PetroGas Co - Quarter Report: 2016 September (Form 10-Q)

form10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2016

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from

333-196409

Commission File Number

PETROGAS COMPANY

(Exact name of registrant as specified in its charter)

Nevada	98-1153516
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

2800 Post Oak Boulevard, Suite 4100

Houston, TX 77056

(Address of principal executive offices)

(602) 320-4899

(Registrant’s telephone number, including area code)

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

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. [X] Yes [ ] No

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

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

Large accelerated filer [ ]		Accelerated filer [ ]
Non-accelerated filer [ ] (Do not check if a smaller reporting company)		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 [X] No

As of September 30, 2016, the issuer had 29,684,381 shares of common stock issued and outstanding.

Table of Contents

		Page
	PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements	3

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
		4
Item 3.	Quantitative and Qualitative Disclosures About Market Risk
		7
Item 4.	Controls and Procedures
		7
	PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	8

Item 1A.	Risk Factors	8

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	8

Item 3.	Defaults Upon Senior Securities	8

Item 4.	Mine Safety Disclosures	8

Item 5.	Other Information	8

Item 6.	Exhibits	9

	SIGNATURES	10

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

	Page
Unaudited Consolidated Balance Sheets as of September 30, 2016 and March 31, 2016	F-1
Unaudited Consolidated Statements of Operations for the three and six months ended September 30, 2016 and 2015	F-2
Unaudited Consolidated Statements of Cash Flows for the six months ended September 30, 2016 and 2015	F-3
Notes to the Unaudited Consolidated Financial Statements	F-4 to F-11

PETROGAS COMPANY

CONSOLIDATED BALANCE SHEETS

	September 30, 2016			March 31, 2016
	(Unaudited)			(Audited)
ASSETS

Current assets
Cash and cash equivalents	$	-		$	-
Total current assets		-			-

Total assets	$	-		$	-

Current liabilities
Accounts payable and accrued liabilities	$	32,317		$	9,552
Advances from related party		167,308			118,433
Convertible notes		-			55,245
Total current liabilities		199,625			183,230

Long-term liabilities
Asset retirement obligations		83,580			83,580
Total long term liabilities		83,580			83,580

Total liabilities		283,205			266,810

Commitments and contingencies

Stockholders’ (deficit) equity
Common stock, par value $0.001;
300,000,000 shares authorized, 29,684,381 and 1,326,281 shares issued and
outstanding as of September 30, 2016 and March 31, 2016		29,684			1,326
Additional paid in capital		996,925			970,038
Accumulated deficit		(1,309,814	)		(1,238,174	)
Total stockholders’ (deficit) equity		(283,205	)		(266,810	)

Total liabilities and stockholders’ (deficit) equity	$	-		$	-

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

F-1

PETROGAS COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended							Six Months Ended
		September 30,							September 30,
		2016			2015				2016			2015

Revenue		$	-		$	-			$	-		$	-

Operating Expenses
Lease Operating expense			-			42,022				-			44,614
Accretion expense			-			44				-			89
General and administrative expense			48,682			81,966				71,050			95,909
Total operating expenses			48,682			124,032				71,050			140,612

Loss from Operations			(48,862	)		(124,032	)			(71,050	)		(140,612	)

Other Expenses:
Loss on acquisition of royalty interest and unproven property			-			(46,237	)			-			(46,237	)
Impairment of oil and gas leases			-			(448,500	)			-			(448,500	)
Interest expenses			(38	)		(708	)			(590	)		(708	)
Total other expenses			(38	)		(495,445	)			(590	)		(495,445	)

Net loss		$	(48,900	)	$	(619,477	)		$	(71,640	)	$	(636,057	)

Net loss per share – basic and diluted		$	(0.02	)	$	(0.00)			$	(0.04	)	$	(0.00)

Weighted average shares outstanding – basic and diluted (1)			2,266,965			1,302,234				1,799,193			1,282,183

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

F-2

PETROGAS COMPANY

CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)

	Six Months Ended September 30,
	2016			2015

Cash flows from operating activities
Net loss	$	(71,640	)	$	(636,057	)
Adjustments to reconcile net loss to net cash from operating activities:
Asset retirement obligation accretion		-			89
Impairment of oil and gas leases		-			448,500
Loss on acquisition of royalty interests and unproven property		-			46,237
Change in operating assets and liabilities:
Accounts payable and accrued liabilities		22,765			9,263
Other liabilities		-			4,600
Prepaid Expenses		-			(13,078	)
Materials and supplies		-			(14,503	)
Interest expense		-			708
Net cash from operating activities		(48,875	)		(154,241	)

Cash flows from investing activities
Improvements to proven oil and gas assets		-			(77,044	)
Net cash from investing activities		-			(77,044	)

Cash flows from financing activities
Advances from related party		48,875			110,000
Proceeds from sale of common stock		-			150,000
Net cash from financing activities		48,875			260,000

