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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, 2012. </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 USD3.20. </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">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 was the continuing legal registrant for regulatory purposes and DWM Petroleum was 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 and Mongolia). The Company holds an investment in associate in Petromanas Energy Inc.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">We plan to fund our planned short term operations either through a short term loan against Petromanas shares or through the sale of some or all of those shares. We intend to address our long term financial needs through one or more farm-in partnerships. We believe that we will be able to fund our planned operations for the next twelve months.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> We have sold a total of 50 million Petromanas Energy Inc. shares after September 30, 2013 for net proceeds of approximately CDN$6.0 million (USD5.7 million). Based on our current twelve month going concern budget, the funds are sufficient to fund the company for the next twelve months. </p> 1.00 80000000 800000 3.20 50000000 6000000 5700000 <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, 2013 and December 31, 2012 and for the three and nine-month periods ended September 30, 2013 and 2012 and for the period from inception, May 25, 2004, to September 30, 2013, 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;">&#160;</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, 2012.</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;">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, 2013 and December 31, 2012, results of operations for the three and nine-month period ended September 30, 2013 and 2012 and for the period from inception, May 25, 2004, to September 30, 2013, cash flows for the nine-month period ended September 30, 2013 and 2012 and for the period from inception, May 25, 2004, to September 30, 2013 and statement of shareholders&#8217; equity (deficit) for the period from inception, May 25, 2004, to September 30, 2013, as applicable, have been made. The result of operations for the three and nine-month period ended September 30, 2013 is not necessarily indicative of the operating results for the full fiscal year or any future periods.</p> <p>&#160;</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> <b>3.&#160;&#160;</b> &#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 February 2013, the FASB released ASU 2013-02 &#8212; Accounting Standards Update 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. This Update was issued to end the deferral of new presentation requirements for reclassifications out of accumulated other comprehensive income (required by ASU 2011-05 and subsequently deferred by ASU 2011-12) and to resolve certain cost/benefit concerns related to reporting reclassification adjustments.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">This Update provides entities with two basic options for reporting the effect of significant reclassifications &#8212; either 1) on the face of the statement where net income is presented or 2) as a separate footnote disclosure. Public entities will report reclassifications in both annual and interim periods, while private entities are only required to report them in annual financial statements.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">Under option 1, the effect of significant reclassifications is presented parenthetically by component of OCI on the respective line items of net income. Examples of OCI components include cash flow hedges, unrealized gains and losses on certain marketable securities, pension adjustments and foreign currency translation adjustments. Entities must also parenthetically report the aggregate tax effect of reclassifications in the income tax expense (benefit) line item.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">Under option 2, the significant amounts of each component of OCI must be presented in a single footnote. Pre- and net of- tax presentations are both acceptable. For reclassifications that are recorded entirely in net income (e.g., the gain on sale of an available for sale security), the income statement line item affected by the reclassification must be identified. For any reclassification that is not recorded entirely in net income (e.g., pension cost capitalized in inventory), a cross-reference must be provided to the footnote where additional information can be found (e.g., a cross-reference to the pension footnote). The Company adopted option 1 of this ASU, as of January 1, 2013. 