GENOIL INC.
1. REPORTING ENTITY AND GOING CONCERN
Genoil Inc. ("Genoil") was incorporated under the Canada Business Corporations Act in September 1996. The consolidated financial statements of Genoil Inc. as at and for the years ended December 31, 2013 and 2012 comprise Genoil Inc. and its subsidiaries, Genoil USA Inc., Genoil Emirates LLC ("Emirates LLC") and Two Hills Environmental Inc. ("Two Hills") (collectively the "Company"). The Company is a technology development company focused on providing innovative solutions to the oil and gas industry through the use of proprietary technologies. The Company's business activities are primarily directed to the development and commercialization of its upgrader technology, which is designed to economically convert heavy crude oil into light synthetic crude. The Company is listed on the TSX Venture Exchange under the symbol GNO as well as the Nasdaq OTC Bulletin Board using the symbol GNOLF.OB. The Company's registered address is care of Bennett Jones LLP, Suite 4500, 855 - 2nd Street SW, Calgary, Alberta.
These consolidated financial statements have been presented on a going concern basis. The Company reported a net loss of $558,516 (2013 - $5,724,123) and used funds for operating activities of $28,140 (2013 - $792,542) for the year ended December 31, 2014. The Company had a net working capital deficiency of $4,243,731 (2013 – $4,137,620) and a cumulative deficit of $87,528,467 (2012 - $86,969,951) as at December 31, 2014. These factors indicate material uncertainties that cast significant doubt about to the Company's ability to continue as a going concern.
The ability of the Company to continue as a going concern is dependent on commercializing its technologies, achieving profitable operations and obtaining the necessary financing in order to develop these technologies further. The outcome of these matters cannot be predicted at this time. The Company will continue to review the prospects of raising additional debt and equity financing to support its operations until such time that its operations become self-sustaining, to fund its research and development activities and to ensure the realization of its assets and discharge of its liabilities. While the Company is expending its best efforts to achieve the above plans, there is no assurance that any such activity will generate sufficient funds for future operations.
The Company is not expected to be profitable during the ensuing twelve months and therefore must rely on securing additional funds from either issuance of debt or equity financing for cash consideration. During 2014, the Company received net cash proceeds of $43,895 (2013 - $506,956) pursuant to financing activities.
Management, utilizing close personal relationships, has been successful in raising capital through periodic private placements of the Company's common shares. Although these shares are subject to a "hold" period on both the United States and Canadian stock markets, the investors' confidence in the undertakings of management, with respect to future positive market performance of the Company's common stock, permits this avenue of financing to exist. External sources of debt financing are not available to the Company due to its precarious financial position.
1. REPORTING ENTITY AND GOING CONCERN (CONTINUED)
The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets and classification of liabilities that might be necessary should the Company be unable to continue its operations. Such adjustments could be material.
2. BASIS OF PREPARATION
|
(a)
|
Statement of compliance
|
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB") and the Interpretations of the IFRS Interpretations Committee ("IFRIC") and in effect at the closing date of December 31, 2014. These consolidated financial statements were authorized for issue by the Board of Directors on December 11, 2015.
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(b)
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Basis of presentation
|
The accounting policies set out in Note 3 have been applied consistently to all periods presented in these consolidated financial statements.
The consolidated financial statements have been prepared on the historical cost basis except for the derivative liability which are measured at fair value with changes in fair value recorded in profit or loss. The methods used to measure fair values are disclosed in Note 4.
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(d)
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Functional and presentation currency
|
These consolidated financial statements are presented in Canadian dollars ("CAD"), which is Genoil's functional currency and presentation currency. The functional currencies of the Company's subsidiaries are as follows:
Genoil USA Inc. USD
Genoil Emirates LLC USD
Two Hills Environmental Inc. CAD
The financial statements of subsidiaries that have a functional currency different from that of Genoil ("foreign operations") are translated into Canadian dollars as follows:
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§
|
Assets and liabilities – at the closing rate at the date of the statement of financial position;
|
|
§
|
Income and expenses – at the average rate of the period which is considered a reasonable approximation to actual rates; and,
|
|
§
|
Foreign currency translation differences are recognized in other comprehensive income.
|
2. BASIS OF PREPARATION (CONTINUED)
When the Company disposes of its entire interest in a foreign operation, or loses control, joint control, or significant influence over a foreign operation, the foreign currency transaction gains or losses accumulated in other comprehensive income related to the foreign operation are recognized in profit or loss. If the Company disposes of part of an interest in a foreign operation which remains a subsidiary, a proportionate amount of foreign currency gains or losses accumulated in other comprehensive income related to the subsidiary is reallocated between controlling and non-controlling interests.
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(e)
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Use of estimates and judgments
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The preparation of consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. By their nature, judgments, estimates and assumptions are subject to measurement uncertainty and changes in such judgments, estimates and assumptions in future periods could result in a material change in future financial statements. Actual results may differ from these estimates.
Judgment is used in situations where there is a choice or assessment required by management. Estimates and underlying assumptions are required on an ongoing basis and revisions are recognized in the year in which such estimates are revised.
In the process of applying the Company's accounting policies, management has made the following judgments and estimates, which may have the most significant effect on the amounts recognized in the consolidated financial statements.
These consolidated financial statements have been prepared in accordance with IFRS on a going concern basis, which assumes the realization of assets and discharge of liabilities in the normal course of business within the foreseeable future. As discussed in Note 1, a number of conditions exist that indicate the existence of material uncertainties, which cast significant doubt about the Company's ability to continue as a going concern, and, therefore, that the Company may be unable to realize its assets and discharge its liabilities in the normal course of business. The ability of the Company to operate on a going concern basis is also dependent upon achieving profitable operations, commercializing its technologies, and obtaining the necessary financing in order to develop these technologies further. These consolidated financial statements do not include any adjustments in the carrying values of assets and liabilities, the reported revenues and expenses, and the statement of cash flow classifications used, that might result from the outcome of this uncertainty, and such adjustments may be material.
2. BASIS OF PREPARATION (CONTINUED)
Depreciation expense is an estimate designed to apportion the value of depreciable assets over their estimated useful lives. The Company estimates the useful life of its property and equipment and intangible assets based on past experience, industry practices and the market for these assets. Differences between the actual useful lives of these assets and estimates can materially affect future results and depreciation expense.
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(iii)
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Determination of Cash Generating Units ("CGUs")
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Management makes judgments in determining its CGUs based on their ability to generate independent cash flows and are used for impairment testing. The Company's CGU's are geographically separate and use different technology and personnel. The determination of the Company's CGUs is subject to management's judgment.
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(iv)
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Impairment indicators and calculation of impairment
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At the end of each reporting period, the Company assesses whether there is an indication that the carrying values of property and equipment and intangible assets are not recoverable or impaired. Such circumstances include incidents of physical damage and changes in the regulatory and/or operating environment. When management judges that circumstances possibly indicate impairment, property and equipment and intangible assets are tested for impairment by comparing the carrying values to their recoverable amounts.
The recoverable amounts of CGUs are the higher of fair value less costs to sell ("FVLCS") and value in use ("VIU"). FVLCS is the amount obtainable from the sale of an asset or CGU in an arm's length transaction between knowledgeable, willing parties, less the costs of disposal.
The determination of VIU requires the estimation and discounting of cash flows which involves key assumptions that consider all information available on the respective testing date. Management exercises judgment, considering past performance as well as expected developments in the respective markets and in the overall macro-economic environment and economic trends to model and discount future cash flows.
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(v)
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Stock options and warrants
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The Company uses the Black-Scholes pricing model to estimate the fair value of stock options, warrants, and the related derivative liability which is based on significant assumptions such as volatility, dividend yield and expected term.
Tax interpretations, regulations and legislation in the various jurisdictions in which the Company operates are subject to change. As such income taxes are subject to measurement uncertainty.
2. BASIS OF PREPARATION (CONTINUED)
The Company recognizes deferred tax assets to the extent that it is probable that taxable profit will be available to allow the benefit of that deferred tax asset to be utilized. Assessing the recoverability of deferred tax assets requires the Company to make significant estimates related to expectations of future taxable income. Estimates of future taxable income are based on forecast cash flows from operations and the application of existing tax laws. To the extent that future cash flows and taxable income differ significantly from estimates, the ability of the Company to realize the deferred tax assets recorded at the reporting date could be impacted. Additionally, future changes in tax laws in the jurisdictions in which the Company operates could limit the ability of the Company to obtain tax deductions in future periods.
By their nature, contingencies will only be resolved when one or more future events occur or fail to occur. The assessment of contingencies inherently involves the exercise of significant judgment and estimates of the outcome of future events.
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(viii)
|
Allowance for doubtful accounts
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The Company recognized that some trade and other receivables amounts could not be collected and set up an allowance for these amounts.
3. SIGNIFICANT ACCOUNTING POLICIES
The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements.
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(a)
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Basis of Consolidation:
|
The consolidated financial statements incorporate the financial statements of Genoil and entities controlled by it. Control is achieved where Genoil has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.
Genoil has the following subsidiaries:
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§
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Genoil USA Inc., incorporated in Delaware, United States, which is a wholly-owned subsidiary of the Genoil.
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|
§
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Genoil Emirates LLC, incorporated in the United Arab Emirates, which will focus upon the fields of oil and water processing and treatment in the United Arab Emirates. Emirates LLC is jointly-owned by S.B.K. Commercial Business Group LLC and Genoil. As at December 31, 2013, Emirates LLC had not yet commenced operations and holds no assets.
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3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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§
|
Two Hills Environmental Inc., incorporated in Canada and registered in Alberta, which is a wholly-owned subsidiary of Genoil. Two Hills was formed to enter into the oilfield waste disposal industry by capitalizing upon its current undeveloped asset base. The asset base comprises a site under which three salt caverns have been formed in the Lotsberg Formation beneath the earth's surface. Such caverns are used in the oilfield disposal industry as a destination for oilfield wastes.
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The financial results of Genoil's subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. The accounting policies of subsidiaries have been changed where necessary to align them with the policies adopted by Genoil.
Intercompany balances and transactions, and any unrealized income and expenses arising from intercompany transactions, are eliminated in preparing the consolidated financial statements.
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(b)
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Foreign currency transactions
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Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Generally, foreign exchange gains and losses resulting from the settlement of foreign currency transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in currencies other than an operation's functional currency are recognized in the consolidated statement of loss and comprehensive loss.
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(c)
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Financial instruments
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All financial instruments are initially recognized at fair value on the consolidated statement of financial position. The Company has classified each financial instrument into one of the following categories: fair value through profit or loss (assets and liabilities), loans and receivables, financial assets available-for-sale, financial assets held–to-maturity, and other financial liabilities. Subsequent measurement of financial instruments is based on their classification.
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(i)
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Non-derivative financial instruments:
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Non-derivative financial instruments comprise cash and cash equivalents, trade and other receivables, due from related parties, trade and other payables, due to related parties, due to investors, promissory notes and convertible notes. Non-derivative financial instruments are recognized initially at fair value plus, for instruments not at fair value through profit or loss, any directly attributable transaction costs. Subsequent to initial recognition non-derivative financial instruments are measured as described below:
3. SIGNIFICANT ACCOUNTING POLICIES
Financial assets at fair value through profit or loss:
An instrument is classified at fair value through profit or loss if it is held for trading or is designated as such upon initial recognition. Financial instruments are designated at fair value through profit or loss if the Company manages such investments and makes purchase and sale decisions based on their fair value in accordance with the Company's risk management or investment strategy. Upon initial recognition, attributable transaction costs are recognized in profit or loss when incurred. Financial instruments at fair value through profit or loss are measured at fair value, and changes therein are recognized in profit or loss. The Company has classified cash and cash equivalents at fair value through profit or loss.