Net change in cash and cash equivalents		-			28,715

Beginning of period		-			5,971

End of period	$	-		$	34,686

Noncash investing and financing activities:
Issuance of common stock for acquisition of oil and gas properties	$	-		$	160,000
Asset retirement obligations incurred		-			9,075
Issuance of common stock for acquisition of overriding royalties and unproved property					97,500
Issuance of common stock for unproven oil and gas property					448,500
Issuance of common stock to settle certain convertible notes		55,245			-

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

F-3

PETROGAS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 – DESCRIPTION OF BUSINESS AND BASIS OF PERSENTATION

Organization and nature of business

PetroGas Company (Formerly America Resources Exploration Inc. (the “Company”)), was incorporated in the State of Nevada on January 24, 2014. The Company was incorporated under the name Alazzio Entertainment Corp. and changed its name to America Resources Exploration Inc. on April 17, 2015. Subsequently, on January 20, 2016, the Company changed its name to PetroGas Company. On June 12, 2015, the Company completed an acquisition of working interests in certain oil & gas properties as discussed in Note 4 below.

On April 16, 2015, the Company filed a Certificate of Amendment with the Nevada Secretary of State whereby it amended its Articles of Incorporation by increasing the Company's authorized number of shares of common stock from 75 million to 300 million and increasing all of its issued and outstanding shares of common stock at a ratio of fifteen (15) shares for every one (1) share held.

On January 20, 2016, the Company filed a Certificate of Amendment with the Nevada Secretary of State (the “Nevada SOS”) whereby decreasing all of its issued and outstanding shares of common stock at a ratio of one (1) share for every one hundred (100) shares held. The Company’s Board of Directors approved this amendment on January 13, 2016 and shareholders holding 68.65% of the Company’s issued and outstanding shares approved this amendment via a written consent executed on January 14, 2016.

All share and per share amounts in these financial statements have been adjusted to reflect this stock split.

Financial Statements Presented

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q and Article 210 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. All such adjustments are of a normal recurring nature. Operating results for the six months ended September 30, 2016, are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2017. For further information, refer to the financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2016 as filed with the Securities and Exchange Commission on September 27, 2016.

Certain reclassifications have been made to the prior period’s financial statements to conform to the current period’s presentation.

NOTE 2– GOING CONCERN

The Company has experienced net losses to date, and it has not generated revenue from operations, we will need additional working capital to service debt and for ongoing operations, which raises substantial doubt about its ability to continue as a going concern. Management of the Company has developed a strategy to meet operational shortfalls which may include equity funding, short term or long term financing or debt financing, to enable the Company to reach profitable operations.

The accompanying consolidated financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern. If we fail to generate positive cash flow or obtain additional financing, when required, we may have to modify, delay, or abandon some or all of our business and expansion plans.

F-4

PETROGAS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Because a precise determination of many assets and liabilities is dependent upon future events, the preparation of financial statements for a period necessarily involves the use of estimates, which have been made using careful judgment. Actual results may vary from these estimates.

The financial statements have, in management’s opinion, been properly prepared within reasonable limits of materiality and within the framework of the significant accounting policies summarized below:

Basis of Consolidation

These consolidated financial statements include the accounts of the Company and its 94% owned subsidiary, Seabourn Oil Company, LLC. All intercompany balances and transactions have been eliminated in consolidation.

Fiscal Year End

The Company has selected March 31 as its fiscal year end.

Cash and Cash Equivalents

Cash and cash equivalents consist of commercial accounts and interest-bearing bank deposits and are carried at cost, which approximates current value. Items are considered to be cash equivalents if the original maturity is three months or less.

Equipment and Facilities

Equipment and facilities are recorded at cost. Depreciation is recorded using the straight-line method over the estimated useful lives of the related assets, ranging from one to twenty-five years.

Intangible Assets

Acquired intangible assets are recognized at cost and are classified as assets with finite useful lives. The Company amortizes the intangible assets with five years using the straight-line method over the estimated economic lives of the assets. Intangible assets are evaluated for impairment to determine if current circumstances and market conditions indicate the carrying amount may not be recoverable.

Oil and Gas Properties – Full Cost Method

The Company follows the full cost accounting method to account for oil and natural gas properties, whereby costs incurred in the acquisition, exploration and development of oil and gas reserves are capitalized. Such costs include lease acquisition, geological and geophysical activities, rentals on nonproducing leases, drilling, completing and equipping of oil and gas wells and administrative costs directly attributable to those activities and asset retirement costs. Disposition of oil and gas properties are accounted for as a reduction of capitalized costs, with no gain or loss recognized unless such adjustment would significantly alter the relationship between capital costs and proved reserves of oil and gas, in which case the gain or loss is recognized to operations.

The capitalized costs of oil and gas properties, excluding unevaluated and unproved properties, are amortized as depreciation, depletion and amortization expense using the units-of-production method based on estimated proved recoverable oil and gas reserves.

