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CORPORATE INFORMATION</b> </font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">The consolidated financial statements comprise Manas Petroleum Corporation (&#8220;Manas&#8221; or the &#8220;Company&#8221;) and its subsidiaries (collectively, &#8220;the Group&#8221;) for the year ended December 31, 2011 and 2010 and the period from May 25, 2004 (inception) to December 31, 2011.</font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">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 accounting principles generally accepted in the United States of America (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.</font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">The Company, formerly known as Express Systems Corporation, was incorporated in the State of Nevada on July 9, 1998.</font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">On April 10, 2007, the Company completed the Exchange Transaction whereby it acquired its then sole subsidiary DWM Petroleum AG, Baar (&#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 finders&#8217; fees at the closing price of $3.20.</font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">The acquisition of DWM Petroleum was 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 accounting principles generally accepted in the United States of America, 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.</font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">The Company has a focused strategy on exploration and developing oil and gas resources in Central Asia (Tajikistan, Mongolia and the Kyrgyz Republic). In the Balkan Region (Albania) the Company holds an investment in associate (Petromanas Energy Inc.).</font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;"> <b>2. ACCOUNTING POLICIES</b> </font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">The Company&#8217;s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. 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.</font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;"> <b>Scope and methods of consolidation</b> </font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">The consolidated financial statements include Manas Petroleum Corporation and all companies which Manas Petroleum Corporation directly or indirectly controls (over 50% of voting interest). The companies included in the consolidation are listed in Note 15.</font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">Investments in which the Company exercises significant influence, but not control (generally 20% to 50% ownership) are accounted for using the equity method. The Group&#8217;s share of earnings or losses is included in consolidated net income and the Group&#8217;s share of the net assets is included in long-term assets. Investments where the Company holds less than 50% and has no ability to exercise significant influence are accounted for using the cost method, unless we have elected the fair value option in accordance with ASC 820.</font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;"> <b>Principles of consolidation</b> </font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">The annual closing date of the individual financial statements is December 31, with all cost and income items being reported in the period to which they relate. Intercompany income and expenses, including unrealized gross profits from internal Group transactions and intercompany receivables, payables and loans, have been eliminated. Companies acquired or divested in the course of the year are included in the consolidated financial statements as of the date of purchase respectively up to the date of sale.</font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">Non-controlling interests in the net assets of consolidated subsidiaries are reported as equity. The amount of net income attributable to the non-controlling interest is identified in the consolidated statements of operations and comprehensive loss.</font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;"> <b>Foreign currency translation</b> </font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">The consolidated financial statements of the Group are presented in US dollars (&#8220;USD&#8221; or &#8220;$&#8221;). The parent Company&#8217;s functional currency is the US dollar. Transactions in currencies other than the book currency are recorded using the appropriate exchange rate at the time of the transaction.</font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">The functional currency for all of our consolidated subsidiaries is US dollar. For our subsidiary in Tajikistan that keeps its books in a currency other than US dollars, the company re-measures the Tajik financials as follows: Monetary assets and liabilities are translated using the balance sheet period-end date, while for the non-monetary assets and liabilities the historical rate is used. Expenses are translated using the average rate for the reporting period, except for depreciation and amortization, where the historical rate of the related asset or liability applies. Foreign currency translation gains and losses are reported on the statement of operations.</font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;"> <b>Concentrations of risk</b> </font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">Financial instruments that potentially subject the Company to concentrations of credit risk are primarily cash and cash equivalents. Cash and cash equivalents are maintained with several financial institutions. Deposits held with banks may exceed the amount of insurance provided on such deposits. Generally these deposits may be redeemed upon demand. Cash and cash equivalents are subject to currency exchange rate fluctuations.</font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;"> <b>Cash and cash equivalents</b> </font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">Cash and cash equivalents include highly liquid investments with original maturities of three months or less (petty cash, bank balances and fiduciary deposits).</font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;"> <b>Equity investment measured at fair value</b> </font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">For one of our investment in associates, we have elected the fair value option in accordance with ASC 820 for the subsequent measurement of the investment in associate. The shares of this investment in associate are traded on an active market and the quoted market price represents a readily determinable fair value and can be taken as a basis for the calculation of the fair value. Since the shares of our investment in associate are held in escrow and are subject to hold periods and an escrow release schedule, we apply 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.</font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;"> <b>Accounts receivable and prepaid expenses</b> </font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">This position includes receivables from third parties, value added taxes, withholding taxes, loans to employees, prepaid expenses for goods and services not yet received as well as income from the current year that will not be received until the following year. The carrying amount of these assets approximates their fair value. There is currently no reserve for bad debt.</font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;"> <b>Tangible fixed assets, computer software and depreciation</b> </font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">Tangible fixed assets (office equipment, vehicles and furniture) and computer software are recorded at cost and are depreciated on a straight-line basis over the following estimated useful lives:</font> </font> </p> <div align="center"> <table border="2" cellpadding="3" cellspacing="0" style="border-color: black; border-collapse: collapse; font-size: 10pt;" width="50%"> <tr valign="top"> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">Office equipment</font> </font> </td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" width="35%"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">4 years</font> </font> </td> </tr> <tr valign="top"> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">Vehicles</font> </font> </td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" width="35%"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">5 - 6 years</font> </font> </td> </tr> <tr valign="top"> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">Furniture</font> </font> </td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" width="35%"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">5 years</font> </font> </td> </tr> <tr valign="top"> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">Computer software</font> </font> </td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" width="35%"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">2 years</font> </font> </td> </tr> </table> </div> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">Tangible fixed assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. The carrying value of a long-lived asset or asset group is considered to be impaired when the undiscounted expected cash flows from the asset or asset group are less than its carrying amount. In that event, an impairment loss is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined based on quoted market prices, where available, or is estimated as the present value of the expected future cash flows from the asset or asset group discounted at a rate commensurate with the risk involved.