NORRIS INDUSTRIES, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE SIX MONTHS ENDED AUGUST 31, 2018 (UNAUDITED)

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

NORRIS INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED AUGUST 31, 20182019 AND 20172018

(Unaudited)(UNAUDITED)

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

NORRIS INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)(UNAUDITED)

Note 1 – Organization, Nature of Operations and Summary of Significant Accounting Policies

Norris Industries, Inc. (“NRIS” or the “Company”) (formerly International Western Petroleum, Inc.), was incorporated on February 19, 2014, as a Nevada corporation. The Company was formed to conduct operations in the oil and gas industry. The Company’s principal operating properties are in the Ellenberger formation in Coleman County, Texas, and in the Jack County and Palo-Pinto Counties,County. Texas. The Company’s production operations are all located in the State of Texas.

On April 25, 2018, the Company incorporated a Texas registered subsidiary, Norris Petroleum, Inc., as an operating entity.

Basis of Presentation

The accompanying unaudited interim financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules of the Securities and Exchange Commission (“SEC”), and should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s Annual Report on Form 10-Kannual report filed with the SEC on Form 10-K for the year ended February 28, 2018.2019. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the unaudited interimThe Company’s consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries and entities in which the Company has a controlling financial interest. All significant inter-company accounts and transactions have been eliminated in consolidation.

Liquidity and Capital Considerations

The accompanying consolidated financial statements have been prepared assuming that would substantially duplicate the disclosures containedCompany will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the audited financial statementsnormal course of business for the most recenttwelve-month period following the issuance date of these consolidated financial statements.

The Company has incurred continuing losses since 2016, including a loss of approximately $922,000 for the fiscal year as reportedended February 28, 2019. During the six months ended August 31, 2019, the Company received $300,000 in funding from its credit line and incurred cash losses of approximately $354,000 from its operating activities. As of August 31, 2019, the Form 10-KCompany had $400,000 available to borrow under its existing credit line with JBB Partners, Inc. (“JBB”), an affiliate of the Company’s Chief Executive Officer. The Company’s credit line with JBB was increased by $500,000 subsequent to quarter-end, providing for $900,000 available to borrow. In addition, in June 2019, the Company secured a separate term loan of $250,000 from JBB to purchase full ownership of the Marshall-Walden oil and gas property. As of August 31, 2019, the Company had a cash balance of approximately $82,000 and negative working capital of approximately $53,000.

The Company’s principal capital and exploration expenditures during next fiscal year are expected to relate to selected well workovers on its Jack County and Palo Pinto County acreages. The Company believes that it has the ability to fund its costs for such expenditures from cash on-hand and available funds from its line of credit. The Company believes that it has sufficient in-place financing to fund its expected operational losses and obligations for the twelve months following the issuance of these financial statements.

In the event that the Company requires additional capital to fund higher operational losses or oil and gas property lease purchases for fiscal year ending February 29, 2020, the Company expects to seek additional capital from one or more sources via restricted private placement sales of equity and debt securities from those other than JBB. However, there can be no assurance that the Company would be able to secure the necessary capital to fund its costs on acceptable terms, or at all. If, for any reason, the Company is unable to fund its operations, it would have been omitted.to undertake other aggressive cost cutting measures and then be subject to possible loss of some of its rights and interests in prospects to curtail operations and forced to forego opportunities or in worst case, cease operations.

Use of Estimates

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

Concentrations of Credit RiskRisks and Uncertainties

Financial instruments which potentiallyThe Company’s operations are subject to significant risks and uncertainties, including financial, operational, technological, and other risks associated with operating an emerging business, including the Company to concentrationspotential risk of credit risk include cash deposits placed with financial institutions. The Company maintains its cash in bank accounts which, at times, may exceed federally insured limits as guaranteed by the Federal Deposit Insurance Corporation (“FDIC”). At August 31, 2018, $0 of the Company’s cash balances were uninsured. The Company has not experienced any losses on such accounts.business failure.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with an original maturity of the year or less to be cash equivalents. The Company has not experienced any losses on its deposits of cash and cash equivalents.

Accounts Receivable

Accounts receivable typically consist of oilOil and gas receivables. The Company has classified these as short-term assets in the balance sheet because the Company expects repayment or recovery within the next 12 months. The Company evaluates these accounts receivable for collectability considering the results of operations of these related entities and when necessary records allowances for expected unrecoverable amounts. To date, no allowances have been recorded.

Oil & Gas Properties, Full Cost Method

The Company follows the full cost method of accounting for its investments in oil and gas properties, whereby all costs incurred in connection with the acquisition, exploration for and development of petroleum and natural gas reserves including unproductive wells, are capitalized. Such costs include lease acquisition, geological and geophysical activities, rentals on non-producing leases, drilling, completing and equipping of oil and gas wells and administrative costs directly attributable to those activities and asset retirement costs. General and administrative costs related to production and general overhead are expensed as incurred.

DispositionsDisposition 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 in the statement of operations.

Future development, site restoration, dismantlementDepletion and abandonment costs,depreciation of proved oil properties are estimated property by property,calculated on the units-of-production method based upon current economic conditions and regulatory requirements, and are included in amortizationestimates of our oil and natural gas property costs.

Depletion of capitalized oil properties andproved reserves. Such calculations include the estimated future development costs excludingto develop proved reserves. Costs of unproved properties are based onnot included in the unit-of-production method based on proved reserves.costs subject to depletion. These costs are assessed periodically for impairment.

At the end of each quarter, the unamortized cost of oil and natural gas properties, net of related deferred income taxes, is limited to the sum of the estimated future after-tax net revenues from proved properties, after giving effect to cash flow hedge positions, discounted at 10%, and the lower of cost or fair value of unproved properties, adjusted for related income tax effects. Costs in excess of the present value of estimated future net revenues are charged to impairment expense. This limitation is known as the “ceiling test,” and is based on SEC rules for the full cost oil and gas accounting method. There was no ceiling test write-down recorded during the six months ended August 31, 2018 and 2017.

The Company assessescapitalizes pre-acquisition costs directly identifiable with specific properties when the carrying valueacquisition of its unproved properties for impairment periodically. If the results of an assessment indicate that an unproved property is impaired (which was assessed in connection with the Company’s evaluation of goodwill impairment), then the carrying value of the unprovedsuch properties is added toprobable. Capitalized pre-acquisition costs are presented in other assets on the proved oil property costs to be amortized and subject to the ceiling test.balance sheet.

Asset Retirement ObligationsEquipment

If a reasonable estimateEquipment is stated at cost less accumulated depreciation. Maintenance and repairs are charged to expense as incurred. Renewals and betterments which extend the life or improve existing equipment are capitalized. Upon disposition or retirement of equipment, the cost and related accumulated depreciation are removed, and any resulting gain or loss is reflected in operations. Depreciation is provided using the straight-line method over the estimated useful lives of the fair valueassets, which are 3 to 10 years.