F-5

PETROGAS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Oil and Gas Properties – Full Cost Method (Cont’d)

The costs associated with unevaluated and unproved properties, initially excluded from the amortization base, relate to unproved leasehold acreage, wells and production facilities in progress and wells pending determination of the existence of proved reserves, together with capitalized interest costs for these projects. Unproved leasehold costs are transferred to the amortization base with the costs of drilling the related well once a determination of the existence of proved reserves has been made or upon impairment of a lease. Costs associated with wells in progress and completed wells that have yet to be evaluated are transferred to the amortization base once a determination is made whether or not proved reserves can be assigned to the property. Costs of dry wells are transferred to the amortization base immediately upon determination that the well is unsuccessful.

All items classified as unproved property are assessed on a quarterly basis for possible impairment or reduction in value. Properties are assessed on an individual basis or as a group if properties are individually insignificant. The assessment includes consideration of various factors, including, but not limited to, the following: intent to drill; remaining lease term; geological and geophysical evaluations; drilling results and activity; assignment of proved reserves; and economic viability of development if proved reserves are assigned. During any period in which these factors indicate an impairment, the cumulative drilling costs incurred to date for such property and all or a portion of the associated leasehold costs are transferred to the full cost pool and become subject to amortization.

Under full cost accounting rules for each cost center, capitalized costs of evaluated oil and gas properties, including asset retirement costs, less accumulated amortization and related deferred income taxes, may not exceed an amount (the "cost ceiling") equal to the sum of (a) the present value of future net cash flows from estimated production of proved oil and gas reserves, based on current prices and operating conditions, discounted at ten percent (10%), plus (b) the cost of properties not being amortized, plus (c) the lower of cost or estimated fair value of any unproved properties included in the costs being amortized, less (d) any income tax effects related to differences between the book and tax basis of the properties involved. If capitalized costs exceed this limit, the excess is charged to operations. For purposes of the ceiling test calculation, current prices are defined as the unweighted arithmetic average of the first day of the month price for each month within the 12-month period prior to the end of the reporting period. Prices are adjusted for basis or location differentials. Unless sales contracts specify otherwise, prices are held constant for the productive life of each well. Similarly, current costs are assumed to remain constant over the entire calculation period.

The Company’s proved properties have not operated for in excess of two years and under present circumstances, cannot be placed on production. Given the decline and continuing volatility of oil and gas prices which has prevented the Company from bringing its proven wells online, an estimate of discounted future net cash flows from proved oil and gas reserves is indeterminable. In addition, development of the Company’s unproved properties in not viable, nor are revenues from the Company’s ORR’s. As a result, the Company has evaluated its proved and unproven assets as at March 31, 2016 and has fully impaired these assets. We recognized a cumulative total of $713,550 and $0 of impairment costs during the years ended March 31, 2016 and 2015, respectively in respect of our proven and unproven oil and gas assets, in addition to a total of $46,237 which was impaired during the third quarter ended September 30, 2015 as a result of the loss on acquisition of certain ORR’s.

Impairment

FASB ASC 360-10-35-21 requires that assets to be held and used be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Oil and gas properties accounted for using the full cost method of accounting (which the Company uses) are excluded from this requirement but continue to be subject to the full cost method's impairment rules.

F-6

PETROGAS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Revenue Recognition

Oil and gas sales result from undivided interests held by the Company in oil and gas properties. Sales of oil and gas produced from oil and gas operations are recognized when the product is delivered to the purchaser and title transfers to the purchaser. Charges for gathering and transportation are included in production expenses. The Company had no sales of oil and gas during the six months ended September 30, 2016 and 2015.

Asset Retirement Obligations

The Company records a liability for asset retirement obligations ("ARO") associated with its oil and gas wells when those assets are placed in service. The corresponding cost is capitalized as an asset and included in the carrying amount of oil and gas properties and is depleted over the useful life of the properties. Subsequently, the ARO liability is accreted to its then-present value.

Inherent in the fair value calculation of an ARO are numerous assumptions and judgments including the ultimate settlement amounts, inflation factors, credit adjusted discount rates, timing of settlement, and changes in the legal, regulatory, environmental and political environments. To the extent future revisions to these assumptions impact the fair value of the existing ARO liability, a corresponding adjustment is made to the oil and gas property balance. Settlements greater than or less than amounts accrued as ARO are recorded as a gain or loss upon settlement.

Fair Value of Financial Instruments

The Company measures its financial assets and liabilities in accordance with the requirements of ASC 820, Fair Value Measurements and Disclosures. ASC 820 clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:

Level 1- Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.

Level 2- Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.

Level 3- Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information,

The carrying value of all assets and liabilities approximated their fair values as September 30, 2016 and March 31, 2016, respectively.

Stock-Based Compensation

The Company follows the guidance included in ASC 718 Compensation-Stock Compensation (“ASC 718”) using the modified prospective transition method. The Company recognizes compensation expense in the financial statements for share-based awards based on the grant date fair value of those awards.