</font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;"> <b>Leased assets</b> </font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">Rentals payable under operating leases are charged to the income statement on a straight line basis.</font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;"> <b>Current liabilities</b> </font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">Current liabilities include current or renewable liabilities due within a maximum period of one year. Current liabilities are carried at their nominal value, which approximates fair market value. Exceptions are the Contingently Convertible Loan and the Debenture which were initially recorded at fair value and are subsequently carried at amortized cost and the warrant liability, which is carried at fair value.</font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;"> <b>Valuation of freestanding warrants</b> </font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;"> ASC 815, <i>Derivatives and Hedging</i> , requires measurement of free standing warrants classified as liability at fair value. In determining the appropriate fair value, the Company used a Black-Scholes model. These warrants are adjusted to reflect fair value at each period end, with any increase or decrease in the fair value being recorded in results of operations as change in fair value of warrants. </font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;"> <b>Fair value of financial instruments</b> </font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">The Company&#8217;s financial instruments consist of cash and cash equivalents, accounts receivable, investment in Petromanas and refundable deposits. The fair value of these financial instruments approximate their carrying value due to the short maturities of these instruments, unless otherwise noted.</font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;"> <b>Non-current liabilities</b> </font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">Non-current liabilities include all known liabilities as per year end, which can reliably be quantified with a due date of at least one year after the date of the balance sheet.</font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;"> <b>Income taxes</b> </font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">Taxes on income are accrued in the same period as the revenues and expenses to which they relate.</font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">Deferred taxes are calculated on the temporary differences that arise between the tax base of an asset or liability and its carrying value in the balance sheet of the Group companies prepared for consolidation purposes, with the exception of temporary differences arising on investments in foreign subsidiaries where the Group has plans to permanently reinvest profits into the foreign subsidiaries.</font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">Deferred tax assets on tax loss carry-forwards are only recognized to the extent that it is more likely than not, that future profits will be available and the tax loss carry-forward can be utilized.</font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">Changes to tax laws or tax rates enacted at the balance sheet date are taken into account in the determination of the applicable tax rate provided that they are likely to be applicable in the period when the deferred tax assets or tax liabilities are realized.</font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">The Group is required to pay income taxes in a number of countries. Significant judgment is required in determining income tax provisions and in evaluating tax positions.</font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">The Group recognizes the benefit of uncertain tax positions in the financial statements when it is more likely than not that the position will be sustained on examination by the tax authorities. The benefit recognized is the largest amount of tax benefit that is greater than 50 percent likely of being realized on settlement with the tax authority, assuming full knowledge of the position and all relevant facts. The Group adjusts its recognition of these uncertain tax benefits in the period in which new information is available impacting either the recognition of measurement of its uncertain tax positions. Interest and penalties related to uncertain tax positions are recognized as income tax expense.</font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;"> <b>Revenue recognition</b> </font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. We consider amounts to be earned once evidence of an arrangement has been obtained, services are delivered, fees are fixed or determinable, and collectability is reasonably assured. The Group&#8217;s revenue during the year 2008 consists of consulting fees from contracts with fees based on time and materials which are recognized as the services are performed and amounts are earned and options premiums received for the farm-out of the Group&#8217;s exploration interests. The Group did not earn revenue during the years 2010 and 2011.</font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;"> <b>Exploration and evaluation costs</b> </font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">For exploration and evaluation costs the successful efforts method is applied. All current costs represent geological and geophysical exploration costs and have therefore been charged to the statement of operations as incurred.</font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;"> <b>Related parties</b> </font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">Parties are considered to be related if one party directly or indirectly controls, is controlled by, or is under common control with the other party, if it has an interest in the other party that gives it significant influence over the party, if it has joint control over the party, or if it is an associate or a joint venture. 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Fair values of awards granted under the share option plans are estimated using a Black-Scholes option pricing model. The model input assumptions are determined based on available internal and external data sources. The risk free rate used in the model is based on the US treasury rate for the expected contractual term. Expected volatility is based on the Company&#8217;s own historical share price volatility, since the Company&#8217;s share price data can be traced back to April 2, 2007. For restricted share grants, we calculate the fair value applying a prorated discount of 12% on the share price at the grant date over the restriction period. 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This stock option plan has the purpose (a) to ensure the retention of the services of existing executive personnel, key employees, and Directors of the Company or its affiliates; (b) to attract and retain competent new executive personnel, key employees, consultants and Directors; (c) to provide incentive to all such personnel, employees, consultants and Directors to devote their utmost effort and skill to the advancement and betterment of the Company, by permitting them to participate in the ownership of the Company and thereby in the success and increased value of the Company; and (d) allowing vendors, service providers, consultants, business associates, strategic partners, and others, with or that the Board of Directors anticipates will have an important business relationship with the Company or its affiliates, the opportunity to participate in the ownership of the Company and thereby to have an interest in the success and increased value of the Company.</font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">This plan constitutes a single &#8220;omnibus&#8221; plan, the Nonqualified Stock Option Plan (&#8220;NQSO Plan&#8221;) which provides grants of nonqualified stock options (&#8220;NQSOs&#8221;). 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For employees fair value is estimated at the grant date and for non-employees fair value is re-measured at each reporting date. Compensation costs for unvested stock options and unvested share grants are expensed over the requisite service period on a straight-line basis.