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statements presented in this Form 10-Q comprise Manas Petroleum Corporation (&#8220;Manas&#8221; or the &#8220;Company&#8221;) and its subsidiaries (collectively, the &#8220;Group&#8221;). The unaudited interim <i>Consolidated Financial Statements</i> included in this Form 10-Q have been prepared in accordance with accounting principles generally accepted in the United States of America (&#8220;US GAAP&#8221;) and present our financial position, results of operations, cash flows and changes in stockholder&#8217;s equity. These financial statements should be read in conjunction with the consolidated financial statements and the notes thereto, included in the Company&#8217;s Annual Report on Form 10-K for the year ended December 31, 2011. </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">In terms of the oil and gas industry lifecycle, the Company considers itself to be an exploration stage company. Since it has not realized any revenues from its planned principal operations, the Company presents its financial statements in conformity with US GAAP that apply in establishing operating enterprises, i.e. development stage companies. As an exploration stage enterprise, the Company discloses the deficit accumulated during the exploration stage and the cumulative statements of operations and cash flows from inception to the current balance sheet date.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">The Company, formerly known as Express Systems Corporation, was incorporated in the State of Nevada on July 9, 1988.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> On April 10, 2007, the Company completed the Exchange Transaction whereby it acquired its then sole subsidiary DWM Petroleum AG (&#8220;DWM Petroleum&#8221;) pursuant to an exchange agreement signed in November 2006 whereby 100% of the shares of DWM Petroleum were exchanged for 80,000,000 common shares of the Company. As part of the closing of this exchange transaction, the Company issued 800,000 shares as finder&#8217;s fees at the closing price of $3.20. </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">The acquisition of DWM Petroleum has been accounted for as a merger of a private operating company into a non-operating public shell. Consequently, the Company is the continuing legal registrant for regulatory purposes and DWM Petroleum is treated as the continuing accounting acquirer for accounting and reporting purposes. The assets and liabilities of DWM Petroleum remained at historic cost. Under US GAAP in transactions involving the merger of a private operating company into a non-operating public shell, the transaction is equivalent to the issuance of stock by DWM Petroleum for the net monetary assets of the Company, accompanied by a recapitalization. The accounting is identical to a reverse acquisition, except that no goodwill or other intangibles are recorded.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">The Group has a focused strategy on exploration and developing oil and gas resources in Central Asia (Tajikistan, Mongolia and Kyrgyz Republic). In the Balkan Region (Albania) the Company holds an investment in associate Petromanas Energy Inc.</p> 1 80000000 800000 3.2 <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> <b>2.</b> &#160;&#160;&#160; <b>ACCOUNTING POLICIES</b> </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">The accompanying financial data as of September 30, 2012 and December 31, 2011 and for the three and nine-month periods ended September 30, 2012 and 2011 and for the period from inception, May 25, 2004, to September 30, 2012, has been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC).</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">The complete accounting policies followed by the Group are set forth in Note 2 to the audited consolidated financial statements contained in the Group's Annual Report on Form 10-K for the year ended December 31, 2011.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosures, if any, of contingent assets and liabilities at the date of the financial statements. Actual results could differ from these estimates.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">&#160;</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">In the opinion of management, all adjustments (which include normal recurring adjustments, except as disclosed herein) necessary to present a fair statement of financial position as of September 30, 2012 and December 31, 2011, results of operations for the three and nine-month periods ended September 30, 2012 and 2011 and for the period from inception, May 25, 2004, to September 30, 2012, cash flows for the nine-month periods ended September 30, 2012 and 2011 and for the period from inception, May 25, 2004, to September 30, 2012 and statement of shareholders&#8217; equity (deficit) for the period from inception, May 25, 2004, to September 30, 2012, as applicable, have been made. The result of operations for the three and nine-month periods ended September 30, 2012 is not necessarily indicative of the operating results for the full fiscal year or any future periods.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> <b>Reclassification</b> </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> The Company reclassified $200,020 from &#8220;Accrued Expenses Professional Fees&#8221; to &#8220;Other Accrued Expenses&#8221; as of December 31, 2011 in order to conform to the current period presentation. </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> <b>Successful Efforts Method of Accounting</b> </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">The Company uses the successful efforts method of accounting for oil and natural gas producing activities. Under this method, acquisition costs for proved and unproved properties are capitalized when incurred. Exploration costs, including geological and geophysical costs, the costs of carrying and retaining unproved properties and exploratory dry hole drilling costs, are expensed. Development costs, including the costs to drill and equip development wells and successful exploratory drilling costs to locate proved reserves, are capitalized. Upon sale or retirement of a proved property, the cost and accumulated depreciation, depletion and amortization are eliminated from property accounts and the resultant gain or loss is recognized.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">Exploratory drilling costs are capitalized when incurred pending the determination of whether a well has found proved reserves. If a well is determined to be successful, the capitalized drilling costs will be reclassified as part of the cost of the well. If a well is determined to be unsuccessful, the capitalized drilling costs will be charged to expense in the period the determination is made.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">Development costs of proved oil and natural gas properties, including estimated dismantlement, restoration, abandonment costs and acquisition costs, are depreciated and depleted on a well by well basis by the units-of-production method using estimated proved developed reserves.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">We perform quarterly assessments of unproved oil properties for impairment on a field basis, and recognize a loss at the time of impairment by recording an expense to &#8220;exploration costs&#8221;. In determining whether an unproved property is impaired we consider numerous factors including, but not limited to, dry holes drilled, current exploration plans, favorable or unfavorable exploratory activity on adjacent areas and our geologists' evaluation.</p> <p>&#160;</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> <b>Reclassification</b> </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> The Company reclassified $200,020 from &#8220;Accrued Expenses Professional Fees&#8221; to &#8220;Other Accrued Expenses&#8221; as of December 31, 2011 in order to conform to the current period presentation. </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> <b>Successful Efforts Method of Accounting</b> </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">The Company uses the successful efforts method of accounting for oil and natural gas producing activities. Under this method, acquisition costs for proved and unproved properties are capitalized when incurred. Exploration costs, including geological and geophysical costs, the costs of carrying and retaining unproved properties and exploratory dry hole drilling costs, are expensed. Development costs, including the costs to drill and equip development wells and successful exploratory drilling costs to locate proved reserves, are capitalized. Upon sale or retirement of a proved property, the cost and accumulated depreciation, depletion and amortization are eliminated from property accounts and the resultant gain or loss is recognized.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">Exploratory drilling costs are capitalized when incurred pending the determination of whether a well has found proved reserves. If a well is determined to be successful, the capitalized drilling costs will be reclassified as part of the cost of the well. If a well is determined to be unsuccessful, the capitalized drilling costs will be charged to expense in the period the determination is made.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">Development costs of proved oil and natural gas properties, including estimated dismantlement, restoration, abandonment costs and acquisition costs, are depreciated and depleted on a well by well basis by the units-of-production method using estimated proved developed reserves.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">We perform quarterly assessments of unproved oil properties for impairment on a field basis, and recognize a loss at the time of impairment by recording an expense to &#8220;exploration costs&#8221;. In determining whether an unproved property is impaired we consider numerous factors including, but not limited to, dry holes drilled, current exploration plans, favorable or unfavorable exploratory activity on adjacent areas and our geologists\' evaluation.</p> 200020 <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> <b>3.