Exhibit Number:
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Description of Exhibit
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GRAVIS OIL CORPORATION | ||
Date: June 22, 2012
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By: /s/ JEFFREY FREEDMAN
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Jeffrey Freedman
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Chief Financial Officer
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·
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Once initiated, steam flooding must be continuous. The Company believes that shut-in periods of several months reduce heat efficiency and increase steam-to-oil ratios;
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·
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Observation wells must be drilled and instrumented throughout the projects to improve effectiveness of the control of steam injection to an individual pattern; and
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·
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Well design must include cased-through and perforated completions to allow control of the vertical distribution of steam in the reservoir.
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Project Goal
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Estimated Cost (millions)
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Capital identified in the GLJ Missouri Property Report - Total Proved Reserves to drill, complete and tie in new patterns of wells in both existing projects
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$2.284 | ||
To re-complete existing well patterns in Marmaton River Phase II and Grassy Creek Phase I
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$0.450 | ||
To install observation wells one per existing pattern
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$0.125 | ||
To cover operating expenses through initial pattern heating or re-heating. This also allows for the time lag between production and oil sales receipts.
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$2.0 | ||
General and administrative expenses
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$2.4 | ||
Contingency of 20%
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$1.4 | ||
Total
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$8.659 |
Three Months Ended January 31
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Nine Months Ended January 31
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|||||||||||||||
2012
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2011
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2012
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2011
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|||||||||||||
Revenue and other income
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||||||||||||||||
Oil and natural gas sales
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$ | - | $ | 227,709 | $ | 430,164 | $ | 1,116,014 | ||||||||
Interest and Other Income
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227 | 840 | 10,761 | 2,171 | ||||||||||||
227 | 228,549 | 440,925 | 1,118,185 | |||||||||||||
Expenses
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||||||||||||||||
Operating
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112,686 | 779,063 | 1,262,840 | 2,413,838 | ||||||||||||
Impairment of oil and gas assets
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- | - | - | - | ||||||||||||
General and administrative (note 12)
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314,522 | 663,439 | 1,820,286 | 1,753,656 | ||||||||||||
Depreciation, depletion and accretion
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28,899 | 127,953 | 260,018 | 670,429 | ||||||||||||
Loss on marketable securities
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- | - | - | - | ||||||||||||
Interest and accretion
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950,043 | 431,344 | 2,587,916 | 801,925 | ||||||||||||
Foreign exchange (gain) loss
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11,007 | (30,738 | ) | 6,399 | (348,130 | ) | ||||||||||
Change in fair value of derivatives (note 8)
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(132,100 | ) | 4,478,080 | (14,050,348 | ) | 1,177,361 | ||||||||||
Change in fair value of exchange shares
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- | - | - | - | ||||||||||||
1,285,057 | 6,449,141 | (8,112,889 | ) | 6,469,079 | ||||||||||||
Net income (loss)
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(1,284,830 | ) | (6,220,592 | ) | 8,553,814 | (5,350,894 | ) | |||||||||
Foreign exchange translation
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- | - | - | (283,771 | ) | |||||||||||
Total comprehensive income (loss)
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$ | (1,284,830 | ) | $ | (6,220,592 | ) | $ | 8,553,814 | $ | (5,634,665 | ) | |||||
Net income (loss) per share
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||||||||||||||||
Basic
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$ | (0.09 | ) | $ | (0.47 | ) | $ | 0.61 | $ | (0.40 | ) | |||||
Diluted
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$ | - | $ | - | $ | 0.14 | $ | - | ||||||||
Weighted Average Shares Outstanding
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||||||||||||||||
Basic
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14,078,947 | 133,289,472 | 14,078,947 | 133,289,472 | ||||||||||||
Diluted
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113,460,600 | 133,289,472 | 59,224,888 | 133,289,472 | ||||||||||||
As at January 31
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As at April 30
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|||||||||||||||
2012 | 2011 | 2011 | ||||||||||||||
Total Assets
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$ | 18,897,478 | $ | 34,297,050 | $ | 20,818,512 | ||||||||||
Long-term liabilities
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$ | 2,656,336 | $ | 10,982,880 | $ | 20,061,550 | ||||||||||
Total liabilities
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$ | 11,085,619 | $ | 13,471,056 | $ | 23,650,925 | ||||||||||
Capital Stock¹
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$ | 79,016,425 | $ | 78,836,171 | $ | 79,016,425 | ||||||||||
Shareholders' equity (deficiency in assets)
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$ | 7,811,859 | $ | (58,010,177 | ) | $ | (2,832,413 | ) | ||||||||
Common shares outstanding
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14,078,947 | 133,289,472 | 133,289,472 |
Cost
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Missouri
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Kentucky
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Montana
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Kansas
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Other
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Total
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||||||||||||||||||
Balance, April 30, 2011
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$ | 16,364,000 | $ | 100,000 | $ | 75,000 | $ | 98,214 | $ | 1,338,616 | $ | 17,975,830 | ||||||||||||
Additions
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281,678 | - | - | - | - | 281,678 | ||||||||||||||||||
Depletion
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(170,960 | ) | - | - | - | - | (170,960 | ) | ||||||||||||||||
Balance, January 31, 2012
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$ | 16,474,718 | $ | 100,000 | $ | 75,000 | $ | 98,214 | $ | 1,338,616 | $ | 18,055,409 |
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·
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SOR performance may not reach the full cycle range of 7:1 to 9:1 as expected which would in turn lead to operating costs higher than forecast;
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The Company has identified two critical project design improvements that will be included in future development. Those are the installation of low-cost observation wells, and cased-through-reservoir well construction. These improvements are not expected to have a significant impact on future development costs. However, Grassy Creek Phase I and Marmaton River Phase II projects must be retrofitted at a cost of approximately $300,000 per project;
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Grassy Creek Phase I has produced to date approximately 15% of its proved reserves estimate and has remaining recoverable reserves of 172 Mbbl. The initial time to warm the formation to full production capacity was estimated at 9 months. Grassy Creek Phase I may require additional warming time of up to 3 months. That would result in increased cost to recover the remaining reserves of up to $1.50 per bbl for Grassy Creek Phase I;
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Operating costs, as noted in the overview section above, have been significantly higher than forecast during operation of the pilot projects, and while Gravis expects full cycle operating costs to be in range of $29 per bbl to $32 as forecast, there can be no guarantee that operating costs will not vary either lower or higher than forecast; and
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In September 2011, Gravis shut in all operations in Missouri, having been unable to secure sufficient funding on commercially acceptable terms to follow through to commercially successful exploitation of its Missouri reserves. Including funds to implement the planned modifications to wells in Grassy Creek Phase I, and Marmaton River Phase II, for operating costs to bring the projects to full production rates, for contingencies, and for Corporate purposes, Gravis will need to secure financing of approximately $8.7 million in order to re-commence operations in both Grassy Creek and Marmaton River projects
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the lack of funds available to the Company at year-end and into fiscal 2012;
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the limited progress in attracting additional funds from March 2011 until September 2011; and
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·
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the reduction in remaining lease term of a significant part of the acreage.
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Three Months Ended January 31
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Nine Months Ended January 31
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2012
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2011
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2012
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2011
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Stock-based compensation
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Stock options
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$ | 16,372 | $ | 27,982 | $ | 62,362 | $ | 208,014 | ||||||||
Compensation warrants
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- | - | - | - | ||||||||||||
Consulting warrants
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- | 85,300 | - | 166,810 | ||||||||||||
Shares issued for services
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- | - | - | - | ||||||||||||
Less: capitalized portion
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- | (715 | ) | - | (4,960 | ) | ||||||||||
16,372 | 112,567 | 62,362 | 369,864 | |||||||||||||
Salaries and benefits
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152,802 | 243,680 | 1,201,201 | 746,093 | ||||||||||||
Professional fees
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60,366 | 290,782 | 194,748 | 517,833 | ||||||||||||
Investor relations
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135 | (55,149 | ) | 85,412 | 46,143 | |||||||||||
Office administration
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112,171 | 118,473 | 335,839 | 206,813 | ||||||||||||
Information technology
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4,624 | 6,237 | 34,588 | 29,685 | ||||||||||||
Less capitalized portion
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(31,948 | ) | (53,151 | ) | (93,864 | ) | (162,775 | ) | ||||||||
298,150 | 550,872 | 1,757,924 | 1,383,792 | |||||||||||||
$ | 314,522 | $ | 663,439 | $ | 1,820,286 | $ | 1,753,656 |
§
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Stock-based compensation expense relating to stock options in the three and nine months ended January 31, 2012 is lower due to expiration of options. There has been no activity related to the consulting warrants in the current period as they have been fully amortized
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§
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Salaries and benefits are lower in the three months ended January 31, 2012 due to the termination of operations and administrative personnel.
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§
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Professional fees, consisting of legal, audit, accounting and tax advisory fees are lower in the current three and nine months ended January 31, 2012 due decreases in activity. In addition in the prior periods legal fees were significantly higher due to the Company’s dispute with its landlord.
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§
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Office and administrative are higher in the current nine month period due to the cost of enhanced insurance coverage and the move of certain administrative functions to Houston.
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§
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All field, administrative and G&A expenses are down in the current quarter due to cessation of operations.
