oil field, the largest onshore oil field in Western Europe.  Other projects include the proposed redevelopment of a large oil field in Kern County, California and the development of an additional recent discovery in Kern County.  Each of the assets in the Horizon Energy portfolio is characterized by low initial capital expenditure requirements and strong risk reward characteristics.
 
Competitive Strengths
 
Financial flexibility . Our capital structure and high degree of operational control continues to provide us with significant financial flexibility. We have no corporate debt in our capital structure, 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.
 
Management experience . 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, Kern County, California, and the North Sea.
 
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. effective February 27, 2010, before changing it to Gravis Oil Corp. on June 20, 2011. On September 11, 2012, we re-organized under the laws of the State of Delaware as a corporation organized under the Delaware General Corporation Law. Prior to September 11, 2012, and at April 30, 2012, we were organized under the laws of Alberta, Canada.
 
Petro River Oil LLC (“ Petro ”), an indirect subsidiary of the Company and wholly owned subsidiary of MegaWest Energy Kansas Corp., was incorporated under the laws of the State of Delaware on March 3, 2011 (“ MegaWest ”). 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.
 
Share Exchange . On April 23, 2013, the Company executed and consummated a securities purchase agreement by and among the Company, Petro, and certain investors in Petro (the “ Investors ”), namely, the holders of outstanding secured promissory notes of Petro (the “ Notes ”), and those holding membership interests in Petro (the “ Membership Interests ”, and, together with the Notes, the “ Acquired Securities ”) sold by Petro (the “ Share Exchange ”). In the Share Exchange, the Investors exchanged their Acquired Securities for 591,021,011 newly issued shares of the Company's common stock (2,955,105 shares of common stock based on the December 2015 reverse stock split – see “Reverse Stock Split” below). Upon completion of the Share Exchange, Petro became a wholly owned subsidiary of the Company.
 
As a result of the Share Exchange, the Company acquired 100% of the membership units of Petro and consequently, control of Petro’s business and operations. Under generally accepted accounting principles in the United States (“ U.S. GAAP ”), because Petro’s former members and note holders held 80% of the issued and outstanding shares of the Company as a result of the Share Exchange, Petro was deemed the accounting acquirer while the Company remains the legal acquirer. Petro adopted the fiscal year of the Company. Prior to the Share Exchange, all historical financial statements presented are those of Petro. The equity of the Company is the historical equity of Petro, restated to reflect the number of shares issued by the Company in the transaction.
 
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 Energy, LLC (“ 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 $0.08 per share, subject to adjustment (the “ Option ”). The Option, if fully exercised, would result in the Company issuing 55,000,000 shares of its common stock (275,000 shares of common stock at a price of $16 per share based on the December 2015 reverse stock split – see “Reverse Stock Split” below), or 6% to the members of Pearsonia West. 

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.
 
 
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 Energy Group, LLC (“ 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 approximately 106,000 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.

On October 15, 2015, the Company indirectly transferred its controlling interest in Pearsonia West as a result of the transfer of the Company’s 50% membership interest in Bandolier to MegaWest under the terms of the Contribution Agreement, although the Company still retains a 29.26% indirect interest in Bandolier as a result of its interest in MegaWest.
  
Recent Developments

Divestiture of Missouri Properties.   Effective July 11, 2016, MegaWest Energy Missouri Corp (“ MegaWest Missouri ”) assigned its leaseholds covering approximately 320 acres in Grassy Creek, Missouri (the “ Grassy Creek Assets ”) to Paluca Petroleum, Inc. (“ Paluca ”) in furtherance of the Company’s corporate strategy to divest its legacy assets. Pursuant to the terms and conditions of the assignment, Paluca agreed to assume all liabilities associated with the Grassy Creek Assets and, as consideration for the assignment, granted MegaWest Missouri an overriding royalty interest equal to 4% of the value of all oil and gas assets produced and sold under the assigned lease.
 
Horizon Acquisition . On May 3, 2016 (the “ Closing Date ”), 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 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 amount issued under the Horizon Notes and the Closing Proceeds, total approximately $5.0 million (collectively, the “ Purchased Assets ”) (the “ Horizon Acquisition ”). The Horizon Acquisition was completed in accordance with the term and conditions of the Conditional Purchase Agreement first entered into by the Company and Horizon Investments on December 1, 2015 (the “ Purchase Agreement ”). Also on the Closing Date, 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.

As consideration for the Horizon Acquisition, and in accordance with the Purchase Agreement, as amended, the Company issued 11,564,250 shares of its common stock 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 Closing Date.

Kern County Project.   On March 4, 2016 (the " Closing Date "), the Company executed an Asset Purchase and Sale and Exploration Agreement (the " Agreement ") to acquire a 13.75% working interest in certain oil and gas leases 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 Agreement, the Company paid $108,333 to the sellers on the Closing Date, and is 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 Agreement. In addition, the sellers are entitled to an overriding royalty interest in certain existing and new leases acquired after the Closing Date, and the Company is required to make certain other payments, each in amounts set forth in the Agreement.
 
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 will acquire a 16% interest, and Brigantes Energy Limited, which will retain a 10% interest.  Third parties will 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 was approximately $6,159,452, based on an exchange rate of one British Pound for 1.44 U.S. Dollars. Petro UK was and continues 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. The primary objectives of the well were to (i) confirm the existence and maturity of the carboniferous source rock and (ii) test potential hydrocarbon-bearing objective zones. Unexpectedly, the overlying Permian section thickened considerably and at 2,000 meters, and several participants owning 55% of the working interest in the well (including Horizon Energy) expressed interest in deepening the well an additional 600 meters.  However, participants representing the other 45% of the interest were unwilling to fund their share of the additional costs, and without unanimity determined that continued drilling was impractical. The well has been plugged and the drilling rig has been demobilized from the location.  The drilling detected background gas shows in the drilling fluid, and samples were sent to Applied Petroleum Technology, (“ APT ”) an internationally recognized independent geochemical laboratory in Oslo, Norway. APT determined that the gas originated from a carboniferous source, providing evidence of nearby source rock and an active petroleum system. The samples were strikingly similar to a gas sample from a producing gas field in in Lancashire, England, just across the North Channel.

Historically, large basinal discoveries are found and developed only after thorough analysis of technical data derived from both seismic acquisition and drilling of wells. Management believes that Larne Basin continues to be a very attractive exploration opportunity based on technical merit, modest exploration costs, low political risk and excellent fiscal terms. The Company is continuing the exploration program by relocating to offshore targets and reprocessing seismic data.
 
 
Impairment of Oil & Gas Properties.   As of January 31, 2016, the Company assessed its oil and gas assets for impairment and recognized a charge of $5,951,622 related to the Oklahoma oil and gas property. The Company determined that it no longer planned to develop the Missouri oil and gas property and recognized an impairment charge of $918,991 for the assets remaining book value.
 
Divestiture of Kansas Properties.   Effective December 23, 2015, Petro, a wholly owned subsidiary of Megawest, divested various interests in oil and gas leases, wells, records, data and related personal property located along the Mississippi Lime play in the state of Kansas, which assets were acquired by Petro in 2012. In connection with the divestiture, the assignee and purchaser of the interests 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.  MegaWest is a 58.51% owned subsidiary of the Company following consummation of the MegaWest Transaction, defined below.
 
Reverse Stock Split.   On December 7, 2015 (the “ Effective Date ”), the Company effected a one for two hundred reverse split of its issued and outstanding common stock (the “ Reverse Split ”), and, immediately following the Reverse Split, filed an amendment to its Certificate of Incorporation with the Delaware Secretary of State to increase the Company's authorized number of shares of common stock to 100.0 million. Shareholders approved the reverse stock split at the Company’s annual meeting of shareholders held on July 8, 2015, and the specific ratio was subsequently determined at a meeting of the Company's Board of Directors on November 11, 2015.
 
MegaWest Transaction.   On October 15, 2015, the Company entered into a contribution agreement (the “ Contribution Agreement ”) with MegaWest and Fortis Property Group, LLC, a Delaware limited liability company (“ Fortis ”), pursuant to which the Company and Fortis each agreed to contribute certain assets to MegaWest in exchange for shares of MegaWest common stock (“ MegaWest Shares ”) (the “ MegaWest Transaction ”).
 
Upon execution of the Contribution Agreement, (i) the Company transferred its 50% membership interest in Bandolier with net assets of $7,119,798, and cancelled all of its ownership interest in the then issued and outstanding MegaWest Shares, which prior to the MegaWest Transaction represented 100% ownership of MegaWest; and (ii) Fortis transferred certain indirect interests held in 30 condominium units and the rights to any profits and proceeds therefrom, with a book value of $15,544,382, to MegaWest.  Immediately thereafter, MegaWest issued to the Company 58,510 MegaWest Shares, representing a 58.51% equity interest in MegaWest, as consideration for the assignment of the Bandolier Interest, and issued to Fortis 41,490 MegaWest Shares, representing a 41.49% equity interest in MegaWest, as consideration for the assets assigned to MegaWest by Fortis.  
 
Subject to the terms and conditions of the Contribution Agreement, the Contribution Agreement provided for a redetermination of the fair market value of the Bandolier Interest within six months after the execution thereof  (the “ Redetermination ”),  Upon a Redetermination, which has not occurred as of July 28, 2016, in the event there is a shortfall from the valuation ascribed to the Bandolier Interest at the time of the Redetermination, as compared to the value ascribed to the Bandolier Interest in the Contribution Agreement, the Company will be required to provide Fortis with a cash payment in an amount equal to the shortfall.  If the Company is unable to deliver to Fortis the cash payment required after the Redetermination, if any, the board of directors of MegaWest shall have the right to exercise certain remedies against the Company, including a right to foreclose on the Company’s entire equity in MegaWest, which equity interest has been pledged to Fortis under the terms of the Contribution Agreement.  In the event of foreclosure, the Bandolier Interest would revert back to the Company. 
 
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.
 
 
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.

Research and Development
 
Previously, we did not have any research and development policies in place. We formed Petro Spring, LLC, a wholly owned subsidiary, on December 12, 2013, to begin to focus on technology solutions related to the oil and gas industry.  During the year ended April 30, 2015, we purchased the Havelide and Coalthane Assets.  We are currently trying to determine a monetization strategy for these assets.
 
Employees
 
At April 30, 2016, we employed four full-time employees and no 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.

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.

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, which are currently depressed.  In the event lower prices for oil and natural gas continue for a prolonged period of time 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, which are currently depressed. 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 do not rise 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 continued 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 recently acquired 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.

We recently  purchased 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, while consistent with the Company’s business objective of acquiring leading edge technologies, are in the development stage, and require additional capital or a strategic partner in order to fully develop.  We are currently developing a strategy to monetize these assets through potential licensing, commercialization or an outright sale.  While management currently intends to seek financing or a development partner in order to fully develop the purchased assets, 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 revenues from operations and have limited assets. To date, we have acquired interests in oil and gas properties, but have not established a project on any of our properties that generates commercial revenues and there can be no assurance that we will ever operate profitably. 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 recoverable reserves or operate on a profitable basis. We are in the exploration stage and 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.
 
Because we are small and have a limited amount of capital, we may have to limit our exploration 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 activity. As such we may not be able to complete an exploration program that is as thorough as we would like. In that event, existing reserves may go undiscovered. Without finding reserves, we cannot generate revenues and you will lose your investment.
 
We had cash and cash equivalents at April 30, 2016 and 2015 of $774,751 and $1,010,543, respectively. At April 30, 2016, we had a working capital of approximately $4.7 million. Management believes that the current level of working capital is sufficient to maintain current operations for the next 12 months. To further develop the Company’s assets, and take advantage of the current depressed market for oil and gas assets, management currently intends to raise additional capital through debt and equity instruments.
 
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 revenues.
 
Our oil and gas business involves (or will involve as operations activities increase) 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.

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 revenues.
 
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 will have a negative impact on our consolidated results of operations and financial condition. 