</font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;"> <b>Grants</b> </font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;"> <b>2010</b> </font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">On February 24, 2010, the Company re-priced an aggregate of 4,350,000 stock options originally granted to three of our directors and/or officers on May 2, 2007 from an original exercise price of $4.00 to $0.70. We also re-priced 400,000 stock options granted to one of our directors and officers on June 25, 2007 from an original exercise price of $5.50 to $0.70. The cancellation of these stock options accompanied by the concurrent stock option grants (replacement awards) was accounted for as follows: (i) for the vested options, the incremental fair value, which is measured as the excess fair value of the modified awards over the fair value of the original awards at the time of modification, was recorded as compensation expense, (ii) regarding the unvested options, the re-pricing did not change our expectation that the awards will ultimately vest (type 1 modification) and incremental costs are recorded accordingly over the remaining vesting period. For the cancellation and replacement of the stock option grants, the company expensed $1,441,321 immediately for options that had already vested and $50,038 over the remaining vesting period for options that had not vested yet.</font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">On February 24, 2010, the Company granted stock options to a director of one of our subsidiaries to purchase an aggregate of 1,000,000 shares of our common stock at an exercise price of $0.70 per share for a term expiring February 24, 2015. The options vest in 12 quarterly installments, subject to proration to account for any partial calendar quarter at the beginning of the vesting period, with the first installment to vest on the first day of the first full calendar quarter after the date of the optionee&#8217;s stock option agreement, and with each subsequent installment to vest on the first day of each calendar quarter thereafter. The grant is subject to the execution of stock option agreements by the optionees and the terms of our revised 2008 stock option plan. As of October 1, 2010, this director of one of our subsidiaries has become an employee of our company. The fair value as of October 1, 2010 will be recorded over the remaining vesting period.</font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">On June 2, 2010, the Company granted stock options to a consultant to purchase an aggregate of 150,000 shares of our common stock at an exercise price of $0.80 per share for a term expiring June 2, 2013. The options vest in 12 quarterly installments, subject to proration to account for any partial calendar quarter after the date of the optionee&#8217;s stock option agreement, and with each subsequent installment to vest on the first day of each calendar quarter thereafter. On July 21, 2010, the consultant ceased to act as a consultant of the company, his options were cancelled and we issued 150,000 warrants with the same terms instead. As vesting is no longer tied to the services rendered by the consultant, we expensed $39,839 to account for the fair value of the warrants on July 21, 2010.</font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">On September 14, 2010, the Company granted to one of our employees according to an employment agreement dated May 1, 2010 vested 100,000 shares of our common stock, which are subject to a hold period until May 1, 2011. On the first day of anniversary date beginning with May 1, 2011, he is to receive an additional vested 100,000 shares of our common stock until 2014. On May 1, 2015, he is to receive vested 200,000 shares of our common stock. All granted shares are subject to one-year hold period from the date of each grant. To account for this share grant, we made the following assumptions: the market price of the shares at the grant date is the basis for all grants (initial and potential grants in the future). The fair value of the shares is determined by applying a discount of 12% for the one year hold period. The fair value of the grant was determined to be $326,473 and will be expensed over the requisite service period.</font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">On September 16, 2010, the Company granted stock options to a director to purchase 500,000 shares of our common stock at an exercise price of $0.52 per share and 500,000 shares of our common stock at an exercise price of $0.65 per share until September 16, 2020. 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The shares were issued on January 10, 2011.</font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">On December 6, 2010, the Company issued 2,000,000 shares of our common stock to a consultant in consideration for his consulting services. Half the shares are restricted from trading for 12 months, while the other half are restricted from trading for 24 months. The fair value of the share grant was calculated by discounting the market price on the grant date by 12% pro rata temporis to account for the trading restrictions. 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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.</font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">The following table summarizes the payments of issuance costs:</font> </font> </p> <div align="center"> <table border="0" cellpadding="0" cellspacing="0" style="border-color: black; border-collapse: collapse; font-size: 10pt;" width="40%"> <tr valign="top"> <td align="left" bgcolor="#e6efff"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">Agent commission</font> </font> </td> <td align="right" bgcolor="#e6efff" width="50%"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">1,552,093</font> </font> </td> </tr> <tr valign="top"> <td align="left"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">Legal</font> </font> </td> <td align="right" width="50%"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">448,857</font> </font> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">Audit</font> </font> </td> <td align="right" bgcolor="#e6efff" width="50%"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">128,876</font> </font> </td> </tr> <tr valign="top"> <td align="left"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">Other</font> </font> </td> <td align="right" width="50%"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">218,424</font> </font> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;"> <b>Total issuance costs (cash)</b> </font> </font> </td> <td align="right" bgcolor="#e6efff" width="50%"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;"> <b>2,348,250</b> </font> </font> </td> </tr> </table> </div> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">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 8 for the discussion of the warrants.</font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;"> <b>8. WARRANTS</b> </font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">The Company&#8217;s risk management objectives are to ensure that business and financial exposures to risk that have been identified and measured are minimized using the most effective and efficient methods to reduce, transfer and, when possible, eliminate such exposures. Operating decisions contemplate associated risks and management strives to structure proposed transactions to avoid or reduce risk whenever possible. 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SALE OF MANAS ADRIATIC</b> </font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">On February 12, 2010 the Company signed a formal share purchase agreement with WWI Resources Ltd., a Canadian public company (TSXV: PMI). On February 24, 2010, the Company completed the sale of all of the issued and outstanding shares of Manas Adriatic to WWI Resources Ltd. At closing, WWI Resources changed its name to Petromanas Energy Inc. (&#8220;Petromanas&#8221;).</font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">As consideration for the shares of Manas Adriatic, Petromanas advanced to DWM Petroleum AG, the Company&#8217;s wholly-owned subsidiary, the sum of $917,723 in December 2009 in payment of expenses, and it paid to DWM Petroleum CAD $2,000,000 ($1,937,396) in cash on March 3, 2010, $350,000 on May 17, 2010 for compensation of operational expenses in Albania for January and February 2010. In addition, Petromanas issued to DWM Petroleum 100,000,000 Petromanas common shares. At closing, the purchase agreement provided that DWM Petroleum would be entitled to receive an aggregate of up to an additional 150,000,000 Petromanas common shares as follows:</font> </font> </p> <ul style="text-align: justify;"> <li> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">100,000,000 Petromanas common shares upon completion of the first well on the Albanian project by Manas Adriatic, or on the date that is 16 months after the Closing Date, whichever occurs first;</font> </font> </li> </ul> <ul style="text-align: justify;"> <li> <p> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">25,000,000 Petromanas common shares if, on or before the tenth anniversary of the Closing Date, Manas Adriatic receives a report prepared pursuant to Canada&#8217;s National Instrument 51-101, Standards of Disclosure for Oil and Gas Activities, confirming that the Albanian project has 2P reserves of not less than 50,000,000 barrels of oil (BOE); and</font> </font> </p> </li> <li> <p> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">if, on or before the tenth anniversary of the Closing Date, Manas Adriatic receives a report prepared pursuant to Canada&#8217;s National Instrument 51-101, Standards of Disclosure for Oil and Gas Activities, confirming that the Albanian project has 2P reserves in excess of 50,000,000 BOEs, then for each 50,000,000 BOEs over and above 50,000,000 BOEs, Petromanas will be required to issue 500,000 Petromanas common shares to DWM Petroleum to a maximum of 25,000,000 Petromanas common shares.