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Document and Entity Information

v2.4.0.6
Document and Entity Information
9 Months Ended
Jan. 31, 2013
Mar. 15, 2013
Document And Entity Information    
Entity Registrant Name Petro River Oil Corp.  
Entity Central Index Key 0001172298  
Document Type 10-Q  
Document Period End Date Jan. 31, 2013  
Amendment Flag false  
Current Fiscal Year End Date --04-30  
Is Entity's Reporting Status Current? Yes  
Entity Filer Category Smaller Reporting Company  
Entity Common Stock, Shares Outstanding   14,078,947
Document Fiscal Period Focus Q3  
Document Fiscal Year Focus 2013  

Condensed Consolidated Balance Sheets

v2.4.0.6
Condensed Consolidated Balance Sheets (USD $)
Jan. 31, 2013
Apr. 30, 2012
Current Assets:    
Cash and cash equivalents $ 47,675 $ 300,274
Prepaid expenses and other current assets 76,829 71,675
Total Current Assets 124,504 371,949
Oil and gas assets , net 1,093,991 1,125,000
Property, plant and equipment, net of accumulated depreciation of $302,940, and $300,234 5,440 8,146
Reclamation deposits 25,000 25,000
Deferred loan fees, net of accumulated amortization of $323,634 and $272,646    50,988
Other assets 5,000 15,315
Total Non-Current Assets 1,129,431 1,224,449
Total Assets 1,253,935 1,596,398
Current Liabilities:    
Accounts payable and accrued expenses 495,700 303,857
Related party payable 92,279 51,937
Accrued interest payable 2,899,905 1,705,897
Current portion of asset retirement obligations 213,303 260,482
Demand loans 950,000   
Current liability portion of convertible notes, net 9,574,642 9,097,633
Derivatives, current portion 1,043,627 299,074
Total Current Liabilities 15,269,456 11,718,880
Long-term liabilities:    
Asset retirement obligations , net of current portion 394,174 366,590
Derivatives, net of current portion 2,232,930 458,544
Total Long-Term Liabilities 2,627,104 825,134
Total Liabilities 17,896,560 12,544,014
Preferred Shares - 5,000,000 authorized; par value $0.00001 per share, Preferred B shares - 29,500 authorized; 17,599 issued with a $100 stated value, Liquidation preference of $4,935,912 and par value $0.00001 per share      
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 54,543,263 54,532,191
Accumulated other comprehensive loss (229,863) (234,650)
Accumulated deficit (152,440,406) (146,388,486)
Total Stockholders' Deficiency (16,642,625) (10,947,616)
Total Liabilities and Stockholders' Deficiency 1,253,935 1,596,398
Preferred Class B [Member]
   
Long-term liabilities:    
Preferred Shares - 5,000,000 authorized; par value $0.00001 per share, Preferred B shares - 29,500 authorized; 17,599 issued with a $100 stated value, Liquidation preference of $4,935,912 and par value $0.00001 per share $ 2,467,956 $ 2,126,904

Condensed Consolidated Balance Sheets (Parenthetical)

v2.4.0.6
Condensed Consolidated Balance Sheets (Parenthetical) (USD $)
Jan. 31, 2013
Apr. 30, 2012
Accumulated depreciation of Property, plant and equipments $ 302,038 $ 300,234
Accumulated amortization of deferred loan fee 323,634 272,646
Preferred stock, shares authorized 5,000,000 5,000,000
Preferred stock, shares par value $ 0.00001 $ 0.00001
Common stock, shares authorized 2,250,000,000 2,250,000,000
Common stock, shares par value $ 0.00001 $ 0.00001
Common stock, shares issued 14,078,947 14,078,947
Common stock, shares outstanding 14,078,947 14,078,947
Preferred Class B [Member]
   
Preferred stock, shares authorized 29,500 29,500
Preferred stock, shares par value $ 0.00001 $ 0.00001
Preferred stock, shares issued 17,599 17,599
Preferred shares, stated value per share $ 100 $ 100
Preferred Stock, Liquidation preference, value $ 4,935,912 $ 4,935,912

Condensed Consolidated Statements of Operations and Comprehensive income (loss)