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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; font-size: 10pt; border-collapse: collapse; font-family: times new roman,times,serif;" width="100%"> <tr valign="top"> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="middle">&#160;</td> <td align="center" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="middle" width="12%"> <b>USD</b> <br/> <b>(held in USD)</b> </td> <td align="center" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="middle" width="12%"> <b>USD</b> <br/> <b>(held in EUR)</b> </td> <td align="center" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="middle" width="12%"> <b>USD</b> <br/> <b>(held in CHF)</b> </td> <td align="center" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="middle" width="12%"> <b>USD</b> <br/> <b>(held in other</b> <br/> <b>currencies)</b> </td> <td align="center" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="middle" width="12%"> <b>USD Total</b> <br/> <b>Sept 30, 2013</b> </td> <td align="center" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="middle" width="12%"> <b>USD Total</b> <br/> <b>Dec 31, 2012</b> </td> </tr> <tr> <td>&#160;</td> <td width="12%">&#160;</td> <td width="12%">&#160;</td> <td width="12%">&#160;</td> <td width="12%">&#160;</td> <td width="12%">&#160;</td> <td width="12%">&#160;</td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff">Cash and cash equivalents</td> <td align="right" bgcolor="#e6efff" width="12%"> &#160; &#160; &#160; &#160; &#160; &#160; &#160; 33,206 </td> <td align="right" bgcolor="#e6efff" width="12%"> &#160; &#160; &#160; &#160; &#160; &#160; &#160; &#160; 10,028 </td> <td align="right" bgcolor="#e6efff" width="12%"> &#160; &#160; &#160; &#160; &#160; &#160; &#160; &#160; &#160; - 2,852 </td> <td align="right" bgcolor="#e6efff" width="12%"> &#160; &#160; &#160; &#160; &#160; &#160; &#160; &#160; &#160; 117 </td> <td align="right" bgcolor="#e6efff" width="12%"> &#160; &#160; &#160; &#160; &#160; &#160; &#160; 40,498 </td> <td align="right" bgcolor="#e6efff" width="12%"> &#160; &#160; &#160; &#160; &#160; &#160; &#160; 2,842,495 </td> </tr> </table> 33206 10028 2852 117 40498 2842495 <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> <b>5.&#160;&#160;</b> &#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;"> On December 31, 2012, DWM Petroleum AG, our wholly-owned Swiss subsidiary, entered into a Share Purchase Agreement with an unrelated third party, a small, private company known only in Tajikistan, to purchase, for USD21,000,000 in cash, 80% of the equity interest in a Swiss company which, at the time of closing of the transaction described in the Share Purchase Agreement, will own a Tajik company (&#8220;target company&#8221;) which in turn will own 100% of the interest in certain producing oilfield assets located in Tajikistan. The seller&#8217;s wholly-owned subsidiary, a small, private company known only in Tajikistan, currently owns the majority of the equity in the target company. </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> As previously disclosed, DWM Petroleum has already advanced an aggregate of USD10,111,656 as a deposit on account of the purchase price. If the seller satisfies certain conditions ("Conditions for the next Advance"), DWM Petroleum will be required to make an additional advance of USD7,000,000 to the seller. DWM Petroleum will be required to pay the remaining balance (USD3,888,344) of the purchase price to the seller on the closing date, no later than the seventh Business Day after the closing conditions are satisfied. </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> If the transaction is not completed because the seller does not satisfy the conditions to the next advance, the seller must refund to DWM Petroleum the USD10,111,656 deposit, subject to payment by DWM Petroleum of a termination fee in the amount of USD2,000,000 intended to compensate the seller for expenses it has incurred in connection with the transaction. The conditions for the next advance were originally required to be fulfilled on or before March 31, 2013. Effective December 31, 2012, this date was extended to May 30, 2013 pursuant to Amendment 1 to the Share Purchase Agreement. Effective April 