</font> </font> </p> </li> </ul> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">At closing, Petromanas also funded Manas Adriatic with $8,500,000 to be used by Manas Adriatic to repay advances previously made by DWM Petroleum and its predecessors in respect of the Albanian project and Petromanas appointed to its six member board of directors three directors who were nominated by our company (Michael Velletta, Heinz Scholz and Peter-Mark Vogel). Also at closing, the board of directors of Petromanas appointed Erik Herlyn (our former Chief Executive Officer) and Ari Muljana (our Chief Financial Officer) as the Chief Executive Officer and Chief Financial Officer, respectively, of Petromanas. Erik Herlyn ceased to act as Chief Executive Officer of Petromanas on July 15, 2010; Ari Muljana ceased to act as Chief Financial Officer of Petromanas on August 31, 2010, respectively.</font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">Contemporaneously with the completion of its purchase of Manas Adriatic, Petromanas completed a private placement offering in which it sold 100,000,000 of its common shares for gross proceeds of CAD $25,000,000 (approximately $24,518,000). After adjustment for the 100,000,000 common shares issued to DWM Petroleum at the completion of the sale of Manas Adriatic and the 100,000,000 common shares issued in this private placement, Petromanas had 328,231,466 common shares issued and outstanding, of which DWM Petroleum owned 100,000,000, or approximately 30.47% .</font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">Immediately following the closing, the Company analyzed whether it had obtained control of Petromanas at closing. In conducting this analysis, the Company&#8217;s management considered beneficial ownership of voting power (both diluted and undiluted), composition of the Petromanas board of directors and management, the terms of the purchase agreement and the relative size of Petromanas and Manas Adriatic. 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border-style: solid; border-color: rgb(0, 0, 0);" width="50%"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">USD</font> </font> </td> </tr> <tr valign="top"> <td align="left" style="border-width: 1px; border-style: solid; border-color: rgb(0, 0, 0);"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">Cash</font> </font> </td> <td align="left" style="border-width: 1px; border-style: solid; border-color: rgb(0, 0, 0);" width="30%"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">CAD$ 2,000,000</font> </font> </td> <td align="right" style="border-width: 1px; border-style: solid; border-color: rgb(0, 0, 0);" width="50%"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">$1,937,396</font> </font> </td> </tr> <tr valign="top"> <td align="left" style="border-width: 1px; border-style: solid; border-color: rgb(0, 0, 0);"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">Cash Advance Payment</font> </font> </td> <td align="left" style="border-width: 1px; border-style: solid; border-color: rgb(0, 0, 0);" width="30%">&#160;</td> <td align="right" style="border-width: 1px; border-style: solid; border-color: rgb(0, 0, 0);" width="50%"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">$917,698</font> </font> </td> </tr> <tr valign="top"> <td align="left" style="border-width: 1px; border-style: solid; border-color: rgb(0, 0, 0);"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">Cash Receipt on May 17, 2010</font> </font> </td> <td align="left" style="border-width: 1px; border-style: solid; border-color: rgb(0, 0, 0);" width="30%"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">compensation for operational expenses for January and February in Albania to be borne by Petromanas</font> </font> </td> <td align="right" style="border-width: 1px; border-style: solid; border-color: rgb(0, 0, 0);" width="50%"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">$350,000</font> </font> </td> </tr> <tr valign="top"> <td align="left" rowspan="2" style="border-width: 1px; border-style: solid; border-color: rgb(0, 0, 0);"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">100,000,000 WWI Resources common shares received on March 3, 2010</font> </font> </td> <td align="left" rowspan="2" style="border-width: 1px; border-style: solid; border-color: rgb(0, 0, 0);" width="30%"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">100,000,000 times quoted market price at February 25, 2010 of CAD$0.30 (dilution of issuable 100,000,000 shares below included) discounted by an effective discount of</font> </font> </td> <td align="left" style="border-left: 1px solid rgb(0, 0, 0); border-right: 1px solid rgb(0, 0, 0);" width="50%"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;"> CAD$0.30 x 100,000,000 (USD / CAD : 0.94763 on Feb 25, 2010) on Feb 25, 2010) <br/> discounted by 16.23% </font> </font> </td> </tr> <tr valign="top"> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0); border-left: 1px solid rgb(0, 0, 0); border-right: 1px solid rgb(0, 0, 0);" width="50%"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">$23,815,101</font> </font> </td> </tr> </table> </div> <div> <table border="0" cellpadding="3" cellspacing="0" style="border-color: black; border-collapse: collapse; font-size: 10pt;" width="100%"> <tr valign="top"> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0); border-left: 1px solid rgb(0, 0, 0); border-right: 1px solid rgb(0, 0, 0);">&#160;</td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0); border-left: 1px solid rgb(0, 0, 0); border-right: 1px solid rgb(0, 0, 0);" width="30%"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">16.23%*</font> </font> </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0); border-left: 1px solid rgb(0, 0, 0); border-right: 1px solid rgb(0, 0, 0);" width="50%">&#160;</td> </tr> <tr valign="top"> <td align="left" rowspan="2" style="border-bottom: 1px solid rgb(0, 0, 0); border-left: 1px solid rgb(0, 0, 0); border-right: 1px solid rgb(0, 0, 0);"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">100,000,000 WWI Resources common shares that will be received the latest after 16 months after the Closing date and are not contingent</font> </font> </td> <td align="left" rowspan="2" style="border-bottom: 1px solid rgb(0, 0, 0); border-left: 1px solid rgb(0, 0, 0); border-right: 1px solid rgb(0, 0, 0);" width="30%"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">100,000,000 times quoted market price at February 25, 2010 of CAD$0.30 (dilution of issuable 100,000,000 shares included) discounted by an effective discount of 20.53%*</font> </font> </td> <td align="left" style="border-left: 1px solid rgb(0, 0, 0); border-right: 1px solid rgb(0, 0, 0);" width="50%"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;"> CAD$0.30 x 100,000,000 (USD / CAD : 0.94763 on Feb 25, 2010) on Feb 25, 2010) <br/> discounted by 20.53% </font> </font> </td> </tr> <tr valign="top"> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0); border-left: 1px solid rgb(0, 0, 0); border-right: 1px solid rgb(0, 0, 0);" width="50%"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">$22,591,720</font> </font> </td> </tr> <tr valign="top"> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0); border-left: 1px solid rgb(0, 0, 0); border-right: 1px solid rgb(0, 0, 0);"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">50,000,000 WWI Resources common shares which are contingent.</font> </font> </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0); border-left: 1px solid rgb(0, 0, 0); border-right: 1px solid rgb(0, 0, 0);" width="30%"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">These will be accounted for under ASC 450 that is an acceptable approach under EITF 09-4. As this is a gain contingency it will only be recorded when it can be realized.