v2.4.0.6
Condensed Consolidated Statements of Operations and Comprehensive income (loss) (USD $)
3 Months Ended 9 Months Ended
Jan. 31, 2013
Jan. 31, 2012
Jan. 31, 2013
Jan. 31, 2012
Income Statement [Abstract]        
Oil and natural gas sales          $ 430,164
Total Income          430,164
Operating Expenses        
Operating 30,061 112,686 71,726 1,262,840
General and administrative 446,810 306,626 1,431,826 1,776,398
Depreciation, depletion and accretion 10,400 28,899 40,215 260,018
Total Expenses 487,271 448,211 1,543,767 3,299,256
Operating loss (487,271) (448,211) (1,543,767) (2,869,092)
Other (income) expenses        
Interest and other Income (1,399) (227) (79,139) (10,761)
Interest and amortization of debt discount 532,851 928,748 1,675,556 3,021,972
Amortization of deferred financing costs    47,934 50,988 144,228
Foreign exchange loss 2,437 11,007 757 6,399
Change in fair value of derivative liabilities 2,813,414 (697,650) 2,518,939 (13,657,197)
Total other (income) expenses 3,347,303 289,812 4,167,101 (10,495,359)
Net Income (Loss) (3,834,574) (738,023) (5,710,868) 7,626,267
Dividend - Convertible Preferred B Stock 113,684 102,669 341,052 261,060
Deemed dividend - Convertible Preferred B Stock          5,339,700
Net income (loss) attributable to common stockholders (3,948,258) (840,692) (6,051,920) 2,025,507
Comprehensive income (loss)        
Net income (loss) (3,834,574) (738,023) (5,710,868) 7,626,267
Foreign exchange translation 2,083 1,457 (4,787) (377)
Total Comprehensive Income (Loss) $ (3,832,491) $ (736,566) $ (5,715,655) $ 7,625,890
Net Income (Loss) attributable to common stockholders per Common Share -        
Basic $ (0.28) $ (0.06) $ (0.43) $ 0.14
Diluted $ (0.28) $ (0.06) $ (0.43) $ 0.02
Weighted Average Number of Common Shares Outstanding - Basic 14,078,947 14,078,947 14,078,947 14,078,947
Weighted Average Number of Common Shares Outstanding - Diluted 14,078,947 14,078,947 14,078,947 131,837,970

Condensed Consolidated Statements of Cash Flows

v2.4.0.6
Condensed Consolidated Statements of Cash Flows (USD $)
9 Months Ended
Jan. 31, 2013
Jan. 31, 2012
CASH FLOWS FROM OPERATING ACTIVITIES:    
Net income (loss) $ (5,710,868) $ 7,626,267
Adjustments to reconcile net income ( loss) to net cash used in operating activities    
Depletion of oil and gas properties    170,960
Gain on settlement of a liability (54,451)   
Amortization of deferred debt discount 477,010 2,109,469
Amortization of deferred loan fees 50,988 144,228
Stock-based compensation 11,072 18,474
Depreciation 2,706 19,819
Accretion of asset retirement obligation 37,510 50,296
Foreign currency transaction loss 757 6,399
Change in fair value of derivative liabilities 2,518,939 (13,657,197)
Accounts receivable    223,869
Prepaid expenses and other assets (5,154) (71,419)
Long-term receivable    837
Other assets 10,315   
Accounts payable and accrued liabilities 245,536 (697,440)
Related party payable 40,342   
Accrued interest payable 1,194,008 862,421
Asset retirement obligation (57,105)   
Net Cash Used in Operating Activities (1,238,395) (3,193,017)
Cash Flows From Investing Activities:    
Capitalized expenditure on oil and gas assets    (281,678)
Acquisition of property and equipment    (12,033)
Cash proceeds from disposition assets 31,009 31,139
Change in reclamation deposit    118,696
Net Cash Provided by (Used in) Investing Activities 31,009 (143,876)
Cash Flows From Financing Activities:    
Proceeds from issuance of demand notes 950,000   
Proceeds from issuance of preferred shares    1,759,900
Change in cash in escrow    658,000
Net Cash Provided by Financing Activities 950,000 2,417,900
Change in cash and cash equivalents (257,386) (918,993)
Exchange rate fluctuations on cash and cash equivalents 4,787 377
Cash and cash equivalents, beginning of period 300,274 1,179,838
Cash and cash equivalents, end of period 47,675 261,222
Cash Paid During the Period for:    
Income taxes      
Interest paid      
Non-cash investing and financing activities:    
Dividend on preferred B shares converted into preferred B shares 341,052 261,060
Derivative ceases to exist    $ 168,500

Organization and Going Concern

v2.4.0.6
Organization and Going Concern
9 Months Ended
Jan. 31, 2013
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.

 

On September 11, 2012, the Company re-organized under the laws of the State of Delaware. Prior to September 11, 2012, and at April 30, 2012, the Company was organized under the laws of Alberta, Canada. This re-organization had no impact on the Company’s financial statements.

 

As of January 31, 2013, the Company has a working capital deficiency of approximately $15.1 million, recurring losses, net cash outflows from operating activities and an accumulated deficit of approximately $152.4 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 condensed 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 Gravis acquiring Petro River for common stock. 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. It is intended that post- transaction, current common shareholders of the Company will own approximately 2.5% of the issued and outstanding shares of the Company.

 

During September 2011 and, again, in August 2012, the Company was cease traded by the Alberta and British Columbia Securities Commissions for failure to file certain financial information. The Company made the required filings with regard to the 2011 and 2012 cease trade orders and the Alberta and British Columbia cease trade orders were rescinded.

Change in Reporting and Functional Currency

v2.4.0.6
Change in Reporting and Functional Currency
9 Months Ended
Jan. 31, 2013
Change In Reporting And Functional Currency  
Change in Reporting and Functional Currency

2. Change in Reporting and Functional Currency:

 

These condensed 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 these condensed consolidated financial statements enhances communication with stockholders and improves comparability of financial

information reported with peer group companies. Financial statements 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 ($4,787) and ($377) in accumulated other comprehensive income for the nine months ended January 31, 2013 and 2012 and $2,083 and $1,457 for the three months ended January 31, 2013 and 2012, respectively.