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 will 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.
 
Although we generated total revenues of $87,939 for the year ended April 30, 2016, the result of oil and gas sales, we incurred a net loss of $11,989,758 and $6,344,579 for the years ended April 30, 2016 and 2015, respectively. To date, we have acquired interests in oil and gas properties, but have not established a project on any of our properties that generates commercial revenues. We cannot assure you that we can achieve or sustain profitability on a quarterly or annual basis in the future. 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. Revenues 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 Larne Basin, Kern County and Oklahoma properties are in early stages of development, we may not be able to establish commercial reserves on these projects. 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. We may not be able to establish commercial reserves and it is 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, particularly the recent worldwide economic slowdown, which has put downward pressure on oil and natural gas prices and demand.
 
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.
 
 
In the event of a Redetermination of the value of the Bandolier Interest contributed to MegaWest, the Company may be required to fund any shortfall in such valuation, which the Company may not be able to fund.  Failure to fund the shortfall will result in a material and adverse effect on our financial condition and results from operations.
 
Consummation of the MegaWest Transaction resulted in a substantial increase in our assets and total revenue during the year ended April 30, 2016.  However, substantially all of these amounts are held by MegaWest and controlled by the board of directors of MegaWest, which consists of two members appointed by Fortis, and one by the Company.  The relative composition of the board of directors of MegaWest shall continue as long as Fortis has an equity interest in MegaWest.  In the event there is a shortfall from the valuation ascribed to the Bandolier Interest at the time of the Redetermination, as compared to the value ascribed to the Bandolier Interest in the Contribution Agreement, the Company will be required to provide Fortis with a cash payment in an amount equal to the shortfall, and any unfunded shortfall could result in the foreclosure on the Company’s entire equity interest in MegaWest, which equity interest has been pledged to Fortis.  No assurances can be given that the value of the Bandolier Interest will equal the valuation set forth in the Contribution Agreement, or if the value identified after the Redetermination is below the initial valuation, that we will be able to fund such shortfall. Any requirement to fund a shortfall will have a material and adverse effect on our operations and financial condition.
 
In the event of a Redetermination results in a foreclosure of any portion of our equity interest in MegaWest, our control of MegaWest may terminate. As a result, our financial condition may be materially and adversely affected.

In the event of a foreclosure of our equity interest in MegaWest resulting in such equity interest decreasing to less than a controlling interest in MegaWest, the assets conveyed to MegaWest under the terms of the Contribution Agreement may no longer be consolidated with the Company’s assets on the Company’s financial statements, and the Bandolier Interest may revert back to the Company.  As a result, our financial condition and results from operations may be adversely affected, and such affect will be material.

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 on 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 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.  

IT EM 1B. UNRESOLVED STAFF COMMENTS
 
None.
 
 
ITEM 2. PROP ER TIES
 
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 will acquire a 16% interest, and Brigantes Energy Limited, which will retain a 10% interest.  Third parties will own the remaining 65% interest. This project is a high-risk exploration project, but has the potential to be a significant discovery for the Company with strong risk reward characteristics.  The first exploration well in Larne Basin commenced drilling in May 2016 and was completed in June 2016. The primary objectives of the well were to (i) confirm the existence and maturity of the carboniferous source rock and (ii) test potential hydrocarbon-bearing objective zones. Unexpectedly, the overlying Permian section thickened considerably at 2,000 meters, and several participants owning 55% of the working interest in the well (including Horizon Energy) expressed interest in deepening the well an additional 600 meters.  However, participants representing the other 45% of the interest were unwilling to fund their share of the additional costs, and without unanimity determined that continued drilling was impractical. The well has been plugged and the drilling rig has been demobilized from the location.  The drilling detected background gas shows in the drilling fluid, and samples were sent to Applied Petroleum Technology, (“ APT ”) an internationally recognized independent geochemical laboratory in Oslo, Norway. APT determined that the gas originated from a carboniferous source, providing evidence of nearby source rock and an active petroleum system. The samples were strikingly similar to a gas sample from a producing gas field in in Lancashire, England, just across the North Channel.
 
Historically, large basinal discoveries are found and developed only after thorough analysis of technical data derived from both seismic acquisition and drilling of wells. Management believes that Larne Basin continues to be a very attractive exploration opportunity based on technical merit, modest exploration costs, low political risk and excellent fiscal terms. The Company is continuing the exploration program by relocating to offshore targets and reprocessing seismic data.
 
Management believes that the Larne Basin continues to be very attractive exploration opportunity based on technical merit, modest exploration costs, low political risk and excellent fiscal terms. The Company intends to conduct further exploration and appraisal by reprocessing existing seismic data, and if merited, additional new seismic “shoots,” re-locating drill targets to more favorable locations offshore, and evaluating farmout opportunities.
 
Kern County
 
On March 4, 2016, the Company executed an Asset Purchase and Sale and Exploration Agreement (the " Agreement ") to acquire a 13.75% 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 Agreement, the Company paid $108,333 to the sellers on the closing date, and is 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 Agreement. In addition, the sellers are entitled to an overriding royalty interest in certain existing and new leases acquired after the Closing Date, and the Company is required to make certain other payments, each in amounts set forth in the Agreement.
 
Oklahoma
 
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 106,000 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. As a result of this transaction, the Company capitalized $2,460,632 in proved developed oil and gas assets and $5,921,641 in proven undeveloped oil and gas assets. During the year ended April 30, 2016, Bandolier purchased additional oil and gas assets totaling $102,864.  Management performed a ceiling test as of April 30, 2016, and recognized an impairment of $5,951,622 on the Oklahoma property. The Company currently has plans in 2016 to drill six vertical wells to be funded through a farm-out with an industry partner.
 
Horizon Energy

On May 3, 2016, following the closing of the Horizon Acquisition, the Company acquired a 20% membership 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 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.  Other projects include the proposed redevelopment of a large oil field in Kern County, California and the development of an additional recent discovery in Kern County. Each of the assets in the Horizon Energy portfolio is characterized by low initial capital expenditure requirements and strong risk reward characteristics.

Missouri
 
At April 30, 2016, the Company’s Missouri lease holdings totaled 320 net acres with an 87% net royalty interest on its Grassy Creek asset.  During the year ended April 30, 2016, the Company recorded impairment of $918,991 on the Missouri assets and as a result the carrying value of these assets at April 30, 2016 was $0.

Effective July 11, 2016, the Company assigned its Missouri lease to Paluca for an overriding royalty interest equal to 4% of the value of all oil and gas assets produced and sold under the assigned lease.

The Company no longer has any leasehold positions in Marmaton River.  
 
 
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, 2016 and 2015:
 
Cost
 
Oklahoma
   
Kansas
   
Missouri
     
Other
     
 
Total
 
Balance, May 1, 2014
 
$
-
   
$
7,922,601
   
$
918,991
    $
100,000
    $
8,941,592
 
Additions
   
8,751,867
     
1,747
     
-
     
-
     
8,753,614
 
Impairment of oil and gas assets
   
(1,246,975
)
   
-
     
-
     
-
     
(1,246,975
)
Depreciation, depletion and amortization
   
(569,892
)
   
(121,328
)
   
-
     
  -
     
(691,220
)
Balance, April 30, 2015
   
6,935,000
     
7,803,020
     
918,991
     
100,000
     
15,757,011
 
Additions
   
102,864
     
-
     
-
     
-
     
102,864
 
Disposals
   
(279,013
)
   
(7,727,287
)
   
-
     
-
     
(8,006,301
)
Impairment of oil and gas assets
   
(5,951,622
)
   
-
     
(918,991
)
   
-
     
(6,870,613
)
Depreciation, depletion and amortization
   
(29,003
)
   
(75,733
)
   
-
     
-
     
(104,736
)
                                         
Balance, April 30, 2016
 
$
778,226
   
$
-
   
$
-
    $
100,000
    $
878,226
 
 
The above table excludes Larne Basin and Kern County assets which were not in operations as of April 30, 2016.

For the year ended April 30, 2016, the Company performed a ceiling test and recognized a $5,951,622 and $918,991 impairment charge on the Oklahoma and Missouri assets, respectively.   For the year ended April 30, 2015, the Company performed a ceiling test and recognized a $1,246,975 impairment charge on the Oklahoma assets.  

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, 2016 and 2015:
 
 
Producing
 
Non-Producing
 
 
April 30, 2016
 
April 30, 2015
 
April 30, 2016
 
April 30, 2015
 
 
Gross
   
Net
 
Gross
 
Net
 
Gross
   
Net
 
Gross
 
Net
 
Kansas
-
   
-
 
5
   
2.5
 
-
   
-
 
  37
   
  34.5
 
Oklahoma
  1
   
  1
 
5
   
5
 
6
   
6
 
 8
   
 8
 
Missouri (1)
-
   
-
 
48
   
48
 
-
   
-
 
  9
   
  9
 
Kentucky (1)
-
   
-
 
-
   
-
 
-
   
-
 
  -
   
  -
 
Montana (1)
-
   
-
 
-
   
-
 
-
   
-
 
-
   
-
 
Texas (1)
-
   
-
 
-
   
-
 
-
   
-
           
Total
  1
   
  1
 
  58
   
  55.5
 
  6
   
  6
 
  54
   
  51.5
 
 
(1)
We acquired the predecessor assets of Petro River Oil Corporation on April 23, 2015.

The following table sets forth the lease areas we have an interest in, by area, as of April 30, 2016 and 2015:
 
Project Areas
 
April 30, 2016
   
April 30, 2015
 
   
Gross
   
Net
   
Gross
   
Net
 
Kansas
 
 -
   
 -
     
71,605
     
50,703
 
Larne Basin
 
130,000
   
 11,700
     
 -
     
 -
 
Kern County
 
5,000
   
 688
     
 -
     
 -
 
Oklahoma
 
106,880
   
106,880
     
106,880
     
106,880
 
Missouri (1)
 
 -
   
 -
     
389
     
371
 
Kentucky (1)
 
 -
   
 -
     
-
     
-
 
Texas (1)
 
 -
   
 -
     
-
     
-
 
Montana (1)
 
 -
   
 -
     
-
     
-
 
Total
 
 241,880
   
 119,268
     
178,874
     
157,954
 
 
(1)
We have no plans for any further material expenditure on these properties as a result of the legal acquirer’s prior drilling results and a lack of resources.
 
 
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 has approximately $0.8 million and $6.9 million in proven oil and gas reserves as of April 30, 2016 and 2015, respectively. For the year ended April 30, 2016 the reports by Pinnacle Energy Services, LLC (“ Pinnacle ”) 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.

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, 2016 and 2015
 
   
2016
   
2015
 
Production volumes:
           
Oil (Bbls)
   
1,475
     
24,347
 
Natural gas (Mcf)
   
-
     
64,917
 
Total (Boe)
   
1,475
     
35,167
 
Average realized prices:
               
Oil (per Bbl)
 
$
52.92
   
$
77.93
 
Natural gas (per Mcf)
 
$
  -
   
$
2.31
 
Total per Boe
 
$
  52.92
   
$
58.22
 
Average production cost:
               
Total per Boe
 
$
252.91
   
$
46.04
 
 
Drilling and Other Exploratory and Development Activities

The Company’s Direct Working Interest Projects
 
Northern Ireland – Larne Basin . We completed drilling the Woodburn Forest #1 well in June 2016.  The primary objectives of the well were to (i) confirm the existence and maturity of the carboniferous source rock and (ii) test potential hydrocarbon-bearing objective zones. Unexpectedly, the overlying Permian section thickened considerably at 2,000 meters, and several participants owning 55% of the working interest in the well (including Horizon Energy) expressed interest in deepening the well an additional 600 meters.  However, participants representing the other 45% of the interest were unwilling to fund their share of the additional costs, and without unanimity determined that continued drilling was impractical. The well has been plugged and the drilling rig has been demobilized from the location.