Income Taxes

Income taxes are accounted for in accordance with the provisions of an obligationASC Topic No. 740. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to perform site reclamation, dismantle facilitiesdifferences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or plugsettled. The effect on deferred tax assets and abandon wells can be made, the Company will recordliabilities of a liability (an asset retirement obligation or “ARO”) on its consolidated balance sheet and capitalize the present value of the asset retirement costchange in oil and gas propertiestax rates is recognized in income in the period in whichthat includes the retirement obligation is incurred. In general, the amount of an ARO and the costs capitalized will be equalenactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the estimated future costamounts expected to satisfy the abandonment obligation assuming the normal operation of the asset, using current prices that are escalated by an assumed inflation factor up to the estimated settlement date, which is then discounted back to the date that the abandonment obligation was incurred using an assumed cost of funds for the Company. After recording these amounts, the ARO will be accreted to its future estimated value using the same assumed cost of funds and the capitalized costs are depreciated on a unit-of-production basis over the estimated proved developed reserves. Both the accretion and the depreciation will be included in depreciation, depletion and amortization expense on our consolidated statements of operations.realized.

Revenue Recognition

ASU 2014-09,“Revenue from Contracts with Customers (Topic 606)”, supersedes the revenue recognition requirements and industry-specific guidance underRevenue Recognition (Topic 605). Topic 606 requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration the entity expects to be entitled to in exchange for those goods or services. The Company adopted Topic 606 on March 1, 2018, using the modified retrospective method applied to contracts that were not completed as of March 1, 2018. Under the modified retrospective method, prior period financial positions and results were not adjusted. The cumulative effect adjustment recognized in the opening balances included no significant changes as a result of this adoption. While the Company does not expect fiscal year 2019 net earnings to be materially impacted by revenue recognition timing changes, Topic 606 requires certain changes to the presentation of revenues and related expenses beginning March 1, 2018. Refer to Note 3 – Revenue from Contracts with Customers for additional information.

The Company’s revenue is comprised entirely of revenue from exploration and production activities. The Company’s oil is sold primarily to wholesalers and others that sell product to end use customers. Natural gas is sold primarily to interstate and intrastate natural-gas pipelines, various end-users, local distribution companies, and natural-gas marketers. NGLs are sold primarily to various end-users. Payment is generally received from the customer in the month following delivery.

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

Revenues are recognized for the sale of the Company’s net share of production volumes. Sales on behalf of other working interest owners and royalty interest owners are not recognized as revenues. The Company does not hedge nor forward sell any of its current production via derivative financial contracts.

Income Taxes

Income taxes are accounted for in accordance with the provisions of ASC Topic No. 740. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amounts expected to be realized.

Stock-BasedShare-based Compensation

The Company measures stock-basedestimates the fair value of each share-based compensation costaward at the grant date based onby using the Black-Scholes option pricing model. The fair value ofdetermined represents the cost for the award and recognize it as expense,is recognized over the vesting orperiod during which an employee is required to provide service period,in exchange for the award. Share-based compensation expense is recognized based on awards ultimately expected to vest. Excess tax benefits, if any, are recognized as applicable, of the stock award.

an addition to paid-in capital.

Basic and Diluted

Net Income (Loss)Loss per Common Share

Basic net loss per common share amounts are computed by dividing the net loss available to the Company’s common shareholders by the weighted average number of common shares outstanding over the reporting period. In periods in which the Company reports a net loss, dilutive securities are excluded from the calculation of diluted earnings per share as the effect would be anti-dilutive. ForThe following table summarizes the common stock equivalents excluded from the calculation of diluted net loss per since the inclusion of these shares would be anti-dilutive for the three and six months ended August 31, 2018,2019 and 2018:

Concentrations of Credit Risk

Financial instruments which potentially subject the Company to concentrations of credit risk include cash deposits placed with financial institutions. The Company maintains its cash in bank accounts which, at times, may exceed federally insured limits as guaranteed by the Federal Deposit Insurance Corporation (“FDIC”). At August 31, 2019, none of the Company’s potentially dilutive shares, which include outstanding common stock options representing 1,440,000 common stock equivalents have not been included in the computation of diluted net loss per share as the result would have been anti-dilutive.cash balances were uninsured. The Company didhas not haveexperienced any potentially dilutive shares for the six months ended August 31, 2017.losses on such accounts.

Subsequent Events

On October 11, 2018, the Company entered into an amendment of its promissory note to JBB to extend the maturity date to December 31, 2019.

RecentlyRecent Adopted Accounting Pronouncements

See discussion of the adoption of ASU 2014-09,“Revenue from Contracts with Customers (Topic 606)”, above.Leases

In AugustFebruary 2016, the Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2016-15,issued ASU No. 2016-02,“StatementLeases (Topic 842)”. The new lease guidance supersedes Topic 840. The core principle of Cash Flowsthe guidance is that entities should recognize the assets and liabilities that arise from leases. Topic 840 does not apply to leases to explore for or use minerals, oil, natural gas and similar non-regenerative resources, including the intangible right to explore for those natural resources and rights to use the land in which those natural resources are contained. In July 2018, the FASB issued ASU No. 2018-11, “Leases (Topic 230)842): ClassificationTargeted Improvements”, which provides entities with an alternative modified transition method to elect not to recast the comparative periods presented when adopting Topic 842. The Company adopted Topic 842 as of Certain Cash ReceiptsMarch 1, 2019, using the alternative modified transition method, for which, comparative periods, including the disclosures related to those periods, are not restated. In addition, the Company elected practical expedients provided by the new standard whereby, the Company has elected to not reassess its prior conclusions about lease identification, lease classification, and Cash Payments”initial direct costs and to retain off-balance sheet treatment of short-term leases (i.e., 12 months or less and does not contain a purchase option that the Company is reasonably certain to exercise). As a result of the short-term expedient election, the Company has no leases that require the recording of a net lease asset and lease liability on the Company’s consolidated balance sheet or have a material impact on consolidated earnings or cash flows as of August 31, 2019. Moving forward, the Company will evaluate any new lease commitments for application of Topic 842.

Compensation-Stock Compensation

In June 2018, the FASB issued ASU 2018-07,“Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting”. (“ASU 2016-15”). ASU 2016-15 will make eight targeted changesThe amendments in this update maintain or improve the usefulness of the information provided to how cash receiptsthe users of financial statements while reducing cost and cash paymentscomplexity in financial reporting. The areas for simplification in this update involve several aspects of the accounting for nonemployee share-based payment transactions resulting from expanding the scope of Topic 718, to include share-based payment transactions for acquiring goods and services from nonemployees. Some of the areas for simplification apply only to nonpublic entities. The amendments in this update are presented and classified in the statement of cash flows. ASU 2016-15 is effective for all entities for fiscal years beginning after December 15, 2017.2018, and interim periods within those fiscal years. The Company adopted thisthe standard onas of March 1, 2018, on a retrospective basis.2019. There was no impact of the standard on the Company’sits consolidated financial statements.

In November 2016, the FASB issued ASU 2016-18,“Statement of Cash Flows (Topic 230)”, requiring that the statement of cash flows explain the change in the total cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. This guidance is effective for fiscal years, and interim reporting periods therein, beginning after December 15, 2017, with early adoption permitted. The Company adopted this standard on March 1, 2018, on a retrospective basis. There was no impact of the standard on the Company’s financial statements.

In August 2017, the FASB issued ASU 2017-09,Modification Accounting for Share-Based Payment Arrangements. The standard amends the scope of modification accounting for share-based payment arrangements and provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting under ASC 718. The new standard is effective for fiscal years beginning after December 15, 2017. There was no impact on the financial statements of adopting this new standard on March 1, 2018.

