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Document and Entity Information

v2.4.0.6
Document and Entity Information
12 Months Ended
Apr. 30, 2012
Oct. 12, 2012
Document And Entity Information    
Entity Registrant Name Petro River Oil Corp.  
Entity Central Index Key 0001172298  
Document Type 20-F  
Document Period End Date Apr. 30, 2012  
Amendment Flag false  
Current Fiscal Year End Date --04-30  
Is Entity a Well-known Seasoned Issuer? No  
Is Entity a Voluntary Filer? No  
Is Entity's Reporting Status Current? Yes  
Entity Filer Category Non-accelerated Filer  
Entity Common Stock, Shares Outstanding 14,078,949 14,078,949
Document Fiscal Period Focus FY  
Document Fiscal Year Focus 2012  

Consolidated Balance Sheets (Unaudited)

v2.4.0.6
Consolidated Balance Sheets (Unaudited) (USD $)
Apr. 30, 2012
Apr. 30, 2011
Current Assets:    
Cash and cash equivalents $ 300,274 $ 1,179,838
Cash in escrow    658,000
Accounts receivable    231,316
Prepaid expenses and other current assets 71,675 92,196
Total Current Assets 371,949 2,161,350
Oil and gas assets , net 1,125,000 17,975,830
Property, plant and equipments, net of accumulated depreciation of $300,234, and $275,931 8,146 19,498
Related party long-term receivable, net    294,862
Reclamation deposits 25,000 143,696
Deferred loan fees, net of accumulated amortization of $272,646 and $100,357 50,988 223,276
Other assets 15,315   
Total Non-Current Assets 1,224,449 18,657,162
Total Assets 1,596,398 20,818,512
Current Liabilities:    
Accounts payable and accrued expenses 303,857 1,251,214
Related party payable 51,937 522
Accrued interest payable 1,705,897 505,696
Current portion of asset retirement obligations 260,482 205,700
Liability current portion of convertible notes, net 2,529,200 1,626,243
Derivatives, current portion 44,659 332,480
Total Current Liabilities 4,896,032 3,921,855
Long-term liabilities:    
Asset retirement obligations , net of current portion 366,590 521,636
Liability long-term portion of convertible notes, net 6,568,433 5,040,020
Derivatives , net of current portion 712,959 14,167,414
Total Long-Term Liabilities 7,647,982 19,729,070
Total Liabilities 12,544,014 23,650,925
Stockholders' Deficiency:    
Preferred Shares - 100,000,000 authorized; par value $ 0.00001 per share, Preferred B shares - 29,500 authorized; 17,599 issued and outsanding with a $100 stated value and par value $0.00001 per share 2,126,904   
Common shares - 2,250,000,000 authorized; par value $0.00001 per share; 14,078,947 issued and outstanding 79,016,425 79,016,425
Additional paid-in capital 54,532,191 54,341,320
Accumulated other comprehensive loss (234,650) (272,156)
Accumulated deficit (146,388,486) (135,918,002)
Total Stockholders' Deficiency (10,947,616) (2,832,413)
Total Liabilities and Stockholders' Deficiency $ 1,596,398 $ 20,818,512

Consolidated Balance Sheets (Parenthetical)

v2.4.0.6
Consolidated Balance Sheets (Parenthetical) (USD $)
Apr. 30, 2012
Apr. 30, 2011
Accumulated depreciation of Property, plant and equipments $ 300,234 $ 275,931
Accumulated amortization of deferred loan fee $ 272,646 $ 100,357
Preferred stock, shares authorized 100,000,000 100,000,000
Preferred stock, shares issued 0 0
Preferred stock, shares outstandng 0 0
Preferred shares, par value $ 0.00001 $ 0.00001
Common stock shares, shares authorized 2,250,000,000 2,250,000,000
Common stock shares, par value $ 0.00001 $ 0.00001
Common stock shares, shares issued 14,078,947 14,078,947
Common stock, shares outstanding 14,078,947 14,078,947
Preferred B [Member]
   
Preferred stock, shares authorized 29,500 29,500
Preferred stock, shares issued 17,599 17,599
Preferred shares, par value $ 0.00001 $ 0.00001
Preferred shares, stated value per share $ 100 $ 100

Consolidated Statements of Operations and Comprehensive Loss (Unaudited)

v2.4.0.6
Consolidated Statements of Operations and Comprehensive Loss (Unaudited) (USD $)
12 Months Ended
Apr. 30, 2012
Apr. 30, 2011
Apr. 30, 2010
Income Statement [Abstract]      
Oil and natural gas sales $ 436,386 $ 1,565,963 $ 1,575,150
Total Income 436,386 1,565,963 1,575,150
Operating Expenses      
Operating 1,963,969 3,470,746 3,955,084
Impairment of oil and gas assets 16,380,166 12,848,677 1,162,545
General and administrative 1,890,791 3,307,060 3,193,449
Depreciation, depletion and accretion 333,614 844,160 293,113
Total Expenses 20,568,540 20,470,643 8,604,191
Operating loss (20,132,154) (18,904,680) (7,029,041)
Other (income) expenses      
Interest and Other income (18,580) (16,213) (6,073)
Interest and amortization of debt discount 3,684,545 1,512,443   
Amortization of deferred financing cost 172,288      
Foreign exchange (gain) loss 6,849 (86,959) 98,225
Extinguishment of debt (250,000)      
Rent settlement (50,000)      
Change in fair value of derivatives (13,573,776) 9,395,435 829,166
Total other (income) expenses (10,028,674) 10,804,706 921,318
Net Loss (10,103,480) (29,709,386) (7,950,359)
Dividend - Convertible Preferred A Stock    82,274 218,795
Dividend - Convertible Preferred B Stock 367,004      
Deemed dividend - Convertible Preferred A Stock    537,533   
Deemed dividend - Convertible Preferred B Stock 5,339,700      
Net loss attributable to common stockholders (15,810,184) (30,329,193) (8,169,154)
Comprehensive Loss:      
Net loss (10,103,480) (29,709,386) (7,950,359)
Foreign exchange translation 37,506 (283,771) 4,984,026
Total Comprehensive Loss $ (10,065,974) $ (29,993,157) $ (2,966,333)
Net Loss Attributable to Common Stockholders per Common Share - Basic and Diluted $ (1.12) $ (2.27) $ (0.61)
Weighted Average Number of Common Shares Outstanding (-Basic and diluted) 14,078,947 13,387,166 13,325,545

Consolidated Statements of Cash Flows (Unaudited)

v2.4.0.6
Consolidated Statements of Cash Flows (Unaudited) (USD $)
12 Months Ended
Apr. 30, 2012
Apr. 30, 2011
Apr. 30, 2010
CASH FLOWS FROM OPERATING ACTIVITIES:      
Net loss $ (10,103,480) $ (29,709,386) $ (7,950,359)
Adjustments to reconcile net loss to net cash used in operating activities      
Depletion of oil and gas properties 261,061 720,740 95,815
Impairment of oil and gas assets 16,380,166 12,848,677 1,162,545
Stock-based compensation 22,371 885,160 457,085
Depreciation 24,303 60,465 152,720
Accretion of asset retirement obligation 48,250 60,867 44,578
Allowance for related party long-term receivable 294,862      
Gain on Debt Extinguishment (250,000)      
Rent settlement (50,000)      
Amortization of deferred debt discount 2,305,458 722,090   
Amortization of deferred financing costs (172,288)      
Foreign currency transaction (gain) or loss 6,849 (36,181) 139,679
Change in fair value of derivatives liabilities (13,573,776) 9,395,435 829,166
Accounts receivable 231,316 225,755 (392,003)
Prepaid expenses and other assets 70,521 82,092 264,521
Accounts payable and accrued liabilities (697,879) (541,260) (649,974)
Related party payable 51,937 (33,932) (304,120)
Accrued interest payable 1,326,113 505,696   
Asset retirement obligation (148,514) (1,661) (90,746)
Other assets (15,315) 12,758   
Net Cash Used in Operating Activities (3,643,469) (3,716,843) (4,941,145)
Cash Flows from Investing Activities:      
Capitalized expenditure on oil and gas properties (243,409) (1,361,890) (941,322)
Cash proceeds from disposition of oil and gas assets 431,989    2,391,077
Transfer of restricted cash to operating cash 658,000      
Change in reclamation deposit 118,696 (2,881) 33,494
Acquisition of property and equipment (12,033) (3,054) (7,401)
Net cash provided (used) by investing activities 953,243 (1,367,825) 1,475,848
Cash Flows From Financing Activities:      
Proceeds from issuance of convertible notes    7,100,000   
Proceeds from issuance of preferred shares 1,759,900    2,136,950
Transaction costs    (327,752)   
Change in cash in escrow    (658,000)   
Net Cash Provided by Financing Activities 1,759,900 6,114,248 2,136,950
Change in cash and cash equivalents (930,326) 1,029,580 (1,328,347)
Exchange rate fluctuations on cash and cash equivalents 50,762 253 (2,377)
Cash and cash equivalents, beginning of period 1,179,838 150,005 1,480,729
Cash and cash equivalents, end of period 300,274 1,179,838 150,005
Cash Paid During the Period for:      
Income taxes         
Interest received    1,163   
Interest paid    50,083   
Non-cash investing and financing activities:      
Conversion of Preferred Shares into Junior Notes    $ 2,501,069   