The drilling detected background gas shows in the drilling fluid, and samples were sent to Applied Petroleum Technology, (“ APT ”) an internationally recognized independent geochemical laboratory in Oslo, Norway. APT determined that the gas originated from a carboniferous source, providing evidence of nearby source rock and an active petroleum system. The samples were strikingly similar to a gas sample from a producing gas field in in Lancashire, England, just across the North Channel.

Historically, large basinal discoveries are found and developed only after thorough analysis of technical data derived from both seismic acquisition and drilling of wells. Management believes that Larne Basin continues to be a very attractive exploration opportunity based on technical merit, modest exploration costs, low political risk and excellent fiscal terms. The Company is continuing the exploration program by relocating to offshore targets and reprocessing seismic data.

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 106,000 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 Chert formation and Pennsylvanian-aged formations. Management projects estimated ultimate recovery at 50,000 barrels of oil per well. Pearsonia West is a low-cost conventional project surrounded by 800 million barrels of historical production. The Company plans to drill six vertical wells this year at a cost of $300,000 per well. The Company currently anticipates drilling its first well in the fall of 2016.

Kern County, California . The Kern County project, the re-development of a 100 million barrel oil field, is currently progressing. The planned 30 square mile 3-D seismic survey will be acquired immediately after the Grapevine (see below) survey is completed. One well is currently planned for 2017. Ongoing geological and geophysical work has enhanced the project opportunities.
 

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. The identified leads on the awarded licenses contain un-risked potential of over 900 million barrels of oil and 3.5 trillion cubic feet of natural gas. In total, the license award areas comprise approximately 1,900 square kilometers. Later in 2016, we intend to commence the evaluation of our four recently awarded licenses, through Ardent Oil Denmark We have obtained new 3-D data that should be processed and available to us prior to the end of the year ending April 30, 2017.

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 2016 over new blocks to more clearly image prospects/leads identified on older 2-D data.
  
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 and the lease terminated. On January 30, 2014, the landlord filed a Statement of Claim against the Company for rental arrears in the amount aggregating approximately CAD $759,000 (approximately USD $605,500 as of April 30, 2016). On October 20, 2014, the Company 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 approximately CAD $665,000 (approximately USD $530,500 as of April 30, 2016). The applications were heard on June 25, 2015 and the court allowed both the Company’s summary judgment application and the landlord’s amendment application.  Both of these orders were appealed and the appeals were both dismissed by decision rendered April 1, 2016.  Both of these orders have been further appealed to the Court of Appeal of Alberta, and the appeals are scheduled to be heard on   December 7, 2016 .  The net effect of the orders which are presently under appeal is that it is the claim for loss of prospective rent which is to proceed.   

(b) In September 2013, the Company was notified by the Railroad Commission of Texas (the “ Commission ”) that the Company was not in compliance with regulations promulgated by the 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 Commission therefore collected $25,000 from the Company, which was originally deposited with the Commission, to cover a portion of the estimated costs of $88,960 to plug the wells. In addition to the above, the Commission also reserved its right to separately seek any remedies against the Company resulting from its noncompliance. As of August 11, 2015, there is no further update to the proceeding.
 
(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 the Spyglass Energy, LLC (“Spyglass”), a wholly owned Subsidiary of Bandolier Energy, LLC, 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 void  ab 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. Said 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. All three Motions are pending as of the effective date of this response. There is no specific timeline by which the Court must render a ruling. Spyglass intends to continue to vigorously defend its interest in this matter.
 
(d) Mega West Energy Missouri Corp. (“ Megawest Missouri ”), a wholly owned subsidiary of the Company, was previously involved in two cases related to oil leases in West Central, Missouri. The first case (James Long and Jodeane Long v. Mega West Energy Missouri and Petro River Oil Corp., case number 13B4- CV00019) was a case for unlawful detainer, pursuant to which the plaintiffs contended that a Megawest Missouri oil and gas lease had expired and Megawest Missouri was unlawfully possessing the plaintiffs’ real property by asserting that the leases remained in effect. Megawest Missouri filed a second case on October 14, 2014 (Mega West Energy Missouri Corp. v. James Long, Jodeane Long, and Arrow Mines LLC, case number 14VE-CV00599). This case was pending in Vernon County, Missouri. Although the two cases were separate, they were interrelated. In the Vernon County case, Megawest Missouri made claims for: (1) replevin for personal property; (2) conversion of personal property; (3) breach of the covenant of quiet enjoyment regarding the lease; (4) constructive eviction of the lease; (5) breach of fiduciary obligation against James Long; (6) declaratory judgment that the oil and gas lease did not terminate; and (7) injunctive relief to enjoin the action pending in Barton County, Missouri. On September 21, 2015, the parties entered into a Settlement and Release Agreement for both cases. The parties agreed to release their claims and dismiss their lawsuits with prejudice. Megawest Missouri released its claims to certain leases and the plaintiff purchased certain personal property from Megawest Missouri. The matters have been completely resolved, and the cases dismissed.

(e) 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 DISC LO SURES
 
Not applicable.
 

P AR T II
 
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
 
Our common shares have traded in the United States on the OTC Pink Marketplace under the symbol “PTRC”.
 
The following table sets forth the quarterly average high and low bid prices per share for our common stock for the two most recently completed fiscal years in the period that ended on April 30, 2016.
 
Fiscal Year Ended
 
Common Stock
 
   
High
   
Low
 
April 30, 2016
               
First Quarter
 
$
0.04
   
$
0.01
 
Second Quarter
 
$
0.02
   
$
0.01
 
Third Quarter
 
$
3.50
 
$
0.01
 
Fourth Quarter
 
$
3.45
*  
$
2.00
*
                 
April 30, 2015
               
First Quarter
 
$
0.09
   
$
0.04
 
Second Quarter
 
$
0.09
   
$
0.03
 
Third Quarter
 
$
0.07
   
$
0.01
 
Fourth Quarter
 
$
0.06
   
$
0.02
 

* Bid price reflects the 1-for-200 reverse split of our common stock, which reverse split took effect on December 7, 2015.
 
Holders
 
As of July 28, 2016, we had 353 holders of record of our registered common stock, and our common stock had a closing bid price of $1.98 per share.
 
Dividends and Related Policy
 
We presently intend to retain all earnings, if any, for use in our business operations and accordingly, the Board of Directors (the “ Board ”) does not anticipate declaring any cash dividends for the foreseeable future. Any future determination to pay dividends will be at the discretion of the Board and will be contingent upon our financial condition, results of operations, current and anticipated cash needs, restrictions contained in current or future financing instruments, plans for expansion and such other factors as the Board deems relevant. We have not paid any cash dividends on our common stock.
 
Transfer Agent and Registrar
 
Our transfer agent is Computershare, Inc., located at 462 South 4 th Street, 11 th 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.
 
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. The Company is focused on taking advantage of the current downturn in oil prices to enter highly prospective plays with industry-leading partners. Management believes that the Company’s diversification across multiple projects, each with low initial capital expenditures and strong risk reward characteristics, reduces risk and provides exposure to a number of attractive risk adjusted opportunities. Further, we seek to reduce costs and risks by adopting a conventional approach to our drilling program and developing our traditional core areas, as well as seeking new growth opportunities. Our current projects do not involve horizontal drilling or hydraulic fracking.
 
The Company’s core holdings are in the Mid-Continent Region in Oklahoma, Kern County, California and Larne Basin, Northern Ireland. The Company also holds indirect onshore and offshore acreage positions in Denmark and Dorsett, U.K. We believe that these opportunities have considerable future potential for the development of proven oil and gas reserves.
 
The execution of our 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, we plan to acquire high-quality oil and gas properties, primarily proved producing and proved undeveloped reserves. We also intend to explore low-risk development drilling and work-over opportunities.   Management is also exploring farm in and joint venture opportunities for our oil and gas assets.
 
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:
 
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.
 
Limit our current exploration and acquisition activities to conventional oil plays with a projected breakeven price of $30 per barrel or less.   We intend to focus our resources on more easily recoverable conventional reserves.
 
During the current downturn, obtain price concessions from third party vendors , specifically those involved in our drilling and completion activities and day-to-day well maintenance.
 
 
Plan of Operation
 
The Company is currently engaged in oil and natural gas acquisition, exploration, development and production, with activities in Oklahoma and California 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 Partners, LLC (“ 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 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.
 
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 be 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, Kern County and Grapevine projects as de-risked because of the significant production history in the area and well-established industry activity surrounding the acreage.
 
Partnership with Horizon Energy . Following the acquisition of Horizon Investments, LLC (“ Horizon Investments ”), the Company has an indirect interest, through Horizon Investment’s 20% ownership in Horizon Energy, in 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.
 
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, including two assets located in the United Kingdom, adjacent to the giant Wytch Farm oil field, the largest onshore oil field in Western Europe.  Other projects include the proposed redevelopment of a large oil field in Kern County, California and the development of an additional recent discovery in Kern County.  Each of the assets in the Horizon Energy portfolio is characterized by low initial capital expenditure requirements and strong risk reward characteristics.
 
Competitive Strengths
 
Financial flexibility . Our capital structure and high degree of operational control continues to provide us with significant financial flexibility. We have no corporate debt in our capital structure, 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.
 
Management experience . 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, Kern County, California, and the North Sea.
 
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. effective February 27, 2010, before changing it to Gravis Oil Corp. on June 20, 2011. On September 11, 2012, we re-organized under the laws of the State of Delaware as a corporation organized under the Delaware General Corporation Law. Prior to September 11, 2012, and at April 30, 2012, we were organized under the laws of Alberta, Canada.
 
Petro River Oil LLC (“ Petro ”), an indirect subsidiary of the Company and wholly owned subsidiary of MegaWest Energy Kansas Corp., was incorporated under the laws of the State of Delaware on March 3, 2011 (“ MegaWest ”). 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.
 
Share Exchange . On April 23, 2013, the Company executed and consummated a securities purchase agreement by and among the Company, Petro, and certain investors in Petro (the “ Investors ”), namely, the holders of outstanding secured promissory notes of Petro (the “ Notes ”), and those holding membership interests in Petro (the “ Membership Interests ”, and, together with the Notes, the “ Acquired Securities ”) sold by Petro (the “ Share Exchange ”). In the Share Exchange, the Investors exchanged their Acquired Securities for 591,021,011 newly issued shares of the Company's common stock (2,955,105 shares of common stock based on the December 2015 reverse stock split – see “Reverse Stock Split” below). Upon completion of the Share Exchange, Petro became a wholly owned subsidiary of the Company.

As a result of the Share Exchange, the Company acquired 100% of the membership units of Petro and consequently, control of Petro’s business and operations. Under generally accepted accounting principles in the United States (“ U.S. GAAP ”), because Petro’s former members and note holders held 80% of the issued and outstanding shares of the Company as a result of the Share Exchange, Petro was deemed the accounting acquirer while the Company remains the legal acquirer. Petro adopted the fiscal year of the Company. Prior to the Share Exchange, all historical financial statements presented are those of Petro. The equity of the Company is the historical equity of Petro, restated to reflect the number of shares issued by the Company in the transaction.
 
 
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 Energy, LLC (“ 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 $0.08 per share, subject to adjustment (the “ Option ”). The Option, if fully exercised, would result in the Company issuing 55,000,000 shares of its common stock (275,000 shares of common stock at a price of $16 per share based on the December 2015 reverse stock split – see “Reverse Stock Split” below), or 6% to the members of Pearsonia West. 

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.

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 Energy Group, LLC (“ 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 approximately 106,000 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.

On October 15, 2015, the Company indirectly transferred its controlling interest in Pearsonia West as a result of the transfer of the Company’s 50% membership interest in Bandolier to MegaWest under the terms of the Contribution Agreement, although the Company still retains a 29.26% indirect interest in Bandolier as a result of its interest in MegaWest.
  