</b> &#160;&#160;&#160;&#160;&#160; <b>RECENT ACCOUNTING PRONOUNCEMENTS</b> </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> <b>Recently adopted accounting pronouncements</b> </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> In May 2011, the FASB released ASU 2011-5, <i>Comprehensive Income (Topic 220) - Presentation of Comprehensive Income</i> and then amended in December, to narrow the options that are available for reporting financial performance. While the rules for determining net income and earnings per share (EPS) remain unchanged, the items reported below net income that make up other comprehensive income (OCI), including pension adjustments and changes in the fair value of some marketable securities, may no longer be presented in a statement of changes in stockholders&#8217; equity. The amendments in ASU 2011-5 are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2011. The adoption of this standard as of January 1, 2012 had no effect on our results of operation or our financial position. </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> In May 2011, the FASB released ASU 2011-4, <i>Fair Value Measurement (Topic 720) &#8211; Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in US GAAP and in IFRS</i> as part of its convergence efforts with the IASB to ensure that fair value has the same meaning in US GAAP and in IFRS and that their respective fair value measurement and disclosure requirements are the same, except for minor stylistic differences. Importantly, the ASU does not change when a fair value measurement is required under US GAAP. The amendments in ASU 2011-4 are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2011. The adoption of this standard as of January 1, 2012 had no effect on our results of operation or our financial position. See Note 15 for additional information. </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> <b>4.&#160;&#160;&#160;&#160;</b> &#160; <b>CASH AND CASH EQUIVALENTS</b> </p> <table border="0" cellpadding="0" cellspacing="0" style="border-color: black; border-collapse: collapse; font-size: 8pt; font-family: times new roman,times,serif;" width="100%"> <tr valign="top"> <td align="left">&#160;</td> <td align="left" width="1%">&#160;</td> <td align="right" nowrap="nowrap" width="9%"> <b>USD (held in</b> </td> <td align="left" nowrap="nowrap" width="2%">&#160;</td> <td align="left" nowrap="nowrap" width="1%">&#160;</td> <td align="right" nowrap="nowrap" width="9%"> <b>USD (held in</b> </td> <td align="left" nowrap="nowrap" width="2%">&#160;</td> <td align="left" nowrap="nowrap" width="1%">&#160;</td> <td align="right" nowrap="nowrap" width="9%"> <b>USD (held in</b> </td> <td align="left" nowrap="nowrap" width="2%">&#160;</td> <td align="left" nowrap="nowrap" width="1%">&#160;</td> <td align="right" nowrap="nowrap" width="11%"> <b>USD (held in</b> </td> <td align="left" nowrap="nowrap" width="2%">&#160;</td> <td align="left" nowrap="nowrap" width="1%">&#160;</td> <td align="right" nowrap="nowrap" width="9%"> <b>USD Total</b> </td> <td align="left" nowrap="nowrap" width="2%">&#160;</td> <td align="left" nowrap="nowrap" width="1%">&#160;</td> <td align="right" nowrap="nowrap" width="9%"> <b>USD Total</b> </td> <td align="left" width="2%">&#160;</td> </tr> <tr valign="top"> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);">&#160;</td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%">&#160;</td> <td align="right" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="9%"> <b>USD)</b> </td> <td align="left" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="2%">&#160;</td> <td align="left" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%">&#160;</td> <td align="right" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="9%"> <b>EUR)</b> </td> <td align="left" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="2%">&#160;</td> <td align="left" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%">&#160;</td> <td align="right" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="9%"> <b>CHF)</b> </td> <td align="left" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="2%">&#160;</td> <td align="left" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%">&#160;</td> <td align="right" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="11%"> <b>other currencies)</b> </td> <td align="left" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="2%">&#160;</td> <td align="left" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%">&#160;</td> <td align="right" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="9%"> <b>Sept. 30, 2012</b> </td> <td align="left" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="2%">&#160;</td> <td align="left" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%">&#160;</td> <td align="right" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="9%"> <b>Dec 31, 2011</b> </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="2%">&#160;</td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff">Cash and cash equivalents</td> <td align="left" bgcolor="#e6efff" width="1%">&#160;</td> <td align="right" bgcolor="#e6efff" width="9%"> 6,382,551 </td> <td align="left" bgcolor="#e6efff" width="2%">&#160;</td> <td align="left" bgcolor="#e6efff" width="1%">&#160;</td> <td align="right" bgcolor="#e6efff" width="9%"> 13,841 </td> <td align="left" bgcolor="#e6efff" width="2%">&#160;</td> <td align="left" bgcolor="#e6efff" width="1%">&#160;</td> <td align="right" bgcolor="#e6efff" width="9%"> 86,195 </td> <td align="left" bgcolor="#e6efff" width="2%">&#160;</td> <td align="left" bgcolor="#e6efff" width="1%">&#160;</td> <td align="right" bgcolor="#e6efff" width="11%"> 1,006 </td> <td align="left" bgcolor="#e6efff" width="2%">&#160;</td> <td align="left" bgcolor="#e6efff" width="1%">&#160;</td> <td align="right" bgcolor="#e6efff" width="9%"> 6,483,593 </td> <td align="left" bgcolor="#e6efff" width="2%">&#160;</td> <td align="left" bgcolor="#e6efff" width="1%">&#160;</td> <td align="right" bgcolor="#e6efff" width="9%"> 13,629,370 </td> <td align="left" bgcolor="#e6efff" width="2%">&#160;</td> </tr> </table> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">Cash and cash equivalents are available to the Group without restriction or limitation on withdrawal and/or use of these funds. The Group&#8217;s cash equivalents are placed with high credit rated financial institutions. The carrying amount of these assets approximates their fair value.</p> <table border="0" cellpadding="0" cellspacing="0" style="border-color: black; border-collapse: collapse; font-size: 8pt; font-family: times new roman,times,serif;" width="100%"> <tr valign="top"> <td align="left">&#160;</td> <td align="left" width="1%">&#160;</td> <td align="right" nowrap="nowrap" width="9%"> <b>USD (held in</b> </td> <td align="left" nowrap="nowrap" width="2%">&#160;</td> <td align="left" nowrap="nowrap" width="1%">&#160;</td> <td align="right" nowrap="nowrap" width="9%"> <b>USD (held in</b> </td> <td align="left" nowrap="nowrap" width="2%">&#160;</td> <td align="left" nowrap="nowrap" width="1%">&#160;</td> <td align="right" nowrap="nowrap" width="9%"> <b>USD (held in</b> </td> <td align="left" nowrap="nowrap" width="2%">&#160;</td> <td align="left" nowrap="nowrap" width="1%">&#160;</td> <td align="right" nowrap="nowrap" width="11%"> <b>USD (held in</b> </td> <td align="left" nowrap="nowrap" width="2%">&#160;</td> <td align="left" nowrap="nowrap" width="1%">&#160;</td> <td align="right" nowrap="nowrap" width="9%"> <b>USD Total</b> </td> <td align="left" nowrap="nowrap" width="2%">&#160;</td> <td align="left" nowrap="nowrap" width="1%">&#160;</td> <td align="right" nowrap="nowrap" width="9%"> <b>USD Total</b> </td> <td align="left" width="2%">&#160;</td> </tr> <tr valign="top"> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);">&#160;</td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%">&#160;</td> <td align="right" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="9%"> <b>USD)</b> </td> <td align="left" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="2%">&#160;</td> <td align="left" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%">&#160;</td> <td align="right" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="9%"> <b>EUR)</b> </td> <td align="left" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="2%">&#160;</td> <td align="left" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%">&#160;</td> <td align="right" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="9%"> <b>CHF)</b> </td> <td align="left" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="2%">&#160;</td> <td align="left" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%">&#160;</td> <td align="right" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="11%"> <b>other currencies)</b> </td> <td align="left" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="2%">&#160;</td> <td align="left" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%">&#160;</td> <td align="right" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="9%"> <b>Sept. 30, 2012</b> </td> <td align="left" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="2%">&#160;</td> <td align="left" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%">&#160;</td> <td align="right" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="9%"> <b>Dec 31, 2011</b> </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="2%">&#160;</td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff">Cash and cash equivalents</td> <td align="left" bgcolor="#e6efff" width="1%">&#160;</td> <td align="right" bgcolor="#e6efff" width="9%"> 6,382,551 </td> <td align="left" bgcolor="#e6efff" width="2%">&#160;</td> <td align="left" bgcolor="#e6efff" width="1%">&#160;</td> <td align="right" bgcolor="#e6efff" width="9%"> 13,841 </td> <td align="left" bgcolor="#e6efff" width="2%">&#160;</td> <td align="left" bgcolor="#e6efff" width="1%">&#160;</td> <td align="right" bgcolor="#e6efff" width="9%"> 86,195 </td> <td align="left" bgcolor="#e6efff" width="2%">&#160;</td> <td align="left" bgcolor="#e6efff" width="1%">&#160;</td> <td align="right" bgcolor="#e6efff" width="11%"> 1,006 </td> <td align="left" bgcolor="#e6efff" width="2%">&#160;</td> <td align="left" bgcolor="#e6efff" width="1%">&#160;</td> <td align="right" bgcolor="#e6efff" width="9%"> 6,483,593 </td> <td align="left" bgcolor="#e6efff" width="2%">&#160;</td> <td align="left" bgcolor="#e6efff" width="1%">&#160;</td> <td align="right" bgcolor="#e6efff" width="9%"> 13,629,370 </td> <td align="left" bgcolor="#e6efff" width="2%">&#160;</td> </tr> </table> 6382551 13841 86195 1006 6483593 13629370 <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> <b>5.