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Principal amount
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Issue date
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Annual interest rate
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Effective interest rate
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Junior Notes
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$2.5 million
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July 30, 2011
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7.5%
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47%
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Senior I Notes
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$2.5 million
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July 30, 2011
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12%
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43%
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Senior II Notes
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$4.6 million
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December 2010, January & March 2011
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12%
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43%
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Preferred A Warrants
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Preferred B Options
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Note Conversion Features
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Warrants
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Consulting Warrants
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Total
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Balance, April 30, 2010
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$ | 740,269 | $ | 590,640 | $ | - | $ | - | $ | - | $ | 1,330,909 | ||||||||||||
Fair value at date of issue
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- | - | 1,883,200 | 1,808,070 | 166,810 | 3,858,080 | ||||||||||||||||||
Conversion of Senior I Notes
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- | - | (84,530 | ) | - | - | (84,530 | ) | ||||||||||||||||
Change in fair value
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2,479,431 | 4,531,654 | 1,070,960 | 988,820 | 324,570 | 9,395,435 | ||||||||||||||||||
Balance, April 30, 2011
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3,219,700 | 5,122,294 | 2,869,630 | 2,796,890 | 491,380 | 14,499,894 | ||||||||||||||||||
Exercise of Preferred B Options (b)
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- | (1,904,496 | ) | - | - | - | (1,904,496 | ) | ||||||||||||||||
Expiry of Preferred B Options (b)
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- | (259,704 | ) | - | - | - | (259,704 | ) | ||||||||||||||||
Preferred B Warrants (b)
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- | - | - | 1,636,300 | - | 1,636,300 | ||||||||||||||||||
Change in fair value
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(3,171,800 | ) | (2,958,094 | ) | (2,863,490 | ) | (4,318,040 | ) | (479,220 | ) | (13,790,644 | ) | ||||||||||||
Balance, January 31, 2012
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$ | 47,900 | $ | - | $ | 6,140 | $ | 115,150 | $ | 12,160 | $ | 181,350 |
(000's except per share amounts)
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Fiscal 2012
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Fiscal 2011
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Fiscal 2010
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Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | Q4 | |||||||||||||||||||||||||
Total revenue ($)
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34 | 73 | 362 | 464 | 229 | 173 | 716 | 992 | ||||||||||||||||||||||||
Net income (loss) ($) ¹
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(1,285 | ) | (1,122 | ) | 10,961 | (24,107 | ) | (6,115 | ) | 1,461 | (949 | ) | (3,800 | ) | ||||||||||||||||||
Basic net income (loss) per share ($) ²
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(0.09 | ) | (0.08 | ) | 0.78 | (1.78 | ) | (0.46 | ) | 0.11 | (0.07 | ) | (0.29 | ) | ||||||||||||||||||
Total assets ($)
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18,897 | 19,430 | 20,654 | 21,719 | 34,784 | 31,780 | 32,930 | 31,597 |
(1)
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Net income in Q1 2012 and Q2 2011 is due to fair value adjustments on derivatives. Larger losses incurred in Q4 2011 and Q4 2010 were a result of impairments recorded on oil and gas assets.
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(2)
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Sum of quarters may not add to total for the year due to rounding.
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·
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Issuance of Senior I Notes for proceeds of $2.5 million, maturing on January 30, 2012 with an annual coupon rate of 8% cash or 12% in additional Senior I Notes at the Company’s option until January 30, 2011 and at the holder’s option thereafter. Senior I Notes are redeemable in cash at any time or convertible into common shares at $0.50 per common share at the Company’s option if the underlying shares are freely tradable and common shares trade at or above $2.50 per share for the previous 20 consecutive trading days and the daily average trading volume has been in excess of $750,000 per day for the same period. In the event of redemption before the end of the term, there will be a 5% premium due on the investment amount. Note holders may elect to receive the redemption in common shares at the conversion price. Senior I Note holders received one warrant for each $0.05 principal amount of the Senior I Notes for 5,000,000 warrants ("Senior I Warrants"). Senior I Warrants are exercisable at $0.20 per share until July 29, 2013.
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·
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Conversion of 22,000 Preferred A Shares plus accumulated dividends of $301,069 into $2,501,069 of Junior Notes maturing on July 30, 2013 with an annual coupon rate of 5% cash or 7.5% in additional Junior Notes, at the Company’s option and at the holder’s option thereafter. Junior Notes are redeemable in cash at any time or convertible into common shares at $0.50 per common share at the Company’s option provided: i) production from the Missouri Deerfield project is 15,000 barrels of oil in a 30 day period; ii) the common shares have traded at or above $2.50 per share for the preceding 20 consecutive trading days; and iii) the daily average dollar trading volume has been in excess of US $750,000 per day for the same 20 day period.
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·
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Extension of the expiry date on the outstanding option to acquire Series B Preferred Shares to May 24, 2011 (further extended to June 7, 2011).
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Re-acquisition of a 10% working interest in the Company’s Missouri Marmaton River and Grassy Creek projects from MP1 in exchange for a 2.75% gross overriding royalty interest on the projects, effective July 1, 2010, as noted above.
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o
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In addition:
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·
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MP1 retains the option to acquire up to an additional 10% interest in future projects within the Deerfield Area, on a project by project basis, by paying up to a $300,000 equalization payment per project and thereafter its proportionate share of all future development and operating costs in respect of such project, including a proportionate share of facility costs.
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·
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For a period which is the latter of either the Series A or B Preferred Shares (or the underlying investment rights to buy Series B Preferred Shares) being outstanding or August 28, 2011, MP1 had the option to acquire up to a 20% proportionate interest in any of the Company’s properties outside of the Deerfield Area by paying a proportionate 133% of the Company’s costs-to-date in respect of such property and the option to participate with the Company in any future oil and gas property acquisitions for a proportionate 20% share of any such acquisition. This option expired.
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Issuance of Senior II Notes for proceeds of $4.6 million, maturing 18 months after closing, with an annual coupon rate of 8% cash or 12% in additional Senior II Notes at the Company’s option for the first six months after closing and at the holder’s option thereafter. Senior II Notes are redeemable in cash at any time or convertible into common shares at $0.20 per common share at the Company’s option if the underlying shares are freely tradable and common shares trade at or above $2.50 for the previous 20 consecutive trading days and the daily average trading volume has been in excess of $750,000 per day for the same period. Senior II Note holders received one warrant for each $0.50 principal amount of the Senior Notes for 9,200,000 warrants (Senior II Warrants). Senior II Warrants are exercisable at $0.25 per share for a period of 36 months after closing.
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As at
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January 31
2012
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October 31
2011
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July 31
2011
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April 30
2011
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Common shares (1)
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14,078,947 | 14,078,947 | 14,078,947 | 14,078,947 | ||||||||||||
Preferred A Warrants (3) (11)
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19,250,000 | 19,250,000 | 19,250,000 | 19,250,000 | ||||||||||||
Preferred B Shares (4) (11)
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8,799,500 | 8,799,500 | 8,799,500 | 10,000,000 | ||||||||||||
Preferred B Warrants (4) (11)
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15,399,125 | 15,399,125 | 15,399,125 | 17,500,000 | ||||||||||||
Senior I Notes (5) (11)
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11,750,000 | 11,750,000 | 11,750,000 | 11,750,000 | ||||||||||||
Senior I Warrants (5) (11)
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12,500,000 | 12,500,000 | 12,500,000 | 12,500,000 | ||||||||||||
Senior II Notes (6) (11)
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23,000,000 | 23,000,000 | 23,000,000 | 23,000,000 | ||||||||||||
Senior II Warrants (6) (11)
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9,200,000 | 9,200,000 | 9,200,000 | 9,200,000 | ||||||||||||
Junior Notes (2) (11)
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12,505,340 | 12,505,340 | 12,505,340 | 12,505,340 | ||||||||||||
Consulting Warrants (7)
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2,720,000 | 2,720,000 | 2,720,000 | 2,720,000 | ||||||||||||
Stock Options (1) (9)
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1,404,300 | 1,404,300 | 1,404,300 | 1,404,300 | ||||||||||||
Compensation Warrants (1) (9)
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480,000 | 480,000 | 480,000 | 480,000 | ||||||||||||
Accrued Senior I Notes (interest) (10)(11)
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2,080,518 | 1,725,123 | 1,415,096 | 1,105,068 | ||||||||||||
Accrued Senior II Notes (interest) (10)(11)
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2,792,547 | 2,096,877 | 1,401,205 | 705,534 | ||||||||||||
Accrued Junior Notes (interest) (10)(11)
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1,413,272 | 1,176,872 | 940,470 | 704,068 | ||||||||||||
137,373,549 | 136,086,084 | 134,843,983 | 136,903,257 |
(1)
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As at January 31, 2012, senior management and directors held an aggregate of 120,000 common shares, 250,000 Preferred B shares, 250,000 Preferred B warrants (as defined herein) and 1,192,500 stock options.
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(2)
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The Junior Notes are redeemable in cash at any time at the Company’s option or convertible into common shares at $0.20 per common share at the Company’s option under terms and conditions specified in the agreement.
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(3)
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The Preferred A Warrants remain as issued on August 28, 2009. Each warrant allows the holder to purchase one common share at US $0.20 per share for a period of five years from issuance.
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(4)
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Pursuant to an offering to investors, lead by the Iroquois Capital Opportunity Fund L.P. and in conjunction with the issuance of the Preferred A Shares, on August 28, 2009 Gravis granted to investors acquiring Preferred A Shares, options to purchase up to 20,000 Preferred В Shares, at a price of $100 per Preferred В Share (the “Preferred B Options”). The Preferred B Options became exercisable on November 25, 2009 and were valid until November 26, 2010 (extended to June 7, 2011). On June 7, 2011, the Company issued 17,599 Preferred В Shares on the exercise of 17,599 Preferred В Options for gross proceeds to the Company of $1,759,900. Each Preferred В Share is convertible into common shares, at the option of the holder without payment of additional consideration, such that the holder is entitled to 500 common shares per Preferred В Share so converted. After 12 months from the date of issue, the Company can force the conversion of the Preferred В Shares provided certain conditions are met. The remaining 2,401 Preferred В Options expired unexercised.
In conjunction with the exercise of the Preferred B Options, the Company issued to the investors acquiring Preferred B Shares 875 common share purchase warrants ("Preferred В Warrants") for each Series B Preferred Share purchased for a total of 15,399,125 Preferred B Warrants in aggregate. Each Preferred В Warrant allows the warrant holder to purchase a common share at US $0.20 per share until June 7, 2016.
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(5)
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On July 30, 2010, the Company issued US $2,500,000 of Senior I Notes. The Notes are redeemable in cash at any time at the Company’s option or convertible into common shares at $0.20 per common share at the Company’s option under terms and conditions specified in the agreement.