Compound Instruments:
Compound instruments, such as convertible notes, are separated into their liability and equity components using the effective interest method. The liability component accretes up to the principal balance at maturity. The equity component will be reclassified to share capital upon conversion. Any balance in equity that remains after the settlement of the liability is transferred to contributed surplus. The equity portion is recognized net of deferred taxes and deferred issue costs.
Other:
Other non-derivative financial instruments, such as trade and other receivables, due from related parties, trade and other payables, due to related parties, due to investors and promissory notes are measured at amortized cost using the effective interest method, less any impairment losses.
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(ii)
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Derivative financial instruments:
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The Company evaluates all financial instruments for freestanding and embedded derivatives. Warrants and options do not have readily determinable fair values and therefore require significant management judgment and estimation. The Company uses the Black-Scholes pricing model to estimate the fair value of warrants at the end of each reporting period. Inputs into the Black-Scholes pricing model require estimates, including such items as estimated volatility of the Company's stock and the estimated life of the financial instruments being fair valued.
The warrants issued in currencies other than the functional currency are considered derivative liabilities as the warrants are convertible into CAD denominated common shares at a United States dollar ("USD") exercise price. As a result, the Company recognizes the fair values of the derivative components at the date of issuance, with the remainder of the proceeds attributed to share capital. The derivative liability is marked-to-market at each reporting date using the Black-Scholes pricing model to estimate the fair value. Movement in the fair value of the derivative liability are charged to profit or loss during the financial period in which they are incurred.
GENOIL INC.
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Common shares are classified as equity. Incremental costs directly attributable to the issue of common shares and share options are recognized as a deduction from equity, net of any tax effects.
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(d)
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Cash and cash equivalents
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Cash includes cash on hand and cash at banks. Cash equivalents include short term deposits held in money market funds with original maturities of less than three months and that are not subject to any risk of change in value.
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(e)
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Trade and other receivables
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Trade and other receivables, except for taxes prepaid and advances to suppliers, are initially recognized at fair value and subsequently accounted at amortized cost using the effective interest method less provision for impairment of such receivables. Taxes prepaid and advances to suppliers are accounted for at actually paid amounts. A provision for impairment of trade and other receivables is established when there is objective evidence that the Company will not be able to collect all amounts due according to the original terms of receivables. An allowance is made for all receivables outstanding in excess of 90 days. The amount of the provision is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The amount of the provision is recognized in profit or loss. The primary factors that the Company considers whether a receivable is impaired is its overdue status.
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(f)
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Property and equipment
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Property and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Cost is determined as the expenditure directly attributable to the asset at acquisition, only when it is probable that future economic benefits will flow to the Company and the cost can be reliably measured. When an asset is disposed of, its carrying cost is derecognized. All repairs and maintenance costs are charged to profit or loss during the financial period in which they are incurred.
Depreciation over the estimated useful life of assets is provided on the following bases and annual rates:
|
Type
|
Method
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Rate
|
|
Office Equipment
|
Straight line
|
5 years
|
|
Upgrader
|
Straight line
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15 years
|
|
Crystal Sea Test Unit
|
Straight line
|
15 years
|
The Company allocates the amount initially recognized in respect of an item of property and equipment to its significant components and depreciates separately each such component, where applicable. The estimated residual value and useful lives of the property and equipment are reviewed at the end of each reporting period and adjusted if required.
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The gains or losses on disposal of an item of property or equipment are determined by comparing the proceeds from disposal with the carrying amount of the property and equipment and are included in profit or loss.
Intangible assets acquired outside business combinations are measured on initial recognition at cost. Following initial recognition, intangible assets are carried at cost less any accumulated depreciation and any accumulated impairment losses. Internally generated intangible assets are not capitalized and the expenditure is reflected in profit or loss.
Intangible assets resulting from an acquisition are recorded at fair value. Fair value is estimated by management based on the expected discounted future cash flows associated with the intangible asset. Intangible assets with a finite life are amortized over the estimated useful life and intangible assets with an indefinite life are not subject to depreciation. Intangible assets are tested for impairment at each reporting period. Any impairment is identified by comparing the fair value of the intangible asset to its carrying value. Any excess of the carrying value of the intangible asset over the implied fair value is the impairment amount and will be charged to profit or loss in the period of the impairment.
Patents and technology rights are recorded at cost and are amortized at 10% on a declining-balance basis.
A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset.
An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount and its recoverable amount.
Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics.
All impairment losses are recognized in profit or loss.
An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognized. For financial assets measured at amortized cost the reversal is recognized in profit or loss.
GENOIL INC.
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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(ii)
|
Non-financial and intangible assets
|
The carrying amount of the Company's property and equipment and intangible assets with a finite useful life are assessed for impairment indicators at each reporting date to determine whether there is any indication that these assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the assets is estimated in order to determine the extent of the impairment loss, if any.
An impairment loss is recognized for the amount by which the assets carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's, or group of assets', estimated fair value less cost to sell and its value in use. For the purposes of assessing impairment, assets are grouped at the lowest level for which there are separately identifiable independent cash inflows (a cash generating unit or "CGU").
Where an impairment loss subsequently reverses, the carrying amount of the asset (or CGU) is increased to the revised estimate of its recoverable amount, but limited to the carrying value that would have been determined had no impairment loss been recognized for the asset (or CGU) in prior years. A reversal of an impairment loss is recognized immediately in profit or loss
Assets that have an indefinite useful life and goodwill are not subject to depreciation and are tested for impairment at each reporting date and when there is an indication of potential impairment. Impairment of goodwill is not reversed.
Provisions are recognized when the Company has a present obligation as a result of a past event that can be estimated with reasonable certainty and are measured at the amount that the Company would rationally pay to be relieved of the present obligation. To the extent that provisions are estimated using a present value technique, such amounts are determined by discounting the expected future cash flows at a risk-free pre-tax rate and adjusting the liability for the risks specific to the liability.
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(j)
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Trade and other payables
|
Trade and other payables are accrued when the counterparty performed its obligations under the contract. Trade and other payables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method.
Where the Company is a lessee in a lease which does not transfer substantially all the risks and rewards incidental to ownership from the lessor, the total lease payments are charged to profit or loss on a straight-line basis over the term of the lease.
GENOIL INC.
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income tax expense comprises current and deferred tax. Income tax expense is recognized in profit or loss except to the extent that it relates to items recognized directly in equity, in which case it is recognized in equity.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
Deferred tax is recognized using the liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized on the initial recognition of assets or liabilities in a transaction that is not a business combination. In addition, deferred tax is not recognized for taxable temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.
A deferred tax asset is recognized to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.
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(m)
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Finance income and expenses
|
Finance expenses include interest expense on financial liabilities, accretion expense on convertible notes, and foreign exchange losses. Interest expense is recognized as amounts accrued in the consolidated statement of loss using the effective interest rate method.
Foreign currency gains and losses, reported under finance income and expenses, are reported on a net basis.
The Company grants options to purchase common shares to employees, directors, and consultants under its stock option plan. Share-based payments to these individuals are measured at the fair value of the options issued and amortized over the vesting periods. The amount recognized as a share-based payment expense during a reporting period is adjusted to reflect the number of awards expected to vest. The offset to this recorded cost is to contributed surplus. A forfeiture rate is estimated on the grant date and is subsequently adjusted to reflect the actual number of options that vest. At the time of exercise, the consideration and related contributed surplus recognized to the exercise date are credited to share capital.
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Basic earnings (loss) per share is calculated by dividing the income (loss) attributable to common shareholders of the Company by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share is determined by adjusting the income (loss) attributable to common shareholders and the weighted average number of common shares outstanding for the effects of dilutive instruments such as stock options and warrants. The calculation assumes the proceeds on exercise of options are used to repurchase shares at the current market price. All options and warrants are anti-dilutive when the Company is in a loss position.
The Company specializes in two technologies: proprietary upgrader technology for use in the oil industry and technology in oil and water separation systems. Substantially all of the Company's operations and assets are in Canada and are focused on development and commercialization of both technologies, which are currently considered one industry and reportable operating segment.
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(q)
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New accounting standards:
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|
(i)
|
Amendments to IAS 1 Presentation of Items of Other Comprehensive Income
|
The amendments to IAS 1 require the company to group other comprehensive income ("OCI") items by those that will be reclassified subsequently to earnings and those that will not. The amendments to IAS 1 had no impact on the consolidated financial statements.
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(ii)
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Application of new and revised IFRS on consolidation, joint arrangements, associates and disclosures
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The company has adopted the requirements of IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements, IFRS 12 Disclosures of Interests in Other Entities as well as the consequential amendments to IAS 27 (as revised in 2011) Separate Financial Statements and IAS 28 (as revised in 2011) Investments in Associates and Joint Ventures in the current period.
The impact of the application of these standards is set out below.
GENOIL INC.
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
(i)
|
Impact of the application of IFRS 10
|
As a result of the adoption of IFRS 10, the company has changed its accounting policies with respect to determining whether it has control over and consequently consolidates its investees. IFRS 10 changes the definition of control such that an investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. In accordance with the transitional provisions of IFRS 10, the company has re-assessed the control conclusion for its investees at January 1, 2013 and concluded that the new standard does not change its previous conclusion.
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(ii)
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Impact of the application of IFRS 11
|
IFRS 11 replaces IAS 31 Interests in Joint Ventures and SIC-13 Jointly Controlled Entities - Non-Monetary Contributions by Venturers. IFRS 11 deals with how a joint arrangement of which two or more parties have joint control should be classified. The application of IFRS 11 has no impact on the consolidated financial statements as the company has no interests in joint arrangements.
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(iii)
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Impact of the application of IFRS 12
|
IFRS 12 is a disclosure standard and is applicable to entities that have interests in subsidiaries, joint arrangements, associates and/or unconsolidated structured entities. The application of IFRS 12 has not resulted in additional disclosures in the consolidated financial statements.
|
(iii)
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Application of IFRS 13 Fair Value Measurement
|
The company has applied the requirements of IFRS 13 Fair Value Measurement in the current period. IFRS 13 improves consistency and reduces complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRS. The requirements do not extend the use of fair value accounting but provide guidance on how it should be applied where its use is already required or permitted by other standards within IFRS. The application of IFRS 13 has not resulted in a change in fair value measurement and no additional disclosures in the consolidated financial statements.
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(iv)
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New standards and interpretations not yet adopted
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A number of new standards, amendments to standards and interpretations are not yet effective for the year ended December 31, 2013, and have not been applied in preparing these consolidated financial statements. The company intends to adopt the amendments to IAS 32 in its financial statements for the annual period beginning January 1, 2014. The company does not expect the amendments to have a material impact on the financial statements.
4. DETERMINATION OF FAIR VALUES
A number of the Company's accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. When applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability. The Company is required to classify fair value measurements using a hierarchy that reflects the significance of the inputs used in making the measurements.
The fair value hierarchy is as follows:
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§
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Level 1 – quoted prices in active markets for identical assets or liabilities;
|
|
§
|
Level 2 – inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly; and,
|
|
§
|
Level 3 – inputs for the asset or liability that are not based on observable market data.
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Cash and cash equivalents have been measured using level 1 inputs. The derivative liability has been measured using level 3 inputs.
|
(a)
|
Current assets and current liabilities
|
The fair value of cash and cash equivalents, trade and other receivables, trade and other payables, due to investors, promissory notes and amounts due to/from related parties is estimated as the present value of future cash flows, discounted at the market rate of interest at the reporting date. At December 31, 2014 and December 31, 2013, the fair value of these balances approximated their carrying value due to their short term to maturity.
The carrying value of convertible notes includes the liability component and the equity component related to the conversion feature of the debentures. The liability component is recognized at its fair value on the date of issuance based on the discounted present value of future cash flows, with the remainder of the proceeds attributed to the equity component.