</b> &#160;&#160;&#160;&#160;&#160; <b>PLAN FOR ACQUISITION</b> </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> <b> <i>Plan for Acquisition</i> </b> </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> During the second quarter of 2012, DWM Petroleum AG, a wholly-owned subsidiary of the Company, entered into an option agreement with an unrelated third party pursuant to which the third party granted to DWM Petroleum an option to purchase 80% of the equity of a company that owns producing oilfield assets in Central Asia. </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> On May 8, 2012, DWM Petroleum wired an initial refundable cash deposit to the third party in the amount of US$5 million. 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The transaction prepayment of US$10 million will be netted against the final purchase price which remains to be negotiated. </p> 0.8 5000000 2000000 3000000 10000000 <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> <b>6.</b> &#160;&#160;&#160;&#160;&#160; <b>TANGIBLE FIXED ASSETS</b> </p> <table border="0" cellpadding="0" cellspacing="0" style="border-color: black; border-collapse: collapse; font-size: 10pt; font-family: times new roman,times,serif;" width="100%"> <tr valign="top"> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0); border-top: 2px solid rgb(0, 0, 0); border-right: 1px solid rgb(0, 0, 0);" valign="middle"> <b>2012</b> </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0); border-top: 2px solid rgb(0, 0, 0);" valign="middle" width="1%">&#160;</td> <td align="right" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0); border-top: 2px solid rgb(0, 0, 0);" valign="middle" width="12%"> <b>Office equipment</b> <br/> <b>&amp; furniture</b> </td> <td align="left" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0); border-top: 2px solid rgb(0, 0, 0);" valign="middle" width="2%">&#160;</td> <td align="left" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0); border-top: 2px solid rgb(0, 0, 0);" valign="middle" width="1%">&#160;</td> <td align="right" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0); border-top: 2px solid rgb(0, 0, 0);" valign="middle" width="12%"> <b>Vehicles</b> </td> <td align="left" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0); border-top: 2px solid rgb(0, 0, 0);" valign="middle" width="2%">&#160;</td> <td align="left" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0); border-top: 2px solid rgb(0, 0, 0);" valign="middle" width="1%">&#160;</td> <td align="right" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0); border-top: 2px solid rgb(0, 0, 0);" valign="middle" width="12%"> <b>Leasehold</b> <br/> <b>improvements</b> </td> <td align="left" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0); border-top: 2px solid rgb(0, 0, 0);" valign="middle" width="2%">&#160;</td> <td align="left" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0); border-top: 2px solid rgb(0, 0, 0);" valign="middle" width="1%">&#160;</td> <td align="right" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0); border-top: 2px solid rgb(0, 0, 0);" valign="middle" width="12%"> <b>Total</b> </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0); border-top: 2px solid rgb(0, 0, 0);" valign="middle" width="2%">&#160;</td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff" style="border-right: 1px solid rgb(0, 0, 0);"> <b>Cost at January 1</b> </td> <td align="left" bgcolor="#e6efff" width="1%">&#160;</td> <td align="right" bgcolor="#e6efff" width="12%"> <b> 151,303 </b> </td> <td align="left" bgcolor="#e6efff" width="2%">&#160;</td> <td align="left" bgcolor="#e6efff" width="1%">&#160;</td> <td align="right" bgcolor="#e6efff" width="12%"> <b> 101,340 </b> </td> <td align="left" bgcolor="#e6efff" width="2%">&#160;</td> <td align="left" bgcolor="#e6efff" width="1%">&#160;</td> <td align="right" bgcolor="#e6efff" width="12%"> <b> 47,375 </b> </td> <td align="left" bgcolor="#e6efff" width="2%">&#160;</td> <td align="left" bgcolor="#e6efff" width="1%">&#160;</td> <td align="right" bgcolor="#e6efff" width="12%"> <b> 300,018 </b> </td> <td align="left" bgcolor="#e6efff" width="2%">&#160;</td> </tr> <tr valign="top"> <td align="left" style="border-right: 1px solid rgb(0, 0, 0);">Additions</td> <td align="left" width="1%">&#160;</td> <td align="right" width="12%"> - 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</td> <td align="left" bgcolor="#e6efff" width="2%">&#160;</td> <td align="left" bgcolor="#e6efff" width="1%">&#160;</td> <td align="right" bgcolor="#e6efff" width="12%"> 59,005 </td> <td align="left" bgcolor="#e6efff" width="2%">&#160;</td> <td align="left" bgcolor="#e6efff" width="1%">&#160;</td> <td align="right" bgcolor="#e6efff" width="12%"> - </td> <td align="left" bgcolor="#e6efff" width="2%">&#160;</td> <td align="left" bgcolor="#e6efff" width="1%">&#160;</td> <td align="right" bgcolor="#e6efff" width="12%"> 59,005 </td> <td align="left" bgcolor="#e6efff" width="2%">&#160;</td> </tr> <tr valign="top"> <td align="left" style="border-right: 1px solid rgb(0, 0, 0);">Accumulated depreciation at September 30</td> <td align="left" width="1%">&#160;</td> <td align="right" width="12%"> (108,663 </td> <td align="left" width="2%">)</td> <td align="left" width="1%">&#160;</td> <td align="right" width="12%"> (44,147 </td> <td align="left" width="2%">)</td> <td align="left" width="1%">&#160;</td> <td align="right" width="12%"> (45,652 </td> <td align="left" width="2%">)</td> <td align="left" width="1%">&#160;</td> <td align="right" width="12%"> (198,462 </td> <td align="left" width="2%">)</td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff" style="border-bottom: 2px solid rgb(0, 0, 0); border-right: 1px solid rgb(0, 0, 0);"> <b>Net book value at September 30</b> </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 2px solid rgb(0, 0, 0);" width="1%">&#160;</td> <td align="right" bgcolor="#e6efff" style="border-bottom: 2px solid rgb(0, 0, 0);" width="12%"> <b> 38,478 </b> </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 2px solid rgb(0, 0, 0);" width="2%">&#160;</td> <td align="left" bgcolor="#e6efff" style="border-bottom: 2px solid rgb(0, 0, 0);" width="1%">&#160;</td> <td align="right" bgcolor="#e6efff" style="border-bottom: 2px solid rgb(0, 0, 0);" width="12%"> <b> 73,737 </b> </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 2px solid rgb(0, 0, 0);" width="2%">&#160;</td> <td align="left" bgcolor="#e6efff" style="border-bottom: 2px solid rgb(0, 0, 0);" width="1%">&#160;</td> <td align="right" bgcolor="#e6efff" style="border-bottom: 2px solid rgb(0, 0, 0);" width="12%"> <b> 1,723 </b> </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 2px solid rgb(0, 0, 0);" width="2%">&#160;</td> <td align="left" bgcolor="#e6efff" style="border-bottom: 2px solid rgb(0, 0, 0);" width="1%">&#160;</td> <td align="right" bgcolor="#e6efff" style="border-bottom: 2px solid rgb(0, 0, 0);" width="12%"> <b> 113,938 </b> </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 2px solid rgb(0, 0, 0);" width="2%">&#160;</td> </tr> </table> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> Depreciation expense for the nine-month period ended September 30, 2012 and 2011 was $38,128 and $35,987, respectively. Depreciation expense for the three-month period ended September 30, 2012 and 2011 was $12,572 and $13,490, respectively. </p> <table border="0" cellpadding="0" cellspacing="0" style="border-color: black; border-collapse: collapse; font-size: 10pt; font-family: times new roman,times,serif;" width="100%"> <tr valign="top"> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0); border-top: 2px solid rgb(0, 0, 0); border-right: 1px solid rgb(0, 0, 0);" valign="middle"> <b>2012</b> </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0); border-top: 2px solid rgb(0, 0, 0);" valign="middle" width="1%">&#160;</td> <td align="right" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0); border-top: 2px solid rgb(0, 0, 0);" valign="middle" width="12%"> <b>Office equipment</b> <br/> <b>&amp; furniture</b> </td> <td align="left" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0); border-top: 2px solid rgb(0, 0, 0);" valign="middle" width="2%">&#160;</td> <td align="left" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0); border-top: 2px solid rgb(0, 0, 0);" valign="middle" width="1%">&#160;</td> <td align="right" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0); border-top: 2px solid rgb(0, 0, 0);" valign="middle" width="12%"> <b>Vehicles</b> </td> <td align="left" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0); border-top: 2px solid rgb(0, 0, 0);" valign="middle" width="2%">&#160;</td> <td align="left" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0); border-top: 2px solid rgb(0, 0, 0);" valign="middle" width="1%">&#160;</td> <td align="right" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0); border-top: 2px solid rgb(0, 0, 0);" valign="middle" width="12%"> <b>Leasehold</b> <br/> <b>improvements</b> </td> <td align="left" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0); border-top: 2px solid rgb(0, 0, 0);" valign="middle" width="2%">&#160;</td> <td align="left" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0); border-top: 2px solid rgb(0, 0, 0);" valign="middle" width="1%">&#160;</td> <td align="right" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0); border-top: 2px solid rgb(0, 0, 0);" valign="middle" width="12%"> <b>Total</b> </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0); border-top: 2px solid rgb(0, 0, 0);" valign="middle" width="2%">&#160;</td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff" style="border-right: 1px solid rgb(0, 0, 0);"> <b>Cost at January 1</b> </td> <td align="left" bgcolor="#e6efff" width="1%">&#160;</td> <td align="right" bgcolor="#e6efff" width="12%"> <b> 151,303 </b> </td> <td align="left" bgcolor="#e6efff" width="2%">&#160;</td> <td align="left" bgcolor="#e6efff" width="1%">&#160;</td> <td align="right" bgcolor="#e6efff" width="12%"> <b> 101,340 </b> </td> <td align="left" bgcolor="#e6efff" width="2%">&#160;</td> <td align="left" bgcolor="#e6efff" width="1%">&#160;</td> <td align="right" bgcolor="#e6efff" width="12%"> <b> 47,375 </b> </td> <td align="left" bgcolor="#e6efff" width="2%">&#160;</td> <td align="left" bgcolor="#e6efff" width="1%">&#160;</td> <td align="right" bgcolor="#e6efff" width="12%"> <b> 300,018 </b> </td> <td align="left" bgcolor="#e6efff" width="2%">&#160;</td> </tr> <tr valign="top"> <td align="left" style="border-right: 1px solid rgb(0, 0, 0);">Additions</td> <td align="left" width="1%">&#160;</td> <td align="right" width="12%"> - </td> <td align="left" width="2%">&#160;</td> <td