10-Q

­­UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

☒ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934: For the quarterly period ended January 31, 2015

or

☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934: For the transition period from _______ to _________

Commission file number: 000-53313

HYDROCARB ENERGY CORP.

(Exact name of registrant as specified in its charter)

NEVADA	30-0420930
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

800 Gessner, Suite 375

Houston, Texas  77024

(Address of principal executive offices, including zip code)

(713) 970-1590

(Registrant’s principal executive office telephone number)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x    No  o

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 (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  x     No o

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. (Check one):

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) Yes o   No x

As of March 17, 2015, 21,266,794 shares of common stock, $0.001 par value, were outstanding.

Table of Contents

Part I. Financial Information

Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28
Item 4.	Controls and Procedures	28
Part II. Other Information
Item 1.	Legal Proceedings	28
Item 1A.	Risk Factors	29
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31
Item 3.	Defaults Upon Senior Securities	31
Item 4.	Mine Safety Disclosures	31
Item 5.	Other Information	31
Item 6.	Exhibits	32

2

Part I. Financial Information

Item 1. Financial Statements

1.	Consolidated Balance Sheets (unaudited)	4
2..	Consolidated Statements of Operations and Comprehensive Loss (unaudited)	5
3.	Consolidated Statements of Cash Flows (unaudited)	6
4.	Notes to Consolidated Financial Statements (unaudited)	7

3

HYDROCARB ENERGY CORP.

 Consolidated Balance Sheets

(Unaudited)

	January 31, 2015			July 31, 2014
ASSETS
Current assets:
Cash and cash equivalents	$	266,646		$	144,258
Oil and gas revenues receivable		81,574			372,120
Accounts receivable - related party		2,723			58,014
Other current assets		171,650			446,320
Other receivables, net		190,019			38,455
Total current assets		712,612			1,059,167
Oil and gas properties, accounted for using the full cost method of accounting
Evaluated property, net of accumulated depletion of $3,849,998 and $3,491,420, respectively; and accumulated impairment of $373,335 and $373,335, respectively		17,148,625			15,288,370
Unevaluated property		2,302,098			2,119,769
Restricted cash		6,857,002			6,877,944
Other assets		392,420			219,942
Property and equipment, net of accumulated depreciation of $164,927 and $135,590, respectively		136,752			166,963
TOTAL ASSETS	$	27,549,509		$	25,732,155
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	3,693,900		$	2,795,675
Short term notes payable		2,273			334,688
Asset retirement obligation – short term		60,000			1,133,690
Advances		195,904			195,904
Due to related parties		98,585			165,542
Total current liabilities		4,050,662			4,625,499
Notes payable, net of discount		3,841,420			-
Notes payable - related party		600,000			600,000
Asset retirement obligation – long term		12,164,789			10,582,540
Total liabilities		20,656,871			15,808,039
Stockholders' Deficit:
Common stock: $001 par value; 333,333,333 shares authorized; 21,266,749 and 21,081,602 shares issued and outstanding as of January 31, 2015 and July 31, 2014, respectively		21,267			21,082
Receivable for common stock		(2,184,879	)		(2,184,879	)
Additional paid-in capital		82,929,743			82,228,799
Accumulated deficit		(73,837,653	)		(70,106,351	)
Total stockholders' equity		6,928,478			9,958,651
Noncontrolling interests		(35,840	)		(34,535	)
Total equity		6,892,638			9,924,116
TOTAL LIABILITIES AND EQUITY	$	27,549,509		$	25,732,155

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

4

HYDROCARB ENERGY CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

	Three Months Ended January 31,						Six Months Ended January 31,
	2015			2014			2015			2014
Revenues	$	646,348		$	989,732		$	1,851,777		$	2,829,943
Operating expenses
Lease operating expense		913,290			811,127			2,210,845			1,928,459
Depreciation, depletion, and amortization		162,166			191,764			386,422			493,679
Accretion		258,782			244,509			560,990			488,485
Consulting fees - related party		-			-			-			6,754
General and administrative expense		980,480			946,325			1,923,760			2,738,324
Total operating expenses		2,314,718			2,193,725			5,082,017			5,655,701
Loss from operations		(1,668,370	)		(1,203,993	)		(3,230,240	)		(2,825,758	)
Consulting and other income (expense)		2,737			(4,940	)		6,779			(30,266	)
Interest income (expense), net		(279,727	)		(36,854	)		(507,504	)		21,338
Foreign currency transaction gain (loss)		(6,401	)		(28,971	)		(1,642	)		(30,626	)
Net loss before income taxes		(1,951,761	)		(1,274,758	)		(3,732,607	)		(2,865,312	)
Income tax provision		-			-			-			(4,599	)
Net loss		(1,951,761	)		(1,274,758	)		(3,732,607	)		(2,869,911	)
Less:  Net loss attributable to noncontrolling interests		18			(1,888	)		(1,305	)		(3,360	)
Net loss attributable to Hydrocarb Corporation		(1,951,779	)		(1,272,870	)		(3,731,302	)		(2,866,551	)
Deemed dividend on preferred stock		-			(3,019	)		-			(34,254	)
Net loss attributable to Hydrocarb Energy Corp after dividends	$	(1,951,779	)		(1,275,889	)		(3,731,302	)	$	(2,900,805	)
Basic and diluted loss per common share:	$	(0.09	)	$	(0.03	)	$	(0.18	)	$	(0.10	)
Weighted average shares  outstanding  (basic and diluted)		21,203,773			42,600,075			21,178,191			27,940,539

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

5

HYDROCARB ENERGY CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six Months Ended January 31,
	2015			2014
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	(3,732,607	)	$	(2,869,911	)
Adjustments to reconcile net income loss to net cash used in operating activities:
Depreciation, depletion and amortization		386,422			493,679
Accretion		560,990			488,485
Amortization of debt discount		352,807			-
Debt issuance cost		94,626
Warrants granted to related party		-			6,754
Share based compensation		388,475			1,214,213
Loss on ERG settlement - shares issued		65,000			-
Changes in operating assets and liabilities:
Accounts receivable		290,546			491,840
Other receivables		(151,564	)		-
Accounts receivable - related party		55,291			201,284
Payments on borrowings from Related Parties		(66,957	)		-
Other assets		291,021			389,566
Accounts payable and accrued expenses		853,435			(188,738	)
Advances		-			15,100
Settlement of asset retirement obligation		-			(83,840	)
NET CASH PROVIDED (USED) OPERATIONS		(612,515	)		158,432
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of oil and gas properties		(2,453,592	)		(996,985	)
Proceeds from sale of property and equipment		2,366			(123,898	)
Change in restricted cash		20,942			-
CASH USED IN INVESTING ACTIVITIES		(2,430,284	)		(1,120,883	)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on notes payable		(287,625	)		(181,498	)
Proceeds from note payable to related party		-			100,000
Payments on borrowings from Related Parties		-			1,142,232
Proceeds from borrowings		3,452,812			-
Proceeds from subsidiary sale of its common stock		-			31,071
CASH PROVIDED BY FINANCING ACTIVITIES		3,165,187			1,091,805
NET CHANGE IN CASH AND CASH EQUIVALENTS		122,388			129,354
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		144,258			354,829
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	266,646		$	484,183

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

6

HYDROCARB ENERGY CORP.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Description of Business and Summary of Significant Accounting Policies

Description of business and basis of presentation

The unaudited consolidated financial statements of Hydrocarb Energy Corp. (“Hydrocarb”, “HEC”, the “Company”, “we”, “us”, “our”) have been prepared in accordance with accounting principles generally accepted in the United States 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 our Annual Report filed with the SEC on Form 10-K for the year ended July 31, 2014. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of 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 financial statements which would substantially duplicate the disclosures contained in the audited financial statements for the most recent fiscal year ended July 31, 2014, as reported in the Form 10-K, have been omitted.

While working towards plans and expectations of being listed on a major stock exchange, we currently trade on the OTCBB under the stock symbol “HECC”.

We are a natural resource exploration and production company engaged in the exploration, acquisition, development, and production of oil and gas properties in the United States and onshore in Namibia, Africa. We maintain developed acreage offshore in Texas. As part of our ongoing business strategy, we continue to review and evaluate acquisition opportunities in the continental United States and internationally.

Reclassifications

Certain prior year amounts have been reclassified to conform with the current presentation.

Principles of consolidation

We own 100% of the issued and outstanding share capital of (i) Penasco Petroleum Inc. (“Penasco”), a Nevada corporation, (ii) Galveston Bay Energy, LLC (“GBE”), a Texas limited liability company, (iii) SPE Navigation I, LLC, a Nevada limited liability company (“SPE”), (iv) Namibia Exploration, Inc. (“NEI”), a Nevada corporation, (v) Hydrocarb Corporation, a Nevada corporation (“HCN”), (vi) Hydrocarb Texas Corporation, a Texas corporation, and (vii) Hydrocarb Namibia Energy (Pty) Limited (“Namibia”), a company chartered in the Republic of Namibia.  In addition, we own 95% of the issued and outstanding share capital of Otaiba Hydrocarb LLC (“Otaiba”), a UAE limited liability corporation. The accompanying consolidated financial statements include the accounts of the entities noted above.  All significant intercompany accounts and transactions have been eliminated in consolidation.

The acquisition of HCN, an entity under common control, on December 9, 2013 (See Note 2 – HCN Acquisition) has resulted in a change in the reporting entity. The consolidated financial statements presented for the periods subsequent to the acquisition include the accounts of HCN and its subsidiaries. As HEC and HCN are under the common control of same shareholder group, the acquired assets and liabilities were recorded at the historical carrying value and the consolidated financial statements were retroactively restated to reflect the Company as if HCN had been owned since the beginning of the earliest period presented.

Noncontrolling interests

Our consolidated financial statements include the accounts of all subsidiaries where we hold a controlling financial interest.  We have a controlling financial interest if we own a majority of the outstanding voting common stock and minority shareholders do not have substantive participating rights, we have significant control over an entity through contractual or economic interests in which we are the primary beneficiary or we have the power to direct the activities that most significantly impact the entity’s economic performance.  The ownership interest in subsidiaries held by third parties are presented in the consolidated balance sheet within equity, but separate from the parent’s equity, as noncontrolling interest.  All significant intercompany balances and transactions have been eliminated in consolidation.

Cash and cash equivalents

Cash and cash equivalents are all highly liquid investments with an original maturity of three months or less at the time of purchase and are recorded at cost, which approximates fair value.

Our functional currency is the United States dollars. Transactions denominated in foreign currencies are translated into their United States dollar equivalents using current exchange rates. Monetary assets and liabilities are translated using exchange rates that prevailed as of the balance sheet date. Non-monetary assets and liabilities are translated using exchange rates that prevailed as of the transaction date. Revenue, if applicable and expenses are translated using average exchange rates over the accounting period. We have had no revenue denominated in foreign currencies. Gains or losses resulting from foreign currency transactions are included in results of operations.

7

Stock Split

On May 8, 2014, we effected a 1:3 reverse split of our authorized common stock and a corresponding 3:1 reverse split of our outstanding common stock.  All share and per share amounts in this report have been retroactively restated to reflect the reverse split.  This presentation is consistent with the guidance in ASC 260-10-55-12, Earnings per Share, which requires retroactive restatement of earnings per share if a capital structure change due to a stock dividend, stock split or reverse split occurs after the date of the latest balance sheet, but before the release of the financial statements.

Recent accounting pronouncements

In August 2014, the FASB issued Accounting Standard Update No. 2014-15 (“ASU No. 2014-15”),  Presentation of Financial Statements Going Concern (Subtopic 205-40) which requires management to assess an entity's ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, ASU 2014-15 provides a definition of the term substantial doubt and requires an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). It also requires certain disclosures when substantial doubt is alleviated as a result of consideration of management's plans and requires an express statement and other disclosures when substantial doubt is not alleviated. ASU No. 2014-15 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, early application is permitted. We are currently evaluating the accounting implication and do not believe the adoption of ASU 2014-15 to have material impact on our consolidated financial statements, although there may be additional disclosures upon adoption.

Other recently issued or adopted accounting pronouncements are not expected to have, or did not have, a material impact on our financial position or results from operations.

Note 2 – HCN Acquisition

The acquisition Agreement provided that HEC would issue 7,470,000 shares of its common stock to the holders of certain rights to acquire HEC stock. These rights were previously issued by HEC as contingent consideration in connection with the acquisition of NEI. The rights had been convertible into HEC common stock based upon HEC market capitalization milestones. The rights were issued to entities deemed related parties to HEC.

In anticipation of the HCN acquisition, HEC issued 619,960 shares of its common stock to HCN as full payment for HEC’s indebtedness to HCN in the amount of $3,589,567. A condition to the Agreement closing was that HCN will sell the 619,960 shares before closing of the acquisition, which it did (see Note 7 – Capital Stock – Receivables for Common Stock).

With HCN, we acquired its 100% owned subsidiaries: Hydrocarb Namibia Energy (Pty) Limited, a Namibia Company and Hydrocarb Texas Corporation, a Texas Corporation; and its 95% owned subsidiary Otaiba Hydrocarb LLC, a UAE Limited Liability Company.

Prior to the acquisition, HCN was directly and indirectly majority-owned and controlled by HEC’s Chairman of the Board and entities related to him and his family. Since HCN and HEC were under common control of a controlling party both before and after the completion of the share exchange, the transaction was accounted for as a business acquired from an entity under common control and the assets and liabilities acquired were recorded at HCN’s historical cost at Acquisition Date following ASC 805-50-30, Business Combinations. Under this accounting treatment, the results of operations for the three months and six months ended January 31, 2015 and assets and liabilities of HCN as of January 31, 2015 are included in these financial statements as if the transaction had occurred at the beginning of the period. Prior reporting periods in these financial statements have been retroactively adjusted to include HCN and its subsidiaries.

8

According to ASC 805-50-30, the net assets of HCN are to be recorded at historical cost, therefore, the value of the 8,396,667 common shares is deemed to be the same as the historical value of HCN net assets of $1,398,127 with excess of $3,874,609 recorded as additional paid in capital by HEC.

Summary of the accounting entry to record this acquisition in December 2013 is as follows.

Assets acquired	$	1,529,246
Liabilities assumed		(161,599	)
Noncontrolling interest in 95% owned HCN subsidiary		30,480
	$	1,398,127
Common stock, at par		8,397
Receivable for common stock		(2,484,879	)
Additional paid-in capital		3,874,609
	$	1,398,127

HCN had 51% working-interest rights in and operated an unevaluated Namibian concession described in Note 3 – Oil and Gas Properties, below, and provided international oilfield consulting services.  Prior to this acquisition, HEC owned 39% working-interest right in this concession.  With the HCN acquisition, we now own 90% working interest (100% cost responsibility) in the concession.  This 5.3 million-acre concession is located in northern Namibia in Africa.  The concession specifies the following minimum cost responsibilities on an 8/8ths basis:

1) Initial Exploration Period (expires September 2015): Perform a hydrocarbon potential study, gather and review existing technical data including reprocessing of available seismic lines, and acquire and process 750 kilometers of new 2D seismic data.  The minimum expenditure is $4,505,000.

2) First Renewal Exploration Period (two years from end of the Initial Exploration Period):  Acquire 200 square kilometers of 3D seismic data, interpret and map the data, design a drilling program, drill one well, conduct an environmental study, and relinquish 25% of the exploration license area.  The minimum expenditure is $17,350,000.

3) Second Renewal (Production License) Exploration Period (25 years):  Report on reserves and production and conduct an environmental study.  The minimum expenditure is $300,000.

In conjunction with the HCN acquisition, the HEC Board of Directors authorized the immediate issuance of 7,470,000 shares of our common stock to the former owners of NEI. We previously acquired NEI on August 7, 2012 and these 7,470,000 shares had been contingently-issuable consideration for the acquisition of NEI. We issued these shares on December 9, 2013. The original agreement contained market conditions for the issuance of this stock.

In connection with certain recent due diligence undertaken by the Company, it has come to the attention of management, that although the Company previously believed, on advice of prior counsel, that the Board of Directors of the Company had the authority under the Company’s Articles of Incorporation, as amended, to unilaterally authorize preferred stock, including the designation of the Series A Preferred, under applicable Nevada law, unless such preferred stock is specifically authorized in a Nevada corporation’s articles no preferred stock can be designated or issued. As such, our Board of Directors did not have authority under the Articles of Incorporation, as amended, and applicable Nevada law to designate the Series A Preferred or to file such certificate of designations with the Secretary of State of Nevada. Consequently, we now believe that the Series A Preferred is not validly issued or outstanding and the filing of the Series A Preferred designation with the consent of the Board of Directors and without shareholder approval, was invalid and had no legal effect. We are in the process of seeking shareholder approval, at our 2015 Annual Meeting of stockholders, to ratify and approve the designation of the Series A Preferred Stock.  As a result, we removed Series A 7% Convertible Voting Preferred Stock (“Series A Preferred”) from the accompanying financial statements for current and prior periods.

Note 3 – Supplemental Cash Flow Information

NONCASH INVESTING AND FINANCING ACTIVITIES
Asset retirement obligation sold	$	-		$	4,381
Asset retirement obligations incurred	$	-		$	100,932
Asset retirement obligations - change in estimate	$	(52,431	)	$	-
Accounts payable for oil and gas properties	$	-		$	11,373
Note payable for prepaid insurance	$	-		$	-
Settlement of HCN debt with HCN preferred stock	$	-		$	1,585,200
Common stock exchanged for HCN common stock for acquisitin of HCN	$	-		$	25,190
Receivable for common stock - related party	$	-		$	1,000,000
Receivable for common stock - related party	$	-		$	1,859,879
Common stock issued to satisfy contingently issuable shares from 2012 acquisition of Namibia Exploration , Inc.	$	-		$	22,410
Value of shares issued to lenders as part of debt financing	$	247,655		$	-

9

 Note 4 – Oil and Gas Properties

Oil and natural gas properties as of January 31, 2015 and July 31, 2014 consisted of the following:

	January 31, 2015			July 31, 2014
Evaluated Properties
Costs subject to depletion	$	21,371,958		$	19,153,125
Accumulated impairment		(373,335	)		(373,335	)
Accumulated depletion		(3,849,998	)		(3,491,420	)
Total evaluated properties		17,148,625			15,288,370
Unevaluated properties		2,302,098			2,119,769
Net oil and gas properties	$	19,450,723		$	17,408,139

Evaluated properties

Additions to evaluated oil and gas properties during the six months ended January 31, 2015 consisted mainly of exploration costs, specifically, geological and geophysical costs of approximately $2,271,263.

Unevaluated Properties

Namibia, Africa

We own 90% (100% cost responsibility) of our Namibia concession, as described above in Note 2 –Acquisitions.

Additions to unevaluated properties of approximately $182,000 during the Six months ended January 31, 2015 primarily of:

· Approximately $182,000 of leasehold costs, specifically payment of the annual concession fee to the Government of Namibia. As of January 31, 2015, approximately $2.2 million has been expended towards the initial exploration period.

Note 5 - Impairment

Oil and Gas Properties

We account for our oil and natural gas producing activities using the full cost method of accounting as prescribed by the United States Securities and Exchange Commission (“SEC”). Under this method, subject to a limitation based on estimated value, all costs incurred in the acquisition, exploration, and development of proved oil and natural gas properties, including internal costs directly associated with acquisition, exploration, and development activities, the costs of abandoned properties, dry holes, geophysical costs, and annual lease rentals are capitalized within a cost center.

We evaluated our capitalized costs using the full cost ceiling test as prescribed by the Securities and Exchange Commission at the end of each reporting period. As of January 31, 2015 and July 31, 2014, the net book value of oil and gas properties did not exceed the ceiling amount and thus, no impairment of the properties was required. Changes in production rates, levels of reserves, future development costs, and other factors will determine our actual ceiling test calculation and impairment analyses in future periods.

Note 6 – Asset Retirement Obligations

The following is a reconciliation of our asset retirement obligation liability as of January 31, 2015 and July 31, 2014:

	January 31, 2015			July 31, 2014
Liability for asset retirement obligation, beginning of period	$	11,716,230		$	10,933,398
Asset retirement obligations sold		-			(33,195	)
Asset retirement obligations incurred on properties drilled		-			-
Accretion		560,990			1,043,928
Revisions in estimated cash flows		(52,431	)		(104,237	)
Costs incurred		-			(123,664	)
Liability for asset retirement obligation, end of period	$	12,224,789		$	11,716,230
Current portion of asset retirement obligation	$	60,000		$	1,133,690
Noncurrent portion of asset retirement obligation		12,164,789			10,582,540
Total liability for asset retirement obligation	$	12,224,789		$	11,716,230

10

Note 7 – Notes Payable

Installment Notes Payable

In May 2012, we entered into a note payable of $18,375 to purchase a vehicle. The note is collateralized by the vehicle. The note carries an interest rate of 6.93% and is payable beginning in June 2012, in 36 installments of $567 per month. The principal balance owed on the note payable was approximately $2,273 and $7,100 as of January 31, 2015 and July 31, 2014, respectively.

In February 2014, we financed our commercial insurance program using a note payable for $403,104. Under the note, we are obligated to make nine payments of $45,718 per month, which include principal and interest, beginning in March 2014. As of January 31, 2015, the note payable balance was approximately $45,000.

Related Party Installment Note Payable

In November 2013, we issued a promissory note for funds received from Mr. Kent P. Watts, Our Chairman, of $100,000. Under the terms of the note, principal on the note was due after one year and incurred interest at 5% per annum payable on a monthly basis. Accrued interest is payable monthly beginning in May 2014, and beginning in August 2014 the principal is due in 36 monthly payments through July 2017. The note is secured by the Company’s assets owned by GBE, subject to any other lien holder's superior rights, if any. In April 2014, the Company entered into a new debt agreement whereby Mr. Watts agreed to loan the Company up to $600,000 at an interest rate of 6.25%. The previous debt of $100,000 was rolled into this new note. Additionally, we borrowed $200,000 from Mr. Watts during April 2014 and $300,000 from Mr. Watts in May 2014. The total balance on the note was $600,000 as of January 31, 2015. As part of the financing agreement with Shadow Tree Capital Management, LLC (as discussed below), this note has been subordinated, and no payments will be made until the Shadow Tree debt has been repaid.

Credit Agreement

Effective August 15, 2014, we entered into a Credit Agreement (the “Credit Agreement”) as borrower, along with Shadow Tree Capital Management, LLC, as agent (the “Agent”), and certain lender parties thereto (the “Lenders”). Pursuant to the Credit Agreement, the Lenders loaned us $4.0 million, which was represented by Term Loan Notes in an aggregate amount of $4,545,454 (the “Notes”), representing an original issue discount of 12%. We also paid the Lenders a structuring fee of $90,909 equal to 2% of the principal amount of the Notes (the “Structuring Fee”) and agreed to reimburse the Lenders for all reasonable and documented fees, costs and expenses associated with the Credit Agreement, which totaled $172,824 in aggregate. Finally, we paid ROTH Capital Partners, LLC, a placement fee of 5% of the total value of the Loans ($227,273), as placement agent and Gary W. Vick, a consulting fee of 1% of the face value of the Loans ($45,455) for consulting services rendered. As a result of the payments above, the net amount of funding received from the Loans was $3,463,539.

Pursuant to the Credit Agreement, we have the right, at any time prior to the one year anniversary of the Credit Agreement, to borrow up to an additional $1,000,000 under the Credit Agreement (the “Additional Loan”), subject to certain pre-requisites and requirements as set forth in the Credit Agreement, including, but not limited to us raising $750,000 through the sale of equity subsequent to the closing of the transactions contemplated by the Credit Agreement (which we agreed to obtain within 150 days of the date of the Credit Agreement). We also agreed to pay a 2% Structuring Fee on the Additional Loan. The proceeds of the Additional Loan may only be used for the Oil and Gas Activities.

The amount owed pursuant to the Notes (and any amount borrowed pursuant to the Additional Loan) is guaranteed by our wholly-owned subsidiary, Hydrocarb Corporation (“HC”) and its subsidiaries, and our other wholly-owned subsidiaries and is secured by a first priority security interest in substantially all of our assets (including, but not limited to the securities of our subsidiaries and HC and its subsidiaries) evidenced by a Guarantee and Collateral Agreement, various pledge agreements and a deed of trust providing the Agent, as agent for the Lenders, a security interest over our oil and gas assets and rights.

The Notes do not accrue any interest for the first nine months after their issuance date (August 15, 2014), provided thereafter they accrue interest at the rate of (a) 16% per annum where the average net monthly oil and gas production revenues of Galveston Bay Energy LLC, our wholly-owned subsidiary, for the trailing three month period (the “Trailing Three Month Revenues”) is less than $900,000; or (b) 14% per annum, where the Trailing Three Month Revenues are equal to or greater than $900,000, payable monthly in arrears through the maturity date of such Notes, August 15, 2016. The Additional Loan, if any, will bear interest at the rate of 14% per annum, payable monthly in arrears, and will have the same maturity date as the Notes. Upon the occurrence of an event of default, the Notes (and any amount outstanding under the Additional Loan) will bear interest at the rate of 24% per annum until paid in full.

Pursuant to the Credit Agreement, we agreed to issue the Lenders their pro rata share of (a) 60,000 restricted shares of common stock on the effective date of the Credit Agreement, August 15, 2014 (the “Effective Date”); (b) 32,500 restricted shares in the event any amount of the Loans (or other obligations outstanding under agreements entered into in connection with the Loans, the “Loan Documents”) are outstanding on the 12 month anniversary of the Effective Date; (c) 32,500 restricted shares in the event any amount is outstanding under the Loan Documents on the 18 month anniversary of the Effective Date; and (d) 25,000 restricted shares in the event any amount is outstanding under the Loan Documents on the 21 month anniversary of the Effective Date. The shares are to be issued pursuant to the terms and conditions of a Stock Grant Agreement, pursuant to which each of the Lenders made certain representations to the Company regarding their financial condition and other items in order for the Company to confirm that an exemption from registration existed and will exist for such issuances.

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The Credit Agreement contains customary representations, warranties, covenants and requirements for the Company to indemnify the Lenders, Agent and their affiliates. The Credit Agreement also includes various covenants (positive and negative) binding upon the Company (and its subsidiaries), including but not limited to, requiring that the Company comply with certain reporting requirements, and provide notices of material corporate events and forecasts to Agent, and prohibiting us from (i) incurring any additional debt; (ii) creating any liens; (iii) making any investments; (iv) materially changing our business; (v) repaying outstanding debt; (vi) affecting a business combination, sale or transfer; (vii) undertaking transactions with affiliates; (viii) amending our organizational documents; (ix) forming subsidiaries; or (x) taking any action not in the usual course of business, in each case except as set forth in the Credit Agreement.

The Credit Agreement includes customary events of default for facilities of a similar nature and size as the Credit Agreement, including, but not limited to, if any breach or default occurs under the Loan Documents, the failure of the Company to pay any amount when due under the Loan Documents, if the Company (or its subsidiaries) is subject to any judgment in excess of $250,000 which is not discharged or stayed within 30 days, or if a change in control of the Company, any subsidiary or any guarantor should occur, defined for purposes of the Credit Agreement as any transfer of 25% or more of the voting stock of such entity.

For the six months ended January 31, 2015, the Company has recognized $352,807 of amortization expense of the original issuance discount, with a net payable balance of $3,841,420 and unamortized original issuance discount of $704,035 as of January 31, 2015. In addition, we have recognized $283,455 of debt issuance cost related to professional fees and expenses, which we have classified within other non-current assets, related to the issuance of this debt. We are amortizing these cost over the term of the loan of two years. During the six months ended January 31, 2015, we recognized $94,626 of amortization expense classified as interest expense, and have $188,829 in unamortized debt issuance cost as of January 31, 2015.

Note 8 – Capital Stock

Common Stock Issuances

Pursuant our Credit Agreement, as noted in Note 6 – Notes Payable, during August 2014, we issued 60,000 shares of restricted common stock to the Lenders. The shares were issued pursuant to the terms and conditions of a Stock Grant Agreement, pursuant to which each of the Lenders made certain representations to the Company regarding their financial condition and other items in order for the Company to confirm that an exemption from registration existed and will exist for such issuances.

Additionally, during the six months ended January 31, 2015, 122,000 shares of restricted common stock to certain vendors for services rendered during the period for legal and professional services. 22,000 shares were used to settle the litigation with ERG. The value of this settlement is 65,000.

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Receivables for Common Stock

On September 6, 2013, HCN sold 191,667 shares of HEC common stock to an employee of HCN (the nephew of our Chairman and Chief Executive Officer) in exchange for a note receivable in the amount of $1,000,000. HEC acquired this receivable upon its acquisition of HCN. The note is non-interest bearing and is payable only upon the sale of the common stock to a third party or HEC stock being listed on either the NASDAQ or NYSE stock exchanges. We will receive 95% of the proceeds up to $1,000,000 if the underlying stock is sold to a third party. Within 90 days of HEC stock being listed on a major stock exchange, we will receive up to $1,000,000, or the note can be paid earlier at the discretion of the other party. These shares of common stock are held in the name of the investors and are beneficially owned by the investors and the shares are not retrievable by the Company.

On December 4, 2013 HCN sold 619,960 shares of unregistered and restricted HEC common stock in return for a $1,859,879 non-interest bearing note receivable from an  entity in which Michael Watts has a minority interest. HEC acquired this receivable upon its acquisition of HCN. The 619,960 HEC common stock shares were previously issued by HEC to HCN to settle liabilities due by HEC related to the consulting services agreement described below in Note 6 – Notes Payable. The receivable from the individual is due to HEC upon the following conditions: 1) 100% of the proceeds payable from the sale of all or part of the shares by the owner of the shares to a third party; 2) within sixty days of the six month anniversary of the December 4, 2013 stock sale or within sixty days from the date that the shares become unrestricted (whichever is first); or 3) 100% of any remaining balance due within 90 days of HEC being listed on a major stock exchange and whereby the share price is above $6.00 per share. As with the above receivable for common stock, this receivable for the sale of HEC common stock is classified as a receivable for common stock within equity. These shares of common stock are held in the name of the investors and are beneficially owned by the investors and the shares are not retrievable by the Company.