Subsequent to issuance, the liability component is accreted up to face value using the effective interest method.
|
(c)
|
Stock options and warrants
|
The fair values of stock options and warrants are measured using the Black-Scholes pricing model. Measurement inputs include share price on measurement date, exercise price of the instrument, expected forfeiture rate (based on historic forfeitures), expected volatility (based on weighted average historic volatility adjusted for changes expected due to publicly available information), weighted average expected life of the instruments (based on historical experience and general option holder behavior), expected dividends, and the risk-free interest rate.
GENOIL INC.
5. RELATED PARTY TRANSACTIONS
|
|
|
December 31
2014
|
|
|
December 31
2013
|
|
| |
|
|
|
|
|
|
|
Due from related parties
|
|
$
|
262,494
|
|
|
$
|
262,494
|
|
|
Due to related parties
|
|
|
(83,235
|
)
|
|
|
(83,235
|
)
|
| |
|
$
|
179,259
|
|
|
$
|
179,259
|
|
Key management compensation is comprised of the following:
| |
|
Years ended December 31
|
|
|
|
|
2014
|
|
|
2013
|
|
|
Short-term employee benefits
|
|
$
|
116,604
|
|
|
$
|
116,604
|
|
|
Share-based payments
|
|
|
114,795
|
|
|
|
114,795
|
|
| |
|
$
|
231,399
|
|
|
$
|
231,399
|
|
6. PROPERTY AND EQUIPMENT
|
Cost or deemed cost
|
|
Land
|
|
|
Office Equipment
|
|
|
Upgrader
|
|
|
Crystal Sea Test Unit
|
|
|
Total
|
|
|
As at December 31, 2012
|
|
|
54,060
|
|
|
|
281,262
|
|
|
|
2,983,455
|
|
|
|
197,795
|
|
|
|
3,516,572
|
|
|
Additions
|
|
|
-
|
|
|
|
1,987
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,987
|
|
|
As at December 31, 2013
|
|
$
|
54,060
|
|
|
$
|
283,249
|
|
|
$
|
2,983,455
|
|
|
$
|
197,795
|
|
|
$
|
3,518,559
|
|
|
Additions
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
As at December 31, 2014
|
|
$
|
54,060
|
|
|
$
|
283,249
|
|
|
$
|
2,983,455
|
|
|
$
|
197,795
|
|
|
$
|
3,518,559
|
|
|
Accumulated depreciation and impairment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at December 31, 2012
|
|
-
|
|
|
265,028
|
|
|
2,935,032
|
|
|
13,186
|
|
|
3,213,246
|
|
|
Depreciation
|
|
-
|
|
|
4,486
|
|
|
11,495
|
|
|
13,186
|
|
|
29,167
|
|
|
Impairment
|
|
|
|
|
13,735
|
|
|
-
|
|
|
171,423
|
|
|
185,158
|
|
|
As at December 31, 2013
|
|
-
|
|
|
283,249
|
|
|
2,946,452
|
|
|
197,795
|
|
|
3,427,571
|
|
|
Depreciation
|
|
-
|
|
|
-
|
|
|
13,424
|
|
|
-
|
|
|
13,424
|
|
|
Impairment
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
As at December 31, 2014
|
|
-
|
|
|
283,249
|
|
|
2,959,951
|
|
|
197,795
|
|
|
3,440,995
|
|
|
Net book value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at December 31, 2013
|
|
54,060
|
|
|
-
|
|
|
36,928
|
|
|
-
|
|
|
90,988
|
|
|
As at December 31, 2014
|
|
54,060
|
|
|
-
|
|
|
25,433
|
|
|
-
|
|
|
77,564
|
|
7. Intangible ASSESTS
| |
|
Technology Rights
|
|
|
Patents
|
|
|
Mineral Rights
|
|
|
Total
|
|
|
Cost of deemed cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at December 31, 2012
|
|
|
2,095,518
|
|
|
|
713,061
|
|
|
|
1,628,685
|
|
|
|
4,437,264
|
|
|
Additions
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Impairment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
As at December 31, 2012
|
|
$
|
2,095,518
|
|
|
$
|
713,061
|
|
|
$
|
1,628,685
|
|
|
$
|
4,437,264
|
|
|
Additions
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Impairment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
As at December 31, 2013
|
|
$
|
2,095,518
|
|
|
$
|
713,061
|
|
|
$
|
1,628,685
|
|
|
$
|
4,437,264
|
|
|
Accumulated amortization and impairment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at December 31, 2012
|
|
|
2,095,518
|
|
|
|
602,740
|
|
|
|
-
|
|
|
|
2,574,890
|
|
|
Amortization
|
|
|
-
|
|
|
|
11,033
|
|
|
|
-
|
|
|
|
11,033
|
|
|
Impairment
|
|
|
-
|
|
|
|
42,551
|
|
|
|
1,628,685
|
|
|
|
1,671,236
|
|
|
As at December 31, 2013
|
|
$
|
2,095,518
|
|
|
$
|
656,324
|
|
|
$
|
1,628,685
|
|
|
$
|
4,380,527
|
|
|
Amortization
|
|
|
-
|
|
|
|
5,674
|
|
|
|
-
|
|
|
|
5,674
|
|
|
Impairment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
As at December 31, 2014
|
|
$
|
2,095,518
|
|
|
$
|
661,997
|
|
|
$
|
1,628,685
|
|
|
$
|
4,386,201
|
|
|
Net book value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at December 31, 2013
|
|
$
|
-
|
|
|
$
|
56,738
|
|
|
$
|
-
|
|
|
$
|
56,738
|
|
|
As at December 31, 2014
|
|
$
|
-
|
|
|
$
|
51,064
|
|
|
$
|
-
|
|
|
$
|
51,064
|
|
During 2013, the Company incurred an impairment loss of $Nil (2012 - $856,412) and $42,551 (2012 - $143,588) on technology rights and patents due to a lack of probable cash inflows before approaching expiry dates.
During 2013, the Company incurred an impairment loss of $1,628,685 on the mineral rights. The mineral rights are considered fully impaired due to the absence of estimated future cash flows to recover the investment. The development of the mineral rights require significant capital outlays and due to the state of the Company's financial position it currently has no future plan to develop or dispose of the mineral rights.
8. PROMISSORY NOTES
As at December 31, 2014, there are three outstanding promissory notes which are past due. The terms of these promissory notes are as follows:
| |
|
Principal
|
|
|
Interest rate
|
|
|
Accumulated interest
|
|
|
Ending balance
|
|
|
Promissory note 1
|
|
$
|
51,759
|
|
|
|
-
|
|
|
$Nil
|
|
|
$
|
51,759
|
|
|
Promissory note 2
|
|
US$25,000
|
|
|
|
12
|
%
|
|
US$8,094
|
|
|
$
|
35,414
|
|
|
Promissory note 3
|
|
$
|
15,686
|
|
|
|
12
|
%
|
|
$
|
1,984
|
|
|
$
|
17,630
|
|
A continuity schedule of the promissory notes are as follows:
|
Balance, December 31, 2012
|
|
$
|
96,774
|
|
|
Interest
|
|
|
5,775
|
|
|
Addition
|
|
|
-
|
|
|
Repayment
|
|
|
-
|
|
|
Foreign exchange
|
|
|
2,254
|
|
|
Balance, December 31, 2013
|
|
$
|
104,803
|
|
|
Interest
|
|
|
5,775
|
|
|
Addition
|
|
|
-
|
|
|
Repayment
|
|
|
-
|
|
|
Foreign exchange
|
|
|
(5,775
|
)
|
|
Balance, December 31, 2014
|
|
$
|
104,803
|
|
9. CONVERTIBLE NOTES
|
|
|
Series A
|
|
|
Series E
|
|
|
Total
|
|
| |
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2012
|
|
$
|
133,445
|
|
|
$
|
2,012,343
|
|
|
$
|
2,145,788
|
|
|
Accretion
|
|
|
18,868
|
|
|
|
-
|
|
|
|
18,868
|
|
|
Interest accrued
|
|
|
-
|
|
|
|
250,675
|
|
|
|
250,675
|
|
|
Balance, December 31, 2013
|
|
$
|
152,313
|
|
|
$
|
2,263,018
|
|
|
$
|
2,415,331
|
|
|
Accretion
|
|
|
18,868
|
|
|
|
-
|
|
|
|
18,868
|
|
|
Partial conversions
|
|
|
-
|
|
|
|
(315,000
|
)
|
|
|
(315,000
|
)
|
|
Interest accrued
|
|
|
-
|
|
|
|
-
|
|
|
|
47,945
|
|
|
Balance, December 31, 2014
|
|
$
|
171,181
|
|
|
$
|
1,948,018
|
|
|
$
|
2,167,144
|
|
Series A
The remaining series A convertible notes are non-interest bearing and have an outstanding principal of $153,213. The maturity date was December 23, 2014. The Company will continue to record accretion at the original effective interest rate of 12% up to the maturity date. At the holder's option, the notes may be converted to common shares of the Company at a rate of $0.44 per share at any time prior to maturity. The convertible note may also be converted at the Company's option if the Company's common share trading price exceeds $1.55 per share for 30 consecutive trading days during the term of the note.
9. CONVERTIBLE NOTES (Continued)
Series E
The series E convertible notes carry interest at 12% per annum, accrued semi-annually, and are convertible into common shares of the Company at the option of the holder. The outstanding principal balance at December 31, 2014 is $912,356 (2013 - $1,227,356) and the difference between the principal and book value represents accrued interest. Interest accruing in 2014 has been classified as accounts payable and accrued expenses. Prior to the 2014 fiscal year, accrued interest was added to the note account balance. Approximately 32% of the amount is due to companies controlled by the Chairman and CEO. The notes had an original maturity date of October 6, 2009 and an original conversion price of $0.27 per share. The maturity date was extended to October 6, 2010 and then again to October 6, 2011.
In July 2012, the Company received regulatory approval to extend the maturity date to October 6, 2013. The extended notes continue to carry interest at 12% per annum, accrued semi-annually, and are convertible into common shares of the Company at $0.10 per share at the option of the holder. As a result of the change in the conversion price, a loss of $844,533 has been recorded.
On November 15, 2013, the Company extended the notes for another two years maturing on October 6, 2015. The extended notes continue to carry interest at 12% per annum, accrued semi-annually, and are convertible into common shares of the Company at $0.015 per share at the option of the holder. As a result of the change in the conversion price, a loss of $2,526,742 has been recorded in the current year.
10. SHARE CAPITAL
Unlimited number of common shares without par value
10,000,000 Class A Preferred shares, issuable in series, none of which are outstanding
|
(b)
|
Issued and outstanding common shares
|
| |
|
Number
|
|
|
Amount
|
|
|
Balance, December 31, 2012
|
|
|
350,456,719
|
|
|
$
|
58,276,791
|
|
| |
|
|
|
|
|
|
|
|
|
Private placements (i), (ii), (iii)
|
|
|
30,752,115
|
|
|
|
918,127
|
|
|
Share issue expenses
|
|
|
-
|
|
|
|
(15,096
|
)
|
|
Balance, December 31, 2013
|
|
|
381,208,834
|
|
|
$
|
59,179,822
|
|
| |
|
|
|
|
|
|
|
|
|
Private placements (iv
|
|
|
24,142,668
|
|
|
|
360,650
|
|
|
Share issue expenses
|
|
|
-
|
|
|
|
-
|
|
|
Balance, December 31, 2014
|
|
|
405,351,502
|
|
|
$
|
59,540,472
|
|
GENOIL INC.