RecentlyRecent Issued Accounting Pronouncements

In FebruaryJune 2016, the FASB issued ASU 2016-02,Leases, which aims to make leasing activities more transparent and comparable and requires substantially all leases be recognized by lessees on their balance sheet as a right-of-use asset and corresponding lease liability, including leases currently accounted for as operating leases. This ASU is effective for all interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted. The Company expects to adopt ASU 2016-02 beginning March 1, 2019 and are in the process of assessing the impact that this new guidance is expected to have on our financial statements and related disclosures.

In September 2016, the FASB issued ASUNo. 2016-13,Financial Instruments-CreditInstruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. ASU 2016-13 was issuedThe standard replaces the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses on instruments within its scope, including trade receivables. This update is intended to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and changeslosses. The effective date of ASU No. 2016-13 will be the loss impairment methodology. ASU 2016-13 is effective for reporting periods beginning after December 15, 2019 using a modified retrospectivefirst quarter of the Company’s fiscal 2021 with early adoption method. A prospective transition approach is required for debt securities for which an other-than-temporary impairment had been recognized before the effective date.permitted. The Company is currently assessingevaluating the impact this accounting standard will haveof the adoption of ASU No. 2016-13 on its consolidated financial statements and related disclosures.statements.

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

Subsequent Events

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

Note 2 – Revenue from Contracts with Customers

Change in Accounting Policy

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

Exploration and Production

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

Disaggregation of Revenue from Contracts with Customers

The following table disaggregates revenue by significant product type for the three and six months ended August 31, 2019 and 2018:

There were no significant contract liabilities or transaction price allocations to any remaining performance obligations as of August 31, 2018 or2019 and February 28, 2018.2019.

Note 3 – Oil &and Gas Properties

The following table summarizes the Company’s oil and gas activities by classification for the six months ended August 31, 2018:2019:

ForIn June 2019, the Company acquired the remaining working interest in the Marshall Walden oil and gas property from Odyssey Enterprises LLC for $250,000.

The depletion recorded for production on proved properties for the six months ended August 31, 2019 and 2018, amounted to $78,920 and 2017, the Company$27,996, respectively. The depletion recorded depletion of $27,996 and $5,227, respectively, for production on proved properties. Forproperties for the three months ended August 31, 2019 and 2018, amounted to $43,320 and 2017, the Company recorded depletion of $13,966, and $2,157, respectively, for production on proved properties. The Company recorded no impairment of its oil and gas properties duringrespectively. During the three and six months ended August 31, 2019 and 2018, and 2017.

Note 4 – Equipment

The Company’s fixed asset consisted of a used vehicle and has an estimated useful life of five years. Fixed assets consistedthere were no ceiling test write-downs of the following at August 31, 2018Company’s oil and February 28, 2018:gas properties.

The Company recorded depreciation expense of $2,450 and $2,444, respectively, during the six months ended August 31, 2018 and 2017. The Company recorded depreciation expense of $1,225and $1,235, respectively, during the three months ended August 31, 2018 and 2017.

Note 54 – Asset Retirement Obligations

The following table summarizes the change in the Company’s asset retirement obligations during the six months ended August 31, 2018:2019:

During the six months ended August 31, 20182019 and 2017,2018, the Company recognized accretion expense of $11,907$1,227 and $490,$11,907, respectively. During the three months ended August 31, 20182019 and 2017,2018, the Company recognized accretion expense of $1,171 and $2,102, and $248, respectively.

Note 6 – Convertible Note Payable5 – Related Party Transactions

Promissory Note to JBB

On December 28, 2017, the Company borrowed $1,550,000 from JBB Partners (“JBB”) to complete the purchases of a series of oil and gas leases (“Loan Note”).leases. The loan has an interest rate of 3% per annum, a maturity date of December 28, 2018 and is secured by all assets of the Company. The loan is convertible intoto the Company’s common stock at the conversion rate of $0.20 per share. On October 11, 2018, the Company entered into an amendment of its promissory note to JBB to extend the maturity date to December 31, 2019.

On June 26, 2018, the Company and JBB entered into a modification of the existing Loan Note,loan, to add provisions to permit the Company to obtain additional advances under the Loan Note up to a maximum of $1,000,000. The Company may request an advance in increments of $100,000 no more frequently than every 30 days, provided that (i) it provides a description of the use of proceeds for the advance reasonably acceptable to JBB, and (ii) the Company is not otherwise in default of the Loan Note. The original loan amount and the advances are secured by all the assets of the Company and are convertible into common stock of the Company at the rate of $0.20 per share, subject to adjustment for any reverse and forward stock splits. The Loan Note may be repaid at any time, without penalty, however, any advance that is repaid before maturity may not be re-borrowed as a further advance. The

On October 11, 2018, the Company entered into an amendment of its promissory note to JBB to extend the maturity date of the original amount and all the advances were extended to December 31, 2019. On May 21, 2019, the Company entered into an extension agreement with JBB to extend the maturity of its outstanding promissory note to September 30, 2020.

On October 1, 2019, the Company entered into another amendment of its promissory with JBB to increase the borrowing capacity of the line of credit by an additional $500,000, for a total of $1,500,000, and extend the maturity date for the original note and line of credit to December 31, 2020.

During the six months ended August 31, 2018,2019, JBB advanced an additional $100,000$300,000 to fund the Company’s operations.

On June 13, 2019, JBB lent the Company $250,000 under a secured promissory note. The funds were used to acquire the remaining working interest in the Marshall Walden oil and gas property from Odyssey Enterprises LLC. The loan has an interest rate of 5% per annum, a maturity date of June 30, 2022, and is secured by all assets of the Company. The loan is convertible into the Company’s common stock at a conversion rate of $0.20 per share.

The Company recognized interest expense of $32,927 and $23,729 related tofor the $1,650,000 promissory note to JBB during that period. Duringsix months ended August 31, 2019 and 2018, respectively and recognized interest expense of $18,412 and $12,008 for the three months ended August 31, 2019 and 2018, respectively As of August 31, 2019, and 2017,February 28, 2019, there was $2,400,000 and $1,850,000, respectively, outstanding under notes payable to JBB.

Equipment Sale

During the six months ended August 31, 2019, the Company sold one used vehicle, a work truck, for proceeds $10,000 to affiliate operator of IWO. As a result of this sale, the Company recognized interest expensea gain on sale of $12,008 and $0, respectively.

The balanceequipment on its statement of this promissory note was $1,650,000 at August 31, 2018, plus accrued interestoperations of $44,141.$2,254.

Note 76 – Commitments and Contingencies

Office Lease

InChange in Accounting Policy –The Company adopted ASU No. 2016-02,“Leases (Topic 842)” and ASU No. 2018-11, “Leases (Topic 842): Targeted Improvements”, March 2015,1, 2019, using the Company entered into an amendmentalternative modified transition method, for which, comparative periods, including the disclosures related to extend the termthose periods, are not restated as of its office leaseMarch 1, 2019. Refer to August 31, 2018. During the six months ended August 31, 2018, the Company had total rent expenseNote 1 – Summary of $12,919. Significant Accounting Policies above for additional information.

As of September 1, 2018, the Company did not renew its Dallas office lease, and moved to the offices of International Western Oil Corp. (“IWO”), a related party, in Weatherford, TX that is being rented on a month-to-month sublease basis at rate of $950 per month from IWO. During the three and six months ended August 31, 2019, the Company incurred $2,850 and $5,700, respectively, of rent expense under this lease that is included in general and administrative expenses on the statement of operations.

