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Edge Resources (EDG)

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Monday 17 June, 2013

Edge Resources

Full Year and Q4 Results

RNS Number : 1348H
Edge Resources Inc.
17 June 2013
 



FOR IMMEDIATE RELEASE

TSX Venture Exchange Symbol: EDE

AIM Exchange Symbol: EDG                                                                                                   17 June, 2013

EDGE RESOURCES INC.                                                                                                     Calgary, Alberta

 

 

Edge Resources Inc. Announces Full Year and Q4 Results

 

Edge Resources Inc. ("Edge" or the "Company"), is pleased to announce its audited results for the 12 month period ended 31 March 2013 and the three month period ended 31 March 2013 ("Q4 2012").

 

For the year ended March 31, 2013:

 

·      Operational

 

Ø Average daily production increased to 681 boe/d from 452 boe/d against previous year

 

Ø Significant capital activity included;

Three-dimensional seismic completed in the Primate area

Drilling, completion, and tie-in/equipping of 6 oil wells; 4 in Primate, and 2 in Grand Forks

Disposition of one section of undeveloped land in Southern Alberta

 

·      Financial

 

Ø Raised $9.3 million in equity ($8.8 million net of cash share issuance costs), including $1.0 million in flow-through equity

 

Ø Incurred an additional $369k cost (which was expensed as general and administrative costs) to complete its listing on AIM in July 2012

 

Ø Willesden Green natural gas property written down by $1.4 million due to continued weakness of natural gas pricing

 

Ø Loss after tax of $6.7 million (2012 $2 million) due to lower production netbacks combined with increased interest costs and the above noted write-down

 

 

 

For the three months ended March 31, 2013:

 

·      Operational

 

Ø Average daily production was 585 boe/d compared to 621 boe/d in the previous quarter; the decrease results primarily from natural declines and operational issues with some Primate wells

 

Ø Drilled, completed, and equipped 2 oil wells in Primate

 

·      Financial

 

Ø Operating netbacks decreased from the comparable quarter in the previous year primarily due to increased operating costs associated with the Primate heavy oil property, which only contributed for 2 months in last year's comparable quarter

 

 

Brad Nichol, President and CEO of Edge commented, 

 

"The last 12 months has been a transformational period for the Company. Edge's focus will continue to be on conventional, shallow, developmental drilling, with the planned 2013 and 2014 capital program concentrated on oil assets allowing the Company to increase near-term oil production and the associated cash flows. Previous drilling and seismic work uncovered additional and undiscovered oil pools on the Company's 100% owned asset in Primate, Saskatchewan. As of today's date, the Company is currently conducting preliminary field and geological work on a planned multi-well program on those lands to further delineate the pools and exploit the the significant value of the reserves, as defined by our updated reserve report, held in these new pools."

 

To view Edge Resources' full financial results statements and the Management's Discussion and Analysis, please go to the company website (www.edgeres.com).

 

For more information, visit the company website: www.edgeres.com or contact:

 

Brad Nichol - President & CEO

Phone: +1 (403) 767 9905

 

Sanlam Securities UK Limited - Nominated Adviser and Broker

Lindsay Mair

Max Bascombe

Katie Shelton

Phone: +44 (0) 20 7628 2200

 

Buchanan - Financial PR

www.buchanan.uk.com

Louise Mason

Tom Hufton

Phone: +44 (0)20 7466 5000

 

 

About Edge Resources Inc.

 

Edge Resources is focused on developing a balanced portfolio of oil and natural gas assets from properties in Alberta and Saskatchewan, Canada.  Management has consistently focused on:

1.   Shallow, conventional programs that typically offer reduced capital, operational and geological risks

2.   Very high or 100% working interests and fully operated assets

3.   Pools and horizons with exceptionally high reserves in place

 

The management team's very high drilling success rate is based on the safe, efficient deployment of capital and a proven ability to efficiently execute in shallow formations, which gives Edge Resources a sustainable, low-cost, competitive advantage.

 

 

 

Chief Executive's Statement

 

Edge has remained true to its strategy of focusing on operating in a conventional, shallow arena with properties that offer exceptionally large reserves-in-place, regardless of the commodity.  As the markets have demanded, the near-term focus continues to be on oil and the superior returns this commodity currently offers.  Management will continue to utilize the tactics that have led to the Company's success in the natural gas sector and apply the operational and technical expertise to the existing portfolio of oil properties. 

 

Edge's focus will continue to be on conventional, shallow, developmental drilling, with the planned 2014 capital program concentrated on oil assets.  The relatively low capital costs and geological risks associated with these types of wells should allow the Company to increase near-term oil production and the associated cash flows relatively quickly.  The Company expects to drill a number of these conventional oil wells on its existing lands in the coming months.  