One Senior I Warrant has been issued to the holder for each $0.20 principal amount of the Senior I Notes for a total of 12,500,000 warrants exercisable at $0.20 per share.
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(6)
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In December 2010, January 2011 and March 2011, the Company issued US $4,600,000 of Senior II Notes. The Notes are redeemable in cash at any time at the Company’s option or convertible into common shares at US $0.20 per common share at the Company’s option under terms and conditions specified in the agreement.
One Senior II Warrant has been issued to the holder for each $0.50 principal amount of the Senior II Notes for a total of 23,000,000 warrants exercisable at $0.25 per share.
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(7)
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Consulting warrants are exercisable at $0.25 per share.
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(8)
|
Stock options are exercisable at a weighted average exercise price of $0.60 per share.
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(9)
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Compensation warrants are exercisable at $0.50 per share.
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(10)
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Interest accrued on the junior notes and the senior notes are payable in additional junior notes and senior notes. As at January 31, 2012, $999,774 (December 20, 2011 – $1,134,785) of accrued interest is convertible at $0.20 per share.
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(11)
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As of December 20, 2011, the holders of the Senior I & II Notes and Junior Notes upon exercise or conversion of all dilutive derivative instruments held by them, would hold a total of approximately 118,077,892 common shares or 86.3% of the fully diluted common shares of Gravis, and could have the ability to control all matters submitted to Gravis' shareholders for approval (including the election and removal of directors and any merger, consolidation or sale of all or substantially all of our Company's assets) and to control the Company's management and affairs. Accordingly, this potential concentration of ownership may have the effect of delaying, deferring or preventing a change in control of the Company, impeding a merger, consolidation, takeover or other business combination involving the Company or discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of the Company, which in turn could have a material adverse effect on the market price of Gravis’ shares.
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(a)
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Contingency:
In January 2010, the Company experienced a flood in its office premises as a result of a broken water pipe. There was significant damage to the premises rendering them unusable until remediation had been completed by the landlord. Pursuant to the lease contract, the Company has asserted that rent should be abated during the remediation process and accordingly, the Company has not paid rent since December 2009. During the remediation process, the Company engaged an independent environmental testing company to test for air quality and for the existence of other potentially hazardous conditions. The testing revealed the existence of potentially hazardous mould and the consultant provided specific written instructions for the effective remediation of the premises. During the remediation process, the landlord did not follow the consultant’s instructions and correct the potentially hazardous mould situation and subsequently in June 2010 gave notice and declared the premises to be ready for occupancy. The Company re-engaged the consultant to re-test the premises and the testing results again revealed the presence of potentially hazardous mould. The Company has determined that the premises are not fit for re-occupancy and considers the landlord to be in default of the lease and the lease terminated.
The landlord disputes the Company’s position and has given notice that it considers the Company to be in default of the lease for failure to re-occupy the premises.
In addition, the landlord has claimed that the Company owes monthly rent for the premises from January 2010 to June 30, 2010 in the amount of $234,871 (Cdn$234,098) and has claimed that, as a result of the alleged default, pursuant to the terms of the lease, the Company owes three months accelerated rent in the amount of $109,044 (Cdn$108,685).
The landlord has also asserted that the Company would be liable for an amount up to the full lease obligation of $1,504,924 (Cdn$1,510,816) which otherwise would have been due as follows:
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Year Ended April 30
|
||||
2011
|
$ | 445,968 | ||
2012
|
445,968 | |||
2013
|
445,968 | |||
2014
|
167,020 | |||
Thereafter
|
- | |||
$ | 1,504,924 |
|
To date, no legal action has been commenced by the landlord and the cost, if any, to the Company is not determinable. Accordingly, no amounts related to rent or the disputed lease obligation have been recorded in these financial statements.
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(b)
|
Severance Obligation:
At January 31, 2012 pursuant to employment agreements with a senior officer, the Company is obligated to pay up to $195,684 (Cdn$195,040) under certain events around employment termination.
|
(c)
|
Legal Proceedings:
|
|
·
|
estimates of production and recovery rates, which vary depending on the method of extraction used and the characteristics of the reservoir and resource estimates;
|
|
·
|
estimates of operating costs, which vary with equipment and facility efficiency, inflation;
|
|
·
|
estimates of future capital costs, which vary with inflation, equipment and facility performance;
|
|
·
|
Significant changes in these factors could reduce the Company’s estimates of future net revenues and accordingly could result in an impairment of its oil and gas assets. Management will perform quarterly assessments of the carrying amounts of its oil and gas assets as additional data from ongoing exploration activities becomes available.
|
2012
|
2013
|
2014
|
2015
|
2016
|
Total
|
||||||||||||||||||||
Cash and cash equivalents
|
$ | 1,179,838 | $ | – | $ | – | $ | – | $ | – | $ | 1,179,838 | |||||||||||||
Cash in escrow
|
658,000 | – | – | – | – | 658,000 | |||||||||||||||||||
Accounts receivable
|
231,316 | – | – | – | – | 231,316 | |||||||||||||||||||
Long-term receivable
|
100,000 | 194,862 | – | – | – | 294,862 | |||||||||||||||||||
$ | 2,169,154 | $ | 194,862 | $ | – | $ | – | $ | – | $ | 2,364,016 |
2012
|
2013
|
2014
|
2015
|
2016
|
Total
|
||||||||||||||||||||
Accounts payable and accrued liabilities
|
$ | 1,251,736 | $ | – | $ | – | $ | – | $ | – | $ | 1,251,736 | |||||||||||||
Interest payable
|
505,696 | – | – | – | – | 505,696 | |||||||||||||||||||
Liability portion of convertible notes
|
1,626,243 | 3,293,928 | 1,746,092 | – | – | 6,666,263 | |||||||||||||||||||
Derivatives
|
– | 1,568,910 | 4,588,990 | 3,219,700 | 5,122,294 | 14,499,894 | |||||||||||||||||||
$ | 3,383,675 | $ | 4,862,838 | $ | 6,335,082 | $ | 3,219,700 | $ | 5,122,294 | $ | 22,923,589 |
|
·
|
anticipated future existence;
|
|
·
|
estimated operating costs;
|
|
·
|
that the Company's creditors will not enforce their security;
|
|
·
|
business prospects;
|
|
·
|
oil and natural gas production levels;
|
|
·
|
projections of commodity prices and costs;
|
|
·
|
future work programs;
|
|
·
|
revocation of the cease trade orders;
|
|
·
|
Gravis' ability to continue as a going concern;
|
|
·
|
supply and demand for oil and natural gas; and
|
|
·
|
expectations regarding the ability to raise capital if at all.
|
Interim Consolidated Statement of Operations and Comprehensive Income (Loss)
|
(Unaudited)
|
(United States dollars)
|
January 31, 2012
|
April 30, 2011
|
|||||||
Assets
|
||||||||
Current assets
|
||||||||
Cash and cash equivalents
|
$ | 261,222 | $ | 1,179,838 | ||||
Cash in escrow (note 7(b))
|
- | 658,000 | ||||||
Accounts receivable
|
7,447 | 231,316 | ||||||
Prepaid expenses and deposits
|
163,615 | 92,196 | ||||||
432,284 | 2,161,350 | |||||||
Oil and gas assets (note 4)
|
18,055,409 | 17,975,830 | ||||||
Administrative assets
|
11,712 | 19,498 | ||||||
Long-term receivable (note5)
|
294,025 | 294,862 | ||||||
Reclamation deposits (note 6)
|
25,000 | 143,696 | ||||||
Deferred transaction costs (note 7)
|
79,048 | 223,276 | ||||||
18,465,194 | 18,657,162 | |||||||
$ | 18,897,478 | $ | 20,818,512 | |||||
Liabilities
|
||||||||
Current liabilities
|
||||||||
Accounts payable and accrued liabilities
|
$ | 561,071 | $ | 1,251,736 | ||||
Accrued interest payable
|
1,277,407 | 505,696 | ||||||
Asset retirement obligations (note 6)
|
254,349 | 205,700 | ||||||
Liability portion of convertible notes (note 7)
|
6,336,456 | 1,626,243 | ||||||
8,429,283 | 3,589,375 | |||||||
Asset retirement obligations (note 6)
|
523,283 | 521,636 | ||||||
Liability portion of convertible notes (note 7)
|
1,951,703 | 5,040,020 | ||||||
Derivatives (note 8)
|
181,350 | 14,499,894 | ||||||
2,656,336 | 20,061,550 | |||||||
11,085,619 | 23,650,925 | |||||||
Shareholders’ Equity
|
||||||||
Common shares - Unlimited shares without par value authorized; 14,078,947 Issued at January 31, 2012 and April 30, 2011 (note 9)
|
79,016,425 | 79,016,425 | ||||||
Preferred B shares - 100,000,000 authorized; 17,600 issued with a $100 stated value and no par value at January 31, 2012 (note 9)
|
2,153,217 | - | ||||||
Contributed surplus
|
54,403,682 | 54,341,320 | ||||||
Accumulated other comprehensive loss
|
(272,156 | ) | (272,156 | ) | ||||
Accumulated deficit from prior operations
|