30, 2013, this date was further extended to June 30, 2013 pursuant to Amendment 3 to the Share Purchase Agreement. Effective June 27, 2013, seller has fulfilled all conditions for the next payment. Effective June 27, 2013 pursuant to Amendment 4, the date for next advance payment is ninety days of the date the seller has satisfied the requisite conditions. </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> If DWM Petroleum is required to make the next advance but fails to do so, the seller will be required to refund to DWM Petroleum the USD10,111,656 deposit previously paid by delivering to DWM Petroleum 65% shares of the company that is the majority owner of the producing oilfield assets being purchased. In that event, DWM Petroleum will also be required to pay to the seller the sum of USD2,000,000, which is intended to compensate the seller for its expenses. </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">Completion of the purchase is subject to conditions and the completion of certain ancillary transactions by the seller in respect of the assets to be owned at closing by the target company ("the closing conditions"). These conditions were originally required to be fulfilled or waived on or before April 30, 2013. Effective December 31, 2012, this date was extended to June 27, 2013 pursuant to Amendment 1 to the Share Purchase Agreement. Effective April 30, 2013, this date was further extended to September 27, 2013 pursuant to Amendment 3 to the Share Purchase Agreement.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">Effective April 30, 2013, pursuant to Amendment 2 to the Share Purchase Agreement, a condition for the next advance that requires the target company to enter into a certain contract with the Tajik government was changed to the extent that the seller is only required to confirm to DWM Petroleum that the target company has agreed with the responsible government authority, the terms for the aforementioned contract &#8211; and not actually signed such contract.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> Effective June 27, 2013, the seller has met all conditions and completed certain ancillary transactions required for the next advance payment. Pursuant to the SPA and the amendments mentioned above, the payment of USD7,000,000 is due by September 27, 2013. </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> DWM did not make the next advance payment by September 27, 2013. Accordingly pursuant to the SPA effective September 27, 2013 DWM has opted to take a 65% interest in the company that owns the majority of shares in the Tajik operating company holding the oilfield assets subject to that the target company is debt free as well as government approvals. After the closing of the transaction pursuant to the SPA, DWM has agreed to compensate Seller for its expenses capped at USD2,000,000. </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;">Management currently takes the position that no amendments are required to the line item &#8220;Transaction Prepayment&#8221; for the period ended September 30, 2013.</p> <p>&#160;</p> 21000000 0.80 1.00 10111656 7000000 3888344 10111656 2000000 3 10111656 0.65 2000000 7000000 0.65 2000000 <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> <b>6.</b> &nbsp;&nbsp;&nbsp; <b>TANGIBLE FIXED ASSETS</b></p> <div> <table border="0" cellpadding="0" cellspacing="0" style="border-color: black; font-size: 10pt; border-collapse: collapse; font-family: times new roman,times,serif;" width="100%"> <tr valign="top"> <td align="left" style="border-right: 1px solid rgb(0, 0, 0); border-top: 2px solid rgb(0, 0, 0); border-bottom: 1px solid rgb(0, 0, 0);" valign="middle"> <b>2013 (in USD)</b></td> <td align="left" style="border-top: 2px solid rgb(0, 0, 0); border-bottom: 1px solid rgb(0, 0, 0);" valign="middle" width="1%"> &nbsp;</td> <td align="center" style="border-top: 2px solid rgb(0, 0, 0); border-bottom: 1px solid rgb(0, 0, 0);" valign="middle" width="10%"> Office equipment<br /> &amp; furniture</td> <td align="center" style="border-top: 2px solid rgb(0, 0, 0); border-bottom: 1px solid rgb(0, 0, 0);" valign="middle" width="2%"> &nbsp;</td> <td align="center" style="border-top: 2px solid rgb(0, 0, 0); border-bottom: 1px solid rgb(0, 0, 0);" valign="middle" width="1%"> &nbsp;</td> <td align="center" style="border-top: 2px solid rgb(0, 0, 0); border-bottom: 1px solid rgb(0, 0, 0);" valign="middle" width="10%"> Vehicles</td> <td align="center" style="border-top: 2px