</font> </font> </td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0); border-left: 1px solid rgb(0, 0, 0); border-right: 1px solid rgb(0, 0, 0);" width="50%"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">$0</font> </font> </td> </tr> <tr valign="top"> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0); border-left: 1px solid rgb(0, 0, 0); border-right: 1px solid rgb(0, 0, 0);"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">Push down of past exploration costs incurred as per agreement</font> </font> </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0); border-left: 1px solid rgb(0, 0, 0); border-right: 1px solid rgb(0, 0, 0);" width="30%">&#160;</td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0); border-left: 1px solid rgb(0, 0, 0); border-right: 1px solid rgb(0, 0, 0);" width="50%"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">$7,012,222</font> </font> </td> </tr> <tr valign="top"> <td align="left" rowspan="4" style="border-left: 1px solid rgb(0, 0, 0); border-right: 1px solid rgb(0, 0, 0); border-bottom: 1px solid rgb(0, 0, 0);"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">Forgiveness of IC payables</font> </font> </td> <td align="left" rowspan="4" style="border-left: 1px solid rgb(0, 0, 0); border-right: 1px solid rgb(0, 0, 0); border-bottom: 1px solid rgb(0, 0, 0);" width="30%">&#160;</td> <td align="left" style="border-left: 1px solid rgb(0, 0, 0); border-right: 1px solid rgb(0, 0, 0);" width="50%"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">Total liabilities Manas Adriatic GmbH&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; $(11,949,704)</font> </font> </td> </tr> <tr valign="top"> <td align="left" style="border-left: 1px solid rgb(0, 0, 0); border-right: 1px solid rgb(0, 0, 0);" width="50%">&#160;</td> </tr> <tr valign="top"> <td align="left" style="border-left: 1px solid rgb(0, 0, 0); border-right: 1px solid rgb(0, 0, 0);" width="50%"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">Assumed liabilities by Petromanas&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; &#160;$8,500,000</font> </font> </td> </tr> <tr> <td align="right" style="border-left: 1px solid rgb(0, 0, 0); border-right: 1px solid rgb(0, 0, 0); border-bottom: 1px solid rgb(0, 0, 0);" width="50%"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">$(3,449,704)</font> </font> </td> </tr> <tr valign="top"> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0); border-left: 1px solid rgb(0, 0, 0); border-right: 1px solid rgb(0, 0, 0);"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">Net liabilities of Manas Adriatic GmbH as of 2/24/2010</font> </font> </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0); border-left: 1px solid rgb(0, 0, 0); border-right: 1px solid rgb(0, 0, 0);" width="30%">&#160;</td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0); border-left: 1px solid rgb(0, 0, 0); border-right: 1px solid rgb(0, 0, 0);" width="50%"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">$4,676,485</font> </font> </td> </tr> <tr valign="top"> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0); border-left: 1px solid rgb(0, 0, 0); border-right: 1px solid rgb(0, 0, 0);"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;"> <b>Gain on sale of</b> <b>subsidiary</b> </font> </font> </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0); border-left: 1px solid rgb(0, 0, 0); border-right: 1px solid rgb(0, 0, 0);" width="30%">&#160;</td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0); border-left: 1px solid rgb(0, 0, 0); border-right: 1px solid rgb(0, 0, 0);" width="50%"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;"> <b>$57,850,918</b> </font> </font> </td> </tr> </table> </div> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">*The quoted market price on February 25, 2010 was CAD $0.39. In calculating the fair value per share we have taken into account the dilution effect of the additional 100,000,000 shares that are issuable 16 months after the closing date the latest. Furthermore, the shares are subject to an escrow agreement and their fair value was therefore discounted based on the escrow release schedule. The annual interest rate applied to discount the diluted quoted market price was 12% and represents cost of opportunity at which the Company may raise debt.</font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">Net cash proceeds from the sale of Manas Adriatic GmbH amounted to a total of CAD $2,000,000 ($1,937,396), $8,500,000 to be used by Manas Adriatic to repay advances made by DWM Petroleum and $350,000 for compensation of operational expenses in Albania for January and February 2010 reduced by $21,586, the cash owned by Manas Adriatic consolidated as of February 24, 2010.</font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;"> <b>10. INVESTMENT IN PETROMANAS</b> </font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">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. After closing, the Share Purchase Agreement was amended by an amending agreement dated May 25, 2010. As a result of this transaction, the Company owns 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 June 24, 2011 and bore a legend to that effect. 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 in installments over a two year period (see Note above).</font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">DWM currently owns and controls 200,000,000 common shares of Petromanas and it has the right to acquire a further 50,000,000 common shares upon the occurrence of certain conditions. The 200,000,000 common shares represent approximately 31.7% of the issued and outstanding common shares of Petromanas.</font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">Since the shares were subject to a hold period of thirteen months, and because the shares were also deposited into escrow and subject to a fixed escrow release schedule, the Company has 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.</font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">The quoted market price for one common share of Petromanas on December 31, 2011 was CAD $0.155 (approximately $0.152) .</font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">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 3.16% .</font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">During the twelve-month period ended December 31, 2011, we recorded $42,891,820 unrealized loss on investment in associate (Petromanas) and $25,851,061 unrealized gain on investment in associate (Petromanas) for the same period in the previous year.</font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">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.</font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">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. This information would be necessary if the Company were to disclose selected financial data of Petromanas in accordance with US GAAP in timely manner.</font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">The Company has previously requested that Petromanas provide detailed financial records in order to enable the Company to reconcile between Canadian GAAP and US GAAP but Petromanas has refused, stating that Petromanas is a public company and required to comply with securities legislation and TSX Venture Exchange rules and it cannot provide selective disclosure to any shareholder, nor can it permit its results to be publicly disclosed through any document published by a third party until after it has publicly disseminated the information.</font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">Based on the foregoing, the Company has concluded that it does not have the ability to exercise significant influence over Petromanas&#8217; (the investee&#8217;s) operating and financial policies.</font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"><font style="font-family: times new roman,times,serif;"><b>11. RELATED PARTY DISCLOSURE</b> </font> </font></p> <p align="justify"> <font style="font-size: 10pt;"><font style="font-family: times new roman,times,serif;">The consolidated financial statements include the financial statements of Manas Petroleum Corporation and the entities listed in the following table:</font> </font></p> <table border="0" cellpadding="0" cellspacing="0" style="border-color: black; border-collapse: collapse; font-size: 10pt;" width="100%"> <tr valign="top"> <td align="left"> &#160;</td> <td align="left" width="15%"> &#160;</td> <td align="center" width="15%"> <font style="font-size: 10pt;"><font style="font-family: times new roman,times,serif;"><b>Equity share</b> </font> </font></td> <td align="center" width="15%"> <font style="font-size: 10pt;"><font style="font-family: times new roman,times,serif;"><b>Equity share</b> </font> </font></td> </tr> <tr valign="top"> <td align="left" style="border-bottom: 2px solid rgb(0, 0, 0);"> <font style="font-size: 10pt;"><font style="font-family: times new roman,times,serif;"><b>Company</b> </font> </font></td> <td align="left" style="border-bottom: 2px solid rgb(0, 0, 0);" width="15%"> <font style="font-size: 10pt;"><font style="font-family: times new roman,times,serif;"><b>Country</b> </font> </font></td> <td align="center" style="border-bottom: 2px solid rgb(0, 0, 0);" width="15%"> <font style="font-size: 10pt;"><font style="font-family: times new roman,times,serif;"><b>Dec 31, 2011</b> </font> </font></td> <td align="center" style="border-bottom: 2px solid rgb(0, 0, 0);" width="15%"> <font style="font-size: 10pt;"><font style="font-family: times new roman,times,serif;"><b>Dec 31, 2010</b> </font> </font></td> </tr> <tr bgcolor="#e6efff" valign="top"> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);"> <font style="font-size: 10pt;"><font style="font-family: times new roman,times,serif;">DWM Petroleum AG, Baar (1)</font> </font></td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="15%"> <font style="font-size: 10pt;"><font style="font-family: times new roman,times,serif;">Switzerland</font> </font></td> <td align="center" style="border-bottom: 1px solid rgb(0, 0, 0);" width="15%"> <font style="font-size: 10pt;"><font style="font-family: times new roman,times,serif;"><b>100%</b> </font> </font></td> <td align="center" style="border-bottom: 1px solid rgb(0, 0, 0);" width="15%"> <font style="font-size: 10pt;"><font style="font-family: times new roman,times,serif;"><b>100%</b> </font> </font></td> </tr> <tr valign="top"> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);"> <font style="font-size: 10pt;"><font style="font-family: times new roman,times,serif;">DWM Energy AG Baar (2)</font> </font></td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="15%"> <font style="font-size: 10pt;"><font style="font-family: times new roman,times,serif;">Switzerland</font> </font></td> <td align="center" style="border-bottom: 1px solid rgb(0, 0, 0);" width="15%"> <font style="font-size: 10pt;"><font style="font-family: times new roman,times,serif;"><b>100%</b> </font> </font></td> <td align="center" style="border-bottom: 1px solid rgb(0, 0, 0);" width="15%"> <font style="font-size: 10pt;"><font style="font-family: times new roman,times,serif;"><b>100%</b> </font> </font></td> </tr> <tr bgcolor="#e6efff" valign="top"> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);"> <font style="font-size: 10pt;"><font style="font-family: times new roman,times,serif;">Petromanas Energy Inc., Vancouver (3)</font> </font></td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="15%"> <font style="font-size: 10pt;"><font style="font-family: times new roman,times,serif;">Canada</font> </font></td> <td align="center" style="border-bottom: 1px solid rgb(0, 0, 0);" width="15%"> <font style="font-size: 10pt;"><font style="font-family: times new roman,times,serif;"><b>31.70%</b> </font> </font></td> <td align="center" style="border-bottom: 1px solid rgb(0, 0, 0);" width="15%"> <font style="font-size: 10pt;"><font style="font-family: times new roman,times,serif;"><b>32.29%</b> </font> </font></td> </tr> <tr valign="top"> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);"> <font style="font-size: 10pt;"><font style="font-family: times new roman,times,serif;">CJSC South Petroleum Company, Jalalabat (4)</font> </font></td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="15%"> <font style="font-size: 10pt;"><font style="font-family: times new roman,times,serif;">Kyrgyz Republic</font> </font></td> <td align="center" style="border-bottom: 1px solid rgb(0, 0, 0);" width="15%"> <font style="font-size: 10pt;"><font style="font-family: times new roman,times,serif;"><b>25%</b> </font> </font></td> <td align="center" style="border-bottom: 1px solid rgb(0, 0, 0);" width="15%"> <font style="font-size: 10pt;"><font style="font-family: times new roman,times,serif;"><b>25%</b> </font> </font></td> </tr> <tr bgcolor="#e6efff" valign="top"> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);"> <font style="font-size: 10pt;"><font style="font-family: times new roman,times,serif;">CJSC Somon Oil Company, Dushanbe (5)</font> </font></td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="15%"> <font style="font-size: 10pt;"><font style="font-family: times new roman,times,serif;">Republic of Tajikistan</font> </font></td> <td align="center" style="border-bottom: 1px solid rgb(0, 0, 0);" width="15%"> <font style="font-size: 10pt;"><font style="font-family: times new roman,times,serif;"><b>90%</b> </font> </font></td> <td align="center" style="border-bottom: 1px solid rgb(0, 0, 0);" width="15%"> <font style="font-size: 10pt;"><font style="font-family: times new roman,times,serif;"><b>90%</b> </font> </font></td> </tr> <tr valign="top"> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);"> <font style="font-size: 10pt;"><font style="font-family: times new roman,times,serif;">Manas Petroleum of Chile Corporation, Victoria (6)</font> </font></td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="15%"> <font style="font-size: 10pt;"><font style="font-family: times new roman,times,serif;">Canada</font> </font></td> <td align="center" style="border-bottom: 1px solid rgb(0, 0, 0);" width="15%"> <font style="font-size: 10pt;"><font style="font-family: times new roman,times,serif;"><b>0%</b> </font> </font></td> <td align="center" style="border-bottom: 1px solid rgb(0, 0, 0);" width="15%"> <font style="font-size: 10pt;"><font style="font-family: times new roman,times,serif;"><b>100%</b> </font> </font></td> </tr> <tr bgcolor="#e6efff" valign="top"> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);"> <font style="font-size: 10pt;"><font style="font-family: times new roman,times,serif;">Manas Management Services Ltd., Nassau (7)</font> </font></td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="15%"> <font style="font-size: 10pt;"><font style="font-family: times new roman,times,serif;">Bahamas</font> </font></td> <td align="center" style="border-bottom: 1px solid rgb(0, 0, 0);" width="15%"> <font style="font-size: 10pt;"><font style="font-family: times new roman,times,serif;"><b>100%</b> </font> </font></td> <td align="center" style="border-bottom: 1px solid rgb(0, 0, 0);" width="15%"> <font style="font-size: 10pt;"><font style="font-family: times new roman,times,serif;"><b>100%</b> </font> </font></td> </tr> <tr valign="top"> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);"> <font style="font-size: 10pt;"><font style="font-family: times new roman,times,serif;">Manas Chile Energia Limitada, Santiago (8)</font> </font></td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="15%"> <font style="font-size: 10pt;"><font style="font-family: times new roman,times,serif;">Chile</font> </font></td> <td align="center" style="border-bottom: 1px solid rgb(0, 0, 0);" width="15%"> <font style="font-size: 10pt;"><font style="font-family: times new roman,times,serif;"><b>100%</b> </font> </font></td> <td align="center" style="border-bottom: 1px solid rgb(0, 0, 0);" width="15%"> <font style="font-size: 10pt;"><font style="font-family: times new roman,times,serif;"><b>100%</b> </font> </font></td> </tr> <tr bgcolor="#e6efff" valign="top"> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);"> <font style="font-size: 10pt;"><font style="font-family: times new roman,times,serif;">Gobi Energy Partners LLC, Ulaan Baator (9)</font> </font></td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="15%"> <font style="font-size: 10pt;"><font style="font-family: times new roman,times,serif;">Mongolia</font> </font></td> <td align="center" style="border-bottom: 1px solid rgb(0, 0, 0);" width="15%"> <font style="font-size: 10pt;"><font style="font-family: times new roman,times,serif;"><b>100%</b> </font> </font></td> <td align="center" style="border-bottom: 1px solid rgb(0, 0, 0);" width="15%"> <font style="font-size: 10pt;"><font style="font-family: times new roman,times,serif;"><b>100%</b> </font> </font></td> </tr> <tr valign="top"> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);"> <font style="font-size: 10pt;"><font style="font-family: times new roman,times,serif;">Gobi Energy Partners GmbH (10)</font> </font></td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="15%"> <font style="font-size: 10pt;"><font style="font-family: times new roman,times,serif;">Switzerland</font> </font></td> <td align="center" style="border-bottom: 1px solid rgb(0, 0, 0);" width="15%"> <font style="font-size: 10pt;"><font style="font-family: times new roman,times,serif;"><b>100%</b> </font> </font></td> <td align="center" style="border-bottom: 1px solid rgb(0, 0, 0);" width="15%"> <font style="font-size: 10pt;"><font style="font-family: times new roman,times,serif;"><b>100%</b> </font> </font></td> </tr> </table> <br /> <table border="0" cellpadding="0" cellspacing="0" style="border-color: black; border-collapse: collapse; font-size: 10pt;" width="100%"> <tr> <td valign="top" width="5%"> <font style="font-size: 10pt;"><font style="font-family: times new roman,times,serif;">(1)</font> </font></td> <td> <p align="justify"> <font style="font-size: 10pt;"><font style="font-family: times new roman,times,serif;">Included Branch in Albania that was sold in February 2010</font> </font></p> </td> </tr> <tr> <td valign="top" width="5%"> <font style="font-size: 10pt;"><font style="font-family: times new roman,times,serif;">(2)</font> </font></td> <td> <p align="justify"> <font style="font-size: 10pt;"><font style="font-family: times new roman,times,serif;">Founded in 2007 (formerly Manas Petroleum AG).</font> </font></p> </td> </tr> <tr> <td valign="top" width="5%"> <font style="font-size: 10pt;"><font style="font-family: times new roman,times,serif;">(3)</font> </font></td> <td> <p align="justify"> <font style="font-size: 10pt;"><font style="font-family: times new roman,times,serif;">Petromanas Energy Inc. participation resulted from partial sale of Manas Adriatic GmbH; fair value method applied.