Consolidated Statements of Stockholders' Equity/(Deficiency)

v2.4.0.6
Consolidated Statements of Stockholders' Equity/(Deficiency) (USD $)
Preferred A [Member]
Preferred B [Member]
Common Stock [Member]
Additional Paid-In Capital [Member]
Accumulated Other Comprehensive Income (Loss) [Member]
Accumulated Deficit [Member]
Total
Balance at beginning at Apr. 30, 2009       $ 78,828,533 $ 53,113,182 $ (4,972,411) $ (97,419,655) $ 29,549,649
Balance at beginning, shares at Apr. 30, 2009       13,324,447          1,662,467
Issuance of common stock for services, value     7,638       7,638
Issuance of common stock for services, shares     4,500        
Dividend Preferred A Shares, value 218,795         (218,795) 218,795
Issuance of convertible preferred A shares at $100 per share, value 1,662,467               1,662,467
Issuance of convertible preferred A shares at $100, shares 2,200                 
Conversion of preferred A shares into Convertible Junior notes               
Issuance of convertible preferred B shares at $100 per share             2,136,950
Dividend Preferred B Shares               
Deemed dividend - Preferred B shares               
Foreign exchange translation         4,984,026   4,984,026
Stock-based compensation       500,293     (457,085)
Net loss           (7,950,359) (7,950,359)
Balance at ending at Apr. 30, 2010 1,881,262    78,836,171 53,613,475 11,615 (105,588,809) 28,753,714
Balance at ending, shares at Apr. 30, 2010 2,200    13,328,947        
Conversion of Senior I Notes, value     180,254       180,254
Conversion of Senior I Notes, shares     750,000        
Dividend Preferred A Shares, value 82,274         (82,274) 82,274
Conversion of preferred A shares into Convertible Junior notes (1,963,536)         (537,533) 537,533
Conversion of preferred A shares into Convertible Junior notes, shares (2,200)            
Issuance of convertible preferred B shares at $100 per share               
Dividend Preferred B Shares               
Deemed dividend - Preferred B shares               
Foreign exchange translation         (283,771)   (283,771)
Stock-based compensation       727,845     (885,160)
Net loss           (29,709,386) (29,709,386)
Balance at ending at Apr. 30, 2011       79,016,425 54,341,320 (272,156) (135,918,002) (2,832,413)
Balance at ending, shares at Apr. 30, 2011       14,078,947        
Conversion of Senior I Notes, value                
Dividend Preferred A Shares, value               
Conversion of preferred A shares into Convertible Junior notes               
Conversion of preferred A shares into Convertible Junior notes, shares               
Issuance of convertible preferred B shares at $100 per share   1,759,900         1,759,900
Issuance of convertible preferred B shares at $100 per share, shares    17,599          
Reversal of derivative liabilities upon exercise of preferred B option        5,508,200     5,508,200
Dividend Preferred B Shares   367,004       (367,004) 367,004
Deemed dividend - Preferred B shares       (5,339,700)     5,339,700
Foreign exchange translation         37,506   37,506
Stock-based compensation       22,371     (22,371)
Net loss           (10,103,480) (10,103,480)
Balance at ending at Apr. 30, 2012    $ 2,126,904 $ 79,016,425 $ 54,532,191 $ (234,650) $ (146,388,486) $ (10,947,616)
Balance at ending, shares at Apr. 30, 2012    17,599 14,078,947        

Consolidated Statements of Stockholders' Equity/(Deficiency) (Parenthetical)

v2.4.0.6
Consolidated Statements of Stockholders' Equity/(Deficiency) (Parenthetical) (USD $)
Jun. 07, 2011
Aug. 28, 2009
Statement of Stockholders' Equity [Abstract]    
Convertible preferred A shares stated value per share   $ 100
Convertible preferred B shares stated value per share $ 100  

Organization and Going Concern

v2.4.0.6
Organization and Going Concern
12 Months Ended
Apr. 30, 2012
Organization And Going Concern  
Organization and Going Concern

1. Organization and Going Concern:

 

Petro River Oil Corp (“Petro” or the “Company”) is an enterprise engaged in the exploration and exploitation of heavy oil properties. On September 7, 2012 a shareholder meeting was held to amend the Articles of the Corporation to change the name of the Company from Gravis Oil Corporation to Petro River Oil Corp. The Company’s principal administrative office is in Houston, Texas. The Company’s principal operations are in Western Missouri. Since November 2006, the Company’s activities have included analysis and evaluation of technical data, preparation of geological models, exploration drilling, conceptual engineering, construction and operation of thermal demonstration projects, and securing capital to fund operations. As of May 1, 2011, the Company determined the significant revenue metrics had been obtained in prior fiscal years, and management concluded the Company had exited the development stage.

 

As of April 30, 2012, the Company has a working capital deficiency of approximately $4.52 million, recurring losses, net cash outflows from operating activities and an accumulated deficit of approximately $146.4 million. During 2011, as a result of the Company’s financial position, cost factors and market conditions it suspended operations on its Missouri oil and gas assets. The Company will need to raise additional funds within the next 12 months by means of additional equity issuances, debt financing or selling of working interests in order to discharge its liabilities and continue its activities. In the longer term, the recoverability of the carrying value of the Company’s long-lived assets is dependent upon the Company’s ability to preserve its interest in the underlying properties, the discovery of economically recoverable reserves and the achievement of profitable operations. These matters raise substantial doubt about the Company’s ability to continue as a going concern.

 

While the outcome of fund raising and exploration activities cannot be determined at this time, these consolidated financial statements are prepared on the basis of a going concern. The going concern basis of presentation assumes the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business. While there is substantial doubt about the ability of the Company to continue to use the going concern assumption, these consolidated financial statements do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary should the Company be unable to secure additional funding and attain profitable operations. Management intends to acquire additional assets. On June 27, 2012 the Company entered into a non-binding letter of intent with Petro River Oil, LLC (“Petro River”), a privately held Delaware limited liability company that would result in the Company acquiring Petro River for common stock, the name of the Company changed and the Company re-domiciled to Delaware (the "Merger Transaction"). The letter of intent also contemplates that the board of the Company will consist of 5 members, 4 of which will be nominated by Petro River. Currently it is intended that post- transaction, current common shareholders of the Company will own approximately 2% of the issued and outstanding shares of the Company.

Change in Reporting and Functional Currency

v2.4.0.6
Change in Reporting and Functional Currency
12 Months Ended
Apr. 30, 2012
Change In Reporting And Functional Currency  
Change in Reporting and Functional Currency

2. Change in Reporting and Functional Currency:

 

These consolidated financial statements have been prepared using the United States dollar as the reporting currency, as management is of the opinion the use of US dollars to prepare the annual financial statements enhances communication with stockholders and improves comparability of financial information reported with peer group companies. Financial statements in prior to July 31, 2010 years were prepared using a Canadian dollar (Cdn dollar) reporting currency, however, both current year and historical financial information has been translated to US dollars in accordance with the method described in the significant accounting policies. The change in reporting currency resulted in the recognition of a cumulative foreign currency translation adjustment of $(283,771) and $37,506 in accumulated other comprehensive income for the years ended April 30, 2011 and 2012, respectively.

 

Effective July 30, 2010, the Company and its subsidiaries changed functional currency from the Cdn dollar to the US dollar. This change was made as a result of the financing completed in July 2010, causing the Company’s primary source of funding to be in US dollars and making the US dollar the currency of the economic environment in which the entity primarily generates and expends cash.

Basis of Preparation

v2.4.0.6
Basis of Preparation
12 Months Ended
Apr. 30, 2012
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Basis of Preparation

3. Basis of Preparation:

 

The consolidated financial statements and accompanying footnotes are prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and include the accounts of the Company and its wholly-owned subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation.

Significant Accounting Policies

v2.4.0.6
Significant Accounting Policies
12 Months Ended
Apr. 30, 2012
Accounting Policies [Abstract]  
Significant Accounting Policies

4. Significant Accounting Policies:

 

(a) Use of Estimates

 

The preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include volumes of oil and natural gas reserves, abandonment obligations, impairment of oil and natural gas properties, depreciation, depletion and amortization, income taxes, fair value of derivatives liabilities and other financial instruments, and contingencies.

 

Oil and gas reserve estimates, which are the basis for unit-of-production depletion and the full cost ceiling test, have a number of inherent uncertainties. The accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation and judgment. Results of drilling, testing, and production subsequent to the date of the estimate may justify revision of such estimate. Accordingly, reserve estimates are often different from the quantities of oil and gas that are ultimately recovered. In addition, reserve estimates are vulnerable to changes in prices of crude oil and gas. Such prices have been volatile in the past and can be expected to be volatile in the future.

 

 (b) Cash and Cash Equivalents:

 

Cash and cash equivalents include all highly liquid monetary instruments with original maturities of three months or less when purchased to be cash equivalents.  These investments are carried at cost, which approximates fair value. Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash deposits.  The Company maintains its cash in institutions insured by the Federal Deposit Insurance Corporation (“FDIC”).  Beginning April 30, 2010 through April 30, 2012, all noninterest-bearing transaction accounts are fully insured, regardless of the balance of the account, at all FDIC-insured institutions. This unlimited insurance coverage is separate from, and in addition to, the insurance coverage provided to the depositor’s other accounts held by a FDIC-insured institution, which are insured for balances up to $250,000 per depositor until December 31, 2013.