Recent Developments

Divestiture of Missouri Properties.   Effective July 11, 2016, MegaWest Energy Missouri Corp (“ MegaWest Missouri ”) assigned its leaseholds covering approximately 320 acres in Grassy Creek, Missouri (the “ Grassy Creek Assets ”) to Paluca Petroleum, Inc. (“ Paluca ”) in furtherance of the Company’s corporate strategy to divest its legacy assets. Pursuant to the terms and conditions of the assignment, Paluca agreed to assume all liabilities associated with the Grassy Creek Assets and, as consideration for the assignment, granted MegaWest Missouri an overriding royalty interest equal to 4% of the value of all oil and gas assets produced and sold under the assigned lease.
 
Horizon 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 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 amount issued under the Horizon Notes and the Closing Proceeds, total approximately $5.0 million (collectively, the “ Purchased Assets ”) (the “ Horizon Acquisition ”). The Horizon Acquisition was completed in accordance with the term and conditions of the Conditional Purchase Agreement first entered into by the Company and Horizon Investments on December 1, 2015 (the “ Purchase Agreement ”). Also on the Closing Date, 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.
 
As consideration for the Horizon Acquisition, and in accordance with the Purchase Agreement, as amended, the Company issued 11,564,250 shares of its common stock 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 Closing Date.

Kern County Project.   On March 4, 2016, the Company executed an Asset Purchase and Sale and Exploration Agreement (the " Agreement ") to acquire a 13.75% working interest in certain oil and gas leases 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 Agreement, the Company paid $108,333 to the sellers on the Closing Date, and is 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 Agreement. In addition, the sellers are entitled to an overriding royalty interest in certain existing and new leases acquired after the Closing Date, and the Company is required to make certain other payments, each in amounts set forth in the Agreement.
 
 
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 will acquire a 16% interest, and Brigantes Energy Limited, which will retain a 10% interest.  Third parties will 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 represents 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 was approximately $6,159,452, based on an exchange rate of one British Pound for 1.44 U.S. Dollars. Petro UK was and continues 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.  The primary objectives of the well were to (i) confirm the existence and maturity of the carboniferous source rock and (ii) test potential hydrocarbon-bearing objective zones. Unexpectedly, the overlying Permian section thickened considerably and at 2,000 meters, and several participants owning 55% of the working interest in the well (including Horizon Energy) expressed interest in deepening the well an additional 600 meters.  However, participants representing the other 45% of the interest were unwilling to fund their share of the additional costs, and without unanimity determined that continued drilling was impractical. The well has been plugged and the drilling rig has been demobilized from the location.  The drilling detected background gas shows in the drilling fluid, and samples were sent to Applied Petroleum Technology, (“ APT ”) an internationally recognized independent geochemical laboratory in Oslo, Norway. APT determined that the gas originated from a carboniferous source, providing evidence of nearby source rock and an active petroleum system. The samples were strikingly similar to a gas sample from a producing gas field in in Lancashire, England, just across the North Channel.

Historically, large basinal discoveries are found and developed only after thorough analysis of technical data derived from both seismic acquisition and drilling of wells. Management believes that Larne Basin continues to be a very attractive exploration opportunity based on technical merit, modest exploration costs, low political risk and excellent fiscal terms. The Company is continuing the exploration program by relocating to offshore targets and reprocessing seismic data.
 
Impairment of Oil & Gas Properties.   As of April 30, 2016, the Company assessed its oil and gas assets for impairment and recognized a charge of $5,951,622 related to the Oklahoma oil and gas property. The Company determined that it no longer planned to develop the Missouri oil and gas property and recognized an impairment charge of $918,991 for the assets remaining book value.

Divestiture of Kansas Properties.   Effective December 23, 2015, Petro River Oil, LLC (" Petro "), a wholly owned subsidiary of Megawest Energy Kansas Corp. (“ MegaWest ”), divested various interests in oil and gas leases, wells, records, data and related personal property located along the Mississippi Lime play in the state of Kansas, which assets were acquired by Petro in 2012. In connection with the divestiture, the assignee and purchaser of the interests 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.  The Company recorded a loss of $7,519,460 in connection with the divestiture of these oil and gas properties, representing the $7,727,287 oil and gas assets book value, partially offset by the asset retirement obligation liability. MegaWest is a 58.51% owned subsidiary of the Company following consummation of the MegaWest Transaction, defined below.
 
Reverse Stock Split.   On December 7, 2015, the Company effected a one for two hundred reverse split of its issued and outstanding common stock (the “ Reverse Split ”), and, immediately following the Reverse Split, filed an amendment to its Certificate of Incorporation with the Delaware Secretary of State to increase the Company's authorized number of shares of common stock to 100.0 million. Shareholders approved the reverse stock split at the Company’s annual meeting of shareholders held on July 8, 2015, and the specific ratio was subsequently determined at a meeting of the Company's Board of Directors on November 11, 2015.
 
MegaWest Transaction.    On October 15, 2015, the Company entered into a contribution agreement (the “ Contribution Agreement ”) with MegaWest and Fortis Property Group, LLC, a Delaware limited liability company (“ Fortis ”), pursuant to which the Company and Fortis each agreed to contribute certain assets to MegaWest in exchange for shares of MegaWest common stock (“ MegaWest Shares ”) (the “ MegaWest Transaction ”).
 
Upon execution of the Contribution Agreement, (i) the Company transferred its 50% membership interest in Bandolier Energy, LLC (the “ Bandolier Interest ”), with net assets of $7,119,798, and cancelled all of its ownership interest in the then issued and outstanding MegaWest Shares, which prior to the MegaWest Transaction represented 100% ownership of MegaWest; and (ii) Fortis transferred certain indirect interests held in 30 condominium units and the rights to any profits and proceeds therefrom, with a book value of $15,544,382, to MegaWest.  Immediately thereafter, MegaWest issued to the Company 58,510 MegaWest Shares, representing a 58.51% equity interest in MegaWest, as consideration for the assignment of the Bandolier Interest, and issued to Fortis 41,490 MegaWest Shares, representing a 41.49% equity interest in MegaWest, as consideration for the assets assigned to MegaWest by Fortis.  
 
Subject to the terms and conditions of the Contribution Agreement, the Contribution Agreement provided for a redetermination of the fair market value of the Bandolier Interest six months after the execution thereof (the “ Redetermination ”), which Redetermination has not occurred as of July 28, 2016.  Upon a Redetermination, in the event there is a shortfall from the valuation ascribed to the Bandolier Interest at the time of the Redetermination, as compared to the value ascribed to the Bandolier Interest in the Contribution Agreement, the Company will be required to provide Fortis with a cash payment in an amount equal to the shortfall.  If the Company is unable to deliver to Fortis the cash payment required after the Redetermination, if any, the board of directors of MegaWest shall have the right to exercise certain remedies against the Company, including a right to foreclose on the Company’s entire equity in MegaWest, which equity interest has been pledged to Fortis under the terms of the Contribution Agreement.  In the event of foreclosure, the Bandolier Interest would revert back to the Company .  
 
 
Financial Condition and Results of Operations

For the Years Ended April 30, 2016 and 2015:
 
Oil Sales
 
During the year ended April 30, 2016, the Company recognized $87,939 in oil and gas sales, of which $87,939 was attributable to oil sales and $0 was attributable to gas sales, compared to $2,127,576 for the year ended April 30, 2015, consisting of $1,942,623 in oil sales and $184,953 in gas sales. The overall decrease in sales of $2,039,637 is primarily due to the decrease in operations and shut-in wells in light of the challenging oil price environment during the reporting period.
 
Lease Operating Expense
 
During the year ended April 30, 2016, lease operating expense was $373,028, as compared to lease operating expense of $1,847,688 for the year ended April 30, 2015. The overall decrease in lease operating expense of $1,474,660 is primarily attributable to management’s commitment to substantially reduce operating expense in light of the current challenging oil price environment.

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, 2016, the Company reviewed the oil and gas assets for impairment and recognized an impairment charge of $6,870,613 on the Oklahoma and Missouri properties. During the year ended April 30, 2015, the Company reviewed the oil and gas assets for impairment and recognized an impairment charge of $1,246,975 on the Oklahoma properties.

Impairment of Intangible Assets

The Company assesses all items classified as intangible assets on an annual basis for possible impairment. During the years ended April 30, 2016 and 2015, the Company reviewed the intangible assets for impairment and recognized an impairment charge of $2,082,941 and $0, respectively.

General and Administrative Expense
 
General and administrative expense for the year ended April 30, 2016 was $3,103,358, as compared to $4,606,377 for the year ended April 30, 2015.  The decrease is primarily attributable to significant decreases in professional fees and office and administrative expense totaling $1,334,213 and $348,556, respectively.  These changes are outlined below:
 
   
For the Year
Ended
   
For the Year
Ended
 
   
April 30, 2016
   
April 30, 2015
 
Salaries and benefits
 
$
1,969,001
   
$
1,773,007
 
Professional fees
   
857,248
     
2,191,461
 
Office and administrative
   
276,059
     
624,615
 
Information technology
   
1,050
     
17,294
 
                 
Total
 
$
3,103,358
   
$
4,606,377
 
 
Interest Income (Expense) - Net

During the year ended April 30, 2016, the Company recognized $174,458 in interest income, compared to interest expense of $(462) for the year ended April 30, 2015. The income received in the 2016 period is primarily attributable to $170,653 of interest income accrued on the related party notes receivable.
 
Net Gain on Interests in Real Estate Rights
 
During the year ended April 30, 2016, the Company recognized $10,474,713 net gain on its interest in real estate rights compared to $0 for the year ended April 30, 2015. The net gain on interest in real estate rights was due to the sale of certain condominium units by Fortis and the resulting profits which were assigned to MegaWest pursuant to the Contribution Agreement, less the book value of those interests recorded by MegaWest.
 

Liquidity and Capital Resources
 
At April 30, 2016, the Company had working capital of approximately $4.7 million, of which approximately $4.8 million and $2.8 million is attributable to an account receivable from a related party and the Company’s interest in certain real estate, respectively. The account receivable and the Company’s interest in real estate are assets held by MegaWest, the Company’s 58.51% owned subsidiary, and are controlled by MegaWest’s board of directors, consisting of two members appointed by Fortis, and one by the Company.  The relative composition of the board of directors of MegaWest shall continue as long as Fortis has an equity interest in MegaWest.  In the event there is a shortfall from the valuation ascribed to the Bandolier Interest at the time of the Redetermination, as compared to the value ascribed to the Bandolier Interest in the Contribution Agreement, the Company will be required to provide Fortis with a cash payment in an amount equal to the shortfall, and any unfunded shortfall will likely result in the foreclosure on all or a portion of the Company’s entire equity interest in MegaWest, which equity interest has been pledged to Fortis.  No assurances can be given that the value of the Bandolier Interest will equal the valuation set forth in the Contribution Agreement, or if the value identified after the Redetermination is below the initial valuation, that we will be able to fund such shortfall. Any requirement to fund a shortfall will have a material and adverse effect on our operations and financial condition.
 
In the event of a foreclosure of our equity interest in MegaWest resulting in such equity interest decreasing to less than a controlling interest in MegaWest, the assets conveyed to MegaWest under the terms of the Contribution Agreement may no longer be consolidated with the Company’s assets on the Company’s financial statements, and the Bandolier Interest may revert back to the Company.  As a result, our financial condition and results from operations may be adversely affected, and such affect will be material.
 
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, 2016, the Company had cash and cash equivalents of approximately $0.8 million. The Company’s primary source of operating funds since inception has been equity financings, as well as through the consummation of the Horizon Acquisition. While management believes that the current level of working capital is sufficient to maintain current operations as well as the planned added operations for the next 12 months, management intends to raise capital through debt and equity instruments in order to execute its business and operating 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.