F-7

PETROGAS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Income Taxes

The Company accounts for income taxes pursuant to ASC 740, Income Taxes . Deferred tax assets and liabilities are recorded for differences between the financial statements and tax basis of the assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is recorded for the amount of income tax payable or refundable for the period increased or decreased by the change in deferred tax assets and liabilities during the period.

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. These estimates are reviewed periodically, and, as adjustments become necessary, they are reported in earnings in the period in which they become known. The estimates on depreciation were based on the estimated useful lives of the Company's assets. Any estimates during the period have had an immaterial effect on earnings.

Earnings or Loss Per Share

In accordance with ASC Topic 280 – “Earnings Per Share”, the basic loss per common share is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding. Diluted loss per common share is computed similar to basic loss per common share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive.

Recent Accounting Pronouncements

The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.

NOTE 4– OIL AND GAS PROPERTIES

During the fiscal year ended March 31, 2016 the Company entered into certain agreements whereunder they acquired 94% control of Seabourn Oil Company, LLC, a company that holds a100% working interest and an 80% net revenue interest in a total of 960 acres located in two tracts in Callahan County, Texas.

On June 10, 2015, the Company entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) where under it acquired the rights to certain oil and gas leases located in Frio and Atascosa Counties, Texas, consisting of a total of 714 total acres of land, two (2) working wells and a total of seven (7) wells (the “Leases”).

Further, on June 11, 2015 the Company entered into additional assignment agreements for the acquisition of multiple oil and gas leases and overriding royalty interests (“ORR’s”) in various counties in Oklahoma, Texas and Utah.

During the fiscal year ended March 31, 2016, the Company completed various workovers and other improvements to certain of its existing wellbores, which amounts totaling $53,687 were capitalized under Proved Properties. As at the fiscal year ended March 31, 2016, the Company expensed these costs as the Company has not yet determined when the wells will be brought online. Further a total of $211,363 in proven and unproven oil and gas assets acquired as set out above, including ORR’s were fully impaired at March 31, 2016 following an evaluation by the Company’s management which determined recovery of costs was not likely to occur during the foreseeable future as a result of current industry economics.

F-8

PETROGAS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 5 – ASSET RETIREMENT OBLIGATIONS

The Company has asset retirement obligations for any wells that are permanently removed from service. The primary obligations involve the removal and disposal of surface equipment, plugging and abandoning the wells and site restoration. For the purpose of determining the fair value of ARO incurred during the fiscal year ended March 31, 2016, the Company used the following assumptions.

Inflation Rate	3%
Estimated asset life	20 years
Credit adjusted risk free interest rate	18%

As at March 31, 2016, the Company determined to fully impair its shut in wells given a lack of production over a period in excess of two years, and the uncertainty in returning the wells to production in the future. As a result, the Company has recorded a long term liability equal to the full value of the ARO.

The following table shows the change in the Company’s ARO during the fiscal year ended March 31, 2016:

Asset retirement obligations at April 1, 2015	$	-
Asset retirement obligations incurred		9,075
Accretion expense		89
Adjust obligation to reflect impairment of non producing wells		74,594
Asset retirement obligations at March 31, 2016	$	83,580

NOTE 6 – LOANS PAYABLE AND CONVERTIBLE NOTES

On August 10, 2015 the Company received loan proceeds of $60,000 from the Company’s majority shareholder, Rise Fast which amount bears interest at a rate of 5% per annum and is due and payable on December 31, 2017. During the period ended December 31, 2015, the Company repaid $55,980 of this loan leaving a total of $4,020 in principal outstanding.

On September 1, 2015 the Company received a further $50,000 in loan proceeds from Rise Fast which amount bears interest at 5% per annum and is due and payable on December 31, 2017.

On January 2, 2016, the remaining principal balance of the aforementioned loans payable totaling $54,020 and accrued interest of $1,225 thereon were converted to several 4% convertible notes with varying conversion prices. A portion of these notes were concurrently assigned to several third parties. A total of $21,635 of the principal value of the convertible notes have a conversion price at $0.001 per share, and the remaining $33,610 in principal value of the convertible notes have a conversion price at $0.005 per share.

On the transaction date, the Company recognized the intrinsic value of the embedded beneficial conversion feature of $55,245 as additional paid-in capital and the debt discount in full was recorded as interest expense.

The following table summarizes information in respect to the convertible notes:

	Principal Amount ($)			Debt Discount ($)			Carrying Value ($)			Accrued interest payable ($)
March 31, 2015		-			-			-			-
Additions		55,245			(55,245	)		-			-
Amortization of debt discount		-			55,245			55,245			-
Interest expenses		-			-			-			552
March 31, 2016		55,245			-			55,245			552
Interest expense											590
Shares issuance due to conversion		(55,245	)		-			(55,245	)		-
September 30, 2016		-			-			-			1,142

The Company analyzed the conversion feature of above Convertible Notes for derivative accounting consideration under FASB ASC 470 and determined that the conversion feature did not create embedded derivatives.

F-9

PETROGAS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 7 – COMMON STOCK

All share amounts in these financial statements have been adjusted to reflect this stock split.