10. SHARE CAPITAL (Continued)
|
(i) |
In February 2013, the company closed a private placement that raised $408,947 and issued 6,815,783 common shares at $0.06 per common shares. No warrants were issued and the full amount was allocated to share capital. |
|
(ii)
|
In March 2013, the Company closed a private placement that raised $200,180 and issued 3,336,333 common shares at $0.06 per common share. No warrants were issued and the full amount was allocated to share capital.
|
|
(iii)
|
In November 2013, a private placement was completed. The Company issued a total of 20,599,999 shares at $0.015 per common shares. 17,366,574 shares were issued for cash consideration of $260,499 and 3,233,425 shares were issued to two individuals for consulting services provided to the Company in the amount of $48,501. The attached warrants are exercisable at US$0.05 with a 5 year term and the estimated fair value of $386,758 was recorded as a debit to contributed surplus and a credit to the derivative liabilities.
|
|
(iv)
|
In March 2014 the Company issued 3,042,668 shares of common stock at $0.015 CAD per share for total gross proceeds of $45,650, and granted 3,042,668 warrants with a strike price of $0.05 CAD in connection with the share issuance.
|
|
(v)
|
In March 2014 the Company issued 21,100,000 shares of common stock at a price of $0.015 USD per share to settle $316,500 in debt as part of shares for debt settlement agreements with various parties for consulting services performed.
|
The warrants issued in US dollars represented a derivative financial instrument recognized at fair value on the date of issuance with the remainder of the proceeds attributed to the derivative liability.
As at December 31, 2014, the derivative component was determined to be $629,610 (2013 - $263,791). The fair value adjustment on derivative liability was a loss of $88,413 (2013 – gain of $404,541) which represents the movement in the fair value of the derivative liability during the period plus the net issuance/exercise of warrants of $-0- (2013 - $386,758).
The fair value of warrants issued during 2013 and 2012 were estimated on the dates of grant using the Black-Scholes pricing model based on the following assumptions:
| |
2014
|
2013
|
|
Volatility
|
196%
|
183%
|
|
Expected life
|
5 years
|
5 years
|
|
Risk-free rate
|
1.74%
|
1.74%
|
|
Dividend yield
|
-
|
-
|
|
Weighted average fair value
|
$0.02
|
$0.02
|
GENOIL INC.
11. SHARE-BASED PAYMENTS
The Company has a stock option plan for directors, officers, employees and consultants. The term and vesting conditions of each option may be fixed by the Board of Directors when the option is granted, but the term cannot exceed 10 years. The maximum number of shares that may be reserved for issuance under the plan is fixed at 69,819,579 (2012 – 69,819,579). The maximum number of shares that may be optioned to any one person is 5% of the shares outstanding at the date of the grant. A continuity of stock options is as follows:
| |
Number of
Options
|
|
Weighted-Average
Exercise Price
|
|
Balance, December 31, 2012
|
58,418,500
|
|
0.21
|
|
Granted
|
11,850,200
|
|
0.08
|
|
Expired
|
(12,850,000)
|
|
(0.22)
|
|
Cancelled
|
(200,000)
|
|
(0.10)
|
|
Balance, December 31, 2013
|
57,218,700
|
|
0.16
|
|
Granted
|
-
|
|
-
|
|
Expired
|
-
|
|
-
|
|
Cancelled
|
-
|
|
-
|
|
Balance, December 31, 2014
|
57,218,700
|
|
0.16
|
The following is a summary of options outstanding and exercisable as at December 31, 2014:
|
|
|
Outstanding
|
|
|
Exercisable
|
|
|
Range
|
|
|
Number of Options Outstanding
|
|
|
Remaining Contractual Life
|
|
|
Weighted Average Exercise Price
|
|
|
Number of Options Vested
|
|
|
Remaining Contractual Life
|
|
|
Weighted Average Exercise Price
|
|
|
$
|
0.00 to $0.10
|
|
|
|
11,850,200
|
|
|
|
4.20
|
|
|
|
0.08
|
|
|
|
11,850,200
|
|
|
|
4.20
|
|
|
|
0.08
|
|
|
$
|
0.11 to $0.20
|
|
|
|
34,768,500
|
|
|
|
1.30
|
|
|
|
0.15
|
|
|
|
34,768,500
|
|
|
|
1.30
|
|
|
|
0.15
|
|
|
$
|
0.21 to $0.30
|
|
|
|
10,600,000
|
|
|
|
1.44
|
|
|
|
0.26
|
|
|
|
10,600,000
|
|
|
|
1.44
|
|
|
|
0.26
|
|
| |
|
|
|
|
57,218,700
|
|
|
|
1.93
|
|
|
|
0.16
|
|
|
|
57,218,700
|
|
|
|
1.93
|
|
|
|
0.16
|
|
During 2013, the Company recognized $415,387 (2012 – $55,550) of share-based payment compensation. All of the options issued during 2013 vested immediately and expire within 5 years. Included in this amount, $48,501 relates to shares issued to two individuals for the consulting services provided to the Company.
The fair value of stock options granted during 2014 and 2013 was estimated on the dates of grant using the Black-Scholes pricing model based on the following assumptions:
| |
2014
|
2013
|
|
Volatility
|
131% - 171%
|
131% - 171%
|
|
Expected life
|
2 - 5 Years
|
2 - 5 years
|
|
Risk-free rate
|
1.17% - 1.78%
|
1.17% - 1.78%
|
|
Dividend yield
|
-
|
-
|
|
Forfeiture rate
|
0%
|
0%
|
|
Weighted average fair value
|
$0.03
|
$0.03
|
12. WARRANTS
A summary of the changes in share purchase warrants outstanding and exercisable at the end of the period is as follows:
C$ Warrants
| |
Number of
C$ Warrants
|
|
Weighted-Average
Exercise Price
|
|
Balance, December 31, 2012
|
21,891,718
|
|
C$0.10
|
|
Issued
|
-
|
|
0.10
|
|
Balance, December 31, 2013
|
21,891,718
|
|
0.10
|
|
Issued
|
3,042,668
|
|
0.015
|
|
Balance, December 31, 2014
|
24,934,386
|
|
C$0.09
|
US $ Warrants
| |
Number of
US$ Warrants
|
|
Weighted-Average
Exercise Price
|
|
Balance, December 31, 2012
|
9,787,903
|
|
US$0.16
|
|
Issued
|
20,599,999
|
|
0.05
|
|
Expired
|
(1,644,696)
|
|
(0.25)
|
|
Balance, December 31, 2013
|
28,743,206
|
|
US$0.07
|
|
Issued
|
-
|
|
-
|
|
Expired
|
-
|
|
-
|
|
Balance, December 31, 2014
|
28,743,206
|
|
US$0.07
|
The following is a summary of C$ warrants outstanding and exercisable as at December 31, 2014:
|
Range of Exercise Prices
|
|
Total Number
of Warrants
|
|
Weighted-Average Exercise Price
|
|
Remaining Contractual Life (Years)
|
|
C$0.00 to $0.79
|
|
24,934,386
|
|
C$0.09
|
|
3.25
|
The following is a summary of US$ warrants outstanding and exercisable as at December 31, 2014:
|
Range of Exercise Prices
|
|
Total Number
of Warrants
|
|
Weighted-Average Exercise Price
|
|
Remaining Contractual Life (Years)
|
|
US$0.00 to $0.05
|
|
20,599,999
|
|
US$0.05
|
|
3.90
|
|
US$0.06 to $0.10
|
|
5,143,207
|
|
US$0.10
|
|
1.90
|
|
Over US$0.11
|
|
3,000,000
|
|
US$0.20
|
|
1.67
|
| |
|
28,743,206
|
|
US$0.07
|
|
3.31
|
13. LOSS PER SHARE
Basic loss per share is calculated as follows:
| |
|
Years ended
December 31
|
|
| |
|
2014
|
|
|
2013
|
|
|
Net loss for the period
|
|
$
|
(537,693
|
)
|
|
$
|
(5,724,123
|
)
|
|
Weighted average number of shares – basic and diluted:
|
|
|
393,280,168
|
|
|
|
361,299,121
|
|
|
Loss per share – basic and diluted:
|
|
$
|
(0.00
|
)
|
|
$
|
(0.02
|
)
|
The effect of warrants and options is anti-dilutive in loss periods.
14. CONTRIBUTED SURPLUS
|
Balance, December 31, 2012
|
|
$
|
21,043,968
|
|
|
Stock-based compensation (Note 11)
|
|
|
366,886
|
|
|
Warrants issued (Note 10)
|
|
|
(386,758
|
)
|
|
FMV adjustment on debt share conversion price (Note 9)
|
|
|
2,526,742
|
|
|
Balance, December 31, 2013
|
|
$
|
23,550,742
|
|
|
Stock-based compensation (Note 11)
|
|
|
-
|
|
|
Warrants issued (Note 10)
|
|
|
(277,406
|
)
|
|
FMV adjustment on debt share conversion price (Note 9)
|
|
|
-
|
|
|
Balance, December 31, 2014
|
|
$
|
23,273,432
|
|
15. FINANCE EXPENSE
| |
|
Years ended
December 31
|
|
| |
|
2014
|
|
|
2013
|
|
| |
|
|
|
|
|
|
|
Interest on convertible notes
|
|
$
|
149,096
|
|
|
$
|
256,450
|
|
|
Accretion of convertible notes
|
|
|
18,868
|
|
|
|
18,868
|
|
|
Interest (income) expense
|
|
|
-
|
|
|
|
(21,391
|
)
|
|
Foreign exchange loss
|
|
|
-
|
|
|
|
(44,799
|
)
|
| |
|
$
|
167,963
|
|
|
$
|
209,128
|
|
16. TAXES
The provision for taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for tax purposes. The provision for taxes differs from that computed using combined Canadian federal and provincial statutory corporate tax rates as follows:
| |
|
2014
|
|
|
2013
|
|
|
Loss before income taxes
|
|
$
|
537,693
|
|
|
$
|
5,724,123
|
|
|
Expected (recovery) expense at statutory tax rate of 25% (2013 – 25%)
|
|
|
(143,423
|
)
|
|
|
(1,431,000
|
)
|
|
Adjustments to tax filings for tax pools
|
|
|
-
|
|
|
|
-
|
|
|
Non-deductible share-based payments
|
|
|
-
|
|
|
|
103,800
|
|
|
Non-deductible derivative liability fair value adjustment
|
|
|
(22,103
|
)
|
|
|
(101,100
|
)
|
|
Non-deductible loss on change in conversion price
|
|
|
-
|
|
|
|
631,700
|
|
|
Difference in foreign tax rates and other
|
|
|
-
|
|
|
|
(15,800
|
)
|
|
Change in unrecognized deferred tax assets
|
|
|
165,526
|
|
|
|
812,400
|
|
| |
|
$
|
-
|
|
|
$
|
-
|
|
The tax effects on major temporary differences that give rise to the deferred tax asset are as follows:
| |
|
December 31
2014
|
|
|
December 31
2013
|
|
|
Tax losses available for carry forward
|
|
$
|
12,168,800
|
|
|
$
|
12,168,800
|
|
|
Long-term assets
|
|
|
1,014,000
|
|
|
|
1,014,000
|
|
|
Share issuance and financing costs
|
|
|
6,900
|
|
|
|
6,900
|
|
|
Convertible debenture
|
|
|
(200
|
)
|
|
|
(200
|
)
|
|
Unrecognized deferred tax assets
|
|
|
(13,189,500
|
)
|
|
|
(13,189,500
|
)
|
| |
|
$
|
-
|
|
|
$
|
-
|
|
The Company's deferred tax assets include approximately $27,700 related to deductions for share issue costs in excess of amounts deducted for financial reporting purposes.
The Company has approximately $2,115,200 (2012 – $2,350,300) of exploration and development costs which are available for deduction against future income for Canadian tax purposes.
The Company has incurred estimated losses in its Canadian and United States operations of $47,687,800 and $705,300 respectively, for tax purposes which are available to reduce future taxable income and which expire in various amounts from 2015 to 2034. Such benefits will be recorded as an adjustment to the tax provision in the year realized.