This note receivable was extended on August 4, 2014, for an extension fee of $50,000, payable in the future, with $750,000 due to be repaid by December 31, 2014, with the remaining balance to be repaid by March 31, 2015. These repayment terms may be changed if the Company is successful in being up-listed to either the NYSE or NASDAQ. If this occurs, the entire balance is due within 60 days after an up-listing occurs.

Stock Options and Warrants

As of January 31, 2015, HEC could grant up to 737,706  shares of common stock under the 2013 Stock Incentive Plan (“2013 Plan”). The Plan is administered by the Compensation Committee of the Board of Directors, or in the absence of a Compensation Committee, the full Board of Directors, which has substantial discretion to determine persons, amounts, time, price, exercise terms, and restrictions of the grants, if any.

Options granted to non-employees

We account for options granted to non-employees under the provisions of ASC 505-50, Equity-Based Payments to Non-employees, and record the associated expense at fair value on the final measurement date. Because there is no disincentive for nonperformance for these awards, the final measurement date occurs when the services are complete, which is the vesting date. For the options granted to non-employees on a graded vesting schedule, we estimate the fair value of the award as of the end of each reporting period and recognize an appropriate portion of the cost based on the fair value on that date. When the award vests, we adjust the cost previously recognized so that the cost ultimately recognized is equivalent to the fair value on the date the performance is complete. There were 25,000 options granted to non-employees during the six months ended January 31, 2015. Compensation expense of $112,500 was recognized during the six months ended January 31, 2015. No options have been exercised, and 92,000 expired during the six months ended January 31, 2015.

Options granted to employees

The following table provides information about options granted to employees under our stock incentive plans during the six months ended January 31, 2015 and 2014:

	2015		2014
Number of options granted		25,000		-
Compensation expense recognized	$	112,500	$	56,208
Weighted average exercise price of options  granted	$	4.50	$	N/A

Summary information regarding stock options issued and outstanding as of January 31, 2015 is as follows:

	Options			Weighted Average Share Price		Aggregate intrinsic value	Weighted average remaining contractual life (years)
Outstanding at  July 31, 2014		265,333		$	6.81	$		7.95
Granted		25,000			4.50			5.00
Exercised		-			-
Expired		(92,000	)		6.85
Outstanding at January 31, 2015		198,333		$	6.52	$		7.51

No non-vested stock options existed as of January 31, 2015.

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Warrants

Summary information regarding common stock warrants issued and outstanding as of January 31, 2015, is as follows:

	Warrants			Weighted Average Share Price		Aggregate intrinsic value		Weighted average remaining contractual life (years)
Outstanding at year ended July 31,2014		1,084,584		$	7.50	$	-		1.04
Granted		-			-
Exercised		-			-
Expired		(417,917	)		7.50
Outstanding at quarter ended January 31, 2015		666,667		$	7.50	$	-		1.04

Warrants granted to related party

During the year ended July 31, 2011, we entered into a consulting agreement with Geoserve Marketing, LLC (“Geoserve”), a company controlled by Michael Watts, who is a related party. Under the terms of the agreement, we granted warrants to purchase 400,000 shares of common stock that have a market condition.  If our common stock attains a five day average closing price of $22.50 per share, 200,000 warrants with an exercise price of $7.50 and an expiration date of February 15, 2016 shall be exercisable (“Warrant B”). If our common stock attains a five day average closing price of $45.00 per share, 200,000 warrants with an exercise price of $7.50 and an expiration date of February 15, 2016 shall be exercisable (“Warrant C”). The fair value of warrants that vest upon the attainment of a market condition must be estimated and amortized over the lower of the implicit or derived service period of the warrants. Previously recognized expense is not reversed in the event of a subsequent decline in the fair value of market condition equity based compensation.  The fair value of the warrants and the derived service period were valued using a lattice model that values the liability of the warrants based on a probability weighted discounted cash flow model. This model is based on future projections of the various potential outcomes. Warrant B and Warrant C were amortized over the derived service periods of 2.08 years and 2.49 years, respectively.  No expense related to these warrants was recognized during the six months ended January 31, 2015, as the expense for the warrants was fully amortized in previously reported periods.

The following reflects the fair value at the end of the derived service for each of the warrants:

	Warrant B		Warrant C
Fair value	$	266,017	$	206,245

The following table reflects information regarding Warrant B and Warrant C during the six months ended January 31, 2015 and 2014:

	2015		2014
Compensation expense recognized	$	-	$	6,754

Note 9 – Related Party Transactions

During the reporting period we have had transactions as described below with entities controlled by Michael Watts. Michael Watts is the father-in-law of Jeremy Driver, who served as a director and Chief Executive Officer through November, 2013. Additionally, Michael Watts is the brother of Kent Watts, who became the Company’s Chairman of Board of Directors in October 2013. Michael Watts is a related party to the Company by virtue of his relationships with Mr. Driver and with Mr. Watts. Further, two of Michael Watts’ adult children are significant shareholders of HEC’s common stock. Between them, they are beneficial owners of approximately 68% of the outstanding common stock.

A company controlled by Michael Watts purchased a 5% working interest in one of our wells in Galveston Bay.  As of January 31, 2015 and July 31, 2014, this company owed us $100 and $80,468, respectively, in joint interest billings.

During 2011, we entered into a consulting contract with a company controlled by Michael Watts, as detailed in Note 7 – Capital Stock - Warrants.  The contract permits us to terminate the agreement after the first year with thirty days’ notice.  We recognized expense of $0 and $6,754 from this contract during the six months ended January 31, 2015 and 2014, respectively.

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During the three months ended October 31, 2013, a company controlled by one of our former officers, Carter E & P, LLC (“Carter”) operated several properties onshore in South Texas, including our producing properties located near the Victoria Barge Canal in Calhoun County, Texas. Although he was not a related party after September 1, 2013, he was a related party during the periods covered by this report. As of January 31, 2015 and July 31, 2014, there were no outstanding related party receivable from Carter.  Revenues generated, lease operating costs, and contractual overhead charges incurred during the time Carter was a related party were as follows:

	Three months ended January 31,				Six Months ended January 31,
	2015		2014		2015	2014
Revenues	$	-	$	-	$	$	39,274
Lease operating costs	$	-	$	-	$	$	23,259
Overhead costs incurred	$	-	$	-	$	$	4,687

In November 2013, we issued a promissory note for funds received from Mr. Kent Watts, Our Chairman, of $100,000. Under the terms of the note, principal on the note was due after one year and incurred interest at 5% per annum payable on a monthly basis. In April 2014, the Company entered into a new debt agreement whereby Mr. Watts agreed to loan the Company up to $600,000 at an interest rate of 6.25%. The previous debt of $100,000 was rolled into this new note. Additionally, we borrowed $200,000 from Mr. Watts during April 2014 and $300,000 from Mr. Watts in May 2014. The total balance on the note was $600,000 as of January 31, 2015. Accrued interest is payable monthly beginning in May 2014, and beginning in August 2014 the principal is due in 36 monthly payments through July 2017. The note is secured by the Company’s assets owned by GBE, subject to any other lien holder's superior rights, if any. As part of the financing agreement with Shadow Tree, this note has been subordinated, and no payments will be made until the Shadow Tree debt has been repaid.

During the three months ended April 30, 2014, Kent P. Watts advanced HCN (prior to its acquisition by HEC) funds for working capital purposes to the Company. On December 3, 2013, HCN issued 3,963 shares of its Series A Preferred Stock to Kent P. Watts in order to cancel the majority of the outstanding balance HCN owed to Kent P. Watts at that time. (See Note 7 – Capital Stock – HCN Series A Preferred Stock). During the six months ended as of January 31, 2015, the Company had current liabilities owed to Mr. Watts of $98,600.

During the six months ended January 31, 2015, the Company received approximately $58,000 from Mr. Michael Watts for a related party receivable previously outstanding for approximately the same amount as of July 31, 2014.

Note 10 - Commitments and Contingencies

Legal

We are subject to legal proceedings, claims and liabilities which arise in the ordinary course of business. We accrue for losses associated with legal claims when such losses are probable and can be reasonably estimated. These accruals are adjusted as additional information becomes available or circumstances change. Legal fees are charged to expense as they are incurred.

As of January 31, 2015, we were party to the following legal proceedings:

Cause No. 2011-37552; Strategic American Oil Corporation (“Strategic”) v. ERG Resources, LLC (“ERG”), et al.; In the 55th District Court, Harris County, Texas. The Company is a plaintiff in this suit. In this case, Company brought claims for injunctive relief, breach of contract and fraudulent inducement against the defendant regarding the purchase of Galveston Bay Energy, LLC from ERG. The Company intends to prosecute its claims and defenses vigorously. As of the date of filing of this report, the Company is no longer seeking injunctive relief. Additionally, the below listed case has been consolidated into this case since the subject matter of the below case is subsumed within the subject matter of this case. From this point forward, there will be only this one piece of litigation. The trial was held in October 2013. The judge ruled in favor of ERG and that Hydrocarb is liable to pay the charges in the below-mentioned case and a portion of ERG’s attorney fees. The Company is in the process of post-trial motions and no judgment has been entered as of this date. As of January 31, 2015, the Company had accrued $232,974 for this cause.

Cause No. 2011-54428; ERG Resources, LLC v. Galveston Bay Energy, LLC, in the 125th Judicial District Court, Harris County, Texas. This case deals with the operating agreements for the processing of product by the entities owned by ERG. It is an action seeking payments of charges and expenses by ERG that are refuted by GBE. The Company intends to prosecute its claims and defenses vigorously. As indicated above, this case has been consolidated into the case listed above. As such, the claims in this case will be decided in cause No. 2011- 37552, which was tried in October 2013.

Judgments on both of these matters have been rendered whereby HEC paid ERG $35,000 in cash, relieving GBE of any liability to ERG and whereby HEC transferred $65,000 in HEC stock to ERG. Both cases have been fully settled and no further obligations have been or will be accrued as of January 31, 2015.

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A state regulator has requested that we renew certain pipeline easements located in Galveston Bay. The easements in question were originally obtained by another company whose successor filed for bankruptcy protection.  Our subsidiary, Galveston Bay Energy, LLC purchased certain assets from the bankruptcy estate; however, based on the bankruptcy court’s order and the purchase and sale agreement, we believe the pipelines and easements in question were not included in assets purchased. The easements in question were scheduled to renew at various dates between 2012 and 2021.  Based on current posted rates, the cost of renewal of all of the easements would be approximately $400,000.  We have engaged legal counsel to dispute the regulator’s claim.  If we are obligated to renew these easements, they would be part of the asset retirement obligation that was acquired with our subsidiary, Galveston Bay Energy, LLC. As such, the potential liability for these easements is factored into the computation of the asset retirement obligation (See Note 7 – Asset Retirement Obligation) that is estimated using the guidance in ASC 410-20, Asset Retirement and Environmental Obligations.  On August 29, 2014, we filed a lawsuit in the state district court in Chambers County, Texas asking the Court to reform an assignment and assumption agreement in the property records of Chambers County.  The General Land Office has asserted claims against us under various miscellaneous easements, claiming we are obligated to either renew the easement or remove any pipeline laid in the easement.  We have disclaimed any obligations under these easements.

Cause No. 2015-10005; Hydrocarb Energy Corporation and Kent P. Watts, Individually v. Vincent Pasquale Scaturro (“Scaturro”), in the 152nd Judicial District Court, Harris County, Texas. This case deals with a lock up leak out agreement executed by Scaturro limiting the amount of shares which Mr. Scaturro could transfer or sell. The court granted a temporary restraining order on February 20, 2015 and there is a temporary injunction hearing scheduled for April 10, 2015.

Environmental

We accrue for losses associated with environmental remediation obligations when such losses are probable and can be reasonably estimated. These accruals are adjusted as additional information becomes available or circumstances change. Costs of future expenditures for environmental remediation obligations are not discounted to their present value. Recoveries of environmental remediation costs from other parties are recorded at their undiscounted value as assets when their receipt is deemed probable.

There is soil contamination at a tank facility owned by GBE. Depending on the technique used to perform the remediation, we estimate the cost range to be between $150,000 and $900,000. We cannot determine a most likely scenario, thus we have recognized the lower end of the range. We have submitted a remediation plan to the appropriate authorities and have not yet received a response. As of January 31, 2015, $150,000 has been recognized and is included in the balance sheet caption “Accounts payable and accrued expenses.”

Letters of Credit

Oil and gas operators in the State of Texas are required to obtain a letter of credit in favor of the Railroad Commission of Texas as security that they will meet their obligations to plug and abandon the wells they operate. We have two letters of credit in the amount of $6,610,000 and $120,000 issued by Green Bank. These letters of credit are collateralized by a certificate of deposit held with the bank for the same amount. We pay a 1.5% per annum fee in conjunction with these letters of credit.

In June 2014, when we renewed the letters of credit, we prepaid the entire years’ interest upfront. We amortize these fees on a straight-line basis. The following table reflects the prepaid balances as of:

	January 31, 2015
Prepaid letter of credit fees	$	101,250
Amortization		(59,412	)
Net prepaid letter of credit fees	$	41,838

Note 11 – Going Concern

The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has not generated any significant revenues from ongoing operations and incurred net losses since inception. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset amounts or the classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

Management’s principal objective is to maximize shareholder value by, among other things, increasing production by developing its acreage, increasing profit margins by evaluating and optimizing its production, and executing its business plan to increase property values, prove its reserves, and expand its asset base.   While management currently has no plans to discontinue or revise its business plan, recent volatility and decrease in crude oil prices may cause management to cut back on its development or acquisition plans, or otherwise revisit its business and/or its capital expenditure plan.  Continued volatility and decreases in crude oil prices may accelerate such cut back or revisions.  To combat price volatility in crude oil process and further diversify the business, management has increased its focus on the development of HEC. 

Note 12 – Subsequent Events

Subsequent to January 31, 2015, we raised approximately $1 million through the sale of various convertible promissory notes as described below.

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LG Capital Funding, LLC Convertible Note

On February 17, 2015, we sold an 8% Convertible Redeemable Note to LG Capital Funding, LLC (“LG Capital” and the “LG Capital Convertible Note”) in the amount of $105,000 pursuant to a Securities Purchase Agreement. Amounts owed under the LG Capital Convertible Note accrue interest at the rate of 8% per annum (24% upon the occurrence of an event of default). The LG Capital Convertible Note is due and payable on February 17, 2016. The principal amount of the LG Capital Convertible Note and all accrued interest thereon is convertible at the option of the holder into our common stock at any time. The conversion price of the LG Capital Convertible Note is 65% of the average of the two lowest closing bid prices of our common stock for the 12 trading days prior to the date a notice of conversion is received by us from LG Capital. In the event we experience a “DTC chill” at any time, the conversion price percentage above decreases to 55%. At no time may the LG Capital Convertible Note be converted into shares of our common stock if such conversion would result in LG Capital and its affiliates owning an aggregate of in excess of 9.9% of the then outstanding shares of our common stock.

The LG Capital Convertible Note provides for customary events of default such as failing to timely make payments under the note when due. Additionally, in the event we fail to timely deliver shares due in connection with a conversion, we are required to pay the holder $250 per day beginning on the 4th day after the conversion notice was delivered to us, increasing to $500 per day on the 10th day after the conversion notice was delivered. In the event we have no “bid” price for our common stock at any time while the note is outstanding, the outstanding principal due under the terms of the note increases by 20%. In the event our common stock is delisted from an exchange (including the OTCQB), the outstanding principal amount of the note increases by 50%. If not paid at maturity, the outstanding principal amount of the note increases by 10%.

We may prepay in full the unpaid principal and interest on the LG Capital Convertible Note, upon notice, any time prior to the 180th day after the issuance date. Any prepayment is subject to payment of a prepayment amount ranging from 115% to 135% of the then outstanding balance on the LG Capital Convertible Note (inclusive of accrued and unpaid interest and any default amounts then owing), depending on when such prepayment is made. Additionally, upon the occurrence of certain fundamental events as described in the note, we are required to repay the note at the request of the holder in an amount equal to 150% of the then balance of the note.

We agreed to pay $5,000 of LG Capital’s legal fees in connection with the sale of the LG Capital Convertible Note and as such, the net amount received in connection with the sale of the LG Capital Convertible Note, before our expenses, was $100,000. We hope to repay the LG Capital Convertible Note prior to any conversion.

Adar Bays, LLC Convertible Note

On February 17, 2015, we sold an 8% Convertible Redeemable Note to Adar Bays, LLC (“Adar Bays” and the “Adar Bays Convertible Note”) in the amount of $105,000 pursuant to a Securities Purchase Agreement. Amounts owed under the Adar Bays Convertible Note accrue interest at the rate of 8% per annum (24% upon the occurrence of an event of default). The Adar Bays Convertible Note is due and payable on February 17, 2016. The principal amount of the Adar Bays Convertible Note and all accrued interest is convertible at the option of the holder thereof into the Company’s common stock at any time. The conversion price of the Adar Bays Convertible Note is 65% of the average of the two lowest closing bid prices of our common stock for the 12 trading days prior to the date a notice of conversion is received by us from Adar Bays. In the event we experience a “DTC chill” at any time, the conversion price percentage above decreases to 55%. At no time may the Adar Bays Convertible Note be converted into shares of our common stock if such conversion would result in Adar Bays and its affiliates owning an aggregate of in excess of 9.9% of the then outstanding shares of our common stock.

The Adar Bays Convertible Note provides for customary events of default such as failing to timely make payments under the note when due. Additionally, in the event we fail to timely deliver shares due in connection with a conversion, we are required to pay the holder $250 per day beginning on the 4th day after the conversion notice was delivered to us, increasing to $500 per day on the 10th day after the conversion notice was delivered. In the event we have no “bid” price for our common stock at any time the note is outstanding, the outstanding principal due under the terms of the note increases by 20%. In the event our common stock is delisted from an exchange (including the OTCQB), the outstanding principal amount of the note increases by 50%. If not paid at maturity, the outstanding principal amount of the note increases by 10%.

We may prepay in full the unpaid principal and interest on the Adar Bays Convertible Note, upon notice, any time prior to the 180th day after the issuance date. Any prepayment is subject to payment of a prepayment amount ranging from 115% to 135% of the then outstanding balance on the Adar Bays Convertible Note (inclusive of accrued and unpaid interest and any default amounts then owing), depending on when such prepayment is made, provided that upon the occurrence of certain fundamental events, we are required to repay the note at the request of the holder for 150% of the then balance of the note.

We agreed to pay $5,000 of Adar Bays’ legal fees in connection with the sale of the Adar Bays Convertible Note and as such, the net amount received in connection with the sale of the Adar Bays Convertible Note, before our expenses, was $100,000.

We hope to repay the Adar Bays’ Convertible Note prior to any conversion.

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KBM Worldwide, Inc. Convertible Note

On February 19, 2015, we sold KBM Worldwide, Inc. (“KBM”) a Convertible Promissory Note in the principal amount of $350,000 (the “KBM Convertible Note”), pursuant to a Securities Purchase Agreement, dated and entered into on February 17, 2015. The KBM Convertible Note bears interest at the rate of 8% per annum (22% upon an event of default) and is due and payable on February 19, 2016. The KBM Convertible Note provides for customary events of default such as failing to timely make payments under the KBM Convertible Note when due. Additionally, upon the occurrence of certain fundamental defaults, as described in the KBM Convertible Note, we are required to repay KBM liquidated damages in addition to the amount owed under the KBM Convertible Note.

The principal amount of the KBM Convertible Note and all accrued interest is convertible at the option of the holder thereof into our common stock at any time following the 180th day after the KBM Convertible Note was issued. The conversion price of the KBM Convertible Note is equal to 50% multiplied by the average of the lowest five closing bid prices of our common stock during the fifteen trading days immediately prior to the date of any conversion.

The KBM Convertible Note included a $26,000 original issue discount and we paid $4,000 of KBM’s attorney’s fees in connection with the sale of the KBM Convertible Note and as such, the net amount, before our expenses, that we received upon sale of the KBM Convertible Note was $320,000.

We are required to keep reserved from our authorized but unissued shares of common stock eight times the number of shares of common stock issuable upon conversion of the KBM Convertible Note at all times and if we fail to keep such amount reserved it is considered an event of default under the KBM Convertible Note.

At no time may the KBM Convertible Note be converted into shares of our common stock if such conversion would result in KBM and its affiliates owning an aggregate of in excess of 9.99% of the then outstanding shares of our common stock.

We may prepay in full the unpaid principal and interest on the KBM Convertible Note, upon notice, any time prior to the 180th day after the issuance date. Any prepayment is subject to payment of a prepayment amount ranging from 110% to 135% of the then outstanding balance on the KBM Convertible Note (inclusive of accrued and unpaid interest and any default amounts then owing), depending on when such prepayment is made.

We also deposited 750,000 shares of our common stock into escrow with KBM’s counsel to secure the repayment of the KBM Convertible Note, which shares are to be held in escrow and released to KBM only upon the occurrence of an event of default under the KBM Convertible Note.

We hope to repay the KBM Convertible Note prior to any conversion.

JSJ Investments Inc. Convertible Note

On February 23, 2015 we sold a 10% Convertible Note to JSJ Investments Inc. (“JSJ” and the “JSJ Convertible Note”) in the amount of $137,000. Amounts owed under the JSJ Convertible Note accrue interest at the rate of 10% per annum. The JSJ Convertible Note is payable by us on demand by JSJ at any time after August 23, 2015. We have the right to prepay the JSJ Convertible Note (a) for an amount equal to 135% of the then balance of such note until the 90^th day following the date of the note, (b) for an amount equal to 140% of the balance of such note from the 91^st day following the date of the note until the maturity date of the note, and (c) for an amount equal to 150% of the balance of such note subsequent to the maturity date (provided the holder consents to such payment after maturity).

The JSJ Convertible Note and all accrued interest is convertible at the option of the holder thereof into the Company’s common stock at any time. The conversion price of the JSJ Convertible Note is the lower of (a) 58% of the lowest trading price of our common stock during the prior 20 trading days prior to any conversion; or (b) 58% of the lowest trading price of our common stock during the 20 trading days prior to the date of the note. In the event we do not issue the holder any shares due in connection with a conversion within three business days, we are required to issue the holder additional shares equal to 25% of the conversion amount, and an additional 25% of such shares for each additional five business days beyond such fourth business day that such failure continues.

We agreed to pay $2,000 of JSJ’s legal fees and $10,000 of due diligence fees in connection with the sale of the JSJ Convertible Note and as such, the net amount received in connection with the sale of the JSJ Convertible Note, before our expenses, was $125,000.

Pursuant to the terms of the JSJ Convertible Note, we are not allowed to borrow any additional money or incur any liability for borrowed money, except borrowings in place as of the date of the note or indebtedness to trade creditors or financial institutions in the ordinary course of business, or sell, lease or dispose of a significant portion of our assets outside the usual course of business, without the written consent of JSJ.

The JSJ Convertible Note also includes anti-dilution rights in the event we sell or issue any securities with a price less than the then applicable conversion price, subject to certain exceptions.

We hope to repay the JSJ Convertible Note prior to any conversion.

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Typenex Co-Investment, LLC Convertible Note

On March 5, 2015, we sold a Secured Convertible Promissory Note (the “Typenex Convertible Note”) to Typenex Co-Investment, LLC (“Typenex”) in the amount of $350,000. The Typenex Convertible Note was issued pursuant to the terms of a Securities Purchase Agreement dated as of the same date. The Typenex Convertible Note bears interest at the rate of 10% per annum (22% upon the occurrence of an event of default) and is due and payable in full on January 5, 2016. The Typenex Convertible Note provides for customary events of default such as failing to timely make payments under the Typenex Convertible Note when due. Additionally, upon the occurrence of certain fundamental defaults, as described in the Typenex Convertible Note, we are required to repay Typenex liquidated damages in addition to the amount owed under the Typenex Convertible Note.

We have the right to prepay the Typenex Convertible Note, pursuant to the terms thereof, at any time, provided we pay a prepayment amount of 125% of the then outstanding balance. The principal amount of the Typenex Convertible Note and all accrued interest is convertible at the option of the holder thereof into our common stock at any time. The conversion price of the Typenex Convertible Note is initially $2.25 per share, provided that if our market capitalization falls below $20 million (provided further that our current market capitalization is below $20 million), the conversion price becomes the lower of $2.25 per share and the average of the five lowest closing bid prices of our common stock on the twenty trading days immediately prior to such conversion date (the “Market Price”) multiplied by 80% (provided such percentage is subject to automatic reduction upon the occurrence of certain events, including among other things described in the Convertible Secured Note, a reduction by 5% in the event the Market Price is less than $0.75).

The Typenex Convertible Note included a $45,000 original issuance discount and we agreed to pay $5,000 of Typenex’s legal fees in connection with the transaction. As a result, the net amount received in connection with the sale of the Typenex Convertible Note, before our expenses, was $300,000.

The Typenex Convertible Note also includes anti-dilution rights in the event we sell or issue any securities with a price less than the applicable conversion price, subject to certain exceptions. The Typenex Convertible Note also includes various restrictions on our ability to enter into subsequent variable rate security transactions following the date thereof.

Beginning on the date that is six months after March 5, 2015, and continuing each month thereafter until maturity, we are required to prepay the Convertible Secured Note in cash or shares of our common stock (provided that upon the occurrence of certain defaults described in the Typenex Convertible Note we are only able to pay this amount in cash), an amount equal to the greater of (i) $70,000 and (ii) the outstanding balance of the Convertible Secured Note divided by the number of such required installment payments prior to the maturity date. Additionally, on the twentieth trading day following the date each tranche of installment shares becomes free trading we are required to issue Typenex additional shares of common stock if the applicable conversion price calculated on the true-up date is less than the original conversion price.

We are subject to various fees and penalties under the Typenex Convertible Note for our failure to timely deliver shares due upon any conversion or installment payment.

At no time may the Typenex Convertible Note be converted into shares of our common stock if such conversion would result in Typenex and its affiliates owning an aggregate of in excess of 4.99% of the then outstanding shares of our common stock, provided such percentage increases to 9.99% if our market capitalization is less than $10 million, and provided further that Typenex may change such percentage from time to time upon not less than 61 days prior written notice to us.

As additional consideration for the loan evidenced by the Typenex Convertible Note, the Company granted Typenex a five year warrant to purchase 38,889 shares of our common stock at an exercise price of $2.25 per share (the “Warrant”) which number of shares at exercise price are subject to adjustment. The Warrant includes the same ownership limitation described above in connection with the Typenex Convertible Note. The Warrant includes cashless exercise rights.

The Warrant contains anti-dilution rights such that if we issue or sell or are deemed to issue or sell securities for less than the then applicable exercise price of the Warrant, subject to certain exceptions, the exercise price of the Warrant is reduced to such lower price and the number of shares of common stock issuable upon exercise of the Warrant increases, such that the aggregate exercise price payable upon exercise of the Warrant remains the same upon such anti-dilutive adjustment, up to a maximum of three times the current number of shares issuable upon exercise of the Warrant, subject to certain exceptions upon which there is no cap on the number of shares issuable upon exercise of the Warrant.

The amounts owed under the Typenex Convertible Note were secured by a Stock Pledge Agreement (the “Pledge Agreement”) whereby CW Navigation, Inc., a Texas corporation, a significant shareholder of the Company, which is beneficially owned by Christopher Watts, the nephew of Kent P. Watts, our Chief Executive Officer and Chairman (“CW Navigation”), pledged one million one hundred thousand (1,100,000) shares of our common stock held by CW Navigation as security for our obligations under the Typenex Convertible Note and related documents. Pursuant to the Stock Pledge Agreement, in the event the value (determined based on the average closing trade price for our common stock) of the pledged shares, for the immediately preceding three trading days as of any applicable date of determination, declines below $900,000 it constitutes a default of the Typenex Convertible Note and CW Navigation is required to pledge additional shares to bring the total value of such pledged shares (as calculated above) to $900,000. Typenex also entered into a subordination agreement in favor our senior lender, Shadow Tree Capital Management, LLC (“Shadow Tree”), to subordinate the repayment of the Typenex Convertible Note to amounts owed by us to Shadow Tree.

We hope to repay the Typenex Convertible Note prior to any conversion.

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CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION

The Company is including the following cautionary statement for any forward-looking statements made by, or on behalf of, the Company. This quarterly report on Form 10-Q contains “forward looking statements” (as that term is defined in Section 27A(i)(1) of the Securities Act of 1933), including statements concerning plans, objectives, goals, strategies, expectations, future events or performance and underlying assumptions and other statements which are other than statements of historical facts.  Such forward looking statements involve risks and uncertainties which could cause actual results or outcomes to differ materially from those expressed in the forward looking statements.  Some of the factors that could cause actual results to differ materially from those expressed in such forward looking statements are set forth in the section entitled “Risk Factors” and elsewhere throughout this Form 10-Q.  Our expectations, beliefs and projections are expressed in good faith and are believed by us to have a reasonable basis, but there can be no assurance that our expectations, beliefs or projections will result or be achieved or accomplished.  We have no obligation to update or revise forward looking statements to reflect the occurrence of future events or circumstances.

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

Overview

As used in this Quarterly Report: (i) the terms “we”, “us”, “our”, “Hydrocarb”, “HEC”, “Penasco”, “Galveston Bay”, “SPE”, “NEI” and the “Company” mean Hydrocarb Energy Corp and its wholly owned subsidiaries Penasco Petroleum Inc., Galveston Bay, LLC, SPE Navigation I, LLC, and Namibia Exploration, Inc. Hydrocarb Corporation (“HCN”), Hydrocarb Texas Corporation, Hydrocarb Energy DRC Corporation, Hydrocarb Namibia Energy (Pty) Limited and Hydrocarb Guinea SARL plus our 95% ownership interest of Otaiba Hydrocarb LLC, unless the context otherwise requires; (ii) “SEC” refers to the Securities and Exchange Commission; (iii) “Securities Act” refers to the Securities Act of 1933, as amended; (iv) “Exchange Act” refers to the Securities Exchange Act of 1934, as amended; and (v) all dollar amounts refer to United States dollars unless otherwise indicated.

The following discussion of our plan of operations, results of operations and financial condition as at and for the six months ended January 31, 2015 should be read in conjunction with our unaudited consolidated interim financial statements and related notes for the six months ended January 31, 2015, included in this Quarterly Report, as well as our Annual Report on Form 10-K for the year ended July 31, 2014.