Basis of Preparation

v2.4.0.6
Basis of Preparation
9 Months Ended
Jan. 31, 2013
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Basis of Preparation

3. Basis of Preparation:

 

The condensed 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.

 

The unaudited financial information furnished herein reflects all adjustments, consisting solely of normal recurring items, which in the opinion of management are necessary to fairly state the financial position the Company and the results of its operations for the periods presented. This report should be read in conjunction with the Company’s consolidated financial statements and notes thereto included in the Company’s Form 20-F for the fiscal year ended April 30 2012. The Company assumes that the users of the interim financial information herein have read or have access to the audited financial statements for the preceding fiscal year and that the adequacy of additional disclosure needed for a fair presentation may be determined in that context. Accordingly, footnote disclosure, which would substantially duplicate the disclosure contained in the Company’s Form 20-F for the fiscal year ended April 30, 2012 has been omitted. The results of operations for the interim periods presented are not necessarily indicative of results for the entire year ending April 30, 2013.

 

Reclassifications

 

The Company reclassified certain operating expenses in the prior period to other (income) expenses to confirm to current period presentation. The loss from operations decreased by approximately $10.5 million during the nine months ended January 31, 2012 with an offsetting increase to other (income) expenses. The $10.5 million reclassification had no impact on net loss and earnings (loss) per share.

 

In addition, the Company reclassified all convertible notes to current as of April 30, 2012. The Company concluded that cross default provisions had been triggered, and despite disclosing such factors in the footnotes to the April 30, 2012 consolidated financial statements, the Company concluded that it would present the comparative balance sheet showing all convertible notes as current. The impact increases the Company’s working capital deficiency from $4.5 million to $11.3 million as of April 30, 2012.

Significant Accounting Policies

v2.4.0.6
Significant Accounting Policies
9 Months Ended
Jan. 31, 2013
Accounting Policies [Abstract]  
Significant Accounting Policies

4. Significant Accounting Policies:
   
(a) Use of Estimates

 

The preparation of condensed 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”).

 

 

(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 January 31, 2013 and April 30, 2012.

 

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 nine months ended January 31, 2013 and 2012.

 

(d) 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.

 

(e) Foreign Currency Translation:

 

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.

 

(f) 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.

 

(g) 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.

 

(h) 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 in interest and amortization of debt discount expense and penalties related to uncertain tax positions in the statement of operations in general and administrative expenses. During 2012 the Company incurred penalties and interest of approximately $32,000 with the Canadian Revenue Agency. Through January 31, 2013, the Company has paid $10,000 of the outstanding penalties and interest.

 

(i) 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 the three and nine months ended January 31, 2013 and three months ended January 31, 2012 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 an aggregate of 117,741,523 and 117,759,023 shares of common stock for the nine months ended January 31, 2013 and the three months ended January 31, 2012, respectively.

 

The Company had the following common stock equivalents at January 31, 2013 and 2012:

 

As at   January 31 2013     January 31,  2012  
Preferred A Shares     -       -  
Preferred A Warrants     19,250,000       19,250,000  
Preferred B Shares     8,799,995       8,799,995  
Preferred B Warrants     15,399,125       15,399,125  
Senior I Notes     12,646,000       12,646,000  
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       12,988,903  
Consulting Warrants     2,720,000       2,720,000  
Stock Options     757,500       775,000  
Compensation Warrants     480,000       480,000  
      117,741,523       117,759,023  

 

(j) 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.

 

(k) 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.

 

(l) Subsequent Events:

 

The Company evaluates subsequent events through the date when condensed consolidated financial statements are issued.   

 

(m) 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.

 

(n) Recent Accounting Pronouncements:

 

In February 2013, the FASB issued Accounting Standards Update ("ASU") 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income , an amendment to FASB ASC Topic 220. The update requires disclosure of amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present either on the face of the statement of operations or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required to be reclassified to net income in its entirety in the same reporting period. For amounts not reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures that provide additional detail about those amounts. This ASU is effective prospectively for the Company fiscal years, and interim periods within those years beginning after December 15, 2012. The Company will comply with the disclosure requirements of this ASU for the quarter ending April 30, 2013. The Company does not expect the impact of adopting this ASU to be material to the Company's financial position, results of operations or cash flows.

 

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 adoption of these provisions did not have a material effect on the Company’s financial statements.

Oil and Gas Assets

v2.4.0.6
Oil and Gas Assets
9 Months Ended
Jan. 31, 2013
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 )     -       -       (7,100 )     -       (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  
                                                         
Disposals     (31,009 )     -       -       -       -       -       (31,009 )
                                                         
Balance January 31, 2013   $ 918,991     $ -     $ 75,000     $ -     $ -     $ 100,000     $ 1,093,991  

 

During the nine months ended January 31, 2013, the Company sold assets for $31,009 for proceeds of the equivalent. The Company performed a test of oil and gas assets as of January 31, 2013, and concluded that no further impairments were necessary.