Shares issued during the six months ended September 30, 2016

On July 1, 2016 the Company issued 21,635,730 shares of common stock to settle certain convertible notes in the principal amount of $21,635. (ref: Note 6 above)

On July 11, 2016 the Company issued 6,721,920 shares of common stock to settle certain convertible notes in the principal amount of $33,610. (ref: Note 6 above)

Shares issued during the fiscal year ended March 31, 2016

On June 12, 2015, Company issued 40,000 shares of common stock related to the acquisition of oil and gas property to (see Note 4) Zheng Xiangwu. Mr. Zheng is the owner of Rise Fast Limited, a Hong Kong corporation (“Rise Fast”), which is the majority shareholder of the Company. Rise Fast owned 900,000 shares of the Company’s common stock representing 68.94% of the Company’s issued and outstanding common stock at the date of the transaction.

On June 12, 2015, the Company accepted a Subscription Agreement for the sale of up to 25,500 shares of its common stock from the Company’s majority shareholder, Rise Fast. No underwriters were utilized in connection with this sale of securities. The Subscription Agreement provides that the shares shall be sold as follows: (i) upon execution thereof, the purchase irrevocably agrees to purchase 10,000 at $15 per share; (ii) within sixty (60) days of the date of the Subscription Agreement, the purchaser has the right to purchase an additional 7,500 shares at the price of $20 per share; and (iii) within one hundred twenty (120) days of the date of the Subscription Agreement, the purchaser has the right to purchase an additional 8,000 shares at the price of $20 per share. On July 23, 2015, the Company approved the issuance of 10,000 shares of common stock for cash proceeds of $150,000.

Between July 6 and July 9, 2015 the Company issued a further 6,500 shares of common stock to Mr. Zheng Xiangwu related to the acquisition of certain lease land and ORR’s. (see Note 4).

On August 19, 2015 the Company issued a total of 5,000 shares to Hans Johnson, owner of Inceptus Resources LLC in respect of the acquisition of certain lease lands. (see Note 4).

On November 2, 2015, the Company issued 10,000 shares of common stock to Mr. Joe Seabourn as part of an employee compensation agreement, which shares were valued at market price on the date of the transaction, totaling $30,600.

As at September 30, 2016 and March 31, 2016, the Company had a total of 29,684,381 and 1,326,281 shares issued and outstanding, respectively.

NOTE 8 – RELATED PARTY TRANSACTIONS

During the six months ended September 30, 2016 the Company received advances totaling $48,875 from its majority shareholder, Rise Fast Limited, in order to fund ongoing operations in the normal course. The amounts are unsecured, non-interest bearing and have no specific terms of repayment.

F-10

PETROGAS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 9 – INCOME TAXES

The Company estimates its annual effective income tax rate in recording its quarterly provision for income taxes in the various jurisdictions in which the Company operates. Statutory tax rate changes and other significant or unusual items are recognized as discrete items in the quarter in which they occur. The Company recorded no income tax expense for the six months ended September 30, 2016 and 2015. The Company has a valuation allowance that fully offsets net deferred tax assets.

NOTE 10 – SUBSEQUENT EVENTS

The Company has been named as a defendant in the lawsuit entitled Geoge Sharp v. America Resources Exploration, Inc., et al., Case No. 37-2015-00028270-CU-NP-CTL, currently pending in the California Superior Court for San Diego County. The lawsuit was filed on August 20, 2015 and also names other defendants. The lawsuit alleges that the Company and the other defendants sent and/or advertised in at least 99 emails in violation of California Business and Professions Code section 17529.5. The lawsuit seeks monetary relief in the amount of $99,000 jointly and severally against all Defendants along with the costs of the suit. Except as provided above, we know of no other legal proceedings to which we are a party or to which any of our property is the subject which are pending, threatened or contemplated or any unsatisfied judgments against us. No amounts have been recorded to date for this matter. Effective October 5, 2016, this action was resolved pursuant to a confidential settlement agreement, and a request for dismissal has been filed with the court.

F-11

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

This report contains forward-looking statements. These statements relate to future events or our future financial performance. These statements often can be identified by the use of terms such as "may," "will," "expect," "believe," "anticipate," "estimate," "approximate" or "continue," or the negative thereof. We intend that such forward-looking statements be subject to the safe harbors for such statements. We wish to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Any forward-looking statements represent management's best judgment as to what may occur in the future. However, forward-looking statements are subject to risks, uncertainties and important factors beyond our control that could cause actual results and events to differ materially from historical results of operations and events and those presently anticipated or projected. We disclaim any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statement or to reflect the occurrence of anticipated or unanticipated events.

GENERAL

As described below Company filed a Certificate of Amendment with the Nevada Secretary of State in January 2016 whereby it amended its Articles of Incorporation by decreasing all of its issued and outstanding shares of common stock at a ratio of one (1) share for every one hundred (100) shares held. The share amounts herein are adjusted to reflect such decrease.