 

Previous drilling and seismic work uncovered additional, undiscovered oil pools on the Company's 100%-owned land in Primate, Saskatchewan.  As of today's date, the Company is currently conducting preliminary field and geological work on a planned multi-well program on those lands to further delineate the pools and define the true extent of the significant value of the reserves held in these new pools.  With continued success, the Company would expect to drill additional developmental wells, which could extend to more than 85 locations across the new pool discoveries.  Specifically in Primate, Saskatchewan, the Company plans to build on oil differentials that are now trending in a direction favorable to the Company, as well as improved operational costs and production results.  These improvements are a result of operational and field personnel improvements made in Primate during the first three months of the year.  The Company is also heavily encouraged by the better-than-expected production results from the recently-drilled wells in Primate; thus, current corporate drilling plans will be focused on the low-risk, high-return opportunities offered on our existing land-base in Saskatchewan.

 

The Company has demonstrated a consistent record of highly successful and accretive acquisitions - especially for a junior E&P company in the midst of an illiquid equity market.  While the bulk of value continues to be created with the drill bit, it is reasonable to expect that opportunities for additional acquisitions will present themselves in the future.  Management will remain focused; however, on acquisitions that expand the existing platforms versus taking the Company to completely new locales.

 

While equity capital remains exceptionally scarce in North America, the Company has secured significant debt facilities, has had recent successful drilling results which will greatly improve cash flows and has an established and proven ability to raise equity from strong institutional relationships and partnerships, all of which should allow continual measured growth.  In the future, the Company may continue raising additional equity when necessary, from both Europe and North America.  It is management's intent to continue these efforts with the inclusion of leveraging our capital relationship with our major institutional partners.

 

Brad Nichol

President and Chief Executive Officer

14 June 2013

 

 

OPERATING AND FINANCIAL SUMMARY

 

For the year ended March 31, 2013:

·    Sales volumes were 681 boe/d compared to 452 boe/d in the prior year due mainly to having an entire year of production from the Company's Primate asset which was acquired in February 2012.

·    Major capital activity included:

Three-dimensional seismic completed in the Primate area

Drilling, completion, and tie-in/equipping of 6 gross (5.9 net) oil wells; 4 gross (4.0 net) in Primate, and 2 gross (1.9 net) in Grand Forks

Disposition of one section of undeveloped land in Southern Alberta

·    Due to continued weakness of natural gas pricing the Company wrote-down its Willesden Green natural gas property by $1.4 million

·    Raised $9.3 million in equity ($8.8 million net of cash share issuance costs), including $1.0 million in flow-through equity

·    The Company incurred an additional $369k (which were expensed as general and administrative costs) to complete its listing on AIM in July 2012

·    Considerably lower product netbacks, combined with increased interest costs and the above noted write-down resulted in a significant increase in the loss for the year of $6.7 million compared to $2.0 million in the previous year

 

For the three months ended March 31, 2013:

·    Sales volumes were 585 boe/d compared to 621 boe/d in the previous quarter and 696 boe/d in the fourth quarter of fiscal 2012; the decrease results primarily from natural declines and operational issues with some of its Primate wells.

·    Drilled, completed, and equipped 2 gross (2.0 net) oil wells in Primate

·    Operating netbacks decreased from the comparable quarter in the previous year primarily due to increased operating costs associated with the Primate heavy oil property, which only contributed for 2 months in last year's comparable quarter

 

Balance Sheet

(amounts in Canadian dollars)




March 31,


March 31,


Note


2013


2012

Assets






Current assets






Cash and cash equivalents

18(b)


$        49,232


$        64,885

Accounts receivable

6


1,016,878


995,747

Deposits and prepaid expenses



64,035


71,942

Fair value of derivative instruments

21(c)


-


95,341

Total current assets



1,130,145


1,227,915

Non-current assets






Fair value of derivative instruments

21(c)


-


12,741

Exploration and evaluation assets

7


438,540


67,879

Property, plant and equipment

8


35,685,424


34,689,533

Total non-current assets



36,123,964


34,770,153

Total assets



$  37,254,109


$  35,998,068

Liabilities






Current liabilities






Accounts payable and accrued liabilities



$   2,682,799


$    1,470,423

Bank debt

9


6,654,021


10,669,376

Loans payable

10


9,035,342


1,100,274

Fair value of derivative instruments

21(c)


215,640


-

Flow-through share premium

13(c)


116,077


-

Total current liabilities



18,703,879


13,240,073

Loans payable

10


-


7,115,068

Fair value of derivative instruments

21(c)