 

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

 

In September of 2011, Petro shut in all operations in Missouri, having been unable to secure sufficient funding on commercially acceptable terms to follow through to commercially successful exploitation of its Missouri reserves. Since that time, the Corporation has actively sought sources of financing, joint ventures, partnerships or other arrangements to allow it to follow through to commercially successful exploitation of its Missouri reserves. In October 2012, as part of a production sharing agreement with Houston based company, hot gas injection has been initiated in one seven well pattern at Petro’s Grassy Creek project. For the six month period of the test, Petro assigned to the consulting firm exclusive access to its wells and facilities on the 320 acre Grassy Geek lease for purposes of the test.

  

As of April 30, 2012, the Company determined it necessary to impair the oil and gas properties by $15,218,009. Management concluded that 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 necessary to commercialize its assets. The Company impaired the assets to salvage values.

 

As of January 31, 2013, the Company performed an impairment analysis of the Company’s Missouri assets. The assets were written down to salvage value as of April 30, 2012. The Company concluded that there was no change in salvage value as of January 31, 2013.

 

During the three and nine months ended January 31, 2013, the Company did not recognize any revenue from oil and gas sales. During the year ended April 30, 2012, the Company earned an average price of $76.75 per barrel of oil equivalent (boe) and incurred operating expenses of $351.71 per. The Company’s 2012 depletion rate was $46.75 per boe.

 

(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). 

 

During the nine months ended January 31, 2013 and during the year ended April 30, 2012, the Company recorded an impairment charge of $- and $100,000 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 totaling 2,807 gross acres (1137 net) expired.

 

As of January 31, 2013, the Company performed an impairment analysis of the Company’s Montana assets. The assets were written down to salvage value as of April 30, 2012. The Company concluded that there was no change in salvage value as of January 31, 2013.

 

(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 nine months ended January 31, 2013 and during the year ended April 30, 2012 the Company recorded an impairment charge of $- and $91,114.

  

(e) Texas

 

At April 30, 2012 all the Company’s Texas leases are expired. 

 

(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 nine months ended January 31, 2013 and during the year ended April 30, 2012, the Company recorded an impairment charge of $- and $971,043, respectively.

Asset Retirement Obligations

v2.4.0.6
Asset Retirement Obligations
9 Months Ended
Jan. 31, 2013
Asset Retirement Obligation Disclosure [Abstract]  
Asset Retirement Obligations

6. 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 January 31, 2013 and April 30, 2012 based on a future undiscounted liability of $895,292 and $952,292, 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:

 

    January 31, 2013     April 30, 2012  
Balance beginning of period   $ 627,072     $ 727,336  
Additions     -       -  
Disposition     -       (165,325 )
Revisions     (57,105 )     -  
Accretion     37,510       65,061  
      607,477       627,072  
Less: Current portion for cash flows expected to be incurred within one year     (213,303 )     (260,482 )
Long-term portion, end of period   $ 394,174     $ 366,590  

 

As of January 31, 2013 and April 30, 2012, the Company has $25,000 of reclamation deposits with authorities to secure certain abandonment liabilities in Missouri.

 

Expected timing of asset retirement obligations:

 

Year Ended April 30      
2013     203,000  
2014     122,222  
2015     135,556  
2016     81,181  
Thereafter     353,333  
      895,292  
Effect of discount     (287,815 )
Total   $ 607,477  

Convertible Notes and Demand Loans

v2.4.0.6
Convertible Notes and Demand Loans
9 Months Ended
Jan. 31, 2013
Debt Disclosure [Abstract]  
Convertible Notes and Demand Loans

7. Convertible Notes and Demand Loans:

 

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 nine months ended January 31, 2013 and 2012, the Company recognized $50,988 and $144,228 as expense. During the three months ended January 31, 2013 and 2012, the Company recognized $0 and $47,934 as an 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 year ended April 30, 2012 and for the nine months ended January 31, 2013:

 

    Face Value
of the
Notes
    Carrying
amount of
the Notes
 
Balance April 30, 2011   $ 9,451,069     $ 6,666,263  
Issued                
Interest and amortization of debt discount     -       2,155,459  
Accrued interest applied to principal     275,911       275,911  
Balance April 30, 2012     9,726,980       9,097,633  
Issued     -       -  
Amortization of debt discount     -       477,009  
Balance January 31, 2013   $ 9,726,980     $ 9,574,642  

 

(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 (equivalent value to utilizing binomial models) 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.

 

During the nine months ended January 31, 2013 and 2012, the Company accreted the debt discount in the amount of $- and $905,240, respectively. During the three months ended January 31, 2013 and 2012, the Company accreted the debt discount in the amount of $- and $210,228, respectively. The Company recorded 15% default interest during the nine months ended January 31, 2013 and 2012.

 

(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 (currently in default) 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 (equivalent value to utilizing binomial models) 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.

 

During the nine months ended January 31, 2013 and 2012, the Company accreted the debt discount in the amount of $243,421 and $817,411, respectively. During the three months ended January 31, 2013 and 2012, the Company accreted the debt discount in the amount of $- and $253,528, respectively. During the nine months ended January 31, 2012, the Company utilized the effective interest method. As of April 30, 2012, the Company changed accounting methods and began utilizing the straight-line method. The Company recorded 15% default interest during the nine months ended January 31, 2013 and 2012.