Leasehold Drilling Commitments

The Company’s oil and gas leasehold acreage is subject to expiration of leases if the Company does not drill and hold such acreage by production or otherwise exercises options to extend such leases, if available, in exchange for payment of additional cash consideration. In the King County, Texas lease acreage, 640 acres are due to expire in June 2021. The Company plans to hold significantly all of this acreage through a program of drilling and completing producing wells. Where the Company is not able to drill and complete a well before lease expiration, the Company may seek to extend leases if possible.where it is able.

Note 87 – Equity

Preferred Stock

As of August 31, 2018, and February 28, 2018, the Company had 1,000,000 shares of its Series A Convertible Preferred Stock issued and outstanding.

Holders of the Series A Convertible Preferred Stock have the right to convert shares of Series A Convertible Preferred Stock, at any time and from time to time, into such number of fully paid and non-assessable shares of common stock as is determined by the number of shares Series A Convertible Preferred Stock, divided by the product of (i) the Preferred Stock Conversion Price in effect at the time of conversion and (ii) 0.02. The “Preferred Stock Conversion Price” is initially equal to $0.75 which will equal 666,666.66 shares of common stock upon conversion. The Preferred Stock Conversion Price is subject to adjustment in the event of a stock split, merger, reorganization and certain dividend and distribution events. There is no mandatory conversion or redemption right by the Company.

Common Stock

As of August 31, 2018 and February 28, 2018, the Company had 89,443,013 shares of its common stock outstanding.

Stock Option Transactions

During the year ended February 28, 2018, the Company granted two of its officers options to purchase a total of 1,440,000 shares the Company’s common stock with an exercise price of $0.01 per share, with a term of 23 years which expire onuntil August 3, 2019,2020, and are subject to a vesting period of 2 years. The options havehad an aggregate fair value of $431,956 that was calculated using the Black-Scholes option-pricing model. Variables used in the Black-Scholes option-pricing model include: (1) discount rate of 1.34%; (2) expected life of 2 years; (3) expected volatility of 482.51%; and (4) zero expected dividends.

The fair value of all options issued and outstanding areis being amortized over their respective service periods, which equal their vesting periods. These options had an intrinsic value of $273,600$126,720 as of August 31, 2018.2019. During the three and six months ended August 31, 2018,2019, the Company recorded total option expense of $108,000$35,956 and $89,956, respectively, related to the vesting of these options. The unrecognized compensation expense on these options at August 31, 2018 was $197,956. As of August 31, 2018,2019, these options have a remaining life of 0.92 years and there are 720,000 options exercisable.were fully vested.

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

Cautionary Notice Regarding Forward Looking Statements

The information contained in this report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Actual results may materially differ from those indicated in the forward-looking statements as a result of certain risks and uncertainties set forth in this report. Although the Company’s management believes that the assumptions made and expectations reflected in the forward-looking statements are reasonable, there is no assurance that the underlying assumptions will, in fact, prove to be correct or that actual results will not be different from expectations expressed in this report.

This filing contains a number of forward-looking statements which reflect management’s current views and expectations with respect to our business, strategies, products, future results and events, and financial performance. All statements made in this filing other than statements of historical fact, including statements addressing operating performance, events or developments which management expects or anticipates will or may occur in the future, and non-historical information are forward looking statements. In particular, the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “may,” and variations of those words and similar expressions identify forward-looking statements. The foregoing are not the exclusive means of identifying forward looking statements, and their absence does not mean that a statement is not forward-looking. These forward-looking statements are subject to certain risks and uncertainties. Our actual results, performance or achievements could differ materially from historical results as well as those expressed in, anticipated, or implied by these forward-looking statements.

Readers should not place undue reliance on these forward-looking statements, which are based on management’s current expectations and projections about future events, are not guarantees of future performance, are subject to risks, uncertainties and assumptions (including those described below), and apply only as of the date of this filing. Factors which could cause or contribute to such differences include, but are not limited to, the risks discussed in our Annual Report on Form 10-K and in the press releases and other communications to shareholders issued by us from time to time which attempt to advise interested parties of the risks and factors which may affect our business. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

Overview

Norris Industries, Inc.Inc. (“NRIS” or the “Company”) (formerly International Western Petroleum, Inc.) was incorporated on February 19, 2014, as a Nevada corporation and is headquartered in Weatherford,Irving, Texas. The Company was formed to conduct operations in the oil and gas industry, and currently focuses on the acquisition, development, and exploration of crude oil and natural gas properties in Texas. On August 4, 2015, the Company acquired significant working interests from the Bend Arch Lion 1A and the Bend Arch Lion 1B Joint Ventures in Coleman County of Texas, encompassing a total production of 7 producing oil and gas wells on a total of 380 acres out of 777-acre leaseholds showing proven recoverable reserves of approximately 416.34 Mbbl and 317.45 MMcf as of March 1, 2017.2015. We believe that the Bend Arch Lion 1A and 1B Joint Ventures are parts of the total 777-acre leaseholds that have not been fully explored. In fiscal year 2018, the Company, together with its affiliated operatoroperator: International Western Oil Corporation (“IWO”), have undertaken basic maintenance of the oil and gas wells, with a total of 8 gross wells in production in the Midland, Texas, area. The Company also manages the 45-acre Marshall Walden joint venture with 8 Woodbine Sand oil wells in Kilgore City, Texas, and acquired a 640-acre leasehold with 3 oil wells (non-producing) from the multi-zone Ratliff property in King County, Texas, thus setting a foothold in the Eastern Permian Basin of Texas. The Company, in fiscal year 2018, also purchased producing oil and gas mineral leases, in the Texas counties of Jack County and Palo-Pinto County in north central and westernthe North Central Western part of Texas. The lease was for 20 oil & gas wells on 2,790 gross acres with majority working and operating interest with daily production of 5040+ barrels of oil equivalent (“BOE”). Currently, NRIS holds approximately 4,200 total gross acres in leaseholds in various areas of North Central Texas region. The Company fulfilled it plans to acquire additional leaseholds with the purchase in June 2019 of additional interest in the future.Marshall Walden oil and gas property; as a result, the Company is now the 100% working interest (“WI”) owner and operator of that property.

The Company underwent a change of control in JulyOctober 2017, when Patrick Norris, and his affiliate JBB Partners (“JBB”) acquired the majority of ownership of the Company and provided loans and equity funding for the oil/gas mineral rights purchases and covering the operational expenses of Company.

The Company will, from time to time, seek strategic investors and other funding to help it develop additional exploration and acquisition projects located within the Bend Arch-Fort Worth Basin and other prime acquisition targets in the Central West, South and East Texas.

Our Business Strategy

We are an Exploration and Production (“E&P”) oil and natural gas company that focuses on the acquisition, development, and exploration of crude oil and natural gas properties in Texas. The Company is currently managed by business and oil and gas exploration veterans who specialize in the oil and gas acquisition and exploration markets in the Central West Texas region. The Company’s goal is to tap into the high potential leases of the Central West Texas region of the United States, aiming to unlock its potential, specifically in the prolific Bend Arch-Fort Worth region. This area is approximately 120 miles long and 40 miles wide running from Archer County, Texas in the north to Brown County, Texas in the south. The Company is also seekinglooking at other potential acquisition opportunities with those located in the Permian Basin, West Texas, East Texas and South Texas regions the primary targets.regions.