 

(c) Oil and Gas Operations:

 

Oil and Gas Properties: The Company uses the full-cost method of accounting for its exploration and development activities. Under this method of accounting, the cost of both successful and unsuccessful exploration and development activities are capitalized as oil and gas property and equipment. Proceeds from the sale or disposition of oil and gas properties are accounted for as a reduction to capitalized costs unless the gain or loss would significantly alter the relationship between capitalized costs and proved reserves of oil and natural gas attributable to a country, in which case a gain or loss would be recognized in the statement of operations. The Company has defined a cost center by country. Currently, all of the Company’s oil and gas properties are located within the continental United States, its sole cost center.

 

Oil and gas properties may include costs that are excluded from costs being depleted. Oil and gas costs excluded represent investments in unproved properties and major development projects in which the Company owns a direct interest. These unproved property costs include nonproducing leasehold, geological and geophysical costs associated with leasehold or drilling interests and in process exploration drilling costs. All costs excluded are reviewed at least quarterly to determine if impairment has occurred.

 

Proved Oil and Gas Reserves: In accordance with Rule 4-10 of SEC Regulation S-X, proved oil and gas reserves are the estimated quantities of crude oil, natural gas and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. The price used to establish economic producibility is the average price during the 12-month period preceding the end of the entity's fiscal year and calculated as the un-weighted arithmetic average of the first-day-of-the-month price for each month within such 12-month period.

 

Ceiling Test: Under the full-cost method of accounting, a ceiling test is performed quarterly. The full-cost ceiling test is an impairment test prescribed by SEC Regulation S-X Rule 4-10. The ceiling test determines a limit on the carrying value of oil and gas properties.  The capitalized costs of proved oil and gas properties, net of accumulated depreciation, depletion, amortization, and impairment and the related deferred income taxes, may not exceed the estimated future net cash flows from proved oil and gas reserves, excluding future cash outflows associated with settling asset retirement obligations that have been accrued on the balance sheet, generally using current prices (with consideration of price changes only to the extent provided by contractual arrangements) as of the date of the latest balance sheet presented and including the effect of derivative instruments that qualify as cash flow hedges, discounted at 10%, net of related tax effects, plus the cost of unevaluated properties and major development projects excluded from the costs being amortized. If capitalized costs exceed this limit, the excess is charged to expense and reflected as additional accumulated depreciation, depletion, amortization and impairment. In the application of the full-cost method, the term “current price” means the average price during the 12-month period prior to the end of the entity's fiscal year determined as the un-weighted arithmetical average of the prices on the first day of each month within the 12-month period.

 

In accordance with SEC Staff Accounting Bulletin ("SAB") No. 103, “Update of Codification of Staff Accounting Bulletins ,” derivative instruments qualifying as cash flow hedges are to be included in the computation of the limitation on capitalized costs. The Company has not accounted for its derivative contracts as cash flow hedges. Accordingly, the effect of these derivative contracts has not been considered in calculating the full cost ceiling limitation as of April 30, 2012 and 2011.

 

Depletion, Depreciation and Amortization: Depletion, depreciation and amortization is provided using the unit-of-production method based upon estimates of proved oil and gas reserves with oil and gas production being converted to a common unit of measure based upon their relative energy content. Investments in unproved properties and major development projects are not amortized until proved reserves associated with the projects can be determined or until impairment occurs. If the results of an assessment indicate that the properties are impaired, the amount of the impairment is deducted from the capitalized costs to be amortized. Once the assessment of unproved properties is complete and when major development projects are evaluated, the costs previously excluded from amortization are transferred to the full cost pool and amortization begins. The amortizable base includes estimated future development costs and where significant, dismantlement, restoration and abandonment costs, net of estimated salvage value.

 

In arriving at rates under the unit-of-production method, the quantities of recoverable oil and natural gas reserves are established based on estimates made by the Company’s geologists and engineers which require significant judgment, as does the projection of future production volumes and levels of future costs, including future development costs. In addition, considerable judgment is necessary in determining when unproved properties become impaired and in determining the existence of proved reserves once a well has been drilled. All of these judgments may have significant impact on the calculation of depletion expense. There have been no material changes in the methodology used by the Company in calculating depletion of oil and gas properties under the full cost method during the years ended April 30, 2012 and 2011.

 

As of April 30, 2012, the Company determined it necessary to impair the oil and gas properties by $16,380,166. Management concluded that an impairment was necessary after analyzing the current capitalization of the Company and analyzing the capital needs of each of the oil and gas projects. Management’s assessment was based on its lack of success in raising funds necessery to commercialize its assets. The Company impaired the assets to salvage values.

 

As of April 30, 2011, the Company performed a ceiling test calculation to assess the ceiling limitation of the proved oil properties in Missouri and 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 (2010 - $nil) on the Missouri projects. 

 

 (d) Property and Equipment other than Oil and Gas Properties:

 

Property and equipment are carried at cost, less accumulated depreciation.  Depreciation expense ($24,303 in 2012 and $60,465 in 2011, and $ 152,720 in 2010) is computed using the straight-line method over the estimated useful lives ranging from 3 to 5 years.

 

Renewals and improvements that significantly extend the useful lives of the assets are capitalized.  Capitalized leased assets and leasehold improvements are depreciated over the shorter of their useful lives or the remaining lease term.  Expenditures for maintenance and repairs are charged to expense as incurred. The cost of assets retired or otherwise disposed of and the related disposals are credited or charged to operations.

 

(e) Asset Retirement Obligations:

 

The Company recognizes a liability for the estimated fair value of site restoration and abandonment costs when the obligations are legally incurred and the fair value can be reasonably estimated. The fair value of the obligations is based on the estimated cash flow required to settle the obligations discounted using the Company's credit adjusted risk-free interest rate. The obligation is recorded as a liability with a corresponding increase in the carrying amount of the oil and gas assets. The capitalized amount will be depleted on a unit-of-production method. The liability is increased each period, or accretes, due to the passage of time and a corresponding amount is recorded in the statement of operations. Revisions to the estimated fair value would result in an adjustment to the liability and the capitalized amount in oil and gas assets.

 

(f) Foreign Currency Translation:

 

Commencing July 30, 2010, the US dollar is the functional currency of the Company and its subsidiaries. Monetary assets and liabilities denominated in foreign currencies are translated to US dollars at the exchange rate in effect at the balance sheet date and non-monetary assets and liabilities at the exchange rates in effect at the time of the transactions. Revenues and expenses are translated to US dollars at rates approximating exchange rates in effect at the time of the transactions. Translation exchange gains and losses resulting from the period-end translation of assets and liabilities denominated in foreign currencies are recorded in other comprehensive income or loss, on the statement of equity. Transaction gains or losses are recognized through earnings.

 

For periods prior to July 30, 2010, the functional currency of the Company and its subsidiaries was Cdn dollar, which was translated into US dollars, the Company’s reporting currency, using the current rate method. Under this method, assets and liabilities are translated at the closing rate in effect at the end of the comparative period; revenues, expenses and cash flows are translated at the average rate in effect for the period; and equity transactions are translated at historical rates. Translation adjustments are included in accumulated other comprehensive loss presented in stockholders’ equity.

 

The Company is exposed to foreign currency fluctuations as it has cash, accounts receivable and accounts payable denominated in Canadian dollars. A 1% change in foreign exchange rates between the US and Canadian dollars would have resulted in a change of approximately $1,000 in the net loss in 2012 (2011-$2,425; 2010-$2,570). There are no exchange rate contracts in place.

 

 (g) Oil Revenue:

 

Sales of oil, net of any royalties, are recognized when oil has been delivered to a custody transfer point, persuasive evidence of a sales arrangement exists, the rights and responsibility of ownership pass to the purchaser upon delivery, collection of revenue from the sale is reasonably assured, and the sales price is fixed or determinable. We sell oil on a monthly basis. Virtually all of our contracts’ pricing provisions are tied to a market index, with certain adjustments based on, among other factors, whether a well delivers to a gathering or transmission line, quality of the oil, and prevailing supply and demand conditions, so that the price of the oil fluctuates to remain competitive with other available oil supplies.

 

(h) Stock-Based Compensation:

 

Generally, all forms of stock-based compensation, including stock option grants, warrants, and restricted stock grants are measured at their fair value utilizing an option pricing model on the awards’ grant date, based on the estimated number of awards that are ultimately expected to vest. Share-based compensation awards issued to non-employees for services rendered are recorded at either the fair value of the services rendered or the fair value of the share-based payment, whichever is more readily determinable. The expense resulting from stock-based compensation are recorded in general and administrative expense in the consolidated statement of operations, depending on the nature of the services provided.

 

(i) Income Taxes:

 

The Company follows the asset and liability method of tax allocation accounting. This method requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between financial accounting bases and tax bases of assets and liabilities. The tax benefits of tax loss carry-forwards and other deferred taxes are recorded as an asset to the extent that management assesses the utilization of such assets to be more likely than not. Deferred tax assets and liabilities are measured using the tax rate in effect for the year in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates of deferred tax assets and liabilities is recognized in income in the year of the enacted rate change. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized.

 

The Company recognizes interest and penalties related to uncertain tax positions in statement of operations. During 2012 the Company incurred penalties and interest of approximately $32,000 with the Canadian Revenue Agency. Through October 15, 2012, the Company has paid $10,000 of the outstanding penalties and interest. As of April 30, 2011 and 2010 there were no charges for interest and penalties.