Results of Operations

The following table sets out consolidated data for the periods indicated:

Three months ended January 31, 2015 compared to the three months ended January 31, 2014:

Statements of operations:

	Three Months Ended January 31,						Increase/			%
	2015			2014			(Decrease)			Change
Revenues	$	646,348		$	989,732			(343,384	)		-35	%
Operating expenses
Lease operating expense		913,290			811,127			102,163			13	%
Depreciation, depletion, and amortization		162,166			191,764			(29,598	)		-15	%
Accretion		258,782			244,509			14,273			6	%
Consulting fees - related party		-			-			-
General and administrative expense		980,480			946,325			34,155			4	%
Total operating expenses		2,314,718			2,193,725			120,993			6	%
Loss from operations		(1,668,370	)		(1,203,993	)		(464,377	)		39	%
Consulting and other income (expense)		2,737			(4,940	)		7,677			-155	%
Interest income (expense), net		(279,727	)		(36,854	)		(242,873	)		659	%
Foreign currency transaction gain (loss)		(6,401	)		(28,971	)		22,570			-78	%
Net loss before income taxes		(1,951,761	)		(1,274,758	)		(677,003	)		53	%
Income tax provision		-			-			-
Net loss		(1,951,761	)		(1,274,758	)		(677,003	)		53	%
Less: Net loss attributable to noncontrolling interests		18			(1,888	)		1,906			-101	%
Net loss attributable to Hydrocarb Corporation		(1,951,779	)		(1,272,870	)		(678,909	)		53	%
Deemed dividend on preferred stock		-			(3,019	)		3,019			-100	%
Net loss attributable to Hydrocarb Energy Corp after dividends	$	(1,951,779	)		(1,275,889	)		(675,890	)		53	%

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We recorded net loss of $1,951,779, or ($0.09)per basic and diluted common share, during the three months ended January 31, 2015, as compared to a net loss of $ 2,225,697, or ($0.05)per basic and diluted common share, during the three months ended Jaunary 31, 2014.

The changes in results were predominantly due to the factors below:

· While we had approximately a 38% increase in production for QE 2015 over QE 2014, revenue decreased during QE 2015 from QE 2014 as a primary result of an approximate 39.6% decrease in prices from QE 2014 over QE 2015.  Since the end of the quarter, starting with February 2015 production, the company announced a 400% increase in February 2015 production over February 2014 as the Company’s 2014 Production Enhancement Program was being completed.  As an important analytical observation, had sales prices remained at the same level they were at during QE 2014, the revenue would have been approximately $1,276,330 for QE 2015.  This would have been an approximate increase of 29% over QE 2014 even during a time when work was being accomplished and partial production was shut in.  This production increase is indicative of the increase in sustainable production starting to be realized through the end of the quarter from the 2014 Production Enhancement Program.

· Lease operating expenses increased in 2015 due to higher production levels period over period.

· Depreciation, depletion, and amortization decreased 15%  due to variation of depreciation and amortization calculations from one period to the next.

· General and administrative expenses increased 4% in QE 2015 over QE 2014 as a result of increased employee compensation packages.

· Consulting and other income for the three months ended January 31, 2015 primarily represents income earned for production handling.  Expenses incurred in the comparable prior period included write-offs of previously recognized consulting income.  No such write-offs existed during the current reporting period.

We continue to evaluate areas where we can reduce costs in lease operating expense and to increase production, which would increase revenues.

Six months ended January 31, 2015 compared to the six months ended January 31, 2014:

	Six Months Ended January 31,						Increase/			%
	2015			2014			(Decrease)			Change
Revenues	$	1,851,777		$	2,829,943			(978,166	)		-35	%
Operating expenses
Lease operating expense		2,210,845			1,928,459			282,386			15	%
Depreciation, depletion, and amortization		386,422			493,679			(107,257	)		-22	%
Accretion		560,990			488,485			72,505			15	%
Consulting fees - related party		-			6,754			(6,754	)		-100	%
General and administrative expense		1,923,760			2,738,324			(814,564	)		-30	%
Total operating expenses		5,082,017			5,655,701			(573,684	)		-10	%
Loss from operations		(3,230,240	)		(2,825,758	)		(404,482	)		14	%
Consulting and other income (expense)		6,779			(30,266	)		37,045			-122	%
Interest income (expense), net		(507,504	)		21,338			(528,842	)		-2478	%
Foreign currency transaction gain (loss)		(1,642	)		(30,626	)		28,984			-95	%
Net loss before income taxes		(3,732,607	)		(2,865,312	)		(867,295	)		30	%
Income tax provision		-			(4,599	)		4,599			-100	%
Net loss		(3,732,607	)		(2,869,911	)		(862,696	)		30	%
Less: Net loss attributable to noncontrolling interests		(1,305	)		(3,360	)		2,055			-61	%
Net loss attributable to Hydrocarb Corporation		(3,731,302	)		(2,866,551	)		(864,751	)		30	%
Deemed dividend on preferred stock		-			(34,254	)		34,254			-100	%
Net loss attributable to Hydrocarb Energy Corp after dividends		(3,731,302	)	$	(2,900,805	)		(830,797	)		29	%

We recorded net loss of $3,731,302, or ($0.18)per basic and diluted common share, during the six months ended January 31, 2015, as compared to a net loss of $ 2,866,551, or ($0.10)per basic and diluted common share, during the six months ended January 31, 2014.

The changes in results were predominantly due to the factors below:

· Revenues decreased due to reasons discussed above primarily regarding lower sales prices.  Production was still higher during the quarter than QE 2014 even though wells were required to shutdown during the period in order to perform required workovers and recompletions.  This was a positive result of the 2014 Production Enhancement Program.

· Lease operating expenses increased in 2015 due to higher production levels period over period.

· Depreciation, depletion, and amortization decreased 15%  due to variation of depreciation and amortization calculations from one period to the next.

· General and administrative expenses increased 4% in QE 2015 over QE 2014 as a result of increased employee compensation packages.

· Consulting and other income for the three months ended January 31, 2015 primarily represents income earned for production handling.  Expenses incurred in the comparable prior period included write-offs of previously recognized consulting income.  No such write-offs existed during the current reporting period.

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Liquidity and Capital Resources

The following table sets forth our cash and working capital as of January 31, 2015 and July 31, 2014, respectively:

	January 31, 2015			July 31, 2014
Cash and cash equivalents	$	266,646		$	144,258
Working capital (deficit)	$	(3,338,050	)	$	(3,566,332	)

At January 31, 2015, we had $266,646 of cash on hand and a working capital of $(3,338,050).

Net Cash Provided by Operating Activities

During the six months ended January 31, 2015, operating activities used $612,515 in comparison cash flows provided of $158,432 during the six months ended January 31, 2014. The main operating activities using cash for the six months ended January 31, 2015, were a debt issuance cost of $94,626 and net loss of $3,732,607, offset by $853,435 of accounts payable and accrued expenses and $388,475 of share based compensation.

Net Cash Used in Investing Activities

During the six months ended January 31, 2015, investing activities used cash of $2,430,284 compared to cash used of $1,120,883 during the six months ended January 31, 2014.  The main uses of cash for investing activities were purchases of oil and gas properties.

Net Cash Provided by Financing Activities

During the six months ended January 31, 2015, financing activities provided cash of $3,165,187in comparison to providing $1,091,805in cash during the six months ended January 31, 2014.  The main reasons for cash being provided by financing activities for the six months ended January 31, 2015, was proceeds from borrowing and the main reasons for cash being provided by financing activities for the six months ended January 31, 2014, was payments on borrowings from related parties.

Operation Plans and Focus

In Galveston Bay, Texas we plan to continue enhancing the production from our four productive fields. Our 2014 Production Enhancement Program has included primarily reworking, infrastructure improvements, and recompletions, as well as drilling, as to exploit the known reserves in at least 18 wells. Internal estimates show the projects are showing success, and as of February 2015 over production of February 2014, there has been an approximately 400% increase in production. Due to the fact that a large proportion of current operating costs in Galveston Bay are fixed it is expected that as production grows an increasing percentage of the revenue will contribute to positive cash flow. We plan to fund these projects as long as working capital and cash-flow permits and pending success of previous projects. If we are able to secure either bank or equity financing in the near future, this development plan can be accelerated.

In Namibia, Africa, we plan to interpret the newly acquired aerial gravity magnetic survey data and develop the acquisition plan for new 2D seismic data over the concession. This will include seeking a new partner that will, at least partially, carry us through the seismic acquisition program. 3D seismic will later be utilized for those identified structures which appear most prospective. Drilling of the first well is several years away. In the meanwhile, our goals are to increase the value and decrease the risk profile of our concession acreage in Namibia.

In Abu Dhabi, United Arab Emirates (“U.A.E”) our subsidiary Otaiba Hydrocarb LLC is now being shut down.  In September 2014 our CEO traveled to Abu Dhabi and met with the board of directors of Otaiba Hydrocarb LLC.  His goal was to proceed with oil company registration work that would allow the company to receive bids on oilfield services work with the hopes of developing profitable business as has been the plan since the subsidiary was established.  Instead of being able to proceed with the business plan, the partner in the UAE made it clear that they wanted more control over management of the subsidiary while still requiring us to fund ongoing expenses.  This requirement created an impasse between our partners and us.   Together with consideration for the severe drop in oil prices, the board of directors made the decision to cease operations in the UAE in favor of our focus for oilfield services to be developed domestically.  Thus, during the quarter the decision was made to close the office in the UAE and not to continue its operations thereby reducing cash expense obligations that we have had in the past but no longer have.  All expenses of operating there have been realized on an ongoing basis so the accounting effect of this shutdown is nil and immaterial.

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Our plan of operations over the next nine months is to increase cash flow upon one or more of the following occurring:

1. We have been working towards a major development loan to take out all current debt and provide staged in capital to be used to continue to enhance production by using 3D seismic data to delineate additional work-over and recompletion opportunities in the approximately 130 wells in Galveston Bay.  Management believes that our Galveston Bay producing assets scientifically support a much larger loan with upside potential to include drilling its proved undeveloped drilling targets as well as probable reserve drilling targets.  The January 2015 reserve report reflects potential to drill Proved Undeveloped wells that can potentially increase proved producing reserves and production.  We have structured a staged in minimum $40MM development loan that will be highly subject to scientific verification of drilling targets using 3D seismic.  While no loan has been approved yet, we are in discussions with financial banks and investment banks with substantial experience in the oil industry and management has this effort as a top priority based on our belief in the real upside of the Galveston Bay producing assets.

2. We may be able to bring on a joint venture partner to help us further develop our Galveston Bay leases whereby we farm down working interest in all our leases or specific drilling opportunities. We may be able raise capital by farming down a portion of our Owambo Basin concession in Namibia to an industry partner and our efforts are ongoing in this process as well.

3. We believe as a stand-alone possibility that a collateral replacement arrangement may be made with a major lender which could release our $6.7 million dollars of restricted cash from the State Bonding requirement.  Management is continuing to pursue relieving the cash from being encumbered by such a long term liability.

4. Raise capital through the issuance of additional equity.  We have recently raised approximately $.96 million dollars through convertible debenture sales.  Management has strategically initiated this source of cash with the goal to take these debentures out at a premium prior to them being converted into our common stock. Contingent on the success of obtaining our major financing as discussed in #1 above, we believe that our ability to raise equity at much higher stock prices could become a viable option for us.

5. We could potentially receive payments on the two receivables still on our books resulting from the December 2013 acquisition.

Our plan of operations over the next twelve months is subject to the continued success of our 2014 Production Enhancement Program now being realized.  Bringing our Redfish Reef production online is forecasted for us to be at better than cash flow positive going forward even at today’s lower oil prices. With normal recovery of oil prices as many are forecasting and expecting, the current production that we have could produce enough cash by itself to have more internally-derived funds available for capital expenditures in the future. As management, we will determine the best use of our capital given the circumstances at the time.

Our plan of operations over the next twelve months will always be subject to available capital which will be determined by the success of projects that are currently in progress or will begin soon. It is even possible that given a high degree success in recently initiated projects and upcoming projects we could actually exceed our planned operations and have more internally-derived funds available for capital expenditures for the next six months. As management, we will determine the best use of our capital given the circumstances at the time.

Various conditions outside of our control may detract from our ability to raise the capital needed to execute our plan of operations, including the price of oil as well as the overall market conditions in the international and domestic economies. Any of these factors could have a material adverse impact upon our ability to raise capital or obtain financing and, as a result, upon our short-term or long-term liquidity.

Recent Funding Transactions:

Subsequent to January 31, 2015, we raised approximately $1 million through the sale of various convertible promissory notes as described below.

LG Capital Funding, LLC Convertible Note

On February 17, 2015, we sold an 8% Convertible Redeemable Note to LG Capital Funding, LLC (“LG Capital” and the “LG Capital Convertible Note”) in the amount of $105,000 pursuant to a Securities Purchase Agreement. Amounts owed under the LG Capital Convertible Note accrue interest at the rate of 8% per annum (24% upon the occurrence of an event of default). The LG Capital Convertible Note is due and payable on February 17, 2016. The principal amount of the LG Capital Convertible Note and all accrued interest thereon is convertible at the option of the holder into our common stock at any time. The conversion price of the LG Capital Convertible Note is 65% of the average of the two lowest closing bid prices of our common stock for the 12 trading days prior to the date a notice of conversion is received by us from LG Capital. In the event we experience a “DTC chill” at any time, the conversion price percentage above decreases to 55%. At no time may the LG Capital Convertible Note be converted into shares of our common stock if such conversion would result in LG Capital and its affiliates owning an aggregate of in excess of 9.9% of the then outstanding shares of our common stock.

The LG Capital Convertible Note provides for customary events of default such as failing to timely make payments under the note when due. Additionally, in the event we fail to timely deliver shares due in connection with a conversion, we are required to pay the holder $250 per day beginning on the 4th day after the conversion notice was delivered to us, increasing to $500 per day on the 10th day after the conversion notice was delivered. In the event we have no “bid” price for our common stock at any time while the note is outstanding, the outstanding principal due under the terms of the note increases by 20%. In the event our common stock is delisted from an exchange (including the OTCQB), the outstanding principal amount of the note increases by 50%. If not paid at maturity, the outstanding principal amount of the note increases by 10%.

We may prepay in full the unpaid principal and interest on the LG Capital Convertible Note, upon notice, any time prior to the 180th day after the issuance date. Any prepayment is subject to payment of a prepayment amount ranging from 115% to 135% of the then outstanding balance on the LG Capital Convertible Note (inclusive of accrued and unpaid interest and any default amounts then owing), depending on when such prepayment is made. Additionally, upon the occurrence of certain fundamental events as described in the note, we are required to repay the note at the request of the holder in an amount equal to 150% of the then balance of the note.

We agreed to pay $5,000 of LG Capital’s legal fees in connection with the sale of the LG Capital Convertible Note and as such, the net amount received in connection with the sale of the LG Capital Convertible Note, before our expenses, was $100,000.

We hope to repay the LG Capital Convertible Note prior to any conversion.

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Adar Bays, LLC Convertible Note

On February 17, 2015, we sold an 8% Convertible Redeemable Note to Adar Bays, LLC (“Adar Bays” and the “Adar Bays Convertible Note”) in the amount of $105,000 pursuant to a Securities Purchase Agreement. Amounts owed under the Adar Bays Convertible Note accrue interest at the rate of 8% per annum (24% upon the occurrence of an event of default). The Adar Bays Convertible Note is due and payable on February 17, 2016. The principal amount of the Adar Bays Convertible Note and all accrued interest is convertible at the option of the holder thereof into the Company’s common stock at any time. The conversion price of the Adar Bays Convertible Note is 65% of the average of the two lowest closing bid prices of our common stock for the 12 trading days prior to the date a notice of conversion is received by us from Adar Bays. In the event we experience a “DTC chill” at any time, the conversion price percentage above decreases to 55%. At no time may the Adar Bays Convertible Note be converted into shares of our common stock if such conversion would result in Adar Bays and its affiliates owning an aggregate of in excess of 9.9% of the then outstanding shares of our common stock.

The Adar Bays Convertible Note provides for customary events of default such as failing to timely make payments under the note when due. Additionally, in the event we fail to timely deliver shares due in connection with a conversion, we are required to pay the holder $250 per day beginning on the 4th day after the conversion notice was delivered to us, increasing to $500 per day on the 10th day after the conversion notice was delivered. In the event we have no “bid” price for our common stock at any time the note is outstanding, the outstanding principal due under the terms of the note increases by 20%. In the event our common stock is delisted from an exchange (including the OTCQB), the outstanding principal amount of the note increases by 50%. If not paid at maturity, the outstanding principal amount of the note increases by 10%.

We may prepay in full the unpaid principal and interest on the Adar Bays Convertible Note, upon notice, any time prior to the 180th day after the issuance date. Any prepayment is subject to payment of a prepayment amount ranging from 115% to 135% of the then outstanding balance on the Adar Bays Convertible Note (inclusive of accrued and unpaid interest and any default amounts then owing), depending on when such prepayment is made, provided that upon the occurrence of certain fundamental events, we are required to repay the note at the request of the holder for 150% of the then balance of the note.

We agreed to pay $5,000 of Adar Bays’ legal fees in connection with the sale of the Adar Bays Convertible Note and as such, the net amount received in connection with the sale of the Adar Bays Convertible Note, before our expenses, was $100,000.

We hope to repay the Adar Bays’ Convertible Note prior to any conversion.

KBM Worldwide, Inc. Convertible Note

On February 19, 2015, we sold KBM Worldwide, Inc. (“KBM”) a Convertible Promissory Note in the principal amount of $350,000 (the “KBM Convertible Note”), pursuant to a Securities Purchase Agreement, dated and entered into on February 17, 2015. The KBM Convertible Note bears interest at the rate of 8% per annum (22% upon an event of default) and is due and payable on February 19, 2016. The KBM Convertible Note provides for customary events of default such as failing to timely make payments under the KBM Convertible Note when due. Additionally, upon the occurrence of certain fundamental defaults, as described in the KBM Convertible Note, we are required to repay KBM liquidated damages in addition to the amount owed under the KBM Convertible Note.

The principal amount of the KBM Convertible Note and all accrued interest is convertible at the option of the holder thereof into our common stock at any time following the 180th day after the KBM Convertible Note was issued. The conversion price of the KBM Convertible Note is equal to 50% multiplied by the average of the lowest five closing bid prices of our common stock during the fifteen trading days immediately prior to the date of any conversion.

The KBM Convertible Note included a $26,000 original issue discount and we paid $4,000 of KBM’s attorney’s fees in connection with the sale of the KBM Convertible Note and as such, the net amount, before our expenses, that we received upon sale of the KBM Convertible Note was $320,000.

We are required to keep reserved from our authorized but unissued shares of common stock eight times the number of shares of common stock issuable upon conversion of the KBM Convertible Note at all times and if we fail to keep such amount reserved it is considered an event of default under the KBM Convertible Note.

At no time may the KBM Convertible Note be converted into shares of our common stock if such conversion would result in KBM and its affiliates owning an aggregate of in excess of 9.99% of the then outstanding shares of our common stock.

We may prepay in full the unpaid principal and interest on the KBM Convertible Note, upon notice, any time prior to the 180th day after the issuance date. Any prepayment is subject to payment of a prepayment amount ranging from 110% to 135% of the then outstanding balance on the KBM Convertible Note (inclusive of accrued and unpaid interest and any default amounts then owing), depending on when such prepayment is made.

We also deposited 750,000 shares of our common stock into escrow with KBM’s counsel to secure the repayment of the KBM Convertible Note, which shares are to be held in escrow and released to KBM only upon the occurrence of an event of default under the KBM Convertible Note.

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We hope to repay the KBM Convertible Note prior to any conversion.

JSJ Investments Inc. Convertible Note

On February 23, 2015 we sold a 10% Convertible Note to JSJ Investments Inc. (“JSJ” and the “JSJ Convertible Note”) in the amount of $137,000. Amounts owed under the JSJ Convertible Note accrue interest at the rate of 10% per annum. The JSJ Convertible Note is payable by us on demand by JSJ at any time after August 23, 2015. We have the right to prepay the JSJ Convertible Note (a) for an amount equal to 135% of the then balance of such note until the 90th day following the date of the note, (b) for an amount equal to 140% of the balance of such note from the 91st day following the date of the note until the maturity date of the note, and (c) for an amount equal to 150% of the balance of such note subsequent to the maturity date (provided the holder consents to such payment after maturity).

The JSJ Convertible Note and all accrued interest is convertible at the option of the holder thereof into the Company’s common stock at any time. The conversion price of the JSJ Convertible Note is the lower of (a) 58% of the lowest trading price of our common stock during the prior 20 trading days prior to any conversion; or (b) 58% of the lowest trading price of our common stock during the 20 trading days prior to the date of the note. In the event we do not issue the holder any shares due in connection with a conversion within three business days, we are required to issue the holder additional shares equal to 25% of the conversion amount, and an additional 25% of such shares for each additional five business days beyond such fourth business day that such failure continues.

We agreed to pay $2,000 of JSJ’s legal fees and $10,000 of due diligence fees in connection with the sale of the JSJ Convertible Note and as such, the net amount received in connection with the sale of the JSJ Convertible Note, before our expenses, was $125,000.

Pursuant to the terms of the JSJ Convertible Note, we are not allowed to borrow any additional money or incur any liability for borrowed money, except borrowings in place as of the date of the note or indebtedness to trade creditors or financial institutions in the ordinary course of business, or sell, lease or dispose of a significant portion of our assets outside the usual course of business, without the written consent of JSJ.

The JSJ Convertible Note also includes anti-dilution rights in the event we sell or issue any securities with a price less than the then applicable conversion price, subject to certain exceptions.

We hope to repay the JSJ Convertible Note prior to any conversion.

Typenex Co-Investment, LLC Convertible Note

On March 5, 2015, we sold a Secured Convertible Promissory Note (the “Typenex Convertible Note”) to Typenex Co-Investment, LLC (“Typenex”) in the amount of $350,000. The Typenex Convertible Note was issued pursuant to the terms of a Securities Purchase Agreement dated as of the same date. The Typenex Convertible Note bears interest at the rate of 10% per annum (22% upon the occurrence of an event of default) and is due and payable in full on January 5, 2016. The Typenex Convertible Note provides for customary events of default such as failing to timely make payments under the Typenex Convertible Note when due. Additionally, upon the occurrence of certain fundamental defaults, as described in the Typenex Convertible Note, we are required to repay Typenex liquidated damages in addition to the amount owed under the Typenex Convertible Note.

We have the right to prepay the Typenex Convertible Note, pursuant to the terms thereof, at any time, provided we pay a prepayment amount of 125% of the then outstanding balance. The principal amount of the Typenex Convertible Note and all accrued interest is convertible at the option of the holder thereof into our common stock at any time. The conversion price of the Typenex Convertible Note is initially $2.25 per share, provided that if our market capitalization falls below $20 million (provided further that our current market capitalization is below $20 million), the conversion price becomes the lower of $2.25 per share and the average of the five lowest closing bid prices of our common stock on the twenty trading days immediately prior to such conversion date (the “Market Price”) multiplied by 80% (provided such percentage is subject to automatic reduction upon the occurrence of certain events, including among other things described in the Convertible Secured Note, a reduction by 5% in the event the Market Price is less than $0.75).

The Typenex Convertible Note included a $45,000 original issuance discount and we agreed to pay $5,000 of Typenex’s legal fees in connection with the transaction. As a result, the net amount received in connection with the sale of the Typenex Convertible Note, before our expenses, was $300,000.

The Typenex Convertible Note also includes anti-dilution rights in the event we sell or issue any securities with a price less than the applicable conversion price, subject to certain exceptions. The Typenex Convertible Note also includes various restrictions on our ability to enter into subsequent variable rate security transactions following the date thereof.

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Beginning on the date that is six months after March 5, 2015, and continuing each month thereafter until maturity, we are required to prepay the Convertible Secured Note in cash or shares of our common stock (provided that upon the occurrence of certain defaults described in the Typenex Convertible Note we are only able to pay this amount in cash), an amount equal to the greater of (i) $70,000 and (ii) the outstanding balance of the Convertible Secured Note divided by the number of such required installment payments prior to the maturity date. Additionally, on the twentieth trading day following the date each tranche of installment shares becomes free trading we are required to issue Typenex additional shares of common stock if the applicable conversion price calculated on the true-up date is less than the original conversion price.

We are subject to various fees and penalties under the Typenex Convertible Note for our failure to timely deliver shares due upon any conversion or installment payment.

At no time may the Typenex Convertible Note be converted into shares of our common stock if such conversion would result in Typenex and its affiliates owning an aggregate of in excess of 4.99% of the then outstanding shares of our common stock, provided such percentage increases to 9.99% if our market capitalization is less than $10 million, and provided further that Typenex may change such percentage from time to time upon not less than 61 days prior written notice to us.

As additional consideration for the loan evidenced by the Typenex Convertible Note, the Company granted Typenex a five year warrant to purchase 38,889 shares of our common stock at an exercise price of $2.25 per share (the “Warrant”) which number of shares at exercise price are subject to adjustment. The Warrant includes the same ownership limitation described above in connection with the Typenex Convertible Note. The Warrant includes cashless exercise rights.

The Warrant contains anti-dilution rights such that if we issue or sell or are deemed to issue or sell securities for less than the then applicable exercise price of the Warrant, subject to certain exceptions, the exercise price of the Warrant is reduced to such lower price and the number of shares of common stock issuable upon exercise of the Warrant increases, such that the aggregate exercise price payable upon exercise of the Warrant remains the same upon such anti-dilutive adjustment, up to a maximum of three times the current number of shares issuable upon exercise of the Warrant, subject to certain exceptions upon which there is no cap on the number of shares issuable upon exercise of the Warrant.

The amounts owed under the Typenex Convertible Note were secured by a Stock Pledge Agreement (the “Pledge Agreement”) whereby CW Navigation, Inc., a Texas corporation, a significant shareholder of the Company, which is beneficially owned by Christopher Watts, the nephew of Kent P. Watts, our Chief Executive Officer and Chairman (“CW Navigation”), pledged one million one hundred thousand (1,100,000) shares of our common stock held by CW Navigation as security for our obligations under the Typenex Convertible Note and related documents. Pursuant to the Stock Pledge Agreement, in the event the value (determined based on the average closing trade price for our common stock) of the pledged shares, for the immediately preceding three trading days as of any applicable date of determination, declines below $900,000 it constitutes a default of the Typenex Convertible Note and CW Navigation is required to pledge additional shares to bring the total value of such pledged shares (as calculated above) to $900,000. Typenex also entered into a subordination agreement in favor our senior lender, Shadow Tree Capital Management, LLC (“Shadow Tree”), to subordinate the repayment of the Typenex Convertible Note to amounts owed by us to Shadow Tree.

We hope to repay the Typenex Convertible Note prior to any conversion.

Critical Accounting Policies

The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission (“SEC”). The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.

We regularly evaluate the accounting policies and estimates that we use to prepare our consolidated financial statements. In general, our estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.

We believe that our critical accounting policies and estimates include the accounting for oil and gas properties, long-lived assets reclamation costs, and accounting for stock-based compensation.

Oil and Natural Gas Properties

We account for our oil and natural gas producing activities using the full cost method of accounting as prescribed by the United States Securities and Exchange Commission (SEC). Under this method, subject to a limitation based on estimated value, all costs incurred in the acquisition, exploration, and development of proved oil and natural gas properties, including internal costs directly associated with acquisition, exploration, and development activities, the costs of abandoned properties, dry holes, geophysical costs, and annual lease rentals are capitalized within a cost center. Costs of production and general and administrative corporate costs unrelated to acquisition, exploration, and development activities are expensed as incurred.

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Costs associated with unevaluated properties are capitalized as oil and natural gas properties but are excluded from the amortization base during the evaluation period. When we determine whether the property has proved recoverable reserves or not, or if there is an impairment, the costs are transferred into the amortization base and thereby become subject to amortization.

We assess all items classified as unevaluated property on at least an annual basis for inclusion in the amortization base. We assess properties on an individual basis or as a group if properties are individually insignificant. The assessment includes consideration of the following factors, among others: intent to drill; remaining lease term; geological and geophysical evaluations; drilling results and activity; the assignment of proved reserves; and the economic viability of development if proved reserves are assigned. During any period in which these factors indicate that there would be impairment, or if proved reserves are assigned to a property, the cumulative costs incurred to date for such property are transferred to the amortizable base and are then subject to amortization.

Capitalized costs included in the amortization base are depleted using the units of production method based on proved reserves. Depletion is calculated using the capitalized costs included in the amortization base, including estimated asset retirement costs, plus the estimated future expenditures to be incurred in developing proved reserves, net of estimated salvage values.

The net book value of all capitalized oil and natural gas properties within a cost center, less related deferred income taxes, is subject to a full cost ceiling limitation which is calculated quarterly. Under the ceiling limitation, costs may not exceed an aggregate of the present value of future net revenues attributable to prove oil and natural gas reserves discounted at 10 percent using current prices, plus the lower of cost or market value of unproved properties included in the amortization base, plus the cost of unevaluated properties, less any associated tax effects. Any excess of the net book value, less related deferred tax benefits, over the ceiling is written off as expense. Impairment expense recorded in one period may not be reversed in a subsequent period even though higher oil and gas prices may have increased the ceiling applicable to the subsequent period.

Sales or other dispositions of oil and natural gas properties are accounted for as adjustments to capitalized costs, with no gain or loss recorded unless the ratio of cost to proved reserves would significantly change.

Asset Retirement Obligations

We record the fair value of an asset retirement cost, and corresponding liability as part of the cost of the related long-lived asset and the cost is subsequently allocated to expense using a systematic and rational method. We record an asset retirement obligation to reflect our legal obligations related to future plugging and abandonment of our oil and natural gas wells and gas gathering systems. We estimate the expected cash flow associated with the obligation and discount the amount using a credit-adjusted, risk-free interest rate. At least annually, we reassess the obligation to determine whether a change in the estimated obligation is necessary. We evaluate whether there are indicators that suggest the estimated cash flows underlying the obligation have materially changed. Should those indicators suggest the estimated obligation may have materially changed on an interim basis (quarterly), we will accordingly update our assessment. Additional retirement obligations increase the liability associated with new oil and natural gas wells and gas gathering systems as these obligations are incurred.