Management believes that focusing on the development of existing small producing fields is one of the key differentiators of the Company. Oil and natural gas reserve development is a technologically oriented industry. Management believes that the use of current technology has greatly increased the success rate of finding commercial oil or natural gas deposits. In this context, success means the ability to make an oil/gas well that produces a commercialized quantity of hydrocarbons. In general, the Company expects to conduct 3D Seismic surveys to determine more accurate drilling locations and drilling depths beside its initial georadiometry technology application via its last 10 drilling projects. For short-term cash flow enhancement, the Company plans to seek large-reserve oil and gas properties with low production to acquire at the lowest cost possible and then implement effective Enhanced Oil Recovery (“EOR”) methods to improve its current revenues and assets. For long-term cash flow enhancement, the Company plans to identify larger and more mature production opportunities while selecting capital and strategic operating partners to buyout via the Company’s strategic joint venture partnerships, thus significantly increasing production via additional drilling and its EOR implementations.

We plan to execute the following business strategies:

Develop and Grow Our Hydrocarbon Rich Resource-StyleResource Acreage Positions Using Our ProvenOutside Development Expertise. We plan to continue to seek and acquire high qualityniche assets in hydrocarbon-rich resource plays to improve our asset quality and expand our drilling inventory. We plan to leverage our management team’s expertise and apply the latest available EOR technologies to economically develop our existing property portfolio in Central West and East Texas in addition to any assets in other regions we maymight acquire. We operate the majority of our acreage, thus giving us certain control over the planning of capital expenditures, execution and cost reduction. Our carefully planned operation alsooperational plan allows us to adjust our capital spending based on drilling results and the economic environment. Our leasehold acquisition strategy is to pursue long-term contracts that allow us to maintain flexible development plans and avoid short-term obligations to drill wells, as have been common in other resource plays. As a small producer, we regionally evaluate industry drilling results andto implement technologicallysimple yet effective operating practices which may increase our initial production rates, ultimate recovery factors and rate of return on invested capital.

Manage Our Property Portfolio Proactively. We constantly evaluate our properties to identify and divest non-core assets and higher cost or lower volume producing properties with limited developmental potential, thus enabling us to focus on a portfolio of core properties with the greatest economic potential to increase our proved reserves and production.

Acquire Small Producing Companies with Compelling Underlying Values.We identify acquisition opportunities of exploration and production companies with underlying assets to unlock the development potential and accelerate production using new technologies and capital infusion from capital partners.

Maintain positive equity Balance Sheet to our Execute Growth Plan. Our management team is focused on maintaining its positive asset balance sheet since this gives it the ability to increase borrowing capacity and access to capital markets, to provide us with a liquidity level to execute continued growth in assets and revenues.

Our operation strategy is to identify “prime time”“niche” hydrocarbon land leases in Texas with in-depth studies andto develop proven reserves via drilling new wells andor re-entering existing low production wells to maximizeincrease production and enhance valuation of our production assets. We also plan to position the Company by growing our management team with added petroleum experts in the United States to partner up with other oil and gas players once we have established our business to positive cash flow from our existing presence in the Texas oil field markets and apply current exploration technology on our new leases.

Given the over-all recovery of energy commodity prices, especially higher oil and gas prices, our management’s experience in the petroleum markets and our ability to contract experienced geology expertise, allows us to identify, and secure acreage with high potential reserves. Management believes that the Company near future prospects as a public company are attractive, even if our current business is still small, and at a risky stage of transition and development.markets.

Our Competitive Strengths

Management believes that we have a number of competitive strengths that will allow us to successfully execute our business strategies:

Simple Capital Structure.strategies. We have a simple capital structure and de-risked inventory of quality locations with what we believe is upside potential to take advantage of the current recovery of oil prices to acquire potential production at reasonable cost. Management believes there are opportunities for profits to be made now that oil prices appear to have stabilized and if they continue to gradually rise higher.

Visionary Management Team.With experience in key aspects of the development of resource plays, our management team includes a 4th generation oil man and oil field supplier with business skills that have decades of combined experience in the industry and a commitment of creating shareholder value via an acquisition strategy.inventory. We also consult with geologists, engineers, and other professionals to execute on our business vision.

Low Risk Exploration Practice.Unlike many major oil companies that often drill very deep wells with a high degree of risk, we focus on shallow well explorationexplorations (sub 5,000 feet) that, which is less expensive and has lower risk factors. The basis for management’s belief that the wells that can be drilled in the prospective leases will have the capacity to produce a reasonable amount of hydrocarbon and due to our recent studies of the general areas where weWe are prospecting the projects. That is our most important exploration practice.

Under The Radar Asset Base.Management believes our local West Texas E&P team has a special talent in acquiring local “prime time” hydrocarbon landfocusing on leases with sub-300 barrels of oil per day (“bopd”) wells that have largewith larger hydrocarbon reserves. Management believes that these “underreserves, which tend to be under the radar” prospective leases have multi-year drilling inventoryradar of and reasonable production history with high upside potential and not readily accessible to the publicless cost effective for auctions, thus adding to our competitive advantage on these “under the radar” opportunities. It is because management also believes that these highly valuable leases are not economically justifiable for the majorlarger oil and gas companies in the region because such companies need the wells they drill to produce at least 300 barrels (“Bbls”) of oil per day per well.

Geographic Diversity.We believe that our geographic diversity encompassing the West, Central West, East and South Texas regions provides us with broad flexibility to direct our capital resources to projects with the greatest potential returns and access to multiple key end markets, which mitigates our exposure to temporary price dislocations in any one market.companies.

Technologies

Oil and natural gas reserve development is a technologically oriented industry; many techniques developed by the industry are now used in other industries, including the space program.industry. Management believes that technological innovations have made it possible for the oil and natural gas industry to furnish the fuels that power the world economy. Management also believes that technology has greatly increased the success rate of finding commercial oil or natural gas deposits. In this context, success rate means the ability to make an oil/gas well that can produce a commercialized quantity of hydrocarbon.

Georadiometry

The use of 3-D Hydrocarbon Imaging brought georadiometric technology into the cutting edge of identifying and quantifying oil reservoirs and reserves with sophisticated field equipment and software integration abilities that aided explorers in locating oil and gas leasehold reserves. All specific drilling recommendations and opinions are based upon the technical results of inferences from global positioning satellites, electrical, and gamma ray devices and calibrated measurements based on georadiometric technology. 3-D Hydrocarbon Imaging rivals conventional seismic and downhole logging for reserve identification. This technology goes beyond conventional techniques in both arenas of cost and reserve identification and has been leveraged to meet the needs of the industry. 3-D Hydrocarbon Imaging has taken historical radiometric technology to a more complete and reliable level today. Historical documentation of radiometric’s success ratio and interpretation average above 90% in its accuracy. To date, this radiometry technology has demonstrated that it has clearly improved on this with its thoroughness in gathering field data and applying its sophisticated computer modeling and interpretation.

Hydrocarbon Satellite Imaging

Hydrocarbon survey maps are generated from several data sources downloaded from scientific instruments installed on Earth orbit satellites. These instruments are designed to retrieve physical data from outer space as well as from the Earth. Instruments installed on the satellites include, for our use, Radar, Infrared (Temperature), Radiation (Radiometrics), Dialectic Potential (Tellurics), Ionization, and Geo-Magnetics. These data sets are stacked and embedded into each data stream that result in the final map interpretation. All of these exploration techniques can be done separately with land-based tools but with the use of satellites it is possible to cover much larger areas more economically.