 

 (j) Per Share Amounts:

 

Basic net loss per common share is computed by dividing net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted net earnings (loss) per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents. In periods when losses are reported, which is the case for all periods presented in these consolidated financial statements, the weighted-average number of common shares outstanding excludes common stock equivalents because their inclusion would be anti-dilutive. Common share equivalents excluded at April 30, 2012, 2011 and 2010 an aggregate of 117,759,023, 120,309,640 and 81,062,750 shares of common stock, respectively.

 

There is no difference between the basic and diluted per share amounts as the effects of the convertible notes, derivative warrants, Preferred A Warrants, Preferred B share, Preferred B warrants stock options, consulting and compensation warrants are anti-dilutive.

 

The Company had the following common stock equivalents at April 30, 2012, 2011 and 2010:

 

As at   April 30 2012     April 30 2011     April 30, 2010  
Preferred A Shares     -       -       34,592,950  
Preferred A Warrants     19,250,000       19,250,000       15,400,000  
Preferred B Shares     8,799,995       10,000,000       20,000,000  
Preferred B Warrants     15,399,125       17,500,000       10,000,000  
Senior I Notes     12,646,000       11,750,000        
Senior I Warrants     12,500,000       12,500,000        
Senior II Notes     23,000,000       23,000,000        
Senior II Warrants     9,200,000       9,200,000        
Junior Notes     12,988,903       12,505,340        
Consulting Warrants     2,720,000       2,720,000        
Stock Options     775,000       1,404,300       1,069,800  
Compensation Warrants     480,000       480,000       -  
      117,759,023       120,309,640       9,069,095  

  

(k) Fair Value of Financial Instruments:

 

All financial instruments, including derivatives, are to be recognized on the balance sheet initially at fair value. Subsequent measurement of all financial assets and liabilities except those held-for-trading and available for sale are measured at amortized cost determined using the effective interest rate method. Held-for-trading financial assets are measured at fair value with changes in fair value recognized in earnings. Available-for-sale financial assets are measured at fair value with changes in fair value recognized in comprehensive income and reclassified to earnings when derecognized or impaired.

 

At each balance sheet date, the Company assesses financial assets for impairment with any impairment recorded in the consolidated statement of operations. To assess loans and receivables for impairment, the Company evaluates the probability of collection of accounts receivable and records an allowance for doubtful accounts, which reduces loans and receivables to the amount management reasonably believes will be collected. In determining the amount of the allowance, the following factors are considered: the length of the time the receivable has been outstanding, specific knowledge of each customer’s financial condition and historical experience.

 

Market risk is the risk that changes in commodity prices will affect the Company’s oil sales, each flows or the value of its financial instruments. The objectives of commodity price risk management is to manage and control market risk exposures within acceptable limits while maximizing returns.

 

The Company is exposed to change in oil prices which impact its revenues and to change in natural gas process which impact its operating expenses.

 

The Company does not utilize financial derivatives or other contracts to manage commodity price risks.

 

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price).

 

Fair value measurements are categorized using a valuation hierarchy for disclosure of the inputs used to measure fair value, which prioritized the inputs into three broad levels:

 

Level 1 - Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

  

Level 2 - Pricing inputs are other than quoted prices in active markets included in level 1, which are either directly or indirectly observable as of the reported date and includes those financial instruments that are valued using models or other valuation methodologies.

 

Level 3 - Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.

 

(l) Derivatives:

 

The Company evaluates all financial instruments for freestanding and embedded derivatives. Warrants and conversion features related to convertible notes and preferred shares do not have readily determinable fair values and therefore require significant management judgment and estimation. The Company uses the Binomial pricing model to estimate the fair value of warrant and note conversion feature at the end of each applicable reporting period. Changes in the fair value of these derivatives during each reporting period are included in the statement of operations. Inputs into the Binomial pricing model require estimates, including such items as estimated volatility of the Company’s stock risk-free interest rate and the estimated life of the financial instruments being fair valued.

 

(m) Subsequent Events:

 

The Company evaluates subsequent events through the date when financial statements are issued.  The Company, which files reports with the SEC, considers its consolidated financial statements issued when they are widely distributed to users, such as upon filing of the financial statements on EDGAR, the SEC’s Electronic Data Gathering, Analysis and Retrieval system.

 

(n) Reclassifications

 

Certain amounts in prior periods have been reclassified to conform to current period presentation. The loss from operations decreased by approximately $10.8 million and $921,318 in years 2011 and 2010 respectively. The $10.8 million and $921,318 were reclassified to other income and expense with no impact on net loss.

  

(o) Segment Reporting

 

In accordance with ASC 280 “Segment Reporting”, operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision-making group, in making decisions how to allocate resources and assess performance. Our chief decision maker, as defined under the FASB’s guidance, is the Chief Executive Officer. It is determined that the Company operates in one business segment and two geographic segments, Canada and the United States of America.

 

(p) Recent Accounting Pronouncements:

  

In July 2012, the FASB issued the Accounting Standards Update or ASU, 2012-02, Intangibles-Goodwill and Other: Testing Indefinite-Lived Intangible Assets for Impairment, that allows entities to have the option first to assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the indefinite-lived intangible asset is impaired. If, after assessing the totality of events and circumstances, an entity concludes that it is not more likely than not that the indefinite-lived intangible asset is impaired, then the entity is not required to take further action to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test by comparing the fair value with the carrying amount in accordance with ASC 350-30. An entity also has the option to bypass the qualitative assessment for any indefinite-lived intangible asset in any period and proceed directly to performing the quantitative impairment test. An entity will be able to resume performing the qualitative assessment in any subsequent period. The guidance is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, with early adoption permitted. The Company does not expect the adoption of these provisions to have a significant effect on its financial statements.

 

In December 2011, the FASB issued the ASU 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05, that deferred the effective date for amendments to the presentation of reclassifications of items out of other comprehensive income. ASU 2011-12 was issued to allow the FASB time to redeliberate the presentation requirements for reclassifications out of accumulated other comprehensive income for annual and interim financial statements for public, private, and non-profit entities. During the redeliberation period, entities will continue to report reclassifications out of accumulated other comprehensive income using guidance in effect before ASU 2011-05 was issued. ASU 2011-05 is to be applied retrospectively and is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2011. The Company does not expect the adoption of these provisions to have a material effect on its financial statements.

Oil and Gas Assets

v2.4.0.6
Oil and Gas Assets
12 Months Ended
Apr. 30, 2012
Extractive Industries [Abstract]  
Oil and Gas Assets

5. Oil and Gas Assets:

 

The following table summarizes the oil and gas assets by project:

 

Cost     Missouri (a)     Kentucky (b)     Montana (c)     Kansas (d)     Texas (e)     Other (f)     Total  
Balance, April 30, 2011   $ 16,364,000     $ 100,000     $ 75,000     $ 98,214     $ -     $ 1,338,616     $ 17,975,830  
Additions     243,409       -       -               -       -       243,409  
Disposals     (178,339 )     -       -       (7100 )     -       (246,550 )     (431,989 )
Depletion     (261,061 )     -       -       -       -       -       (261,061 )
Impairment     (15,218,009 )     (100,000 )             (91,114 )     -       (971,043 )     (16,380,166 )
Foreign currency translation     -                               -       (21,023 )     (21,023 )
Balance, April 30, 2012   $ 950,000     $ -     $ 75,000     $ -     $ -     $ 100,000     $ 1,125,000  

 

Cost   Missouri (a)     Kentucky (b)     Montana (c)     Kansas (d)     Texas (e)     Other (f)     Total  
Balance, May 1, 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  

 

Cost   Missouri (a)     Kentucky(b)     Montana (c)     Kansas (d)     Texas (e)     Other (f)     Total  
Balance, April 30, 2009   $ 22,462,582     $ 2,695,991     $ 1,273,963     $ 83,803     $ 251,460     $ 1,529,053     $ 28,296,852  
Additions     714,821       49,223       15,413       -       -       5,557       785,014  
Recoveries and transfers     38,311       -       -       (3,200 )     (323 )     (4,719 )     30,069  
Disposition     (2,011,529 )     -       -       -       -       (379,548 )     (2,391,077 )
Depletion     (95,815 )     -       -       -       -       -       (95,815 )
Impairment     -       -       (816,696 )     -       (290,237 )     (55,612 )     (1,162,545 )
Foreign currency translation     3,827,939       470,468       213,529       14,010       39,100       260,265       4,825,311  
Balance, April 30, 2010   $ 24,936,309     $ 3,215,682     $ 686,209     $ 94,613     $ -     $ 1,354,996     $ 30,287,809  

  

During the year ended April 30, 2012, the Company capitalized approximately $121,000 (2011-$181,000; 2010 - $161,000), of administrative costs and $nil (2011-$9,945; 2010 - $50,846), of stock-based compensation costs, which have been included as part of the Missouri project additions.

 

In conjunction with the Preferred B Option (note 11), for a period which is the latter of the Series B Preferred Shares (or the underlying investment rights to buy Series B Preferred Shares) being outstanding or August 28, 2011, Mega Partners 1, LLC (“MP1”), an entity controlled by a Director of the Company who was elected September 7, 2012, held rights to acquire additional property interests as follows:

 

  MP1 has 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.

