Quarterly Report (10-q)

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 December 31, 2016

o	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)

(832) 899-8597

(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 o 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). o 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	o	Accelerated filer	o
Non-accelerated filer	o	Smaller reporting company	x
(Do not check if a smaller reporting company)

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

As of February 14, 2017, the issuer had 29,683,931 shares of common stock issued and outstanding.

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		Page
PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements	3

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	16

Item 4.	Controls and Procedures	16

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	17

Item 1A.	Risk Factors	17

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	17

Item 3.	Defaults Upon Senior Securities	17

Item 4.	Mine Safety Disclosures	17

Item 5.	Other Information	17

Item 6.	Exhibits	17

SIGNATURES		18

PETROGAS COMPANY

CONSOLIDATED BALANCE SHEETS

	December 31,			March 31,
	2016			2016
	(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents		13,611		$	-
Prepaid expenses		683			-
Total Current Assets		14,294			-


Oil and gas, on the basis of full cost accounting
Unproved Property		21,913			-
TOTAL ASSETS	$	36,207		$	-

LIABILITIES & SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities	$	12,918		$	9,552
Advances from related party		676			118,433
Convertible notes		-			55,245
Total Current Liabilities		13,594			183,230

Long-term liabilities
Asset retirement obligations		83,580			83,580
Promissory note		240,683			-
Total long-term liabilities		324,263			83,580

TOTAL LIABILITIES		337,857			266,810

SHAREHOLDERS' EQUITY
Common stock: 300,000,000 authorized; $0.001 par value
29,684,381 and 1,326,281 shares issued and outstanding as of December 31, 2016 and March 31, 2016		29,684			1,326
Additional paid in capital		996,925			970,038
Accumulated deficit		(1,328,259	)		(1,238,174	)
TOTAL SHAREHOLDERS' EQUITY (DEFICIT)		(301,650	)		(266,810	)

TOTAL LIABILITIES & SHAREHOLDERS' EQUITY	$	36,207		$	-

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

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PETROGAS COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended						Nine Months Ended
	December 31,						December 31,
	2016			2015			2016			2015

OPERATING EXPENSES
Lease Operating expense		-			4,042			-			48,656
Accretion expense		-			18			-			107
General and administrative expense		18,445			28,590			89,495			124,499
TOTAL OPERATING EXPENSES		18,445			32,650			89,495			173,262

Loss from Operations

OTHER EXPENSES
Loss on acquisition of royalty interest and unproven property		-			-			-			46,237
Impairment of oil and gas leases		-			-			-			448,500
Interest expenses		-			3,279			590			3,988
Total other expenses		-			3,279			590			498,725

NET LOSS		(18,445	)		(35,929	)		(90,085	)		(671,987	)

NET LOSS PER SHARE, BASIC AND DILUTED	$	(0.00	)	$	(0.03	)	$	(0.01	)	$	(0.52	)

WEIGHTED AVERAGE SHARES OUTSTANDING, BASIC AND DILUTED		29,683,931			1,315,500			11,195,137			1,293,655

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

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PETROGAS COMPANY

CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)

	Nine Months Ended
	December 31			December 31,
	2016			2015
	(Unaudited)			(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss	$	(90,085	)	$	(671,987	)
Adjustments to reconcile net loss to net cash used in operating activities:
Loss on disposal of asset		-			3,278
Asset retirement obligation accretion		-			107
Impairment of oil and gas leases		-			448,500
Loss on acquisition of royalty interest on unproven property		-			46,238
Share based compensation		-			30,600
Changes in operating assets and liabilities:		-
Accounts payable		3,366			8,854
Other liabilities		-			5,117
Prepaid expenses		(683	)		(13,078	)
Materials and supplies		-			8,753
Other Liabilities		-			708
Net cash used in Operating Activities		(87,402	)		(132,910	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Improvements to proven oil and gas assets		-			(77,044	)
Purchase and improvements of unproven oil and gas assets		(21,913	)		-
Net cash used in investing activities		(21,913	)		(77,044	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from related party		(117,757	)		54,020
Promissory note		240,683			-
Proceeds from sale of common stock		-			150,000
Net cash provided by Financing Activities		122,926			204,020

Net decrease in cash and cash equivalents		13,611			(5,934	)
Cash and cash equivalents, beginning of period		-			5,971
Cash and cash equivalents, end of period	$	13,611		$	37

Supplemental cash flow information
Cash paid for interest	$	-		$	-
Cash paid for taxes	$	-		$	-

Non-cash transactions:
Issuance of common stock to settle certain convertible notes	$	55,245
Exchanged debt for common shares	$	-
Deferred contractual obligation in form of note	$	-

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

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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 nine months ended December 31, 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.

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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.

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.

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.

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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 certain unproved properties is not viable, nor are revenues from the Company’s ORR’s related to these projects. As a result, the Company 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 $494,737 which was impaired during the nine months ended December 31, 2015 as a result of the loss on acquisition of certain ORR’s of $46,237, and an amount of $448,500 impairment of oil and gas leases.

During the three month period ended December 31, 2016, the Company has capitalized a total of $21,913 in Unproved Property. Based on the Company’s analysis, no impairment has been recorded on the Unproved Property.

Impairment

FASB ASC 360-10-35-21 requires that assets to be held and used be reviewed for impairment annually, or 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.

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 nine months ended December 31, 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.

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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 December 31, 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.

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.

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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. The Company regularly reviews and analyses the recent accounting pronouncements.

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.