</font> </font></p> </td> </tr> <tr> <td valign="top" width="5%"> <font style="font-size: 10pt;"><font style="font-family: times new roman,times,serif;">(4)</font> </font></td> <td> <p align="justify"> <font style="font-size: 10pt;"><font style="font-family: times new roman,times,serif;">CJSC South Petroleum Company was founded by DWM Petroleum AG; equity method investee that is not consolidated</font> </font></p> </td> </tr> <tr> <td valign="top" width="5%"> <font style="font-size: 10pt;"><font style="font-family: times new roman,times,serif;">(5)</font> </font></td> <td> <p align="justify"> <font style="font-size: 10pt;"><font style="font-family: times new roman,times,serif;">CJSC Somon Oil Company was founded by DWM Petroleum AG</font> </font></p> </td> </tr> <tr> <td valign="top" width="5%"> <font style="font-size: 10pt;"><font style="font-family: times new roman,times,serif;">(6)</font> </font></td> <td> <p align="justify"> <font style="font-size: 10pt;"><font style="font-family: times new roman,times,serif;">Founded in 2008, the company was dormant and did not have assets or liabilities. In order to prevent the cost of winding up, the shares were transferred to a member of the board at no cost.</font> </font></p> </td> </tr> <tr> <td valign="top" width="5%"> <font style="font-size: 10pt;"><font style="font-family: times new roman,times,serif;">(7)</font> </font></td> <td> <p align="justify"> <font style="font-size: 10pt;"><font style="font-family: times new roman,times,serif;">Founded in 2008</font> </font></p> </td> </tr> <tr> <td valign="top" width="5%"> <font style="font-size: 10pt;"><font style="font-family: times new roman,times,serif;">(8)</font> </font></td> <td> <p align="justify"> <font style="font-size: 10pt;"><font style="font-family: times new roman,times,serif;">Manas Chile Energia Limitada was founded by Manas Management Services Ltd.; founded in 2008</font> </font></p> </td> </tr> <tr> <td valign="top" width="5%"> <font style="font-size: 10pt;"><font style="font-family: times new roman,times,serif;">(9)</font> </font></td> <td> <p align="justify"> <font style="font-size: 10pt;"><font style="font-family: times new roman,times,serif;">Gobi Energy Partners LLC was founded in 2009 by DWM Petroleum AG (formerly Manas Gobi LLC). Gobi Energy Partners GmbH holds record title to 100% of Gobi Energy Partners LLC.</font> </font></p> </td> </tr> <tr> <td valign="top" width="5%"> <font style="font-size: 10pt;"><font style="font-family: times new roman,times,serif;">(10)</font> </font></td> <td> <p align="justify"> <font style="font-size: 10pt;"><font style="font-family: times new roman,times,serif;">Gobi Energy Partners GmbH was founded in 2010. DWM Petroleum AG holds record title to 100% of Gobi Energy Partners GmbH, of which 26% is held in trust for others. The Company determined that no value needs to be ascribed to the non-controlling interest.</font> </font></p> </td> </tr> </table> <p align="justify"> <font style="font-size: 10pt;"><font style="font-family: times new roman,times,serif;">Ownership and voting right percentages in the subsidiaries stated above are identical to the equity shares.</font> </font></p> <p align="justify"> <font style="font-size: 10pt;"><font style="font-family: times new roman,times,serif;"><b>CJSC South Petroleum Company</b> </font> </font></p> <p align="justify"> <font style="font-size: 10pt;"><font style="font-family: times new roman,times,serif;">On October 4, 2006, a contract was signed with Santos International Holdings PTY Ltd. (&#8220;Santos&#8221;) to sell a 70% interest in CJSC South Petroleum Company, Jalalabat for a payment of $4,000,000, a two phase work program totalling $53,500,000 (Phase 1: $11,500,000, Phase 2: $42,000,000), additional working capital outlays of $1,000,000 per annum and an earn-out of $1,000,000 to former DWM shareholders to be settled in shares of Santos if they elect to enter into Phase 2 of the work program. If Santos does not exercise the option to enter into Phase 2, the 70% interest is returned to DWM Petroleum at no cost. On December 2, 2008, Santos announced to enter into Phase 2 and the earn-out was paid to former DWM shareholders.</font> </font></p> <p align="justify"> <font style="font-size: 10pt;"><font style="font-family: times new roman,times,serif;">In phase 2 of the work program, in the event Santos spends in excess of $42,000,000 on the appraisal wells, the Company would be obligated to pay 30% of the excess expenditure.</font> </font></p> <p align="justify"> <font style="font-size: 10pt;"><font style="font-family: times new roman,times,serif;">The Group is not recording its share of the losses. Currently, the contractual agreement requires Santos to pay all of the costs. <b> </b></font> <b> <b> <b> <b> <b> <b> </b> </b> </b> </b> </b></b></font> <b><b> <b> <b> <b> <b> <b> <b> <b> <b> <b> </b> </b> </b> </b> </b> </b> </b> </b> </b></b></b></p> <p align="justify"> <b><b><b><b><b><b><b><b><b><strong><font style="font-size: 10pt;"><font style="font-family: times new roman,times,serif;">CJSC Somon Oil (Tajikistan)</font> </font> </strong> </b> </b> </b> </b> </b> </b> </b></b></b></p> <p align="justify"> <font style="font-size: 10pt;"><font style="font-family: times new roman,times,serif;">On December 10, 2007, DWM Petroleum (100% subsidiary of Manas) &amp; Santos entered into an Option Agreement under which Santos has a unilateral option to elect for those parties to execute at a later stage, a Farm In Agreement for a 70% interest in DWM Petroleum&amp;#8217;s &#8220;West&#8221; (area Navobod-Obchai Kalacha) Tajikistan License and a proposed North Tajik licence. 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ISSUED CAPITAL AND RESERVES</b> </font> </font> </p> <div align="center"> <table border="0" cellpadding="0" cellspacing="0" style="border-color: black; border-collapse: collapse; font-size: 10pt;" width="80%"> <tr valign="top"> <td align="left">&#160;</td> <td align="left" width="1%">&#160;</td> <td align="center" colspan="4"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;"> <b>12 month period ended</b> </font> </font> </td> <td align="right" width="2%">&#160;</td> </tr> <tr valign="top"> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;"> <b>Shares Manas Petroleum Corporation</b> </font> </font> </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%">&#160;</td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" width="22%"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;"> <b>December 31, 2011</b> </font> </font> </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="2%">&#160;</td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%">&#160;</td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" width="22%"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;"> <b>December 31, 2010</b> </font> </font> </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"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">Total number of authorized shares</font> </font> </td> <td align="left" bgcolor="#e6efff" width="1%">&#160;</td> <td align="right" bgcolor="#e6efff" width="22%"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">300,000,000</font> </font> </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="22%"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">300,000,000</font> </font> </td> <td align="left" bgcolor="#e6efff" width="2%">&#160;</td> </tr> <tr valign="top"> <td align="left"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">Total number of fully paid-in shares</font> </font> </td> <td align="left" width="1%">&#160;</td> <td align="right" width="22%"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">172,467,292</font> </font> </td> <td align="left" width="2%">&#160;</td> <td align="left" width="1%">&#160;</td> <td align="right" width="22%"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">124,987,393</font> </font> </td> <td align="left" width="2%">&#160;</td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">Par value per share (in USD)</font> </font> </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%">&#160;</td> <td align="right" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="22%"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">0.001</font> </font> </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="2%">&#160;</td> <td align="left" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%">&#160;</td> <td align="right" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="22%"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">0.001</font> </font> </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="2%">&#160;</td> </tr> <tr valign="top"> <td align="left"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;"> <b>Total share capital (in USD)</b> </font> </font> </td> <td align="left" width="1%">&#160;</td> <td align="right" width="22%"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;"> <b>172,467</b> </font> </font> </td> <td align="left" width="2%">&#160;</td> <td align="left" width="1%">&#160;</td> <td align="right" width="22%"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;"> <b>124,987</b> </font> </font> </td> <td align="left" width="2%">&#160;</td> </tr> </table> </div> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">All shares are common shares. There are no different share categories.