 

  MP1 has the option to participate with the Company in any future oil and gas property acquisitions for a proportionate 20% share of any such acquisitions.

 

(a) Missouri

 

Effective July 1, 2010, Petro reacquired the 10% working interest in the Company’s Marmaton River and Grassy Creek projects it had sold during fiscal 2010 to MP1, in exchange for a 2.75% gross overriding royalty interest on the projects. Following this acquisition, Petro has a 100% working interest in both projects.

 

MP1 retains the option to acquire up to a 10% interest in future projects within the Deerfield Area, on a project by project basis, by paying up to a US $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.

 

As of April 30, 2012, the Company determined it necessary to impair the oil and gas properties by $15,218,009. Management concluded that an impairment was necessary after analyzing the current capitalization of the Company and analyzing the capital needs of each of the oil and gas projects. Managements assessment was based on its lack of success in raising funds necessary to commercialize its assets. The Company impaired the assets to salvage values.

 

As of April 30, 2011 the company performed a ceiling test calculation to assess the ceiling limitation of the proved oil properties in Missouri and 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 (2010 - $nil) on the Missouri projects.

 

During 2012, the Company earned an average price of $76.75 per barrel of oil equivalent (boe) (2011 -$59; 2010 -$52.90) and incurred operating expenses of $351.71 per boe (2011 -$130.70; 2010 -$132.80). The Company’s 2012 depletion rate was $46.75 per boe (2011 -$27.15; 2010 -$6.02).

  

(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 net mineral acres (10,930 net acres).

 

On September 21, 2010, the Company and its 62.5% working interest partner (together the “Farmor”) signed a farm-out agreement for their interest in 5,100 net acres in the Little Muddy Area of Butler County, Kentucky.

 

On December 4, 2010, this farm-out agreement was expanded to cover the full 29,147 unproved net mineral acres. All acreage leased in Kentucky by the Farmor and the Farmee in Butler, Warren, Edmonson and Muhlenberg counties shall be pooled and be subject to the new agreement, including approximately 1,000 net acres owned by the Farmee which are contiguous with Farmor’s leases.

 

In 2011, the Farmee, at its sole cost, will drill, test and complete or abandon wells at locations of its choice on the joint lands, test production technologies and construct any production facilities required. Upon Farmee recovering all of its project development costs out of 100% of the working interest revenue attributable to each production project on the joint lands, the working interest in, and revenue from, each such project will be shared 50% by the Farmee and 50% by the Farmor (Petro 18.75%, working interest partner 31.25%). During each year of the 4-year term of this agreement, the Farmee is required to pay all lease rentals attributable to the joint lands and drill a sufficient number of wells to hold a minimum of 15% of the joint lands. The parties will share any sale proceeds from the pooled lands, net of cost recovery, in proportion to their respective working interests.

 

During the year ended April 30, 2012, the Company recorded an impairment charge of $100,000 (2011 -$3,179,174; 2010 - $nil) 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 depose 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 leasehold is in the Devils Basin prospect and totals 1,175 gross acres (881 net). Petro currently owns a 75% working interest in this prospect. Gravis has no immediate plans to develop this property. On April 17, 2012 the Teton Prospect leases totalling 2,807 gross acres (1137 net) expired.

 

During the year ended April 30, 2012 the Company recorded an impairment charge of $nil (2011 -$602,913; 2010 - $816,696) on the Montana project. The 2011impairment 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 consists of a 100% interest in two oil and gas leases covering 385 net mineral acres located two miles south of Chetopa, Kansas. The project was suspended in fiscal 2009. On April 2, 2012, the Company sold its suspended Chetopa pre-commercial heavy oil demonstration project including certain oil and gas equipment and a 100% interest in one oil and gas lease covering 320 net acres for cash consideration of $7,100 and for a royalty of $5 per bbl. on future production with a royalty cap of $1,000,000. One lease of 65 acres expired during the year ended April 30, 2012. During the year ended April 30, 2012 the Company recorded an impairment charge of $91,114(2011 -$nil; 2010 - $nil).

 

(e) Texas

 

At April 30, 2012 all the Company’s Texas leases are expired.  The Company has recorded an abandonment liability of $260,482 with respect to five remaining wells and leases. During the years ended April 30, 2011 and 2010, the Company recorded an impairment change of $nil and $290,237, respectively.

 

(f) Other

 

Other property consists primarily of four used steam generators and related equipment that will be assigned to future projects. In March of 2012, the Company sold one of its five steam generators, located in Lloydminster, Alberta for cash consideration of $219,154. During the year ended April 30, 2012, the Company recorded an impairment charge of $971,043 (2011 -$nil; 2010 - $55,612).

Related Party Long-term Receivable

v2.4.0.6
Related Party Long-term Receivable
12 Months Ended
Apr. 30, 2012
Related Party Transactions [Abstract]  
Related Party Long-term Receivable

6. Related Party Long-term Receivable:

 

The $302,536 (April 30, 2011 - $294,862; April 30, 2010) long-term receivable is for capital and operating costs owing from MP1 on the Marmaton River and Grassy Creek projects in Missouri. MP1 is controlled by one of the Company’s Directors who was appointed a Director of the Company on September 7, 2012. In July 2010, the Company and MP1 entered into an arrangement whereby the Company reacquired the remaining 10% working interest in the projects in exchange for a 2.75% gross overriding royalty (“GOR“). Under this arrangement, the Company will recover the balance owing from 50% of the GOR payments to the partner. During the time the receivable is outstanding, the Company earns interest on the outstanding balance at the U.S bank prime rate plus 3%. Included in the reported amount receivable is $32,514.29 of interest earned on the outstanding balance (2011- $15,050; 2010 - $nil). As of April 30,2012, the outstanding receivable of $302,536 was fully reserved for $302,536. In addition, the Company ceased to record additional interest on the receivable as of April 30, 2012.

Natural Gas Purchase Line of Credit Agreement

v2.4.0.6
Natural Gas Purchase Line of Credit Agreement
12 Months Ended
Apr. 30, 2012
Natural Gas Purchase Line Of Credit Agreement  
Natural Gas Purchase Line of Credit Agreement

7. Natural Gas Purchase Line of Credit Agreement:

 

The Company had a natural gas purchase line of credit agreement for the sole purpose of buying natural gas to fuel the steam generators on its Marmaton River and Grassy Creek projects. The line of credit was repaid in February 2011 and then terminated.

Asset Retirement Obligations

v2.4.0.6
Asset Retirement Obligations
12 Months Ended
Apr. 30, 2012
Asset Retirement Obligation Disclosure [Abstract]  
Asset Retirement Obligations

8. Asset Retirement Obligations:

 

The total future asset retirement obligation was estimated based on the Company’s ownership interest in all wells and facilities, the estimated legal obligations required to retire, dismantle, abandon and reclaim the wells and facilities and the estimated timing of such payments. The Company estimated the present value of its asset retirement obligations at April 30, 2012 and 2011 based on a future undiscounted liability of $952,292 and $1,208,293, respectively. These costs are expected to be incurred within one to 24 years. A credit-adjusted risk-free discount rate of 10% and an inflation rate of 2% were used to calculate the present value.

 

Changes to the asset retirement obligation were as follows:

 

    2012     2011  
Balance, beginning of year   $ 727,336     $ 767,540  
Additions     -       42,197  
Disposition     (165,325 )     -  
Revisions     -       (143,268 )
Accretion     65,061       60,867  
      627,072       727,336  
Current portion for cash flows expected to be incurred within one year     (260,482 )     (205,700 )
Long-term portion, end of year   $ 366,590     $ 521,636  

 

As at April 30, 2012, the Company has $25,000 (2011 -$143,696; 2010 - $140,815) of reclamation deposits with authorities to secure certain abandonment liabilities in Missouri.

 

Expected timing of asset retirement obligations:

 

Year Ended April 30        
2013       260,482  
2014       122,222  
2015       135,556  
2016       75,556  
Thereafter       358,476  
        952,292  
Effect of discount       (325,220 )
Total     $ 627,072  

Convertible Notes

v2.4.0.6
Convertible Notes
12 Months Ended
Apr. 30, 2012
Debt Disclosure [Abstract]  
Convertible Notes

9. Convertible Notes:

 

In July 2010, the Company closed a financing with a group of its existing shareholders for US $2.5 million of funding. The transactions included the issuance of $2.5 million in senior secured convertible notes (“Senior I Notes”), the conversion of the outstanding Preferred A Shares into approximately $2.5 million junior secured convertible notes (“Junior Notes”) and the reacquisition of a 10% working interest in the Marmaton River and Grassy Creek projects from MPI in exchange for a 2.75% gross overriding royalty on these properties.

 

On December 28, 2010, January 31, 2011 and March 7, 2011, the Company issued an aggregate of $4.6 million senior secured convertible notes (“Senior II Notes”).

 

The Senior I and Senior II Notes are senior obligations of the Company secured by the oil and gas assets in the state of Missouri. The Junior Notes are secured by the same assets, but rank behind the Senior I and II Notes in priority.

 

The investors in the Senior I Notes and the Junior Notes were extended full anti-dilution protection on all convertible securities, including notes and warrants.

 

For a period of one year following the closing date of each note, the investors in the notes have a right to participate in future financings of the Company.