 

(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 notes are currently in default due to the delinquency in interest payments. 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 nine months ended January 31, 2013 and 2012, the Company accreted the debt discount in the amount of $233,587 and $389,593, respectively. During the three months ended January 31, 2013 and 2012, the Company accreted the debt discount in the amount of $77,863 and $77,863, respectively. During the nine months ended January 31, 2012, the Company utilized the effective interest method. As of April 30, 2012, the Company changed accounting methods and began utilizing the straight-line method, which approximates the interest rate method. The Company recorded 15% default interest during the nine months ended January 31, 2013 and 2012.

 

(d)   Demand Loans

 

During the period from July, 2012 through January 2013, the Company entered into several demand promissory notes (“Demand Loans”) for an aggregate amount of $950,000 with Petro River. The Demand Loans bear interest at 8% per annum and are due two business days after receipt of demand for payment. In an event of default, the Demand Loans bear a default rate of 15% per annum. The Demand Loans are unsecured.

 

During the three and nine months ended January 31, 2013, the Company has accrued interest of approximately of $24,449 and $16,521, respectively.

Derivatives

v2.4.0.6
Derivatives
9 Months Ended
Jan. 31, 2013
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivatives

8. 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 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  
Change in fair value     819,340       114,392       954,746       114,002       461,168       55,291       2,518,939  
Balance January 31, 2013   $ 1,001,000     $ 140,791     $ 1,231,930     $ 285,756     $ 551,000     $ 66,080     $ 3,276,557  

 

At January 31, 2013 and April 30, 2012, 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%-0.30 %     0.07%-1.00 %     0.12%-0.38 %     0.12%-0.27 %     0.12%-0.23 %
Expected volatility     104 %     104 %     104 %     104 %     104 %
Expected life     1.57-2.33 years       0.35-4.11 years       0.01-1.25 years       0.50-1.75 years       0.50-1.66 years  

 

The following table summarizes derivative warrants outstanding and exercisable as at January 31, 2013:

 

Issuance   Number of
Warrants
    Weighted Avg.
Exercise Price
    Weighted Avg.
Life Remaining
Preferred A Warrants     19,250,000     $ 0.20     1.57 years
Preferred B Warrants     15,399,125       0.20     3.35 years
Senior I Warrants     12,500,000       0.20     0.50 year
Senior II Warrants     9,200,000       0.25     1.00 years
Consulting Warrants     2,720,000       0.25     0.081 years
      59,069,125     $ 0.21     1.75 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 provisions 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
    January 31, 2013     April 30, 2012  
July 30, 2010     720,000     $ 0.25     July 30, 2013   $ 81,510     $ 10,080   $ 1,731  
December 28, 2010     2,000,000     $ 0.25     December 28, 2013     85,300       56,000     9,058  
      2,720,000                 $ 166,810     $ 66,080   $ 10,789  

Stockholders' Deficiency

v2.4.0.6
Stockholders' Deficiency
9 Months Ended
Jan. 31, 2013
Stockholders' Equity Note [Abstract]  
Stockholders' Deficiency

9. 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. The shares of preferred and common stock are retrospectively restated on the accompanying condensed consolidated financial statements. 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 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 of January 31, 2013 and April 30, 2012, the Company had declared a total of $708,056 and $367,004, 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
9 Months Ended
Jan. 31, 2013
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Stock Based Compensation

10. Stock Based Compensation:

 

The Company 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 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  
Granted     -       -  
Expired     (17,500 )     (1.50 )
Forfeited     -       -  
Cancelled     -       -  
Outstanding January 31, 2013     757,500     $ 0.50  

 

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. There were no options granted during the nine months ended January 31, 2013.

 

During the nine months ended January 31, 2013 and 2012, the Company recorded stock-based compensation expenses of $11,072 and $18,474, respectively. During the three months ended January 31, 2013 and 2012, the Company recorded stock-based compensation expenses of $3,333 and $8,476, respectively.

 

As of January 31, 2013, total compensation cost related to non-vested stock options not yet recognized is $7,584 which will be recognized over a weighted average period of 1.15 years.

 

The following table summarizes information about the options outstanding and exercisable at January 31, 2013:

 

      Options Outstanding     Options Exercisable  
Exercise Price     Options     Weighted Avg.
Life Remaining
  Weighted Avg. 
Exercise Price
    Options     Weighted Avg.
Exercise Price
 
$ 0.50       757,500     1.21 years   $ 0.50       650,833     $ 0.50  
                                       
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 $0.13 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

 

    Number of     Weighted Avg.     Weighted Avg.  
    Warrants     Exercise Price     Life Remaining  
Outstanding and exercisable, April 30, 2011     480,000     $ 0.50       2.65 years  
Granted     -       -       -  
Outstanding and exercisable, April 30, 2012     480,000       0.50       1.65 years  
Outstanding and exercisable, January 31, 2013     480,000     $ 0.50       0.90 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.