Stock-Based Compensation

ASC 718, Compensation-Stock Compensation, requires recognition in the financial statements of the cost of employee services received in exchange for an award of equity instruments over the period the employee is required to perform the services in exchange for the award (presumptively the vesting period). We measure the cost of employee services received in exchange for an award based on the grant-date fair value of the award.

We account for non-employee share-based awards based upon ASC 505-50, Equity-Based Payments to Non-Employees. ASC 505-50 requires the costs of goods and services received in exchange for an award of equity instruments to be recognized using the fair value of the goods and services or the fair value of the equity award, whichever is more reliably measurable. The fair value of the equity award is determined on the measurement date, which is the earlier of the date that a performance commitment is reached or the date that performance is complete. Generally, our awards do not entail performance commitments. When an award vests over time such that performance occurs over multiple reporting periods, we estimate the fair value of the award as of the end of each reporting period and recognize an appropriate portion of the cost based on the fair value on that date. When the award vests, we adjust the cost previously recognized so that the cost ultimately recognized is equivalent to the fair value on the date the performance is complete.

We recognize the cost associated with share-based awards that have a graded vesting schedule on a straight-line basis over the requisite service period of the entire award.

Off-Balance Sheet Arrangements

We have not entered into any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes of financial condition, revenues, expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Pursuant to Item 305(e) of Regulation S-K (§ 229.305(e)), the Company is not required to provide the information required by this Item as it is a “smaller reporting company,” as defined by Rule 229.10(f)(1).

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Principal Executive Officer has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on such evaluation, our Principal Executive Officer has concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were not effective, due to the deficiencies in our internal control over financial reporting as described in our Annual Report on Form 10-K for our fiscal year ended July 31, 2014, which deficiencies have not yet been remedied.

Internal Control over Financial Reporting

During the six months ended January 31, 2015, we continued to implement and document entity-level controls, formalize risk assessment processes and adopt additional policies and procedures to improve our internal control over financial reporting.

Part II Other Information

Item 1. Legal Proceedings

As of anuary 31, 2015, we were a party to the following legal proceedings:

Cause No. 2011-37552; Strategic American Oil Corporation (“Strategic”) v. ERG Resources, LLC (“ERG”), et al.; In the 55th District Court, Harris County, Texas. The Company is a plaintiff in this suit. In this case, Company brought claims for injunctive relief, breach of contract and fraudulent inducement against the defendant regarding the purchase of Galveston Bay Energy, LLC from ERG. The Company intends to prosecute its claims and defenses vigorously. As of the date of filing of this report, the Company is no longer seeking injunctive relief. Additionally, the below listed case has been consolidated into this case since the subject matter of the below case is subsumed within the subject matter of this case. From this point forward, there will be only this one piece of litigation. The trial was held in October 2013. The judge ruled in favor of ERG and that Hydrocarb is liable to pay the charges in the below-mentioned case and a portion of ERG’s attorney fees. The Company is in the process of post-trial motions and no judgment has been entered as of this date. As of July 31, 2013, the Company had accrued $232,974 for this cause.

Cause No. 2011-54428; ERG Resources, LLC v. Galveston Bay Energy, LLC, in the 125th Judicial District Court, Harris County, Texas. This case deals with the operating agreements for the processing of product by the entities owned by ERG. It is an action seeking payments of charges and expenses by ERG that are refuted by GBE. The Company intends to prosecute its claims and defenses vigorously. As indicated above, this case has been consolidated into the case listed above. As such, the claims in this case will be decided in cause No. 2011- 37552, which was tried in October 2013.

Judgments on both of these matters have been rendered whereby HEC paid ERG $35,000 in cash, relieving GBE of any liability to ERG and whereby HEC transferred $65,000 in HEC stock to ERG. Both cases have been fully settled and no further obligations have been or will be accrued.

A state regulator has requested that we renew certain pipeline easements located in Galveston Bay. The easements in question were originally obtained by another company whose successor filed for bankruptcy protection. Our subsidiary, Galveston Bay Energy, LLC purchased certain assets from the bankruptcy estate; however, based on the bankruptcy court’s order and the purchase and sale agreement, we believe the pipelines and easements in question were not included in assets purchased. The easements in question were scheduled to renew at various dates between 2012 and 2021. Based on current posted rates, the cost of renewal of all of the easements would be approximately $400,000. We have engaged legal counsel to dispute the regulator’s claim. If we are obligated to renew these easements, they would be part of the asset retirement obligation that was acquired with our subsidiary, Galveston Bay Energy, LLC. As such, the potential liability for these easements is factored into the computation of the asset retirement obligation (See Note 7 – Asset Retirement Obligation) that is estimated using the guidance in ASC 410-20, Asset Retirement and Environmental Obligations. On August 29, 2014, we filed a lawsuit in the state district court in Chambers County, Texas asking the Court to reform an assignment and assumption agreement in the property records of Chambers County. The General Land Office has asserted claims against us under various miscellaneous easements, claiming we are obligated to either renew the easement or remove any pipeline laid in the easement. We have disclaimed any obligations under these easements.

Cause No. 2015-10005; Hydrocarb Energy Corporation and Kent P. Watts, Individually v. Vincent Pasquale Scaturro (“Scaturro”), in the 152nd Judicial District Court, Harris County, Texas. This case deals with a lock up leak out agreement executed by Scaturro limiting the amount of shares which Mr. Scaturro could transfer or sell. The court granted a temporary restraining order on February 20, 2015 and there is a temporary injunction hearing scheduled for April 10, 2015.

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Item 1A. Risk Factors

For information regarding our risk factors see the risk factors disclosed in Item 1A of our Annual Report on Form 10-K filed on November 13, 2014. There have been no material changes from the risk factors previously disclosed in such Annual Report as of the date of this report, other than the risk factors provided below:

It has come to our attention thatour December 2013 designation of Series A Preferred Stock, waslikelynot effective pursuant to the terms of our Articles of Incorporation, as amended and applicable Nevada law, and as such,isinvalid.

In December 2013, the Board of Directors approved, and the Company filed a Certificate of Designation with the Secretary of State of Nevada to create a Series A 7% Convertible Voting Preferred Stock (“Series A Preferred”).  The designation authorized up to 10,000 shares of Series A Preferred. Pursuant to the designation, the Series A Preferred has a stated value of $400 per share, pays annual dividends at 7%, is convertible into the Company’s common stock, at the holder’s option, at a conversion rate of $6.00 per share, and is neither redeemable nor callable. The designation provides that the Series A Preferred shareholders may vote their common stock equivalent voting power (i.e., the number of shares of common stock which the Series A Preferred stock shares convert into). A total of 8,188 shares of Series A Preferred Stock were issuable to Kent Watts, our Chief Executive Officer, in connection with the acquisition of HCN on December 9, 2013.

In connection with certain recent due diligence undertaken by the Company, it has come to the attention of management, that although the Company previously believed, on advice of prior counsel, that the Board of Directors of the Company had the authority under the Company’s Articles of Incorporation, to unilaterally authorize preferred stock, that under applicable Nevada law, unless such preferred stock is specifically authorized in a Nevada corporation’s articles no preferred stock can be designated or issued.  As such, our Board of Directors did not have authority under the Articles of Incorporation, as amended, and applicable Nevada law to designate the Series A Preferred or to file such designation with the Secretary of State of Nevada. Consequently, we now believe that the Series A Preferred is not validly issued or outstanding and the filing of the Series A Preferred designation was invalid and had no legal effect.

Notwithstanding the above, the documentation relating to the designation of the Series A Preferred was filed with and accepted by the Secretary of State of Nevada and the Company has previously been treating the Series A Preferred as validly issued and outstanding. For example, during the year ended July 31, 2014, the holder of the Series A Preferred Stock purportedly earned dividends of $150,548 on such securities.  As of July 31, 2014, these dividends have not been accrued as liabilities since they were not declared by the Company.

Although the Company took action in good faith, based on the advice of prior counsel, in connection with the designation of the Series A Preferred, following the date of this filing, the Company plans to promptly take steps to hold a shareholders meeting to seek shareholder approval to amend the Articles of Incorporation to properly authorize preferred stock and provide the Board of Directors the ability in their discretion to designate such preferred stock, and may further request shareholder approval and ratification of the specific terms of the terms of the prior Series A Preferred. Assuming shareholder approval of the authorization of preferred stock, and the Board of Director’s ability to designate such preferred stock, and/or the actual terms of the Series A Preferred, the Company will re-file the Series A Preferred designation with the Secretary of State of Nevada. The Company plans to provide the Series A Preferred holder (Mr. Watts), upon amendment of the Articles of Incorporation to authorize preferred stock and the designation of the Series A Preferred, the equivalent rights as he would have held and be due (including accrued and unpaid dividends) had the Series A Preferred been validly designated and issued to Mr. Watts in December 2013. Due to the fact that the prior filing of the Series A Preferred Stock and actions taken in connection therewith were on advice of prior counsel and made in good faith and our current Chief Executive Officer, Mr. Watts, was to be the sole recipient of the Series A Preferred, we believe that our liability to Mr. Watts for our failure to properly designate and issue such Series A Preferred stock is minimal; however, we may in the future, enter into amendments or addendums to the December 2013 closing documents with Mr. Watts to clarify the current status of the Series A Preferred as well as certain other matters.

Notwithstanding our plans to amend the Articles of Incorporation to authorize preferred stock, and to designate the Series A Preferred, in the future, upon shareholder approval, due to the fact that we now believe thatthe Series A Preferred is currently invalid, we could be forced to amend and restate our prior SEC filings and prior financial statements to clarify the fact that such Series A Preferred stock was never validly outstanding or issued. Furthermore, the fact that certain of our corporate actions were not affected properly, the perception in the marketplace that such corporate actions were not affected properly, or uncertainties associated therewith, could raise questions about our corporate governance and controls and procedures and result in the trading value of our common stock, if any, being lower than companies without similar issues.

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We have various outstanding convertible notes which are convertible into shares of our common stock at a discount to market.

As described above under “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “Recent Funding Transactions”, we sold various convertible promissory notes in February and March 2015. Specifically, we sold an 8% Convertible Redeemable Note to LG Capital Funding, LLC in the amount of $105,000; an 8% Convertible Redeemable Note to Adar Bays, LLC in the amount of $105,000; a Convertible Promissory Note in the principal amount of $350,000 to KBM Worldwide, Inc.; a 10% Convertible Note to JSJ Investments Inc. in the amount of $137,000; and a Secured Convertible Promissory Note to Typenex Co-Investment, LLC in the amount of $350,000 (collectively, the “Convertible Notes”). The conversion prices of the Convertible Notes vary from between 50% to 80% of the market value of our common stock, subject in many cases to antidilution and other rights. As a result, any conversion of the Convertible Notes and sale of shares of common stock issuable in connection with the conversion thereof will likely cause the value of our common stock, if any, to decline in value, as described in greater detail under the Risk Factors below. Notwithstanding the above, we plan to repay the Convertible Notes in full before any conversions take place.

The issuance and sale of common stock upon conversion of the Convertible Notes may depress the market price of our common stock.

If sequential conversions of the Convertible Notes and sales of such converted shares take place, the price of our common stock may decline, and as a result, the holders of the Convertible Notes will be entitled to receive an increasing number of shares in connection with conversions, which shares could then be sold in the market, triggering further price declines and conversions for even larger numbers of shares, to the detriment of our investors. The shares of common stock which the Convertible Notes are convertible into may be sold without restriction pursuant to Rule 144. As a result, the sale of these shares may adversely affect the market price, if any, of our common stock.

In addition, the common stock issuable upon conversion of the Convertible Notes may represent overhang that may also adversely affect the market price of our common stock. Overhang occurs when there is a greater supply of a company’s stock in the market than there is demand for that stock. When this happens the price of the company’s stock will decrease, and any additional shares which shareholders attempt to sell in the market will only further decrease the share price. The Convertible Notes will be convertible into shares of our common stock at a discount to market as described above, and such discount to market provides the holders with the ability to sell their common stock at or below market and still make a profit. In the event of such overhang, the note holders will have an incentive to sell their common stock as quickly as possible. If the share volume of our common stock cannot absorb the discounted shares, then the value of our common stock will likely decrease. Notwithstanding the above, we plan to repay the Convertible Notes in full before any conversions take place.

The issuance of common stock upon conversion of the Convertible Notes will cause immediate and substantial dilution.

The issuance of common stock upon conversion of the Convertible Notes will result in immediate and substantial dilution to the interests of other stockholders since the holders of the Convertible Notes may ultimately receive and sell the full amount of shares issuable in with the conversion of such Convertible Notes. Although certain of the Convertible Notes may not be converted if such conversion would cause the holders thereof to own more than 4.99% or 9.99% of our outstanding common stock, this restriction does not prevent the holders of the Convertible Notes subject to such restrictions from converting some of their holdings, selling those shares, and then converting the rest of its holdings, while still staying below the 4.99% limit. In this way, the holders of the Convertible Notes could sell more than any applicable ownership limit while never actually holding more shares than the applicable limits allow. If the holders of the Convertible Notes choose to do this, it will cause substantial dilution to the then holders of our common stock. Notwithstanding the above, we plan to repay the Convertible Notes in full before any conversions take place.

The continuously adjustable conversion price feature of the Convertible Notes could require us to issue a substantially greater number of shares, which may adversely affect the market price of our common stock and cause dilution to our existing stockholders.

Our existing stockholders will experience substantial dilution of their investment upon any conversion of the Convertible Notes. The Convertible Notes are convertible into shares of common stock at a conversion price equal to a discount to the market value of our common stock as described above. As a result, the number of shares issuable could prove to be significantly greater in the event of a decrease in the trading price of our common stock, which decrease would cause substantial dilution to our existing stockholders. As sequential conversions and sales take place, the price of our common stock may decline, and if so, the holders of the Convertible Notes would be entitled to receive an increasing number of shares, which could then be sold, triggering further price declines and conversions for even larger numbers of shares, which would cause additional dilution to our existing stockholders and would likely cause the value of our common stock to decline.

The continuously adjustable conversion price feature of our Convertible Notes may encourage the holders of the Convertible Notes to sell short our common stock, which could have a depressive effect on the price of our common stock.

The Convertible Notes are convertible into shares of our common stock at a discount to the market value of our common stock. The significant downward pressure on the price of our common stock as the holders of the Convertible Notes convert and sell material amounts of our common stock could encourage investors to short sell our common stock. This could place further downward pressure on the price of our common stock. In addition, not only the sale of shares issued upon conversion of the Convertible Notes, but also themere perception that these sales could occur, may adversely affect the market price of our common stock. Notwithstanding the above, we plan to repay the Convertible Notes in full before any conversions take place.

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

During the six months ended January 31, 2015, we issued an aggregate of 100,000 shares of common stock to consultants for services rendered. We valued these transactions at approximately $266,722.

As described above under “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “Recent Funding Transactions”, we sold various Convertible Notes in February and March 2015 and also granted Typenex the Warrant described above.

We claim an exemption from registration for the issuances and grant described above pursuant to Section 4(2) and/or Rule 506 of Regulation D of the Securities Act of 1933, as amended (the “Securities Act”), since the foregoing issuances and grant did not involve a public offering, the recipients were (a) “accredited investors”; and/or (b) had access to similar documentation and information as would be required in a Registration Statement under the Securities Act, the recipients acquired the securities for investment only and not with a view towards, or for resale in connection with, the public sale or distribution thereof. The securities were offered without any general solicitation by us or our representatives. No underwriters or agents were involved in the foregoing issuances and grant and we paid no underwriting discounts or commissions. The securities sold are subject to transfer restrictions, and the certificates evidencing the securities contain an appropriate legend stating that such securities have not been registered under the Securities Act and may not be offered or sold absent registration or pursuant to an exemption therefrom. The securities were not registered under the Securities Act and such securities may not be offered or sold in the United States absent registration or an exemption from registration under the Securities Act and any applicable state securities laws.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

In September 2014 our Chief Executive Officer, Kent P. Watts, traveled to Abu Dhabi and met with the Board of Directors of Otaiba Hydrocarb LLC, of which we own 95%. His goal was to proceed with oil company registration work that would allow Otaiba to receive bids on oilfield services work with the hopes of developing profitable business, which has been the plan since the subsidiary was established. Instead of being able to proceed with the business plan, the Company’s partner in Otaiba made it clear that they wanted more control over management of the subsidiary while still requiring the Company to fund ongoing expenses. As such, an impasse was created between the Company and its partners in Otaiba. Together with consideration for the severe drop in oil prices, the Board of Directors made the decision to cease operations in Otaiba in favor of our focus in oilfield services to be developed domestically. Thus, during the quarter ended January 31, 2015, the decision was made to close the office in the U.A.E. and not to continue its operations thereby reducing cash expense obligations that we have had in the past but no longer have. The accounting effect of this shutdown is minimal.

31

Item 6. Exhibits

See the Exhibit Index following the signature page to this Quarterly Report on Form 10-Q for a list of exhibits filed or furnished with this report, which Exhibit Index is incorporated herein by reference.

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.

HYDROCARB ENERGY CORP.

/s/ Kent P. Watts

Kent P. Watts

Chief Executive Officer, Executive Chairman  and Director

(Principal Executive Officer)

Date: March 23, 2015

32

EXHIBIT INDEX

Exhibit No.	Description of Exhibit
10.1	Securities Purchase Agreement between Hydrocarb Energy Corp. and LG Capital Funding, LLC (February 17, 2015) (Filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on March 11, 2015 (File No. 000-53313) and incorporated herein by reference)
10.2	8% Convertible Redeemable Note ($105,000 – LG Capital Funding, LLC)(February 17, 2015) (Filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the Commission on March 11, 2015 (File No. 000-53313) and incorporated herein by reference)
10.3	Securities Purchase Agreement between Hydrocarb Energy Corp. and Adar Bays, LLC (February 17, 2015) (Filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the Commission on March 11, 2015 (File No. 000-53313) and incorporated herein by reference)
10.4	8% Convertible Redeemable Note ($105,000 – Adar Bays, LLC)(February 17, 2015) (Filed as Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the Commission on March 11, 2015 (File No. 000-53313) and incorporated herein by reference)
10.5	Securities Purchase Agreement between Hydrocarb Energy Corp. and KBM Worldwide, Inc. (February 17, 2015) (Filed as Exhibit 10.5 to the Company’s Current Report on Form 8-K filed with the Commission on March 11, 2015 (File No. 000-53313) and incorporated herein by reference)
10.5	Convertible Promissory Note ($350,000 – KBM Worldwide, Inc.)(February 17, 2015) (Filed as Exhibit 10.6 to the Company’s Current Report on Form 8-K filed with the Commission on March 11, 2015 (File No. 000-53313) and incorporated herein by reference)
10.6	10% Convertible Promissory Note ($137,000 – JSJ Investments Inc.)(February 23, 2015) (Filed as Exhibit 10.7 to the Company’s Current Report on Form 8-K filed with the Commission on March 11, 2015 (File No. 000-53313) and incorporated herein by reference)
10.7	Securities Purchase Agreement between Hydrocarb Energy Corp. and Typenex Co-Investment, LLC (March 5, 2015) (Filed as Exhibit 10.8 to the Company’s Current Report on Form 8-K filed with the Commission on March 11, 2015 (File No. 000-53313) and incorporated herein by reference)
10.8	Secured Convertible Promissory Note ($350,000 – Typenex Co-Investment, LLC.)(March 5, 2015) (Filed as Exhibit 10.9 to the Company’s Current Report on Form 8-K filed with the Commission on March 11, 2015 (File No. 000-53313) and incorporated herein by reference)
10.9	Secured Convertible Promissory Note ($350,000 – Typenex Co-Investment, LLC.)(March 5, 2015) (Filed as Exhibit 10.10 to the Company’s Current Report on Form 8-K filed with the Commission on March 11, 2015 (File No. 000-53313) and incorporated herein by reference)
10.10	Warrant to Purchase Shares of Common Stock (March 5, 2015 - Typenex Co-Investment, LLC) (Filed as Exhibit 10.11 to the Company’s Current Report on Form 8-K filed with the Commission on March 11, 2015 (File No. 000-53313) and incorporated herein by reference)
10.11	Stock Pledge Agreement between Typenex Co-Investment, LLC and CW Navigation, Inc. (March 5, 2015) (Filed as Exhibit 10.11 to the Company’s Current Report on Form 8-K filed with the Commission on March 11, 2015 (File No. 000-53313) and incorporated herein by reference)
10.12	Executive Agreement with Kent P. Watts (March 9, 2015)(Filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on March 17, 2015 (File No. 000-53313) and incorporated herein by reference)
23.1*	Consent of Ralph E. Davis Associates, Inc.
31.1*	Certification of Principal Executive required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification of Principal Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**	Certification of Principal Executive and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and Section 1350 of 18 U.S.C. 63.
99.1*	Report of Ralph E. Davis Associates, Inc. Oil, Liquid, Natural Gas Reserve dated January 31, 2015
101.INS#	XBRL INSTANCE DOCUMENT
101.SCH#	XBRL TAXONOMY EXTENSION SCHEMA
101.CAL#	XBRL TAXONOMY EXTENSION CALCULATION LINKBASE
101.DEF#	XBRL TAXONOMY EXTENSION DEFINITION LINKBASE
101.LAB#	XBRL TAXONOMY EXTENSION LABEL LINKBASE
101.PRE#	XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE

* Filed herewith.

** Furnished herewith.

# XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

33

EX-23.1

Exhibit 23.1

CONSENT OF RALPH E DAVIS ASSOCIATES, INC.

As independent oil and gas consultants, Ralph E. Davis Associates, Inc. hereby consents to the references to our firm in the form and context in which they appear in the Quarterly Report on Form 10-Q of Hydrocarb Energy Corp. (the “Company”) for the six months ended January 31, 2015 (the “Quarterly Report”).

We also herby further consent to the inclusion and use in the Quarterly Report of our report dated January 31, 2015, entitled “Hydrocarb Energy Corporation Estimated Future Reserves and Income as of January 31, 2015 (the “Report”) and to the inclusion of our Report as Exhibit 99.1 to the Quarterly Report.

/s/ Ralph E Davis Associates, Inc.

RALPH E DAVIS ASSOCIATES, INC.

March 23, 2015

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Kent P. Watts, certify that:

1. I have reviewed this Quarterly report on Form 10-Q of Hydrocarb Energy Corp.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the consolidated financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in the report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have significant role in the registrant's internal control over financial reporting.

Date:	March 23, 2015
By:	/s/ Kent P. Watts
	Kent P. Watts
	Chief Executive Officer and a director
	(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Christine P. Spencer, certify that:

1. I have reviewed this Quarterly report on Form 10-Q of Hydrocarb Energy Corp.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the consolidated financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in the report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have significant role in the registrant's internal control over financial reporting.

Date:	March 23, 2015
By:	/s/ Christine P. Spencer
	Christine P. Spencer
	Chief Accounting Officer
	(Principal Accounting Officer)

EX-32.1

Exhibit 32.1

CERTIFICATIONS PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2001

(18 U.S.C SECTION 1350)

In connection with the Quarterly Report of Hydrocarb Energy Corp, on Form 10-Q for the quarter ended January 31, 2015, as filed with the Securities and Exchange Commission (the "Report"), Kent P. Watts, Chief Executive Officer and Christine P. Spencer, Chief Accounting Officer of Hydrocarb Energy Corp., do hereby certify, pursuant to 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350), that to his or her knowledge:

(1)         The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)         The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 23, 2015

By: /s/ Kent P. Watts

Kent P. Watts

Chief Executive Officer and a director

(Principal Executive Officer)

By: /s/ Christine P. Spencer

Christine P. Spencer

Chief Accounting Officer

(Principal Accounting Officer)

A signed original of this written statement required by Section 906 or other document authenticating, acknowledging, or otherwise adopting the signatures that appear in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-99.1

Exhibit 99.1

January 31, 2015

Hydrocarb Energy Corporation

800 Gessner Rd., Suite 375

Houston, TX 77024

Attention:      Kent Watts

Chief Executive Officer

Re: Oil, Condensate, and Natural Gas Reserves

SEC Non-Escalated Analysis

Hydrocarb Energy Corporation

As of January 31, 2015

Gentlemen:

At the request of Hydrocarb Energy Corporation (“Hydrocarb”), the firm of Ralph E. Davis Associates Inc. (“Davis”) has prepared an evaluation of the oil, natural gas, and natural gas liquid reserves on leaseholds in which Hydrocarbhas certain interests.  The purpose of this report is to present a summary of the proved developed producing, proved developed behind pipe, proved shut-in, and proved undeveloped reserves that in our opinion meet the criteria for proved reserve volumes in keeping with the directives of the Securities and Exchange Commission as detailed later in this report.

Davis has evaluated 100% of Hydrocarb’sproved developed producing, proved developed behind pipe, proved shut-in, and proved undeveloped properties, all of which are located in either Chambers or Galveston Counties of Texas in the United States. We have prepared these estimates of the reserves, future production and income attributable to the subject interests with an effective date of January 31, 2015, having completed the evaluation of said estimate of reserves based upon the information presented within this report, on January 27, 2015.

The reserves associated with this review have been classified in accordance with the definitions of the Securities and Exchange Commission as found in Part 210—Form and Content of and Requirements for Financial Statements, Securities Act of 1933, Securities Exchange Act of 1934, Public Utility Holding Company Act of 1935, Investment Company Act of 1940, Investment Advisers Act of 1940, and Energy Policy and Conservation Act of 1975, under Rules of General Application § 210.4-10 Financial accounting and reporting for oil and gas producing activities pursuant to the Federal securities laws and the Energy Policy and Conservation Act of 1975. A summation of these definitions is included as a portion of this letter.

We have also estimated the future net revenue and discounted present value associated with these reserves as of January 31, 2015, utilizing a scenario of non-escalated product prices as well as non-escalated costs of operations, i.e., prices and costs were not escalated above current values as detailed later in this report. The present value is presented for your information and should not be construed as an estimate of the fair market value.

Hydrocarb Energy Corporation	January 31, 2015
SEC Non-Escalated Analysis	Page 2 of 11
Oil, Condensate, and Natural Gas Reserves

The results of our study related to our estimate of the Total Proved Reserves attributable to Hydrocarb and remaining to be produced as ofJanuary 31, 2015are as follows:

Estimated Proved Reserves

Net to Hydrocarb Energy Corporation

SEC Non-Escalated Analysis

As of January 31, 2015

	Proved
	Producing		Shut In		Non-Producing		Behind Pipe		Undeveloped		Field Expense			Total
Net Reserves
Oil/Condensate-MBbls		431.0		31.4		46.9		115.5		607.3		-			1,232.0
Gas-MMCF		2,061.8		519.8		775.7		2,089.0		6,216.1		-			11,662.3
Income Data (M$)
Future Gross Revenue	$	48,446.4	$	5,194.1	$	7,559.1	$	19,591.4	$	81,714.8	$	-		$	162,505.8
Ad Valorem Tax	$	1,211.2	$	129.8	$	189.0	$	489.8	$	2,042.9	$	-		$	4,062.6
Severance Tax	$	2,493.8	$	306.4	$	443.0	$	1,164.0	$	4,522.8	$	-		$	8,930.0
Operating Costs	$	590.9	$	120.4	$	388.1	$	636.7	$	3,074.6	$	-		$	4,810.8
Capital Costs	$	250.0	$	1,425.0	$	-	$	984.4	$	14,650.0	$	4,731.1		$	22,040.5
Future Net Income (FNI)	$	43,900.6	$	3,212.4	$	6,539.0	$	16,316.5	$	57,424.4	$	(40,987.5	)	$	86,405.4
FNI @ 10%	$	32,178.7	$	2,144.3	$	5,156.3	$	8,302.5	$	30,347.9	$	(22,184.6	)	$	55,945.1

*(Expenses are applied on a field wide basis.  Therefore, the net undiscounted and discounted income (10%) has been adjusted.  The values have been adjusted by application of each category’s share of the expense as a percent of its share of the unadjusted income.)  Note:  There may be differences in the addition as a result of computer program rounding of numbers.

Liquid volumes are expressed in thousands of barrels (MBbls) of stock tank oil.  Gas volumes are expressed in millions of standard cubic feet (MMSCF) at the official temperature and pressure bases of the areas wherein the gas reserves are located.

A summary presentation by reserve category at the scheduled price scenario is included behind the economic summary analysis tab.

Discussion

The scope of this study was to review basic information compiled by and prepare estimates of the proved reserves attributable to the interests of Hydrocarb.  Reserve estimates were prepared by Davis using acceptable evaluation principles for each source and were based in large part on the basic information supplied by Hydrocarb.

The quantities presented herein are estimated reserves of oil and natural gas that geologic and engineering data demonstrate can be recovered from known reservoirs under current economic conditions with reasonable certainty.  Proved undeveloped locations are scheduled to be drilled such that the investment cost will be fully recovered prior to recovery of estimated reserve volumes.

The evaluated properties are operated by a Hydrocarb subsidiary operating company.  All proved developed producing properties were reviewed for this evaluation and all requested data was made available by Hydrocarb.  Data provided includes seismic, well logs, sub-surface maps, analogous well data, timing of future development, drilling and investments.

Texas Registered Engineering Firm F-1529

Hydrocarb Energy Corporation	January 31, 2015
SEC Non-Escalated Analysis	Page 3 of 11
Oil, Condensate, and Natural Gas Reserves

Certain properties have been drilled, completed, and previously produced.  Many of these contain additional reserves in intervals not yet completed within an existing wellbore and have been classified as proved behind pipe.  All of these properties are considered to have recoverable reserves and are scheduled to be placed on production at a future time.

Certain properties which have been drilled are currently shut-in.  They are considered to have recoverable reserves and are scheduled to be placed on production at a future time.  These properties will require remedial action before they can be restored to production.

Reserves classified as undeveloped are scheduled for future drilling beginning in 2015.  The undrilled locations have been reviewed on an individual well location basis.  The estimates of these recoverable reserves are based on volumetric estimates.