17. SUBSEQUENT EVENTS
In March 2015, the Company issued 72,000 common shares at a price of $0.05 USD per share to settle $3,631 in debt as part of shares for debt settlement agreements with various parties for consulting services performed. Additionally, the board of directors of the Company approved a stock option grant for directors and outside consultants to acquire up to an aggregate of 8,350,000 common shares of the Company at an exercise price of $0.05. Of the 8,350,000 options approved for grant, 6,500,000 will be granted to directors of the Company for their future efforts in the coming fiscal year, and 2,500,000 were replacing employee expired options.
Management's Discussion and Analysis
December 31, 2014
Management's Discussion and Analysis
Dated as of December 11, 2015
This Management's Discussion and Analysis (MD&A) is dated December 11, 2015, and should be read in conjunction with the audited financial statements for the year ended December 31, 2014. This and other information relating to Genoil Inc. are available on SEDAR at www.sedar.com.
INTRODUCTION
The following Management Discussion and Analysis ("MD&A") is management's assessment of Genoil Inc.'s financial and operating results and should be read in conjunction with the unaudited interim condensed consolidated financial statements and notes for the twelve months ended December 31, 2014 and the audited financial statements and MD&A for the year ended December 31, 2014. This commentary is based upon information available to December 9, 2015.
This MD&A complements and supplements the disclosures in our unaudited interim condensed consolidated financial statements, which have been prepared according to International Financial Reporting Standards ("IFRS").
Additional information relating to Genoil, including Genoil's financial statements can be found on SEDAR at www.sedar.com as well as EDGAR at www.sec.gov.org the Company's website at www.genoil.ca
The Company's principal activity is the development of innovative hydrocarbon and oil and water separation technologies.
Basis of Presentation – The financial statements, MD&A and comparative information have been prepared in Canadian dollars unless otherwise indicated and in accordance with International Financial Reporting Standards ("IFRS").
The Company's securities trade on the NASDAQ OTC Bulletin Board (Symbol: GNOLF).
The Company has not generated revenues from its technologies to date and has funded its near term operations by way of capital stock private placements and short-term loans.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this MD&A constitute forward-looking information within the meaning of securities laws. Forward-looking information may relate to our future outlook and anticipated events or results and may include statements regarding the future financial position, business strategy, budgets, projected costs, capital expenditures, financial results, taxes and plans and objectives of or involving Genoil. Particularly, statements regarding our future operating results and economic performance are forward-looking statements. In some cases, forward-looking information can be identified by terms such as "may", "will", "should", "expect", "plan", "anticipate", "believe", "intend", "estimate", "predict", "potential", "continue" or other similar expressions concerning matters that are not historical facts.
These statements are based on certain factors and assumptions regarding expected growth, results of operations, performance and business prospects and opportunities. While we consider these assumptions to be reasonable based on information currently available to us, they may prove to be incorrect.
Forward looking-information is also subject to certain factors, including risks and uncertainties that could cause actual results to differ materially from what we currently expect. These factors include risk associated with loss of market, volatility of commodity prices, currency fluctuations, environmental risk, and competition from other producers and ability to access sufficient capital from internal and external resources.
Other than as required under securities laws, we do not undertake to update this information at any particular time.
All statements, other than statements of historical fact, which address activities, events, or developments that Genoil expects or anticipates will or may occur in the future, are forward-looking statements within the meaning of applicable securities laws. These statements are subject to certain risks and uncertainties, and may be based on estimates or assumptions that could cause actual results to differ materially from those anticipated or implied.
Further, the forward-looking statements contained in this MD&A are made as of the date hereof, and the Company does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, as a result of new information, future events or otherwise, except as may be required by applicable securities laws. The Company's forward-looking statements are expressly qualified in their entirety by this cautionary statement. Certain risk factors associated with these forward-looking statements include, but are not limited to, the following:
|
• |
Adverse changes in foreign currency exchange rates and/or interest rates; |
|
• |
Competition for capital, asset acquisitions, undeveloped lands, and skilled personnel; |
|
• |
Adverse changes in general economic conditions in Western Canada, Canada more generally, North America or globally; |
|
• |
Adverse weather conditions; |
|
• |
The inability of Genoil to obtain financing on favorable terms, or at all; |
|
• |
Adverse impacts from the actions of competitors; and |
|
• |
Adverse impacts of actions taken and/or policies established by governments or regulatory authorities including changes to tax laws, incentive programs, and environmental laws and regulations. |
BUSINESS OF THE CORPORATION
Genoil Inc. is a technology development company based in Alberta, Canada. The Company has developed innovative hydrocarbon and oil and water separation technologies.
The Company specializes in heavy oil upgrading, oily water separation, process system optimization, development, engineering, design and equipment supply, installation, start up and commissioning of services to specific oil production, refining, marine and related markets.
Genoil has been primarily involved in the development and commercial applications of its modular proprietary heavy oil upgrading technology – based on proven principles of the fixed bed reactor that has been in operation for over fifty years. Genoil has a strategic relationship with a major engineering firm, and we are working on developing relations with three more, giving Genoil the surge capacity to add thousands of engineers, the project risk management experience, and engineering know-how, technological and project process warranties, to apply to any project and enable the company to execute a one million barrel per day contract in the Middle East.
The Genoil Hydroconversion Upgrader GHU® - Background
Genoil has designed and developed the Genoil Hydroconversion Upgrader (GHU®), based on proven principles using fixed bed reactor technology. The GHU® technology converts sour (high sulphur), heavy hydrocarbon feed stocks into lighter oil with higher quality distillates for conventional refining. The Genoil technology was commissioned at Conoco Canada's battery site at their bitumen oil field in Kerrobert Saskatchewan. Conoco carefully monitored the upgrading of bitumen from 6.9-8.5 API done there, with their engineers assisting in the administration & operation of the Genoil GHU upgrader. The pitch conversion rate achieve there was 96% yielding a product API Gravity of 25. Conoco collected all sample on the feed, product and gas streams and had them analyzed by CORE Laboratories in Calgary, Alberta and NTEC. Of major interest, is the 96% conversion rate and 99.5% desulfurization done at mild operating conditions. The Genoil process is designed to create a spread of over $30.00 per barrel and it is estimated that there are 900 billion barrels to be upgraded, this makes crude oil upgrading one of the largest market opportunities in the world.
The GHU®'s unique intellectual property is in its hydroconversion design and mixing devices. A GHU® provides greater mass/heat transfer between hydrogen, crude and catalyst. As a result, hydroconversion can be achieved at mild operating conditions. The Genoil Upgrader has proved that it can achieve a greater Liquid Hourly Space Velocity (LHSV) than current processes in the magnitude of 75%. This breakthrough allows for a similar reduction percentage value in operating costs. In essence, it means that it can debottleneck existing infrastructure by providing the option of greater capacity throughput at greater efficiencies. The Genoil GHU is designed to convert heavy crude / bitumen into lighter crude so that it can be transportable by pipeline without the aid of diluent, and to make it more compatible for processing in existing refineries.
By increasing the yield of light products and decreasing the residual portion of a heavy crude stream, heavy crude or bitumen becomes more compatible with existing refineries. There are many heavy and extra heavy crudes which are very difficult feedstocks for existing refineries to process. These heavier crudes are characterized by high sulfur content and yield a high portion of low value residual product. Typically these crudes are very difficult to refine, thus they have a limited market. There is tremendous interest by refineries and national oil companies for upgrading heavy crude so that existing refineries can utilize it. Genoil is currently pursuing business with critical players in almost all of the oil producing countries. Genoil is currently better positioned than any company to realize meaningful upgrading contracts. For example, the United Arab Emirates has 10% of the world's oil reserves and Genoil Emirates is in great position to capture much of the local upgrading market.
The Genoil Upgrader Technology is based on non-destructive, catalytic hydrogenation, and flash separation. The main feature of the Genoil Upgrading Process is the standard Fixed Bed Reactor, and the patented introduction of hydrogen into each reactor. The Genoil technology is modular and has great flexibility to accommodate a range of process objectives. The GHU is a much improved hydrogenation process that upgrades and increases the yields from high sulphur; acidic, heavy crude oils and heavy refinery feed stocks, bitumen and refinery residues into light, clean transportation fuels.
Upgrading heavy oil is essentially a very undeveloped industry and could become one of the largest potential industries in the world. Most of the oil presently coming out of the ground is light, in the vicinity of 86 million barrels a day, or 27.5 billion barrels a year of 400 billion barrels of light oil reserves remaining. It is readily seen that even if you allow for new oil discoveries and further advances of recovery through technological enhancements in field recovery, the time limit for this light oil reserve will last no more than twenty or thirty years.
If desired, the Genoil Upgrading Process can yield zero waste and consumes no external energy or hydrogen, deriving its hydrogen and energy from its own residue. The cost structure is therefore much lower than standard upgrading processes in hydrogenation and does not give off a waste byproduct such as coking of 30%.
GHU BUSINESS PROSPECTS
Our business strategy is to enhance shareholder value by maximizing sales effectiveness with the lowest possible budget. The company's goal is to sign contracts and to monetize the Genoil upgrader and Crystal oil water separation technologies around the world. Genoil is very flexible with its business models. The main GHU upgrading model is to capture a royalty for every produced barrel on the profit created. The corporation has streamlined and reduced its cost to run a more efficient and financially stable existing business. This includes building organizational capability and implementing the best sales and management processes to achieve our business objectives.
2015 Audited Financial Statement & Annual Meeting
The company plans to issue its 2015 audited financial statement by the end of January 2016 to be followed by an annual meeting shortly thereafter.
Hebei Zhongjie Petrochemical Group - 2015 Update
Genoil has planned a trip in middle December to form a new company as per the terms of the recent $700 million JV contract signed in January 2015. The recent engineering studies for the project have estimated favorable profitability even at today's current oil market price. The formation of this corporation will lead to the hiring of personnel for our JV's office. The company is planning to open an independent Genoil office in China and to expand our office in Canada.
In November 2015 Genoil met with Hebei Zhongie Petrochemical group's president to discuss the results of the recent feasibility study to review the engineering and economic work to date and an execution plan for the project. Genoil top executives will be traveling to China by year end for further meetings with all involved parties.
On January 31, 2015 Genoil signed a $700 million joint venture contract with Hebei Zhongjie Petrochemical group (the Hebei provincial government is very excited by this new partnership) to construct a state of the art 1.3 million ton per year refinery utilizing the Genoil GHU technology. The respective equity interest ratio is 70% for Genoil and 30% for HYT. Genoil management was able to bring a long relationship between the parties to contract and to do that with improved terms for Genoil. There is a long history and working relationship between the parties and Genoil is feeling optimistic about the evolution of this relationship. Genoil feels very confident that the support from China will enable the partners to raise financing on a timely basis and to begin construction.
Chinese National Petroleum Corporation had completed the Hebei Zhongjie project feasibility study back in 2008, currently the feasibility study is now being updated at Hebei Zhongjie's expense by another engineering company. Genoil is exploring involving CNPC as the engineering contractor for the project. This engineering work showed an internal rate of return on investment of over 55% on similar international projects.
Hebei Zhongie Petrochemical Group asked Genoil to broker a deal for securing heavy oil energy resources to the Chinese market, utilizing the Genoil upgrading process to produce light sweet oil for their consumption. They have asked us to reach out to our connections in the Middle East and around the world, and have expressed interest in exploring a project outside of China as well. This presents a much larger business opportunity for Genoil. The previous feasibility study and design test conducted by Genoil & CNPC at Two Hills, Alberta, was done with this theme in mind and to target desulfurization of Arab Medium crude oil for a Middle East client, who we were working with at the time.