(443,861 | ) | (443,861 | ) | ||||
Accumulated deficit from development stage
|
(127,045,448 | ) | (135,474,141 | ) | ||||
7,811,859 | (2,832,413 | ) | ||||||
$ | 18,897,478 | $ | 20,818,512 |
Interim Consolidated Statement of Operations and Comprehensive Income (Loss)
|
(Unaudited)
|
(United States dollars)
|
Three Months Ended January 31
|
Nine Months Ended January 31
|
From Development Inception on November 1, 2006 through January 31,
|
||||||||||||||||||
2012
|
2011
|
2012
|
2011
|
2012 | ||||||||||||||||
Revenue and other income
|
||||||||||||||||||||
Oil and natural gas sales
|
$ | - | $ | 227,709 | $ | 430,164 | $ | 1,116,014 | $ | 3,571,277 | ||||||||||
Interest and Other Income
|
227 | 840 | 10,761 | 2,171 | 1,055,702 | |||||||||||||||
227 | 228,549 | 440,925 | 1,118,185 | 4,626,979 | ||||||||||||||||
Expenses
|
||||||||||||||||||||
Operating
|
112,686 | 779,063 | 1,262,840 | 2,413,838 | 8,688,670 | |||||||||||||||
Impairment of oil and gas assets
|
- | - | - | - | 99,064,260 | |||||||||||||||
General and administrative (note 12)
|
314,522 | 663,439 | 1,820,286 | 1,753,656 | 33,862,246 | |||||||||||||||
Depreciation, depletion and accretion
|
28,899 | 127,953 | 260,018 | 670,429 | 1,613,159 | |||||||||||||||
Loss on marketable securities
|
- | - | - | - | 1,676,173 | |||||||||||||||
Interest and accretion
|
950,043 | 431,344 | 2,587,916 | 801,925 | 6,476,149 | |||||||||||||||
Foreign exchange (gain) loss
|
11,007 | (30,738 | ) | 6,399 | (348,130 | ) | 1,541,159 | |||||||||||||
Change in fair value of derivatives (note 8)
|
(132,100 | ) | 4,478,080 | (14,050,348 | ) | 1,177,361 | (3,825,747 | ) | ||||||||||||
Change in fair value of exchange shares
|
- | - | - | - | (18,387,365 | ) | ||||||||||||||
1,285,057 | 6,449,141 | (8,112,889 | ) | 6,469,079 | 130,708,704 | |||||||||||||||
Net income (loss)
|
(1,284,830 | ) | (6,220,592 | ) | 8,553,814 | (5,350,894 | ) | (126,081,725 | ) | |||||||||||
Foreign exchange translation
|
- | - | - | (283,771 | ) | (272,156 | ) | |||||||||||||
Total comprehensive income (loss)
|
$ | (1,284,830 | ) | $ | (6,220,592 | ) | $ | 8,553,814 | $ | (5,634,665 | ) | $ | (126,353,881 | ) | ||||||
Net income (loss) per share
|
||||||||||||||||||||
Basic
|
$ | (0.09 | ) | $ | (0.47 | ) | $ | 0.61 | $ | (0.40 | ) | |||||||||
Diluted
|
$ | 0.14 |
(Unaudited)
|
(United States dollars)
|
Other
|
Total
|
|||||||||||||||||||||||||||
Common
|
Preferred A
|
Preferred B
|
Contributed
|
Comprehensive
|
Accumulated
|
Shareholders’
|
||||||||||||||||||||||
Shares
|
Shares
|
Shares
|
Surplus
|
Income
|
Deficit
|
Deficit
|
||||||||||||||||||||||
Period from inception to April 30, 2008:
|
||||||||||||||||||||||||||||
Issued, net of costs
|
57,217,824 | - | - | (167,565 | ) | - | - | 57,050,259 | ||||||||||||||||||||
Share based compensation
|
- | - | - | 10,384,259 | - | - | 10,384,259 | |||||||||||||||||||||
Foreign exchange translation
|
- | - | - | - | 8,859,733 | - | 8,859,733 | |||||||||||||||||||||
Net loss
|
- | - | - | - | - | (37,472,384 | ) | (37,472,384 | ) | |||||||||||||||||||
Balance at April 30, 2008
|
57,217,824 | - | - | 10,216,694 | 8,859,733 | (37,472,384 | ) | 38,821,867 | ||||||||||||||||||||
Issued, net of costs
|
21,610,709 | - | - | (1,363,759 | ) | - | - | 20,246,950 | ||||||||||||||||||||
Foreign exchange translation
|
- | - | - | - | (13,832,144 | ) | - | (13,832,144 | ) | |||||||||||||||||||
Stock-based compensation
|
- | - | - | 784,887 | - | - | 784,887 | |||||||||||||||||||||
Expiry of warrants
|
- | - | - | 43,475,360 | - | - | 43,475,360 | |||||||||||||||||||||
Net loss
|
- | - | - | - | - | (59,947,271 | ) | (59,947,271 | ) | |||||||||||||||||||
Balance at April 30, 2009
|
78,828,533 | - | - | 53,113,182 | (4,972,411 | ) | (97,419,655 | ) | 29,549,649 | |||||||||||||||||||
Issued, net of costs
|
7,638 | 1,662,467 | - | - | - | - | 1,670,105 | |||||||||||||||||||||
Dividends
|
- | 218,795 | - | - | - | (218,795 | ) | - | ||||||||||||||||||||
Foreign exchange translation
|
- | - | - | - | 4,984,026 | - | 4,984,026 | |||||||||||||||||||||
Stock-based compensation
|
- | - | - | 500,293 | - | - | 500,293 | |||||||||||||||||||||
Net loss
|
- | - | - | - | - | (7,950,359 | ) | (7,950,359 | ) | |||||||||||||||||||
Balance at April 30, 2010
|
78,836,171 | 1,881,262 | - | 53,613,475 | 11,615 | (105,588,809 | ) | 28,753,714 | ||||||||||||||||||||
Issued, net of costs
|
180,254 | - | - | - | - | - | 180,254 | |||||||||||||||||||||
Dividend Preferred A Shares
|
- | 82,274 | - | - | - | (82,274 | ) | - | ||||||||||||||||||||
Exchange Preferred A shares
|
- | (1,963,536 | ) | - | - | - | (537,533 | ) | (2,501,069 | ) | ||||||||||||||||||
Foreign exchange translation
|
- | - | - | - | (283,771 | ) | - | (283,771 | ) | |||||||||||||||||||
Stock-based compensation
|
- | - | - | 727,845 | - | - | 727,845 | |||||||||||||||||||||
Net loss
|
- | - | - | - | - | (29,709,386 | ) | (29,709,386 | ) | |||||||||||||||||||
Balance at April 30, 2011
|
79,016,425 | - | - | 54,341,320 | (272,156 | ) | (135,918,002 | ) | (2,832,413 | ) | ||||||||||||||||||
Issued, net of costs (note 9)
|
- | - | 2,028,096 | - | - | - | 2,028,096 | |||||||||||||||||||||
Dividend Preferred B Shares
|
- | - | 69,431 | - | - | (69,431 | ) | - | ||||||||||||||||||||
Stock-based compensation
|
- | - | - | 45,990 | - | - | 45,990 | |||||||||||||||||||||
Net income (loss)
|
- | - | - | - | - | 9,838,644 | 9,838,644 | |||||||||||||||||||||
Balance at October 31, 2011
|
79,016,425 | - | 2,097,527 | 54,387,310 | (272,156 | ) | (126,148,789 | ) | 9,080,317 | |||||||||||||||||||
Issued, net of costs
|
- | - | - | - | - | - | - | |||||||||||||||||||||
Dividend Preferred B Shares
|
- | - | 55,690 | - | - | (55,690 | ) | - | ||||||||||||||||||||
Stock-based compensation
|
- | - | - | 16,372 | - | - | 16,372 | |||||||||||||||||||||
Net income (loss)
|
- | - | - | - | - | (1,284,830 | ) | (1,284,830 | ) | |||||||||||||||||||
Balance at January 31, 2012
|
79,016,425 | - | 2,153,217 | 54,403,682 | (272,156 | ) | (127,489,309 | ) | 7,811,859 |
Interim Consolidated Statements of Cash Flows
|
(Unaudited)
|
(United States dollars)
|
Three Months Ended
|
Nine Months Ended
|
From Development Inception on November 1, 2006 through January 31, 2012 | ||||||||||||||||||
January 31
|
January 31
|
|||||||||||||||||||
2012
|
2011
|
2012
|
2011
|
|||||||||||||||||
Operating activities
|
||||||||||||||||||||
Net income (loss)
|
$ | (1,284,830 | ) | $ | (6,220,592 | ) | $ | 8,553,814 | $ | (5,350,894 | ) | $ | (126,081,725 | ) | ||||||
Adjustments to reconcile net income (loss) to cash used by operating activities:
|
||||||||||||||||||||
Impairment of oil and gas assets
|
- | - | - | - | 99,064,260 | |||||||||||||||
Depreciation, depletion and accretion
|
28,899 | 127,953 | 260,018 | 670,429 | 1,613,159 | |||||||||||||||
Noncash interest and accretion expense
|
902,737 | 431,344 | 2,537,835 | 801,925 | 6,426,068 | |||||||||||||||
Stock-based compensation
|
16,372 | 112,567 | 62,362 | 369,864 | 18,214,600 | |||||||||||||||
Unrealized foreign exchange loss (gain)
|
261 | (57,740 | ) | 377 | (315,586 | ) | 1,725,346 | |||||||||||||
Loss on marketable securities
|
- | - | - | - | 1,676,173 | |||||||||||||||
Unrealized change in fair value of derivatives
|
(132,100 | ) | 4,478,080 | (14,050,348 | ) | 1,177,361 | (3,825,747 | ) | ||||||||||||
Change in long-term accounts receivable
|
2,849 | 72,925 | 837 | 81,764 | (290,525 | ) | ||||||||||||||
Unrealized change in fair value of exchange shares
|
- | - | - | - | (18,387,365 | ) | ||||||||||||||
Interest paid
|
- | (12,501 | ) | - | (41,124 | ) | (50,083 | ) | ||||||||||||
Change in non-cash working capital
|
87,260 | (188,214 | ) | (557,158 | ) | 23,821 | 433,816 | |||||||||||||
(378,552 | ) | (1,256,178 | ) | (3,192,263 | ) | (2,582,440 | ) | (19,482,023 | ) | |||||||||||
Financing activities
|
||||||||||||||||||||
Line of credit proceeds
|
- | - | - | - | - | |||||||||||||||
Proceeds from issuance of convertible notes
|
- | 4,000,000 | - | 6,500,000 | 7,100,000 | |||||||||||||||
Proceeds from issuance of preferred shares
|
- | - | 1,759,900 | - | 3,896,850 | |||||||||||||||
Proceeds from issuance of common shares
|
- | - | - | - | 48,068,853 | |||||||||||||||
Proceeds from exercise of stock options and warrants
|
- | - | - | - | 458,945 | |||||||||||||||
Transaction costs
|
- | (105,000 | ) | - | (295,752 | ) | (327,752 | ) | ||||||||||||
Notes payable
|
- | - | - | - | (36,182 | ) | ||||||||||||||
Change in escrow
|
49,074 | (2,240,000 | ) | 658,000 | (2,740,000 | ) | - | |||||||||||||
49,074 | 1,655,000 | 2,417,900 | 3,464,248 | 59,160,714 | ||||||||||||||||
Investing activities
|
||||||||||||||||||||
Expenditures on oil and gas assets
|
(24,243 | ) | (363,212 | ) | (281,678 | ) | (942,841 | ) | (33,607,384 | ) | ||||||||||
Expenditures on administrative assets
|
- | - | (12,033 | ) | (3,054 | ) | (397,556 | ) | ||||||||||||
Disposition of oil and gas assets
|
31,139 | - | 31,139 | - | 2,422,216 | |||||||||||||||
Acquisitions, net of cash acquired
|
- | - | - | - | (4,153,508 | ) | ||||||||||||||
Marketable securities
|
- | - | - | - | (1,675,193 | ) | ||||||||||||||
Change in reclamation deposit
|
118,943 | (1,423 | ) | 118,696 | (1,444 | ) | (25,000 | ) | ||||||||||||
125,839 | (364,635 | ) | (143,876 | ) | (947,339 | ) | (37,436,425 | ) | ||||||||||||
Change in cash and cash equivalents
|
(203,639 | ) | 34,187 | (918,239 | ) | (65,531 | ) | 2,242,266 | ||||||||||||
Exchange rate fluctuations on cash and equivalents
|
(261 | ) | (669 | ) | (377 | ) | (10 | ) | (1,988,709 | ) | ||||||||||
Cash and cash equivalents, beginning of period
|
465,122 | 50,946 | 1,179,838 | 150,005 | 7,665 | |||||||||||||||
Cash and cash equivalents, end of period
|
$ | 261,222 | $ | 84,464 | $ | 261,222 | $ | 84,464 | $ | 261,222 |
(Unaudited)
|
(United States dollars unless otherwise indicated)
|
1.