solid rgb(0, 0, 0); border-bottom: 1px solid rgb(0, 0, 0);" valign="middle" width="2%"> &nbsp;</td> <td align="center" style="border-top: 2px solid rgb(0, 0, 0); border-bottom: 1px solid rgb(0, 0, 0);" valign="middle" width="1%"> &nbsp;</td> <td align="center" style="border-top: 2px solid rgb(0, 0, 0); border-bottom: 1px solid rgb(0, 0, 0);" valign="middle" width="10%"> Leasehold<br /> improvements</td> <td align="center" style="border-top: 2px solid rgb(0, 0, 0); border-bottom: 1px solid rgb(0, 0, 0);" valign="middle" width="2%"> &nbsp;</td> <td align="center" style="border-top: 2px solid rgb(0, 0, 0); border-bottom: 1px solid rgb(0, 0, 0);" valign="middle" width="1%"> &nbsp;</td> <td align="center" style="border-top: 2px solid rgb(0, 0, 0); border-bottom: 1px solid rgb(0, 0, 0);" valign="middle" width="10%"> Computer<br /> software</td> <td align="center" style="border-top: 2px solid rgb(0, 0, 0); border-bottom: 1px solid rgb(0, 0, 0);" valign="middle" width="2%"> &nbsp;</td> <td align="center" style="border-top: 2px solid rgb(0, 0, 0); border-bottom: 1px solid rgb(0, 0, 0);" valign="middle" width="1%"> &nbsp;</td> <td align="center" style="border-top: 2px solid rgb(0, 0, 0); border-bottom: 1px solid rgb(0, 0, 0);" valign="middle" width="10%"> Total</td> <td align="left" style="border-top: 2px solid rgb(0, 0, 0); border-bottom: 1px solid rgb(0, 0, 0);" valign="middle" width="2%"> &nbsp;</td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff" style="border-right: 1px solid rgb(0, 0, 0);"> <b>Cost at Dec 31, 2012</b></td> <td align="left" bgcolor="#e6efff" width="1%"> &nbsp;</td> <td align="right" bgcolor="#e6efff" width="10%"> <b>147,140 </b></td> <td align="left" bgcolor="#e6efff" width="2%"> &nbsp;</td> <td align="left" bgcolor="#e6efff" width="1%"> &nbsp;</td> <td align="right" bgcolor="#e6efff" width="10%"> <b>117,884 </b></td> <td align="left" bgcolor="#e6efff" width="2%"> &nbsp;</td> <td align="left" bgcolor="#e6efff" width="1%"> &nbsp;</td> <td align="right" bgcolor="#e6efff" width="10%"> <b>47,375 </b></td> <td align="left" bgcolor="#e6efff" width="2%"> &nbsp;</td> <td align="left" bgcolor="#e6efff" width="1%"> &nbsp;</td> <td align="right" bgcolor="#e6efff" width="10%"> <b>33,213 </b></td> <td align="left" bgcolor="#e6efff" width="2%"> &nbsp;</td> <td align="left" bgcolor="#e6efff" width="1%"> &nbsp;</td> <td align="right" bgcolor="#e6efff" width="10%"> <b>345,613 </b></td> <td align="left" bgcolor="#e6efff" width="2%"> &nbsp;</td> </tr> <tr valign="top"> <td align="left" style="border-right: 1px solid rgb(0, 0, 0);"> Additions</td> <td align="left" width="1%"> &nbsp;</td> <td align="right" width="10%"> 2,452</td> <td align="left" width="2%"> &nbsp;</td> <td align="left" width="1%"> &nbsp;</td> <td align="right" width="10%"> 39,866</td> <td align="left" width="2%"> &nbsp;</td> <td align="left" width="1%"> &nbsp;</td> <td align="right" width="10%"> 1,683</td> <td align="left" width="2%"> &nbsp;</td> <td align="left" width="1%"> &nbsp;</td> <td align="right" width="10%"> 2,484</td> <td align="left" width="2%"> &nbsp;</td> <td align="left" width="1%"> &nbsp;</td> <td align="right" width="10%"> 46,484</td> <td align="left" width="2%"> &nbsp;</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%"> &nbsp;</td> <td align="right" bgcolor="#e6efff" width="10%"> -</td> <td align="left" bgcolor="#e6efff" width="2%"> &nbsp;</td> <td align="left" bgcolor="#e6efff" width="1%"> &nbsp;</td> <td align="right" bgcolor="#e6efff" width="10%"> (17,384</td> <td align="left" bgcolor="#e6efff" width="2%"> )</td> <td align="left" bgcolor="#e6efff" width="1%"> &nbsp;</td> <td align="right" bgcolor="#e6efff" width="10%"> -</td> <td align="left" bgcolor="#e6efff" width="2%"> &nbsp;</td> <td align="left" bgcolor="#e6efff" width="1%"> &nbsp;</td> <td align="right" bgcolor="#e6efff" width="10%"> -</td> <td align="left" bgcolor="#e6efff" width="2%"> &nbsp;</td> <td align="left" bgcolor="#e6efff" width="1%"> &nbsp;</td> <td align="right" bgcolor="#e6efff" width="10%"> (17,384</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 Sept 30, 2013</td> <td align="left" width="1%"> &nbsp;</td> <td align="right" width="10%"> 149,592</td> <td align="left" width="2%"> &nbsp;</td> <td align="left" width="1%"> &nbsp;</td> <td align="right" width="10%"> 140,366</td> <td align="left" width="2%"> &nbsp;</td> <td align="left" width="1%"> &nbsp;</td> <td align="right" width="10%"> 49,058</td> <td align="left" width="2%"> &nbsp;</td> <td align="left" width="1%"> &nbsp;</td> <td