 This evaluation has been prepared in accordance with the “Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information” as proclaimed by the Society of Petroleum Engineers”, the SPE Standards.

Data Source

Basic well and field data used in the preparation of this report were furnished by Hydrocarb or were obtained from commercial sources or from Davis’ own database of information. Records as they pertain to factual matters such as acreage controlled the number and depths of wells, reservoir pressure and/or production history, the existence of contractual obligations to others, and similar matters were accepted as presented.

Additionally, the analyses of these properties utilized not only the basic data on the subject wells but also data on analogous properties as provided.  Well logs, ownership interest, revenues received from the sale of products and operating costs were furnished by Hydrocarb. No physical inspection of the properties was made nor any well tests conducted.

Operating cost data were provided by Hydrocarb and were utilized to estimate the direct cost of operation for each property or producing unit.  Certain historical costs of operation are charged against a producing unit or group of wells in addition to any individual well costs that may be scheduled for an area.  Development costs for new wells to be drilled, wells to be worked over to return intervals to production, anticipated costs to provide for significant field operation, and facility changes were provided by Hydrocarb and are reported to be based upon recent field activity.

Ownership

Ownership interests in the subject properties have been furnished by Hydrocarb and accepted by Davis as accurate without independent verification.

Texas Registered Engineering Firm F-1529

Hydrocarb Energy Corporation	January 31, 2015
SEC Non-Escalated Analysis	Page 4 of 11
Oil, Condensate, and Natural Gas Reserves

Reserve Estimates

The estimate of reserves included in this report is based primarily upon production history or analogy with wells in the area producing from the same or similar formations.  In addition to individual well production history, geological and well test information, when available, were utilized in the evaluation.  Individual well production histories were analyzed and forecast until a calculated economic limit.

Reserves for the behind pipe categories were estimated using volumetric methods which consolidated well log, sidewall core, and subsurface mapping. Reserves for Fishers Reef, N. Point Bolivar, Red Fish Reed, and Trinity Bay Fields were prepared on a field wide basis.  They are estimated to the limit of profitable operations for each field.

The accuracy of reserve estimates is dependent upon the quality of available data and upon the independent geological and engineering interpretation of that data.  Reserve volumes presented in this report are based upon the available data and are calculated using all methods and procedures as we considered necessary under the circumstances to prepare this report and are believed to be reasonable; however, future reservoir performance may justify revision of these estimates.  The various methods and procedures used in the evaluation of the subject properties are considered appropriate for an audit of the subject properties.

It should be noted that all reserve estimates involve an assessment of uncertainty relating to the likelihood that the actual remaining quantities recovered will be greater or less than the estimated quantities. The uncertainty depends primarily on the amount of reliable geological and engineering data available at the time of the estimate along with the interpretation of these data. The reserves have been determined using methods and procedures widely accepted within the industry and are believed to be appropriate for the purposes of this report. In our opinion, we used all methods and procedures necessary under the circumstances to prepare this report.

Regulations in the Oil and Gas industry are constantly changing to meet new safety and environmental concerns, in addition to the possibility of some market regulations which have occasionally occurred historically. State, Local or Federal Regulations, such as upon hydraulic fracturing, or drill/production site security and safety, environmental regulations of spills noxious emissions, greenhouse gases, and drill site location, wildlife protections and extensive permitting processes, sometimes with multiple agencies or governments, in the future may all adversely affect the ability of the Registrant to recover the estimated reserves, as well as potentially rendering the reserves uneconomic, in certain, as yet undetermined, circumstances. To the best of the engineers belief, none of the reserves described in this report are negatively impacted as of the date of this report, by any such current regulations.

Producing Rates

For the purpose of this report, estimated reserves are scheduled for recovery primarily on the basis of actual producing rates or appropriate well test information. They were prepared giving consideration to engineering and geological data such as reservoir pressure, anticipated producing mechanisms, the number and types of completions, as well as past performance of analogous reservoirs.

Texas Registered Engineering Firm F-1529

Hydrocarb Energy Corporation	January 31, 2015
SEC Non-Escalated Analysis	Page 5 of 11
Oil, Condensate, and Natural Gas Reserves

These and other future rates may be subject to regulation by various agencies, changes in market demand or other factors; consequently, reserves recovered and the actual rates of recovery may vary from the estimates included herein.  Scheduled dates of future well completions may vary from that provided by Hydrocarb due to changes in market demand or the availability of materials and/or capital; however, the timing of the wells and their estimated rates of production are reasonable and consistent with established performance to date.

Pricing Provisions

Prices received for products sold, adjustments due to the BTU content of the gas, shrinkage for transportation, measuring or the removal of liquids, the liquid yield from gas processed, etc., were provided by Hydrocarb and were accepted as presented.

The unit prices used throughout this report for crude oil, condensate, and natural gas are based upon the appropriate prices in effect the first trading of each month from February 2014 through January 2015 and averaged for the year.

Crude Oil, Condensate and/or Natural Gas Liquids – The unit price used throughout this report for crude oil and condensate is based upon the average of prices for the twelve month period as indicated above.

An average crude oil price of $91.18 per barrel represents the effective average crude oil price utilized in the evaluation. This scheduled price for 2015 was held flat throughout the remaining producing life of the properties.  Prices for the liquid reserves scheduled for initial production at some future date were estimated using this same price.  Oil prices were adjusted for price differentials.  The average price realized for liquid reserves, crude oil and condensate, over the producing life of the properties, was $91.18 per barrel, and represents the combined effect due to the adjustments for location and quality differentials such as transportation, quality and gravity.

Natural Gas – The unit price used throughout this report for natural gas is based upon the average of prices for the twelve month period as indicated above.   An average gas price of $4.34 per MMBTU represents the effective average natural gas price utilized in the evaluation.   The scheduled price for 2015 was held flat throughout the remaining producing life of the properties.  Prices for natural gas reserves scheduled for initial production at some future date were estimated using this same price.  Gas prices were adjusted for BTU content and price differentials.  The average price realized for natural gas reserves over the producing life of the properties, was $4.30 per MLMBTU, and represents the combined effect due to the adjustments for location and quality differentials such as transportation and the BTU (heating value) of the gas

Future Net Income

Future net income is based upon gross income from future production, less direct operating expenses and applicable provincial taxes.  Estimated future capital for development was also deducted from gross income at the time it will be expended.  No allowance was made for depletion, depreciation, income taxes, or administrative expense.

Direct lease operating expense includes direct cost of operations of each lease or an estimated value for future operations based upon analogous properties.  Lease operating expenses and/or capital costs for drilling and/or major workover expense were held flat throughout the producing life of the properties.  Abandonment costs were deducted at the end of the economic life of the fields.

Texas Registered Engineering Firm F-1529

Hydrocarb Energy Corporation	January 31, 2015
SEC Non-Escalated Analysis	Page 6 of 11
Oil, Condensate, and Natural Gas Reserves

Future net income has been discounted for present worth at values ranging from 0 to 100 percent using continuous discounting.  In this report, the future net income is discounted at a primary rate of ten (10.0) percent.

General

Hydrocarb Energy Corporation has provided access to all of its accounts, records, geological and engineering data, reports, and other information as required for this audit. The ownership interests, product classifications relating to prices, and other factual data were accepted as furnished without verification.

No consideration was given in this report to potential environmental liabilities which may exist, nor were any costs included for potential liability to restore and clean up damages, if any, caused by past operating practices.

Neither Ralph E. Davis Associates, Inc. nor any of its employees have any interest in Hydrocarb or the properties reported herein.  The employment and compensation to make this study are not contingent on our estimate of reserves. The technical persons responsible for preparing the estimates presented herein meet the requirements regarding qualifications, independence, objectivity, and confidentiality set forth in the SEC standards.

This report has been prepared for public disclosure by Hydrocarb in filings made with the SEC in accordance with the disclosure requirements set forth in the SEC regulations.

The data and work papers used in the preparation of this report are available for examination by authorized parties in our offices.  Please feel free to contact us if we can be of further service.

We appreciate the opportunity to be of service to you in this matter and will be glad to address any questions or inquiries you may have.

Very truly yours,

RALPH E. DAVIS ASSOCIATES, INC.

\S\ Allen C. Barron

Allen C. Barron, P. E.

President

Texas Registered Engineering Firm F-1529

Securities and Exchange Commission

Definitions of Reserves

The following information is taken from the United States Securities and Exchange Commission:

PART 210—FORM AND CONTENT OF AND REQUIREMENTS FOR FINANCIAL STATEMENTS, SECURITIES ACT OF 1933, SECURITIES EXCHANGE ACT OF 1934, PUBLIC UTILITY HOLDING COMPANY ACT OF 1935, INVESTMENT COMPANY ACT OF 1940, INVESTMENT ADVISERS ACT OF 1940, AND ENERGY POLICY AND CONSERVATION ACT OF 1975

Rules of General Application

§ 210.4-10   Financial accounting and reporting for oil and gas producing activities pursuant to the Federal securities laws and the Energy Policy and Conservation Act of 1975.

Reserves

Reserves are estimated remaining quantities of oil and gas and related substances anticipated to be economically producible, as of a given date, by application of development projects to known accumulations. In addition, there must exist, or there must be a reasonable expectation that there will exist, the legal right to produce or a revenue interest in the production, installed means of delivering oil and gas or related substances to market, and all permits and financing required to implement the project.

Reserves should not be assigned to adjacent reservoirs isolated by major, potentially sealing, faults until those reservoirs are penetrated and evaluated as economically producible. Reserves should not be assigned to areas that are clearly separated from a known accumulation by a non-productive reservoir (i.e., absence of reservoir, structurally low reservoir, or negative test results). Such areas may contain prospective resources (i.e., potentially recoverable resources from undiscovered accumulations).

Proved Oil and Gas Reserves

Proved oil and gas reserves are those quantities of oil and gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible—from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations—prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation. The project to extract the hydrocarbons must have commenced or the operator must be reasonably certain that it will commence the project within a reasonable time.

(i) The area of the reservoir considered as proved includes:

(A) The area identified by drilling and limited by fluid contacts, if any, and

(B) Adjacent undrilled portions of the reservoir that can, with reasonable certainty, be judged to be continuous with it and to contain economically producible oil or gas on the basis of available geoscience and engineering data.

(ii) In the absence of data on fluid contacts, proved quantities in a reservoir are limited by the lowest known hydrocarbons (LKH) as seen in a well penetration unless geoscience, engineering, or performance data and reliable technology establishes a lower contact with reasonable certainty.

(iii) Where direct observation from well penetrations has defined a highest known oil (HKO) elevation and the potential exists for an associated gas cap, proved oil reserves may be assigned in the structurally higher portions of the reservoir only if geoscience, engineering, or performance data and reliable technology establish the higher contact with reasonable certainty.

(iv) Reserves which can be produced economically through application of improved recovery techniques (including, but not limited to, fluid injection) are included in the proved classification when:

(A) Successful testing by a pilot project in an area of the reservoir with properties no more favorable than in the reservoir as a whole, the operation of an installed program in the reservoir or an analogous reservoir, or other evidence using reliable technology establishes the reasonable certainty of the engineering analysis on which the project or program was based; and

(B) The project has been approved for development by all necessary parties and entities, including governmental entities.

Securities and Exchange Commission	Page 2
§ 210.4-10   Definitions (of Reserves)
Modified, Effective 2009 for Filings of 12/31/2009 and Thereafter

(v) Existing economic conditions include prices and costs at which economic producibility from a reservoir is to be determined. The price shall be the average price during the 12-month period prior to the ending date of the period covered by the report, determined as an unweighted arithmetic average of the first-day-of-the-month price for each month within such period, unless prices are defined by contractual arrangements, excluding escalations based upon future conditions.

Reasonable certainty. If deterministic methods are used, reasonable certainty means a high degree of confidence that the quantities will be recovered. If probabilistic methods are used, there should be at least a 90% probability that the quantities actually recovered will equal or exceed the estimate. A high degree of confidence exists if the quantity is much more likely to be achieved than not, and, as changes due to increased availability of geoscience (geological, geophysical, and geochemical), engineering, and economic data are made to estimated ultimate recovery (EUR) with time, reasonably certain EUR is much more likely to increase or remain constant than to decrease.

Reliable technology. Reliable technology is a grouping of one or more technologies (including computational methods) that has been field tested and has been demonstrated to provide reasonably certain results with consistency and repeatability in the formation being evaluated or in an analogous formation.

Probable Reserves

Probable reserves are those additional reserves that are less certain to be recovered than proved reserves but which, together with proved reserves, are as likely as not to be recovered.

(i) When deterministic methods are used, it is as likely as not that actual remaining quantities recovered will exceed the sum of estimated proved plus probable reserves. When probabilistic methods are used, there should be at least a 50% probability that the actual quantities recovered will equal or exceed the proved plus probable reserves estimates.

(ii) Probable reserves may be assigned to areas of a reservoir adjacent to proved reserves where data control or interpretations of available data are less certain, even if the interpreted reservoir continuity of structure or productivity does not meet the reasonable certainty criterion. Probable reserves may be assigned to areas that are structurally higher than the proved area if these areas are in communication with the proved reservoir.

(iii) Probable reserves estimates also include potential incremental quantities associated with a greater percentage recovery of the hydrocarbons in place than assumed for proved reserves.

Possible Reserves

Possible reserves are those additional reserves that are less certain to be recovered than probable reserves.

(i) When deterministic methods are used, the total quantities ultimately recovered from a project have a low probability of exceeding proved plus probable plus possible reserves. When probabilistic methods are used, there should be at least a 10% probability that the total quantities ultimately recovered will equal or exceed the proved plus probable plus possible reserves estimates.

(ii) Possible reserves may be assigned to areas of a reservoir adjacent to probable reserves where data control and interpretations of available data are progressively less certain. Frequently, this will be in areas where geoscience and engineering data are unable to define clearly the area and vertical limits of commercial production from the reservoir by a defined project.

(iii) Possible reserves also include incremental quantities associated with a greater percentage recovery of the hydrocarbons in place than the recovery quantities assumed for probable reserves.

(iv) The proved plus probable and proved plus probable plus possible reserves estimates must be based on reasonable alternative technical and commercial interpretations within the reservoir or subject project that are clearly documented, including comparisons to results in successful similar projects.

(v) Possible reserves may be assigned where geoscience and engineering data identify directly adjacent portions of a reservoir within the same accumulation that may be separated from proved areas by faults with displacement less than formation thickness or other geological discontinuities and that have not been penetrated by a wellbore, and the registrant believes that such adjacent portions are in communication with the known (proved) reservoir. Possible reserves may be assigned to areas that are structurally higher or lower than the proved area if these areas are in communication with the proved reservoir.

Texas Registered Engineering Firm F-1529

Securities and Exchange Commission	Page 3
§ 210.4-10   Definitions (of Reserves)
Modified, Effective 2009 for Filings of 12/31/2009 and Thereafter

(vi) Pursuant to paragraph (a)(22)(iii) of this section, where direct observation has defined a highest known oil (HKO) elevation and the potential exists for an associated gas cap, proved oil reserves should be assigned in the structurally higher portions of the reservoir above the HKO only if the higher contact can be established with reasonable certainty through reliable technology. Portions of the reservoir that do not meet this reasonable certainty criterion may be assigned as probable and possible oil or gas based on reservoir fluid properties and pressure gradient interpretations.

Developed Oil and Gas Reserves

Developed oil and gas reserves are reserves of any category that can be expected to be recovered:

(i) Through existing wells with existing equipment and operating methods or in which the cost of the required equipment is relatively minor compared to the cost of a new well; and

(ii) Through installed extraction equipment and infrastructure operational at the time of the reserves estimate if the extraction is by means not involving a well.

Undeveloped Oil and Gas Reserves

Undeveloped oil and gas reserves are reserves of any category that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion.

(i) Reserves on undrilled acreage shall be limited to those directly offsetting development spacing areas that are reasonably certain of production when drilled, unless evidence using reliable technology exists that establishes reasonable certainty of economic producibility at greater distances.

(ii) Undrilled locations can be classified as having undeveloped reserves only if a development plan has been adopted indicating that they are scheduled to be drilled within five years, unless the specific circumstances, justify a longer time.

(iii) Under no circumstances shall estimates for undeveloped reserves be attributable to any acreage for which an application of fluid injection or other improved recovery technique is contemplated, unless such techniques have been proved effective by actual projects in the same reservoir or an analogous reservoir, as defined in paragraph (a)(2) of this section, or by other evidence using reliable technology establishing reasonable certainty.

Additional Definitions:

Deterministic Estimate

The method of estimating reserves or resources is called deterministic when a single value for each parameter (from the geoscience, engineering, or economic data) in the reserves calculation is used in the reserves estimation procedure.

Probabilistic Estimate

The method of estimation of reserves or resources is called probabilistic when the full range of values that could reasonably occur for each unknown parameter (from the geoscience and engineering data) is used to generate a full range of possible outcomes and their associated probabilities of occurrence.

Reasonable Certainty

If deterministic methods are used, reasonable certainty means a high degree of confidence that the quantities will be recovered. If probabilistic methods are used, there should be at least a 90% probability that the quantities actually recovered will equal or exceed the estimate. A high degree of confidence exists if the quantity is much more likely to be achieved than not, and, as changes due to increased availability of geoscience (geological, geophysical, and geochemical), engineering, and economic data are made to estimated ultimate recovery (EUR) with time, reasonably certain EUR is much more likely to increase or remain constant than to decrease.

Texas Registered Engineering Firm F-1529

Certificate of Qualification

I, Allen C. Barron, of 1717 St. James Place, Suite 460, Houston, Texas 77056 hereby certify:

1. I am an employee of Ralph E. Davis Associates, Inc., that has prepared an evaluation and certification of the oil, natural gas and natural gas liquid reserves on specific leaseholds in which Hydrocarb Energy Corporation has certain interests.  The effective date of this evaluation is January 31, 2015.

2. I am Licensed Professional Engineer by the State of Texas, P.E. License number 48284.

3. I attended the University of Houston in Houston, Texas and graduated with a Bachelor of Science Degree in Chemical Engineering with a Petroleum Engineering option in 1968.  I have in excess of forty-six years of experience in the petroleum industry of which over thirty-six years of experience are in the conduct of evaluation and engineering studies relating to both domestic U.S. oil and gas fields and international energy assets.

4. I have prepared reserve evaluation studies and reserve audits for public and private companies for the purpose of reserve certification filings in foreign countries, domestic regulatory filings, financial disclosures, and corporate strategic planning.  I personally supervised and participated in the evaluation of the Hydrocarb Energy Corporation properties that are the subject of this report.

5. I do not have, nor do I expect to receive, any direct or indirect interest in the securities of Hydrocarb Energy Corporation or any affiliated organizations.

6. A personal field inspection of the properties was not made, however, such an inspection was not considered necessary in view of the information available from public information, records, and the files of the operator of the properties.

Signed:  January 31, 2015

\S\ Allen C. Barron

Allen C. Barron, P.E.

President

Ralph E. Davis Associates, Inc.

Date :      02/03/2015    8:48:33AM Total

ECONOMICSUMMARYPROJECTION

Project Name :      HYDROCARB ENERGY 01/31/2015	As Of Date :	01/31/2015
Partner :                 All Cases	Discount Rate (%) :	10.00
Case Type :            GRAND TOTAL CASE	All Cases

SEC REPORT

Cum Oil (Mbbl) :	4,109.48
Cum Gas (MMcf) :	42,197.54

Year	Gross Oil	Gross Gas	Net Oil	Net Gas	Oil Price	Gas Price	Oil Revenue	Gas Revenue	Misc. Revenue
	(Mbbl)	(MMcf)	(Mbbl)	(MMcf)	($/bbl)	($/Mcf)	(M$)	(M$)	(M$)
2015	124.51	1,288.67	93.51	822.32	91.18	4.34	8,526.71	3,569.45	0.00
2016	148.53	3,313.17	113.37	1,962.77	91.18	4.35	10,336.88	8,539.51	0.00
2017	246.16	1,960.80	194.24	1,306.12	91.18	4.30	17,711.59	5,615.89	0.00
2018	229.34	2,289.17	181.75	1,560.05	91.18	4.29	16,572.00	6,688.47	0.00
2019	183.27	1,682.52	145.17	1,132.70	91.18	4.31	13,236.56	4,878.84	0.00
2020	146.82	1,190.42	116.33	795.71	91.18	4.31	10,606.82	3,429.35	0.00
2021	117.98	844.46	93.52	559.69	91.18	4.31	8,526.97	2,413.75	0.00
2022	94.82	608.58	75.18	397.84	91.18	4.32	6,855.26	1,716.99	0.00
2023	53.88	404.77	42.31	282.68	91.18	4.32	3,857.47	1,220.59	0.00
2024	43.18	291.25	33.91	203.18	91.18	4.32	3,091.79	878.21	0.00
2025	36.71	253.48	29.52	180.00	91.18	4.30	2,691.90	774.19	0.00
2026	28.34	491.98	22.89	353.07	91.18	4.26	2,087.00	1,504.40	0.00
2027	32.02	732.07	25.79	527.79	91.18	4.25	2,351.83	2,242.71	0.00
2028	33.52	1,034.13	26.82	746.01	91.18	4.24	2,445.85	3,166.16	0.00
2029	30.86	745.16	24.89	539.93	91.18	4.24	2,269.83	2,290.06	0.00
Rem	15.89	403.02	12.82	292.45	91.18	4.24	1,169.33	1,239.39	0.00
Total	1,565.85	17,533.66	1,232.02	11,662.31	91.18	4.30	112,337.78	50,167.97	0.00
Ult	5,675.32	59,731.19

Year	Well Count	Net Tax Production	Net Tax AdValorem	Net Investment	Net Lease Costs	Net Well Costs	Other Costs	Net Profits		Annual Cash Flow		Cum Disc. Cash Flow
		(M$)	(M$)	(M$)	(M$)	(M$)	(M$)	(M$)		(M$)		(M$)
2015	37.00	659.84	302.37	450.00	2,877.01	0.00	319.65	0.00		7,487.28		7,140.31
2016	41.00	1,115.96	471.91	7,114.88	2,983.28	0.00	743.69	0.00		6,446.67		12,523.50
2017	39.00	1,235.93	583.19	6,050.00	2,879.95	0.00	558.28	0.00		12,020.15		21,922.64
2018	40.00	1,263.95	581.51	3,484.36	2,879.95	0.00	690.44	0.00		14,360.27		32,056.11
2019	40.00	974.79	452.88	0.00	2,879.95	0.00	476.41	0.00		13,331.36		40,667.36
2020	39.00	745.11	350.90	0.00	2,879.95	0.00	331.82	0.00		9,728.38		46,355.71
2021	38.00	573.27	273.52	0.00	2,879.95	0.00	231.11	0.00		6,982.88		50,051.57
2022	36.00	444.12	214.31	0.00	2,879.95	0.00	162.50	0.00		4,871.38		52,387.19
2023	30.00	268.99	126.95	1,442.65	1,869.08	0.00	114.47	0.00		1,255.92		52,918.68
2024	26.00	208.09	99.25	0.00	1,869.08	0.00	81.06	0.00		1,712.52		53,591.96
2025	25.00	181.89	86.65	100.00	1,869.08	0.00	63.47	0.00		1,165.00		54,002.62
2026	20.00	208.83	89.79	250.00	1,869.08	0.00	133.97	0.00		1,039.74		54,332.70
2027	19.00	276.39	114.86	500.00	1,869.08	0.00	228.37	0.00		1,605.83		54,789.84
2028	16.00	349.97	140.30	100.00	1,869.08	0.00	333.74	0.00		2,818.91		55,531.52
2029	14.00	276.17	114.00	890.34	1,270.43	0.00	218.88	0.00		1,790.08		55,962.41
Rem.		146.74	60.22	1,658.25	631.46	0.00	122.98	0.00	-210.93		-17.35
Total		8,930.04	4,062.61	22,040.48	36,256.37	0.00	4,810.83	0.00	86,405.42		55,945.06

		Present Worth Profile (M$)
		PW	5.00%   :	68,749.03
Disc. Initial Invest. (M$) :	2,714.32	PW	10.00% :	55,945.06
ROInvestment (disc/undisc) :	21.61  / 24.20	PW	15.00% :	46,382.20
Years to Payout :	0.47	PW	20.00% :	39,058.72
Internal ROR (%) :	>1000	PW	25.00% :	33,331.36
		PW	30.00% :	28,773.25

Ralph E. Davis Associates, Inc.

Texas Registered Engineering Firm F-1529

XML

Capital Stock (Details) (USD $)	0 Months Ended			6 Months Ended	1 Months Ended
	Aug. 04, 2014	Dec. 04, 2013	Sep. 06, 2013	Jan. 31, 2015	Aug. 31, 2014
Class of Stock [Line Items]
Value of settlement				$ 65,000
Maximum percentage of proceeds to be received upon sale of stock to third party (in hundredths)		100.00%	95.00%
Maximum proceeds to be received upon sale of stock to third party			1,000,000
Period of stock listing on major stock exchange within which the Company will receive proceeds from sale of stock	60 days	90 days	90 days
Period of six month anniversary of stock sale within which the Company will receive proceeds from sale of stock		60 days
Period from date that shares become unrestricted within which the Company will receive proceeds from sale of stock		60 days
Percentage of remaining receivable balance is due within stock listing period (in hundredths)		100.00%
Minimum share price for note receivable to be due to company (in dollars per share)		$ 6.00
Note receivable extension fee	50,000
Note payable remaining balance repaid in future	750,000
HCN [Member]
Class of Stock [Line Items]
Number of shares of common stock issued in exchange for note receivable (in shares)		619,960	191,667
Value of common stock issued in exchange for note receivable		1,859,879	1,000,000
Restricted Common Stock [Member]
Class of Stock [Line Items]
Stock issued for notes payable and joint interest billings (in shares)					60,000
Shares issued for services rendered (in shares)				122,000
Shares used to settle litigation (in shares)				22,000
Value of settlement				$ 65,000

XML

Commitments and Contingencies (Tables)

6 Months Ended

Jan. 31, 2015

Commitments and Contingencies [Abstract]

Schedule Of Prepaid Balances

The following table reflects the prepaid balances as of:

	January 31, 2015
Prepaid letter of credit fees	$	101,250
Amortization		(59,412	)
Net prepaid letter of credit fees	$	41,838

XML

Commitments and Contingencies (Details) (USD $)	6 Months Ended
	Jan. 31, 2015 LetterofCredit
Commitments And Contingencies [Line Items]
Contingency accrued	$ 232,974
Cash settlement to be paid by Galveston Bay	35,000
Stock settlement to be paid by Hydrocarb	65,000
Cost renewal of easements	400,000
Number of letters of credit in favor of the Railroad Commission of Texas	2
Schedule of prepaid balances [Abstract]
Prepaid letter of credit fees	101,250
Amortization	(59,412)
Net prepaid letter of credit fees	41,838
Minimum [Member]
Commitments And Contingencies [Line Items]
Loss contingency, estimate	150,000
Maximum [Member]
Commitments And Contingencies [Line Items]
Loss contingency, estimate	900,000
Letter of Credit One [Member]
Commitments And Contingencies [Line Items]
Debt instrument, face amount	6,610,000
Debt instrument, fee percentage (in hundredths)	1.50%
Letter of Credit Two [Member]
Commitments And Contingencies [Line Items]
Debt instrument, face amount	120,000
Debt instrument, fee percentage (in hundredths)	1.50%
Accounts payable and accrued expenses [Member]
Commitments And Contingencies [Line Items]
Environmental remediation expense	$ 150,000

XML

Oil and Gas Properties

6 Months Ended

Jan. 31, 2015

Oil and Gas Properties [Abstract]

Oil and Gas Properties

Note 4 – Oil and Gas Properties

Oil and natural gas properties as of January 31, 2015 and July 31, 2014 consisted of the following:

	January 31, 2015			July 31, 2014
Evaluated Properties
Costs subject to depletion	$	21,371,958		$	19,153,125
Accumulated impairment		(373,335	)		(373,335	)
Accumulated depletion		(3,849,998	)		(3,491,420	)
Total evaluated properties		17,148,625			15,288,370
Unevaluated properties		2,302,098			2,119,769
Net oil and gas properties	$	19,450,723		$	17,408,139

Evaluated properties

Additions to evaluated oil and gas properties during the six months ended January 31, 2015 consisted mainly of exploration costs, specifically, geological and geophysical costs of approximately $2,271,263.

Unevaluated Properties

Namibia, Africa

We own 90% (100% cost responsibility) of our Namibia concession, as described above in Note 2 –Acquisitions.

Additions to unevaluated properties of approximately $182,000 during the Six months ended January 31, 2015 primarily of:

· Approximately $182,000 of leasehold costs, specifically payment of the annual concession fee to the Government of Namibia. As of January 31, 2015, approximately $2.2 million has been expended towards the initial exploration period.