|
Development Stage and Going Concern:
|
2.
|
Share Consolidation:
|
3.
|
Significant Accounting Policies:
|
(a)
|
Basis of Presentation:
The accompanying unaudited interim consolidated financial statements of the Company have not been audited and are presented in United States dollars unless otherwise noted and have been prepared by management in accordance with United States generally accepted accounting principles.
In the opinion of management, these unaudited interim consolidated financial statements reflect all of the normal and recurring adjustments necessary to present fairly the financial position at January 31, 2012 and April 30, 2011, the results of operations and cash flows for the three and nine months ended January 31, 2012 and 2011 and for the period from development stage inception on November 1, 2006 to January 31, 2012. In preparing these accompanying unaudited interim consolidated financial statements, management has made certain estimates and assumptions that affect reported amounts in the financial statements and related disclosures. The Company bases its estimates on various assumptions that are believed to be reasonable under the circumstances. Accordingly, actual results may differ significantly from these estimates under different assumptions or circumstances.
Certain information, accounting policies, and footnote disclosures normally included in financial statements prepared in accordance with United States generally accepted accounting principles have been condensed or omitted in these unaudited interim consolidated financial statements. These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in the Company’s annual April 30, 2011 audited consolidated financial statements. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year.
|
(Unaudited)
|
(United States dollars unless otherwise indicated)
|
3.
|
Significant Accounting Policies - continued
|
(b)
|
Principles of Consolidation:
These financial statements include the accounts of Gravis and its wholly-owned subsidiary, MegaWest Energy USA Corp. and its wholly owned subsidiaries:
|
MegaWest Energy Texas Corp.
|
MegaWest Energy Kentucky Corp.
|
MegaWest Energy Missouri Corp.
|
MegaWest Energy Kansas Corp.
|
MegaWest Energy Montana Corp.
|
|
A significant portion of the Company’s activities are conducted jointly with others and these consolidated financial statements reflect only the Company’s proportionate interest in such activities. All intercompany balances and transactions have been eliminated.
|
(c)
|
Use of Estimates and Measurement Uncertainty:
The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts and other disclosures in these financial statements. Actual results may differ from those estimates due to factors such as fluctuations in interest rates, currency exchange rates, inflation levels and commodity prices, changes in economic conditions and legislative and regulatory changes.
Significant estimates used in the preparation of these financial statements include estimates of oil and gas reserves and resources and the estimated value of the unproved properties, fair value of the Preferred A Shares at the date of their exchange, derivative fair values, stock-based compensation fair values and estimated cost and timing related to asset retirement obligations.
Certain fair value estimates are based on expected volatility of the Company’s share price. In the current period and the year ended April 30, 2011, the Company used a volatility rate based on peer entities rather than historical trading prices of its common shares as used in 2010 and prior years. The volatility of peer entities is considered more representative for the Company due to the dilutive impact of financings completed in 2011 and the limited trading of the Company’s shares on the OTC Bulletin Board.
|
4.
|
Oil and Gas Assets:
|
Cost
|
Missouri
|
Kentucky
|
Montana
|
Kansas
|
Other
|
Total
|
||||||||||||||||||
Balance, April 30, 2010
|
$ | 24,936,309 | $ | 3,215,682 | $ | 686,209 | $ | 94,613 | $ | 1,354,996 | $ | 30,287,809 | ||||||||||||
Additions
|
1,516,465 | 102,364 | - | 4,745 | - | 1,623,574 | ||||||||||||||||||
Depletion
|
(720,740 | ) | - | - | - | - | (720,740 | ) | ||||||||||||||||
Impairment
|
(9,066,590 | ) | (3,179,174 | ) | (602,913 | ) | - | - | (12,848,677 | ) | ||||||||||||||
Foreign currency translation
|
(301,444 | ) | (38,872 | ) | (8,296 | ) | (1,144 | ) | (16,380 | ) | (366,136 | ) | ||||||||||||
Balance, April 30, 2011
|
16,364,000 | 100,000 | 75,000 | 98,214 | 1,338,616 | 17,975,830 | ||||||||||||||||||
Additions
|
281,678 | - | - | - | - | 281,678 | ||||||||||||||||||
Dispositions
|
(31,139 | ) | - | - | - | - | (31,139 | ) | ||||||||||||||||
Depletion
|
(170,960 | ) | - | - | - | - | (170,960 | ) | ||||||||||||||||
Balance, January 31, 2012
|
$ | 16,443,579 | $ | 100,000 | $ | 75,000 | $ | 98,214 | $ | 1,338,616 | $ | 18,055,409 |
|
During the three and nine months ended January 31, 2012, the Company capitalized $31,948 and $93,863 (January 31, 2011 – $53,151 and $162,775), respectively, of administrative costs and $16,310 and $62,362 (January 31, 2011 – $715 and $4,960), respectively, of stock-based compensation costs, which have been included as part of the Missouri project additions.
|
(Unaudited)
|
(United States dollars unless otherwise indicated)
|
4.
|
Oil and Gas Assets - continued
|
(a)
|
Missouri
Gravis has a 100% working interest in the Marmaton River and Grassy Creek projects. At January 31, 2012, the Company had an average 99.1% working interest in approximately 37,106 unproved net mineral acres of oil and gas leases. Costs incurred relate to lease acquisition, geological and geophysical activities, exploration and delineation drilling and facilities for the Marmaton River and Grassy Creek projects. In October 2011, as a result of the Company’s financial position, cost factors and market conditions, operations on the Missouri projects were suspended.
As at April 30, 2011, and at January 31, 2012, the Company performed ceiling test calculations to assess the ceiling limitation of the proved oil properties in Missouri. As at April 30, 2011, the Company determined that its net capitalized costs for the Missouri projects exceeded the ceiling limitation. As a result, the Company recorded an impairment charge of $9,066,590 on the Missouri projects in 2011. As at January 31, 2012, no impairment is required.
|
(b)
|
Kentucky
The Company has a 37.5% working interest in the shallow rights and an additional 37.5% working interest in the deep rights in certain oil and gas leases totaling approximately 29,147 unproved mineral acres (10,930 net acres).
During the year ended April 30, 2011, the Company recorded an impairment charge of $3,179,174 on the Kentucky project as a result of the lack of development activity by the Farmee and the curtailment of Company plans to continue exploration on the project due to a lack of available capital. As a result of these factors and to help raise capital for other purposes the Company is seeking to dispose of its interest in this property. To date no offers have been received on the property and the amount that may be ultimately realized is uncertain.
|
(c)
|
Montana
The Montana leases total 3,982 gross acres (2,388 net) divided amongst two prospects: Devils Basin and Teton. The leasehold in the Devils Basin prospect totals 1,175 gross acres (881 net acres). Gravis currently owns a 75% working interest in this prospect. There are two active leases in the Teton Prospect totaling 2,807 gross acres (1507 net acres). Gravis currently owns a 53.69% working interest in this prospect. Subsequent to the end of the third quarter, the Teton leases expired on April 17, 2012.