Directional Drilling

Drilling technology has come a long way over the years. Among the most recent advancements in drilling are Rotary Steerable tools which allow three-dimensional control of the bit without stopping the drill string. One of the benefits of this technology is increasing the exposed section throughout the target reservoir by drilling through it at an angle. Directional drilling also allows drilling into reservoirs where vertical access is difficult or not possible; for instance, an oilfield under a town, lake, or hard to drill through formation.

Fracturing Technology

Fracturing technology allows the industry to get more oil or natural gas out of each deposit that it finds. Newer stimulation technologies, completion treatment fluids, and enhanced recovery techniques enable the oil or natural gas to move more easily to producing well bores. Hydraulic fracturing techniques create small cracks from the well bore into the reservoir rock. A “proppant” (usually sand), is then pumped into the formation to keep the fractures open. These fractures serve as a “highway” for the hydrocarbons to be produced. Horizontal-drilling technologies allow the reservoir to be penetrated horizontally rather than vertically, opening more of the reservoir to the well bore and enhancing recovery. “Acidizing”, is another stimulation technique that is frequently used in carbonate (limestone, dolomite) reservoirs to increase porosity, permeability and to enhance recovery. Sometimes the techniques of fracturing and acidizing are combined in an “acid-frac job” resulting in increased production. Secondary and tertiary recovery techniques can include “water flood” which utilizes water injection wells to push oil from partially depleted reservoirs to recovery wells. CO2 injection wells pressure up the depleted reservoir for the same purpose of increasing production.

At NRIS, we focus on core basic field EOR management practices and contract outside experts to provide us the understanding of complex mineralogy in shale reservoirs to better determine zones prone to fracture stimulation. This technology can suggest where to frack by providing us with available data to deliver us a greater chance of success. Our field engineers, geologists and petrophysicists work together for better drilling decisions.

Sales Strategy

Abilene, Texas, is the closest city with oil handling and sales firms. Our sales strategy in relation to spot pricing will be to produce less when the sales price is lower and produce more when the sales price is higher. To maintain the lowest production cost,Also, we will aim to have our inventory be virtually zero.as low as possible. Our E&P core team has business relationships with BML, Transport Oil, and Lion Oil Trading & Transportation, for oil sales as well asand WTG Jameson for gas sales. The Company entered into production agreements with BML, Lion Oil and WTG Jameson so that, as our tier 1 buyer, they can handle pick-up and sales of our crude oil stock to refineries and gas via local gas pipelines.

As such, crude oil will be picked up from our leases as needed during the calendar month. At the end of the month the crude total sales will be tallied by lease and the 30-day average of the daily closing of oil will be tabulated. On or about the 25th of the following month the proceeds checkschecks’ will be issued to the financial parties of record.

Operational Plans

During the fiscal year 2018,ended February 2019, the Company was in a period of transitionassessment and work-over of its existing wells as result of our changeits acquisition of control. During this time, we actively looked for large-reservethe Jack County and Palo Pinto County oil and gas leases, completed on December 28, 2017. During the 2020 fiscal year, we are looking for, on a selective basis, oil and gas reserve concessions with existing productionproduction. We intend to acquire and are now positionedseek to raise enough capital via equity or debt financing options to meet our operational goals in fiscal year 2019.

Based on management’s general management2020, be this from our control owner, or other third-party financing sources, including the capital markets. The Company is still in the process of assessing the wells it acquired and petroleum exploration experience as well asis reviewing its geology expertise,options to make improvements in the Company believes it hasfuture to address the ability to identify high potential acreage and high production fields and to secure such.underperformance.

The Company has recently shifted its E&P plan on regional acquisition(s) to a focus in the North Texas and Outside of the Permian Basin region. This region has been producing oil continuously for nearly 100 years and the U.S. Geological Survey (“USGS”) has recently announced that this region has the largest estimate of continuous oil production that it has ever assessed. Our area of interest is production locations in Texas but outside of the Texas Permian Basin market where property prices are too high for a smaller player as a result of USGS estimates that there are 20 billion barrels of undiscovered, technically recoverable oil.

The Company has started a new, revised acquisition model which is based on a concept that has been proven in the past to be an effective and successful path of development for many other well- known E&P players:

Since the fourth quarter of fiscal year 2018, theThe Company has reviewed several acquisition candidates in the greater West Permian Basin, Central and South Texas regions. After identifying any new prospect, additional research and evaluation was carried out using our personal contacts, geologists, 3D seismic, satellite hydrocarbon imaging, production data and other available resources to glean information and data in order to make an acquisition decision. Our operational plan after each acquisition is to increase production of the acquired oil and gas properties using current technologies with a designated budget pre-approved by the Company’s senior management team. In December 2017, the Company acquired certain leases in Jack County and Palo Pinto County in Texas (discussed further below).

The Companyalso has plans to implement a cost effectivecost-effective operating budget for each exploration project associated with ouran acquisition project and each budget will vary depending on the total depth of drilling and whether it is a new drilling or a re-entry. For each project, the Company plans on hiring selected operators to work under the close supervision of a core team of Company geologists, engineers and scientists.

The exploration and production process is a two-phase process: 1) drilling and testing and 2) well completion. The Company plans to hire drilling specialists and technical consultants designated to oversee the drilling and reentering of existing holes for each well during the drilling and testing phase. For the well completion process, the Company plans to hire technical data collectors and cementing operators to ensure the best performance upon perforating the wells at different pay zones based on thorough technical advisory work done by our internal and external production personnel and geologists before production.

The Company will apply selective leading edge EOR technologies from technology vendors to improve existing production after each future acquisition.

Completed Acquisitions with Production Enhancement Programs

To date, the Company has prospected and completed several exploration and acquisition projects:

The Bend Arch Lion 1A JV, Coleman County, TX:

This drilling joint venture is a 160-acre leasehold having four producing wells which were drilled by our Texas-based operating partner International Western Oil (“IWO”). This field has been surveyed with high quality proven reserves encompassing several pay zones highlighted by the Gray Sand, the Palo Pinto, and in some instances the Ellenburger pay zone. On August 4, 2015, the Company acquired a 39.5% working interest from IWO in the Bend Arch Lion 1A Joint Venture (the Pittard Bend Arch White property encompassing 160 acres – State ID# 21488) (the “1A Venture”.)

As of August 31, 2018, the 1A Venture property had four (4) gross oil and gas wells (1.58 net wells). The initial production of this property started in April 2014.

Management plans to review and determine how best to implement a production improvement program on several of its wells including the Bend Arch Lion 1A and others. As a result of recent studies that show accessible proven reserves in several pay zones highlighted by the Gray Sand and the Ellenburger pay zones, management believes its production improvement program can offer an increase from the current production of these fields by re-completing certain pay zones with either standard acidizing jobs, a new EOR method, or reentering and fixing equipment in areas that have become declining wellbores.