align="left" width="1%">&#160;</td> <td align="right" width="12%"> 76,000 </td> <td align="left" width="2%">&#160;</td> <td align="left" width="1%">&#160;</td> <td align="right" width="12%"> - </td> <td align="left" width="2%">&#160;</td> <td align="left" width="1%">&#160;</td> <td align="right" width="12%"> 76,000 </td> <td align="left" width="2%">&#160;</td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff" style="border-right: 1px solid rgb(0, 0, 0);">Disposals</td> <td align="left" bgcolor="#e6efff" width="1%">&#160;</td> <td align="right" bgcolor="#e6efff" width="12%"> (4,162 </td> <td align="left" bgcolor="#e6efff" width="2%">)</td> <td align="left" bgcolor="#e6efff" width="1%">&#160;</td> <td align="right" bgcolor="#e6efff" width="12%"> (59,456 </td> <td align="left" bgcolor="#e6efff" width="2%">)</td> <td align="left" bgcolor="#e6efff" width="1%">&#160;</td> <td align="right" bgcolor="#e6efff" width="12%"> - </td> <td align="left" bgcolor="#e6efff" width="2%">&#160;</td> <td align="left" bgcolor="#e6efff" width="1%">&#160;</td> <td align="right" bgcolor="#e6efff" width="12%"> (63,618 </td> <td align="left" bgcolor="#e6efff" width="2%">)</td> </tr> <tr valign="top"> <td align="left" style="border-right: 1px solid rgb(0, 0, 0);">Cost at September 30</td> <td align="left" width="1%">&#160;</td> <td align="right" width="12%"> 147,141 </td> <td align="left" width="2%">&#160;</td> <td align="left" width="1%">&#160;</td> <td align="right" width="12%"> 117,884 </td> <td align="left" width="2%">&#160;</td> <td align="left" width="1%">&#160;</td> <td align="right" width="12%"> 47,375 </td> <td align="left" width="2%">&#160;</td> <td align="left" width="1%">&#160;</td> <td align="right" width="12%"> 312,400 </td> <td align="left" width="2%">&#160;</td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff" style="border-right: 1px solid rgb(0, 0, 0);"> <b>Accumulated depreciation at January 1</b> </td> <td align="left" bgcolor="#e6efff" width="1%">&#160;</td> <td align="right" bgcolor="#e6efff" width="12%"> <b> (95,691 </b> </td> <td align="left" bgcolor="#e6efff" width="2%"> <b>)</b> </td> <td align="left" bgcolor="#e6efff" width="1%">&#160;</td> <td align="right" bgcolor="#e6efff" width="12%"> <b> (85,103 </b> </td> <td align="left" bgcolor="#e6efff" width="2%"> <b>)</b> </td> <td align="left" bgcolor="#e6efff" width="1%">&#160;</td> <td align="right" bgcolor="#e6efff" width="12%"> <b> (38,545 </b> </td> <td align="left" bgcolor="#e6efff" width="2%"> <b>)</b> </td> <td align="left" bgcolor="#e6efff" width="1%">&#160;</td> <td align="right" bgcolor="#e6efff" width="12%"> <b> (219,339 </b> </td> <td align="left" bgcolor="#e6efff" width="2%"> <b>)</b> </td> </tr> <tr valign="top"> <td align="left" style="border-right: 1px solid rgb(0, 0, 0);">Depreciation</td> <td align="left" width="1%">&#160;</td> <td align="right" width="12%"> (12,972 </td> <td align="left" width="2%">)</td> <td align="left" width="1%">&#160;</td> <td align="right" width="12%"> (18,049 </td> <td align="left" width="2%">)</td> <td align="left" width="1%">&#160;</td> <td align="right" width="12%"> (7,107 </td> <td align="left" width="2%">)</td> <td align="left" width="1%">&#160;</td> <td align="right" width="12%"> (38,128 </td> <td align="left" width="2%">)</td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff" style="border-right: 1px solid rgb(0, 0, 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align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> During the three-month period, two wells were drilled as part of one large campaign which included three drillings in Mongolia. 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The Company expects to recognize this amount over a weighted average period of 0.94 years. </p> <p align="justify" style="margin-left: 5%; font-family: times new roman,times,serif; font-size: 10pt;"> <b>8.2.</b> &#160;&#160;&#160; <b>Share Grants</b> </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> The Company calculates the fair value of share grants at the grant date based on the market price at closing. For restricted share grants, the Company applies a prorated discount of 12% on the market price of the shares over the restriction period. The discount rate is an estimate of the cost of capital, based on previous long-term debt the Company has issued. </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> On May 11, 2012, the Company issued 125,000 shares of common stocks to one of its employees. As per employment agreement, 100,000 shares were issued to the employee between May 1, 2011 and May 1, 2012. The employment agreement terminated effective July 31 including a 90 days&#8217; notice period. Accordingly, the employee received another 25,000 shares for the 90 days&#8217; notice period. 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<b>PUBLIC OFFERING &#8211; UNIT FINANCING</b> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> On May 6, 2011, the Company completed a public offering of units pursuant to a long form prospectus filed in all of the Provinces of Canada except Quebec and a registration statement filed with the Securities and Exchange Commission on Form S-1 in the United States. In the Offering, the Company sold a total of 44,450,500 units at a price of $0.50 per unit for aggregate gross proceeds of $22,225,250. Each unit consisted of one share of common stock in the capital of the Company and one common share purchase warrant (&#8220;Unit Warrants&#8221;). Each Unit Warrant entitles the purchaser to purchase one additional common share until May 6, 2014 at a purchase price of $0.70. </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> Raymond James Ltd. acted as agent in the Offering. As consideration for its assistance, the Company paid to Raymond James a cash commission equal to 6.75% of the gross proceeds of the offering (i.e. $1,500,204) and reimbursed Raymond James for expenses. In addition, the Company issued to Raymond James agents' warrants (&#8220;Agent Warrants&#8221;) that entitle Raymond James to purchase 1,333,515 shares of the Company's common stock at a purchase price of $0.60 until May 6, 2013. The fair value of the Agent Warrants was determined using the Black-Scholes option pricing model. The inputs for the variables used in the Black-Scholes formula per May 6, 2011 are shown in the following table: </p> <div align="center"> <table border="1" cellpadding="3" cellspacing="0" style="border-color: black; border-collapse: collapse; font-size: 10pt; font-family: times new roman,times,serif;" width="40%"> <tr valign="top"> <td align="left">Stock price</td> <td align="right" width="25%"> 0.46 </td> </tr> <tr valign="top"> <td align="left">Expected dividend yield</td> <td align="right" width="25%"> 0% </td> </tr> <tr valign="top"> <td align="left">Expected volatility</td> <td align="right" width="25%"> 99% </td> </tr> <tr valign="top"> <td align="left">Risk-free rate</td> <td align="right" width="25%"> 0.57% </td> </tr> <tr valign="top"> <td align="left">Expected term (in years)</td> <td align="right" width="25%"> 2 </td> </tr> </table> </div> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">&#160;</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> The fair value per Agent Warrant was $0.2101. The total costs associated with all Agent Warrants amounted to $280,171. This amount was directly charged against equity and had no impact on the Company&#8217;s statement of operations. </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">The following table summarizes the payments of issuance costs:</p> <div align="center"> <table border="1" cellpadding="3" cellspacing="0" style="border-color: black; border-collapse: collapse; font-size: 10pt; font-family: times new roman,times,serif;" width="40%"> <tr valign="top"> <td align="left">Agent commission</td> <td align="right" width="25%"> 1,552,093 </td> </tr> <tr valign="top"> <td align="left">Legal</td> <td align="right" width="25%"> 448,857 </td> </tr> <tr valign="top"> <td align="left">Audit</td> <td align="right" width="25%"> 128,876 </td> </tr> <tr valign="top"> <td align="left">Other</td> <td align="right" width="25%"> 218,424 </td> </tr> <tr valign="top"> <td align="left">Total issuance costs (cash)</td> <td align="right" width="25%"> 2,348,250 </td> </tr> </table> </div> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> Net cash proceeds from the public offering amounted to $19,877,000 and were recorded in shareholders&#8217; equity, net of non-cash issuance costs associated with the Agent Warrants, i.e. $19,596,829. Refer to Note 10 for the discussion of the warrants. </p> <p>&#160;</p> <table border="1" cellpadding="3" cellspacing="0" style="border-color: black; border-collapse: collapse; font-size: 10pt; font-family: times new roman,times,serif;" width="40%"> <tr valign="top"> <td align="left">Stock price</td> <td align="right" width="25%"> 0.46 </td> </tr> <tr valign="top"> <td align="left">Expected dividend yield</td> <td align="right" width="25%"> 0% </td> </tr> <tr valign="top"> <td align="left">Expected volatility</td> <td align="right" width="25%"> 99% </td> </tr> <tr valign="top"> <td align="left">Risk-free rate</td> <td align="right" width="25%"> 0.57% </td> </tr> <tr valign="top"> <td align="left">Expected term (in years)</td> <td align="right" width="25%"> 2 </td> </tr> </table> 0.46 0 0.99 0.0057 2 <table border="1" cellpadding="3" cellspacing="0" style="border-color: black; border-collapse: collapse; font-size: 10pt; font-family: times new roman,times,serif;" width="40%"> <tr valign="top"> <td align="left">Agent commission</td> <td align="right" width="25%"> 1,552,093 </td> </tr> <tr valign="top"> <td align="left">Legal</td> <td align="right" width="25%"> 448,857 </td> </tr> <tr valign="top"> <td align="left">Audit</td> <td align="right" width="25%"> 128,876 </td> </tr> <tr valign="top"> <td align="left">Other</td> <td align="right" width="25%"> 218,424 </td> </tr> <tr valign="top"> <td align="left">Total issuance costs (cash)</td> <td align="right" width="25%"> 2,348,250 </td> </tr> </table> 1552093 448857 128876 218424 2348250 44450500 0.5 22225250 0.7 0.0675 1500204 1333515 0.6 0.2101 280171 19877000 19596829 <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> <b>10.