XML

Oil and Gas Properties (Schedule of Oil and Gas Properties) (Details) (USD $)	Jan. 31, 2015	Jul. 31, 2014
Evaluated Properties [Abstract]
Costs subject to depletion	$ 21,371,958	$ 19,153,125
Accumulated impairment	(373,335)	(373,335)
Accumulated depletion	(3,849,998)	(3,491,420)
Total evaluated properties	17,148,625	15,288,370
Unevaluated properties	2,302,098	2,119,769
Net oil and gas properties	$ 19,450,723	$ 17,408,139

XML

Supplemental Cash Flow Information (Details) (USD $)	6 Months Ended		12 Months Ended
	Jan. 31, 2015	Jan. 31, 2014	Jul. 31, 2014
NONCASH INVESTING AND FINANCING ACTIVITIES
Asset retirement obligation sold	$ 0	$ 4,381	$ 33,195
Asset retirement obligations incurred	0	100,932	0
Asset retirement obligations - change in estimate	(52,431)	0	(104,237)
Accounts payable for oil and gas properties	0	11,373
Note payable for prepaid insurance	0	0
Settlement of HCN debt with HCN preferred stock	0	1,585,200
Common stock exchanged for HCN common stock for acquisition of HCN	0	25,190
Receivable for common stock - related party	0	1,000,000
Receivable for common stock - related party	0	1,859,879
Common stock issued to satisfy contingently issuable shares from 2012 acquisition of Namibia Exploration , Inc.	0	22,410
Value of shares issued to lenders as part of debt financing	$ 247,655	$ 0

XML

Oil and Gas Properties (Details) (USD $)	6 Months Ended
	Jan. 31, 2015
Oil And Gas Properties [Line Items]
Geological and geophysical costs	$ 2,271,263
Namibia Exploration, Inc. [Member]
Oil And Gas Properties [Line Items]
Ownership percentage (in hundredths)	90.00%
Cost responsibility percentage (in hundredths)	100.00%
Additions to unevaluated properties	182,000
Leasehold costs	182,000
Exploration costs	$ 2,200,000

XML

Asset Retirement Obligations (Details) (USD $)	3 Months Ended		6 Months Ended		12 Months Ended
	Jan. 31, 2015	Jan. 31, 2014	Jan. 31, 2015	Jan. 31, 2014	Jul. 31, 2014
Reconciliation of asset retirement obligation liability [Roll Forward]
Liability for asset retirement obligation, beginning of period			$ 11,716,230	$ 10,933,398	$ 10,933,398
Asset retirement obligations sold			0	(4,381)	(33,195)
Asset retirement obligations incurred on properties drilled			0	100,932	0
Accretion	258,782	244,509	560,990	488,485	1,043,928
Revisions in estimated cash flows			(52,431)	0	(104,237)
Costs incurred			0		(123,664)
Liability for asset retirement obligation, end of period	12,224,789		12,224,789		11,716,230
Current portion of asset retirement obligation	60,000		60,000		1,133,690
Noncurrent portion of asset retirement obligation	12,164,789		12,164,789		10,582,540
Total liability for asset retirement obligation	$ 12,224,789		$ 12,224,789		$ 11,716,230

XML

Supplemental Cash Flow Information

6 Months Ended

Jan. 31, 2015

Supplemental Cash Flow Information [Abstract]

Supplemental Cash Flow Information

Note 3 – Supplemental Cash Flow Information

NONCASH INVESTING AND FINANCING ACTIVITIES
Asset retirement obligation sold	$	-		$	4,381
Asset retirement obligations incurred	$	-		$	100,932
Asset retirement obligations - change in estimate	$	(52,431	)	$	-
Accounts payable for oil and gas properties	$	-		$	11,373
Note payable for prepaid insurance	$	-		$	-
Settlement of HCN debt with HCN preferred stock	$	-		$	1,585,200
Common stock exchanged for HCN common stock for acquisitin of HCN	$	-		$	25,190
Receivable for common stock - related party	$	-		$	1,000,000
Receivable for common stock - related party	$	-		$	1,859,879
Common stock issued to satisfy contingently issuable shares from 2012 acquisition of Namibia Exploration , Inc.	$	-		$	22,410
Value of shares issued to lenders as part of debt financing	$	247,655		$	-

XML

Notes Payable (Details) (USD $)	6 Months Ended		1 Months Ended					0 Months Ended
	Jan. 31, 2015	Jan. 31, 2014	May 31, 2012 Payment	Feb. 28, 2014 Payment	May 31, 2014	Apr. 30, 2014	Nov. 30, 2013	Aug. 15, 2014	Jul. 31, 2014
Debt Instrument [Line Items]
Additional funds borrowed	$ 3,452,812	$ 0
Debt issuance cost	283,455
Amortization of debt discount	352,807
Note payable	3,841,420								0
Unamortized of debt discount	704,035
Term or amortization	2 years
Amortization expenses classified as interest expenses	94,626
Unamortized debt issuance cost	188,829
Notes Payable For Vehicle Purchase [Member]
Debt Instrument [Line Items]
Debt instrument, face amount			18,375
Periodic installments amount			567
Debt instrument, interest rate (in hundredths)			6.93%
Principal balance	2,273								7,100
Number of required periodic payments			36
Note Payable For Commercial Insurance Program [Member]
Debt Instrument [Line Items]
Debt instrument, face amount				403,104
Periodic installments amount				45,718
Principal balance	45,000
Number of required periodic payments				9
Note Payable-Chairman [Member]
Debt Instrument [Line Items]
Debt instrument, face amount	600,000						100,000
Debt instrument, interest rate (in hundredths)	6.25%						5.00%
Additional funds borrowed					300,000	200,000
Principal balance	600,000
Number of required periodic payments	36
Term of debt instrument							1 year
Term Loan [Member]
Debt Instrument [Line Items]
Debt instrument, face amount								4.0
Principal balance								4,545,454
Discount rate (in hundredths )								12.00%
Structuring fee								90,909
Structuring fee (in hundredths)								2.00%
Debt issuance cost								172,824
Placement fee (in hundredths)								5.00%
Placement fee								227,273
Consulting fee (in hundredths)								1.00%
Consulting fee								45,455
Net amount received in connection with the sale								3,463,539
Additional borrowing capacity								1,000,000
Sale of equity								750,000
Credit agreement period sale of equity								150 days
Structuring Fee on additional borrowings (in hundredths)								2.00%
Threshold Revenues								900,000
Interest rate under condition one (in hundredths)								16.00%
Interest rate under condition two (in hundredths)								14.00%
Interest rate in case of default (in hundredths)								24.00%
Restricted shares issued (in shares)								60,000
Restricted shares issued after 12 months from effective date (in shares)								32,500
Restricted shares issued after 18 months from effective date (in shares)								32,500
Restricted shares issued after 21 months from effective date (in shares)								25,000
Credit agreement effective date								Aug. 15, 2014
Voting stock percentage (in hundredths)								25.00%
Payables in case of default								$ 250,000
Period of default								30 days

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Consolidated Balance Sheets (Unaudited) (USD $)	Jan. 31, 2015	Jul. 31, 2014
Current assets:
Cash and cash equivalents	$ 266,646	$ 144,258
Oil and gas revenues receivable	81,574	372,120
Accounts receivable - related party	2,723	58,014
Other current assets	171,650	446,320
Other receivables, net	190,019	38,455
Total current assets	712,612	1,059,167
Oil and gas properties, accounted for using the full cost method of accounting
Evaluated property, net of accumulated depletion of $3,849,998 and $3,491,420, respectively; and accumulated impairment of $373,335 and $373,335, respectively	17,148,625	15,288,370
Unevaluated property	2,302,098	2,119,769
Restricted cash	6,857,002	6,877,944
Other assets	392,420	219,942
Property and equipment, net of accumulated depreciation of $164,927 and $135,590, respectively	136,752	166,963
TOTAL ASSETS	27,549,509	25,732,155
Current liabilities:
Accounts payable and accrued expenses	3,693,900	2,795,675
Short term notes payable	2,273	334,688
Asset retirement obligations - short term	60,000	1,133,690
Advances	195,904	195,904
Due to related parties	98,585	165,542
Total current liabilities	4,050,662	4,625,499
Notes payable, net of discount	3,841,420	0
Notes payable - related party	600,000	600,000
Asset retirement obligation - long term	12,164,789	10,582,540
Total liabilities	20,656,871	15,808,039
Stockholders' Deficit:
Common stock: $001 par value; 333,333,333 shares authorized; 21,266,749 and 21,081,602 shares issued and outstanding as of January 31, 2015 and July 31, 2014, respectively	21,267	21,082
Receivable for common stock	(2,184,879)	(2,184,879)
Additional paid-in capital	82,929,743	82,228,799
Accumulated deficit	(73,837,653)	(70,106,351)
Total stockholders' equity	6,928,478	9,958,651
Noncontrolling interests	(35,840)	(34,535)
Total equity	6,892,638	9,924,116
TOTAL LIABILITIES AND EQUITY	$ 27,549,509	$ 25,732,155

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Description of Business and Summary of Significant Accounting Policies

6 Months Ended

Jan. 31, 2015

Description of Business and Summary of Significant Accounting Policies [Abstract]

Description of Business and Summary of Significant Accounting Policies

Note 1 – Description of Business and Summary of Significant Accounting Policies

Description of business and basis of presentation

The unaudited consolidated financial statements of Hydrocarb Energy Corp. (“Hydrocarb”, “HEC”, the “Company”, “we”, “us”, “our”) have been prepared in accordance with accounting principles generally accepted in the United States 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 our Annual Report filed with the SEC on Form 10-K for the year ended July 31, 2014. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of 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 financial statements which would substantially duplicate the disclosures contained in the audited financial statements for the most recent fiscal year ended July 31, 2014, as reported in the Form 10-K, have been omitted.

While working towards plans and expectations of being listed on a major stock exchange, we currently trade on the OTCBB under the stock symbol “HECC”.

We are a natural resource exploration and production company engaged in the exploration, acquisition, development, and production of oil and gas properties in the United States and onshore in Namibia, Africa. We maintain developed acreage offshore in Texas. As part of our ongoing business strategy, we continue to review and evaluate acquisition opportunities in the continental United States and internationally.

Reclassifications

Certain prior year amounts have been reclassified to conform with the current presentation.

Principles of consolidation

We own 100% of the issued and outstanding share capital of (i) Penasco Petroleum Inc. (“Penasco”), a Nevada corporation, (ii) Galveston Bay Energy, LLC (“GBE”), a Texas limited liability company, (iii) SPE Navigation I, LLC, a Nevada limited liability company (“SPE”), (iv) Namibia Exploration, Inc. (“NEI”), a Nevada corporation, (v) Hydrocarb Corporation, a Nevada corporation (“HCN”), (vi) Hydrocarb Texas Corporation, a Texas corporation, and (vii) Hydrocarb Namibia Energy (Pty) Limited (“Namibia”), a company chartered in the Republic of Namibia.  In addition, we own 95% of the issued and outstanding share capital of Otaiba Hydrocarb LLC (“Otaiba”), a UAE limited liability corporation. The accompanying consolidated financial statements include the accounts of the entities noted above.  All significant intercompany accounts and transactions have been eliminated in consolidation.

The acquisition of HCN, an entity under common control, on December 9, 2013 (See Note 2 – HCN Acquisition) has resulted in a change in the reporting entity. The consolidated financial statements presented for the periods subsequent to the acquisition include the accounts of HCN and its subsidiaries. As HEC and HCN are under the common control of same shareholder group, the acquired assets and liabilities were recorded at the historical carrying value and the consolidated financial statements were retroactively restated to reflect the Company as if HCN had been owned since the beginning of the earliest period presented.

Noncontrolling interests

Our consolidated financial statements include the accounts of all subsidiaries where we hold a controlling financial interest.  We have a controlling financial interest if we own a majority of the outstanding voting common stock and minority shareholders do not have substantive participating rights, we have significant control over an entity through contractual or economic interests in which we are the primary beneficiary or we have the power to direct the activities that most significantly impact the entity’s economic performance.  The ownership interest in subsidiaries held by third parties are presented in the consolidated balance sheet within equity, but separate from the parent’s equity, as noncontrolling interest.  All significant intercompany balances and transactions have been eliminated in consolidation.

Cash and cash equivalents

Cash and cash equivalents are all highly liquid investments with an original maturity of three months or less at the time of purchase and are recorded at cost, which approximates fair value.

Our functional currency is the United States dollars. Transactions denominated in foreign currencies are translated into their United States dollar equivalents using current exchange rates. Monetary assets and liabilities are translated using exchange rates that prevailed as of the balance sheet date. Non-monetary assets and liabilities are translated using exchange rates that prevailed as of the transaction date. Revenue, if applicable and expenses are translated using average exchange rates over the accounting period. We have had no revenue denominated in foreign currencies. Gains or losses resulting from foreign currency transactions are included in results of operations.

Stock Split

On May 8, 2014, we effected a 1:3 reverse split of our authorized common stock and a corresponding 3:1 reverse split of our outstanding common stock.  All share and per share amounts in this report have been retroactively restated to reflect the reverse split.  This presentation is consistent with the guidance in ASC 260-10-55-12, Earnings per Share, which requires retroactive restatement of earnings per share if a capital structure change due to a stock dividend, stock split or reverse split occurs after the date of the latest balance sheet, but before the release of the financial statements.

Recent accounting pronouncements

In August 2014, the FASB issued Accounting Standard Update No. 2014-15 (“ASU No. 2014-15”),  Presentation of Financial Statements Going Concern (Subtopic 205-40) which requires management to assess an entity's ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, ASU 2014-15 provides a definition of the term substantial doubt and requires an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). It also requires certain disclosures when substantial doubt is alleviated as a result of consideration of management's plans and requires an express statement and other disclosures when substantial doubt is not alleviated. ASU No. 2014-15 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, early application is permitted. We are currently evaluating the accounting implication and do not believe the adoption of ASU 2014-15 to have material impact on our consolidated financial statements, although there may be additional disclosures upon adoption.

Other recently issued or adopted accounting pronouncements are not expected to have, or did not have, a material impact on our financial position or results from operations.

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Capital Stock, Warrants Granted (Details) (USD $)	6 Months Ended		12 Months Ended
	Jan. 31, 2015	Jan. 31, 2014	Jul. 31, 2014	Jul. 31, 2011
Warrants Granted To Related Party [Line Items]
Exercise price (in dollars per share)	$ 7.50		$ 7.50
Warrants [Roll Forward]
Outstanding, beginning balance (in shares)	1,084,584
Granted (in shares)	0
Exercised (in shares)	0
Expired (in shares)	(417,917)
Outstanding, beginning balance (in shares)	666,667		1,084,584
Weighted Average Exercise Price [Roll Forward]
Outstanding, beginning balance (in dollars per share)	$ 7.50
Granted (in dollars per share)	$ 0
Exercised (in dollars per share)	$ 0
Expired (in dollars per share)	$ 7.50
Outstanding, beginning balance (in dollars per share)	$ 7.50		$ 7.50
Aggregate intrinsic value	$ 0		$ 0
Weighted average remaining contractual life	1 year 0 months 14 days		1 year 0 months 14 days
Compensation expense recognized	453,475	1,214,213
Warrant B [Member]
Weighted Average Exercise Price [Roll Forward]
Fair value	266,017
Warrant C [Member]
Weighted Average Exercise Price [Roll Forward]
Fair value	206,245
Warrants [Member]
Weighted Average Exercise Price [Roll Forward]
Compensation expense recognized	$ 0	$ 6,754
Geoserve Marketing, LLC [Member]
Warrants Granted To Related Party [Line Items]
Total shares of common stock issuable under warrants (in shares)				400,000
Geoserve Marketing, LLC [Member] | Warrant B [Member]
Warrants Granted To Related Party [Line Items]
Period for calculating average closing price	5 days
Average closing stock price that will trigger issuance of additional warrants (in dollars per share)	$ 22.50
Number of warrants exercisable upon attaining target average closing price (in shares)	200,000
Exercise price (in dollars per share)	$ 7.50
Expiration date	Feb. 15, 2016
Term of warrants	2 years 0 months 29 days
Weighted Average Exercise Price [Roll Forward]
Outstanding, beginning balance (in dollars per share)	$ 7.50
Geoserve Marketing, LLC [Member] | Warrant C [Member]
Warrants Granted To Related Party [Line Items]
Period for calculating average closing price	5 days
Average closing stock price that will trigger issuance of additional warrants (in dollars per share)	$ 45.00
Number of warrants exercisable upon attaining target average closing price (in shares)	200,000
Exercise price (in dollars per share)	$ 7.50
Expiration date	Feb. 15, 2016
Term of warrants	2 years 5 months 26 days
Weighted Average Exercise Price [Roll Forward]
Outstanding, beginning balance (in dollars per share)	$ 7.50

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Asset Retirement Obligations (Tables)

6 Months Ended

Jan. 31, 2015

Asset Retirement Obligations [Abstract]

Reconciliation of Asset Retirement Obligation Liability

The following is a reconciliation of our asset retirement obligation liability as of January 31, 2015 and July 31, 2014:

	January 31, 2015			July 31, 2014
Liability for asset retirement obligation, beginning of period	$	11,716,230		$	10,933,398
Asset retirement obligations sold		-			(33,195	)
Asset retirement obligations incurred on properties drilled		-			-
Accretion		560,990			1,043,928
Revisions in estimated cash flows		(52,431	)		(104,237	)
Costs incurred		-			(123,664	)
Liability for asset retirement obligation, end of period	$	12,224,789		$	11,716,230
Current portion of asset retirement obligation	$	60,000		$	1,133,690
Noncurrent portion of asset retirement obligation		12,164,789			10,582,540
Total liability for asset retirement obligation	$	12,224,789		$	11,716,230

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Related Party Transactions (Details) (USD $)	0 Months Ended	6 Months Ended		3 Months Ended
	Dec. 03, 2013	Jan. 31, 2015	Jan. 31, 2014	Jan. 31, 2015	Jan. 31, 2014	Jul. 31, 2014
Related Party Transaction [Line Items]
Due to related parties		$ 98,585		$ 98,585		$ 165,542
HCN [Member]
Related Party Transaction [Line Items]
Shares issued in order to cancel the value of outstanding balance of related party (in shares)	3,963
Due to related parties		98,600		98,600
Company received payment from related party		58,000
Father-In-Law of Chief Executive Officer [Member]
Related Party Transaction [Line Items]
Number of adult children of related party who are significant shareholders		2		2
Percentage of outstanding common stock owned by beneficial owners (in hundredths)		68.00%		68.00%
Percentage of working interest sold (in hundredths)		5.00%
Outstanding joint interest billings owed by related party		100		100		80,468
Period of termination notice		30 days
Expense recognized from consulting contract with related party		0	6,754
Promissory note for funds received from related party		100,000		100,000
Term of promissory note		1 year
Interest rate on debt (in hundredths)		5.00%		5.00%
Maximum borrowing capacity		600,000		600,000
Interest rate (in hundredths)		6.25%		6.25%
Additional borrowing capacity		200,000		200,000
Remaining balance borrowing amount		300,000		300,000
Number of monthly payment		36 months
Carter E&P [Member]
Related Party Transaction [Line Items]
Related party receivable from Carter		0		0		0
Revenues		0	39,274	0	0
Lease operating costs		0	23,259	0	0
Overhead costs incurred		$ 0	$ 4,687	$ 0	$ 0

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Related Party Transactions (Tables)

6 Months Ended

Jan. 31, 2015

Related Party Transactions [Abstract]

Revenues and Costs from Facility Controlled by Related Party

Revenues generated, lease operating costs, and contractual overhead charges incurred during the time Carter was a related party were as follows:

	Three months ended January 31,				Six Months ended January 31,
	2015		2014		2015	2014
Revenues	$	-	$	-	$	$	39,274
Lease operating costs	$	-	$	-	$	$	23,259
Overhead costs incurred	$	-	$	-	$	$	4,687

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HCN Acquisition

6 Months Ended

Jan. 31, 2015

HCN Acquisition [Abstract]

HCN Acquisition

Note 2 – HCN Acquisition

The acquisition Agreement provided that HEC would issue 7,470,000 shares of its common stock to the holders of certain rights to acquire HEC stock. These rights were previously issued by HEC as contingent consideration in connection with the acquisition of NEI. The rights had been convertible into HEC common stock based upon HEC market capitalization milestones. The rights were issued to entities deemed related parties to HEC.

In anticipation of the HCN acquisition, HEC issued 619,960 shares of its common stock to HCN as full payment for HEC’s indebtedness to HCN in the amount of $3,589,567. A condition to the Agreement closing was that HCN will sell the 619,960 shares before closing of the acquisition, which it did (see Note 7 – Capital Stock – Receivables for Common Stock).

With HCN, we acquired its 100% owned subsidiaries: Hydrocarb Namibia Energy (Pty) Limited, a Namibia Company and Hydrocarb Texas Corporation, a Texas Corporation; and its 95% owned subsidiary Otaiba Hydrocarb LLC, a UAE Limited Liability Company.

Prior to the acquisition, HCN was directly and indirectly majority-owned and controlled by HEC’s Chairman of the Board and entities related to him and his family. Since HCN and HEC were under common control of a controlling party both before and after the completion of the share exchange, the transaction was accounted for as a business acquired from an entity under common control and the assets and liabilities acquired were recorded at HCN’s historical cost at Acquisition Date following ASC 805-50-30, Business Combinations. Under this accounting treatment, the results of operations for the three months and six months ended January 31, 2015 and assets and liabilities of HCN as of January 31, 2015 are included in these financial statements as if the transaction had occurred at the beginning of the period. Prior reporting periods in these financial statements have been retroactively adjusted to include HCN and its subsidiaries.

According to ASC 805-50-30, the net assets of HCN are to be recorded at historical cost, therefore, the value of the 8,396,667 common shares is deemed to be the same as the historical value of HCN net assets of $1,398,127 with excess of $3,874,609 recorded as additional paid in capital by HEC.

Summary of the accounting entry to record this acquisition in December 2013 is as follows.

Assets acquired	$	1,529,246
Liabilities assumed		(161,599	)
Noncontrolling interest in 95% owned HCN subsidiary		30,480
	$	1,398,127
Common stock, at par		8,397
Receivable for common stock		(2,484,879	)
Additional paid-in capital		3,874,609
	$	1,398,127

HCN had 51% working-interest rights in and operated an unevaluated Namibian concession described in Note 3 – Oil and Gas Properties, below, and provided international oilfield consulting services.  Prior to this acquisition, HEC owned 39% working-interest right in this concession.  With the HCN acquisition, we now own 90% working interest (100% cost responsibility) in the concession.  This 5.3 million-acre concession is located in northern Namibia in Africa.  The concession specifies the following minimum cost responsibilities on an 8/8ths basis:

1) Initial Exploration Period (expires September 2015): Perform a hydrocarbon potential study, gather and review existing technical data including reprocessing of available seismic lines, and acquire and process 750 kilometers of new 2D seismic data.  The minimum expenditure is $4,505,000.

2) First Renewal Exploration Period (two years from end of the Initial Exploration Period):  Acquire 200 square kilometers of 3D seismic data, interpret and map the data, design a drilling program, drill one well, conduct an environmental study, and relinquish 25% of the exploration license area.  The minimum expenditure is $17,350,000.

3) Second Renewal (Production License) Exploration Period (25 years):  Report on reserves and production and conduct an environmental study.  The minimum expenditure is $300,000.

In conjunction with the HCN acquisition, the HEC Board of Directors authorized the immediate issuance of 7,470,000 shares of our common stock to the former owners of NEI. We previously acquired NEI on August 7, 2012 and these 7,470,000 shares had been contingently-issuable consideration for the acquisition of NEI. We issued these shares on December 9, 2013. The original agreement contained market conditions for the issuance of this stock.

In connection with certain recent due diligence undertaken by the Company, it has come to the attention of management, that although the Company previously believed, on advice of prior counsel, that the Board of Directors of the Company had the authority under the Company’s Articles of Incorporation, as amended, to unilaterally authorize preferred stock, including the designation of the Series A Preferred, under applicable Nevada law, unless such preferred stock is specifically authorized in a Nevada corporation’s articles no preferred stock can be designated or issued. As such, our Board of Directors did not have authority under the Articles of Incorporation, as amended, and applicable Nevada law to designate the Series A Preferred or to file such certificate of designations with the Secretary of State of Nevada. Consequently, we now believe that the Series A Preferred is not validly issued or outstanding and the filing of the Series A Preferred designation with the consent of the Board of Directors and without shareholder approval, was invalid and had no legal effect. We are in the process of seeking shareholder approval, at our 2015 Annual Meeting of stockholders, to ratify and approve the designation of the Series A Preferred Stock.  As a result, we removed Series A 7% Convertible Voting Preferred Stock (“Series A Preferred”) from the accompanying financial statements for current and prior periods.

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Consolidated Balance Sheets (Unaudited) (Parenthetical) (USD $)	Jan. 31, 2015	Jul. 31, 2014
Assets
Accumulated depletion on evaluated oil and gas property accounted for using the full cost method of accounting	$ 3,849,998	$ 3,491,420
Accumulated impairment on evaluated oil and gas property accounted for using the full cost method of accounting	373,335	373,335
Accumulated depreciation recorded for property and equipment	$ 164,927	$ 135,590
Equity [Abstract]
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized (in shares)	333,333,333	333,333,333
Common stock, shares issued (in shares)	21,266,749	21,266,749
Common stock, shares outstanding (in shares)	21,081,602	21,081,602

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Subsequent Events

6 Months Ended

Jan. 31, 2015

Subsequent Events [Abstract]

Subsequent Events

Note 12 – Subsequent Events

Subsequent to January 31, 2015, we raised approximately $1 million through the sale of various convertible promissory notes as described below.

LG Capital Funding, LLC Convertible Note

On February 17, 2015, we sold an 8% Convertible Redeemable Note to LG Capital Funding, LLC (“LG Capital” and the “LG Capital Convertible Note”) in the amount of $105,000 pursuant to a Securities Purchase Agreement. Amounts owed under the LG Capital Convertible Note accrue interest at the rate of 8% per annum (24% upon the occurrence of an event of default). The LG Capital Convertible Note is due and payable on February 17, 2016. The principal amount of the LG Capital Convertible Note and all accrued interest thereon is convertible at the option of the holder into our common stock at any time. The conversion price of the LG Capital Convertible Note is 65% of the average of the two lowest closing bid prices of our common stock for the 12 trading days prior to the date a notice of conversion is received by us from LG Capital. In the event we experience a “DTC chill” at any time, the conversion price percentage above decreases to 55%. At no time may the LG Capital Convertible Note be converted into shares of our common stock if such conversion would result in LG Capital and its affiliates owning an aggregate of in excess of 9.9% of the then outstanding shares of our common stock.

The LG Capital Convertible Note provides for customary events of default such as failing to timely make payments under the note when due. Additionally, in the event we fail to timely deliver shares due in connection with a conversion, we are required to pay the holder $250 per day beginning on the 4th day after the conversion notice was delivered to us, increasing to $500 per day on the 10th day after the conversion notice was delivered. In the event we have no “bid” price for our common stock at any time while the note is outstanding, the outstanding principal due under the terms of the note increases by 20%. In the event our common stock is delisted from an exchange (including the OTCQB), the outstanding principal amount of the note increases by 50%. If not paid at maturity, the outstanding principal amount of the note increases by 10%.

We may prepay in full the unpaid principal and interest on the LG Capital Convertible Note, upon notice, any time prior to the 180th day after the issuance date. Any prepayment is subject to payment of a prepayment amount ranging from 115% to 135% of the then outstanding balance on the LG Capital Convertible Note (inclusive of accrued and unpaid interest and any default amounts then owing), depending on when such prepayment is made. Additionally, upon the occurrence of certain fundamental events as described in the note, we are required to repay the note at the request of the holder in an amount equal to 150% of the then balance of the note.

We agreed to pay $5,000 of LG Capital’s legal fees in connection with the sale of the LG Capital Convertible Note and as such, the net amount received in connection with the sale of the LG Capital Convertible Note, before our expenses, was $100,000. We hope to repay the LG Capital Convertible Note prior to any conversion.

Adar Bays, LLC Convertible Note

On February 17, 2015, we sold an 8% Convertible Redeemable Note to Adar Bays, LLC (“Adar Bays” and the “Adar Bays Convertible Note”) in the amount of $105,000 pursuant to a Securities Purchase Agreement. Amounts owed under the Adar Bays Convertible Note accrue interest at the rate of 8% per annum (24% upon the occurrence of an event of default). The Adar Bays Convertible Note is due and payable on February 17, 2016. The principal amount of the Adar Bays Convertible Note and all accrued interest is convertible at the option of the holder thereof into the Company’s common stock at any time. The conversion price of the Adar Bays Convertible Note is 65% of the average of the two lowest closing bid prices of our common stock for the 12 trading days prior to the date a notice of conversion is received by us from Adar Bays. In the event we experience a “DTC chill” at any time, the conversion price percentage above decreases to 55%. At no time may the Adar Bays Convertible Note be converted into shares of our common stock if such conversion would result in Adar Bays and its affiliates owning an aggregate of in excess of 9.9% of the then outstanding shares of our common stock.

The Adar Bays Convertible Note provides for customary events of default such as failing to timely make payments under the note when due. Additionally, in the event we fail to timely deliver shares due in connection with a conversion, we are required to pay the holder $250 per day beginning on the 4th day after the conversion notice was delivered to us, increasing to $500 per day on the 10th day after the conversion notice was delivered. In the event we have no “bid” price for our common stock at any time the note is outstanding, the outstanding principal due under the terms of the note increases by 20%. In the event our common stock is delisted from an exchange (including the OTCQB), the outstanding principal amount of the note increases by 50%. If not paid at maturity, the outstanding principal amount of the note increases by 10%.

We may prepay in full the unpaid principal and interest on the Adar Bays Convertible Note, upon notice, any time prior to the 180th day after the issuance date. Any prepayment is subject to payment of a prepayment amount ranging from 115% to 135% of the then outstanding balance on the Adar Bays Convertible Note (inclusive of accrued and unpaid interest and any default amounts then owing), depending on when such prepayment is made, provided that upon the occurrence of certain fundamental events, we are required to repay the note at the request of the holder for 150% of the then balance of the note.

We agreed to pay $5,000 of Adar Bays’ legal fees in connection with the sale of the Adar Bays Convertible Note and as such, the net amount received in connection with the sale of the Adar Bays Convertible Note, before our expenses, was $100,000.

We hope to repay the Adar Bays’ Convertible Note prior to any conversion.

KBM Worldwide, Inc. Convertible Note

On February 19, 2015, we sold KBM Worldwide, Inc. (“KBM”) a Convertible Promissory Note in the principal amount of $350,000 (the “KBM Convertible Note”), pursuant to a Securities Purchase Agreement, dated and entered into on February 17, 2015. The KBM Convertible Note bears interest at the rate of 8% per annum (22% upon an event of default) and is due and payable on February 19, 2016. The KBM Convertible Note provides for customary events of default such as failing to timely make payments under the KBM Convertible Note when due. Additionally, upon the occurrence of certain fundamental defaults, as described in the KBM Convertible Note, we are required to repay KBM liquidated damages in addition to the amount owed under the KBM Convertible Note.

The principal amount of the KBM Convertible Note and all accrued interest is convertible at the option of the holder thereof into our common stock at any time following the 180th day after the KBM Convertible Note was issued. The conversion price of the KBM Convertible Note is equal to 50% multiplied by the average of the lowest five closing bid prices of our common stock during the fifteen trading days immediately prior to the date of any conversion.