align="right" width="10%"> 35,697</td> <td align="left" width="2%"> &nbsp;</td> <td align="left" width="1%"> &nbsp;</td> <td align="right" width="10%"> 374,713</td> <td align="left" width="2%"> &nbsp;</td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff" style="border-right: 1px solid rgb(0, 0, 0);"> <b>Accumulated depreciation at Dec 31, 2012</b></td> <td align="left" bgcolor="#e6efff" width="1%"> &nbsp;</td> <td align="right" bgcolor="#e6efff" width="10%"> <b>(112,608 </b></td> <td align="left" bgcolor="#e6efff" width="2%"> <b>)</b></td> <td align="left" bgcolor="#e6efff" width="1%"> &nbsp;</td> <td align="right" bgcolor="#e6efff" width="10%"> <b>(50,146 </b></td> <td align="left" bgcolor="#e6efff" width="2%"> <b>)</b></td> <td align="left" bgcolor="#e6efff" width="1%"> &nbsp;</td> <td align="right" bgcolor="#e6efff" width="10%"> <b>(47,375 </b></td> <td align="left" bgcolor="#e6efff" width="2%"> <b>)</b></td> <td align="left" bgcolor="#e6efff" width="1%"> &nbsp;</td> <td align="right" bgcolor="#e6efff" width="10%"> <b>(3,048 </b></td> <td align="left" bgcolor="#e6efff" width="2%"> <b>)</b></td> <td align="left" bgcolor="#e6efff" width="1%"> &nbsp;</td> <td align="right" bgcolor="#e6efff" width="10%"> <b>(213,178 </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%"> &nbsp;</td> <td align="right" width="10%"> (8,794</td> <td align="left" width="2%"> )</td> <td align="left" width="1%"> &nbsp;</td> <td align="right" width="10%"> (18,004</td> <td align="left" width="2%"> )</td> <td align="left" width="1%"> &nbsp;</td> <td align="right" width="10%"> -</td> <td align="left" width="2%"> &nbsp;</td> <td align="left" width="1%"> &nbsp;</td> <td align="right" width="10%"> (13,587</td> <td align="left" width="2%"> )</td> <td align="left" width="1%"> &nbsp;</td> <td align="right" width="10%"> (40,385</td> <td align="left" width="2%"> )</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%"> &nbsp;</td> <td align="right" bgcolor="#e6efff" width="10%"> -</td> <td align="left" bgcolor="#e6efff" width="2%"> &nbsp;</td> <td align="left" bgcolor="#e6efff" width="1%"> &nbsp;</td> <td align="right" bgcolor="#e6efff" width="10%"> 17,384</td> <td align="left" bgcolor="#e6efff" width="2%"> &nbsp;</td> <td align="left" bgcolor="#e6efff" width="1%"> &nbsp;</td> <td align="right" bgcolor="#e6efff" width="10%"> -</td> <td align="left" bgcolor="#e6efff" width="2%"> &nbsp;</td> <td align="left" bgcolor="#e6efff" width="1%"> &nbsp;</td> <td align="right" bgcolor="#e6efff" width="10%"> -</td> <td align="left" bgcolor="#e6efff" width="2%"> &nbsp;</td> <td align="left" bgcolor="#e6efff" width="1%"> &nbsp;</td> <td align="right" bgcolor="#e6efff" width="10%"> 17,384</td> <td align="left" bgcolor="#e6efff" width="2%"> &nbsp;</td> </tr> <tr valign="top"> <td align="left" style="border-right: 1px solid rgb(0, 0, 0);"> Accumulated depreciation at Jun 30, 2013</td> <td align="left" width="1%"> &nbsp;</td> <td align="right" width="10%"> (121,402</td> <td align="left" width="2%"> )</td> <td align="left" width="1%"> &nbsp;</td> <td align="right" width="10%"> (50,766</td> <td align="left" width="2%"> )</td> <td align="left" width="1%"> &nbsp;</td> <td align="right" width="10%"> (47,375</td> <td align="left" width="2%"> )</td> <td align="left" width="1%"> &nbsp;</td> <td align="right" width="10%"> (16,635</td> <td align="left" width="2%"> )</td> <td align="left" width="1%"> &nbsp;</td> <td align="right" width="10%"> (236,179</td> <td align="left" width="2%"> )</td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff" style="border-right: 1px solid rgb(0, 0, 0);"> <b>Net book value at Dec 31, 2012</b></td> <td align="left" bgcolor="#e6efff" width="1%"> &nbsp;</td> <td align="right" bgcolor="#e6efff" width="10%"> <b>34,533 </b></td> <td align="left" bgcolor="#e6efff" width="2%"> &nbsp;</td> <td align="left" bgcolor="#e6efff" width="1%"> &nbsp;</td> <td align="right" bgcolor="#e6efff" width="10%"> <b>67,738 </b></td> <td align="left" bgcolor="#e6efff" width="2%"> &nbsp;</td> <td align="left" bgcolor="#e6efff" width="1%"> &nbsp;</td> <td align="right" bgcolor="#e6efff" width="10%"> <b>- </b></td> <td align="left" bgcolor="#e6efff" width="2%"> &nbsp;</td> <td align="left" bgcolor="#e6efff" width="1%"> &nbsp;</td> <td align="right" bgcolor="#e6efff" width="10%"> <b>30,165 </b></td> <td align="left" bgcolor="#e6efff" width="2%"> &nbsp;</td> <td align="left" bgcolor="#e6efff" width="1%"> &nbsp;</td> <td align="right" bgcolor="#e6efff" width="10%"> <b>132,435 </b></td> <td align="left" bgcolor="#e6efff" width="2%"> &nbsp;</td> </tr> <tr valign="top"> <td align="left" style="border-right: 1px solid rgb(0, 0, 0); border-bottom: 2px solid rgb(0, 0, 0);"> <b>Net book value at Sep 30, 2013</b></td> <td align="left" style="border-bottom: 2px solid rgb(0, 0, 0);" width="1%"> &nbsp;</td> <td align="right" style="border-bottom: 2px solid rgb(0, 0, 0);" width="10%"> <b>28,190 </b></td> <td align="left" style="border-bottom: 2px solid rgb(0, 0, 0);" width="2%"> &nbsp;</td> <td align="left" style="border-bottom: 2px solid rgb(0, 0, 0);" width="1%"> &nbsp;</td> <td align="right" style="border-bottom: 2px solid rgb(0, 0, 0);" width="10%"> <b>89,600 </b></td> <td align="left" style="border-bottom: 2px solid rgb(0, 0, 0);" width="2%"> &nbsp;</td> <td align="left" style="border-bottom: 2px solid rgb(0, 0, 0);" width="1%"> &nbsp;</td> <td align="right" style="border-bottom: 2px solid rgb(0, 0, 0);" width="10%"> <b>1,683.07 </b></td> <td align="left" style="border-bottom: 2px solid rgb(0, 0, 0);" width="2%"> &nbsp;</td> <td align="left" style="border-bottom: 2px solid rgb(0, 0, 0);" width="1%"> &nbsp;</td> <td align="right" style="border-bottom: 2px solid rgb(0, 0, 0);" width="10%"> <b>19,062 </b></td> <td align="left" style="border-bottom: 2px solid rgb(0, 0, 0);" width="2%"> &nbsp;</td> <td align="left" style="border-bottom: 2px solid rgb(0, 0, 0);" width="1%"> &nbsp;</td> <td align="right" style="border-bottom: 2px solid rgb(0, 0, 0);" width="10%"> <b>138,534 </b></td> <td align="left" style="border-bottom: 2px solid rgb(0, 0, 0);" width="2%"> &nbsp;</td> </tr> </table> </div> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> Depreciation expense for the nine-month period ended September 30, 2013 and 2012 was USD40,385 and USD25,556, respectively. 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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="10%"> 17,384 </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 Jun 30, 2013</td> <td align="left" width="1%">&#160;</td> <td align="right" width="10%"> (121,402 </td> <td align="left" width="2%">)</td> <td align="left" width="1%">&#160;</td> <td align="right" width="10%"> (50,766 </td> <td align="left" width="2%">)</td> <td align="left" width="1%">&#160;</td> <td align="right" width="10%"> (47,375 </td> <td align="left" width="2%">)</td> <td align="left" width="1%">&#160;</td> <td align="right" width="10%"> (16,635 </td> <td align="left" width="2%">)</td> <td align="left" width="1%">&#160;</td> <td align="right" width="10%"> (236,179 </td> <td align="left" width="2%">)</td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff" style="border-right: 1px solid rgb(0, 0, 0);"> <b>Net book value at Dec 31, 2012</b> </td> <td align="left" bgcolor="#e6efff" width="1%">&#160;</td> <td align="right" bgcolor="#e6efff" width="10%"> <b> 34,533 </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="10%"> <b> 67,738 </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="10%"> <b> - 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During the year 2012, the Company capitalized USD2,998,636 of which USD2,225,781 was expensed as &#8220;Exploration Costs&#8221; in the Statement of Operations during the third quarter of 2012 as the two wells were found dry. The Company had a remaining capitalized balance of USD772,855 as of September 30, 2013. This balance relates to specific costs for the third well still to be drilled including capitalized costs recorded as accruals for USD312,000. </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">If the third well is found to be a dry hole, all remaining capitalized costs related to the campaign will de facto be expensed, with the exception of the tangible equipment, which will continue to have a salvage value (it will be either sold or written off). If the well is found to have proven reserves, the capitalized drilling costs will be reclassified as part of the cost of the well. 