&#160;&#160;</b> &#160; <b>WARRANTS</b> </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> <b>Warrants outstanding</b> </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">The following table summarizes information about the Company&#8217;s warrants outstanding as of September 30, 2012:</p> <div> <table border="0" cellpadding="0" cellspacing="0" style="border-color: black; border-collapse: collapse; font-size: 10pt; font-family: times new roman,times,serif;" width="100%"> <tr valign="top"> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0); border-top: 2px solid rgb(0, 0, 0); border-right: 1px solid rgb(0, 0, 0);"> <b>Warrant series</b> </td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0); border-top: 2px solid rgb(0, 0, 0);" width="19%"> <b>Number of warrants</b> </td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0); border-top: 2px solid rgb(0, 0, 0);" width="19%"> <b>Strike price</b> </td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0); border-top: 2px solid rgb(0, 0, 0);" width="19%"> <b>Grant date</b> </td> <td align="center" style="border-bottom: 1px solid rgb(0, 0, 0); border-top: 2px solid rgb(0, 0, 0);" width="19%"> <b>Expiry date</b> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff" style="border-right: 1px solid rgb(0, 0, 0);">Grant</td> <td align="right" bgcolor="#e6efff" width="19%"> 150,000 </td> <td align="right" bgcolor="#e6efff" width="19%"> 0.80 </td> <td align="right" bgcolor="#e6efff" width="19%">June 2, 2010</td> <td align="right" bgcolor="#e6efff" width="19%">June 2, 2013</td> </tr> <tr valign="top"> <td align="left" style="border-right: 1px solid rgb(0, 0, 0);">Unit warrants</td> <td align="right" width="19%"> 44,450,500 </td> <td align="right" width="19%"> 0.70 </td> <td align="right" width="19%">May 6, 2011</td> <td align="right" width="19%">May 6, 2014</td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff" style="border-bottom: 2px solid rgb(0, 0, 0); border-right: 1px solid rgb(0, 0, 0);">Agent warrants</td> <td align="right" bgcolor="#e6efff" style="border-bottom: 2px solid rgb(0, 0, 0);" width="19%"> 1,333,515 </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 2px solid rgb(0, 0, 0);" width="19%"> 0.60 </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 2px solid rgb(0, 0, 0);" width="19%">May 6, 2011</td> <td align="right" bgcolor="#e6efff" style="border-bottom: 2px solid rgb(0, 0, 0);" width="19%">May 6, 2013</td> </tr> <tr valign="top"> <td align="left" style="border-bottom: 2px solid rgb(0, 0, 0); border-right: 1px solid rgb(0, 0, 0);"> <b>Total warrants outstanding</b> </td> <td align="right" style="border-bottom: 2px solid rgb(0, 0, 0);" width="19%"> <b> 45,934,015 </b> </td> <td align="left" style="border-bottom: 2px solid rgb(0, 0, 0);" width="19%">&#160;</td> <td align="left" style="border-bottom: 2px solid rgb(0, 0, 0);" width="19%">&#160;</td> <td align="left" style="border-bottom: 2px solid rgb(0, 0, 0);" width="19%">&#160;</td> </tr> </table> </div> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">The Company has enough shares of common stock authorized in the event these warrants are exercised.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> <b>Warrant activity</b> </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">The following table summarizes the Company&#8217;s warrant activity for the nine-month period ended September 30, 2012:</p> <div align="center"> <table border="0" cellpadding="0" cellspacing="0" style="border-color: black; border-collapse: collapse; font-size: 10pt; font-family: times new roman,times,serif;" width="90%"> <tr valign="top"> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0); border-top: 2px solid rgb(0, 0, 0); border-right: 2px solid rgb(0, 0, 0);"> <b>Warrants</b> </td> <td align="center" style="border-bottom: 1px solid rgb(0, 0, 0); border-top: 2px solid rgb(0, 0, 0);" width="33%"> <b>Number of warrants</b> </td> <td align="center" style="border-bottom: 1px solid rgb(0, 0, 0); border-top: 2px solid rgb(0, 0, 0);" width="33%"> <b>Weighted average exercise price</b> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff" style="border-right: 2px solid rgb(0, 0, 0);">Outstanding at December 31, 2011</td> <td align="center" bgcolor="#e6efff" width="33%"> 45,934,015 </td> <td align="center" bgcolor="#e6efff" width="33%"> 0.70 </td> </tr> <tr valign="top"> <td align="left" style="border-right: 2px solid rgb(0, 0, 0);">Granted</td> <td align="center" width="33%"> - </td> <td align="center" width="33%"> - </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff" style="border-right: 2px solid rgb(0, 0, 0);">Exercised</td> <td align="center" bgcolor="#e6efff" width="33%"> - </td> <td align="center" bgcolor="#e6efff" width="33%"> - </td> </tr> <tr valign="top"> <td align="left" style="border-right: 2px solid rgb(0, 0, 0);">Forfeit or expired</td> <td align="center" width="33%"> - </td> <td align="center" width="33%"> - </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff" style="border-bottom: 2px solid rgb(0, 0, 0); border-right: 2px solid rgb(0, 0, 0);">Outstanding at March</td> <td align="center" bgcolor="#e6efff" style="border-bottom: 2px solid rgb(0, 0, 0);" width="33%"> - </td> <td align="center" bgcolor="#e6efff" style="border-bottom: 2px solid rgb(0, 0, 0);" width="33%"> - </td> </tr> <tr valign="top"> <td align="left" style="border-bottom: 2px solid rgb(0, 0, 0); border-right: 2px solid rgb(0, 0, 0);"> <b>Outstanding at September 30, 2012</b> </td> <td align="center" style="border-bottom: 2px solid rgb(0, 0, 0);" width="33%"> <b> 45,934,015 </b> </td> <td align="center" style="border-bottom: 2px solid rgb(0, 0, 0);" width="33%"> <b> 0.70 </b> </td> </tr> </table> </div> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">&#160;</p> <table border="0" cellpadding="0" cellspacing="0" style="border-color: black; border-collapse: collapse; font-size: 10pt; font-family: times new roman,times,serif;" width="100%"> <tr valign="top"> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0); border-top: 2px solid rgb(0, 0, 0); border-right: 1px solid rgb(0, 0, 0);"> <b>Warrant series</b> </td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0); border-top: 2px solid rgb(0, 0, 0);" width="19%"> <b>Number of warrants</b> </td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0); border-top: 2px solid rgb(0, 0, 0);" width="19%"> <b>Strike price</b> </td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0); border-top: 2px solid rgb(0, 0, 0);" width="19%"> <b>Grant date</b> </td> <td align="center" style="border-bottom: 1px solid rgb(0, 0, 0); border-top: 2px solid rgb(0, 0, 0);" width="19%"> <b>Expiry date</b> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff" style="border-right: 1px solid rgb(0, 0, 0);">Grant</td> <td align="right" bgcolor="#e6efff" width="19%"> 150,000 </td> <td align="right" bgcolor="#e6efff" width="19%"> 0.80 </td> <td align="right" bgcolor="#e6efff" width="19%">June 2, 2010</td> <td align="right" bgcolor="#e6efff" width="19%">June 2, 2013</td> </tr> <tr valign="top"> <td align="left" style="border-right: 1px solid rgb(0, 0, 0);">Unit warrants</td> <td align="right" width="19%"> 44,450,500 </td> <td align="right" width="19%"> 0.70 </td> <td align="right" width="19%">May 6, 2011</td> <td align="right" width="19%">May 6, 2014</td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff" style="border-bottom: 2px solid rgb(0, 0, 0); border-right: 1px solid rgb(0, 0, 0);">Agent warrants</td> <td align="right" bgcolor="#e6efff" style="border-bottom: 2px solid rgb(0, 0, 0);" width="19%"> 1,333,515 </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 2px solid rgb(0, 0, 0);" width="19%"> 0.60 </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 2px solid rgb(0, 0, 0);" width="19%">May 6, 2011</td> <td align="right" bgcolor="#e6efff" style="border-bottom: 2px solid rgb(0, 0, 0);" width="19%">May 6, 2013</td> </tr> <tr valign="top"> <td align="left" style="border-bottom: 2px solid rgb(0, 0, 0); border-right: 1px solid rgb(0, 0, 0);"> <b>Total warrants outstanding</b> </td> <td align="right" style="border-bottom: 2px solid rgb(0, 0, 0);" width="19%"> <b> 45,934,015 </b> </td> <td align="left" style="border-bottom: 2px solid rgb(0, 0, 0);" width="19%">&#160;</td> <td align="left" style="border-bottom: 2px solid rgb(0, 0, 0);" width="19%">&#160;</td> <td align="left" style="border-bottom: 2px solid rgb(0, 0, 0);" width="19%">&#160;</td> </tr> </table> 150000 0.8 44450500 0.7 1333515 0.6 45934015 <table border="0" cellpadding="0" cellspacing="0" style="border-color: black; border-collapse: collapse; font-size: 10pt; font-family: times new roman,times,serif;" width="90%"> <tr valign="top"> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0); border-top: 2px solid rgb(0, 0, 0); border-right: 2px solid rgb(0, 0, 0);"> <b>Warrants</b> </td> <td align="center" style="border-bottom: 1px solid rgb(0, 0, 0); border-top: 2px solid rgb(0, 0, 0);" width="33%"> <b>Number of warrants</b> </td> <td align="center" style="border-bottom: 1px solid rgb(0, 0, 0); border-top: 2px solid rgb(0, 0, 0);" width="33%"> <b>Weighted average exercise price</b> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff" style="border-right: 2px solid rgb(0, 0, 0);">Outstanding at December 31, 2011</td> <td align="center" bgcolor="#e6efff" width="33%"> 45,934,015 </td> <td align="center" bgcolor="#e6efff" width="33%"> 0.70 </td> </tr> <tr valign="top"> <td align="left" style="border-right: 2px solid rgb(0, 0, 0);">Granted</td> <td align="center" width="33%"> - </td> <td align="center" width="33%"> - </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff" style="border-right: 2px solid rgb(0, 0, 0);">Exercised</td> <td align="center" bgcolor="#e6efff" width="33%"> - </td> <td align="center" bgcolor="#e6efff" width="33%"> - </td> </tr> <tr valign="top"> <td align="left" style="border-right: 2px solid rgb(0, 0, 0);">Forfeit or expired</td> <td align="center" width="33%"> - </td> <td align="center" width="33%"> - </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff" style="border-bottom: 2px solid rgb(0, 0, 0); border-right: 2px solid rgb(0, 0, 0);">Outstanding at March</td> <td align="center" bgcolor="#e6efff" style="border-bottom: 2px solid rgb(0, 0, 0);" width="33%"> - </td> <td align="center" bgcolor="#e6efff" style="border-bottom: 2px solid rgb(0, 0, 0);" width="33%"> - </td> </tr> <tr valign="top"> <td align="left" style="border-bottom: 2px solid rgb(0, 0, 0); border-right: 2px solid rgb(0, 0, 0);"> <b>Outstanding at September 30, 2012</b> </td> <td align="center" style="border-bottom: 2px solid rgb(0, 0, 0);" width="33%"> <b> 45,934,015 </b> </td> <td align="center" style="border-bottom: 2px solid rgb(0, 0, 0);" width="33%"> <b> 0.70 </b> </td> </tr> </table> 45934015 0.7 0 0 0 0 0 0 0 0 45934015 0.7 <b>11.