 

In the event the Company issues common shares or securities convertible into or exercisable for common shares at a price per share or conversion or exercise price less than the conversion or exercise prices agreed to for each note, the conversion price of the notes and the exercise price of the warrants automatically reduce to such lower prices. The number of warrants outstanding will be increased such that the expected exercise proceeds remain unchanged.

 

The Company incurred $327,752 of loan fees for the issuance of Senior and Junior Notes which are presented as a deferred asset on the balance sheet and recognized as an expense over the term of the respective notes. During the years ended 2012, 2011 and 2010, the Company recognized $172,288, $100,357 and $nil as expense.

 

The table details the amounts recognized for the Senior and Junior Notes at the date of issuance:

 

    Face value
of the
Notes
    Carrying
amount of
the Notes
    Conversion
feature
    Senior
warrants
 
Senior I Notes   $ 2,500,000     $ 1,245,490     $ 327,790     $ 926,720  
Senior II Notes     4,600,000       3,090,820       627,830       881,350  
      7,100,000       4,336,310       955,620       1,808,070  
Junior Notes     2,501,069       1,573,489       927,580       -  
    $ 9,601,069     $ 5,909,799     $ 1,883,200     $ 1,808,070  

 

The conversion feature and senior warrants amounts recognized are the fair values of the derivative components at issuance date, with the remainder of the proceeds being attributed to the liability components of the notes.

 

The table details the continuity of convertible notes for the years ended April 30, 2012 and 2011:

 

    Face Value
of the
Notes
    Carrying
amount of
the Notes
 
Balance, May 1, 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  
Issued                
Interest and accretion     -       2,155,459  
Accrued interest applied to principal     275,911       275,911  
Balance, April 30, 2012     9,726,980       9,097,633  
Senior I Note current portion     (2,529,200 )     (2,529,200 )
Long-term portion   $ 7,197,781     $ 6,568,433  

 

(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 (currently in default) and are convertible at any time at the holder’s option at a conversion price of $0.50 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 5,000,000 Senior I Warrants (“Senior I Warrants”). The Senior I Warrants were initially exercisable at $0.50 per share until July 29, 2013. On December 28, 2010, upon the issuance of Senior II notes and Senior II warrants. the conversion price of the Senior I Notes was reduced to $0.20 per share and the number of Senior I Warrants was increased to 12,500,000 and the exercise price reduced to $0.20 per share.

 

The fair values of the conversion feature and Senior I Warrants were estimated 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 for which $184,373 was credited to share capital (note 12) comprised of a $99,843 pro-rata portion of the liability and $84,530 of the conversion feature.

 

During the years ended April 30, 2012, 2011 and 2010, the Company accreted the debt discount in the amount of $773,914, $480,596 and $nil respectively. The Company recorded 15% default interest during the years ended April 30, 2012 and 2011.

 

(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 on June 28, 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 using the Black-Scholes pricing model based on a risk-free rate of 0.28% - 1.15%, expected volatility of 120% - 130%, and an expected life of 18 months to 3 years.

 

As at April 30, 2011, $658,000 of Senior II Note proceeds were held in an escrow account. This amount is made available to the Company upon written request by the board of directors. The escrow was released during the year ended April 30, 2012.

 

During the years ended April 30, 2012, 2011 and 2010, the Company accreted the debt discount in the amount of $972,222, $243,382 and $nil, respectively. The Company recorded 15% default interest during the years ended April 30, 2012 and 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 $0.50 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.

 

On December 28, 2010, the conversion price of the Junior Notes was reduced to $0.20 per share pursuant to the terms described above.

 

The fair value of the conversion feature was estimated using the Black-Scholes pricing model (equivalent value to utilizing binomial models) based on a risk-free rate of 0.84%, expected volatility of 100%, and an expected life of 3 years.

 

During the years ended April 30, 2012, 2011 and 2010, the Company accreted the debt discount in the amount of $409,324, $132,329 and $nil, respectively. The Company recorded 15% default interest during the years ended April 30, 2012 and 2011.

Derivatives

v2.4.0.6
Derivatives
12 Months Ended
Apr. 30, 2012
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivatives

10. Derivatives

 

The table summarizes the Company’s derivative instruments:

 

    Preferred A
Warrants
    Preferred B
Shares
    Preferred B
Option/Warrants
    Note
conversion
features
    Warrants     Consulting
warrants
    Total  
Balance, May 1, 2010   $ 740,269     $ -     $ 590,640     $ -     $ -     $ -     $ 1,330,909  
Preferred B Option (b)     -       -       10,894       -       -       -       10,894  
Consulting Warrants (c)     -       -       -       -       -       166,810       166,810  
Senior I Notes (note 10)     -       -       -       327,790       926,720       -       1,254,510  
Senior II Notes (note 10)     -       -       -       627,830       881,350       -       1,509,180  
Junior Notes (note 10)     -       -       -       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)     -       -       (4,846,941 )     -       -       -       (4,846,941 )
Expiry of Preferred B Options (b)     -       -       (661,259 )     -       -       -       (661,259 )
Issuance of Preferred B shares and warrants (b)     -       1,662,100       3,677,600       -       -       -       5,339,700  
Change in fair value     (3,038,040 )     (1,635,701 )     (3,014,510 )     (2,697,876 )     (2,707,058 )     (480,591 )     (13,573,776 )
Balance, April 30, 2012   $ 181,660       26,399     $ 277,184     $ 171,754     $ 89,832     $ 10,789     $ 757,618  

 

The fair values of derivative instruments were estimated using the Binomial pricing model based on the following weighted-average assumptions:

 

    Preferred A
Warrants
  Preferred B
Option/Shares/Warrants
  Conversion
Feature
Derivative
    Senior Warrants   Consulting
Warrants
 
Risk-free rate   0.27%-1.01 % 0.34%-1.01 %   0.32%-0.38 %   0.20%-0.78 % 0.20%-0.90 %
Expected volatility   100%-104 % 100%-104 %   104 %   104%-113 % 104%-122 %
Expected life   2.3-3.3 years   2.0-5 years     1.2-1.4 years     1.2-2.5 years   1.2-2.6 years  

 

The following table summarizes derivative warrants outstanding and exercisable as at April 30, 2012:

 

Issuance   Number of
Warrants
    Weighted
Avg.
Exercise
Price
    Weighted Avg. Life
Remaining
Preferred A Warrants     19,250,000     $ 0.20     2.33 years
Preferred B Warrants     15,399,125       0.20     4.10 years
Senior I Warrants     12,500,000       0.20     1.25 years
Senior II Warrants     9,200,000       0.25     1.75 years
Consulting Warrants     2,720,000       0.25     1.56 years
      59,069,125     $ 0.21     2.50 years

 

(a) Preferred A Warrants:

 

In conjunction with the Preferred A Shares issuance in August 2009, the Company issued 15,400,000 warrants (the “Preferred A Warrants”) to the Series A investors. Each Preferred A Warrant allows the holder to purchase a common share at $0.25 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 April 30, 2012 and the Company has no effective registration statement in effect related to the Preferred A Warrant shares.

 

The Preferred A Warrants have similar round-down provisions as the Senior warrants, as a result of which the number of Preferred A Warrants was increased to 19,250,000 at an exercise price of $0.20 on December 28, 2010.

 

(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 24, 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 converted. (the “Preferred B Option”).

 

On June 7, 2011, 17,599 Preferred B Options were exercised for gross proceeds of $1,759,900 (convertible into 8,799,995 common shares) and the remaining 2,401 Preferred B Options expired. On June 7, 2011, the date of exercise of Preferred B option, the Company revalued the fair value of Preferred B Option and change in fair value of Preferred B option of $(385,906) was recorded in earning. The fair value of exercised and expired portion of Preferred B option of $5,508,200 and proceeds of $1,759,900 were recorded as additional paid in capital 

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 $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 Preferred B Shares and the Preferred B Warrants contained full ratchet provisions in which the conversion prices could be reset in the event of a subsequent down round issuance. In accordance with ASC 815-40-55, these ratchet provsions were bifurcated from the host instrument, valued utilizing a Binomial pricing model and recorded as a derivative liability.

 

The fair value of Preferred B Shares and Warrants was estimated on the date of issuance at $5,339,700 using a Binomial pricing model based on a risk-free rate of 1.59%, expected volatility of 100%, and an expected life of 2-5 years.

 

(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 30 012  
July 30, 2010       720,000     $ 0.25 (1)   July 30, 2013   $ 81,510     $ 1,731  
December 28, 2010       2,000,000     $ 0.25     December 28, 2013     85,300       9,053  
        2,720,000                 $ 166,810     $ 10,789  

 

(1)        On December 28, 2010, the number of warrants was increased from 360,000 to 720,000 and the exercise price was reduced from $0.50 to $0.25 per share pursuant to the ratchet terms in the consulting warrants. As of April 30, 2012, the warrant holder was also due $250,000. The warrant holder is no longer in business and the debt has been extinguished.

Stockholders’ Deficiency

v2.4.0.6
Stockholders’ Deficiency
12 Months Ended
Apr. 30, 2012
Stockholders' Equity Note [Abstract]  
Stockholders’ Deficiency

11. Stockholders’ Deficiency:

 

The authorized capital of the Company consists of 2,250,000,000 common shares par value $0.00001 per share and 5,000,000 preferred shares par value $0.00001 per share. Effective June 20, 2011, the Company’s equity was reverse-split on a one-for-ten basis. All common share, preferred share, warrant and stock option figures disclosed herein are reported on a post reverse-split basis.