As a result of Horizon Acquisition, the Company received $1.6 million in debt financing, which amount management used to fund operating expenses pending consummation of the Horizon Acquisition. To address the current challenging oil and gas environment, and in order to increase the value of the Company’s oil and gas assets, management has also curtailed certain oil and gas operations, and focused on the Company’s technology and related initiatives, as well as the Horizon Acquisition. In addition to the Horizon Acquisition and the MegaWest Transaction, the Company is exploring farm in and joint venture opportunities for its oil and gas assets as well other opportunities to increase shareholder value. No assurances can be given that management will be successful. 

Operating Activities
 
During the year ended April 30, 2016, operating activities resulted in cash used of $1,767,151, as compared to $ 3,445,726 used in operating activities during the year ended April 30, 2015. The Company incurred a net loss during the year ended April 30, 2016 of $11,989,758 as compared to a loss of $6,344,579 for the year ended April 30, 2015 . For year ended April 30, 2016, the net loss was offset by non-cash items such as stock-based compensation, depreciation, depletion and amortization, accretion of asset retirement obligation, impairment of oil and gas assets, impairment of intangible assets, loss on sale of equipment and the deferred tax liability. Cash provided by operations was also influenced by increases in accounts receivable and prepaid expenses as well as a decrease in accounts payable and accrued expenses. For the year ended April 30, 2015, the loss was offset by non-cash items such as stock-based compensation, depreciation, depletion and amortization, net gain on interest in real estate rights, and accretion of asset retirement obligation. Cash used in operations was also influenced by increases in accounts receivable as well as decreases in prepaid expenses and accounts payable and accrued expenses.
 
Investing Activities
 
Investing activities during the year ended April 30, 2016 resulted in cash used of $68,641, as compared to $ 8,865,857 during the year ended April 30, 2015. During the year ended April 30, 2016, the Company received proceeds of $18,369,000 from its interest in real estate rights. During the year ended April 30, 2016, the Company incurred $102,864 of expenditures on oil and gas assets as part of the Bandolier acquisition, compared to $8,701,100 of expenditures on oil and gas assets as part of the Bandolier acquisition during the year ended April 30, 2015. During the year ended April 30, 2016, the Company received cash of $279,013 and $60,000 from the disposal of oil and gas assets and equipment, respectively. During the year ended April 30, 2016, the Company executed notes receivable agreements with related parties resulting in the outlay of $17,848,000. During the year ended April 30, 2015, the Company used $39,757 and $125,000 for the purchase of equipment and certificate of deposit, respectively.
 
Financing Activities
 
During the year ended April 30, 2016, the Company had $1,600,000 in cash provided by financing activities, as compared to $4,968,500 during the year ended April 30, 2015. During the year ended April 30, 2016, the Company received proceeds of $1,600,000 from related party notes payable. During the year ended April 30, 2015, $5,000,000 was contributed from the non-controlling interest holder of Bandolier. This increase was offset by $31,500 paid on a vehicle 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, 2016
   
April 30, 2015
 
Common shares
   
4,263,711
     
4,259,506
 
Stock Options
   
743,050
     
540,941
 
Stock Purchase Warrants
   
133,333
     
336,459
 
     
5,140,094
     
5,136,906
 
 
 
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, 2016 and 2015. The consolidated financial statements are prepared in conformity with 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 generally accepted accounting principles in the United States (“ US 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 on 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. Since 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 properties that have proven reserves 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.
 
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 percent 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.
 
Interest in Real Estate Rights
 
Interest in real estate rights, previously identified as “Real estate- held for sale” in our unaudited consolidated balance sheets for the periods ended October 31, 2015 and January 31, 2016, are related to real estate currently held by Fortis, who intends to sell these properties within the next 12 months. Fortis contributed profit realized from future sale of these properties to MegaWest, pursuant to the terms and conditions of the Contribution Agreement, as a part of the MegaWest Transaction. As we do not know the price at which the real estate will be sold, the rights are stated on the audited consolidated balance sheet for the year ended April 30, 2016 at the cost basis realized by Fortis.
 
 
Income Taxes

The Company uses the asset and liability method in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and income tax carrying amounts of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company reviews deferred tax assets for a valuation allowance based upon whether it is more likely than not that the deferred tax asset will be fully realized. A valuation allowance, if necessary, is provided against deferred tax assets, based upon management’s assessment as to their realization.
 
Uncertain Tax Positions

The Company evaluates uncertain tax positions pursuant to ASC Topic 740-10-25 “ Accounting for Uncertainty in Income Taxes ,” which allows companies 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, 2016 and 2015, the Company has approximately $2,501,209 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).
 
Off-Balance Sheet Arrangements
 
None.
 
  
Recent Accounting Pronouncements
 
In May 2014, the FASB issued a comprehensive new revenue recognition standard that will supersede nearly all existing revenue recognition guidance under U.S. GAAP. The standard’s core principle (issued as ASU 2014-09 by the FASB), is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. The new guidance must be adopted using either a full retrospective approach for all periods presented in the period of adoption or a modified retrospective approach. In August 2015, the FASB issued ASU No. 2015-14, which defers the effective date of ASU 2014-09 by one year, and would allow entities the option to early adopt the new revenue standard as of the original effective date. This ASU is effective for public reporting companies for interim and annual periods beginning after December 15, 2017. The Company is currently evaluating its adoption method and the impact of the standard on its consolidated financial statements.

In April 2016, the FASB issued ASU No. 2016-10, “Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing” (topic 606). In March 2016, the FASB issued ASU No. 2016-08, “Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross verses Net)” (topic 606). These amendments provide additional clarification and implementation guidance on the previously issued ASU 2014-09, “Revenue from Contracts with Customers”. The amendments in ASU 2016-10 provide clarifying guidance on materiality of performance obligations; evaluating distinct performance obligations; treatment of shipping and handling costs; and determining whether an entity's promise to grant a license provides a customer with either a right to use an entity's intellectual property or a right to access an entity's intellectual property. The amendments in ASU 2016-08 clarify how an entity should identify the specified good or service for the principal versus agent evaluation and how it should apply the control principle to certain types of arrangements. The adoption of ASU 2016-10 and ASU 2016-08 is to coincide with an entity's adoption of ASU 2014-09, which we intend to adopt for interim and annual reporting periods beginning after December 15, 2017. The Company is currently evaluating the impact of the new standard.

In April 2016, the FASB issued ASU No. 2016-09, “Compensation – Stock Compensation” (topic 718). The FASB issued this update to improve the accounting for employee share-based payments and affect all organizations that issue share-based payment awards to their employees. Several aspects of the accounting for share-based payment award transactions are simplified, including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows. The updated guidance is effective for annual periods beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption of the update is permitted. The Company is currently evaluating the impact of the new standard.
 
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.

ITEM 7A. QUA NTIT ATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
 
Not applicable
 
ITEM 8. FINA NCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
Reference is made to pages F-1 through F-24 comprising a portion of this annual report on Form 10-K.
 
ITEM 9. CHA NG ES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
 
None.
 
ITEM 9A. CONT RO LS 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, 2016. 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, 2016 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, 2016. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“ COSO ”) in 2013 in Internal Control Integrated Framework. Based on that evaluation under this framework, our management concluded that as of April 30, 2016, 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, as a result of which 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 was 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, 2016, Management intended to hire additional accounting staff, and operational and administrative executives. However with the lack of resources these hires were delayed until which time financing is received.  Management intends to prepare and implement sufficient written policies and checklists to remedy the material weaknesses identified above.
 
 
PA RT III
 
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
  
Our Board of Directors is currently comprised of four members. The term of each director is until the next annual meeting of shareholders or until he resigns or is succeeded by another qualified director who has been elected. The following is a list of our executive officers and the current members of our Board of Directors, including each member’s age, the year he became a director or officer of the Company and his current positions with the Company:
 
Name
 
Position With the Company
 
Age
   
Since
 
Scot Cohen
 
Executive Chairman
   
47
     
2012
 
Glenn C. Pollack  
 
Director
   
58
     
2012
 
John Wallace 
 
Director
   
42
     
2013
 
Fred Zeidman (1)(2)
 
Director
   
70
     
2012
 
David Briones
 
Chief Financial Officer
   
40
     
2013
 
Stephen Brunner
 
President
           
2015
 
 
(1)
Member of Audit Committee
(2)
Member of Compensation Committee
 
Scot Cohen has over 20 years of experience in institutional asset management, wealth management, and capital markets.  Scot is the founder and principal of the Iroquois Capital Opportunity Fund, a closed end private equity fund focused on investments in North American oil and gas assets.  He is also the co-founder of Iroquois Capital, a New York based hedge fund.  In addition, he manages several operating and non-operating partnerships, which actively invest in the energy sector.
 
Prior to founding Iroquois Capital, Scot founded a merchant bank based out of New York, which was one of the most active participants in structured investments in public companies (PIPES) in the United States over the four year period he was actively managing the business.  Scot began his career at Oppenheimer and Company in a sales capacity and transitioned from there to a boutique investment-banking firm where he spent two years. Scot currently sits on the board of directors of True Drinks Holding, Inc. (OTCBB:  TRUU), as well as several private companies, and is involved a number of charitable ventures.  Scot earned a Bachelor of Science degree from Ohio University in 1991.

The Board’s Nomination Committee believes Mr. Cohen’s extensive investment banking experience advising oil and gas companies, as well as his operational expertise developing oil and gas assets, is valuable to the Board of Directors and its deliberations, and is particularly beneficial as the Company continues to develop its oil and gas assets.
 
Glenn C. Pollack is a Managing Director and Founder of Candlewood Partners, LLC (“ Candlewood ”), a merchant bank focused on middle market corporate finance and infrastructure projects, and is the Manager of Green Bull Georgia Partners, LLC, a special purpose vehicle controlled by Mr. Pollack established to purchase certain senior debt of Register Communications, Inc (“ Register ”). In connection with the purchase of the senior debt, Mr. Pollack became a director of Register, which filed for Chapter 11 protection under the United States Bankruptcy Code in December 2015. Prior to founding Candlewood, Mr. Pollack was a Managing Director and Principal of a middle market investment banking firm with offices in Chicago and Cleveland. He was responsible for the Restructuring Group and was involved in other corporate finance transactions including mergers and acquisitions and capital raising for special situations. He also spent five years as the CEO of a regional distributor of perishable foods with annual revenues of $180 million and over 250 employees in four states. Mr. Pollack is a certified public accountant and has worked for Price Waterhouse as a consultant and for Deloitte as an auditor.

The Board’s Nomination Committee believes Mr. Pollack’s success with multiple investment banking firms, his extensive contacts within the investment community, his executive management experience and financial and accounting expertise will assist the Company’s efforts to raise capital to fund the continued implementation of the Company’s business plan.
 
John Wallace graduated from Syracuse University in May 1996 with a Bachelor’s of Science degree in sociology. From June 1996 through May 2004, Mr. Wallace was a professional basketball player associated with the National Basketball Association. Since April 2009, Mr. Wallace has been an alumni relations and fan development representative for the New York Knicks, a professional basketball team aligned with the National Basketball Association. In that capacity, Mr. Wallace works on community public relations and fan development initiatives, along with sponsorship and marketing programs. In January 2013, Mr. Wallace joined Hotaling Insurance Group as an insurance agent. In February 2013, Mr. Wallace became an Executive Board Member of Heavenly Productions Foundation, a not for profit charitable organization dedicated to helping children in need or in distress. Since October 2007, Mr. Wallace has served as Vice President of Winning Because I Tried, a non-profit he co-founded in 2007, and whose focus is on academic success, social interaction, peer pressure awareness, and sound decision-making for children ages 8-18. Since 2006, Mr. Wallace has been President and General Manager of Rochester AAU Basketball, a program he founded in March 2006, which is designed to leverage sports as a means for youth to obtain a college education.

The Board’s Nomination Committee believes that Mr. Wallace brings effective management and leadership skills to the Board of Directors, which assists the Board and management in in developing its organization and business plan.
 