Related Party Transactions

v2.4.0.6
Related Party Transactions
9 Months Ended
Jan. 31, 2013
Related Party Transactions [Abstract]  
Related Party Transactions

11. Related Party Transactions:

 

At April 30, 2012, $302,536 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 $32,515 of interest earned on the outstanding balance. 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 three and nine months ended January 31, 2013, the Company paid $20,000 and $92,230 in professional fees to a law firm, where the former corporate secretary of the Company is a partner. As of January 31, 2013, the Company owes the law firm $92,279. For the three and nine months ended January 31, 2012, the Company paid professional fees to the law firm of $9,236 and $31,062 respectively.

Segment Information

v2.4.0.6
Segment Information
9 Months Ended
Jan. 31, 2013
Segment Reporting [Abstract]  
Segment Information

12. 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.

 

    Three Months ended January 31, 2013  
    Canada     USA     Consolidated  
Revenue   $ -     $ -     $ -  
Expenses     -       3,834,574       3,834,574  
Net loss     (- )     (3,834,574 )     (3,834,574 )
Oil and gas assets     100,000       993,991       1,093,991  
Property and equipment     -       5,440       5,440  
Oil and gas asset additions     -       -       -  
Oil and gas asset impairment     -       -       -  
Property and equipment additions     -       -       -  

 

    Nine Months ended January 31, 2013  
    Canada     USA     Consolidated  
Revenue   $ -     $ -     $ -  
Expenses     718,330       4,992,538       5,710,868  
Net loss     (718,330 )     (4,992,538 )     (5,710,868 )
Oil and gas assets     100,000       993,991       1,093,991  
Property and equipment     -       5,440       5,440  
Oil and gas asset additions     -       -       -  
Oil and gas asset impairment     -       -       -  
Property and equipment additions     -       -       -  

 

    Three Months ended January 31, 2012  
    Canada     USA     Consolidated  
Revenue   $ -     $ -     $ -  
Expenses     208,382       529,641       738,023  
Net loss     (208,382 )     (529,641 )     (738,023 )
Oil and gas assets     1,338,616       16,716,792       18,055,408  
Property and equipment     -       11,712       11,712  
Oil and gas asset additions     -       24,244       24,244  
Oil and gas asset impairment     -       -       -  
Property and equipment additions     -       -       -  

 

    Nine Months ended January 31, 2012  
    Canada     USA     Consolidated  
Revenue   $ -     $ 430,164     $ 430,164  
Expenses     723,395       (7,919,498 )     (7,196,103 )
Net income (loss)     (723,395 )     8,349,662       7,626,267  
Oil and gas assets     1,338,616       16,716,792       18,055,408  
Property and equipment     -       11,712       11,712  
Oil and gas asset additions     -       281,678       281,678  
Oil and gas asset impairment     -       -       -  
Property and equipment additions     -       12,033       12,033  

Fair Value Measurements

v2.4.0.6
Fair Value Measurements
9 Months Ended
Jan. 31, 2013
Fair Value Disclosures [Abstract]  
Fair Value Measurements

13. 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.

 

The Company’s 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
 
January 31, 2013                                        
Liability portion of convertible notes   $ 9,574,642     $ 9,726,981     $ -     $ 9,726,981     $ -  
                                         
January 31, 2013                                        
Derivatives:                                        
Consulting warrants   $ 66,080     $ 66,080     $ -     $ -     $ 66,080  
Junior and Senior Notes and Warrants     836,756       836,756       -       -       836,756  
Preferred A Warrants     1,001,000       1,001,000       -       -       1,001,000  
Preferred B Option and Shares and warrants     1,372,721       1,372,721       -       -       1,372,721  
    $ 3,276,557     $ 3,276,557     $ -     $ -     $ 3,276,557  

 

                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   $ 9,097,633     $ 9,726,981     $ -     $ 9,726,981     $ -  
    $ 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  

 

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 nine months ended January 31, 2013:

 

    Fair Value Measurement Using 
Level 3 Inputs
 
    Derivative Liabilities     Total  
             
Balance April 30, 2012   $ 757,618     $ 757,618  
                 
Change in fair value of derivative liability included in net loss     2,518,939       2,518,939  
                 
Balance January 31, 2013   $ 3,276,557     $ 3,276,557  

Contingency and Contractual Obligations

v2.4.0.6
Contingency and Contractual Obligations
9 Months Ended
Jan. 31, 2013
Commitments and Contingencies Disclosure [Abstract]  
Contingency and Contractual Obligations

14. Contingency and Contractual Obligations:
   
(a) Contingency:

 

In January 2010, the Company experienced a flood in its office premises as a result of a broken water pipe. There was significant damage to the premises rendering them unusable until remediation had been completed by the landlord. Pursuant to the lease contract, the Company has asserted that rent should be abated during the remediation process and accordingly, the Company has not paid rent since December 2009. During the remediation process, the Company engaged an independent environmental testing company to test for air quality and for the existence of other potentially hazardous conditions. The testing revealed the existence of potentially hazardous mold and the consultant provided specific written instructions for the effective remediation of the premises. During the remediation process, the landlord did not follow the consultant’s instructions and correct the potentially hazardous mold situation and subsequently in June 2010 gave notice and declared the premises to be ready for occupancy. The Company re-engaged the consultant to re-test the premises and the testing results again revealed the presence of potentially hazardous mold. The Company has determined that the premises are not fit for re-occupancy and considers the landlord to be in default of the lease and the lease terminated.