    

Preferred A Shares

 

On August 28, 2009, the Company issued 2,200 Series A convertible preferred shares (the “Preferred A Shares”), with a stated value of $100 for gross proceeds of $2,200,000 and convertible into common shares at $0.07 per common share.

 

The Preferred A Shares carried a cumulative quarterly dividend of 5% payable in cash or, at the Company’s discretion, of 7.5% payable in additional Preferred A Shares. At July 30, 2010, the Company had declared a total of $301,069 (April 30, 2010 - $218,795) of accumulated dividends. On July 30, 2010, the Company exchanged 2,200 Preferred A Shares and $301,069 of accumulated dividends for $2,501,069 of Junior Notes through a transaction with existing shareholders. Dividends were calculated at 15% pursuant to the Preferred Share Subscription Agreement as the Company was in default on paying dividends as they came due on a quarterly basis. In conjunction with the exchange, the Company recorded a deemed dividend of $537,533 to shareholders for the difference between the $1,963,536 carrying value of the preferred shares and the $2,501,069 fair value of the convertible note on the exchange date.

 

(c) Preferred B Shares:

 

The Company has 29,500 Preferred B Shares authorized.

 

On June 7, 2011, the Company issued 17,599 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 April 30, 2012, 2011 and 2010, the Company had declared a total of $367,004, $nil and $nil, respectively, 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.

Stock Based Compensation

v2.4.0.6
Stock Based Compensation
12 Months Ended
Apr. 30, 2012
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Stock Based Compensation

12. Stock Based Compensation:

 

Petro has two equity incentive plans. The number of shares reserved for issuance in aggregate under both plans is limited to 10% of the issued and outstanding common shares of Petro. The exercise price, term and vesting schedule of stock options granted are set by the board of directors at the time of grant. Stock options granted under the plans can be exercised on a cashless basis, whereby the employee receives a lesser amount of shares in lieu of paying the exercise price based on the quoted market price of the shares on the exercise date.

 

The following table summarizes the changes in stock options:

 

 

 

          Weighted
Avg.
 
      Number of
Options
    Exercise
Price
 
Outstanding May 1, 2009       747,850     $ 4.10  
Granted       413,200       1.40  
Forfeited       (91,250 )     (4.90 )
Outstanding, April 30, 2010       1,069,800       3.00  
Granted       1,302,000       0.50  
Expired       (213,500 )     (4.90 )
Forfeited       (304,000 )     (2.50 )
Cancelled       (450,000 )     (2.80 )
Outstanding, April 30, 2011       1,404,300       0.60  
Granted       100,000       0.50  
Expired       (52,950 )     0.15  
Forfeited       -       -  
Cancelled       (676,350 )     (0.55 )
Outstanding, April 30, 2012       775,000     $ 0.52  

 

During fiscal 2010, the Company granted 413,200 stock options to certain employees, consultants and directors with a three-year term at exercise prices ranging from $1.00 to $1.80 per share. These options vest 25% six months from the grant date and 25% on each of the first, second and third anniversaries of the grant date.

 

On January 1, 2011, the Company granted 500,000 stock options exercisable at $0.50 per share. These options vest in three equal tranches on the first, second and third anniversaries of the grant date and expire on January 1, 2015.

 

On April 5, 2011, the Company granted 802,000 stock options exercisable at $0.50 per share of which 772,500 options vest immediately and 29,500 options vest in three equal tranches on the first, second and third anniversaries of the grant date. These options expire on April 5, 2014.

 

On June 30, 2011, the Company granted 100,000 stock options to the interim chief executive officer exercisable at $0.50 per share. The options vest in three equal tranches on the first, second and third anniversaries of the grant date. These options expire on June 30, 2015.

 

As at April 30, 2012, total compensation cost related to non-vested stock options not yet recognized is $31,571 which will be recognized over a weighted average period of 2.00 years.

 

The fair value of options granted was determined using the Binomial pricing model with the weighted average following assumptions:

 

    2012     2011     2010  
Fair value per option   $ 0.34     $ 0.27     $ 1.58  
Expected volatility     130 %     130 %     214 %
Risk-free rate     0.81 %     1.41 %     2.57 %
Forfeiture rate     0 %     15 %     10 %
Dividend rate     0 %     0 %     0 %
Expected life     4.0 years       3.4 years       3 years  

 

The following table summarizes information about the options outstanding and exercisable at April 30, 2012:

 

      Options Outstanding     Options Exercisable  
Exercise Price     Options     Weighted Avg.
Life Remaining
  Weighted Avg. Exercise
Price
    Options     Weighted Avg.
Exercise Price
 
$ 0.50       757,500     1.96 years   $ 0.50       650,833     $ 0.50  
$ 1.50       17,500     0.58 years   $ 1.50       13,125     $ 1.50  
          775,000     1.90 years   $ 0.52       663,958     $ 0.52  
Aggregate Intrinsic Value     $ -                 $ -          

 

Intrinsic value is the Company’s current per share fair value as quoted on the Over the Counter Bulletin Board on the balance sheet date less the current exercise price.

 

In April 2011, the Company granted 480,000 warrants to certain officers and directors as recognition of past service contributions for which the $152,010 estimated fair value was recognized on the date of issuance. The warrants are exercisable at $0.50 per share until April 5, 2014

 

                  Weighted Avg.  
      Number of     Weighted Avg.     Life Remaining  
      Warrants     Exercise Price     At April 30, 2012  
Outstanding, May 1, 2010     -     $ -     -  
Granted       480,000       0.50       2.9 years  
Outstanding and exercisable, April 30, 2011       480,000       0.50       2.9 years  
Granted       -       -       -  
Outstanding and exercisable, April 30, 2012       480,000     $ 0.50       1.9 years  
Aggregate Intrinsic Value     $ -       -       -  

 

The fair value of compensation warrants was estimated using the Black-Scholes pricing model with the following assumptions: 0% dividends, 130% expected volatility, 15% forfeiture rate, 1.33% risk-free interest rate and an expected life of 3 years.

Income Taxes

v2.4.0.6
Income Taxes
12 Months Ended
Apr. 30, 2012
Income Tax Disclosure [Abstract]  
Income Taxes

13.   Income Taxes:

 

The Company files federal and provincial income tax returns in Canada, and federal and state and local income tax returns in the U.S. The Company may be subject to a reassessment of federal and provincial income taxes by Canadian tax authorities for a period of four years from the date of the original notice of assessment in respect of any particular taxation year. For Canadian income tax returns, the open tax years range from 2008 to 2012. The U.S. federal statute of limitations for assessment of income tax is closed for the tax years ending on or prior to April 30, 2008. In certain circumstances, the U.S. federal statute of limitations can reach beyond the standard three-year period. U.S. state statutes of limitations for income tax assessment vary from state to state. Tax authorities of Canada and U.S. have not audited any of the Company’s, or its subsidiaries’, income tax returns for the open tax years noted above.

 

The Company determines its income tax benefits and net deferred income tax asset (liability) based on the Canadian federal and provincial statutory income tax rates as the parent company is a Canadian corporation.

The income tax expense (benefit) consists of the following:

 

    Years Ended  
                   
    April 30, 2012     April 30, 2011     April 30, 2010  
Foreign                        
 Current   $ -     $ -     $ -  
 Deferred     3,714,646       (388,258 )     567,902  
                         
U.S. Federal                        
 Current     -       -       -  
 Deferred     (4,804,126 )     (5,921,439 )     (5,255,419 )
                         
U.S. State & Local                        
 Current     -       -       -  
 Deferred     (1,110,683 )     -       -  
                         
Change in valuation allowance     2,200,163       6,309,697       4,687,517  
Income tax provision (benefit)   $ -     $ -     $ -  
                         

 

Income tax benefits differ from the amount that would be computed by applying the Canadian federal and provincial statutory income tax rates to the loss for the year as follows:

 

    Years Ended  
                   
      April 30,  2012       April 30,  2011       April 30,  2010  
Loss for the year                        
Canada   $ (921,009 )   $ (13,027,198 )   $ (4,355,736 )
U.S.     (9,182,308 )     (16,682,188 )     (3,594,623 )
      (10,103,317 )     (29,709,386 )     (7,950,359 )
Statutory tax rate     26.00 %     27.50 %     28.00 %
Expected income tax benefit     (2,626,862       (8,170,081 )     (2,226,101 )
Increase (decrease) resulting from:                        
Non-deductible stock-based compensation     5,816       243,419       127,915  
Change in fair market value derivative     (5,175,053 )     -       -  
Accretion of debt discount for derivatives and warrants     560,419       -       -  
Other non-deductible expenses     (109,970 )     2,602,228       16,906  
Effect of changes in tax rates     (3,145,174 )     (1,182,836 )     (76,387 )
U.S. rate differential     (1,113,355 )     -       -  
Effect of U.S. operations     9,752       197,573       (2,529,850 )
Deferred tax true-up     9,394,264       -       -  
Change in valuation allowance     2,200,163       6,309,697       4,687,517  
    $ -     $ -     $ -  

 

The components of the April 30 net deferred income tax asset (liability), after applying corporate income tax rates, are as follows:

 

    2012     2011     2010  
Net deferred income tax asset:                        
Oil and gas and administrative assets - Canada   $ (346,795 )   $ (337,824 )   $ (356,868 )
Oil and gas and administrative assets - U.S.     15,264,612       20,524,918       16,230,207  
Operating losses - Canada     -       3,654,294       3,250,256  
Operating losses - U.S.     26,682,497       15,507,383       13,880,655  
Share issue costs     161,815       198,663       211,746  
Unrealized loss on marketable securities     535,947       515,333       515,333  
Unrealized foreign exchange (gain) loss     (913,786 )     (878,640 )     (856,899 )
      41,384,290       39,184,127       32,874,430  
Less: valuation allowance     (41,384,290 )     (39,184,127       (32,874,430 )
    $ -     $ -     $ -  

 

For the years ended April 30, 2012, the Company had U.S. federal net operating loss carryovers (“Nol’s”) of approximately $70,000,000, that are available to offset future taxable income. These loss carryovers expire beginning in 2027. The U.S. net operating loss carryovers may be subject to limitation under Internal Revenue Code Section 382 should there be a greater than 50% ownership change as determined under the regulations. No such change has occurred to date.