</b> &#160;&#160;&#160; <b>INVESTMENT IN PETROMANAS</b> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> On February 12, 2010, the Company&#8217;s wholly-owned subsidiary DWM Petroleum, signed a Share Purchase Agreement and completed the sale of all of the issued and outstanding shares of Manas Adriatic to Petromanas Energy Inc. (&#8220;Petromanas&#8221;). After closing, the Share Purchase Agreement was amended by an amending agreement dated May 25, 2010. As a result of this transaction, the Company acquired 200,000,000 common shares of Petromanas. 100,000,000 of these were issued on March 3, 2010 pursuant to the original terms of the Share Purchase Agreement; the additional 100,000,000 were received on May 26, 2010, pursuant to the amending agreement. The shares were subject to a hold period expiring September 24, 2011 and bore a legend to that effect. </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">&#160;</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">In addition, all of these shares were deposited into an escrow pursuant to the requirements of the TSX Venture Exchange which provides for the release of the shares from escrow according to the following schedule:</p> <div align="center"> <table border="0" cellpadding="0" cellspacing="0" style="border-color: black; border-collapse: collapse; font-size: 10pt; font-family: times new roman,times,serif;" width="40%"> <tr valign="top"> <td align="left" style="border-top: 2px solid rgb(0, 0, 0); border-right: 1px solid rgb(0, 0, 0);"> <b>Release dates</b> </td> <td align="right" style="border-top: 2px solid rgb(0, 0, 0);" width="50%"> <b>Number of shares</b> </td> </tr> <tr valign="top"> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0); border-right: 1px solid rgb(0, 0, 0);">&#160;</td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" width="50%"> <b>released from escrow</b> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff" style="border-right: 1px solid rgb(0, 0, 0);">June 24, 2010</td> <td align="right" bgcolor="#e6efff" width="50%"> 10,000,000 </td> </tr> <tr valign="top"> <td align="left" style="border-right: 1px solid rgb(0, 0, 0);">August 24, 2010</td> <td align="right" width="50%"> 15,000,000 </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff" style="border-right: 1px solid rgb(0, 0, 0);">February 24, 2011</td> <td align="right" bgcolor="#e6efff" width="50%"> 15,000,000 </td> </tr> <tr valign="top"> <td align="left" style="border-right: 1px solid rgb(0, 0, 0);">June 24, 2011</td> <td align="right" width="50%"> 40,000,000 </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff" style="border-right: 1px solid rgb(0, 0, 0);">August 24, 2011</td> <td align="right" bgcolor="#e6efff" width="50%"> 30,000,000 </td> </tr> <tr valign="top"> <td align="left" style="border-right: 1px solid rgb(0, 0, 0);">February 24, 2012</td> <td align="right" width="50%"> 30,000,000 </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff" style="border-right: 1px solid rgb(0, 0, 0);">August 24, 2012</td> <td align="right" bgcolor="#e6efff" width="50%"> 30,000,000 </td> </tr> <tr valign="top"> <td align="left" style="border-right: 1px solid rgb(0, 0, 0);">February 24, 2013</td> <td align="right" width="50%"> 30,000,000 </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff" style="border-bottom: 2px solid rgb(0, 0, 0); border-right: 1px solid rgb(0, 0, 0);"> <b>Total</b> </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 2px solid rgb(0, 0, 0);" width="50%"> <b> 200,000,000 </b> </td> </tr> </table> </div> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> On July 6, 2012, DWM Petroleum sold 10,000,000 of these shares to one unrelated party at a price of CA$0.17 per common share for gross proceeds of CA$1,700,000 (US$1,670,598). On August 17, 2012, pursuant to agreements dated August 13, 2012, DWM Petroleum sold an additional 90,000,000 of these Petromanas shares to twelve purchasers at a price of CA$0.115 per common share for gross proceeds of CA$10,350,000 (US$10,445,050) together with the right to receive 22.5% of the Performance Shares if and when any Performance Shares are issued by Petromanas. On June 30, 2012, we owned 200,000,000 shares of Petromanas Energy. Since that date, we sold 100,000,000 of these shares to various purchasers and we have agreed not to resell the remaining 100,000,000 until August 14, 2013 without prior agreement from some of those purchasers, unless, before that date, the market price per share equals or exceeds CA$0.60 for five business days. Of the 100,000,000 common shares of Petromanas held by us at September 30, 2012, none were currently eligible for immediate resale. </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> On September 30, 2012, DWM Petroleum owned and controlled 100,000,000 common shares of Petromanas and it had the right to acquire a further 50,000,000 common shares (referred to as &#8220;Performance Shares&#8221;) upon the occurrence of certain conditions. The 100,000,000 common shares represent approximately 15.85% of the issued and outstanding common shares of Petromanas. </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> Since the shares were subject to a hold period of thirty months, and because the shares were also deposited into escrow and subject to a fixed escrow release schedule, the Company deemed them to have a Level 2 input for the calculation of the fair value in accordance with ASC 820 (Fair value measurements and disclosures). The Company applies an annual discount rate of 12% on the quoted market price based on the time before the shares become freely tradable. The discount rate is an estimate of the cost of capital, based on previous long-term debt the Company has issued. </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> The quoted market price for one common share of Petromanas on September 30, 2012 was CA$0.20. </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> In order to calculate the fair value of the Company&#8217;s investment in Petromanas the Company has discounted the market price of the shares based on the escrow release schedule. The effective discount applied on the quoted market price of the shares is 1.37% . </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> During the nine-month periods ended September 30, 2012 and 2011, respectively, the Company recorded $6,306,060 unrealized gain on investment in Petromanas and $(49,090,911) unrealized loss on investment, respectively. </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> During the three-month periods ended September 30, 2012 and 2011, respectively, the Company recorded $(6,671,220) unrealized loss on investment in Petromanas and $(32,854,768) unrealized loss on investment, respectively. </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">When a company chooses the fair value option, pursuant to ASC 323 further disclosures regarding the investee are required in cases where the Company has the ability to exercise significant influence over the investee&#8217;s operating and financial policies.</p> <p>&#160;</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">&#160;</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">As of today, there is no managerial interchange and there are no material intercompany transactions. In addition, technological dependencies do not exist. The majority ownership of the investee is concentrated among a small group of shareholders who operate the investee without regard to the views of the Company. The Company made an effort to obtain from Petromanas financial information that would be needed in order for the for the Company to include that information in its own financial disclosure, but Petromanas, which is a reporting company in Canada and subject to the Canadian regulatory requirements in respect of selective disclosure, has refused to provide this information in advance of it being made available to the general public in its own periodic disclosure filings. 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subject to legal actions and complaints from time-to-time. Management believes that the ultimate liability, if any, arising from such actions or complaints will not have a material adverse effect on the financial condition, the results of future operations or cash flows of the associates/subsidiaries in Mongolia, Republic of Tajikistan, the Kyrgyz Republic and Chile.</font> </font> </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> <b> <i>Chile</i> </b> </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">During the initial phase of applying for our Chilean Exploration license, a joint bidding group was formed with Manas, IPR and Energy Focus. Each had a one-third interest. Of its own accord, Energy Focus left the bidding group. Energy Focus prepared a side letter, which was signed by Manas and IPR. By the terms of this side letter, Energy Focus was granted the option to rejoin the consortium under certain conditions.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">Even though Energy Focus has been asked many times to join the group by contributing its prorated share of capital, they have failed to do so. Despite this, Energy Focus claims that they are entitled to participate in the consortium at any future time, not just under certain conditions. IPR and Manas disagree with this interpretation.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">Energy Focus commenced litigation for specific performance and damages in an unspecified amount in Santiago de Chile, claiming interest in the Tranquilo Block from the Company and IPR, and their subsidiaries. The Company, IPR and their respective legal counsel are of the view that the Energy Focus claim is without merit and is brought in the wrong jurisdiction and that Energy Focus has failed to properly serve the parties. The courts of Santiago have dismissed the case, but Energy Focus made an appeal just before the appeal period expired.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">At September 30, 2012, there had been no legal actions against any member of the Group in the Kyrgyz Republic, Republic of Tajikistan and Mongolia.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">Management believes that the members of the Group are in substantial compliance with the tax laws affecting their respective operations in the Kyrgyz Republic, Republic of Tajikistan, Mongolia and Chile. 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font-size: 10pt;"> During the nine-month period ended September 30, 2012 and 2011, respectively, the Company made cash contributions of $71,197 and $63,368, respectively, to its defined benefit pension plan. 