The Chinese and Middle Eastern interest in Genoil is stronger than ever. The signing of the recent contract has lead to a restarting of negotiations in the Middle East to supply over one million barrels per day of crude oil to the Chinese market. The corporation is not only pursuing its relationships in the Middle East but also in South America and Russia. We feel the timing for this Chinese proposal is perfect as many South American countries are in need of cash and are desirous to increase revenue growth. We are also impressed by the Chinese support for Genoil around the world as they are concerned with long term planning and not short-term market fluctuations. We don't feel that the recent oil price will change the Chinese interest in the GHU®.
Construction of this first GHU® commercial unit remains subject to project financing approval, however Genoil has serious financing interest from a major Chinese lender. Once the project funding is secured, Genoil will hand the design to the EPC contractor to complete the detailed engineering, to procure all the parts and oversee the construction of the plant.
The Hebei Zhongjie Genoil Upgrading refinery will combine the proprietary Genoil Hydroconversion Unit (GHU®) and an Integrated Gasification Combined Cycle section (IGCC), which will result in a no waste, bottomless, self-sufficient (hydrogen, power, steam, etc.) upgrading facility.
Prior to contract signing, Hebei Zhongjie and Genoil signed a revised LOI that reflects more favorable terms for this deal, especially with respect to the financing. Genoil's initial contribution has been considerably reduced, with the balance of the project expected to be raised jointly by the parties using the project's assets as collateral for a loan from local financial institutions.
Back on April 25th, 2007 the Company announced that it entered into a definitive testing agreement with Hebei Zhongjie Petrochemical Group Company Ltd. (HZ) for testing of their heavy oil at Genoil's pilot plant, following a letter of intent signed in October 2006. The oil samples of the M180 and HZ refining residual oil blend were shipped to Genoil's pilot facility and testing was completed in September 2007 with expected results, showing a significant improvement in the quality of upgraded oil versus the feed stock after processing through the GHU®. Genoil has also completed all laboratory analysis, and a set of results and upgraded oil samples were sent to a laboratory in China. Hebei Zhongjie is now more committed to Genoil than they ever were.
Lukoil – 2014 2015 Update
Discussions between Lukoil and Genoil are very much alive. Top Genoil management recently met Lukoil's top management in Moscow and in Geneva with LITASCO trading in June 2015. The parties are exploring several potential projects including projects outside of Russia such as in, Rotterdam. Genoil discussed the various project proposals and ideas with headquarters, and Genoil management was invited to meet the President of Lukoil. The Lukoil President's key advisor is his VP Thomas Mueller. Mr. Mueller was formerly with Conoco Phillips and he is intimately involved in decisions relating to Genoil. We consider his Conoco background to be positive especially considering the GHU technology was operated at a Conoco oil field.
Lukoil showed renewed interest in the Genoil technology when Lukoil sent Genoil a request for proposal at the end of 2012. The prior lapse period in contact between the two parties was due to the previous representative who disengaged along with several Genoil employees and one Genoil director who was funding the Russian representative at the time. With this issue behind us, and with all the recent activity, Genoil believes that the Lukoil interest could lead to a deal or contract for a 60,000 BPD GHU field upgrading facility, with the first train consisting of a 20,000 BPD stand alone facility. The request for proposal was to construct a facility in three (3) phases or trains each consisting of 20,000 BPD each. Genoil submitted a full commercial proposal to Lukoil in January 2013 for review by Lukoil. Genoil submitted the proposal on time and this proposal is now being seriously considered by senior management. Genoil's test of Lukoil's crude was successful in achieving exceptionally high rates of conversion of the crude's pitch component at low cost, thus satisfying Lukoil's requirements for API upgrading & desulfurization targets. Lukoil's R&D department has expressed that they are extremely satisfied with the Genoil GHU Upgrading technology. Genoil has also offered to provide Chinese project finance for Lukoil. This too is being discussed along with other proposals and ideas.
Lukoil Past Testing & Long Relationship
The relationship with Lukoil goes back several years but Genoil was not speaking to top management back in August 2004. At the time, all discussions were held with Lukoil-Komi LLC, a wholly owned subsidiary of OAO Lukoil, based in the Republic of Komi, Russian Federation, approached Genoil expressing interest in constructing a field hydroconversion unit at its Yarega deposit. Initial interest was shortly followed by a request to conduct a series of tests on its heavy crude from the Yarega deposit using the Genoil Hydroconversion Unit (GHU®). For that purpose Lukoil-Komi flew 150 barrels of Yarega high sulphur heavy crude to Genoil's Two Hills, Alberta testing facility.
Upon completion of the tests, whose results were similar to Conoco Canada's, the management of Lukoil-Komi was presented with an extensive report describing results of the tests and their operational conditions and run times. A full crude assay was conducted by an independent laboratory using the sample collected before, during and after processing their crude in the Genoil Two Hills pilot facility, and the results exceeded the specifications set forth by Lukoil-Komi. Genoil's engineers in collaboration with engineers at Stantec (large Canadian engineering firm) provided Lukoil-Komi with a pre-feasibility study that included a cost estimate for the proposed plant and a description of its configuration and the scope of supply.
Management has had several detailed and serious discussions with representatives of Lukoil. Lukoil's team visited Genoil's offices in Edmonton in July 2006 for discussions on the Lukoil-Komi project. Lukoil-Komi requested a formal proposal from Genoil for a 65,000 barrels per day facility to be submitted to Lukoil-Komi by October 1, 2006. It wasn't until 2012 that communication was once again restored with Slobodan Puhalac's help and once again Lukoil brought up the same capacity of 65,000 bpd.
Munich Capital Partners
On February 3, 2015 Genoil signed an agreement with Munich Capital Partners to finance Genoil projects around the world. Stefan Volk who was a managing partner and shareholder of Hannover Leasing heads Munich Capital. Hannover Leasing represents more than 68,500 private and institutional investors, 9.7 billion euros in equity capital and more than 200 closed-end equity investments. Total investment volume of the assets under their management equals 14.4 billion Euros. Stefan has 28+ years of industry experience in banking and the financial markets. Stefan was also head of structured products at Dresdner Bank, Head of financial institutions and public sector business at BNP Paribas, and head of debt and capital markets / FI corporate finance at Union Bank of Switzerland. In addition to financing Munich Capital has also been working on business development assisting Genoil with introductions in Western Europe.
Genoil Emirates
Genoil established a jointly owned subsidiary corporation in the United Arab Emirates (Genoil Emirates LLC), which corporation will focus upon the fields of crude oil upgrading, oil and water processing, treatment in the UAE. The corporation is jointly owned by S.B.K. Commercial Business Group LLC and Genoil. S.B.K. stands for Sheikh Sultan Bin Khalifa, and he is the first son of the ruler of the United Arab Emirates. This strategic alliance was brought about extensive due diligence and the recognition of the Genoil technology superiority. Superior technology and the right local partner is what's required to break into a very restricted industry. In the future this relationship should offer Genoil access to this industry, as well as to capital and operational prospects through its affiliations within the UAE.
On October 22, 2012 Genoil Emirates announced that it had successfully obtained a Professional License to upgrade crude oil as well as pollution and environmental protection services in the United Arab Emirates, and has been added to the Commercial Register in the Emirate of Dubai. Genoil Emirates has established its head office in Dubai. P.O. Box 98445, Dubai UAE.
Crystal Oil & Water Separation Technology
Genoil's Crystal SeaTM separators are state-of-the-art bilge separators, which have been certified by the US Coast Guard & American Bureau of Shipping in accordance with the International Maritime Organization Resolution MEPC 107 (49). Crystal Sea water separators utilize a patented, unique gravity driven process for compartmental multi-stage separation of immiscible phases with different densities such as heavier or light oils and water. Crystal SeaTM separators do not require a filter media making it possible for customers to significantly reduce their cost of ownership by eliminating the need to purchase the expensive replacement filters required by competitive water separation products. According to the feedback of presidents of two major tanker lines estimate $9000.00 per year in savings over competing models.
Genoil's Crystal oil and water separator is a compact unit that is able to handle small volumes (from .25 cubic meters per hour to 50) using a compartmental process. Genoil has initiated work on the Crystal 3-phase oil- water separation technology.
Additionally, Genoil has successfully completed testing on its improved Crystal Sea bilge water separator at Testing Service, Inc., in Salt Lake City, Utah, meeting IMO MEPC 107 (49) resolution and receiving the United States Coast Guard certification, which requires bilge water separators to have an effluent discharge of less than 15 ppm impurities for territorial water and less that 5 ppm for discharge into inland waters. Certification of the Crystal Sea was also received from the American Bureau of Shipping.
The Crystal Sea is the newest generation of our existing Crystal technology. In the view of management, the Crystal Sea has advantages over competing models including a smaller footprint, a simple operating system, no requirement for back washing or flushing with fresh water or sea water, therefore reduced maintenance, very little use of water and no moving parts, except for a pump. In addition to that, the oil removed using the Genoil bilge cleaner is dry enough and of a quality that it can be reused by other utilities aboard.
Several entities are looking at the Crystal technology for produced water at the oil field. The company is working to secure representation for Industrial applications in China. The company is in negotiations for this purpose.
In North America Genoil has approached Chesapeake, EOG Resources Inc. and other oil producers with a cost effective solution to recover the remaining 1-2% oil found in produced water. The company is currently looking to expand its sales team in North America. The company installed a Crystal at a local oil producer up in Canada. The purpose of this installation was to demonstrate the efficiency of Genoil's equipment at eliminating oil from the water.
Genoil is in the process of determining low-cost manufacturing centers to serve the Caspian Sea area, Europe, and other major markets. As a result, this should allow Genoil to efficiently manufacture and ship at competitive prices.
In 2013 Genoil received a testimonial letter from Vela International Marine Ltd. about a Crystal installation onboard a 330,000 TDW tanker stating that the unit Crystal Sea performed satisfactorily. Discussions are ongoing for the purchase of many more units and all parties including Donghwa are in regular contact.
The bilge separator market has a potential 84,000 ship market. Due to streamlined production techniques, improved design and eagerness to break into the market; Genoil has reduced the retail price dramatically. Due to these measures we should be highly competitive moving forward. We expect to generate revenue from the Crystal in the near future.
During November 2011, Genoil received ABS certification for all Crystal Sea models. This accreditation is in addition to obtaining the US Coast Guard/IMO MEPC 107 49 certification for Crystal MU 30 and MU 40 of 5 m3/h and 10 m3/h.
Fines for overboard discharge pollution levels exceeding 15 parts per million have been implemented around the world. New ships are required to have bilge water cleaning systems that meet the higher international pollution standards. Also, all ships built prior to 2007 had to meet those standards by the close of 2009. A ship's bilge is the lowest compartment of a ship that collects water from different areas of the boat, such as the engine room. The oily water released into the water of harbours and bays significantly pollutes the environment. Genoil is focusing on this market's growing need for bilge water separators to prevent large marine vessels from having to dump waste oil into the ocean. The Company is marketing the Crystal Sea globally, targeting shipyards, ship designers, ship owners, cruise lines, and navies. Genoil also expects to address the global contamination of a port's water and is looking into solutions to prevent shipping companies from contaminating the waterways close to ports and beaches in several countries.
In the view of management, the Crystal Sea has advantages over competing models including a smaller footprint, a simple operating system, no requirement for back washing or flushing with fresh water or sea water, therefore reduced maintenance, very little use of water and no moving parts, except for a pump. In addition to that, the oil removed using the Genoil bilge cleaner is dry enough and of a quality that it can be reused by other utilities onboard.
On October 31, 2012, the Company announced that it renewed marketing, manufacturing and distribution rights to Donghwa Entec, a reputable Korean manufacturer of marine equipment. The rights pertain to the Crystal Sea oily-water separators designed for the new shipbuilding industry together with retrofitting of existing ships. Genoil models feature one of the most compact bilge separators worldwide with throughputs ranging from 0.25 m3/hr. capacity to 10 m3/hr. units.
Genoil has several patents for the Crystal technology.