The Bend Arch Lion 1B JV, Coleman County, TX:

This drilling joint venture is a 220-acre leasehold having 6 new producing wells which were drilled by our Texas-based operating partner International Western Oil. In August 2015, the Company acquired working interests of this leasehold which has been surveyed with high quality proven reserves encompassing several pay zones highlighted by the Gray Sand and in some instances the Ellenburger pay zone. At the moment, the leasehold has 3 producing wells coming from the Gray Sand formation and 3 producing wells coming from the Ellenberger formation. On August 4, 2015, the Company acquired a 46% working interest in the Bend Arch Lion 1B Joint Venture (the Pittard Bend Arch Red property encompassing 220 acres - State ID# 13121) (the “1B Venture”).

As of August 31, 2018, the 1B Venture property had six (6) gross oil and gas wells (3 net wells). The initial production of this property started in March 2015.

Management plans to determine how best to implement a production improvement program on the Bend Arch Lion 1B as the result of our prior in-depth studies that show accessible proven reserves in several pay zones highlighted by the Gray Sand pay zone and the Ellenburger pay zone. Management believes this can offer a potential increase from the current production of this field by re-completing certain Gray Sand pay zone with either standard acidizing jobs or a new EOR method and entering the virgin Gray Sand pay zone or increasing pumping efficiency in the Ellenburger pay zone in certain declining wellbores.

The Marshall Walden JV, Kilgore City, TX:

As of July 29, 2016, the Company served as the managing venturer in a 45-acre joint venture with Odyssey Enterprises LLC which has financed the Marshall Walden joint venture for the lease purchase and optimization of wells located in Kilgore, Texas, in the heart of the Woodbine formation. There are 8 wellbores in the acquisition, with 4 currently in production and 4 inactive. During the year ended February 28, 2018, the Company completed a re-work of several inactive wellbores and plans to upgrade to a new pump set up to enhance oil production levels. Management believes that this Marshall Walden acquisition put a solid foundation in place for the Company in the East Texas region.

As of August 31, 2018, the Marshall Walden property had six (6) gross oil and gas wells (0.6 net wells) which are active, plus two (2) injection wells. The initial production of this property started in September 2016.

The Ratliff Property, King County, TX:

As of December 6, 2016, the Company acquired, in a series of payments that totaled $100,000, a 640 acres oil and gas lease and also 3D Seismic data for 340 acres of the leasehold acreage acquired in King County, Texas. This acquisition represented a 100% working interest with a 70% net revenue interest on leasehold acreage in King County, Texas, with additional options to lease up to 800 acres of adjoining acreage with 3D seismic data. The 640-acre leasehold comes with an existing tank facility for the production of oil, natural gas, and water. There is also a full injection wellbore set in place that is equipped. There have been five (5) wellbores drilled on this lease dating back to the 1970s, and these previous wellbores ranged from 4800ft – 6200ft in total depth, with three (3) different prolific hydrocarbon formations.

Prior management believed that this acquisition would create an initial small foothold for us in the Eastern Permian Basin. Within depth studying of the 3D seismic data, we believe there are up to eight (8) proven undeveloped locations (“PUDs”) throughout the lease’s acreage. Management also believes that the Company can best take full advantage of the complete 3D Seismic data available and should be able to drill wellbores in favorable locations. The Company plans to drill a test pilot hole in order to obtain Ellenbuger pay zone samples and complete the Canyon Reef pay zone at 6,700 ft on one wellbore and access a full log review to determine if there is a window to drill a horizontal leg. The Company also plans to turn on 3 wellbores that are producers via extended re-entry method. As of August 31, 2018 and February 28, 2018, the Ratliff property had minimal production but had substantial potential value in several proved developed not producing (“PDNP”) wells based on the Company’s year-end reserve analysis.

The Stuart Leases of Jack and Palo-Pinto Counties Property

The Jack Palo-Pinto County Stuart Oil Leases were purchased on December 28, 2017 for $1,600,000 in cash and have twenty (20) gross oil and gas wells (15 net wells) which the management is operating production on its properties and produced well over 2,500 gross barrels of oil equivalent since the purchase date until August 31, 2018.

Results of Operations

Comparison of the Three Months Ended August 31, 20182019 with the Three Months Ended August 31, 20172018

Revenues

The Company generated revenues of $147,891$148,745 from oil and gas sales for the three months ended August 31, 2018,2019, compared to $18,683$147,891 for the three months ended August 31, 2017. The increase in revenues mainly came from revenues from the oil and gas properties that we acquired at the end of fiscal year 2018.

Operating Expenses

Operating expenses for the three months ended August 31, 2019 and 2018 were $419,156 and 2017 were $345,139 and $593,690,$327,846, respectively. Our lease operating expenses increased by $40,482,and were $243,019 for the three-month period ended August 31, 2019, compared to $56,079 for the three-month period ended August 31, 2018, that was primarily related to the additional lease operating expenses incurred fromfor costs paid for on behalf of the other working interest owners of the Marshall Walden oil and gas properties that we acquired atproperty in anticipation of acquiring their interest in the end of fiscal year 2018.property, which was completed during the current period. Our general and administrative expense decreased by $303,424,to $176,137 for the three-month period ended August 31, 2019, compared to $271,767 for the three-month period ended August 31, 2018, primarily because we reduced overhead costs andof implemented cost cutting measures. Our

Depletion and Accretion Expenses

For the three months ended August 31, 2019 and 2018, the Company recorded depletion depreciation and accretion expense increased by $14,391, primarilyof $44,491 and $17,293, respectively, related to additional production related to thedepletion of oil and gas properties that we acquired at the endand revision of fiscal year 2018asset retirement obligations estimate.

Other Income (Expense)

For the three months ended August 31, 20182019 and 2017,2018, the Company recorded interest expense of $12,008$18,412 and $0,$12,008, respectively, related to outstanding debts. During the three months ended August 31, 2017, we recognized a loss of $1,228,322 on settlement of an outstanding debt.

Net Loss

We had a net loss in the amount of $333,314 for the three months ended August 31, 2019, compared to a net loss of $209,256 for the three months ended August 31, 2018, compared to a net loss of $1,803,329 for the three months ended August 31, 2017.2018. The decreaseincrease in losses was primarily related to additionalnearly the same revenues frombut higher expenses incurred for the Marshall Walden oil and gas properties as a result of additional lease operating expenses incurred that we acquired atwere paid on behalf of the endother working interest owners in anticipation of 2018, cost controls implemented by our new management and not having a debt settlement lossacquiring their interest in 2018.the property, which was completed in the current period.

Comparison of the Six Months Ended August 31, 20182019 with the Six Months Ended August 31, 20172018

Revenues

The Company generated revenues of $273,963$268,104 from oil and gas sales for the six months ended August 31, 2018,2019, compared to $38,662$273,963 for the six months ended August 31, 2017.2018. The increaseslight decrease in revenues mainly came from revenuesa decrease in the market price of the Company’s oil and slightly lower production from the oil and gas from properties that we acquired at the end of fiscal year 2018.