</font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;"> <b>14. COMMITMENTS &amp; CONTINGENT LIABILITIES</b> </font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;"> <b>Legal actions and claims (Kyrgyz Republic, Republic of Tajikistan, Mongolia and Chile)</b> </font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">In the ordinary course of business, members of the Group doing business in the Kyrgyz Republic, Republic of Tajikistan, Mongolia and Chile may be 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 the Kyrgyz Republic, Republic of Tajikistan, Mongolia and Chile.</font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;"> <i>Chile</i> </font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">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.</font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">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.</font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">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, 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 the verdict is open for appeal.</font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">At December 31, 2011, there had been no legal actions against the associates/subsidiaries or branches in the Kyrgyz Republic, Republic of Tajikistan and Mongolia.</font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">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. However, the risk remains that relevant authorities could take differing positions with regards to interpretative issues.</font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">Management believes that the ultimate liability, if any, arising from any of the above will not have a material adverse effect on the financial condition, the results of future operations or cash flows of the Group in the Kyrgyz Republic, Republic of Tajikistan, Mongolia and Chile.</font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">In 2007, the Group entered into a share exchange agreement with DWM Petroleum and the shareholders of DWM Petroleum. Under the share exchange agreement, the shareholders of DWM Petroleum received 80,000,000 shares of the Group&#8217;s common stock, equal to 79.9% of the Group&#8217;s outstanding common stock at the time, in exchange for 100% of the shares of DWM Petroleum. In addition, the share exchange agreement requires that the Group issue an aggregate of up to an additional 500,000 shares of the Group&#8217;s common stock over time to the former shareholders of DWM Petroleum for every 50 million barrels of P50 oil reserves net to the Group from exploration in the Kyrgyz Republic, Albania, and Tajikistan up to a maximum of 2.5 billion barrels of P50 oil reserves. At the Group&#8217;s option, this obligation can be extended to additional properties that are acquired through the actions of the former shareholders of DWM Petroleum.</font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;"> <b>License agreements held by Gobi Energy Partners (Mongolia)</b> </font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">According to the signed Production Sharing Contracts (&#8220;PSCs&#8221;) the minimum remaining investments are as follows:</font> </font> </p> <div align="center"> <table border="1" cellpadding="3" cellspacing="0" style="border-color: black; border-collapse: collapse; font-size: 10pt;" width="50%"> <tr valign="top"> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;"> <b>Production Sharing Contract</b> </font> </font> </td> <td align="center" style="border-bottom: 1px solid rgb(0, 0, 0);" width="25%"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;"> &#160; <b>2012*</b> </font> </font> </td> <td align="center" style="border-bottom: 1px solid rgb(0, 0, 0);" width="25%"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;"> &#160; <b>2013*</b> </font> </font> </td> </tr> <tr valign="top"> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">Block XIII</font> </font> </td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" width="25%"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">$4,360,000</font> </font> </td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" width="25%"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">$6,900,000</font> </font> </td> </tr> <tr valign="top"> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">Block XIV</font> </font> </td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" width="25%"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">$4,360,000</font> </font> </td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" width="25%"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">$6,900,000</font> </font> </td> </tr> </table> </div> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">*starting April 21</font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;"> <b>License agreement held by CJSC Somon Oil (Republic of Tajikistan)</b> </font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">According to the License Agreement the minimum remaining investment is as follows:</font> </font> </p> <div align="center"> <table border="1" cellpadding="3" cellspacing="0" style="border-color: black; 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border-collapse: collapse; font-size: 10pt;" width="50%"> <tr valign="top"> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;"> <b>License</b> </font> </font> </td> <td align="center" style="border-bottom: 1px solid rgb(0, 0, 0);" width="25%"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;"> <b>2012</b> </font> </font> </td> <td align="center" style="border-bottom: 1px solid rgb(0, 0, 0);" width="25%"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;"> <b>2013</b> </font> </font> </td> <td align="center" style="border-bottom: 1px solid rgb(0, 0, 0);" width="25%"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;"> <b>2014</b> </font> </font> </td> </tr> <tr valign="top"> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">Soh</font> </font> </td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" width="25%"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">$83,766</font> </font> </td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" width="25%"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">$3,601,936</font> </font> </td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" width="25%"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">$41,883</font> </font> </td> </tr> <tr valign="top"> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">West Soh</font> </font> </td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" width="25%"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">$83,766</font> </font> </td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" width="25%"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">$41,883</font> </font> </td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" width="25%"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">$41,883</font> </font> </td> </tr> <tr valign="top"> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">Tuzluk</font> </font> </td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" width="25%"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">$83,766</font> </font> </td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" width="25%"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">$3,162,165</font> </font> </td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" width="25%"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">$41,883</font> </font> </td> </tr> <tr valign="top"> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">Nanay</font> </font> </td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" width="25%"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">$4,556,868</font> </font> </td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" width="25%"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">$10,471</font> </font> </td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" width="25%"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">Nil</font> </font> </td> </tr> </table> </div> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;"> <b>Operating leases</b> </font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">The Company has entered into a lease contract over five years for offices beginning on October 1, 2010 and ending on September 30, 2015. The annual rate of the lease amounts to CHF 124,500 and is tied to Swiss CPI, adjustable on a yearly basis. The office lease contract can be terminated at any time, if the Company finds a subsequent tenant. In October 2011, the Company concluded lease contracts for two cars. 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align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;"> <b>Defined Benefit Plan</b> </font> </font> </p> <p align="justify"> <font style="font-size: 10pt;"> <font style="font-family: times new roman,times,serif;">We maintain a Swiss defined benefit plans for 6 of our employees. 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