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font-size: 10pt;"> <b>15.</b> <b>FAIR VALUE MEASUREMENT</b> </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> <b>15.1.</b> <b>Fair Value Measurements</b> </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">The guidance on fair value measurements defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants under current market conditions. This guidance also specifies a fair value hierarchy based upon the observability of inputs used in valuation techniques to measure fair value. Observable inputs (highest level) reflect market data obtained from independent sources, while unobservable inputs (lowest level) reflect internally developed market assumptions. In accordance with this guidance, fair value measurements are classified under the following hierarchy:</p> <p align="justify" style="margin-left: 5%; font-family: times new roman,times,serif; font-size: 10pt;"> &#8226;&#160;&#160;&#160;&#160; <b>Level 1</b> &#8212; Quoted prices for identical instruments in active markets. </p> <p align="justify" style="margin-left: 5%; font-family: times new roman,times,serif; font-size: 10pt;"> &#8226;&#160;&#160;&#160;&#160; <b>Level 2</b> &#8212; Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs or significant value drivers are observable in active markets. </p> <p align="justify" style="margin-left: 5%; font-family: times new roman,times,serif; font-size: 10pt;"> &#8226; <b>&#160;&#160;&#160;Level 3</b> &#8212; Prices and valuation techniques in which one or more significant inputs or significant value-drivers are unobservable. </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">When available, we use quoted market prices to determine fair value, and we classify such measurements within Level 1. In some cases where market prices are not available, we make use of observable market based inputs to calculate fair value, in which case the measurements are classified within Level 2. If quoted or observable market prices are not available, fair value is based upon internally developed models that use, where possible, current market-based parameters such as interest rates, yield curves and currency rates. These measurements are classified within Level 3.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">Fair value measurements are classified according to the lowest level input or value-driver that is significant to the valuation. 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For certain other financial assets and liabilities (Level 2 and 3), our fair value calculations have been adjusted accordingly.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">Financial assets measured on a recurring basis at fair value included in our Consolidated Financial Statements as of September 30, 2012 are classified in one of the three categories as follows:</p> <div align="center"> <table border="0" cellpadding="0" cellspacing="0" style="border-color: black; border-collapse: collapse; font-size: 10pt; font-family: times new roman,times,serif;" width="80%"> <tr valign="top"> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0); border-top: 2px solid rgb(0, 0, 0); border-right: 2px solid rgb(0, 0, 0);"> <b> <i>Assets</i> </b> </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0); border-top: 2px solid rgb(0, 0, 0);" width="1%">&#160;</td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0); border-top: 2px solid rgb(0, 0, 0);" width="12%"> <b> <i>Level 1</i> </b> </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0); 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font-size: 10pt;"> <b>15.2.</b> <b>Fair Value of Financial Instruments</b> </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">In addition to the methods and assumptions we use to record the fair value of financial instruments as discussed in the Fair Value Measurements section above, we used the following methods and assumptions to estimate the fair value of our financial instruments.</p> <ul style="text-align: justify;"> <li style="font-family: times new roman,times,serif; font-size: 10pt;"> <p style="font-family: times new roman,times,serif; font-size: 10pt;"> <b>Cash and cash equivalents &#8211;</b> carrying amount approximated fair value. </p> </li> <li style="font-family: times new roman,times,serif; font-size: 10pt;"> <p style="font-family: times new roman,times,serif; font-size: 10pt;"> <b>Restricted cash &#8211;</b> carrying amount approximated fair value. </p> </li> <li style="font-family: times new roman,times,serif; font-size: 10pt;"> <p style="font-family: times new roman,times,serif; 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border-top: 2px solid rgb(0, 0, 0); border-right: 2px solid rgb(0, 0, 0);"> <b> <i>Assets</i> </b> </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0); border-top: 2px solid rgb(0, 0, 0);" width="1%">&#160;</td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0); border-top: 2px solid rgb(0, 0, 0);" width="12%"> <b> <i>Level 1</i> </b> </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0); border-top: 2px solid rgb(0, 0, 0);" width="2%">&#160;</td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0); border-top: 2px solid rgb(0, 0, 0);" width="1%">&#160;</td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0); border-top: 2px solid rgb(0, 0, 0);" width="12%"> <b> <i>Level 2</i> </b> </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0); border-top: 2px solid rgb(0, 0, 0);" width="2%">&#160;</td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0); border-top: 2px solid rgb(0, 0, 0);" width="1%">&#160;</td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0); 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width="2%">&#160;</td> </tr> <tr valign="top"> <td align="left" style="border-right: 2px solid rgb(0, 0, 0);">Dilutive effect of common stock</td> <td align="left" valign="bottom" width="1%">&#160;</td> <td align="left" valign="bottom" width="12%">&#160;</td> <td align="left" valign="bottom" width="2%">&#160;</td> <td align="left" valign="bottom" width="1%">&#160;</td> <td align="left" valign="bottom" width="12%">&#160;</td> <td align="left" valign="bottom" width="2%">&#160;</td> <td align="left" valign="bottom" width="1%">&#160;</td> <td align="left" valign="bottom" width="12%">&#160;</td> <td align="left" valign="bottom" width="2%">&#160;</td> <td align="left" valign="bottom" width="1%">&#160;</td> <td align="left" valign="bottom" width="12%">&#160;</td> <td align="left" valign="bottom" width="2%">&#160;</td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff" style="border-right: 2px solid rgb(0, 0, 0);">equivalents:</td> <td align="left" bgcolor="#e6efff" valign="bottom" 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</table> 15950000 17850000 15950000 17850000 45934015 45934015 45934015 45934015 0 0 0 0 61884015 63784015 61884015 63784015 <b>17.&#160;&#160;</b> &#160; <b>Discontinued Operations &#8211; Disposal of the Chilean Project</b> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">On January 29, 2010, the Company signed an agreement to assign its interest in the Chilean project in exchange for a return of the money it had invested in the joint venture and relief from all current and future obligations in respect of the project. On April 14, 2011, the Company transferred all its rights, interests and obligations in the project to Methanex and Wintershall. The Chilean Minister of Energy authorized this transfer on April 28, 2011.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">&#160;</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> According to an external audit report dated July 31, 2011 all previous cash contributions made by the partners in the Chilean project have been reconciled. The report confirmed the Company&#8217;s cash contribution of $72,000. The cash payment for the transfer of the Company&#8217;s interest in the Chilean project of $72,000 was received on September 23, 2011 from the new owners. </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">With the disposal of the Company&#8217;s interest in the Chilean project, there are no continuing cash flows to be generated and there is no continuing involvement in the operations remaining. In accordance with ASC 205-20-45 the Company classified the disposed component as a discontinued operation.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">The following table summarizes the Company&#8217;s financial results from the Chilean project since inception to date:</p> <div> <table border="0" cellpadding="0" cellspacing="0" style="border-color: black; border-collapse: collapse; font-size: 10pt; font-family: times new roman,times,serif;" width="100%"> <tr valign="top"> <td align="left" style="border-top: 2px solid rgb(0, 0, 0); border-right: 1px solid rgb(0, 0, 0);">&#160;</td> <td align="center" colspan="2" nowrap="nowrap" style="border-top: 2px solid rgb(0, 0, 0);"> <b> <i>Three-month ended</i> </b> </td> <td align="center" colspan="2" nowrap="nowrap" style="border-top: 2px solid rgb(0, 0, 0);"> <b> <i>Nine-month ended</i> </b> </td> <td align="center" nowrap="nowrap" style="border-top: 2px solid rgb(0, 0, 0);" width="20%"> <b> <i>Period from May 05, 2004</i> </b> </td> </tr> <tr valign="top"> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0); border-right: 1px solid rgb(0, 0, 0);">&#160;</td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="14%"> <b>Sept. 30, 2012</b> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="14%"> <b>Sept. 30, 2011</b> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="14%"> <b>Sept. 30, 2012</b> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="14%"> <b>Sept. 30, 2011</b> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="20%"> <b> <i>(inception) to Sep 30, 2011</i> </b> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff" style="border-right: 1px solid rgb(0, 0, 0);"> <b>OPERATING REVENUES</b> </td> <td align="center" bgcolor="#e6efff" width="14%">&#160;</td> <td align="center" bgcolor="#e6efff" width="14%">&#160;</td> <td align="center" bgcolor="#e6efff" width="14%">&#160;</td> <td align="center" bgcolor="#e6efff" width="14%">&#160;</td> <td align="center" bgcolor="#e6efff" width="20%">&#160;</td> </tr> <tr valign="top"> <td align="left" style="border-right: 1px solid rgb(0, 0, 0);">Proceeds from divestiture</td> <td align="center" width="14%"> - </td> <td align="center" width="14%"> 72,000 </td> <td align="center" width="14%"> - </td> <td align="center" width="14%"> 