Operating Expenses

Operating expenses for the six months ended August 31, 2019 and 2018 were $783,673 and 2017 were $661,805 and $927,585,$619,452, respectively. Our lease operating expenses increased by $106,979,and were $397,940 for the six-month period ended August 31, 2019, compared to $126,752 for the six-month period ended August 31, 2018, that was primarily related to the additional lease operating expenses incurred fromfor costs paid for on behalf of the other working interest owners of the Marshall Walden oil and gas properties that we acquired atproperty in anticipation of acquiring their interest in the end of fiscal year 2018.property, which was completed during the current period. Our general and administrative expense decreased by $409,395,slightly to $385,733 for the six-month period ended August 31, 2019, compared to $492,700 for the six-month period ended August 31, 2018, primarily because we reduced overhead costs andof implemented cost cutting measures. Our

Depletion and Accretion Expenses

For the six months ended August 31, 2019 and 2018, the Company recorded depletion depreciation and accretion expense increased by $36,636, primarilyof $80,147 and $42,353, respectively, related to additional production related to thedepletion of oil and gas properties that we acquired at the endand revision of fiscal year 2018.asset retirement obligations estimate.

Other Income (Expense)

For the six months ended August 31,^,2018 2019 and 2017,2018, the Company recorded interest expense of $23,729$32,927 and $3,000$23,729, respectively, related to outstanding debts. DuringThe Company also sold a piece of equipment during the six months ended August 31, 2017, wecurrent period recognized a lossgain of $1,228,322$2,254 on settlement of an outstanding debt.the sale. No similar sale occurred during the prior year period.

Net Loss

We had a net loss in the amount of $626,389 for the six months ended August 31, 2019, compared to a net loss of $411,571 for the six months ended August 31, 2018, compared to a net loss of $2,120,245 for the six months ended August 31, 2017.2018. The decreaseincrease in losses was primarily related to additionalslight decrease in revenues fromand higher expenses incurred for the Marshall Walden oil and gas properties as a result of additional lease operating expenses incurred that we acquired atwere paid on behalf of the endother working interest owners in anticipation of 2018, and not having a debt settlement lossacquiring their interest in 2018.the property, which was completed in the current period.

Liquidity and Capital Resources

As of August 31, 2018,2019, the Company had cash in handon-hand of $69,912.$81,711

Net cash used by operating activities during the six months ended August 31, 20182019 was $275,085,$354,044, compared to cash used in operating activities of $388,743$275,085 for the same period in 2017.2018. The decreaseincrease was mainly related to the Companyus being ableunable to better control theirincrease production after increased lease operating expenses and other costs in the current period.

There was noNet cash used or provided by investing activities during the six months ended August 31, 2018. Net2019 was $240,000 primarily from the Company’s investment in the Marshall-Walden purchase and purchase of pumps and related oil field equipment. Compared to $0 cash used in investing activities duringfor the same period in 2018.

Net cash provided by financing activities for six months ended August 31, 20172019 was $195,320$550,000, related to proceeds from the Company’s line of credit with JBB and proceeds from a $250,000 term loan from JBB for deposits made on purchase of oil and gas properties.

the Marshall-Walden purchase. During the six months ended August 31, 2018, cash provided by financing activities was $100,000 related to proceeds from the Company borrowed $100,000 from JBB Partners (“JBB”). During the six months ended August 31, 2017, the Company borrowed $700,000 and sold common stock for cash proceedsCompany’s line of $365,000.credit with JBB.

The Company will seek capital from sources other than its officers and significant stockholders in the future, from time to time. There is no assurance that it will be able to obtain financing of any amount or of any specific nature. If obtained, the terms may havethat third parties are likely to require will include restrictive covenants orand other obligations that will be difficult to meet or may be too onerous for the Company to accept. Any financing accepted by the Company may have a dilutive effect on the outstanding equity of the Company and may restrict the payment of dividends.

The Company currently has a secured, convertible note entered into effectivedated December 28, 2017 which is secured by all the assets(“Loan Note”). The initial principle amount of the Company.Loan Note was $1,550,000. The noteLoan Note is issued to an affiliate of the Chief Executive Officer of the Company, and the holder of the noteLoan Note is a controlling majority shareholder of the Company. The existenceLoan Note is secured by all the assets of the notes, as well as the security interest, may limit the opportunity to raise financing that requires a security interest or would suffer dilution because of the convertibility of the notes. Additionally, the noteCompany and is convertible into shares of common stock of the Company which if converted will causeat a substantial dilutionrate of $0.20 (subject to the equity of the outstanding Common Stock.adjustment for reverse and forward stock splits and similar capital events). On FebruaryJune 26, 2018 the note holder converted its prior note for $750,000, that was due July 28, 2018, into 1,000,000 Series A Preferred Stock. The note for $1,550,000 was extended to September 30,and May 21, 2019, from the original due date of December 28, 2018. In order to meet its operating cash requirements, on June 26, 2018,and October 1, 2019, the Company and JBB entered into a modificationmodifications of the existing Secured PromissoryLoan Note originally datedto extend the maturity date from September 30, 2020 to December 28, 2017 (“Loan Note”),31, 2020 and to add provisions to permit the Company to obtain advances under the Loan Note up to a maximum of $1,000,000. During$1,500,000. The Company may request an advance in an amount of $100,000 no more frequently than every 30 days, provided that it provides a description of the threeuse of proceeds for the advance reasonably acceptable to JBB and the Company is not otherwise in default of the Loan Note. The Company received advances under the line of credit of $300,000 during the six months ended August 31, 2018, the Company requested an additional advance of $100,000 from JBB. As of August 31, 2018, the Company had a note payable of $1,650,000 and an accrued interest of $44,141 to JBB. The original loan amount and the advances are secured by all the assets of the Company and are convertible into common stock of the Company at the rate of $0.20 per share, subject to adjustment for any reverse and forward stock splits.2019. The Loan Note may be repaid at any time, without penalty, however, any advance that is repaid before maturity may not be re-borrowed as a further advance. On October 11, 2018,The existence of the Loan Note and the related security interest and the fact that it is convertible into a substantial amount the equity of the Company may limit the Company’s ability to obtain additional funds from third parties.

In addition, in June 2019, the Company entered into a separate promissory note agreement with JBB for $250,000, with a maturity date of June 30, 2022 to complete the original amountpurchase of the additional ownership in the Marshall-Walden oil and all the advances were extended to December 31, 2019.gas property.

Off-Balance Sheet Arrangements

As of August 31, 2018,2019, we did not have any off-balance sheet arrangements as defined in Item 303 (a)(4)(ii) of Regulation S-K promulgated under the Securities Act of 1934.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports filed or submitted under the Securities and Exchange Act of 1934, as amended (“Exchange Act”) is recorded, processed, summarized and reported, within the time period specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports filed under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, which in our case is the same individual. We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of August 31, 20182019 (the “Evaluation Date”). Based upon the evaluation of our disclosure controls and procedures as of the Evaluation Date, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective because of the identification of material weaknesses in our internal control over financial reporting that were disclosed in Item 9A. Controls and Procedures in our 2018 annual report2019 Annual Report on Form 10-K.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the six months ended August 31, 2018,2019, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

We are not currently involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

Item 1A. Risk Factors.

You should carefully consider the risk factors in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on June 27, 201813, 2019 for the annual period ended February 28, 2019 (the “2018“2019 10-K”), together with all of the other information included in this report, before investing in our common stock. Those risks and uncertainties encompass many of the risks that could affect our business and the value of our stock. Not all risks and uncertainties are described. Risks that we do not know about could occur and issues we now view as minor could become more important. If any of these risks actually occur, our business, financial condition or results of operations could be materially and adversely affected. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment.

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

None.None

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.

* Filed herewith.

+ In accordance with SEC Release 33-8238, Exhibit 32.1 and 32.2 are being furnished and not filed.

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.