MANAGEMENT & PERSONNEL CHANGES – 2014-2015
The Company currently has seven full time employees, eighteen part time employees and eleven contracted consultants and appointed representatives located in various offices. The principal offices are at – Two Hills AB, and New York, NY, Dubai UAE. The company's main assets are its hydrogen desulfurization, hydrogen upgrading and separation patents. In addition, the Company owns and operates a pilot upgrader at its 147 acre Two Hills, Alberta facility and its sales and marketing operations through a network of commissioned technical sales agents in 27 countries. The company seeks to work through commission agents and employees who will receive compensation when revenues are generated. Genoil is modeling its operations in a similar way as Microsoft & Google followed when they were in their infancy.
The company has had significant personnel changes in the period 2014 - 2015 which continued into the first part of 2014. Management has been aggressive at attract real talented individuals who are very experienced, knowledgeable and will assist Genoil in realizing its objectives in different markets.
Subsequent to 2014 Genoil hired a new top former Suncor engineer. HaiMing Lai brings with him over twenty years of experience in research and development, application and engineering of hydroprocessing technologies in oil and gas. His career has involved two engineering lifecycle, one is R&D and the other is application of process technologies.
HaiMing previously worked with Suncor Oil Sands Development to plan, identify, initiate, execute, and monitor the existing FB 93/94 operations and Diluent Stripping Unit (DSU)/CPF debottleneck projects. He led the creation of nameplate simulations for the existing facilities and debottlenecking models to develop the scope of work and the design basis. HaiMing Lai also analyzed historical operating data, evaluated improvement initiatives, issued the technical recommendations, and provided the technical support on the development of the key process deliverables.
Before working at Suncor, HaiMing Lai worked with Jacobs where he had the opportunity to experience the full project lifecycle of SAGD/upgrader facility design. As a technical expert, I made technical proposal, recommendations, presentation and design and technical modifications to improve process design offering on the SAGD plant design and technology implementations. All delivered project were on schedule within budget. In particular, CNRL Kirby South project was awarded as the 2014 Jacobs Master Builder.
Prior to moving to Canada he worked with the Beijing Research Institute of Chemical Engineering to manage execute and implement over 20 lab/pilot/field R&D projects on catalytic kinetics, reactor technology evaluations, and performance enhancement by forced unsteady-state operations. These prototyping technologies have been successfully applied to the hydroprocessing reactor analysis, design and operation for SINOPEC companies. One of HaiMing's R&D programs won the 3rd class award from the Ministry of Chemical Industry of China. Having done thorough research on Genoil, HaiMing Lai was greatly impressed by the GHU technology for the heavy oil upstream and downstream application. He is a valuable addition to the Genoil R&D team.
In 2015 Genoil retained David Kirubha who is based in Dubai as regional vice president and advisor for Kurdistan and Northern Iraq. David is a project engineer who brings to Genoil extensive experience in mechanical engineering, piping, process, technical safety issues, civil & structural, electrical. His background is in heavy oil having worked 8 years in Kurdistan. His wide reaching background also extends to instrumentation & controls in oil & gas plants, power plants, desalination units, sampling and testing of hydrocarbons (PVT, Crude Assay, etc.).
David Kirubha was formerly with DNO ASA, and was working multiple projects from design concept and engineering through to construction and commissioning. David has experience executing multi billion dollar projects and working as the single point of contact between management, customers, vendors, consultants as well as the construction & commissioning teams. David's Project Engineering background includes estimation, tendering, team leadership, quality control, HAZOP, HAZID, Risk management, QRA studies, OSHA safety and compliance, construction codes and permits. David has skillful negotiation with vendors, materials management, hydraulic calculations, final project completion and assisting with commissioning activities.
In May 2013 Slobodan Puhalac joined Genoil's advisory board. Slobodan who has high level governmental contacts went onto become a Genoil Board of Director in July 2013. He has been overseeing the construction of the South Stream Pipeline in Bosnia. He is currently director of a company called Gas-Res, which is a joint venture with Gazprom, one of the largest global energy companies in the world. He is an important energy player in Russia and the Balkans and is strategic advisor to the President & CEO of Genoil. In addition to the South Stream Pipeline, he is in charge of the construction of several natural gas power plants. Being a former energy minister, finance minister, foreign trade minister and economic relations minister in Bosnia, Slobodan brings a multitude of energy related contacts and knowledge to Genoil. It was Slobodan who re-established contact with Lukoil.
Bengt Koch was the former CEO & Executive Chairman of Atlantic Container Lines. Bengt has worked with many leaders of the largest shipping companies. He brings to Genoil a vast knowledge of the shipping business, board and managerial experience. He was also director of marketing and operations prior to becoming Chairman. Following his time at ACL Bengt went on to become managing director of Italia di Navigazione and DSR Senator lines. Bengt will focus his energies on marketing Genoil's different products to shipping lines including especially selling the GHU for Bunker Fuel desulfurization. Bengt joined the board of Genoil in November 2013.
Bruce Abbott became president and director of Genoil in late 2013, replacing Thomas Bugg who resigned. Also, in 2013 Bengt Koch replaced Ron Hutzel who subsequently left the company. Bruce has been working for Genoil since 2009 on business development and strengthening relationships such as with SBK Holdings. He has brought several people into the Genoil organization such as Hashem Dezhbakhsh, SBK Holdings, Slobodan Puhalac, Bengt Koch, Paul Rubin, and Dennis Sears.
In late 2014 the company added Marc Adler to its advisory board and retained Marc as an advisor to Genoil for China and intellectual property strategy. Mark worked for Rohm & Haas for 25 years and was their Chief Intellectual Property Counsel and Associate General Counsel from 1993-2008. Rohm & Haas sold to Dow Chemical in 2008 for $18 billion. Marc has worldwide responsibility for all intellectual property matters for the company including patent preparation and prosecution, intellectual property strategies, licensing and litigation and he managed a group of 25 attorneys and agents in the USA, Europe, Japan and China.
Genoil grew its engineering team recently with the new Senior Vice President of Engineering and Project, Mr. Slavko Scepanovic who over his 30 year career has gained valuable experience, project management and finance, raising over a billion dollars for energy projects. He was the first deputy director of Optima Group since 2008. Slavko, an expert in financing projects, worked with Zarubezhneft to create the Optima division raising in excess of a billion dollars for them. He has worked on many oil and gas projects in the Russian Federation as well. He conducted technical feasibility studies to determine conditions of financing and to provide funding for those projects. He used to be with Synergie Trading and Jupiter Investments. He brings a great deal of Russian business experience to Genoil especially in the form of deal closings. He has had a long working relationships with Slobodan Puhalac and has known him for many years.
John I. Novak has returned as a special advisor to Genoil. John has more than 25 years of technical and senior management experience within satellite communications at GM Hughes electronics. Mr. Novak served as Chief Business Strategist of Hughes, where he was responsible for identifying and developing new business campaigns. He is regularly advising Genoil's top management and is an integral part of new business development in Europe. He is responsible for introducing Genoil to Munich Capital Partners who in turn introduced Genoil to two refineries in Germany. The parties are in discussions with Genoil to develop a refining project utilizing the Genoil GHU technology.
Eric Rinker became Vice President of North America in late 2013 bringing with him twenty-five years engineering experience. Eric will lead our corporate sales and marketing effort in the region. His career began as a field engineer with Schlumberger. He has worked in various operational and management roles with Halliburton & Weatherford. Eric is a professional engineer with strong leadership skills, experience working with engineers and has over twenty five years of oil field experience. The appointment of Eric Rinker will enable Genoil to introduce Genoil's Crystal Separators for land applications.
In August 2015, the company opened an office in Rio de Janeiro, Brazil and retained Rodrigo Dos Santos as Vice President & General Manager to head the local office there and focus on the Brazilian, Venezuelan, and Columbian markets. Rodrigo has an energy and finance background and is diligently pursuing old leads and business opportunities in Brazil and in Venezuela. This includes an old testing contract Genoil signed with PDVSA.
The company has hired Dennis L. Sears, who is an international sales and bunkering consultant. He is spearheading Genoil's Bunker fuel sales with over 20 years of experience as an international bunker fuel supplier.
Leslie Vanderpool has also joined Genoil's advisory board. Leslie has extensive contacts in the financial world. She will assist Genoil in introducing Genoil to large funds, assist in business development and public relations. Leslie is the founder and executive director of the Bahamas International Film Festival. Leslie is friendly with many leading celebrities and movie critics including Sean Connery & Nicolas Cage. In addition she introduced Genoil to a leading fund manager who manages his personal fortune of over $8 billion. Leslie also knows many bankers, industrialists and oil drillers. She will use many of her contacts to generate interest in Genoil and exposure.
Genoil has retained a new legal consultant. Mr. Michael Daher. Michael is a graduate of Politics & Law from Suny Binghamton University. He also attended Thomas M. Cooley Law school where he earned both a Juris Doctor, and Master of Law Degree in Corporate Law & Finance. He is a former Law Clerk for Chief Judge Richard D. Ball in the 54 B District Court. Besides legal assistance Michael has helped the company with sales.
Subsequent to December 31, 2014, Former Board member Joseph Fatony has rejoined the company and has been assisting Genoil to obtain project finance. Joseph will be Genoil's newest Advisory Board member. Joe has been advising Genoil on compliance and regulatory issues. During his career, which spans over 40 years, Mr. Fatony has held executive positions in the investment and banking industry and has developed, managed and been consultant to real estate projects nationwide. Mr. Fatony was Chairman of the Board and founder of SRF Builders Capital Corp., a New York State mortgage bank. He was responsible for the origination and funding of real estate projects throughout the northeast. SRF was a joint venture with a Fortune 50 company and together they initiated, funded and completed in excess of $500 million of real estate financings. During his career, Mr. Fatony has financed in excess of $3.5 billion in real estate projects throughout the United States and Canada. His executive positions in the banking industry include that of Vice President with the Bank of New York for over 20 years. During that time, Mr. Fatony was officer in charge of the Wall Street Private Banking Department. Prior to that, he was officer in charge of the Fifth Avenue Trust Department. He has acted as consultant to syndicators in real estate and securities.
JR Owens joined Genoil as Vice President & Chief Operating Officer of Genoil USA focusing on North America. JR is President of Cat Bottoms Fuel FS INC. 'J.R.' has more than thirty four years of oil industry experience as a consultant, global sourcing advisor, loss control specialist, terminal manager and trader. J.R. has provided consultant services to Canadian trans loading companies, and John W. Stone Oil Distributor, LLC. Prior to his present position, 'J.R.' has worked with J.P. Morgan Venture Energy Corp., RPG Industries, Phillips Carbon Black Division, Aditya Birla Group, Birla Carbon Division, Griffith Energy, Oil Chem Trading, Ag-Chem Commission Co., Towing Charters Inc. and National Petroleum Sales Inc.
Viscount (Lord) Torrington joined Genoil as an advisory board member. He graduated as a geologist from Oxford university in 1964 and after ten years in the mining industry, largely in Southern Africa with Anglo American Corporation and Lonrho, he became CEO of the Attock Oil Company (later Anvil Petroleum), subsequently serving as Chairman of Expro North Sea, a major UK-based international service company. In 1994 he became Managing Director of Heritage Oil & Gas, initiating its successful entry into oil and gas discoveries in Congo Brazzaville and Uganda's Western Rift Valley.
Lord Torrington also served on the House of Lords European Communities Energy Committee, chairing it from 1984 to 1987. He is currently a non-executive Director of Lansdowne Oil & Gas plc and involved in wildlife charities in Africa. Mr. Torrington's career has involved technical, administrative and financial roles in the worldwide natural resources industries and contact or negotiation with financial institutions and governments on all continents at many levels."