America Resources Exploration Inc. (the "Company") was incorporated on January 24, 2014, under the laws of the State of Nevada to engage in any lawful corporate undertaking, with the specific intended business activity of operating photo booth rentals. The Company was incorporated under the name “Alazzio Entertainment Corp.” and changed its name to America Resources Exploration Inc. on April 29, 2015.

On April 3, 2015, a change in control of Alazzio Entertainment Corp. (the "Company") occurred by virtue of the Company's largest shareholder, Dmitri Kapsumun selling 900,000 shares (split adjusted) of the Company's common stock to Rise Fast Limited, a Hong Kong corporation. Such shares represent 71.77% of the Company's total issued and outstanding shares of common stock. As part of the sale of the shares, Rise Fast Limited arranged with the resigning member of the Company's Board of Directors, to appoint Mr. Huang Yu as the sole officer and director of the Company.

On April 16, 2015, the Company filed a Certificate of Amendment with the Nevada Secretary of State (the "Nevada SOS") whereby it amended its Articles of Incorporation by increasing the Company's authorized number of shares of common stock from 75 million to 300 million (not adjusted for the one (1) for one hundred (100) stock split) and increasing all of its issued and outstanding shares of common stock at a ratio of fifteen (15) shares for every one (1) share held. The Company's Board of Directors approved this amendment on April 15, 2015 and shareholders holding 71.77% of the Company's issued and outstanding shares approved this amendment via a written consent executed on April 16, 2015.

On April 17, 2015, the Company filed Articles of Merger with the Nevada SOS whereby it entered into a statutory merger with its wholly-owned subsidiary, America Resources Exploration Inc. pursuant to Nevada Revised Statutes 92A.200 et. seq. The effect of such merger is that the Company was the surviving entity and changed its name to "America Resources Exploration Inc."

On June 10, 2015, the Company entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with Zheng Xiangwu, a resident of Guang Dong Province, China, whereby the Company issued 40,000 million shares of its common stock in exchange for rights to certain oil and gas leases located in Frio and Atascosa Counties, Texas, consisting of a total of 714 total acres of land, two (2) working wells and a total of seven (7) wells (the “Leases”).

On June 12, 2015, the Company completed the acquisition of the Leases pursuant to the Asset Purchase Agreement. As a result of the completion of this acquisition, 40,000 shares of the Company’s common stock were issued to Mr. Zheng Xiangwu, who owns the Company’s largest shareholder, Rise Fast Limited. The number of shares issued to Mr. Zheng was determined by valuing the Leases at $160,000 and valuing the Company’s stock at $0.04 per share.

Mr. Zheng is the owner of Rise Fast Limited, a Hong Kong corporation (“Rise Fast”), which is the majority shareholder of the Company. Rise Fast owns 900,000 shares of the Company’s common stock. As a result of the transaction consummated pursuant to the Asset Purchase Agreement, Mr. Zheng controlled a total of 940,000 shares, which represented 72.64% of the Company’s issued and outstanding shares at that time.

In addition to a change in control of its management and shareholders and entering into the Asset Purchase Agreement, the Company's operations prior to entering into the Asset Purchase Agreement were limited to attempting to implement its business plan, issuing shares and filing a registration statement on Form S-1 pursuant to the Securities Act of 1934.

In connection with the completion of the acquisition of the Leases pursuant to the Asset Purchase Agreement, the Company has elected to enter into the oil and gas industry. Our primary objective is to enter the oil and gas industry by acquiring active oil and gas fields. This first step will allow us to enter the market in the U.S. and create immediate cash flow from producing wells. The Company intends to take advantage of currently depressed energy prices by taking over fields from companies that are unable to service their excessive debt due to falling oil prices.

On June 11, 2015 the Company entered into various assignment agreements with Mr. Zheng for the acquisition of multiple oil and gas leases and overriding royalty interests (“ORR’s”) as set out in the table below. From July 6, 2015 through July 9, 2015, the Company completed the acquisition of such oil and gas leases and ORR’s, whereby the Company issued a total of 6,500 shares of its common stock to Mr. Zheng. The Company valued the transaction at the market price of the shares as at the date of issue, or $0.15 per share for a total value of $97,500. The Company capitalized the historical cost of the acquired assets totaling $51,263 and recorded a loss on acquisition of $46,237.

Assignment Date	Name of The Property	Type of Property	Location
June 11th, 2015	Ellis County	Overriding Royalty Int.	Oklahoma
June 11th, 2015	Hemphill County	Overriding Royalty Int	Texas
June 11th, 2015	Madison County	Wellbore Interest	Texas
June 11th, 2015	Shelby County	Wellbore Interest	Texas
June 11th, 2015	Emergy County	Lease Purchase	Utah

On August 13, 2015 the Company entered into an Asset Purchase Agreement with Inceptus Resources, LLC whereunder the Company acquired a 78% net revenue interest in 200 acres located in Callahan County, Texas, and a 78% net revenue interest in 522 acres also located in Callahan County, Texas. In respect of the acquired leases the Company issued a total of 5,000 shares of common stock on the closing date, August 19, 2015, which shares were valued at market price on the date of the transaction, totaling $448,500, which amount was capitalized. As at September 30, 2015 the Company evaluated the capitalized value of the leases and determined to impair the amount in full due to the fact that the Company had no historical cost basis for the leases, and no immediate development plans for the lease land. A total of $448,500 has been expensed as Impairment loss on oil and gas lease in the third quarter.