72,000 </td> <td align="center" width="20%"> 51,663 </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff" style="border-right: 1px solid rgb(0, 0, 0);"> <b>Total revenues</b> </td> <td align="center" bgcolor="#e6efff" width="14%"> - </td> <td align="center" bgcolor="#e6efff" width="14%"> <b> 72,000 </b> </td> <td align="center" bgcolor="#e6efff" width="14%"> - </td> <td align="center" bgcolor="#e6efff" width="14%"> <b> 72,000 </b> </td> <td align="center" bgcolor="#e6efff" width="20%"> <b> 51,663 </b> </td> </tr> <tr valign="top"> <td align="left" style="border-right: 1px solid rgb(0, 0, 0);"> <b>OPERATING EXPENSES</b> </td> <td align="center" width="14%">&#160;</td> <td align="center" width="14%">&#160;</td> <td align="center" width="14%">&#160;</td> <td align="center" width="14%">&#160;</td> <td align="center" width="20%">&#160;</td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff" style="border-right: 1px solid rgb(0, 0, 0);">Personnel costs</td> <td align="center" bgcolor="#e6efff" width="14%"> - </td> <td align="center" bgcolor="#e6efff" width="14%"> - </td> <td align="center" bgcolor="#e6efff" width="14%"> - </td> <td align="center" bgcolor="#e6efff" width="14%"> - </td> <td align="center" bgcolor="#e6efff" width="20%"> (211,228) </td> </tr> <tr valign="top"> <td align="left" style="border-right: 1px solid rgb(0, 0, 0);">Exploration costs</td> <td align="center" width="14%"> - </td> <td align="center" width="14%"> - </td> <td align="center" width="14%"> - </td> <td align="center" width="14%"> - </td> <td align="center" width="20%"> (420,985) </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff" style="border-right: 1px solid rgb(0, 0, 0);">Depreciation</td> <td align="center" bgcolor="#e6efff" width="14%"> - </td> <td align="center" bgcolor="#e6efff" width="14%"> - </td> <td align="center" bgcolor="#e6efff" width="14%"> - </td> <td align="center" bgcolor="#e6efff" width="14%"> - </td> <td align="center" bgcolor="#e6efff" width="20%"> - </td> </tr> <tr valign="top"> <td align="left" style="border-right: 1px solid rgb(0, 0, 0);">Consulting fees</td> <td align="center" width="14%"> - </td> <td align="center" width="14%"> - </td> <td align="center" width="14%"> - </td> <td align="center" width="14%"> (20,337) </td> <td align="center" width="20%"> - </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff" style="border-right: 1px solid rgb(0, 0, 0);">Administrative costs</td> <td align="center" bgcolor="#e6efff" width="14%"> - </td> <td align="center" bgcolor="#e6efff" width="14%"> - </td> <td align="center" bgcolor="#e6efff" width="14%"> - </td> <td align="center" bgcolor="#e6efff" width="14%"> - </td> <td align="center" bgcolor="#e6efff" width="20%"> (15,000) </td> </tr> <tr valign="top"> <td align="left" style="border-right: 1px solid rgb(0, 0, 0);"> <b>Total operating expenses</b> </td> <td align="center" width="14%"> - </td> <td align="center" width="14%"> <b> - </b> </td> <td align="center" width="14%"> - </td> <td align="center" width="14%"> <b> - </b> </td> <td align="center" width="20%"> <b> (647,213) </b> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff" style="border-bottom: 2px solid rgb(0, 0, 0); border-right: 1px solid rgb(0, 0, 0);"> <b>OPERATING INCOME</b> </td> <td align="center" bgcolor="#e6efff" style="border-bottom: 2px solid rgb(0, 0, 0);" width="14%">&#160;</td> <td align="center" bgcolor="#e6efff" style="border-bottom: 2px solid rgb(0, 0, 0);" width="14%"> <b> 72,000 </b> </td> <td align="center" bgcolor="#e6efff" style="border-bottom: 2px solid rgb(0, 0, 0);" width="14%">&#160;</td> <td align="center" bgcolor="#e6efff" style="border-bottom: 2px solid rgb(0, 0, 0);" width="14%"> <b> 51,663 </b> </td> <td align="center" bgcolor="#e6efff" style="border-bottom: 2px solid rgb(0, 0, 0);" width="20%"> <b> (595,550) </b> </td> </tr> </table> </div> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">&#160;</p> <p>&#160;</p> <table border="0" cellpadding="0" cellspacing="0" style="border-color: black; border-collapse: collapse; font-size: 10pt; font-family: times new roman,times,serif;" width="100%"> <tr valign="top"> <td align="left" style="border-top: 2px solid rgb(0, 0, 0); border-right: 1px solid rgb(0, 0, 0);">&#160;</td> <td align="center" colspan="2" nowrap="nowrap" style="border-top: 2px solid rgb(0, 0, 0);"> <b> <i>Three-month ended</i> </b> </td> <td align="center" colspan="2" nowrap="nowrap" style="border-top: 2px solid rgb(0, 0, 0);"> <b> <i>Nine-month ended</i> </b> </td> <td align="center" nowrap="nowrap" style="border-top: 2px solid rgb(0, 0, 0);" width="20%"> <b> <i>Period from May 05, 2004</i> </b> </td> </tr> <tr valign="top"> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0); border-right: 1px solid rgb(0, 0, 0);">&#160;</td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="14%"> <b>Sept. 30, 2012</b> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="14%"> <b>Sept. 30, 2011</b> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="14%"> <b>Sept. 30, 2012</b> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="14%"> <b>Sept. 30, 2011</b> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="20%"> <b> <i>(inception) to Sep 30, 2011</i> </b> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff" style="border-right: 1px solid rgb(0, 0, 0);"> <b>OPERATING REVENUES</b> </td> <td align="center" bgcolor="#e6efff" width="14%">&#160;</td> <td align="center" bgcolor="#e6efff" width="14%">&#160;</td> <td align="center" bgcolor="#e6efff" width="14%">&#160;</td> <td align="center" bgcolor="#e6efff" width="14%">&#160;</td> <td align="center" bgcolor="#e6efff" width="20%">&#160;</td> </tr> <tr valign="top"> <td align="left" style="border-right: 1px solid rgb(0, 0, 0);">Proceeds from divestiture</td> <td align="center" width="14%"> - </td> <td align="center" width="14%"> 72,000 </td> <td align="center" width="14%"> - </td> <td align="center" width="14%"> 72,000 </td> <td align="center" width="20%"> 51,663 </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff" style="border-right: 1px solid rgb(0, 0, 0);"> <b>Total revenues</b> </td> <td align="center" bgcolor="#e6efff" width="14%"> - </td> <td align="center" bgcolor="#e6efff" width="14%"> <b> 72,000 </b> </td> <td align="center" bgcolor="#e6efff" width="14%"> - </td> <td align="center" bgcolor="#e6efff" width="14%"> <b> 72,000 </b> </td> <td align="center" bgcolor="#e6efff" width="20%"> <b> 51,663 </b> </td> </tr> <tr valign="top"> <td align="left" style="border-right: 1px solid rgb(0, 0, 0);"> <b>OPERATING EXPENSES</b> </td> <td align="center" width="14%">&#160;</td> <td align="center" width="14%">&#160;</td> <td align="center" width="14%">&#160;</td> <td align="center" width="14%">&#160;</td> <td align="center" width="20%">&#160;</td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff" style="border-right: 1px solid rgb(0, 0, 0);">Personnel costs</td> <td align="center" bgcolor="#e6efff" width="14%"> - </td> <td align="center" bgcolor="#e6efff" width="14%"> - </td> <td align="center" bgcolor="#e6efff" width="14%"> - </td> <td align="center" bgcolor="#e6efff" width="14%"> - </td> <td align="center" bgcolor="#e6efff" width="20%"> (211,228) </td> </tr> <tr valign="top"> <td align="left" style="border-right: 1px solid rgb(0, 0, 0);">Exploration costs</td> <td align="center" width="14%"> - </td> <td align="center" width="14%"> - </td> <td align="center" width="14%"> - </td> <td align="center" width="14%"> - </td> <td align="center" width="20%"> (420,985) </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff" style="border-right: 1px solid rgb(0, 0, 0);">Depreciation</td> <td align="center" bgcolor="#e6efff" width="14%"> - </td> <td align="center" bgcolor="#e6efff" width="14%"> - </td> <td align="center" bgcolor="#e6efff" width="14%"> - </td> <td align="center" bgcolor="#e6efff" width="14%"> - </td> <td align="center" bgcolor="#e6efff" width="20%"> - </td> </tr> <tr valign="top"> <td align="left" style="border-right: 1px solid rgb(0, 0, 0);">Consulting fees</td> <td align="center" width="14%"> - </td> <td align="center" width="14%"> - </td> <td align="center" width="14%"> - </td> <td align="center" width="14%"> (20,337) </td> <td align="center" width="20%"> - </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff" style="border-right: 1px solid rgb(0, 0, 0);">Administrative costs</td> <td align="center" bgcolor="#e6efff" width="14%"> - </td> <td align="center" bgcolor="#e6efff" width="14%"> - </td> <td align="center" bgcolor="#e6efff" width="14%"> - </td> <td align="center" bgcolor="#e6efff" width="14%"> - </td> <td align="center" bgcolor="#e6efff" width="20%"> (15,000) </td> </tr> <tr valign="top"> <td align="left" style="border-right: 1px solid rgb(0, 0, 0);"> <b>Total operating expenses</b> </td> <td align="center" width="14%"> - </td> <td align="center" width="14%"> <b> - </b> </td> <td align="center" width="14%"> - </td> <td align="center" width="14%"> <b> - </b> </td> <td align="center" width="20%"> <b> (647,213) </b> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff" style="border-bottom: 2px solid rgb(0, 0, 0); border-right: 1px solid rgb(0, 0, 0);"> <b>OPERATING INCOME</b> </td> <td align="center" bgcolor="#e6efff" style="border-bottom: 2px solid rgb(0, 0, 0);" width="14%">&#160;</td> <td align="center" bgcolor="#e6efff" style="border-bottom: 2px solid rgb(0, 0, 0);" width="14%"> <b> 72,000 </b> </td> <td align="center" bgcolor="#e6efff" style="border-bottom: 2px solid rgb(0, 0, 0);" width="14%">&#160;</td> <td align="center" bgcolor="#e6efff" style="border-bottom: 2px solid rgb(0, 0, 0);" width="14%"> <b> 51,663 </b> </td> <td align="center" bgcolor="#e6efff" style="border-bottom: 2px solid rgb(0, 0, 0);" width="20%"> <b> (595,550) </b> </td> </tr> </table> 0 72000 0 72000 51663 0 72000 0 72000 51663 0 0 0 0 -211228 0 0 0 0 -420985 0 0 0 0 0 0 0 0 -20337 0 0 0 0 0 -15000 0 0 0 0 -647213 72000 51663 -595550 72000 72000 <p align="justify"> <font style="font-size:10pt;"> <font style="font-family: times new roman,times,serif;"> <b>18.</b> <b>SUBSEQUENT EVENT(S)</b> </font> </font> </p> <p align="justify"> <font style="font-size:10pt;"> <font style="font-family: times new roman,times,serif;"> On October 23, 2012, DWM Petroleum exercised the option, subject to the seller taking certain actions and to successful negotiation of the share purchase agreement. The transaction prepayment of US$10 million will be netted against the final purchase price which remains to be negotiated. </font> </font> </p> &#160; <p align="justify">&#160;</p> 10000000 七次郎在线观看,久青草国产在线视频,,一夜七次郎免费线路