During the year ended April 30, 2011, the Company recorded an impairment charge of $602,913 on the Montana project. The impairment was recorded due to the expiry of leases and curtailment of plans to continue exploration on the lands in the near term because of the lack of capital available for this project. The remaining costs represent the Company’s estimate of the fair value of the leases as determined by sales in the area for long-term leases with farmout potential and related seismic value.
|
(d)
|
Kansas
The Chetopa project is a pre-commercial heavy oil demonstration project located two miles south of Chetopa, Kansas. The project is currently suspended, and includes certain oil and gas equipment and a 100% interest in one oil and gas lease covering 320 net acres. On April 2, 2012, the Company sold its interest in the Chetopa Project for cash consideration of $7,100 and for a royalty of $5.00 per bbl on future production with a royalty cap of $1,000,000.
|
(e)
|
Other
Other costs consist of five used steam generators and related equipment that will be assigned to future projects. In March 2012, the Company sold one of its five steam generators, located in Lloydminster, Alberta for cash consideration of CDN $215,000.
|
(Unaudited)
|
(United States dollars unless otherwise indicated)
|
5.
|
Long-term Receivable:
|
6.
|
Asset Retirement Obligations:
|
Balance, April 30, 2011
|
$ | 727,336 | ||
Accretion
|
50,296 | |||
777,632 | ||||
Current portion for cash flows expected to be inccurred within one year
|
(254,349 | ) | ||
Long-term portion, end of year
|
$ | 523,283 |
Year Ended April 30
|
Amount
|
|||
2012
|
$ | 260,000 | ||
2013
|
- | |||
2014
|
- | |||
2015
|
122,200 | |||
2016
|
135,600 | |||
Thereafter
|
690,493 | |||
1,208,293 | ||||
Effect of discount
|
(430,661 | ) | ||
Total
|
$ | 777,632 |
7.
|
Convertible Notes:
|
(Unaudited)
|
(United States dollars unless otherwise indicated)
|
7.
|
Convertible Notes - continued
|
Face Value of the Notes
|
Carrying Amount of the Notes
|
|||||||
Balance, April 30, 2010
|
$ | - | $ | - | ||||
Issued
|
9,601,069 | 5,909,799 | ||||||
Interest and accretion
|
- | 856,307 | ||||||
Conversion of Senior I Notes
|
(150,000 | ) | (99,843 | ) | ||||
Balance, April 30, 2011
|
9,451,069 | 6,666,263 | ||||||
Interest and accretion
|
- | 1,621,896 | ||||||
Balance, January 31, 2012
|
$ | 9,451,069 | $ | 8,288,159 | ||||
January 31, 2012
|
April 30, 2011
|
|||||||
Current Portion
|
$ | 6,336,456 | $ | 1,626,243 | ||||
Long-term portion
|
1,951,703 | 5,040,019 | ||||||
$ | 8,288,159 | $ | 6,666,263 |
(a)
|
Senior I Notes
The Senior I Notes pay interest quarterly at an annual rate of 8% in cash or 12% in additional Senior I Notes at the Company’s option until January 30, 2011 and at the holder’s option thereafter. The Senior I Notes mature on January 30, 2012 and are convertible at any time at the holder’s option at a conversion price of $0.20 per common share. The Senior I Notes are also redeemable in cash at any time at the Company’s option or convertible into common shares at the Company’s option if certain conditions have been met. In the event of redemption before the end of the term, there will be a 5% repayment premium. Note holders may elect to receive the redemption amount in common shares at the conversion price.
In addition, one warrant was issued to the Senior I Note holders for each $0.50 principal amount of the Senior I Notes for a total of 12,500,000 Senior I Warrants (“Senior I Warrants”). The Senior I Warrants are exercisable at $0.20 per share until July 29, 2013.
|
(Unaudited)
|
(United States dollars unless otherwise indicated)
|
7.
|
Convertible Notes - continued
|
|
The fair values of the conversion feature and Senior I Warrants were estimated on the date of issuance using the Black-Scholes pricing model based on a risk-free rate of 0.29% – 0.84%, expected volatility of 75% – 100%, and an expected life of 18 months to 3 years.
In March and April 2011, the Company issued 750,000 common shares on the conversion of $150,000 principal amount of Senior I Notes.
|
(b)
|
Senior II Notes
The Senior II Notes pay interest quarterly at an annual rate of 8% in cash or 12% in additional Senior II Notes at the Company’s option for the first six months after closing and at the holder’s option thereafter. The Senior II Notes mature 18 months after closing (June 28, 2012, July 31, 2012, or September 7, 2012) and are convertible at any time at the holder’s option at a conversion price of $0.20 per common share. The Senior II Notes are also redeemable in cash at any time at the Company’s option or convertible into common shares at the Company’s option if certain conditions have been met. In the event of redemption before the end of the term, there will be a 15% premium due on the investment amount. Note holders may elect to receive the redemption in common shares at the conversion price.
In addition, one warrant has been issued to the Senior II Note holders for each $0.50 principal amount of the Senior Notes for a total of 9,200,000 Senior II Warrants (“Senior II Warrants”). The Senior II Warrants have an exercise price of $0.25 per share, of which 2,400,000 are exercisable until December 28, 2013, 5,600,000 are exercisable until January 31, 2014 and 1,200,000 are exercisable until March 7, 2014.
The fair values of the conversion feature and Senior II Warrants were estimated on the dates of issuance using the Black-Scholes pricing model based on a risk-free rate of 0.29% – .84%, expected volatility of 75% – 100%, and an expected life of 18 months to 3 years.
As at October 31, 2011 $49,073 (April 30, 2011 – $658,000) of Senior II Note proceeds were held in an escrow account. This amount was released from escrow subsequent to October 31, 2011.
|
(c)
|
Junior Notes
The Junior Notes pay interest quarterly at an annual rate of 5% in cash or 7.5% in additional Junior Notes at the Company’s option until January 30, 2011 and at the holder’s option thereafter. The Junior Notes mature on July 30, 2013 and are convertible at any time at the holder’s option at a conversion price of $0.20 per common share. The Junior Notes are redeemable in cash at any time at the Company’s option or convertible into common shares at the Company’s option if certain conditions have been met. In the event of redemption before the end of the term, there will be a 5% premium due on the investment amount. Note holders may elect to receive the redemption amount in common shares at the conversion price.
The fair value of the conversion feature was estimated on the date of issuance using the Black-Scholes pricing model based on a risk-free rate of 0.84%, expected volatility of 100%, and an expected life of 3 years.
|
(Unaudited)
|
(United States dollars unless otherwise indicated)
|
8.
|
Derivatives:
|
Preferred A Warrants
|
Preferred B Options
|
Note Conversion Features
|
Warrants
|
Consulting Warrants
|
Total
|
|||||||||||||||||||
Balance, April 30, 2009
|
$ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||
Preferred A Warrants (a)
|
323,564 | - | - | - | - | 323,564 | ||||||||||||||||||
Preferred B Options (b)
|
- | 138,671 | - | - | - | 138,671 | ||||||||||||||||||
Foreign Currency Translation
|
25,479 | 14,029 | - | - | - | 39,508 | ||||||||||||||||||
Change in fair value
|
391,226 | 437,940 | - | - | - | 829,166 | ||||||||||||||||||
Balance, April 30, 2010
|
740,269 | 590,640 | - | - | - | 1,330,909 | ||||||||||||||||||
Preferred B Options (b)
|
- | 10,894 | - | - | - | 10,894 | ||||||||||||||||||
Consulting Warrants (c)
|
- | - | - | - | 166,810 | 166,810 | ||||||||||||||||||
Senior I Notes (note 7)
|
- | - | 327,790 | 926,720 | - | 1,254,510 | ||||||||||||||||||
Senior II Notes (note 7)
|
- | - | 627,830 | 881,350 | - | 1,509,180 | ||||||||||||||||||
Junior Notes (note 7)
|
- | - | 927,580 | - | - | 927,580 | ||||||||||||||||||
Conversion of Senior I Notes
|
- | - | (84,530 | ) | - | - | (84,530 | ) | ||||||||||||||||
Change in fair value
|
2,479,431 | 4,520,760 | 1,070,960 | 988,820 | 324,570 | 9,384,541 | ||||||||||||||||||
Balance, April 30, 2011
|
3,219,700 | 5,122,294 | 2,869,630 | 2,796,890 | 491,380 | 14,499,894 | ||||||||||||||||||
Exercise of Preferred B Options (b)
|
- | (1,904,496 | ) | - | - | - | (1,904,496 | ) | ||||||||||||||||
Expiry of Preferred B Options (b)
|
- | (259,704 | ) | - | - | - | (259,704 | ) | ||||||||||||||||
Preferred B Warrants (b)
|
- | - | - | 1,636,300 | - | 1,636,300 | ||||||||||||||||||
Change in fair value
|
(3,171,800 | ) | (2,958,094 | ) | (2,863,490 | ) | (4,318,040 | ) | (479,220 | ) | (13,790,644 | ) | ||||||||||||
Balance, January 31, 2012
|
$ | 47,900 | $ | - | $ | 6,140 | $ | 115,150 | $ | 12,160 | $ | 181,350 |
Preferred A Warrants
|
Conversion Feature Derivative
|
Preferred B Warrants
|
Senior Warrants
|
Consulting Warrants
|
||||||||||||||||
Risk-free rate
|
0.20 | % | 0.15 | % | 0.20 | % | 0.25 | % | 0.38 | % | ||||||||||
Expected Volatility
|
100 | % | 104 | % | 100 | % | 113 | % | 122 | % | ||||||||||
Expected Life
|
2.83 | 0.88 | 4.61 | 1.96 | 2.30 |
(Unaudited)
|
(United States dollars unless otherwise indicated)
|
8.
|
Derivatives - continued
|
Issuance
|
Number of Warrants
|
Weighted Avg. Exercise Price
|
Weighted Avg. Life Remaining
|
||||||||||
Preferred A Warrants
|
19,250,000 | $ | 0.20 | 2.80 |
years
|
||||||||
Preferred B Warrants
|
15,399,125 | 0.20 | 4.60 |
years
|
|||||||||
Senior I Warrants
|
12,500,000 | 0.20 | 1.70 |
years
|
|||||||||
Senior II Warrants
|
9,200,000 | 0.25 | 2.20 |
years
|
|||||||||
Consulting Warrants
|
2,720,000 | 0.25 | 2.30 |
years
|
|||||||||
59,069,125 | $ | 0.21 | 2.92 |
years
|
(a)
|
Preferred A Warrants:
In conjunction with the Preferred A Shares issuance in August 2009, the Company issued 19,250,000 warrants (the “Preferred A Warrants”) to the Series A investors. Each Preferred A Warrant allows the holder to purchase a common share at $0.20 per share until August 28, 2014. After May 28, 2010, a cashless conversion option was available only with respect to Preferred A Warrant shares not included for unrestricted public resale in an effective registration statement on the date notice of exercise is given to the Company. All of the Preferred A Warrants are outstanding as at January 31, 2012 and the Company has no effective registration statement in effect related to the Preferred A Warrant shares.
|
(b)
|
Preferred B Option:
On August 28, 2009, in conjunction with the Preferred A Share issuance, the Junior Note holders (then holders of Preferred A Shares) received an option to purchase up to 20,000 Series B convertible preferred shares (”Preferred B Shares”) for a stated value of $100 each until November 26, 2010 (extended until June 7, 2011). Each Preferred B Share is convertible into common shares without payment of additional consideration on the basis of 500 common shares for each Preferred B Share so converted. (the “Preferred B Option”).