Haijun Xu has rejoined Genoil in 2014 and has been instrumental in completing the Hebei Zhongjie contract. Dr. Haijun Xu obtained Bachelor degree in Chemical Engineering from Tsinghua University, China and PH.D degree of Engineering from University of Akron, Ohio, USA. He is a registered member of the Association of Professional Engineers, Geophysics and Geologists of Alberta (APEGGA). Prior to joining Genoil Inc. in 2007, Dr. Haijun Xu worked as Post-doctoral Fellow in Petroleum & Chemical Engineering Department, University of Calgary, Alberta, Canada in 2004 - 2007. Among his numerous achievements, he has published many academic papers in high-level engineering and scientific journals. He has a lot of experience in chemical & petroleum engineering field and project management, including the feasibility and scoping studies, process simulation, conceptual design, detailed engineering, heavy oil upgrading and gas processing industries, etc. At Genoil Inc., Dr. Haijun Xu focuses on the development of the GHU catalytic hydroconversion technology and projects, and conducts research and engineering design in the development of GHU.
In August 2015, Hai Ming Lai becomes the newest addition to Genoil's engineering team. With over 20 years of engineering experience in hydro-processing technology development is a welcome addition to the engineering or R&D team. Hai Ming was Sr. Process Engineer for oil sands development at Suncor Energy. Genoil is also in talks with one of the key engineers who was involved in the patenting of the GHU to return to Genoil.
The company has retained its critical advisors Hashem Dezhbakhsh who is the chair at the Economics Department of Emory University. He has worked for the company devising economic models and lending his advice on business strategy. The company has also retained Paul Rubin who is a Samuel Chandler Dobbs professor of Economics at Emory University.
Candice Beaumont continues in her role as Strategic Advisor. Candice has raised over five million dollars for Genoil. She attends and speaks at international investment conferences on behalf of Genoil. Candice started her career in Corporate Finance at Merrill Lynch. Working as an investment banker at Lazard Frères for several years, executed over $20 billion of merger and acquisition advisory assignments. She left Lazard to work as a private equity principal at Argonaut Capital, where she was responsible for all aspects of new investment execution for the firm and its portfolio companies. She is a former world ranked professional tennis player. Ms. Beaumont was chosen as a Young Global Leader by the World Economic Forum. This honor is bestowed by the World Economic Forum each year to recognize the most distinguished and inspiring leaders under the age of 40, after reviewing thousands of nominations from around the world.
BUSINESS ACTIVITIES AND OUTLOOK
During the quarter ended December 31, 2014, the Company did not generate any revenue. The Company expects revenue to be booked and associated cash flow to be generated in staged phases following the execution of definitive agreements for the design, implementation and procurement of its GHU™ systems and/or the licensing of its intellectual property or the sales of Crystal oily water separators. The Corporation has accumulated losses of over $82 million to date and is not realizing any cash flow as it has not attained commercial operations in connection with its various patents and technology rights. Genoil has principally been a technology research and development company. Commercialization efforts are underway for GHU™. Genoil is marketing its GHU™ (and related engineering and design services) to refiners and producers of heavy sour crudes around the world and believes that there is strong market potential for this technology. Management estimates that there are approximately 900 billion barrels of heavy oil reserves and current production from those reserves is 9 million barrels per day of high sulphur heavy oil that have the potential to be desulfurized and upgraded to lighter products thereby increasing the yield of high value light distillates and transportation fuels available from each barrel of oil. The continued commercialization of Genoil's GHU™ and Crystal both for Seaborne applications as well as land based represents the next key phase in the company's growth.
During the quarter ended December 31, 2014, the Company's operating expenses were much lower than those in both the comparable quarter ending December 31, 2013, and the preceding quarter ending September 30, 2014 due to a streamlining of efficiency in corporate operations, a consolidation of offices, as well as expenses associated with engineering, professional services fees and other expenses associated with regulatory compliance, accounting and finance functions.
Genoil continues to progress with commercial level discussions with several of the national oil companies in the Middle Eastern Gulf States in 2014. Management believes that this is a key market for its GHU™ technology as the region has several significant reservoirs of heavy high sulfur oil. The company has created the zero waste process specifically for its Middle East clients who require a process, which does not need natural gas. The Company remains committed to developing commercial opportunities in the Middle East for the foreseeable future.
Genoil is also exploring other projects where the Company may share in the ownership of upgrading operations and/or heavy oil assets in exchange for the utilization of the GHU™ technology at cost.
To secure the Genoil Upgrading locations, Genoil acquired 100% of the issued (2010) and outstanding common shares of Two Hills Environmental Inc. ("Two Hills"). The Company paid a cash deposit of $100,000 issued 2,500,000 common shares from treasury to a former shareholder of Two Hills, issued 2,500,000 common shares from treasury to a debtor and issued an option to purchase 250,000 common shares of Genoil, at market price, to an agent as commission for structuring the acquisition. The acquisition was effective December 2010.
GHU Upgrading Patent Renewal
On April 30, 2009, Genoil received an additional and new patent from the US Patent and Trademark Office (USPTO) for its hydroconversion upgrader technology. The patent is a valuable addition to Genoil's upgrading process that economically upgrades and significantly increases the yields from high sulphur, acidic, heavy crude, bitumen, and refinery residues.
Convertible Notes
Short term notes (and attached warrants) from entities affiliated with the Corporation's Chairman and Chief Executive Officer, expired on October 6, 2008 and were replaced with new notes and warrants that mature in October 2009. On November 15, 2013, the Company announced that it had agreed to the extension of the term of an aggregate $1,227,355.84 principal amount of convertible notes and an aggregate 1,136,442 common share purchase warrants which were previously issued and are outstanding. The notes and warrants were originally issued to a group of four investors in October, 2008 which included Lifschultz Enterprises Co., LLC, Sidney B. Lifschultz 1992 Family Trust and David K. Lifschultz (currently owned by the David K. Lifschultz 1965 trust), having a conversion price equal to $0.27 in respect of the notes, and an exercise price of $0.41 in respect of the warrants. The notes and warrants had an original term expiring on October 6, 2009, which term was amended and extended to October 6, 2010. On October 6, 2010, the notes and attached warrants were extended for another year to October 6, 2011. The notes and warrants remain substantially unamended in all other respects. In July 2012, the company extended the notes for one year maturing at October 6, 2013. In November 2013, the company extended the notes to October 6, 2015. With this extension, the conversion price has been lowered to $0.015 and no warrants issued.
SUMMARY OF ANNUAL 2014 RESULTS
Genoil has always sought to model its operations on the pre-IBM contract Microsoft. Until it achieves a significant GHU® Upgrading contract the company will focus on reducing costs. Since the September, 2008 Lehman and the oil market crash we downsized expenses even more as its goal was to weather the severe economic depression by cutting unnecessary overhead. Despite these reductions the company has expanded its sales coverage to countries in key markets that contain over half the world's oil reserves. This new marketing and sales effort utilizes contract commission agents or representatives who had to are responsible for their own expenses.
All the present employees of Genoil work on a profit sharing compensation model, through stock or options. Its goal is to motivate Genoil's personnel and to link their success with Genoil's. This structure is designed to motivate sales, and to discourage non-performance. The decline in Administrative Expense from $1,037,951 to $253,695 reflects a successful achievement by management to develop new strategies and to operate much more efficiently and to close deals on a lower budget.
Another paramount issue is liquidity. The current assets of Genoil are $263,174 and its current Liabilities are $4,506,905. The $2,415,331 in debentures maturing in October 2018 are held by the Lifschultz Family Interests who have always historically rolled over their debentures including unpaid interest.
The company's cash management has historically had a history of lagging in its payments and working out their payments with its creditors over time. The company relies on private placements for its funding and with recent deals closed, is more confident that it will continue to be able to fund its obligations at an accelerated pace. Genoil has excellent relations with most of its creditors – with rare exceptions.
Genoil's strategy is to fund the operation through private placements. It intends through smart cost cutting techniques, and a leaner cost sales strategy, to operate on an extremely low cash burn while significantly growing its sales representation through the utilization of only commission agents or representatives. At the signing and funding of a contract, the company could rapidly expand its engineering staff just as Microsoft did after they signed up IBM based on the Alfred P. Sloane Jr. model.
Critical Accounting Estimates
The preparation of financial statements in accordance with IFRS requires Management to make certain judgments and estimates. Changes in these judgments and estimates could have a material impact on the Company's financial results and financial condition.
Management's process of determining the fair values assigned to any acquired assets and liabilities in a business combination is based on estimates. These estimates are significant and can include future costs, future interest rates, future tax rates and other relevant assumptions. Revisions or changes in any of these estimates can have either a positive or a negative impact on asset and liability values and net income.
The fair value of stock options is based on estimates using the Black-Scholes option-pricing model and is recorded as share-based payments expense in the financial statements.
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EVALUATION OF DISCLOSURE CONTROLS
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Disclosure controls and procedures are designed to provide reasonable assurance that all relevant information is gathered and reported to senior management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), on a timely basis so that appropriate decisions can be made regarding public disclosure.
For the quarter ended September 30, 2014 the CEO and CFO have evaluated the effectiveness of the Company's disclosure controls and procedures as defined in National Instrument 52-109 of the Canadian Securities Administrators and as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) and have concluded that such controls and procedures were not effective because of the material weaknesses described in Management's Report on Internal Control over Financial Reporting.
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MANAGEMENT REPORT ON INTERNAL CONTROL
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The Chief Executive Officer and Chief Financial Officer are responsible for establishing and maintaining adequate internal control over financial reporting of the Company. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with Canadian International Financial Reporting Standards (IFRS).
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The Company's internal control over financial reporting includes those policies and procedures that
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with IFRS, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements.
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A material weakness in internal controls is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements would not be prevented or detected on a timely basis by the Company.
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We note, however, that a control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues including instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, our control systems may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected and could be material and require a restatement of our financial statements.
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The Chief Executive Officer and Chief Financial Officer conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on this evaluation, management concluded that the Company's internal control over financial reporting was not effective as of December 31, 2014 due to the following material weakness:
$1· Due to the small size of the Company, it did not maintain effective segregation of duties over certain transactions leading to ineffective monitoring, supervision and potential misappropriation of assets.
Remediation to Address Material Weakness
The Company does not plan to remediate the above mentioned weakness as the cost would outweigh the benefits.
Changes in Internal Control over Financial Reporting
There has been no change in Genoil's ICFR that occurred during the period beginning on July 1, 2014 and ended on December 31, 2014 that has materially affected, or is reasonably likely to materially affect, the Company's ICFR.
RISKS
The ability of the Company to continue as a going concern and to realize the carrying value of its assets and discharge its liabilities when due is dependent on the Company's ability to continue to raise the necessary capital to fund the commercialization of its patents and technology rights. There is no certainty that the Company will be able to raise the necessary capital.
To date the Company has not achieved commercial operations from its various patents and technology rights. The future of the Company is dependent upon its ability to obtain additional financing to fund the development of commercial operations.
The Company has not earned profits to date and there is no assurance that it will earn profits in the future, or that profitability, if achieved, will be sustained. The commercialization of the Company's technologies requires financial resources and there is no assurance that capital infusions or future revenues will be sufficient to generate the funds required to continue the Company's business development and marketing activities. If the Company does not have sufficient capital to fund its operations, it may be required to forego certain business opportunities or discontinue operations entirely.
LIQUIDITY RISK
The Company is subject to liquidity risk attributed from accounts payable and other accrued liabilities and other liabilities. Accounts payable and other accrued liabilities are primarily due within one year of the balance sheet date.
INTEREST RATE RISK
Interest rate risk is the risk that future cash flows will fluctuate as a result of changes in market interest rates.
FOREIGN CURRENCY RISK
The Company translates the results of its foreign operations into Canadian currency using rates approximating the average exchange rate for the year. The exchange rates may vary from time to time creating foreign currency risk. At December 31, 2014, the Company had certain obligations and assets denominated in U.S. dollars and there were no contracts in place to manage this exposure.