| NOTES PAYABLE | Notes payable, related parties On January 3, 2011, the Company formalized a
loan agreement for $1,940,000 with Jed Miesner, the Company’s CEO and Chairman at the time of the agreement and currently
a director. The loan is scheduled to mature on December 31, 2030, bear interest at the rate of 8% per annum, and collateralized
with a leasehold deed of trust covering certain leasehold interests in Pecos County, Texas. Effective April 1, 2019 the Company
redeemed all of the issued and outstanding shares of its Series A Preferred Stock. The holder of 100% of the Series A was Jed Miesner.
The Company redeemed all 9,000 shares of the Series A, which had the voting power equivalent to 90,000,000 shares of the Company’s
common stock, for the consideration of $100.00 per share, or a total payment of $900,000. The redemption price was effectuated
through an increase in the principal balance of a promissory note issued to Mr. Miesner by the Company’s wholly owned subsidiary
Amazing Energy, LLC. The principal balance of the Note was increased from $1,940,000 to $2,840,000. On December 30, 2010, Amazing Energy, LLC, formalized
loan agreements with Petro Pro Ltd., an entity controlled by Jed Miesner for $1,100,000. The loan is scheduled to mature on December
31, 2030, bear interest at the rate of 8% per annum and is collateralized with a leasehold deed of trust covering certain leasehold
interests in Pecos County, Texas. Terms of the notes were modified effective February
1, 2017, pursuant to an agreement between Jed Miesner, Petro Pro, Ltd., JLM and the Company. Beginning February 1, 2017, and continuing
through February 1, 2019, the interest rate on the aforementioned notes was reduced from 8% to 6% per annum. Starting February
1, 2019 and continuing through the maturity date of the two notes (December 31, 2030), the annual interest rate on the notes was
set at a rate equal to the Happy State Bank prime rate of 5.25% plus 2% at October 31, 2019. On December 30, 2010, Amazing Energy, LLC, (a
wholly owned subsidiary of the Company) entered into a $2,000,000 line of credit facility with JLM Strategic Investments LP, an
entity controlled by Jed Miesner. Funds advanced on the line of bear interest at the rate of 8% per annum and are collateralized
with a leasehold deed of trust covering certain leasehold interests in Pecos County, Texas. Principal maturities for the two loan agreements
and the credit facility outstanding at October 31, 2019 for the remaining terms are summarized by year as follows:
Principal Maturities
Twelve months
ended October 31, Jed Miesner Petro Pro, Ltd. JLM Strategic Investments, LP Total
2020 $ 310,995 $ 176,337 $ 41,170 $ 528,502
2021 67,272 38,144 - 105,416
2022 72,655 41,196 - 113,851
2023 78,467 44,492 - 122,959
2024 84,744 48,051 - 132,795
Subsequent years 2,225,867 751,780 - 2,977,647
$ 2,840,000 $ 1,100,000 $ 41,170 $ 3,981,170 Related party interest expense on these notes
for the three months ended October 31, 2019 and 2018 was $75,260 and $46,597, respectively. Accrued interest payable – related
parties as of October 31, 2019 and July 31, 2019 was $228,118 and $152,858, respectively. At October 31, 2019, the balance of the convertible
debt and accrued interest was convertible into membership units of Amazing Energy, LLC, a wholly owned subsidiary of the Company,
at $.60 per unit. See Note 12 Subsequent events about negotiations with Mr. Miesner
regarding these notes payable. On October 16, 2018, the Company entered into
promissory notes with its Chairman of the Board and one of its Directors to fund the acquisition of the Wyatt properties in Pecos
County, Texas and to allow the Company to enter into an Option Agreement for acquisition of several oil and gas producing properties
in Lea County, New Mexico. The aggregate principal amount of the two new notes was $600,000. The notes required a placement fee
of $60,000 (equal to 10% of the principal amounts of the loans), which was expensed as financing cost during year ended July 31,
2019. As additional consideration for the financing, the Company issued 2,400,000 warrants for the right to acquire its common
stock at an exercise price of $0.25 per share for a term of six years. As a result, the Company recorded a debt discount of $288,000
to account for the relative fair value of the warrants. The debt discount was amortized as interest expense over the term of the
note. On October 26, 2018, the Company paid $400,000
on the promissory notes. During the fiscal year ended July 31, 2019, an additional $260,000 of the promissory notes were satisfied
through the noteholders’ participation in the offering of working interest. At July 31, 2019, the notes have been paid in
full and the related debt discount has been fully amortized. Related party financing costs on these notes for the year ended July
31, 2019 was $77,000. Promissory note payable – October
2018 On October 22, 2018, the Company entered into
a promissory note with Bories Capital, LLC (Bories) for $500,000, the owner of which is a holder of all of the outstanding shares
of the Company’s Preferred B stock. The note bears interest at the Hancock Whitney Bank prime rate plus two percent (7.50%
at October 31, 2019) and is due in full at maturity on October 24, 2020. Interest is payable monthly beginning on November 30,
2018. As additional consideration for the note, the Company agreed to modify the terms of 2,674,576 warrants to acquire common
stock held by the owner of Bories. The warrants were amended to change the exercise price from $0.60 to $0.40 per share and extend
the expiration date from July 31, 2019 to April 1, 2024. These modifications resulted in financing fee of $480,771 which represents
the difference in the fair value of the warrants before and after the change in terms. The amount was recognized as a discount
on the note and is being amortized as interest expense over the term of the note. Amortization of $60,590 and $1,536 was recognized
as interest expense during the three months ended October 31, 2019 and 2018, respectively. At October 31, 2019, the discount balance
is $120,741. In addition, terms of the Series B Preferred
Stock held by the owner of Bories were modified. The Company agreed to suspend its right to call the preferred stock until from
the original call date of April 1, 2019 to April 1, 2024. In exchange for this suspension, the Series B Preferred stockholder’s
right to convert the preferred shares into warrants to acquire the Company’s common stock was amended to extend the conversion
period to April 1, 2024. Note payable, acquisition – October
2018 On October 12, 2018, the Company entered into
an agreement for the acquisition of oil and gas producing interest in New Mexico for $2,000,000. As part of the agreement, the
Company entered into a seller financed note payable of $1,900,000. The note bears interest at the rate of 7% per year and the entire
balance of principal and interest is due at maturity on December 31, 2019. At October 31, 2019, the Company and the Seller
are in negotiations related to extending the maturity date of the note. The note is secured by the assets of Amazing Energy, LLC. Convertible notes payable – August
and September, 2019 On August 20, 2019, September 2, 2019, and September
9, 2019, the Company entered into three convertible note agreements with face values of $400,000, $250,000, and $250,000, respectively.