The KBM Convertible Note included a $26,000 original issue discount and we paid $4,000 of KBM’s attorney’s fees in connection with the sale of the KBM Convertible Note and as such, the net amount, before our expenses, that we received upon sale of the KBM Convertible Note was $320,000.

We are required to keep reserved from our authorized but unissued shares of common stock eight times the number of shares of common stock issuable upon conversion of the KBM Convertible Note at all times and if we fail to keep such amount reserved it is considered an event of default under the KBM Convertible Note.

At no time may the KBM Convertible Note be converted into shares of our common stock if such conversion would result in KBM and its affiliates owning an aggregate of in excess of 9.99% of the then outstanding shares of our common stock.

We may prepay in full the unpaid principal and interest on the KBM Convertible Note, upon notice, any time prior to the 180th day after the issuance date. Any prepayment is subject to payment of a prepayment amount ranging from 110% to 135% of the then outstanding balance on the KBM Convertible Note (inclusive of accrued and unpaid interest and any default amounts then owing), depending on when such prepayment is made.

We also deposited 750,000 shares of our common stock into escrow with KBM’s counsel to secure the repayment of the KBM Convertible Note, which shares are to be held in escrow and released to KBM only upon the occurrence of an event of default under the KBM Convertible Note.

We hope to repay the KBM Convertible Note prior to any conversion.

JSJ Investments Inc. Convertible Note

On February 23, 2015 we sold a 10% Convertible Note to JSJ Investments Inc. (“JSJ” and the “JSJ Convertible Note”) in the amount of $137,000. Amounts owed under the JSJ Convertible Note accrue interest at the rate of 10% per annum. The JSJ Convertible Note is payable by us on demand by JSJ at any time after August 23, 2015. We have the right to prepay the JSJ Convertible Note (a) for an amount equal to 135% of the then balance of such note until the 90^th day following the date of the note, (b) for an amount equal to 140% of the balance of such note from the 91^st day following the date of the note until the maturity date of the note, and (c) for an amount equal to 150% of the balance of such note subsequent to the maturity date (provided the holder consents to such payment after maturity).

The JSJ Convertible Note and all accrued interest is convertible at the option of the holder thereof into the Company’s common stock at any time. The conversion price of the JSJ Convertible Note is the lower of (a) 58% of the lowest trading price of our common stock during the prior 20 trading days prior to any conversion; or (b) 58% of the lowest trading price of our common stock during the 20 trading days prior to the date of the note. In the event we do not issue the holder any shares due in connection with a conversion within three business days, we are required to issue the holder additional shares equal to 25% of the conversion amount, and an additional 25% of such shares for each additional five business days beyond such fourth business day that such failure continues.

We agreed to pay $2,000 of JSJ’s legal fees and $10,000 of due diligence fees in connection with the sale of the JSJ Convertible Note and as such, the net amount received in connection with the sale of the JSJ Convertible Note, before our expenses, was $125,000.

Pursuant to the terms of the JSJ Convertible Note, we are not allowed to borrow any additional money or incur any liability for borrowed money, except borrowings in place as of the date of the note or indebtedness to trade creditors or financial institutions in the ordinary course of business, or sell, lease or dispose of a significant portion of our assets outside the usual course of business, without the written consent of JSJ.

The JSJ Convertible Note also includes anti-dilution rights in the event we sell or issue any securities with a price less than the then applicable conversion price, subject to certain exceptions.

We hope to repay the JSJ Convertible Note prior to any conversion.

Typenex Co-Investment, LLC Convertible Note

On March 5, 2015, we sold a Secured Convertible Promissory Note (the “Typenex Convertible Note”) to Typenex Co-Investment, LLC (“Typenex”) in the amount of $350,000. The Typenex Convertible Note was issued pursuant to the terms of a Securities Purchase Agreement dated as of the same date. The Typenex Convertible Note bears interest at the rate of 10% per annum (22% upon the occurrence of an event of default) and is due and payable in full on January 5, 2016. The Typenex Convertible Note provides for customary events of default such as failing to timely make payments under the Typenex Convertible Note when due. Additionally, upon the occurrence of certain fundamental defaults, as described in the Typenex Convertible Note, we are required to repay Typenex liquidated damages in addition to the amount owed under the Typenex Convertible Note.

We have the right to prepay the Typenex Convertible Note, pursuant to the terms thereof, at any time, provided we pay a prepayment amount of 125% of the then outstanding balance. The principal amount of the Typenex Convertible Note and all accrued interest is convertible at the option of the holder thereof into our common stock at any time. The conversion price of the Typenex Convertible Note is initially $2.25 per share, provided that if our market capitalization falls below $20 million (provided further that our current market capitalization is below $20 million), the conversion price becomes the lower of $2.25 per share and the average of the five lowest closing bid prices of our common stock on the twenty trading days immediately prior to such conversion date (the “Market Price”) multiplied by 80% (provided such percentage is subject to automatic reduction upon the occurrence of certain events, including among other things described in the Convertible Secured Note, a reduction by 5% in the event the Market Price is less than $0.75).

The Typenex Convertible Note included a $45,000 original issuance discount and we agreed to pay $5,000 of Typenex’s legal fees in connection with the transaction. As a result, the net amount received in connection with the sale of the Typenex Convertible Note, before our expenses, was $300,000.

The Typenex Convertible Note also includes anti-dilution rights in the event we sell or issue any securities with a price less than the applicable conversion price, subject to certain exceptions. The Typenex Convertible Note also includes various restrictions on our ability to enter into subsequent variable rate security transactions following the date thereof.

Beginning on the date that is six months after March 5, 2015, and continuing each month thereafter until maturity, we are required to prepay the Convertible Secured Note in cash or shares of our common stock (provided that upon the occurrence of certain defaults described in the Typenex Convertible Note we are only able to pay this amount in cash), an amount equal to the greater of (i) $70,000 and (ii) the outstanding balance of the Convertible Secured Note divided by the number of such required installment payments prior to the maturity date. Additionally, on the twentieth trading day following the date each tranche of installment shares becomes free trading we are required to issue Typenex additional shares of common stock if the applicable conversion price calculated on the true-up date is less than the original conversion price.

We are subject to various fees and penalties under the Typenex Convertible Note for our failure to timely deliver shares due upon any conversion or installment payment.

At no time may the Typenex Convertible Note be converted into shares of our common stock if such conversion would result in Typenex and its affiliates owning an aggregate of in excess of 4.99% of the then outstanding shares of our common stock, provided such percentage increases to 9.99% if our market capitalization is less than $10 million, and provided further that Typenex may change such percentage from time to time upon not less than 61 days prior written notice to us.

As additional consideration for the loan evidenced by the Typenex Convertible Note, the Company granted Typenex a five year warrant to purchase 38,889 shares of our common stock at an exercise price of $2.25 per share (the “Warrant”) which number of shares at exercise price are subject to adjustment. The Warrant includes the same ownership limitation described above in connection with the Typenex Convertible Note. The Warrant includes cashless exercise rights.

The Warrant contains anti-dilution rights such that if we issue or sell or are deemed to issue or sell securities for less than the then applicable exercise price of the Warrant, subject to certain exceptions, the exercise price of the Warrant is reduced to such lower price and the number of shares of common stock issuable upon exercise of the Warrant increases, such that the aggregate exercise price payable upon exercise of the Warrant remains the same upon such anti-dilutive adjustment, up to a maximum of three times the current number of shares issuable upon exercise of the Warrant, subject to certain exceptions upon which there is no cap on the number of shares issuable upon exercise of the Warrant.

The amounts owed under the Typenex Convertible Note were secured by a Stock Pledge Agreement (the “Pledge Agreement”) whereby CW Navigation, Inc., a Texas corporation, a significant shareholder of the Company, which is beneficially owned by Christopher Watts, the nephew of Kent P. Watts, our Chief Executive Officer and Chairman (“CW Navigation”), pledged one million one hundred thousand (1,100,000) shares of our common stock held by CW Navigation as security for our obligations under the Typenex Convertible Note and related documents. Pursuant to the Stock Pledge Agreement, in the event the value (determined based on the average closing trade price for our common stock) of the pledged shares, for the immediately preceding three trading days as of any applicable date of determination, declines below $900,000 it constitutes a default of the Typenex Convertible Note and CW Navigation is required to pledge additional shares to bring the total value of such pledged shares (as calculated above) to $900,000. Typenex also entered into a subordination agreement in favor our senior lender, Shadow Tree Capital Management, LLC (“Shadow Tree”), to subordinate the repayment of the Typenex Convertible Note to amounts owed by us to Shadow Tree.

We hope to repay the Typenex Convertible Note prior to any conversion.

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Document and Entity Information	6 Months Ended
	Jan. 31, 2015	Mar. 17, 2015
Document and Entity Information [Abstract]
Entity Registrant Name	HYDROCARB ENERGY CORP
Entity Central Index Key	0001425808
Current Fiscal Year End Date	--07-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		21,266,794
Document Fiscal Year Focus	2015
Document Fiscal Period Focus	Q2
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jan. 31, 2015

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Description of Business and Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jan. 31, 2015

Description of Business and Summary of Significant Accounting Policies [Abstract]

Description of business and basis of presentation

Description of business and basis of presentation

The unaudited consolidated financial statements of Hydrocarb Energy Corp. (“Hydrocarb”, “HEC”, the “Company”, “we”, “us”, “our”) have been prepared in accordance with accounting principles generally accepted in the United States 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 our Annual Report filed with the SEC on Form 10-K for the year ended July 31, 2014. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of 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 financial statements which would substantially duplicate the disclosures contained in the audited financial statements for the most recent fiscal year ended July 31, 2014, as reported in the Form 10-K, have been omitted.

While working towards plans and expectations of being listed on a major stock exchange, we currently trade on the OTCBB under the stock symbol “HECC”.

We are a natural resource exploration and production company engaged in the exploration, acquisition, development, and production of oil and gas properties in the United States and onshore in Namibia, Africa. We maintain developed acreage offshore in Texas. As part of our ongoing business strategy, we continue to review and evaluate acquisition opportunities in the continental United States and internationally.

Reclassifications

Reclassifications

Certain prior year amounts have been reclassified to conform with the current presentation.

Principles of consolidation

Principles of consolidation

We own 100% of the issued and outstanding share capital of (i) Penasco Petroleum Inc. (“Penasco”), a Nevada corporation, (ii) Galveston Bay Energy, LLC (“GBE”), a Texas limited liability company, (iii) SPE Navigation I, LLC, a Nevada limited liability company (“SPE”), (iv) Namibia Exploration, Inc. (“NEI”), a Nevada corporation, (v) Hydrocarb Corporation, a Nevada corporation (“HCN”), (vi) Hydrocarb Texas Corporation, a Texas corporation, and (vii) Hydrocarb Namibia Energy (Pty) Limited (“Namibia”), a company chartered in the Republic of Namibia.  In addition, we own 95% of the issued and outstanding share capital of Otaiba Hydrocarb LLC (“Otaiba”), a UAE limited liability corporation. The accompanying consolidated financial statements include the accounts of the entities noted above.  All significant intercompany accounts and transactions have been eliminated in consolidation.

The acquisition of HCN, an entity under common control, on December 9, 2013 (See Note 2 – HCN Acquisition) has resulted in a change in the reporting entity. The consolidated financial statements presented for the periods subsequent to the acquisition include the accounts of HCN and its subsidiaries. As HEC and HCN are under the common control of same shareholder group, the acquired assets and liabilities were recorded at the historical carrying value and the consolidated financial statements were retroactively restated to reflect the Company as if HCN had been owned since the beginning of the earliest period presented.

Noncontrolling interests

Noncontrolling interests

Our consolidated financial statements include the accounts of all subsidiaries where we hold a controlling financial interest.  We have a controlling financial interest if we own a majority of the outstanding voting common stock and minority shareholders do not have substantive participating rights, we have significant control over an entity through contractual or economic interests in which we are the primary beneficiary or we have the power to direct the activities that most significantly impact the entity’s economic performance.  The ownership interest in subsidiaries held by third parties are presented in the consolidated balance sheet within equity, but separate from the parent’s equity, as noncontrolling interest.  All significant intercompany balances and transactions have been eliminated in consolidation.

Cash and cash equivalents

Cash and cash equivalents

Cash and cash equivalents are all highly liquid investments with an original maturity of three months or less at the time of purchase and are recorded at cost, which approximates fair value.

Our functional currency is the United States dollars. Transactions denominated in foreign currencies are translated into their United States dollar equivalents using current exchange rates. Monetary assets and liabilities are translated using exchange rates that prevailed as of the balance sheet date. Non-monetary assets and liabilities are translated using exchange rates that prevailed as of the transaction date. Revenue, if applicable and expenses are translated using average exchange rates over the accounting period. We have had no revenue denominated in foreign currencies. Gains or losses resulting from foreign currency transactions are included in results of operations.

Stock Split

Stock Split

On May 8, 2014, we effected a 1:3 reverse split of our authorized common stock and a corresponding 3:1 reverse split of our outstanding common stock.  All share and per share amounts in this report have been retroactively restated to reflect the reverse split.  This presentation is consistent with the guidance in ASC 260-10-55-12, Earnings per Share, which requires retroactive restatement of earnings per share if a capital structure change due to a stock dividend, stock split or reverse split occurs after the date of the latest balance sheet, but before the release of the financial statements.

Recent accounting pronouncements

Recent accounting pronouncements

In August 2014, the FASB issued Accounting Standard Update No. 2014-15 (“ASU No. 2014-15”),  Presentation of Financial Statements Going Concern (Subtopic 205-40) which requires management to assess an entity's ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, ASU 2014-15 provides a definition of the term substantial doubt and requires an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). It also requires certain disclosures when substantial doubt is alleviated as a result of consideration of management's plans and requires an express statement and other disclosures when substantial doubt is not alleviated. ASU No. 2014-15 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, early application is permitted. We are currently evaluating the accounting implication and do not believe the adoption of ASU 2014-15 to have material impact on our consolidated financial statements, although there may be additional disclosures upon adoption.

Other recently issued or adopted accounting pronouncements are not expected to have, or did not have, a material impact on our financial position or results from operations.

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CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited) (USD $)	3 Months Ended		6 Months Ended
	Jan. 31, 2015	Jan. 31, 2014	Jan. 31, 2015	Jan. 31, 2014
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited)
Revenues	$ 646,348	$ 989,732	$ 1,851,777	$ 2,829,943
Operating expenses
Lease operating expense	913,290	811,127	2,210,845	1,928,459
Depreciation, depletion, and amortization	162,166	191,764	386,422	493,679
Accretion	258,782	244,509	560,990	488,485
Consulting fees - related party	0	0	0	6,754
General and administrative expense	980,480	946,325	1,923,760	2,738,324
Total operating expenses	2,314,718	2,193,725	5,082,017	5,655,701
Loss from operations	(1,668,370)	(1,203,993)	(3,230,240)	(2,825,758)
Consulting and other income (expense)	2,737	(4,940)	6,779	(30,266)
Interest income (expense), net	(279,727)	(36,854)	(507,504)	21,338
Foreign currency transaction gain (loss)	(6,401)	(28,971)	(1,642)	(30,626)
Net loss before income taxes	(1,951,761)	(1,274,758)	(3,732,607)	(2,865,312)
Income tax provision	0	0	0	(4,599)
Net loss	(1,951,761)	(1,274,758)	(3,732,607)	(2,869,911)
Less: Net loss attributable to noncontrolling interests	18	(1,888)	(1,305)	(3,360)
Net loss attributable to Hydrocarb Corporation	(1,951,779)	(1,272,870)	(3,731,302)	(2,866,551)
Deemed dividend on preferred stock	0	(3,019)	0	(34,254)
Net loss attributable to Hydrocarb Energy Corp after dividends	$ (1,951,779)	$ (1,275,889)	$ (3,731,302)	$ (2,900,805)
Basic and diluted loss per common share (in dollars per share)	$ (0.09)	$ (0.03)	$ (0.18)	$ (0.10)
Weighted average shares outstanding (basic and diluted) (in shares)	21,203,773	42,600,075	21,178,191	27,940,539

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Notes Payable

6 Months Ended

Jan. 31, 2015

Notes Payable [Abstract]

Notes Payable

Note 7 – Notes Payable

Installment Notes Payable

In May 2012, we entered into a note payable of $18,375 to purchase a vehicle. The note is collateralized by the vehicle. The note carries an interest rate of 6.93% and is payable beginning in June 2012, in 36 installments of $567 per month. The principal balance owed on the note payable was approximately $2,273 and $7,100 as of January 31, 2015 and July 31, 2014, respectively.

In February 2014, we financed our commercial insurance program using a note payable for $403,104. Under the note, we are obligated to make nine payments of $45,718 per month, which include principal and interest, beginning in March 2014. As of January 31, 2015, the note payable balance was approximately $45,000.

Related Party Installment Note Payable

In November 2013, we issued a promissory note for funds received from Mr. Kent P. Watts, Our Chairman, of $100,000. Under the terms of the note, principal on the note was due after one year and incurred interest at 5% per annum payable on a monthly basis. Accrued interest is payable monthly beginning in May 2014, and beginning in August 2014 the principal is due in 36 monthly payments through July 2017. The note is secured by the Company’s assets owned by GBE, subject to any other lien holder's superior rights, if any. In April 2014, the Company entered into a new debt agreement whereby Mr. Watts agreed to loan the Company up to $600,000 at an interest rate of 6.25%. The previous debt of $100,000 was rolled into this new note. Additionally, we borrowed $200,000 from Mr. Watts during April 2014 and $300,000 from Mr. Watts in May 2014. The total balance on the note was $600,000 as of January 31, 2015. As part of the financing agreement with Shadow Tree Capital Management, LLC (as discussed below), this note has been subordinated, and no payments will be made until the Shadow Tree debt has been repaid.

Credit Agreement

Effective August 15, 2014, we entered into a Credit Agreement (the “Credit Agreement”) as borrower, along with Shadow Tree Capital Management, LLC, as agent (the “Agent”), and certain lender parties thereto (the “Lenders”). Pursuant to the Credit Agreement, the Lenders loaned us $4.0 million, which was represented by Term Loan Notes in an aggregate amount of $4,545,454 (the “Notes”), representing an original issue discount of 12%. We also paid the Lenders a structuring fee of $90,909 equal to 2% of the principal amount of the Notes (the “Structuring Fee”) and agreed to reimburse the Lenders for all reasonable and documented fees, costs and expenses associated with the Credit Agreement, which totaled $172,824 in aggregate. Finally, we paid ROTH Capital Partners, LLC, a placement fee of 5% of the total value of the Loans ($227,273), as placement agent and Gary W. Vick, a consulting fee of 1% of the face value of the Loans ($45,455) for consulting services rendered. As a result of the payments above, the net amount of funding received from the Loans was $3,463,539.

Pursuant to the Credit Agreement, we have the right, at any time prior to the one year anniversary of the Credit Agreement, to borrow up to an additional $1,000,000 under the Credit Agreement (the “Additional Loan”), subject to certain pre-requisites and requirements as set forth in the Credit Agreement, including, but not limited to us raising $750,000 through the sale of equity subsequent to the closing of the transactions contemplated by the Credit Agreement (which we agreed to obtain within 150 days of the date of the Credit Agreement). We also agreed to pay a 2% Structuring Fee on the Additional Loan. The proceeds of the Additional Loan may only be used for the Oil and Gas Activities.

The amount owed pursuant to the Notes (and any amount borrowed pursuant to the Additional Loan) is guaranteed by our wholly-owned subsidiary, Hydrocarb Corporation (“HC”) and its subsidiaries, and our other wholly-owned subsidiaries and is secured by a first priority security interest in substantially all of our assets (including, but not limited to the securities of our subsidiaries and HC and its subsidiaries) evidenced by a Guarantee and Collateral Agreement, various pledge agreements and a deed of trust providing the Agent, as agent for the Lenders, a security interest over our oil and gas assets and rights.

The Notes do not accrue any interest for the first nine months after their issuance date (August 15, 2014), provided thereafter they accrue interest at the rate of (a) 16% per annum where the average net monthly oil and gas production revenues of Galveston Bay Energy LLC, our wholly-owned subsidiary, for the trailing three month period (the “Trailing Three Month Revenues”) is less than $900,000; or (b) 14% per annum, where the Trailing Three Month Revenues are equal to or greater than $900,000, payable monthly in arrears through the maturity date of such Notes, August 15, 2016. The Additional Loan, if any, will bear interest at the rate of 14% per annum, payable monthly in arrears, and will have the same maturity date as the Notes. Upon the occurrence of an event of default, the Notes (and any amount outstanding under the Additional Loan) will bear interest at the rate of 24% per annum until paid in full.

Pursuant to the Credit Agreement, we agreed to issue the Lenders their pro rata share of (a) 60,000 restricted shares of common stock on the effective date of the Credit Agreement, August 15, 2014 (the “Effective Date”); (b) 32,500 restricted shares in the event any amount of the Loans (or other obligations outstanding under agreements entered into in connection with the Loans, the “Loan Documents”) are outstanding on the 12 month anniversary of the Effective Date; (c) 32,500 restricted shares in the event any amount is outstanding under the Loan Documents on the 18 month anniversary of the Effective Date; and (d) 25,000 restricted shares in the event any amount is outstanding under the Loan Documents on the 21 month anniversary of the Effective Date. The shares are to be issued pursuant to the terms and conditions of a Stock Grant Agreement, pursuant to which each of the Lenders made certain representations to the Company regarding their financial condition and other items in order for the Company to confirm that an exemption from registration existed and will exist for such issuances.

The Credit Agreement contains customary representations, warranties, covenants and requirements for the Company to indemnify the Lenders, Agent and their affiliates. The Credit Agreement also includes various covenants (positive and negative) binding upon the Company (and its subsidiaries), including but not limited to, requiring that the Company comply with certain reporting requirements, and provide notices of material corporate events and forecasts to Agent, and prohibiting us from (i) incurring any additional debt; (ii) creating any liens; (iii) making any investments; (iv) materially changing our business; (v) repaying outstanding debt; (vi) affecting a business combination, sale or transfer; (vii) undertaking transactions with affiliates; (viii) amending our organizational documents; (ix) forming subsidiaries; or (x) taking any action not in the usual course of business, in each case except as set forth in the Credit Agreement.

The Credit Agreement includes customary events of default for facilities of a similar nature and size as the Credit Agreement, including, but not limited to, if any breach or default occurs under the Loan Documents, the failure of the Company to pay any amount when due under the Loan Documents, if the Company (or its subsidiaries) is subject to any judgment in excess of $250,000 which is not discharged or stayed within 30 days, or if a change in control of the Company, any subsidiary or any guarantor should occur, defined for purposes of the Credit Agreement as any transfer of 25% or more of the voting stock of such entity.

For the six months ended January 31, 2015, the Company has recognized $352,807 of amortization expense of the original issuance discount, with a net payable balance of $3,841,420 and unamortized original issuance discount of $704,035 as of January 31, 2015. In addition, we have recognized $283,455 of debt issuance cost related to professional fees and expenses, which we have classified within other non-current assets, related to the issuance of this debt. We are amortizing these cost over the term of the loan of two years. During the six months ended January 31, 2015, we recognized $94,626 of amortization expense classified as interest expense, and have $188,829 in unamortized debt issuance cost as of January 31, 2015.

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Asset Retirement Obligations

6 Months Ended

Jan. 31, 2015

Asset Retirement Obligations [Abstract]

Asset Retirement Obligations

Note 6 – Asset Retirement Obligations

The following is a reconciliation of our asset retirement obligation liability as of January 31, 2015 and July 31, 2014:

	January 31, 2015			July 31, 2014
Liability for asset retirement obligation, beginning of period	$	11,716,230		$	10,933,398
Asset retirement obligations sold		-			(33,195	)
Asset retirement obligations incurred on properties drilled		-			-
Accretion		560,990			1,043,928
Revisions in estimated cash flows		(52,431	)		(104,237	)
Costs incurred		-			(123,664	)
Liability for asset retirement obligation, end of period	$	12,224,789		$	11,716,230
Current portion of asset retirement obligation	$	60,000		$	1,133,690
Noncurrent portion of asset retirement obligation		12,164,789			10,582,540
Total liability for asset retirement obligation	$	12,224,789		$	11,716,230

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Capital Stock (Tables)

6 Months Ended

Jan. 31, 2015

Capital Stock [Abstract]

Stock Options Granted to Employees Under Stock Incentive Plans

The following table provides information about options granted to employees under our stock incentive plans during the six months ended January 31, 2015 and 2014:

	2015		2014
Number of options granted		25,000		-
Compensation expense recognized	$	112,500	$	56,208
Weighted average exercise price of options  granted	$	4.50	$	N/A

Summary Information Regarding Stock Options Issued and Outstanding

Summary information regarding stock options issued and outstanding as of January 31, 2015 is as follows:

	Options			Weighted Average Share Price		Aggregate intrinsic value	Weighted average remaining contractual life (years)
Outstanding at  July 31, 2014		265,333		$	6.81	$		7.95
Granted		25,000			4.50			5.00
Exercised		-			-
Expired		(92,000	)		6.85
Outstanding at January 31, 2015		198,333		$	6.52	$		7.51

Summary Information Regarding Common Stock Warrants Issued and Outstanding

Summary information regarding common stock warrants issued and outstanding as of January 31, 2015, is as follows:

	Warrants			Weighted Average Share Price		Aggregate intrinsic value		Weighted average remaining contractual life (years)
Outstanding at year ended July 31,2014		1,084,584		$	7.50	$	-		1.04
Granted		-			-
Exercised		-			-
Expired		(417,917	)		7.50
Outstanding at quarter ended January 31, 2015		666,667		$	7.50	$	-		1.04

Warrants Granted to Related Parties

The following reflects the fair value at the end of the derived service for each of the warrants:

	Warrant B		Warrant C
Fair value	$	266,017	$	206,245

The following table reflects information regarding Warrant B and Warrant C during the six months ended January 31, 2015 and 2014:

	2015		2014
Compensation expense recognized	$	-	$	6,754

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HCN Acquisition (Tables)

6 Months Ended

Jan. 31, 2015

HCN Acquisition [Abstract]

Summary of Pro Forma Information

Summary of the accounting entry to record this acquisition in December 2013 is as follows.

Assets acquired	$	1,529,246
Liabilities assumed		(161,599	)
Noncontrolling interest in 95% owned HCN subsidiary		30,480
	$	1,398,127
Common stock, at par		8,397
Receivable for common stock		(2,484,879	)
Additional paid-in capital		3,874,609
	$	1,398,127

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Commitments and Contingencies

6 Months Ended

Jan. 31, 2015

Commitments and Contingencies [Abstract]

Commitments and Contingencies

Note 10 - Commitments and Contingencies

Legal

We are subject to legal proceedings, claims and liabilities which arise in the ordinary course of business. We accrue for losses associated with legal claims when such losses are probable and can be reasonably estimated. These accruals are adjusted as additional information becomes available or circumstances change. Legal fees are charged to expense as they are incurred.

As of January 31, 2015, we were party to the following legal proceedings:

Cause No. 2011-37552; Strategic American Oil Corporation (“Strategic”) v. ERG Resources, LLC (“ERG”), et al.; In the 55th District Court, Harris County, Texas. The Company is a plaintiff in this suit. In this case, Company brought claims for injunctive relief, breach of contract and fraudulent inducement against the defendant regarding the purchase of Galveston Bay Energy, LLC from ERG. The Company intends to prosecute its claims and defenses vigorously. As of the date of filing of this report, the Company is no longer seeking injunctive relief. Additionally, the below listed case has been consolidated into this case since the subject matter of the below case is subsumed within the subject matter of this case. From this point forward, there will be only this one piece of litigation. The trial was held in October 2013. The judge ruled in favor of ERG and that Hydrocarb is liable to pay the charges in the below-mentioned case and a portion of ERG’s attorney fees. The Company is in the process of post-trial motions and no judgment has been entered as of this date. As of January 31, 2015, the Company had accrued $232,974 for this cause.

Cause No. 2011-54428; ERG Resources, LLC v. Galveston Bay Energy, LLC, in the 125th Judicial District Court, Harris County, Texas. This case deals with the operating agreements for the processing of product by the entities owned by ERG. It is an action seeking payments of charges and expenses by ERG that are refuted by GBE. The Company intends to prosecute its claims and defenses vigorously. As indicated above, this case has been consolidated into the case listed above. As such, the claims in this case will be decided in cause No. 2011- 37552, which was tried in October 2013.

Judgments on both of these matters have been rendered whereby HEC paid ERG $35,000 in cash, relieving GBE of any liability to ERG and whereby HEC transferred $65,000 in HEC stock to ERG. Both cases have been fully settled and no further obligations have been or will be accrued as of January 31, 2015.

A state regulator has requested that we renew certain pipeline easements located in Galveston Bay. The easements in question were originally obtained by another company whose successor filed for bankruptcy protection.  Our subsidiary, Galveston Bay Energy, LLC purchased certain assets from the bankruptcy estate; however, based on the bankruptcy court’s order and the purchase and sale agreement, we believe the pipelines and easements in question were not included in assets purchased. The easements in question were scheduled to renew at various dates between 2012 and 2021.  Based on current posted rates, the cost of renewal of all of the easements would be approximately $400,000.  We have engaged legal counsel to dispute the regulator’s claim.  If we are obligated to renew these easements, they would be part of the asset retirement obligation that was acquired with our subsidiary, Galveston Bay Energy, LLC. As such, the potential liability for these easements is factored into the computation of the asset retirement obligation (See Note 7 – Asset Retirement Obligation) that is estimated using the guidance in ASC 410-20, Asset Retirement and Environmental Obligations.  On August 29, 2014, we filed a lawsuit in the state district court in Chambers County, Texas asking the Court to reform an assignment and assumption agreement in the property records of Chambers County.  The General Land Office has asserted claims against us under various miscellaneous easements, claiming we are obligated to either renew the easement or remove any pipeline laid in the easement.  We have disclaimed any obligations under these easements.

Cause No. 2015-10005; Hydrocarb Energy Corporation and Kent P. Watts, Individually v. Vincent Pasquale Scaturro (“Scaturro”), in the 152nd Judicial District Court, Harris County, Texas. This case deals with a lock up leak out agreement executed by Scaturro limiting the amount of shares which Mr. Scaturro could transfer or sell. The court granted a temporary restraining order on February 20, 2015 and there is a temporary injunction hearing scheduled for April 10, 2015.