In order to assist the Company’s entry into the oil and gas industry, the Company added Joe M. Seabourn and Robert Wiener to its Board of Directors in June 2015. Mr. Weiner resigned from the Board of Directors in November 2015 and Mr. Seabourn resigned from the Board of Directors in December 2015. The resignations of Messrs. Weiner and Seabourn were not due to any disagreements of any nature with the Company.

On January 20, 2016, the Company filed a Certificate of Amendment with the Nevada Secretary of State (the "Nevada SOS") whereby it amended its Articles of Incorporation by decreasing all of its issued and outstanding shares of common stock at a ratio of one (1) share for every one hundred (100) shares held. The Company's Board of Directors approved this amendment on January 13, 2016 and shareholders holding 68.65% of the Company's issued and outstanding shares approved the amendment via a written consent executed on January 14, 2016.

On January 20, 2016, the Company filed Articles of Merger with the Nevada SOS whereby it entered into a statutory merger with its wholly-owned subsidiary, PetroGas Company pursuant to Nevada Revised Statutes 92A.200 et. seq. The effect of such merger is that the Company was the surviving entity and changed its name from America Resources Exploration Inc. to "PetroGas Company".

Both the reverse stock split and name change described above were effected in the market by FINRA effective March 7, 2016, which also resulted in changing the Company’s ticker symbol to “PTCO”.

CURRENT INVESTMENTS

On June 12, 2015, the Company acquired three (3) producing leases covering 714 acres situated in Atascosa and Frio Counties, Texas, located in the Eagle Ford Shale formation - the Jane Burns “C” (“Burns”), the Theo Rogers “C”, and the Theo Rogers “A” & “D” (“Rogers”) Leases. The Company acquired a 99.5% working interest (74.625% net revenue interest) in each lease.

The Burns and Rogers Leases provide exploration and production opportunities in the Kyote Field pay zone, very near the Eagle Ford Shale play with access to available rig crews and other vendor-servicers, due to their close proximity to San Antonio, Texas.

The Burns and Rogers Leases hold collectively seven (7) oil wells, but none of which are operating wells. Although Company’s management and industry professionals believed at the time that they were acquired that the Company could double or triple previous production on these wells, depressed oil prices indicate that the cost to bring these wells online an uneconomical venture.

Future Operations

Management continues to consider plans to reactive the inactive wells through a rework program on the Leases. Additional rights may be leased out from mineral owner to deeper zones near 5,000 feet and below. However, such plans are subject to raising financing of $500,000 to pay for such rework plans and an analysis of potential income based on projected oil prices in the future.

The Company has also been actively seeking other producing and non-producing leases that will allow us to explore and drill in high-profile pay zones.

We intend to raise capital at a low cost from private placements so that we may acquire numerous additional leases, and to commence drilling, and taking advantage of the inevitable uptick in oil prices to come.

In the current climate, the Company believes that there are a very large number of oil & gas leases under distress due to the depressed gas prices and that we can strategically position the Company to acquire as many of these leases as possible at a discount to market value, hence creating shareholder value.

On the Burns and Rogers Leases, we intend to rework all current wells and bring them back to production once oil prices are in a suitable range. We are planning an exploration strategy to drill new wells on the current Leases, as well as acquire deeper rights in order to drill some of the wells at great depths. We expect that reservoirs at those depths could yield a very high daily output of oil.

Results of Operations

For the quarter Ended September 30, 2016 and 2015:

For the three month periods ended September 30, 2016 and September 30, 2015, we had no revenue. Expenses for the three-month period ended September 30, 2016 totaled $48,900 including interest expenses of $38, resulting in a net loss of $48,900 as compared to a net loss of $619,477 for the three months ended September 30, 2015, inclusive of operating expenses of $124,032, a loss on the acquisition of certain oil and gas leases of $46,237, an impairment loss of $448,500 and interest expenses of $708. The decrease in operating loss for the three-month period ended September 30, 2016, is a result of a reduction to lease operating expenses from $42,022 in the three months ended September 30, 2015 to Nil in the current three-month period, and a dramatic reduction to general and administrative expense from $81,966 (2015) to $48,682 (2016) as professional and consulting fees were also reduced period over period. Other expenses were also substantively reduced period over period as the Company incurred certain impairment losses of $448,500 and a loss on the acquisition of certain royalty interests of $46,237 in the three months ended September 30, 2015 with no comparative charges in the period ended September 30, 2016. Interest expenses were also reduced in the comparative periods from $708 in 2015 to $38 in the current three-month period.