 
Fred Zeidman has served as Director of the Company since September of 2012. Mr. Zeidman has also served as a director of Hyperdynamics Corporation since 2009 and as a director of Prosperity Bancshares, Inc. since 1986. He served as trustee for the AremisSoft Liquidating Trust since 2004. In March 2008, Mr. Zeidman was appointed the Interim President of Nova Biosource Fuels, Inc. (“ Nova ”), a publicly traded biodiesel technology company, and served in that position until the company’s acquisition in November 2009. Mr. Zeidman also served as a director of Nova from June 2007 to November 2009. From August 2009 through November 2009, Mr. Zeidman served as Chief Restructuring Officer for Transmeridian Exploration, Inc. He also served as CEO, President and Chairman of the Board of Seitel Inc., an oil field services company, from June 2002 until its sale in February 2007. Mr. Zeidman served as a Managing Director of the law firm Greenberg Traurig, LLP from July 2003 to December 2008. Mr. Zeidman has served as CEO, Interim CEO and Chairman of the Board of a variety of companies, including several in the oil and gas sector. In March 2013, Mr. Zeidman was appointed to the Board of Straight Path Communications Inc. Mr. Zeidman is the Chairman Emeritus of the United States Holocaust Memorial Council. He was appointed to that position by former President George Bush in March 2002 and served from 2002-2010. He is also Chairman Emeritus of the University of Texas Health Science System Houston and is on the Board of Trustees of the Texas Heart Institute (where he currently serves as Interim Chief Financial Officer). Mr. Zeidman received his Bachelor of Science from Washington University and a Masters of Business Administration from New York University.
 
The Board’s Nomination Committee believes that Mr. Zeidman’s extensive experience as an executive in senior management positions, including with oil and gas exploration, oil services and related companies, together with his legal and board experience, add significant value to the Company and its Board of Directors in assessing challenges and in addressing organizational and development issues facing the Company.

David Briones w as appointed Chief Financial Officer on August 15, 2013. Since October 1, 2010, Mr. Briones has acted as the managing member of Brio Financial Group, LLC, a financial reporting consulting firm. From January 2006 through September 2010, Mr. Briones had managed the public company and hedge fund practices at Bartolomei Pucciarelli, LLC (“ BP ”). Within that capacity, Mr. Briones performed audit services, outsourced CFO functions, and/or consulted clients through difficult SEC comment periods particularly through application of complex accounting principles for a vast public company client base. BP is a registered firm with the Public Company Accounting Oversight Board. BP is an independent member of the BDO Seidman Alliance. Mr. Briones served as the chief financial officer of NXT Nutritionals Holdings, Inc. from February 2, 2009 to May 15, 2012. Mr. Briones also served as the chief financial officer of Clear-Lite Holdings, Inc. from August 3, 2009 to March 21, 2011. Prior to joining BP, Mr. Briones was an auditor with PricewaterhouseCoopers LLP in New York, New York. Mr. Briones specialized in the financial services group, and most notably worked on the MONY Group, Prudential Financial, and MetLife initial public offerings.
 
Stephen Brunner was appointed President on October 30, 2015.  Prior to joining the Company, Mr. Brunner served as President and Chief Executive Officer of Sanchez Production Partners LLC (NYSE MKT: SPP), formerly Constellation Energy Partners LLC (“ Sanchez Production ”), from March 2008 until March 2015, and served as a member of the board of managers of Sanchez Production from December 2008 until August 2011. Mr. Brunner also served as Vice President for Constellation Energy Commodities Group, Inc. from February 2008 to January 2009. Mr. Brunner holds a B.S. in Petroleum Engineering from Louisiana Tech University.

Section 16(a) Beneficial Ownership Reporting Compliance
 
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company’s directors, executive officers and persons who own more than 10% of a registered class of the Company’s equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of Common Stock and other equity securities of the Company. Directors, officers and greater than 10% stockholders are required to furnish the Company with copies of all Section 16(a) forms they file.
 
To the Company’s knowledge, based solely on a review of the copies of such reports furnished to the Company, with respect to the fiscal year ended April 30, 2016, all officers, directors and beneficial owners of more than 10% of our common stock have filed their initial statements of ownership on Form 3 on a timely basis, and the officers, directors and beneficial owners of more than 10% of our common stock have also filed the required Forms 4 or 5 on a timely basis.
 
Code of Ethics
 
Our current Code of Ethics became effective July 3, 2013. A copy of our Code of Ethics an exhibit to our Transition Report on Form 10-K, filed on August 28, 2013. The Code of Ethics applies to all officers, directors, and employees of the Company.  

Board of Directors Meetings and Committees
 
The Board held nine meetings during the fiscal year ended April 30, 2016. Each Director attended, either in person or telephonically, at least 75% of the aggregate Board of Directors meetings and meetings of committees on which he served during his tenure as a director or committee member.
 
 
Audit Committee
 
Our Audit Committee currently consists of three directors, Glenn Pollack, Fred Zeidman and John Wallace, each of whom are “independent” as independence is currently defined in the NASDAQ Stock Market Rules and SEC rules and regulations. The Board has determined that Glenn Pollack qualifies as an “Audit Committee financial expert,” as defined in applicable SEC rules implementing Section 407 of the Sarbanes-Oxley Act of 2002. The Board made a qualitative assessment of Mr. Pollack’s level of knowledge and experience based on a number of factors, including his formal education and experience. The Audit Committee held three meetings during the fiscal year ended April 30, 2016.

The Audit Committee is responsible for overseeing the Company’s corporate accounting, financial reporting practices, audits of financial statements and the quality and integrity of the Company’s financial statements and reports. In addition, the Audit Committee oversees the qualifications, independence and performance of the Company’s independent auditors. In furtherance of these responsibilities, the Audit Committee’s duties include the following: evaluating the performance of and assessing the qualifications of the independent auditors; determining and approving the engagement of the independent auditors to perform audit, review and attest services and performing any proposed permissible non-audit services; evaluating employment by the Company of individuals formerly employed by the independent auditors and engaged on the Company’s account and any conflicts or disagreements between the independent auditors and management regarding financial reporting, accounting practices or policies; discussing with management and the independent auditors the results of the annual audit; reviewing the financial statements proposed to be included in the Company’s annual report on Form 10-K; discussing with management and the independent auditors the results of the auditors’ review of the Company’s quarterly financial statements; conferring with management and the independent auditors regarding the scope, adequacy and effectiveness of internal auditing and financial reporting controls and procedures; and establishing procedures for the receipt, retention and treatment of complaints regarding accounting, internal accounting control and auditing matters and the confidential and anonymous submission by employees of concerns regarding questionable accounting or auditing matters. The Audit Committee operates under the written Audit Committee Charter adopted by the Unanimous Written Consent. A copy of the Audit Committee Charter is available on the Company’s website.
 
Compensation Committee
 
Our Compensation Committee is currently comprised of two directors, Glenn Pollack and Fred Zeidman, each of whom is independent as independence is currently defined in the NASDAQ Stock Market Rules and SEC rules and regulations. The Compensation Committee held two meeting during the year ended April 30, 2016.

The Compensation Committee reviews, and as it deems appropriate, recommends to the Board, policies, practices, and procedures relating to the compensation of the officers and other managerial employees, and the establishment and administration of employee benefit plans. It advises and consults with the officers of the Company as may be requested regarding managerial personnel policies. The Compensation Committee also has such additional powers as may be conferred upon it from time to time by the Board. 

The Compensation Committee operates under the written Compensation Committee Charter that was adopted by the Unanimous Written Consent. A copy of the Compensation Committee Charter is available on the Company’s website.
 
Nominating and Corporate Governance Committee   
 
The Nominating and Corporate Governance Committee is currently comprised of two directors, Glenn Pollack and Fred Zeidman, each of who is independent as independence is currently defined in the NASDAQ Stock Market Rules and SEC rules and regulations. The Nominating and Corporate Governance Committee held one meeting during the year ended April 30, 2016.

The Nominating and Corporate Governance Committee is responsible for making recommendations to the Board of Directors regarding candidates for directorships and the size and composition of the Board. In addition, the Nominating and Corporate Governance Committee is responsible for overseeing our corporate governance guidelines and reporting and making recommendations to the Board concerning corporate governance matters.

Board Nominations
 
In lieu of a formal Board Nomination Committee, Board nomination decisions are made by the independent directors of the Board. The independent directors prepare a list of candidates to fill the expiring terms of directors serving on our Board, which they then submit to the Board who determines which candidates will be nominated to serve on the Board. The names of nominees are then submitted for election at our Annual Meeting of Stockholders. The independent directors also submit to the entire Board a list of nominees to fill any interim vacancies on the Board resulting from the departure of a member of the Board for any reason prior to the expiration of his term. In recommending nominees, the independent directors are to consider various criteria, including general business experience, general financial experience, knowledge of the Company’s industry (including past industry experience), education, and demonstrated character and judgment. The independent directors will also consider director nominees recommended by a stockholder if the stockholder mails timely notice to the Secretary of the Company at its principal offices. Any person nominated by a stockholder for election to the Board will be evaluated based on the same criteria as all other nominees.

Indemnification of Officers and Directors

As permitted by the Delaware General Corporation Law, the Company will indemnify its directors and officers against expenses and liabilities they incur to defend, settle, or satisfy any civil or criminal action brought against them on account of their being or having been Company directors or officers unless, in any such action, they are adjudged to have acted with gross negligence or willful misconduct.
 
 
ITEM 11 . EXECUTIVE COMPENSATION

Summary Compensation Table

The following table sets forth information concerning the compensation paid to the Company’s Chief Executive Officer, and the Company’s two most highly compensated executive officers other than its Chief Executive Officer, who were serving as executive officers as of April 30, 2016 and whose annual compensation exceeded $100,000 during such year (collectively the “ Named Executive Officers ”).
 
Name and Principal Position
 
Year
Ended April 30
   
Salary $
   
Bonus $
   
Stock awards $
   
Option awards $  (1)
   
Nonequity 
Incentive plan
compensation $
   
Nonqualified
Deferred
compensation 
Earnings $
   
All other
compensation $
   
Total $
 
Scot Cohen, Executive Chairman (2)
   
2016
     
219,000
     
--
     
---
     
1,028,947
     
--
     
--
     
--
     
1,247,947
 
     
2015
     
120,000
     
--
     
--
     
401,245
     
--
     
--
     
--
     
521,245
 
Stephen Brunner, President (3)
   
2016
     
25,000
                     
29,974
                             
54,974
 
     
2015
     
--
     
--
     
--
     
--
     
--
     
--
     
--
     
--
 
David Briones, CFO
   
2016
     
60,000
     
--
     
--
     
--
     
--
     
--
     
--
     
60,000
 
     
2015
     
94,000
     
--
     
--
     
1,022
     
--
     
--
     
--
     
95,022
 
 
(1)
Option awards” include the expense recorded for all options granted by us as compensation for employment services or office during the current and prior years.
(2)
Of the total cash compensation paid to Mr. Cohen during 2016, $7,500 was paid to V3 Capital Partners, a single member limited liability company owned by Mr. Cohen.
(3)
Mr. Brunner was appointed President of the Company effective on January 1, 2016.
 
The Company’s compensation program is designed to provide our executive officers with competitive remuneration and to reward their efforts and contributions to the Company. Elements of compensation for our executive officers include base salary and bonuses paid as stock options pursuant to the Company’s Amended and Restated 2012 Equity Compensation Plan (the “ Plan ”). Company performance does not play a significant role in the determination of base salary. 
 
The Compensation Committee, working in conjunction with the Executive Chairman, reviews and makes recommendations to the Board regarding all forms of compensation to be provided to officers and directors of the Company, including all bonus and stock compensation. The Compensation Committee may also set general compensation goals and guidelines for the Company’s employees from time to time.