Environmental

We accrue for losses associated with environmental remediation obligations when such losses are probable and can be reasonably estimated. These accruals are adjusted as additional information becomes available or circumstances change. Costs of future expenditures for environmental remediation obligations are not discounted to their present value. Recoveries of environmental remediation costs from other parties are recorded at their undiscounted value as assets when their receipt is deemed probable.

There is soil contamination at a tank facility owned by GBE. Depending on the technique used to perform the remediation, we estimate the cost range to be between $150,000 and $900,000. We cannot determine a most likely scenario, thus we have recognized the lower end of the range. We have submitted a remediation plan to the appropriate authorities and have not yet received a response. As of January 31, 2015, $150,000 has been recognized and is included in the balance sheet caption “Accounts payable and accrued expenses.”

Letters of Credit

Oil and gas operators in the State of Texas are required to obtain a letter of credit in favor of the Railroad Commission of Texas as security that they will meet their obligations to plug and abandon the wells they operate. We have two letters of credit in the amount of $6,610,000 and $120,000 issued by Green Bank. These letters of credit are collateralized by a certificate of deposit held with the bank for the same amount. We pay a 1.5% per annum fee in conjunction with these letters of credit.

In June 2014, when we renewed the letters of credit, we prepaid the entire years’ interest upfront. We amortize these fees on a straight-line basis. The following table reflects the prepaid balances as of:

	January 31, 2015
Prepaid letter of credit fees	$	101,250
Amortization		(59,412	)
Net prepaid letter of credit fees	$	41,838

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Capital Stock

6 Months Ended

Jan. 31, 2015

Capital Stock [Abstract]

Capital Stock

Note 8 – Capital Stock

Common Stock Issuances

Pursuant our Credit Agreement, as noted in Note 6 – Notes Payable, during August 2014, we issued 60,000 shares of restricted common stock to the Lenders. The shares were issued pursuant to the terms and conditions of a Stock Grant Agreement, pursuant to which each of the Lenders made certain representations to the Company regarding their financial condition and other items in order for the Company to confirm that an exemption from registration existed and will exist for such issuances.

Additionally, during the six months ended January 31, 2015, 122,000 shares of restricted common stock to certain vendors for services rendered during the period for legal and professional services. 22,000 shares were used to settle the litigation with ERG. The value of this settlement is 65,000.

Receivables for Common Stock

On September 6, 2013, HCN sold 191,667 shares of HEC common stock to an employee of HCN (the nephew of our Chairman and Chief Executive Officer) in exchange for a note receivable in the amount of $1,000,000. HEC acquired this receivable upon its acquisition of HCN. The note is non-interest bearing and is payable only upon the sale of the common stock to a third party or HEC stock being listed on either the NASDAQ or NYSE stock exchanges. We will receive 95% of the proceeds up to $1,000,000 if the underlying stock is sold to a third party. Within 90 days of HEC stock being listed on a major stock exchange, we will receive up to $1,000,000, or the note can be paid earlier at the discretion of the other party. These shares of common stock are held in the name of the investors and are beneficially owned by the investors and the shares are not retrievable by the Company.

On December 4, 2013 HCN sold 619,960 shares of unregistered and restricted HEC common stock in return for a $1,859,879 non-interest bearing note receivable from an  entity in which Michael Watts has a minority interest. HEC acquired this receivable upon its acquisition of HCN. The 619,960 HEC common stock shares were previously issued by HEC to HCN to settle liabilities due by HEC related to the consulting services agreement described below in Note 6 – Notes Payable. The receivable from the individual is due to HEC upon the following conditions: 1) 100% of the proceeds payable from the sale of all or part of the shares by the owner of the shares to a third party; 2) within sixty days of the six month anniversary of the December 4, 2013 stock sale or within sixty days from the date that the shares become unrestricted (whichever is first); or 3) 100% of any remaining balance due within 90 days of HEC being listed on a major stock exchange and whereby the share price is above $6.00 per share. As with the above receivable for common stock, this receivable for the sale of HEC common stock is classified as a receivable for common stock within equity. These shares of common stock are held in the name of the investors and are beneficially owned by the investors and the shares are not retrievable by the Company.

This note receivable was extended on August 4, 2014, for an extension fee of $50,000, payable in the future, with $750,000 due to be repaid by December 31, 2014, with the remaining balance to be repaid by March 31, 2015. These repayment terms may be changed if the Company is successful in being up-listed to either the NYSE or NASDAQ. If this occurs, the entire balance is due within 60 days after an up-listing occurs.

Stock Options and Warrants

As of January 31, 2015, HEC could grant up to 737,706  shares of common stock under the 2013 Stock Incentive Plan (“2013 Plan”). The Plan is administered by the Compensation Committee of the Board of Directors, or in the absence of a Compensation Committee, the full Board of Directors, which has substantial discretion to determine persons, amounts, time, price, exercise terms, and restrictions of the grants, if any.

Options granted to non-employees

We account for options granted to non-employees under the provisions of ASC 505-50, Equity-Based Payments to Non-employees, and record the associated expense at fair value on the final measurement date. Because there is no disincentive for nonperformance for these awards, the final measurement date occurs when the services are complete, which is the vesting date. For the options granted to non-employees on a graded vesting schedule, we estimate the fair value of the award as of the end of each reporting period and recognize an appropriate portion of the cost based on the fair value on that date. When the award vests, we adjust the cost previously recognized so that the cost ultimately recognized is equivalent to the fair value on the date the performance is complete. There were 25,000 options granted to non-employees during the six months ended January 31, 2015. Compensation expense of $112,500 was recognized during the six months ended January 31, 2015. No options have been exercised, and 92,000 expired during the six months ended January 31, 2015.

Options granted to employees

The following table provides information about options granted to employees under our stock incentive plans during the six months ended January 31, 2015 and 2014:

	2015		2014
Number of options granted		25,000		-
Compensation expense recognized	$	112,500	$	56,208
Weighted average exercise price of options  granted	$	4.50	$	N/A

Summary information regarding stock options issued and outstanding as of January 31, 2015 is as follows:

	Options			Weighted Average Share Price		Aggregate intrinsic value	Weighted average remaining contractual life (years)
Outstanding at  July 31, 2014		265,333		$	6.81	$		7.95
Granted		25,000			4.50			5.00
Exercised		-			-
Expired		(92,000	)		6.85
Outstanding at January 31, 2015		198,333		$	6.52	$		7.51

No non-vested stock options existed as of January 31, 2015.

Warrants

Summary information regarding common stock warrants issued and outstanding as of January 31, 2015, is as follows:

	Warrants			Weighted Average Share Price		Aggregate intrinsic value		Weighted average remaining contractual life (years)
Outstanding at year ended July 31,2014		1,084,584		$	7.50	$	-		1.04
Granted		-			-
Exercised		-			-
Expired		(417,917	)		7.50
Outstanding at quarter ended January 31, 2015		666,667		$	7.50	$	-		1.04

Warrants granted to related party

During the year ended July 31, 2011, we entered into a consulting agreement with Geoserve Marketing, LLC (“Geoserve”), a company controlled by Michael Watts, who is a related party. Under the terms of the agreement, we granted warrants to purchase 400,000 shares of common stock that have a market condition.  If our common stock attains a five day average closing price of $22.50 per share, 200,000 warrants with an exercise price of $7.50 and an expiration date of February 15, 2016 shall be exercisable (“Warrant B”). If our common stock attains a five day average closing price of $45.00 per share, 200,000 warrants with an exercise price of $7.50 and an expiration date of February 15, 2016 shall be exercisable (“Warrant C”). The fair value of warrants that vest upon the attainment of a market condition must be estimated and amortized over the lower of the implicit or derived service period of the warrants. Previously recognized expense is not reversed in the event of a subsequent decline in the fair value of market condition equity based compensation.  The fair value of the warrants and the derived service period were valued using a lattice model that values the liability of the warrants based on a probability weighted discounted cash flow model. This model is based on future projections of the various potential outcomes. Warrant B and Warrant C were amortized over the derived service periods of 2.08 years and 2.49 years, respectively.  No expense related to these warrants was recognized during the six months ended January 31, 2015, as the expense for the warrants was fully amortized in previously reported periods.

The following reflects the fair value at the end of the derived service for each of the warrants:

	Warrant B		Warrant C
Fair value	$	266,017	$	206,245

The following table reflects information regarding Warrant B and Warrant C during the six months ended January 31, 2015 and 2014:

	2015		2014
Compensation expense recognized	$	-	$	6,754

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Related Party Transactions

6 Months Ended

Jan. 31, 2015

Related Party Transactions [Abstract]

Related Party Transactions

Note 9 – Related Party Transactions

During the reporting period we have had transactions as described below with entities controlled by Michael Watts. Michael Watts is the father-in-law of Jeremy Driver, who served as a director and Chief Executive Officer through November, 2013. Additionally, Michael Watts is the brother of Kent Watts, who became the Company’s Chairman of Board of Directors in October 2013. Michael Watts is a related party to the Company by virtue of his relationships with Mr. Driver and with Mr. Watts. Further, two of Michael Watts’ adult children are significant shareholders of HEC’s common stock. Between them, they are beneficial owners of approximately 68% of the outstanding common stock.

A company controlled by Michael Watts purchased a 5% working interest in one of our wells in Galveston Bay.  As of January 31, 2015 and July 31, 2014, this company owed us $100 and $80,468, respectively, in joint interest billings.

During 2011, we entered into a consulting contract with a company controlled by Michael Watts, as detailed in Note 7 – Capital Stock - Warrants.  The contract permits us to terminate the agreement after the first year with thirty days’ notice.  We recognized expense of $0 and $6,754 from this contract during the six months ended January 31, 2015 and 2014, respectively.

During the three months ended October 31, 2013, a company controlled by one of our former officers, Carter E & P, LLC (“Carter”) operated several properties onshore in South Texas, including our producing properties located near the Victoria Barge Canal in Calhoun County, Texas. Although he was not a related party after September 1, 2013, he was a related party during the periods covered by this report. As of January 31, 2015 and July 31, 2014, there were no outstanding related party receivable from Carter.  Revenues generated, lease operating costs, and contractual overhead charges incurred during the time Carter was a related party were as follows:

	Three months ended January 31,				Six Months ended January 31,
	2015		2014		2015	2014
Revenues	$	-	$	-	$	$	39,274
Lease operating costs	$	-	$	-	$	$	23,259
Overhead costs incurred	$	-	$	-	$	$	4,687

In November 2013, we issued a promissory note for funds received from Mr. Kent Watts, Our Chairman, of $100,000. Under the terms of the note, principal on the note was due after one year and incurred interest at 5% per annum payable on a monthly basis. In April 2014, the Company entered into a new debt agreement whereby Mr. Watts agreed to loan the Company up to $600,000 at an interest rate of 6.25%. The previous debt of $100,000 was rolled into this new note. Additionally, we borrowed $200,000 from Mr. Watts during April 2014 and $300,000 from Mr. Watts in May 2014. The total balance on the note was $600,000 as of January 31, 2015. Accrued interest is payable monthly beginning in May 2014, and beginning in August 2014 the principal is due in 36 monthly payments through July 2017. The note is secured by the Company’s assets owned by GBE, subject to any other lien holder's superior rights, if any. As part of the financing agreement with Shadow Tree, this note has been subordinated, and no payments will be made until the Shadow Tree debt has been repaid.

During the three months ended April 30, 2014, Kent P. Watts advanced HCN (prior to its acquisition by HEC) funds for working capital purposes to the Company. On December 3, 2013, HCN issued 3,963 shares of its Series A Preferred Stock to Kent P. Watts in order to cancel the majority of the outstanding balance HCN owed to Kent P. Watts at that time. (See Note 7 – Capital Stock – HCN Series A Preferred Stock). During the six months ended as of January 31, 2015, the Company had current liabilities owed to Mr. Watts of $98,600.

During the six months ended January 31, 2015, the Company received approximately $58,000 from Mr. Michael Watts for a related party receivable previously outstanding for approximately the same amount as of July 31, 2014.

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Going Concern

6 Months Ended

Jan. 31, 2015

Going Concern [Abstract]

Going Concern

Note 11 – Going Concern

The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has not generated any significant revenues from ongoing operations and incurred net losses since inception. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset amounts or the classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

Management’s principal objective is to maximize shareholder value by, among other things, increasing production by developing its acreage, increasing profit margins by evaluating and optimizing its production, and executing its business plan to increase property values, prove its reserves, and expand its asset base.   While management currently has no plans to discontinue or revise its business plan, recent volatility and decrease in crude oil prices may cause management to cut back on its development or acquisition plans, or otherwise revisit its business and/or its capital expenditure plan.  Continued volatility and decreases in crude oil prices may accelerate such cut back or revisions.  To combat price volatility in crude oil process and further diversify the business, management has increased its focus on the development of HEC. 

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Capital Stock, Options Granted (Details) (USD $)	6 Months Ended			12 Months Ended
	Jan. 31, 2015	Jan. 31, 2014		Jul. 31, 2014
Information about options granted to non-employees and employee under stock incentive plans [Abstract]
Compensation expense recognized	$ 453,475	$ 1,214,213
Stock Option [Member]
Information about options granted to non-employees and employee under stock incentive plans [Abstract]
Number of options granted (in shares)	25,000
Weighted average exercise price of options granted (in dollars per share)	$ 4.50
Number of options Exercised (in shares)	0
Number of options expired (in shares)	92,000
Options [Roll Forward]
Outstanding, beginning balance (in shares)	265,333
Granted (in shares)	25,000
Exercised (in shares)	0
Expired (in shares)	(92,000)
Outstanding, ending balance (in shares)	198,333			265,333
Weighted Average Exercise Price [Roll Forward]
Outstanding, beginning balance (in dollars per share)	$ 6.81
Granted (in dollars per share)	$ 4.50
Exercised (in dollars per share)	$ 0
Expired (in dollars per share)	$ 6.85
Outstanding, ending balance (in dollars per share)	$ 6.52			$ 6.81
Aggregate intrinsic value, beginning balance	0
Aggregate intrinsic value, ending balance	0			0
Weighted average remaining contractual life, beginning balance	7 years 6 months 4 days			7 years 11 months 12 days
Weighted average remaining contractual life, Granted	5 years
Weighted average remaining contractual life, ending balance	7 years 6 months 4 days			7 years 11 months 12 days
Stock Option [Member] | Non Employees [Member]
Information about options granted to non-employees and employee under stock incentive plans [Abstract]
Number of options granted (in shares)	25,000
Compensation expense recognized	112,500
Number of options Exercised (in shares)	0
Number of options expired (in shares)	92,000
Options [Roll Forward]
Granted (in shares)	25,000
Exercised (in shares)	0
Expired (in shares)	(92,000)
Stock Option [Member] | Employees [Member]
Information about options granted to non-employees and employee under stock incentive plans [Abstract]
Number of options granted (in shares)	25,000	0
Compensation expense recognized	$ 112,500	$ 56,208
Weighted average exercise price of options granted (in dollars per share)	$ 4.50		[1]
Options [Roll Forward]
Granted (in shares)	25,000	0
Weighted Average Exercise Price [Roll Forward]
Granted (in dollars per share)	$ 4.50		[1]
2013 Stock Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Maximum number of shares authorized (in shares)	737,706

[1] N/A

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Oil and Gas Properties (Tables)

6 Months Ended

Jan. 31, 2015

Oil and Gas Properties [Abstract]

Schedule of Oil and Natural Gas Properties

Oil and natural gas properties as of January 31, 2015 and July 31, 2014 consisted of the following:

	January 31, 2015			July 31, 2014
Evaluated Properties
Costs subject to depletion	$	21,371,958		$	19,153,125
Accumulated impairment		(373,335	)		(373,335	)
Accumulated depletion		(3,849,998	)		(3,491,420	)
Total evaluated properties		17,148,625			15,288,370
Unevaluated properties		2,302,098			2,119,769
Net oil and gas properties	$	19,450,723		$	17,408,139

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Description of Business and Summary of Significant Accounting Policies (Details) (USD $)	0 Months Ended	6 Months Ended
	May 08, 2014	Jan. 31, 2015
Description of Business and Summary of Significant Accounting Policies [Abstract]
Revenue dominated in foreign currencies		$ 0
Subsidiary or Equity Method Investee [Line Items]
Reverse stock split conversion ratio	3
Penasco Petroleum Inc [Member]
Subsidiary or Equity Method Investee [Line Items]
Ownership interest (in hundredths)		100.00%
Galveston Bay, LLC [Member]
Subsidiary or Equity Method Investee [Line Items]
Ownership interest (in hundredths)		100.00%
SPE Navigation I, LLC [Member]
Subsidiary or Equity Method Investee [Line Items]
Ownership interest (in hundredths)		100.00%
Namibia Exploration, Inc [Member]
Subsidiary or Equity Method Investee [Line Items]
Ownership interest (in hundredths)		100.00%
Hydrocarb Corporation, HCN [Member]
Subsidiary or Equity Method Investee [Line Items]
Ownership interest (in hundredths)		100.00%
Hydrocarb Texas Corporation [Member]
Subsidiary or Equity Method Investee [Line Items]
Ownership interest (in hundredths)		100.00%
Hydrocarb Namibia Energy [Member]
Subsidiary or Equity Method Investee [Line Items]
Ownership interest (in hundredths)		100.00%
Otaiba Hydrocarb LLC [Member]
Subsidiary or Equity Method Investee [Line Items]
Ownership interest (in hundredths)		95.00%

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CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (USD $)	6 Months Ended
	Jan. 31, 2015	Jan. 31, 2014
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$ (3,732,607)	$ (2,869,911)
Adjustments to reconcile net income loss to net cash used in operating activities:
Depreciation, depletion, and amortization	386,422	493,679
Accretion	560,990	488,485
Amortization of debt discount	352,807	0
Debt issuance cost	94,626	0
Warrants granted to related party	388,475	6,754
Share based compensation	453,475	1,214,213
Loss on ERG settlement - shares issued	65,000	0
Changes in operating assets and liabilities:
Accounts receivable	290,546	491,840
Other receivables	(151,564)	0
Accounts receivable - related party	55,291	201,284
Payments on borrowings from Related Parties	(66,957)	0
Other assets	291,021	389,566
Accounts payable and accrued expenses	853,435	(188,738)
Advances	0	15,100
Settlement of asset retirement obligation	0	(83,840)
NET CASH PROVIDED (USED) OPERATIONS	(612,515)	158,432
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of oil and gas properties	(2,453,592)	(996,985)
Proceeds from sale of property and equipment	2,366	(123,898)
Change in restricted cash	20,942	0
CASH USED IN INVESTING ACTIVITIES	(2,430,284)	(1,120,883)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on notes payable	(287,625)	(181,498)
Proceeds from note payable to related party	0	100,000
Payments on borrowings from Related Parties	0	1,142,232
Proceeds from borrowings	3,452,812	0
Proceeds from subsidiary sale of its common stock	0	31,071
CASH PROVIDED BY FINANCING ACTIVITIES	3,165,187	1,091,805
NET CHANGE IN CASH AND CASH EQUIVALENTS	122,388	129,354
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	144,258	354,829
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$ 266,646	$ 484,183

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Impairment

6 Months Ended

Jan. 31, 2015

Impairment [Abstract]

Impairment

Note 5 - Impairment

Oil and Gas Properties

We account for our oil and natural gas producing activities using the full cost method of accounting as prescribed by the United States Securities and Exchange Commission (“SEC”). Under this method, subject to a limitation based on estimated value, all costs incurred in the acquisition, exploration, and development of proved oil and natural gas properties, including internal costs directly associated with acquisition, exploration, and development activities, the costs of abandoned properties, dry holes, geophysical costs, and annual lease rentals are capitalized within a cost center.

We evaluated our capitalized costs using the full cost ceiling test as prescribed by the Securities and Exchange Commission at the end of each reporting period. As of January 31, 2015 and July 31, 2014, the net book value of oil and gas properties did not exceed the ceiling amount and thus, no impairment of the properties was required. Changes in production rates, levels of reserves, future development costs, and other factors will determine our actual ceiling test calculation and impairment analyses in future periods.

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HCN Acquisition (Details) (USD $)	0 Months Ended
	Dec. 09, 2013 Well acre	Jan. 31, 2015	Jul. 31, 2014
Summary of the accounting entry to record the acquisition [Abstract]
Common stock, at par		$ 21,267	$ 21,082
Receivable for common stock		(2,184,879)	(2,184,879)
Additional paid-in capital		82,929,743	82,228,799
Recorded Unconditional Purchase Obligation [Line Items]
Working interest rights (in hundredths)	39.00%	90.00%
Cost responsibility rate (in hundredths)		100.00%
Concession area	5,300,000
Number of wells required to be drilled under the purchase obligation	1
Initial Exploration Period [Member]
Recorded Unconditional Purchase Obligation [Line Items]
Area of seismic data required by purchase obligation	750
Minimum required expenditure	4,505,000
First Renewal Exploration Period [Member]
Recorded Unconditional Purchase Obligation [Line Items]
Duration of commitment period	2 years
Area of seismic data required by purchase obligation	200
Minimum required expenditure	17,350,000
Percentage of exploration license area relinquish requirement (in hundredths)	25.00%
Second Renewal Exploration Period [Member]
Recorded Unconditional Purchase Obligation [Line Items]
Duration of commitment period	25 years
Minimum required expenditure	300,000
HCN [Member]
Business Acquisition, Equity Interests Issued or Issuable [Line Items]
Shares reserved for issuance to certain stock holders with certain rights (in shares)	7,470,000
Shares issued and sold to extinguish debt (in shares)	619,960
Value of shares issued to extinguish debt	3,589,567
Summary of the accounting entry to record the acquisition [Abstract]
Assets acquired	1,529,246
Liabilities assumed	(161,599)
Noncontrolling interest in 95% owned HCN subsidiary	30,480
Total	1,398,127
Common stock, at par	8,397
Receivable for common stock	(2,484,879)
Additional paid-in capital	3,874,609
Recorded Unconditional Purchase Obligation [Line Items]
Working interest rights (in hundredths)	51.00%
HCN [Member] | Common Stock [Member]
Business Acquisition, Equity Interests Issued or Issuable [Line Items]
Number of shares exchanged (in shares)	8,396,667
Hydrocarb Namibia Energy (Pty) Limited [Member]
Business Acquisition, Equity Interests Issued or Issuable [Line Items]
Percentage ownership in subsidiaries (in hundredths)	100.00%
Otaiba Hydrocarb LLC [Member]
Business Acquisition, Equity Interests Issued or Issuable [Line Items]
Percentage ownership in subsidiaries (in hundredths)	95.00%

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Subsequent Events (Details) (USD $)	3 Months Ended
	Jan. 31, 2015
Subsequent Event [Line Items]
Original issue discount	$ 704,035
Subsequent Event [Member]
Subsequent Event [Line Items]
Convertible note, face amount	1,000,000
Subsequent Event [Member] | LG Capital Funding, LLC Convertible Note [Member]
Subsequent Event [Line Items]
Convertible note, face amount	105,000
Interest rate (in hundredths)	8.00%
Interest rate in case of default (in hundredths)	24.00%
Due and payable date	Feb. 17, 2016
Conversion price percentage average of the two lowest closing bid prices of common stock (in hundredths)	65.00%
Conversion price percentage decrease in the event of "DTC chill" (in hundredths)	55.00%
Excess percentage of outstanding shares that convertible note cannot be converted to Company's common stock (in hundredths)	9.90%
Daily payment in the event of failure to deliver shares	250
Daily payment in the event of failure to deliver shares after 10 days	500
Note increase in the event of no "bid" price (in hundredths)	20.00%
Increase in outstanding principal amount in the event of common stock being delisted (in hundredths)	50.00%
Increase in outstanding principal amount if not paid at maturity (in hundredths)	10.00%
Percentage of repayment upon the occurrence of certain fundamental events (in hundredths)	150.00%
Legal fees	5,000
Net amount received in connection with the sale	100,000
Subsequent Event [Member] | LG Capital Funding, LLC Convertible Note [Member] | Minimum [Member]
Subsequent Event [Line Items]
Percentage of prepayment amount of the outstanding balance of the Convertible Note (in hundredths)	115.00%
Subsequent Event [Member] | LG Capital Funding, LLC Convertible Note [Member] | Maximum [Member]
Subsequent Event [Line Items]
Percentage of prepayment amount of the outstanding balance of the Convertible Note (in hundredths)	135.00%
Subsequent Event [Member] | Adar Bays, LLC Convertible Note [Member]
Subsequent Event [Line Items]
Convertible note, face amount	105,000
Interest rate (in hundredths)	8.00%
Interest rate in case of default (in hundredths)	24.00%
Due and payable date	Feb. 17, 2016
Conversion price percentage average of the two lowest closing bid prices of common stock (in hundredths)	65.00%
Conversion price percentage decrease in the event of "DTC chill" (in hundredths)	55.00%
Excess percentage of outstanding shares that convertible note cannot be converted to Company's common stock (in hundredths)	9.90%
Daily payment in the event of failure to deliver shares	250
Daily payment in the event of failure to deliver shares after 10 days	500
Note increase in the event of no "bid" price (in hundredths)	20.00%
Increase in outstanding principal amount in the event of common stock being delisted (in hundredths)	50.00%
Increase in outstanding principal amount if not paid at maturity (in hundredths)	10.00%
Percentage of repayment upon the occurrence of certain fundamental events (in hundredths)	150.00%
Legal fees	5,000
Net amount received in connection with the sale	100,000
Subsequent Event [Member] | Adar Bays, LLC Convertible Note [Member] | Minimum [Member]
Subsequent Event [Line Items]
Percentage of prepayment amount of the outstanding balance of the Convertible Note (in hundredths)	115.00%
Subsequent Event [Member] | Adar Bays, LLC Convertible Note [Member] | Maximum [Member]
Subsequent Event [Line Items]
Percentage of prepayment amount of the outstanding balance of the Convertible Note (in hundredths)	135.00%
Subsequent Event [Member] | KBM Worldwide, Inc. Convertible Note [Member]
Subsequent Event [Line Items]
Convertible note, face amount	350,000
Interest rate (in hundredths)	8.00%
Interest rate in case of default (in hundredths)	22.00%
Entered date	Feb. 17, 2015
Due and payable date	Feb. 19, 2016
Conversion price percentage (in hundredths)	50.00%
Excess percentage of outstanding shares that convertible note cannot be converted to Company's common stock (in hundredths)	9.99%
Original issue discount	26,000
Legal fees	4,000
Net amount received in connection with the sale	320,000
Common stock deposited into escrow	750,000
Subsequent Event [Member] | KBM Worldwide, Inc. Convertible Note [Member] | Minimum [Member]
Subsequent Event [Line Items]
Percentage of prepayment amount of the outstanding balance of the Convertible Note (in hundredths)	110.00%
Subsequent Event [Member] | KBM Worldwide, Inc. Convertible Note [Member] | Maximum [Member]
Subsequent Event [Line Items]
Percentage of prepayment amount of the outstanding balance of the Convertible Note (in hundredths)	135.00%
Subsequent Event [Member] | JSJ Investments Inc. Convertible Note [Member]
Subsequent Event [Line Items]
Convertible note, face amount	137,000
Interest rate (in hundredths)	10.00%
Payable after date	Aug. 23, 2015
Prepayment percentage until 90th day (in hundredths)	135.00%
Prepayment percentage after 91st day (in hundredths)	140.00%
Prepayment percentage maturity date (in hundredths)	150.00%
Percentage of conversion price during 20 days prior to any conversion (in hundredths)	58.00%
Percentage of conversion price during 20 days prior to the date of the note (in hundredths)	58.00%
Percentage of conversion amount within three business days (in hundredths)	25.00%
Percentage of conversion amount within for each additional five business days (in hundredths)	25.00%
Legal fees	2,000
Diligence fees	10,000
Net amount received in connection with the sale	125,000
Subsequent Event [Member] | Typenex Co-Investment, LLC Convertible Note [Member]
Subsequent Event [Line Items]
Convertible note, face amount	350,000
Interest rate (in hundredths)	10.00%
Interest rate in case of default (in hundredths)	22.00%
Due and payable date	Jan. 05, 2016
Excess percentage of outstanding shares that convertible note cannot be converted to Company's common stock (in hundredths)	4.99%
Percentage increase of market capitalization (in hundredths)	9.99%
Market capitalization limit	10,000,000
Percentage of prepayment amount of the outstanding balance of the Convertible Note (in hundredths)	125.00%
Conversion price (in dollars per share)	$ 2.25
Current market capitalization limit	20,000,000
Multiplier (in hundredths)	80.00%
Reduction in convertible note (in hundredths)	5.00%
Market Price limit (in dollars per share)	$ 0.75
Prepayment minimum amount	70,000
Original issue discount	45,000
Legal fees	5,000
Net amount received in connection with the sale	300,000
Warrants, granted (in shares)	38,889
Warrants, exercise price (in dollars per share)	$ 2.25
Shares pledged by Christopher Watts (in shares)	1,100,000
Pledged, amount minimum	$ 900,000

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Supplemental Cash Flow Information (Tables)

6 Months Ended

Jan. 31, 2015

Supplemental Cash Flow Information [Abstract]

Schedule of Cash Flow, Supplemental Disclosures

NONCASH INVESTING AND FINANCING ACTIVITIES
Asset retirement obligation sold	$	-		$	4,381
Asset retirement obligations incurred	$	-		$	100,932
Asset retirement obligations - change in estimate	$	(52,431	)	$	-
Accounts payable for oil and gas properties	$	-		$	11,373
Note payable for prepaid insurance	$	-		$	-
Settlement of HCN debt with HCN preferred stock	$	-		$	1,585,200
Common stock exchanged for HCN common stock for acquisitin of HCN	$	-		$	25,190
Receivable for common stock - related party	$	-		$	1,000,000
Receivable for common stock - related party	$	-		$	1,859,879
Common stock issued to satisfy contingently issuable shares from 2012 acquisition of Namibia Exploration , Inc.	$	-		$	22,410
Value of shares issued to lenders as part of debt financing	$	247,655		$	-