On November 30, 2016, the Company acquired various royalty interests in Oklahoma and Texas for $10,485. On December 14, 2016, the Company acquired two oil and gas leases in Ohio for $2,705. For the three month period ending December 31, 2016, the Company capitalized an additional $8,723, related to fees and premiums for the related projects. As of December 31, 2016, a total of $21,913 is recorded.

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

Based on the Company’s analysis and review of agreements related to the royalty interests and oil and gas leases acquired in the three months ended December 31, 2016, no Asset retirement obligation has been recorded in relation to these projects, as no future obligations have been identified.

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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	)		-
December 31, 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.

NOTE 7 – PROMISSORY NOTE

On December 31, 2016, the Company entered into a promissory note with a majority shareholder, Rise Fast Limited, for an amount of $240,683. The promissory note bears interest at a rate of 2% per annum, and is payable on December 31, 2019.

NOTE 8 – COMMON STOCK

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

Shares issued during the nine months ended December 31, 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 December 31, 2016 and March 31, 2016, the Company had a total of 29,684,381 and 1,326,281 shares issued and outstanding, respectively.

NOTE 9 – RELATED PARTY TRANSACTIONS

During the nine months ended December 31, 2016 the Company received advances totaling $122,826 from its majority shareholder, Rise Fast Limited, in order to fund ongoing operations in the normal course. On December 31, 2016, the Company issued a promissory note for amount owing to Rise Fast of $240,683, which replaced the full amount of $240,683 previous amounts advanced up to December 31, 2016.

NOTE 10 – 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 nine months ended December 31, 2016 and 2015. The Company has a valuation allowance that fully offsets net deferred tax assets.

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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

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 (“Rise Fast”). 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 conducted in January 2016 and described below) 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 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. Mr. Zheng is the owner of Rise Fast, which is the Company’s majority shareholder. 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.

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.

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Prior to the change in control of its management and shareholders and entering into the Asset Purchase Agreement in 2015, the Company's operations 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 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 in exchange for such assets. 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 in June 2015 the Company added Joe M. Seabourn and Robert Wiener as members of its Board of Directors. 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 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 as of March 7, 2016, which also resulted in changing the Company’s ticker symbol to “PTCO”.

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On November 30, 2016, the Company acquired various royalty interests in the Mahler 106 5H, 6H, 8H and SL 9H wells located in the SE/4 of Section 106, Block C, Gunter & Munson Survey, A-513, Roberts County, Texas for $10.485.00. These wells are operated by Unit Petroleum Company of Tulsa, Oklahoma and BP America Production Company of Houston, Texas.

On December 9, 2016, the Company acquired oil and gas leases in Colorado, known as Parcel 7591 and in Montana, known as Parcel 10-16-01.

On December 14, 2016, the Company acquired two oil and gas leases in Monroe County, Ohio and Washington County, Ohio for $2,705.00.

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 at this time. 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.

The Company has also acquired several thousand acres of oil and gas properties over the last 24 months but has not yet begun any drill program. Subject to financing of $200,000 the company will engage geologists to assess the drilling potential of each individual area.

Future Operations

Management continues to consider plans to reactivate the inactive wells through a rework program on the Leases. 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.

In the current climate, the Company believes that it may be profitable to drill new wells for either oil, gas or both.

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 greater depths.

Results of Operations

For the quarter Ended December 31, 2016 and 2015:

For the three month periods ended December 31, 2016 and December 30, 2015, we had no revenue. Operating expenses for the three-month period ended December 31, 2016 totaled $ 18,445, which consisted solely of general and administrative expense, compared to operating expenses for the same period from the previous year of $32,650, which consisted of $28,590 in general and administrative expenses, $4,042 in lease operating expense and $18 in acquisition expenses.

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For the three (3) month period ended December 31, 2016, we incurred a net loss of $18,445 as compared to a net loss of $35,929 for the three months ended December 31, 2015. The decrease in net loss for the three-month period ended December 31, 2016, is a result of a reduction to general and administrative expense from $28,590 to $18,445, a decrease in lease operating expense from $4,042 to nil, a decrease in accretion expense from $18 to nil and a decrease in interest expense from $3,279 to nil.

For the nine months Ended December 31, 2016 and 2015:

For the nine month periods ended December 31, 2016 and December 31, 2015, we had no revenue. Operating expenses for the nine month period ended December 31, 2016 totaled $ 89,495, which consisted solely of general and administrative expense, compared to operating expenses for the same period from the previous year of $173,262, which consisted of $124,499 in general and administrative expenses, $48,656 in lease operating expense and $107 in acquisition expenses.

For the nine (9) month period ended December 31, 2016, we incurred a net loss of $90,085, as compared to a net loss of $671,987 for the nine months ended December 31, 2015. The decrease in net loss for the nine-month period ended December 31, 2016, is a result of a reduction to general and administrative expense from $173,262 to $89,495, a decrease in lease operating expense from $48,656 to nil, a decrease in accretion expense from $107 to nil, a decrease in impairment of oil and gas leases from $448,500 to nil, a decrease in loss on acquisition of royalty interest and unproven property from $46,237 to nil and a decrease in interest expense from $3,279 to nil.

Capital Resources and Liquidity

As of December 31, 2016, we had $13,611 in cash and $683 in prepaid expense, compared to no cash or cash equivalents as of March 31, 2016. As of December 31, 2016 we had working capital of $700, 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 December 31, 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 December 31, 2016 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

The Company refers to the disclosures made in Item 1. Legal Proceedings in its Quarterly Report on Form 10-Q for the period ended September 30, 2016 and filed with the SEC on October 25, 2016.

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.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

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

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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.