 

The landlord disputes the Company’s position and has given notice that it considers the Company to be in default of the lease for failure to re-occupy the premises.

 

In addition, the landlord has claimed that the Company owes monthly rent for the premises from January 2010 to June 30, 2010 in the amount of $247,348 and has claimed that, as a result of the alleged default, pursuant to the terms of the lease, the Company owes three months accelerated rent in the amount of $114,837. The landlord has also asserted that the Company would be liable for an amount up to the full lease obligation of $1,596,329 which otherwise would have been due as follows:

 

Year Ended April 30        
2011     $ 473,055  
2012       473,055  
2013       473,055  
2014       177,164  
Thereafter       -  
Total     $ 1,596,329  

 

To date, no legal action has been commenced by the landlord and the cost, if any, to the Company is not determinable. Accordingly, no amounts related to rent or the disputed lease obligation have been recorded in these financial statements.

 

(b) On March 15, 2013, a former employee of the Company (VP-Operations) commenced an action in the Court of Queen’s Bench of Alberta claiming wrongful termination and seeking severance in an amount approximating US$185,000.

Subsequent Events

v2.4.0.6
Subsequent Events
9 Months Ended
Jan. 31, 2013
Subsequent Events [Abstract]  
Subsequent Events

15. Subsequent Events:

 

Subsequent to January 31, 2013 and through March 14, 2013, the Company entered into several Demand Loans for an aggregate amount of approximately $139,000 with Petro River. The Demand Loans bear interest at 8% per annum and are due two business days after receipt of demand for payment. In an event of default, the Demand Loans bear a default rate of 15% per annum. The Demand Loans are unsecured.

Basis of Preparation(Policies)

v2.4.0.6
Basis of Preparation(Policies)
9 Months Ended
Jan. 31, 2013
Accounting Policies [Abstract]  
Reclassifications

Reclassifications

  

Other income and expense amounts in prior periods have been reclassified to conform to current period presentation. The loss from operations decreased by approximately $10.5 million during nine months ended January 31, 2012. The $10.5 million was reclassified to other income and expense with no impact on net loss and earnings (loss) per share.

 

In addition, the Company reclassified all convertible notes to current as of April 30, 2012. The Company concluded that cross default provisions had been triggered, and despite disclosing such factors in the footnotes to the April 30, 2012 consolidated financial statements, the Company concluded that it would present the comparative balance sheet showing all convertible notes as current. The impact increases the Company’s working capital deficiency from $4.5 million to $11.3 million as of April 30, 2012.

Significant Accounting Policies (Policies)

v2.4.0.6
Significant Accounting Policies (Policies)
9 Months Ended
Jan. 31, 2013
Accounting Policies [Abstract]  
Use of Estimates

(a) Use of Estimates

 

The preparation of condensed 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.

Cash and Cash Equivalents

(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”).

Oil and Gas Operations

(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 January 31, 2013 and April 30, 2012.

 

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 nine months ended January 31, 2013 and 2012.

Asset Retirement Obligations

(d) 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.

Foreign Currency Translation

(e) Foreign Currency Translation:

 

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.

Oil Revenue

(f) 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.

Stock-Based Compensation

(g) 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.

Income Taxes

(h) 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 in interest and amortization of debt discount expense and penalties related to uncertain tax positions in the statement of operations in general and administrative expenses. During 2012 the Company incurred penalties and interest of approximately $32,000 with the Canadian Revenue Agency. Through January 31, 2013, the Company has paid $10,000 of the outstanding penalties and interest.

Per Share Amounts

(i) 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 the three and nine months ended January 31, 2013 and three months ended January 31, 2012 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 an aggregate of 117,741,523 and 117,759,023 shares of common stock for the nine months ended January 31, 2013 and the three months ended January 31, 2012, respectively.

 

The Company had the following common stock equivalents at January 31, 2013 and 2012:

 

As at   January 31 2013     January 31,  2012  
Preferred A Shares     -       -  
Preferred A Warrants     19,250,000       19,250,000  
Preferred B Shares     8,799,995       8,799,995  
Preferred B Warrants     15,399,125       15,399,125  
Senior I Notes     12,646,000       12,646,000  
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       12,988,903  
Consulting Warrants     2,720,000       2,720,000  
Stock Options     757,500       775,000  
Compensation Warrants     480,000       480,000  
      117,741,523       117,759,023  

Fair Value of Financial Instruments

(j) 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.

Derivatives

(k) 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.

Subsequent Events

(l) Subsequent Events:

 

The Company evaluates subsequent events through the date when condensed consolidated financial statements are issued.   

Segment Reporting

(m) 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.