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border-bottom: 2px solid rgb(0, 0, 0);">Forfeit or expired</td> <td align="left" style="border-bottom: 2px solid rgb(0, 0, 0);" width="1%">&#160;</td> <td align="right" style="border-bottom: 2px solid rgb(0, 0, 0);" width="17%"> (1,483,515 </td> <td align="left" style="border-bottom: 2px solid rgb(0, 0, 0);" width="2%">)</td> <td align="left" style="border-bottom: 2px solid rgb(0, 0, 0);" width="1%">&#160;</td> <td align="right" style="border-bottom: 2px solid rgb(0, 0, 0);" width="27%"> USD0.62 </td> <td align="left" style="border-bottom: 2px solid rgb(0, 0, 0);" width="2%">&#160;</td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff" style="border-right: 1px solid rgb(0, 0, 0); border-bottom: 2px solid rgb(0, 0, 0);"> <b>Outstanding at September 30, 2013</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="17%"> 44,450,500 </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="27%"> USD0.70 </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 2px solid rgb(0, 0, 0);" width="2%">&#160;</td> </tr> </table> 45934015 0.70 0 0 0 0 -1483515 0.62 44450500 0.70 <b>10.&#160;</b> &#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 A.G., 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;">In addition, all of these shares were deposited into an escrow pursuant to the requirements of the TSX Venture Exchange which provided 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; font-size: 10pt; border-collapse: collapse; font-family: times new roman,times,serif;" width="50%"> <tr valign="top"> <td align="left" style="border-right: 1px solid rgb(0, 0, 0); border-top: 2px solid rgb(0, 0, 0); border-bottom: 1px solid rgb(0, 0, 0);"> <b>Release dates</b> </td> <td align="right" style="border-top: 2px solid rgb(0, 0, 0); border-bottom: 1px solid rgb(0, 0, 0);" width="65%"> <b>Number of shares 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="65%"> 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="65%"> 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="65%"> 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="65%"> 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="65%"> 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="65%"> 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="65%"> 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="65%"> 30,000,000 </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff" style="border-right: 1px solid rgb(0, 0, 0); border-bottom: 2px solid rgb(0, 0, 0);"> <b>Total</b> </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 2px solid rgb(0, 0, 0);" width="65%"> <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 CAD0.17 per common share for gross proceeds of CAD1,700,000 (USD1,670,598). 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 CAD0.115 per common share for gross proceeds of CAD10,350,000 (USD10,445,050) together with the right to receive 22.5% of the Performance Shares if and when any Performance Shares are issued by Petromanas. No proceeds were allocated to these performance shares as they are only issuable upon achievement of certain conditions and the likelihood of the contingent event is not reasonably determined. </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;"> DWM Petroleum initially owned 200,000,000 shares of Petromanas Energy. Since July 6, 2012, DWM Petroleum sold 100,000,000 of these shares to various purchasers and it 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 equaled or exceeded CAD0.60 for five business days. Of the 100,000,000 common shares of Petromanas held by DWM Petroleum at September 30, 2013, all were then eligible for immediate resale. </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> On September 30, 2013 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 14.4% 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 until February 24, 2013, and because the shares were 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 had applied 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. Since February 25, 2013, the fair value of investment in Petromanas has been reclassified to Level 1 and no annual discount rate is being used for the current calculation of the investment. </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, 2013 was CAD0.135 (USD0.131) . </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> During the nine-month periods ended September 30, 2013 and 2012, the Company recorded USD4,370,840 unrealized loss on investment in Petromanas and USD6,306,060 unrealized gain on investment in Petromanas, 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 align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">As of September 30, 2013, there was no managerial interchange and there were 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 a timely manner.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">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.