On June 7, 2011, 17,599 Preferred B Options were exercised for gross proceeds of $1,759,900 and the remaining 2,401 Preferred B Options expired. Upon exercise, the Company credited $3,664,396 to share capital (note 9(b)) comprised of the cash proceeds and $1,904,496 for the pro-rata share of the Preferred B Option fair value on the date of exercise.
A $2,958,094 fair value adjustment was recognized for the change in fair value from April 30, 2011 to June 7, 2011 and $259,704 was recognized in the statement of operations on the expiry of the remaining Preferred B Options.
In conjunction with the exercise of the Preferred B Options, the Company issued 15,399,125 common share purchase warrants (“Preferred B Warrants”) on the basis of 875 Preferred B Warrants for each Preferred B Share purchased. Each warrant allows the holder to purchase a common share at US$0.20 per share until June 7, 2016. After nine months from the date of issuance, a cashless conversion option is provided only with respect to warrant shares not included for unrestricted public resale in an effective registration statement on the date notice of exercise is given to the Company.
The fair value of Preferred B Warrants was estimated on the date of issuance at $1,636,300 using the Black-Scholes pricing model based on a risk-free rate of 1.59%, expected volatility of 100%, and an expected life of 5 years.
|
(Unaudited)
|
(United States dollars unless otherwise indicated)
|
8.
|
Derivatives - continued
|
(c)
|
Consulting Warrants:
During 2010, the Company issued the warrants to consultants for professional services:
|
Fair Value
|
|||||||||||||||||||||
Date of Issue
|
Number of Warrants
|
Exercise Price
|
Expiry Date
|
Issue Date
|
April 30, 2011
|
January 31, 2012
|
|||||||||||||||
7/30/2010
|
720,000 | $ | 0.25 |
7/20/2013
|
$ | 81,510 | $ | 109,560 | $ | 1,040 | |||||||||||
12/28/2010
|
2,000,000 | $ | 0.25 |
12/28/2013
|
85,300 | 381,820 | 11,120 | ||||||||||||||
2,720,000 | $ | 166,810 | $ | 491,380 | $ | 12,160 |
9.
|
Share Capital:
|
(a)
|
Issued Common Shares:
|
Number of Shares
|
Amount
|
|||||||
Balance, January 31, 2012
|
14,078,947 | $ | 79,016,425 |
(b)
|
Preferred B Shares:
|
Number of shares
|
Amount
|
|||||||
Issued, June 7, 2011 (note 8(b))
|
17,600 | $ | 3,664,396 | |||||
Preferred B Warrants (note 8(b))
|
- | (1,636,300 | ) | |||||
Dividends
|
- | 125,121 | ||||||
Outstanding, January 31, 2012
|
17,600 | $ | 2,153,217 |
|
On June 7, 2011, the Company issued 17,600 Series B convertible preferred shares (the “Preferred B Shares”), with a stated value of $100 for gross cash proceeds of $1,759,900 and convertible into common shares at $0.20 per common share.
The Preferred B Shares carried a cumulative quarterly dividend of 5% payable in cash or, at the Company’s discretion, of 150% of the 5% dividend payable in additional Preferred B Shares. As at January 31, 2012, the Company had declared a total of $125,121 of accumulated dividends. A portion of the dividends were calculated at 15% (instead of 5%) pursuant to the Preferred B Share Subscription Agreement as the Company did not make the dividend payment when it became due on a quarterly basis.
|
10.
|
Stock Based Compensation:
|
(Unaudited)
|
(United States dollars unless otherwise indicated)
|
10.
|
Stock Based Compensation - continued
|
Options Outstanding
|
Options Exercisable
|
|||||||||||||||||||||
Exercise Price
|
Options
|
Weighted Avg. Life Remaining
|
Weighted Avg. Exercise Price
|
Options
|
Weighted Avg. Exercise Price
|
|||||||||||||||||
$ | 0.50 | 1,302,000 | 2.7 | $ | 0.50 | 772,500 | $ | 0.50 | ||||||||||||||
1.50 | 97,150 | 0.5 | 1.50 | 75,050 | 1.50 | |||||||||||||||||
1.80 | 5,000 | 2.2 | 1.80 | 2,500 | 1.80 | |||||||||||||||||
$ | 6.20 | 150 | 0.6 | 6.20 | 150 | 6.20 | ||||||||||||||||
1,404,300 | $ | 0.57 | 850,200 | $ | 0.59 |
Number of Warrants
|
Weighted Avg. Exercise Price
|
Weighted Avg. Life Remaining at January 31, 2012
|
||||||||||
Outstanding and exercisable, April 30, 2011 and January 31, 2012
|
480,000 | $ | 0.50 | 2.43 | ||||||||
Aggregate Intrinsic Value at January 31, 2012
|
- |
11.
|
Per Share Amounts:
|
Three Months Ended January 31
|
Nine Months Ended January 31
|
|||||||||||||||
2012
|
2011
|
2012
|
2011
|
|||||||||||||
Net income (loss)
|
$ | (1,284,830 | ) | $ | (6,220,592 | ) | $ | 8,553,876 | $ | (5,350,894 | ) | |||||
Weighted average number of common shares
|
14,078,947 | 133,289,472 | 14,078,947 | 133,289,472 | ||||||||||||
Basic net income (loss)
|
$ | (0.09 | ) | $ | (0.47 | ) | $ | 0.78 | $ | (0.40 | ) | |||||
Three Months Ended January 31
|
Nine Months Ended January 31
|
|||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Net income (loss)
|
$ | (1,284,830 | ) | $ | (6,220,592 | ) | $ | 8,553,876 | $ | (5,350,894 | ) | |||||
Weighted average number of common shares
|
14,078,947 | 133,289,472 | 14,078,947 | 133,289,472 | ||||||||||||
Dilutive effect of stock options, warrants, convertible notes, and preferred shares
|
- | - | 45,145,941 | - | ||||||||||||
14,078,947 | 133,289,472 | 59,224,888 | 133,289,472 | |||||||||||||
Diluted net income(loss)
|
$ | - | $ | - | $ | 0.14 | $ | - |
|
For the three and nine months ended January 31, 2012, the effects of stock options, warrants, and convertible notes were anti-dilutive and therefore not considered in computing net loss per share.
|
(Unaudited)
|
(United States dollars unless otherwise indicated)
|
12.
|
General and Administrative Expenses:
|
Three Months Ended January 31
|
Nine Months Ended January 31
|
|
From Development Inception on November 1, 2006 through January 31, 2012
|
|||||||||||||||||
2012
|
2011
|
2012
|
2011
|
|||||||||||||||||
Stock-based compensation
|
||||||||||||||||||||
Stock options
|
$ | 16,372 | $ | 27,982 | $ | 62,362 | $ | 208,014 | $ | 16,042,256 | ||||||||||
Compensation warrants
|
- | - | - | - | 152,010 | |||||||||||||||
Consulting warrants
|
- | 85,300 | - | 166,810 | 1,614,816 | |||||||||||||||
Shares issued for services
|
- | - | - | - | 1,955,486 | |||||||||||||||
Less: capitalized portion
|
- | (715 | ) | - | (4,960 | ) | (1,549,968 | ) | ||||||||||||
16,372 | 112,567 | 62,362 | 369,864 | 18,214,600 | ||||||||||||||||
Salaries and benefits
|
152,802 | 243,680 | 1,201,201 | 746,093 | 9,838,284 | |||||||||||||||
Professional fees
|
60,366 | 290,782 | 194,748 | 517,833 | 3,072,612 | |||||||||||||||
Investor relations
|
135 | (55,149 | ) | 85,412 | 46,143 | 1,048,697 | ||||||||||||||
Office administration
|
112,171 | 118,473 | 335,839 | 206,813 | 3,818,640 | |||||||||||||||
Information technology
|
4,624 | 6,237 | 34,588 | 29,685 | 504,558 | |||||||||||||||
Less capitalized portion
|
(31,948 | ) | (53,151 | ) | (93,864 | ) | (162,775 | ) | (2,635,145 | ) | ||||||||||
298,150 | 550,872 | 1,757,924 | 1,383,792 | 15,647,646 | ||||||||||||||||
$ | 314,522 | $ | 663,439 | $ | 1,820,286 | $ | 1,753,656 | $ | 33,862,246 |
13.
|
Supplemental Cash Flow Information:
|
Three Months Ended January 31
|
Nine Months Ended January 31
|
From Development Inception on November 1, 2006 through January 31, 2012
|
||||||||||||||||||
2012
|
2011
|
2012
|
2011
|
|||||||||||||||||
Interest received
|
$ | 227 | $ | 840 | $ | 10,761 | $ | 2,171 | $ | 1,044,941 | ||||||||||
Interest paid
|
(1,445 | ) | 12,501 | - | 41,124 | 50,083 | ||||||||||||||
Income taxes paid
|
- | - | - | - | - | |||||||||||||||
Oil and gas assets aquired through the issuance of common shares
|
$ | - | $ | - | $ | - | $ | - | $ | 21,566,252 |
(Unaudited)
|
(United States dollars unless otherwise indicated)
|
14.