Recent Accounting Pronouncements

(n) Recent Accounting Pronouncements:

 

In February 2013, the FASB issued Accounting Standards Update ("ASU") 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income , an amendment to FASB ASC Topic 220. The update requires disclosure of amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present either on the face of the statement of operations or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required to be reclassified to net income in its entirety in the same reporting period. For amounts not reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures that provide additional detail about those amounts. This ASU is effective prospectively for the Company fiscal years, and interim periods within those years beginning after December 15, 2012. The Company will comply with the disclosure requirements of this ASU for the quarter ending April 30, 2013. The Company does not expect the impact of adopting this ASU to be material to the Company's financial position, results of operations or cash flows.

 

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 adoption of these provisions did not have a material effect on the Company’s financial statements.

Significant Accounting Policies (Tables)

v2.4.0.6
Significant Accounting Policies (Tables)
9 Months Ended
Jan. 31, 2013
Accounting Policies [Abstract]  
Schedule of Common Stock Equivalents

The Company had the following common stock equivalents at January 31, 2013 and 2012:

 

As at   January 31 2013     January 31,  2012  
Preferred A Shares     -       -  
Preferred A Warrants     19,250,000       19,250,000  
Preferred B Shares     8,799,995       8,799,995  
Preferred B Warrants     15,399,125       15,399,125  
Senior I Notes     12,646,000       12,646,000  
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       12,988,903  
Consulting Warrants     2,720,000       2,720,000  
Stock Options     757,500       775,000  
Compensation Warrants     480,000       480,000  
      117,741,523       117,759,023  

Oil and Gas Assets (Tables)

v2.4.0.6
Oil and Gas Assets (Tables)
9 Months Ended
Jan. 31, 2013
Extractive Industries [Abstract]  
Schedule of 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 )     -       -       (7,100 )     -       (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  
                                                         
Disposals     (31,009 )     -       -       -       -       -       (31,009 )
                                                         
Balance January 31, 2013   $ 918,991     $ -     $ 75,000     $ -     $ -     $ 100,000     $ 1,093,991  

Asset Retirement Obligations (Tables)

v2.4.0.6
Asset Retirement Obligations (Tables)
9 Months Ended
Jan. 31, 2013
Asset Retirement Obligation Disclosure [Abstract]  
Schedule of Changes to Asset Retirement Obligation

Changes to the asset retirement obligation were as follows:

 

    January 31, 2013     April 30, 2012  
Balance beginning of period   $ 627,072     $ 727,336  
Additions     -       -  
Disposition     -       (165,325 )
Revisions     (57,105 )     -  
Accretion     37,510       65,061  
      607,477       627,072  
Less: Current portion for cash flows expected to be incurred within one year     (213,303 )     (260,482 )
Long-term portion, end of period   $ 394,174     $ 366,590  

Schedule of Expected Timing of Asset Retirement Obligations

Expected timing of asset retirement obligations:

 

Year Ended April 30      
2013     203,000  
2014     122,222  
2015     135,556  
2016     81,181  
Thereafter     353,333  
      895,292  
Effect of discount     (287,815 )
Total   $ 607,477  

Convertible Notes and Demand Loans (Tables)

v2.4.0.6
Convertible Notes and Demand Loans (Tables)
9 Months Ended
Jan. 31, 2013
Debt Disclosure [Abstract]  
Summary of Senior And Junior Notes

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  

Summary of Convertible Notes

The table details the continuity of convertible notes for the year ended April 30, 2012 and for the nine months ended January 31, 2013:

 

    Face Value
of the
Notes
    Carrying
amount of
the Notes
 
Balance April 30, 2011   $ 9,451,069     $ 6,666,263  
Issued                
Interest and amortization of debt discount     -       2,155,459  
Accrued interest applied to principal     275,911       275,911  
Balance April 30, 2012     9,726,980       9,097,633  
Issued     -       -  
Amortization of debt discount     -       477,009  
Balance January 31, 2013   $ 9,726,980     $ 9,574,642  

Derivatives (Tables)

v2.4.0.6
Derivatives (Tables)
9 Months Ended
Jan. 31, 2013
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Summary of Derivative Instruments

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 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  
Change in fair value     819,340       114,392       954,746       114,002       461,168       55,291       2,518,939  
Balance January 31, 2013   $ 1,001,000     $ 140,791     $ 1,231,930     $ 285,756     $ 551,000     $ 66,080     $ 3,276,557  

Fair Values of Derivative Instruments Weighted Average Assumptions

At January 31, 2013 and April 30, 2012, 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%-0.30 %     0.07%-1.00 %     0.12%-0.38 %     0.12%-0.27 %     0.12%-0.23 %
Expected volatility     104 %     104 %     104 %     104 %     104 %
Expected life     1.57-2.33 years       0.35-4.11 years       0.01-1.25 years       0.50-1.75 years       0.50-1.66 years  

Summary of Derivative Warrants Outstanding and Exercisable

The following table summarizes derivative warrants outstanding and exercisable as at January 31, 2013:

 

Issuance   Number of
Warrants
    Weighted Avg.
Exercise Price
    Weighted Avg.
Life Remaining
Preferred A Warrants     19,250,000     $ 0.20     1.57 years
Preferred B Warrants     15,399,125       0.20     3.35 years
Senior I Warrants     12,500,000       0.20     0.50 year
Senior II Warrants     9,200,000       0.25     1.00 years
Consulting Warrants     2,720,000