 

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and taxing strategies in making this assessment. Based on this assessment management has established a full valuation allowance against all of the deferred tax assets for every period, since it is more likely than not that all of the deferred tax assets will not be realized.

 

Under ASC 740, tax benefits are recognized only for tax positions that are more likely than not to be sustained upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than fifty percent likely to be realized upon settlement. A liability for “unrecognized tax benefits” is recorded for any tax benefits claimed in the Company’s tax returns that do not meet these recognition and measurement standards.

 

Management has evaluated and concluded that there were no material uncertain tax positions requiring recognition in the Company’s financial statements as of April 30, 2012, April 30, 2011 and April 30, 2010. The Company does not expect any significant changes in its unrecognized tax benefits within the next twelve months. The Company’s federal and state income tax returns for the years ended April 30, 2008 through April 30, 2011 are subject to examination by the applicable taxing authority.

Related Party Transactions

v2.4.0.6
Related Party Transactions
12 Months Ended
Apr. 30, 2012
Related Party Transactions [Abstract]  
Related Party Transactions

14. Related Party Transactions:

 

The $302,536 (April 30, 2011 - $294,862; April 30, 2010) long-term receivable is for capital and operating costs owing from MP1 on the Marmaton River and Grassy Creek projects in Missouri. MP1 is controlled by one of the Company’s Directors who was appointed a Director of the Company on September 7, 2012. In July 2010, the Company and MP1 entered into an arrangement whereby the Company reacquired the remaining 10% working interest in the projects in exchange for a 2.75% gross overriding royalty (“GOR“). Under this arrangement, the Company will recover the balance owing from 50% of the GOR payments to the partner. During the time the receivable is outstanding, the Company earns interest on the outstanding balance at the U.S bank prime rate plus 3%. Included in the reported amount receivable is $32,514.29 of interest earned on the outstanding balance (2011- $15,050; 2010 - $nil). As of April 30, 2012, the outstanding receivable of $302,536 was fully reserved for $302,536. In addition, the Company ceased to record additional interest on the receivable as of April 30, 2012.

 

During the year ended April 30, 2012, the Company paid $94,142 (2011 -$104,406; 2010 - $95,919) in professional fees to a law firm, where the former corporate secretary of the Company is a partner.

Segment Information

v2.4.0.6
Segment Information
12 Months Ended
Apr. 30, 2012
Segment Reporting [Abstract]  
Segment Information

15. Segment Information:

 

Petro presently has one reportable business segment, that being oil and gas exploration and exploitation. Petro’ corporate and administrative operations are conducted in both Canada and the United States, while all of the oil and gas properties and operations are located in the United States.

 

    Year ended April 30, 2012  
    Canada     USA     Consolidated  
Revenue   $ -     $ 436,386     $ 436,386  
Expenses     921,009       9,618,857       10,539,866  
Loss     (921,009 )     (9,182,471 )     (10,103,480 )
Oil and gas assets     100,000       1,025,000       1,125,000  
Property and equipment     -       8,146       8,146  
Oil and gas asset additions     -       243,409       243,409  
Oil and gas asset impairment     (971,043 )     (15,409,123 )     (16,380,166 )
Property and equipment additions     -       12,033       12,033  

 

    Year ended April 30, 2011  
    Canada     USA     Consolidated  
Revenue   $ -     $ 1,565,963     $ 1,565,463  
Expenses     13,027,198       18,248,151       31,275,349  
Loss     (13,027,198 )     (16,682,188 )     (29,709,386 )
Oil and gas assets     1,303,158       16,672,672       17,975,830  
Property and equipment     8,333       11,165       19,498  
Oil and gas asset additions     -       1,623,574       1,623,574  
Oil and gas asset impairment     -       (12,848,677 )     (12,848,677 )
Property and equipment additions     3,054       -       3,054  

 

    Year ended April 30, 2010  
    Canada     USA     Consolidated  
Revenue   $ 4,224     $ 1,576,999     $ 1,581,223  
Expenses     4,359,960       5,171,622       9,531,582  
Loss     (4,355,736 )     (3,594,623 )     (7,950,359 )
Oil and gas assets     1,319,538       28,968,271       30,287,809  
Property and equipment     65,077       14,886       79,963  
Oil and gas asset additions     1,515       783,499       785,014  
Oil and gas dispositions and recoveries     (384,267 )     (1,976,741 )     (2,361,008 )
Oil and gas asset impairment     (55,612 )     (1,106,933 )     (1,162,545 )
Property and equipment additions     -       7,401       7,401  

Fair Value Measurements

v2.4.0.6
Fair Value Measurements
12 Months Ended
Apr. 30, 2012
Fair Value Disclosures [Abstract]  
Fair Value Measurements

16. Fair Value Measurements:

 

The carrying values of cash and cash equivalents, cash in escrow, restricted cash, accounts payable and accrued liabilities approximate fair values due to their short terms to maturity. The long-term receivable is reported at amortized cost which approximates fair value.

 

Petro’ financial liabilities are reported at fair value as presented in the following tables:

 

                Fair Value Measurements Using:  
    Carrying
Amount
    Total Fair
Value
    Level 1
Inputs
    Level 2
Inputs
    Level 3
Inputs
 
April 30, 2012                                        
Liability portion of convertible notes:                                        
 Current portion   $ 2,529,200     $ 2,529,200     $ -     $ 2,529,200     $ -  
 Long-term portion     6,568,433       7,197,781       -       7,197,781       -  
    $ 9,097,633     $ 9,726,981     $ -     $ 9,726,981     $ -  
                                         
April 30, 2012                                        
Derivatives:                                        
Consulting warrants   $ 10,789     $ 10,789     $ -     $ -     $ 10,789  
Junior and Senior Notes and Warrants     261,586       261,586       -       -       261,586  
Preferred A Warrants     181,660       181,660       -       -       181,660  
Preferred B Option and Shares     303,583       303,583       -       -       303,583  
    $ 757,618     $ 757,618     $ -     $ -     $ 757,618  

 

                Fair Value Measurements Using:  
    Carrying
Amount
    Total Fair
Value
    Level 1
Inputs
    Level 2
Inputs
    Level 3
Inputs
 
April 30, 2011                              
Liability portion of convertible notes:                              
 Current portion   $ 1,626,243     $ 2,049,760     $ -     $ 2,049,760     $ -  
 Long-term portion     5,040,020       4,464,990       -       4,464,990       -  
    $ 6,666,263     $ 6,514,750     $ -     $ 6,514,750     $ -  
                                         
April 30, 2011                                        
Derivatives:                                        
Consulting warrants   $ 491,380     $ 491,380     $ -     $ -     $ 491,380  
Junior and Senior Notes and Warrants     5,666,520       5,666,520       -       -       5,666,520  
Preferred A Warrants     3,219,700       3,219,700       -       -       3,219,700  
Preferred B Option     5,122,294       5,122,294       -       -       5,122,294  
    $ 14,499,894     $ 14,499,894     $ -     $ -     $ 14,499,894  

 

The table below provides a summary of the changes in fair value, including net transfers in and/or out, of all financial assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the years ended April 30, 2012 and 2011:

 

    Fair Value Measurement Using 
Level 3 Inputs
    Derivative Liabilities   Total
                 
Balance, May 1, 2011   $ 14,499,894     $ 14,499,894  
                 
Purchases, issuances and settlements     5,339,700       5,339,700  
                 
Derivative ceases to exist due to conversion and expiration     (5,508,200 )     (5,508,200 )
                 
Change in fair value of derivative liability                
included in net loss     (13,573,776 )     (13,573,776 )
                 
Transfers in and/or out of Level 3     -,       -,  
                 
Balance, April 30, 2012   $ 757,618     $ 757,618  

  

    Fair Value Measurement Using 
Level 3 Inputs
 
      Derivative Liabilities      Total  
                 
Balance, May 1, 2010   $ 1,330,909      $ 1,330,909   
                 
Purchases, issuances and settlements     3,855,824       3,855,824  
                 
Derivative ceases to exist due to conversion and expiration     (82,274     (82,274  
                 
Change in fair value of derivative liability                
included in net loss     9,395,435       9,395,435  
                 
Transfers in and/or out of Level 3     -       -  
                 
Balance, April 30, 2011   $ 14,499,894      $ 14,499,894   

 

The effect of changes in the fair value of the derivatives is included in note 10.