|
Segmented Information:
|
Three Months Ended January 31, 2012
|
Nine Months Ended January 31, 2012
|
|||||||||||||||||||||||
Canada
|
USA
|
Consolidated
|
Canada
|
USA
|
Consolidated
|
|||||||||||||||||||
Revenue
|
$ | - | $ | 227 | $ | 227 | $ | - | $ | 440,925 | $ | 440,925 | ||||||||||||
Expenses¹
|
208,382 | 1,076,644 | 1,285,026 | 723,395 | (8,836,315 | ) | (8,112,920 | ) | ||||||||||||||||
Loss
|
(208,382 | ) | (1,076,448 | ) | (1,284,830 | ) | (723,395 | ) | 9,277,271 | 8,553,876 | ||||||||||||||
Oil and gas assets
|
- | 14,949 | 14,949 | 1,303,158 | 16,752,251 | 18,055,409 | ||||||||||||||||||
Administrative assets
|
616 | (902 | ) | (286 | ) | 2,664 | 9,048 | 11,712 | ||||||||||||||||
Oil and gas additions
|
- | 31,620 | 31,620 | - | 289,054 | 289,054 | ||||||||||||||||||
Oil and gas impairment
|
- | - | - | - | - | - | ||||||||||||||||||
Administrative asset additions
|
$ | - | $ | - | $ | - | $ | 3,709 | $ | 8,324 | $ | 12,033 | ||||||||||||
Three Months Ended January 31, 2011
|
Nine Months Ended January 31, 2011
|
|||||||||||||||||||||||
Canada
|
USA
|
Consolidated
|
Canada
|
USA
|
Consolidated
|
|||||||||||||||||||
Revenue
|
$ | 840 | $ | 227,709 | $ | 228,549 | $ | 2,171 | $ | 1,116,014 | $ | 1,118,185 | ||||||||||||
Expenses¹
|
5,569,281 | 879,860 | 6,449,141 | 3,461,809 | 3,007,270 | 6,469,079 | ||||||||||||||||||
Loss
|
(5,568,441 | ) | (652,151 | ) | (6,220,592 | ) | (3,459,638 | ) | (1,891,256 | ) | (5,350,894 | ) | ||||||||||||
Oil and gas assets
|
- | 358,457 | 358,457 | 1,338,616 | 28,916,540 | 30,255,156 | ||||||||||||||||||
Administrative assets
|
- | - | - | 33,075 | - | 33,075 | ||||||||||||||||||
Oil and gas additions
|
- | - | - | - | 926,915 | 926,915 | ||||||||||||||||||
Oil and gas impairment
|
- | - | - | - | - | - | ||||||||||||||||||
Administrative asset additions
|
$ | - | $ | - | $ | - | $ | 3,054 | $ | - | $ | 3,054 |
(1)
|
Expense recovery and net income in the three months ended January 31, 2011, and the six months ended January 31, 2012, and 2011 are due to fair value adjustments on derivatives.
|
(Unaudited)
|
(United States dollars unless otherwise indicated)
|
15.
|
Financial Instruments and Fair Value Measurements:
|
2012
|
2013
|
2014
|
2015
|
2016
|
Total
|
|||||||||||||||||||
Cash and cash equivalents
|
$ | 261,222 | $ | - | $ | - | $ | - | $ | - | $ | 261,222 | ||||||||||||
Cash in escrow
|
- | - | - | - | - | - | ||||||||||||||||||
Accounts receivable
|
7,447 | - | - | - | - | 7,447 | ||||||||||||||||||
Long-term receivable
|
10,000 | 284,025 | - | - | - | 294,025 | ||||||||||||||||||
278,669 | 284,025 | - | - | - | 562,694 | |||||||||||||||||||
2012 | 2013 | 2014 | 2015 | 2016 | ||||||||||||||||||||
Accounts payable and accrued liabilities
|
561,071 | - | - | - | - | 561,071 | ||||||||||||||||||
Interest payable
|
1,277,407 | - | - | - | - | 1,277,407 | ||||||||||||||||||
Liability portion of convertible notes
|
6,336,456 | 1,951,703 | - | - | - | 8,288,159 | ||||||||||||||||||
Derivatives
|
- | 30 | 43,020 | 47,900 | 90,400 | 181,350 | ||||||||||||||||||
$ | 8,174,934 | $ | 1,951,733 | $ | 43,020 | $ | 47,900 | $ | 90,400 | $ | 10,307,987 |
Fair Value Measurements Using:
|
||||||||||||||||||||
Carrying Amount
|
Total Fair Value
|
Level 1 Inputs
|
Level 2 Inputs
|
Level 3 Inputs
|
||||||||||||||||
January 31, 2012
|
||||||||||||||||||||
Liability portion of convertible notes:
|
||||||||||||||||||||
Current portion
|
$ | 6,336,456 | $ | 5,891,935 | $ | - | $ | 5,891,935 | $ | - | ||||||||||
Long-term portion
|
1,951,703 | 1,814,785 | - | 1,814,785 | - | |||||||||||||||
$ | 8,288,159 | $ | 7,706,720 | $ | - | $ | 7,706,720 | $ | - | |||||||||||
January 31, 2012
|
||||||||||||||||||||
Derivatives:
|
||||||||||||||||||||
Consulting Warrants
|
$ | 11,800 | $ | 11,800 | $ | - | $ | - | $ | 11,800 | ||||||||||
Senior I Notes
|
3,330 | 3,330 | - | - | $ | 3,330 | ||||||||||||||
Senior II Notes
|
24,570 | 24,570 | - | - | $ | 24,570 | ||||||||||||||
Junior Notes
|
3,350 | 3,350 | - | - | $ | 3,350 | ||||||||||||||
Preferred A Warrants
|
47,900 | 47,900 | - | - | $ | 47,900 | ||||||||||||||
Preferred B Warrants
|
90,400 | 90,400 | - | - | $ | 90,400 | ||||||||||||||
$ | 181,350 | $ | 181,350 | $ | - | $ | - | $ | 181,350 |
(Unaudited)
|
(United States dollars unless otherwise indicated)
|
16.
|
Contingency and Contractual Obligations:
|
(a)
|
Contingency:
In January 2010, the Company experienced a flood in its office premises as a result of a broken water pipe. There was significant damage to the premises rendering them unusable until remediation had been completed by the landlord. Pursuant to the lease contract, the Company has asserted that rent should be abated during the remediation process and accordingly, the Company has not paid rent since December 2009. During the remediation process, the Company engaged an independent environmental testing company to test for air quality and for the existence of other potentially hazardous conditions. The testing revealed the existence of potentially hazardous mould and the consultant provided specific written instructions for the effective remediation of the premises. During the remediation process, the landlord did not follow the consultant’s instructions and correct the potentially hazardous mould situation and subsequently in June 2010 gave notice and declared the premises to be ready for occupancy. The Company re-engaged the consultant to re-test the premises and the testing results again revealed the presence of potentially hazardous mould. The Company has determined that the premises are not fit for re-occupancy and considers the landlord to be in default of the lease and the lease terminated.
The landlord disputes the Company’s position and has given notice that it considers the Company to be in default of the lease for failure to re-occupy the premises.
In addition, the landlord has claimed that the Company owes monthly rent for the premises from January 2010 to June 30, 2010 in the amount of $234,871 (Cdn$234,098) and has claimed that, as a result of the alleged default, pursuant to the terms of the lease, the Company owes three months accelerated rent in the amount of $109,044 (Cdn$108,685). The landlord has also asserted that the Company would be liable for an amount up to the full lease obligation of $1,504,924 (Cdn$1,510,816) which otherwise would have been due as follows:
|
Year Ended April 30
|
||||
2011
|
$ | 445,968 | ||
2012
|
445,968 | |||
2013
|
445,968 | |||
2014
|
167,020 | |||
Thereafter
|
- | |||
$ | 1,504,924 |
|
To date, no legal action has been commenced by the landlord and the cost, if any, to the Company is not determinable. Accordingly, no amounts related to rent or the disputed lease obligation have been recorded in these financial statements.
|
(b)
|
Severance Obligation:
At January 31, 2012 pursuant to employment agreements with a senior officer, the Company is obligated to pay up to $195,684 (Cdn$195,040) under certain events around employment termination.
Subsequent Events
In March 2012, the Company completed the sale of oil and gas mineral leases on 2,944 net acres in Missouri for $147,200.00. Additionally, in April 2012, the Company completed the sale of wells, equipment and the lease in Kansas for cash consideration of $7,100 and for a royalty of $5 a barrel on future production with a cap of a $1.0 million. Additionally, in April 2012, the Teton Prospect leases in Montana expired.
|
1
|
Review: I have reviewed the AIF, if any, annual financial statements and annual MD&A, including, for greater certainty, all documents and information that are incorporated by reference in the AIF (together, the "annual filings") of the issuer for the financial year ended April 30, 2011.
|
2
|
No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the annual filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, for the period covered by the annual filings.
|
3
|
Fair presentation: Based on my knowledge, having exercised reasonable diligence, the annual financial statements together with the other financial information included in the annual filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the annual filings.
|
Date:
|
June 4, 2012
|
NOTE TO READER
In contrast to the certificate required for non-venture issuers under National Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings (NI 52-109), this Venture Issuer Basic Certificate does not include representations relating to the establishment and maintenance of disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as defined in NI 52-109. In particular, the certifying officers filing this certificate are not making any representations relating to the establishment and maintenance of
i) controls and other procedures designed to provide reasonable assurance that information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and
ii) a process to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer's GAAP.
The issuer's certifying officers are responsible for ensuring that processes are in place to provide them with sufficient knowledge to support the representations they are making in this certificate. Investors should be aware that inherent limitations on the ability of certifying officers of a venture issuer to design and implement on a cost effective basis DC&P and ICFR as defined in NI 52-109 may result in additional risks to the quality, reliability, transparency and timeliness of interim and annual filings and other reports provided under securities legislation.
|
1980 Post Oak Blvd.
Suite 2020
Houston, Texas 77056
|
1980 Post Oak Blvd.
Suite 2020
Houston, Texas 77056
|
On behalf of the Board of Directors
Jeffrey Freedman, Interim CEO and CFO
Gravis Oil Corporation
|
1980 Post Oak Blvd.
Suite 2020
Houston, Texas 77056
|