The notes bear interest at the rate of 12% per year and are due six months after the borrowing dates. The notes were issued with
an original issue discount of 10%. The principal and unpaid interest on the notes are convertible in whole or in part into shares
of the Company’s common stock by the lenders at any time prior to maturity. The conversion rate is the lesser of (i) 50%
of the lowest trading price during the previous 20 day trading period ending on the latest completed trading date prior to the
date of each note, or (ii) 50% of the lowest trading price during the previous 20 day trading period ending on the latest completed
trading date prior to the lender electing conversion. The Company may pre-pay the notes, in full, at any time prior to the due
date so long as Company is not in default under any terms of the notes. The original issue discount of 10% resulted
in a discount on the notes payable balance. In addition, the conversion terms of the notes resulted in a beneficial conversion
feature that also created a discount on the notes payable balance. For two of the three notes, the 10% original issue discount
and the beneficial conversion feature amounts were greater than the net proceeds received. Thus, the notes were fully discounted
on the date of issuance. The third note was discounted to all but $2,778 of the note’s face value. The discount is being
recognized as interest expense over the term of the notes. Each lender received shares of the Company’s
common stock as a commitment fee in connection with the borrowings. The fair value of these shares was recognized as a financing
expense during the three months ended October 31, 2019. A summary of the convertible notes payable upon
issuance is as follows:
Lender Face Value Original Interest Discount Net Proceeds Beneficial Conversion feature Total discount on date of loan Shares of common stock issued Fair value of shares
Labrys Fund, LP $ 400,000 $ (40,000 ) $ 360,000 $ (360,000 ) $ (400,000 ) 500,000 $ 55,000
Morningview Financial, LLC. 250,000 (25,000 ) 225,000 (225,000 ) (250,000 ) 312,500 31,250
Firstfire Global Opportunities Fund, LLC. 250,000 (25,000 ) 225,000 (222,222 ) (247,222 ) 312,500 31,250
$ 900,000 $ (90,000 ) $ 810,000 $ (807,222 ) $ (897,222 ) 1,125,000 $ 117,500
Under the terms of
the notes, the Company also issued shares of its common stock (the “Returnable Shares”). These shares will be returned
to the Company if the convertible notes are fully repaid and satisfied prior to its due date. If the convertib The note agreements contain a provision whereby
the conversion rate will be adjusted in the event that the Company issues any common stock at a per share price lower than the
current conversion rate. The agreements also contain covenants whereby the Company will be required to obtain consent from the
lenders to acquire its own common stock, borrow, sell assets, and lend funds. At October 31, 2019, information about the convertible
notes payable is as follows:
Face Value Discount Net Balance Accrued interest payable Number of convertible common shares
Labrys Fund, LP $ 400,000 $ (242,222 ) $ 157,778 $ 9,337 6,666,667
Morningview Financial, LLC. 250,000 (169,355 ) 80,645 4,849 5,000,000
Firstfire Global Opportunities Fund, LLC. 250,000 (178,168 ) 71,832 4,274 5,000,000
$ 900,000 $ (589,745 ) $ 310,255 $ 18,460 16,666,667
Amortization of the discount of $307,477 was
recognized as interest expense during the three months ended October 31, 2019. Equipment note payable On September 13, 2016, the Company entered into
a retail installment sale contract and security agreement (the “equipment note”) for the purchase of equipment. The
equipment note is collateralized by a tractor loader backhoe. The equipment note requires 60 monthly installment payments of $994
through September 13, 2021. At October 31, 2019 and July 31, 2019 2018, the balance of the note was $17,986 and $21,018, respectively.
Principal payments for the twelve months ending October 31, 2020 and 2021 total $11,928, and $6,058, respectively. |