In 2013, the Company entered into an Employment Agreement with Scot Cohen, the Company’s Executive Chairman (the “ Employment Agreement ”). Under the terms of the Employment Agreement, Mr. Cohen will be entitled to all earned but unpaid salary, expense reimbursements, bonuses (if applicable), and any vested benefits, upon termination of the Employment Agreement by the Company for cause, by Mr. Cohen without good reason, or upon the Employment Agreement’s expiration date in the event Mr. Cohen does not choose to renew his contract. In the event Mr. Cohen’s employment is terminated by the Company without cause, upon a change in control of the company, or by Mr. Cohen for good reason, he shall be entitled to any accrued obligations (detailed in the preceding sentence), severance in a single lump sum installment in an amount equal to twice the sum of the base salary in effect on the termination date plus two times the maximum annual bonus for which Mr. Cohen was eligible in the fiscal year in which the termination date occurred, a pro-rata portion of Mr. Cohen’s annual bonus for the fiscal year in which the termination occurred, and a full vesting in the initial grant and in any and all previously granted outstanding equity-based incentive awards subject to time-based vesting criteria.

On November 20, 2013, the Company and the Executive Chairman entered into an amendment (the “ Amendment ”) to the Employment Agreement. Under the terms of the Amendment, the Company substituted a stock option grant of 208,333 fair market value stock options under the Plan, at the exercise price of $11.80 per share, for cash-settled restricted stock units representing 331,703 shares of the Company’s common stock, which the Company had previously agreed to grant Mr. Cohen under the terms of the Employment Agreement. These options will vest in five equal installments, with the first 20% vesting immediately upon grant, and the remaining options vesting in four equal installments on the anniversary of the grant date.

On October 28, 2015, the Company entered into an Employment Agreement with Stephen Brunner.  Pursuant to the terms and conditions of the Employment Agreement, Mr. Brunner will receive a base salary of $5,000 per month from January 2016 until March 2016, which amount will increase to $10,000 per month thereafter, and will be eligible for an annual bonus, payable in cash and/or equity at the sole discretion of the Board of Directors. Upon execution of the Employment Agreement, Mr. Brunner received options to purchase 53,244 shares of the Company’s common stock, or 1.25% of the Company’s outstanding shares of common stock, for $2.00 per share, subject to certain vesting conditions contained in the Employment Agreement. Additionally, upon completion of certain transactions, including an increase of the number of shares of common stock authorized for issuance under the Company’s current stock option plan, Mr. Brunner will receive options to purchase an additional 1.75% of the Company’s outstanding shares of common stock.  
 
On November 26, 2013, the Company entered into a consulting agreement with Brio Financial Group (“ Brio ”) and its Managing Member, David Briones, was appointed the Chief Financial Officer of the Company on August 15, 2013. Under the terms of this agreement, as amended, Brio will receive a monthly consulting fee of $5,000, as well as a grant of 3,750 stock options of the Company pursuant to the Plan. The options will vest in six installments. The first 625 options vested immediately upon execution of the consulting agreement, and the remaining 5 installments will vest monthly, on the 26th of each subsequent month.
 
 
Outstandi n g Equity Awards at April 30, 2016
 
The Plan was adopted to promote the success and enhance the value of the Corporation by continuing to link the personal interest of participants to those of its Shareholders and by providing participants with an incentive for outstanding performance. The Plan is administered by the Board, and all employees of the Corporation and its subsidiaries, as determined by the Board, and all members of the Board are eligible to participate. An aggregate of 3.0 million shares of common stock are authorized for issuance under the Plan.

The Plan was approved at a special meeting of the shareholders on September 7, 2012, and an amendment to the plan was approved at the Company’s annual meeting of shareholders on April 16, 2014. The following table outlines awards issued to the Company’s Named Executive Officers and Directors pursuant to the Plan as of April 30, 2016. 
 
Plan Category
 
Number of securities underlying unexercised options
   
Option
Exercise
Price
   
Option
Expiration
Date
   
Number of securities
underlying unvested
options
   
Weighted-average
exercise price of
outstanding options,
warrants, and rights
 
Scot Cohen
   
208,333
   
$
2.00
     
10/21/25
     
208,333
   
$
2.00
 
David Briones
   
-
   
$
-
     
-
     
-
   
$
-
 
Glenn Pollack
   
4,237
   
$
2.00
     
10/21/25
     
4,237
   
$
2.00
 
John Wallace
   
4,237
   
$
2.00
     
10/21/25
     
4,237
   
$
2.00
 
Fred Zeidman
   
4,237
   
$
2.00
     
10/21/25
     
4,237
   
$
2.00
 
Total
   
221,044
                     
221,044
         
 
Director Compensation for the Year Ended April 30, 2016
 
The Company has no formal arrangement pursuant to which directors are compensated for their services in their capacity as directors, except for the granting from time to time of incentive stock options. During the year ended April 30, 2016, no compensation was paid to any of the Company’s directors.
 
Securities Authorized for Issuance Under Equity Compensation Plans .

As of the fiscal year ended April 30, 2016:
 
Plan category
 
Number of securities to be issued upon exercise 
of outstanding options, warrants and rights
   
Weighted-average exercise price of 
outstanding options, warrants and rights
   
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected at left)
 
Equity compensation plans approved by security holders
   
743,050
   
$
4.00
     
2,256,950
 
 

ITEM 12 . SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
 
The following table sets forth information regarding the beneficial ownership of our common stock as of July 28, 2016 for each person known by us to be the beneficial owner of more than 5% of our outstanding shares of common stock. Unless otherwise indicated, we believe that all persons named in the table have sole voting and investment power with respect to all shares of common stock beneficially owned by them. Set forth below is information regarding the shares of the Company’s common stock which are owned on July 28, 2016 or which the person has the right to acquire within 60 days of July 28, 2016 for each director, executive officer, all directors and executive officers as a group, and each person who is the beneficial owner of more than five percent of the outstanding shares of the Company’s Common Stock. 
 
Name and Address of 
Beneficial Owner (1)
 
Number of Shares
Beneficially Owned
   
Stock Options
Exercisable 
within 60 days
   
Percentage of Shares 
Beneficially Owned (4)
 
Position
Scot Cohen
   
2,181,924
(2)
   
208,333
     
68.50
%
Executive Chairman
David Briones
   
  -
     
-
     
-
 
Chief Financial Officer
Stephen Brunner
   
166,667
(3)
   
21,296
     
1.17
%
President, Operations
Glenn C. Pollack
   
16,709
     
4,237
     
*
 
Director
John Wallace
           
4,237
     
*
 
Director
Fred Zeidman
           
4,237
     
*
 
Director
All Directors and Officers as a Group (6 persons)
   
2,440,973
(3)
   
242,340
     
15.19
%
 
                           
                           
Fortis Property Group (5)
   
2,465,200
(4)
           
15.34
%
5% Owner
_________________
* Less than 1%
 
(1)
Except where otherwise indicated, the address of the beneficial owner is deemed to be the same address of the Company.
   
(2)
The beneficial owner is a Managing Member of ICO Liquidating Trust, which beneficially owns 305,431 shares of common stock, and Structure Oil Corp., which beneficially owns 36,813 shares of common stock.  In addition, he serves as a director of the Scot Jason Cohen Foundation, which beneficially owns 34,702 shares of common stock.    As a result of these relationships, the beneficial owner may be deemed, pursuant to Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), to beneficially own all common stock directly owned by such entities.
   
(3)
Includes Stock Options exercisable within 60 days of May 4, 2016.
   
(4)
The principal business address of the beneficial owner is 45 Main Street, Suite 800, Brooklyn, New York 11201.
 
ITE M 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
 
Separation and Release Agreement
 
In addition, in June and July of 2013, the Company signed a series of agreements with Jeffrey Freedman, former Chief Executive Officer, in relation to his departure from the Company. Pursuant to these agreements, the Company has provided to Mr. Freedman the sum of $12,000 and issued 2,326 options to purchase common stock with a $56,047 aggregate fair value as of the July 24, 2013 option grant date. These options will expire on July 23, 2016 and have an exercise price of $43. The Company computed the economic benefit of the grant as of the date of grant utilizing a Black-Scholes option-pricing model. The Company utilized the following assumptions: common share value based on the fair value of the Company’s common stock as quoted on the Over the Counter Bulletin Board, $43; exercise price of $43; expected volatility of 88%; and a discount rate of 0.64%. The options were immediately vested and the Company recorded the $56,047 to general and administrative expense on the date of grant.
 
Horizon Investments, LLC

On May 3, 2016 the Company consummated the acquisition of Horizon Investments. Scot Cohen, the Company’s Executive Chairman, is the sole managing member of Horizon Investments, and owned, prior to the consummation of the Horizon Acquisition, a 9.2% membership interest in Horizon Investments. As a result of the consummation of the Horizon Acquisition, Mr. Cohen received a distribution from Horizon Investments of 1,379,250 shares of the Company’s common stock.  Although Mr. Cohen remains the managing member of Horizon Investments, he is not paid separately for his role.

Horizon Investments owns a 20% membership interest in Horizon Energy. Mr. Cohen owns a 2.8% membership interest in Horizon Energy.
 
Stephen Brunner, the Company’s President, is a member of Horizon Energy, and owns a 2.52% membership interest. Prior to its acquisition by the Company on May 3, 2016, Mr. Brunner held a 1.68% membership interest in Horizon Investments. In connection with the consummation of the Horizon Acquisition, Mr. Brunner received a distribution from Horizon Investments of 166,667 shares of the Company’s common stock.
 
 
Pearsonia West Investment Group.

On May 30, 2014, the Company entered into a Subscription Agreement pursuant to which the Company was issued a 50% interest in Bandolier Energy, LLC (“ Bandolier ”) in exchange for a capital contribution of $5.0 million (the “ Bandolier Acquisition ”). Mr. Scot Cohen, 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.  On October 15, 2016, the Company indirectly transferred its controlling interest in Pearsonia West as a result of the transfer of the Company’s 50% membership interest in Bandolier to MegaWest under the terms of the Contribution Agreement, although the Company still retains a 29.26% indirect interest in Bandolier as a result of its interest in MegaWest.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
 
Our independent registered public accounting firm for the year ended April 30, 2016 was GBH CPAs, PC ( GBH ), and was Marcum LLP (“ Marcum ”) for the year ended April 30, 2015. Set forth below are the aggregate fees we were billed or expected to be billed by GBH and Marcum, respectively, for professional services rendered for the years ended April 30, 2016 and 2015.
 
Audit Fees

During the fiscal year ended April 30, 2016, the fees for GBH were approximately $28,750, as compared to $112,000 billed by Marcum for the year ended April 30, 2015. 

Tax Fees
 
During the fiscal year ended April 30, 2016, the fees paid to GHB for tax compliance, tax advice and tax planning were $0, as compared to $110,500 paid to Marcum for similar services during the year ended April 30, 2015.

All Other Fees

During the fiscal years ended April 30, 2016 and April 30, 2015 there were no fees billed for products and services provided by either GBH or Marcum, other than those set forth above.

The Audit Committee has reviewed the above fees for non-audit services and believes such fees are compatible with the independent registered public accountants’ independence. 

Policy on Audit Committee Pre-Approval of Audit and Non-Audit Services of Independent Accountant
 
The Audit Committee shall approve the audit engagement and fees related thereto and pre-approve any other services and fees related thereto to be provided by the independent auditors. The Audit Committee shall schedule meetings to review and approve the scope of the annual audit to be performed by the Company’s independent auditors.
 
The Audit Committee shall select, evaluate, and if appropriate, terminate or replace the independent auditors. The Audit Committee will arrange to receive from the independent auditors a formal written statement on at least an annual basis delineating all relationships between the independent auditor and the Company, consistent with Independence Standards Board Standard 1, which shall (a) set forth all relationships between the independent auditor and its related entities and the Company and its related entities that in the independent auditor’s professional judgment may reasonably be thought to bear on independence, and (b) confirm that in the auditor’s professional judgment, it is independent of the Company within the meaning of the Exchange Act and the Securities Act. On an annual basis, the Audit Committee will review and discuss with the auditors all significant relationships, including non-audit services proposed or performed, the auditors have with the Company to determine the auditors’ independence, especially in light of any disclosed relationships or services that may impact the objectivity and independence of the auditor. The independent auditors are accountable to the Audit Committee and to the Board.
 