For the six months Ended September 30, 2016 and 2015:

For the six month periods ended September 30, 2016 and September 30, 2015, we had no revenue. Expenses for the six-month period ended September 30, 2016 totaled $71,640 including interest expenses of $590, resulting in a net loss of $71,640 as compared to a net loss of $636,057 for the six months ended September 30, 2015, inclusive of operating expenses of $140,612, a loss on the acquisition of certain oil and gas leases of $46,237, an impairment loss of $448,500 and interest expenses of $708. The decrease in operating loss for the six-month period ended September 30, 2016, is a result of a reduction to lease operating expenses from $44,614 in the six months ended September 30, 2015 to Nil in the current six-month period, and a reduction to general and administrative expense from $95,909 (2015) to $71,050 (2016) as professional fees were also reduced period over period. Other expenses were also substantively reduced period over period as the Company incurred certain impairment losses of $448,500 and a loss on the acquisition of certain royalty interests of $46,237 in the six months ended September 30, 2015 with no comparative charges in the period ended September 30, 2016. Interest expenses were also reduced in the comparative periods from $708 in 2015 to $590 in the current six-month period.

Capital Resources and Liquidity

As of September 30, 2016 and March 31, 2016, we had no cash or cash equivalents. As of September 30, 2016 we had a negative working capital of $199,625, and we had a negative working capital of 183,230 as of March 31, 2016.

Off-balance sheet arrangements

The Company has no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect or change on the Company's financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. The term "off-balance sheet arrangement" generally means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with the Company is a party, under which the Company has (i) any obligation arising under a guarantee contract, derivative instrument or variable interest; or (ii) a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

The Company is a smaller reporting Company as defined by Rule 12b-2 of the Securities Act of 1934 and we are not required to provide the information under this item.

Item 4. Controls and Procedures.

Disclosure Controls and Procedures

Our management is responsible for establishing and maintaining a system of disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) that is designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

An evaluation was conducted under the supervision and with the participation of our management of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2016. Based on that evaluation, our management concluded that our disclosure controls and procedures were not effective as of such date to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. Such officer also confirmed that there was no change in our internal control over financial reporting during the six month period ended September 30, 2016 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

The Company has been named as a defendant in the lawsuit entitled George Sharp v. America Resources Exploration, Inc., et al., Case No. 37-2015-00028270-CU-NP-CTL, currently pending in the California Superior Court for San Diego County. The lawsuit was filed on August 20, 2015 and also names other defendants. The lawsuit alleges that the Company and the other defendants sent and/or advertised in at least 99 emails in violation of California Business and Professions Code section 17529.5. The lawsuit seeks monetary relief in the amount of $99,000 jointly and severally against all Defendants along with the costs of the suit. Except as provided above, we know of no other legal proceedings to which we are a party or to which any of our property is the subject which are pending, threatened or contemplated or any unsatisfied judgments against us. No amounts have been recorded to date for this matter. Effective October 5, 2016, this action was resolved pursuant to a confidential settlement agreement, and a request for dismissal has been filed with the court.

Item 1A. Risk Factors.

There are no material changes to the Risk Factors contained in Item 1A to Part I of the Company’s Annual Report on Form 10-K for the year ended March 31, 2016.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Effective July 1, 2016, Rise Fast Limited, a Hong Kong Corporation and the Company’s controlling shareholder, converted a promissory note issued by the Company in the face amount of $16,598.17 into 16,598,730 shares of the Company’s common stock, and converted a promissory note issued by the Company in the face amount of $5,037.00 into 5,037,000 shares of the Company’s common stock.

Effective July 11, 2016, each of Chen Sheng Song, Li Yun Xi, Lian Zu Qin, Wei Rui Shan, and Zhu Ling converted promissory notes issued by the Company, each in the face amount of $6,721.92, into 1,344,384 shares of the Company’s common stock. The result of these conversions is that an aggregate of 6,721,920 shares of the Company’s common stock were issued in the settlement of convertible promissory notes in the aggregate amount of $33,609.60.

The foregoing issuances of securities were exempt from registration pursuant to Rule 506 of Regulation D. Neither we nor any person acting on our behalf offered or sold these securities by any form of general solicitation or general advertising.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

Item 6. Exhibits.

Exhibit No.	Description
31.1	Certification of the Principal Executive Officer and Principal Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (1)
32.1	Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350). (1)
101.INS	XBRL INSTANCE DOCUMENT (1)
101.SCH	XBRL TAXONOMY EXTENSION SCHEMA (1)
101.CAL	XBRL TAXONOMY EXTENSION CALCULATION LINKBASE (1)
101.DEF	XBRL TAXONOMY EXTENSION DEFINITION LINKBASE (1)
101.LAB	XBRL TAXONOMY EXTENSION LABEL LINKBASE (1)
101.PRE	XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE (1)

(1) Filed herewith

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	PetroGas Company
	(Registrant)

Date: October 25, 2016	By:	/s/ Huang Yu
		Huang Yu
		President and Chief Financial Officer