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> 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. In addition, the sale of 10,000,000 on July 6, 2012 and the sale of 90,000,000 on August 17, 2012 of Petromanas shares may have further diminished any influence the Company may have had prior to the date of these sales. </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> Effective August 14, 2013 all Petromanas shares held by the Company, are free of any restrictions and are eligible for resale. The Company intends to use these shares for its working capital requirements or pledge them as collateral for a short term financing facility. Pursuant to that we have reclassified the 100 million Petromanas shares from non-current to current assets. </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;"> On August 8, 2013 DWM Petroleum entered into a Loan Agreement with Tulip Fund NV with a term of 6 months with a roll-over option at the discretion of DWM Petroleum for a further 6 months. As collateral for the loan, DWM Petroleum agreed to pledge the remaining 100,000,000 shares of Petromanas Energy Inc. owned by it. This Loan was never funded and the 100,000,000 shares of Petromanas Energy were never pledged to the lender, as contemplated in the Loan Agreement. On October 25, 2013 DWM Petroleum AG sold 4,000,000 Petromanas Energy shares and a further 46 million shares were sold on November 5, 2013. After these two transactions DWM Petroleum AG holds 50,000,000 shares in Petromanas Energy, which corresponds to 7.2% of the common shares of Petromanas Energy. 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font-size: 10pt; margin: inherit;"> Gobi Energy Partners LLC was founded in 2009 by DWM Petroleum AG (formerly Manas Gobi LLC). 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(&#8220;Santos&#8221;) to sell a 70% interest in CJSC South Petroleum Company, Jalalabat for a payment of USD4,000,000, a two phase work program totalling USD53,500,000 (Phase 1: USD11,500,000, Phase 2: USD42,000,000), additional working capital outlays of USD1,000,000 per annum and an earn-out of USD1,000,000 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 the commencement of Phase 2 and the earn-out was paid to former DWM shareholders. </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> In phase 2 of the work program, in the event Santos were to spend in excess of USD42,000,000 on the appraisal wells, the Company would be obligated to pay 30% of the excess expenditure. </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> The Group is not recording its share of the losses. The contractual agreement requires Santos to pay all of the costs as of September 30, 2013. On July 12, 2013 the board of directors of the Company took the decision to exit Kyrgyzstan. The investment in associate in the amount of USD238,304 has been written off to exploration costs. 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(Kyrgyz Republic, Republic of Tajikistan, Mongolia and Chile)</b> </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">In the ordinary course of business, members of the Group doing business in Mongolia, Republic of Tajikistan, the Kyrgyz Republic, 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 Mongolia, Republic of Tajikistan, the Kyrgyz Republic and Chile.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">During the initial phase of applying for its Chilean Exploration license, the Company formed a joint bidding group with Improved Petroleum Recovery Tranquillo Chile (commonly referred to as &#8220;IPR&#8221;) and a start-up company called Energy Focus Limitada (&#8220;Energy Focus&#8221;). Each had a one-third interest. Of its own accord, Energy Focus left the bidding group. The three parties signed a side letter which provided that Energy Focus would have an option to rejoin the bidding group under certain conditions.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">Even though Energy Focus had been asked many times to join the group by contributing its prorated share of capital, it failed to do so. Despite this, Energy Focus claims that it is entitled to participate in the consortium at any future time, not just under certain conditions. 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font-size: 10pt;"> <b>14.&#160;&#160;</b> &#160; <b>FAIR VALUE MEASUREMENT</b> </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> <b>&#160;&#160;&#160;&#160;&#160;&#160; 14.1.</b> <b>Fair Value Measurements</b> </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. 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