 
P A RT 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 Description
3.1 (1)
 
Certificate of Incorporation of the Company
3.2 (1)
 
Bylaws of the Company
 3.3 (13)  
Certificate of Amendment to the Certificate of Incorporation of Petro River Oil Corporation, effective December 1, 2015 (Reverse Split).
 3.4 (13)  
Certificate of Amendment to the Certificate of Incorporation of Petro River Oil Corporation, effective December 1, 2015 (Authorized Increase).
 3.5 (14)  
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 (8)
 
Amended and Restated 2012 Equity Compensation Plan
10.3 (7)
 
Assignment and Assumption Agreement, dated as of May 30, 2014, by and between Bandolier Energy, LLC and PO1, LLC
10.4 (7)
 
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
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 (5)
 
Employment Agreement, by and between Petro River Oil Corp. and Ruben Alba, dated November 22, 2013
10.8 (5)
 
Employment Agreement, by and between Petro River Oil Corp. and Gary Wilkey, dated November 22, 2013
10.9 (5)
 
Employment Agreement, by and between Petro River Oil Corp. and Luis Vierma, dated November 22, 2013
10.10 (5)
 
Employment Agreement, by and between Petro River Oil Corp. and Daniel Smith, dated November 22, 2013
10.11 (2)
 
Form of Securities Purchase Agreement, dated April 23, 2013
10.12 (6)
 
Securities Purchase Agreement, by an between Petro River Oil Corp. and Petrol Lakes Holding Limited, dated December 12, 2013
10.13 (7)
 
Form of Bandolier Energy LLC Subscription Agreement, dated May 30, 2014
10.14 (7)
 
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
10.15 (7)
 
Assignment and Assumption Agreement, by an between Bandolier Energy, LLC and PO1, LLC, dated May 30, 2014
10.16 (7)
 
Agreement, by and between Petro River Oil Corp. and Pearsonia West Investment Group, LLC, dated May 30, 2014
10.17 (9)
 
Asset Purchase Agreement by and among Petro River Oil Corp, Petro Spring I, LLC, Havelide GTL LLC and certain shareholders, dated February 18, 2015.
10.18 (9)
 
Employment Agreement by and between the Company and Stephen Boyd, dated February 18, 2015
10.19 (9)
 
Form of Warrant
10.20 (10)
 
Asset Purchase Agreement by and among Petro River Oil Corp, Petro Spring II, LLC, Coalthane Tech LLC and certain shareholders, dated February 27, 2015.
10.21 (16)  
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.
10.22 (16)  
Employment Agreement, by and between Petro River Oil Corp. and Stephen Brunner, dated October 30, 2015.
10.23 (13)  
Conditional Purchase Agreement, by and between Petro River Oil Corp. and Horizon I Investments, LLC, dated December 1, 2015.
  10.24 (13)     
Form of Escrow Agreement 
10.25 (13)  
Non-Recourse Note, by and between Petro River Oil Corp. and Horizon I Investments, LLC, dated December 1, 2015. 
10.26 (11)  
Farm out Agreement, dated January 19, 2016. 
10.27 (11)  
Escrow Agreement, dated January 18, 2016.
10.28 (11)  
Non-Recourse Promissory Note, in the principal amount of $750,000, dated January 13, 2016.
 10.29 (12)    
Assignment of Oil and Gas Lease, by and between MegaWest Energy Missouri Corp. and Paluca Petroleum, Inc., dated July 11, 2016.
10.30 (15)  
Asset Purchase and Sale and Exploration Agreement, dated March 4, 2016.
14.1 (3)
 
Code of Business Conduct and Ethics
21.1 (2)
 
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
     
101.INS*
 
XBRL Instance Document
101.SCH*
 
XBRL Taxonomy Extension Schema Document
101.CAL*
 
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*
 
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*
 
XBRL Taxonomy Extension Labels Linkbase Document
101.PRE*
 
XBRL Taxonomy Extension Presentation Linkbase Document
 
 
*
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 November 27, 2013.
(6)
Incorporated by reference to our Form 8-K filed with the Securities and Exchange Commission on December 16, 2013.
(7)
Incorporated by reference to our Form 8-K filed with the Securities and Exchange Commission on June 5, 2014.
(8)
Incorporated by reference to our Annual Report on Form 10-K filed with the Securities and Exchange Commission on August 13, 2014.
(9)
Incorporated by reference to our Form 8-K filed with the Securities and Exchange Commission on February 23, 2015.
(10)
Incorporated by reference to our Form 8-K filed with the Securities and Exchange Commission on March 5, 2015.
(11)
Incorporated by reference to our Form 8-K filed with the Securities and Exchange Commission on January 20, 2016.
(12)
Incorporated by reference to our Form 8-K filed with the Securities and Exchange Commission on July 13, 2016.
(13)
Incorporated by reference to our Form 8-K filed with the Securities and Exchange Commission on December 7, 2015.
(14)
Incorporated by reference to our Form 8-K filed with the Securities and Exchange Commission on June 20, 2016.
(15)
Incorporated by reference to our Form 8-K filed with the Securities and Exchange Commission on March 10, 2016.
(16)
Incorporated by reference to our Form 8-K filed with the Securities and Exchange Commission on November 5, 2015.
 
 
PART I – FINAN CI AL INFORMATION
PETRO RIVER OIL CORP.
FINANCIAL INFORMATION
 
   
Page
 
       
    F-1  
         
    F-3  
         
    F-4  
         
    F-5  
         
    F-6  
         
    F-7  
 
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  
To the Board of Directors
Petro River Oil Corp.
New York, New York
 
We have audited the accompanying consolidated balance sheet of Petro River Oil Corp. as of April 30, 2016 and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for the year then ended. These consolidated financial statements are the responsibility of Petro River Oil Corp.’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, 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. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
 
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Petro River Oil Corp. as of April 30, 2016 and the results of its operations and its cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles.

/s/ GBH CPAs, PC

GBH CPAs, PC
www.gbhcpas.com
Houston, Texas
July 29, 2016
 
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  
To the Audit Committee of the
Board of Directors and Shareholders
of Petro River Oil Corp. and Subsidiaries
 
We have audited, before the effects of the adjustments to retrospectively apply the change in accounting related to the reverse stock split described in Note 1, the accompanying consolidated balance sheet of Petro River Oil Corp. and Subsidiaries (the “Company”) as of April 30, 2015, and the related consolidated statements of operations, stockholders’ equity and cash flows for the year then ended (the 2015 consolidated financial statements before the effects of the adjustments related to the reverse stock split discussed in Note 1 are not presented herein).  These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, 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.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audit provide a reasonable basis for our opinion.

In our opinion, before the effects of the adjustments to retrospectively apply the change in accounting related to the reverse stock split described in Note 1, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Petro River Oil Corp. and Subsidiaries, as of April 30, 2015, and the consolidated 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.

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, at April 30, 2015, the Company has incurred significant losses from its operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans regarding those matters also are described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of uncertainty.

We were not engaged to audit, review or apply any procedures to the adjustments to retrospectively apply the change in accounting related to the reverse stock split described in Note 1, accordingly, we do not express an opinion or any other form of assurance about whether such adjustments are appropriate and have been properly applied. Those adjustments were audited by other auditors.

/s/ Marcum llp

Marcum llp
New York, NY
August 13, 2015 
 
 
Petro River Oil Corp. and Subsidiaries
Consolidated B al ance Sheets
 
   
As of
 
   
April 30, 2016
   
April 30, 2015
 
Assets
               
Current Assets:
               
  Cash and cash equivalents
 
$
774,751
   
$
1,010,543
 
  Certificate of deposit - restricted
   
80,803
     
125,000
 
  Accounts receivable - oil and gas
   
903
     
42,688
 
  Accounts receivable - related party
   
4,829,693
     
-
 
  Accrued interest on notes receivable - related party
   
170,653
     
-
 
  Interest in real estate rights
   
2,820,402
     
-
 
  Prepaid expenses and other current assets
   
24,967
     
52,771
 
  Prepaid oil and gas asset development costs
   
844,131
     
-
 
Total Current Assets
   
9,546,303
     
1,231,002
 
                 
Oil and gas assets, full cost method
               
  Costs subject to amortization, net
   
778,226
     
6,935,000
 
  Costs not being amortized, net
   
100,000
     
8,822,011
 
Property, plant and equipment, net of accumulated depreciation
               
  of $308,223 and $313,508, respectively
   
2,341
     
60,953
 
Intangible assets, net
   
-
     
2,203,393
 
Notes receivable - related party
   
17,848,000
     
-
 
Other assets
   
53,778
     
27,922
 
Total Other Assets
   
18,782,345
     
18,049,279
 
Total Assets
 
$
28,328,648
   
$
19,280,281
 
                 
Liabilities and Equity
               
Current Liabilities:
               
  Accounts payable and accrued expenses
 
$
206,780
   
$
252,227
 
  Deferred tax liability
   
2,501,209
     
-
 
  Notes payable - related party
   
1,600,000
     
-
 
  Asset retirement obligations, current portion
   
561,958
     
541,959
 
Total Current Liabilities
   
4,869,947
     
794,186
 
                 
Long-term liabilities:
               
  Asset retirement obligations, net of current portion
   
201,104
     
376,471
 
Total Long-term Liabilities
   
201,104
     
376,471
 
                 
Total Liabilities
   
5,071,051
     
1,170,657
 
                 
Commitments and contingencies
               
                 
 Equity:
               
  Preferred shares - 5,000,000 authorized; par value $0.00001; 0 shares issued and outstanding
   
-
     
-
 
  Preferred B shares - 29,500 authorized; par value $0.00001; 0 shares issued and outstanding
   
-
     
-
 
  Common shares - 100,000,000 authorized; par value $0.00001; 4,263,672 and 4,259,506 issued and outstanding
   
43
     
43
 
  Additional paid-in capital
   
38,849,655
     
31,115,291
 
  Accumulated deficit
   
(27,643,419
)
   
(16,650,486
)
Total Petro River Oil Corp. Equity
   
11,206,279
     
14,464,848
 
Non-controlling interest
   
12,051,318
     
3,644,776
 
Total Equity
   
23,257,597
     
18,109,624
 
Total Liabilities and Equity
 
$
28,328,648
   
$
19,280,281
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
F-3

 
Petro River Oil Corp. and Subsidiaries
Consolidated Statements of Operations
 
   
For the Year Ended
 
Operations
 
April 30, 2016
   
April 30, 2015
 
Revenues
           
  Oil and natural gas sales
 
$
87,939
   
$
2,127,576
 
Total Revenues
   
87,939
     
2,127,576
 
                 
                 
Operating Expenses
               
  Lease operating expenses
   
373,028
     
1,847,688
 
  Depreciation, depletion and accretion
   
161,326
     
750,360
 
  Amortization of intangible assets
   
120,452
     
20,293
 
  Gain on sale of equipment
   
(5,519
)
   
-
 
  Loss on sale of oil and gas assets
   
7,519,460
     
-
 
  Impairment of oil and gas assets
   
6,870,613
     
1,246,975
 
  Impairment of intangible assets
   
2,082,941
     
-
 
  General and administrative
   
3,103,358
     
4,606,377
 
Total Operating Expenses
   
20,225,659
     
8,471,693
 
                 
Operating Loss
   
(20,137,720
)
   
(6,344,117
)
                 
Other Income (Expense)
               
  Interest income (expense) – net
   
174,458
     
(462
)
  Net gain on interest in real estate rights
   
10,474,713
     
-
 
Other Income (Expense)
   
10,649,171
     
(462
)
                 
Net Loss Before Income Tax Provision
   
(9,488,549
)
   
(6,344,579
)
                 
Income Tax Provision
   
2,501,209
     
-
 
                 
                 
Net Loss
   
(11,989,758
)
   
(6,344,579
)