97,734


-

Decommissioning provisions

11


6,056,000


5,495,000

Total liabilities



24,857,613


25,850,141







Shareholders' Equity






Share capital

13


32,691,059


24,093,398

Warrants

14


-


386,860

Contributed surplus

15(b)


2,097,875


1,358,281

Deficit



(22,392,438)


(15,690,612)

Total shareholders' equity



12,396,496


10,147,927

Total liabilities and shareholders' equity



$  37,254,109


$  35,998,068

 


 

Statements of Loss and Comprehensive Loss

(amounts in Canadian dollars)



Year Ended March 31,

Year Ended March 31,


Note

2013

2012





Revenue




Oil and natural gas sales


$    8,416,011

$     5,966,278

Royalties


(1,354,559)

(804,422)

Revenue, net of royalties


7,061,452

5,161,856

Other income




Realized gain on financial derivatives

21(c)

453,662

6,869

Unrealized (loss) gain on financial derivatives

21(c)

(421,456)

108,082

Gain on disposition of exploration and evaluation assets

7

300,000

-

Other income


67,816

223,305

Total income, before expenses


7,461,474

5,500,112

Expenses




Operating


4,693,327

1,865,323

Transportation


456,690

306,316

General and administrative


2,681,672

2,808,344

Depletion and depreciation

8

4,613,000

1,742,800

Stock-based compensation

15(b)

352,734

160,362

Exploration and evaluation

7

71,953

77,047

Finance

16

1,259,993

693,472

Capital taxes


143,482

-

Total expenses


14,272,851

7,653,664

Loss before income taxes


(6,811,377)

(2,153,552)

Deferred income tax recovery

12(b)

109,551

Loss and comprehensive loss for the year


$   (6,701,826)

$   (2,024,189)

Net loss and comprehensive loss per share




Basic and diluted

17

$           (0.06)

$           (0.03)

 

 

 

Statements of Changes in Shareholders' Equity

(amounts in Canadian dollars)


Share Capital

Warrants

Contributed surplus

Deficit

Total Equity

Balance at April 1, 2011

$ 18,848,895

$  385,215

$   812,497

$(13,666,423)

$  6,380,184

Issue of equity for cash

4,852,049

339,439

-

-

5,191,488

Issue of equity in lieu of services

31,250

-

-

-

31,250

Issue of equity for repayment of loans payable

500,000

-

-

-

500,000

Issue of flow-through shares for cash

498,700

-

-

-

498,700

Share issue costs, cash paid

(429,255)

-

-

-

(429,255)

Share issue costs, non-cash

(78,878)

47,628

-

-

(31,250)

Non-cash fair value related to warrants expired

-

(385,422)

385,422

-

-

Stock-based compensation

-

-

160,362

-

160,362

Flow-through share premium

(129,363)

-

-

-

(129,363)

Net loss for the year

-

-

-

(2,024,189)

(2,024,189)

Balance at March 31, 2012

$ 24,093,398

$  386,860

$ 1,358,281

$(15,690,612)

$ 10,147,927

Issue of common shares for cash

8,291,422

-

-

-

8,291,422

Issue of flow-through shares for cash

1,031,440

-

-

-

1,031,440

Issue of common shares for services

81,250

-

-

-

81,250

Share issue costs, cash paid

(499,573)

-

-

-

(499,573)

Share issue costs, non-cash

(81,250)

-

-

-

(81,250)

Flow-through share premium

(225,628)

-

-

-

(225,628)

Stock-based compensation

-

-

352,734

-

352,734

Non-cash fair value related to warrants expired

-

(386,860)

386,860

-

-

Net loss for the year

-

-

-

(6,701,826)

(6,701,826)

Balance at March 31, 2013

$ 32,691,059

$              -

$ 2,097,875

$(22,392,438)

$ 12,396,496

 

 

 

Statements of Cash Flows

(amounts in Canadian dollars)



Year ended March 31,

Year ended March 31,


Note

2013

2012





Cash flows provided by (used for):




Cash flows generated from (used in) operating activities




Net loss


$   (6,701,826)

$   (2,024,189)

Items not affecting cash:




Unrealized loss (gain) on financial derivatives


421,456

(108,082)

Gain on disposition of exploration and evaluation assets


(300,000)

-

Foreign exchange loss


1,734

-

Depletion and depreciation


4,613,000

1,742,800

Stock-based compensation


352,734

160,362

Exploration and evaluation


71,953

77,047

Accretion of decommissioning provisions


149,000

89,877

Deferred income tax recovery


(109,551)

(129,363)

Changes in non-cash items

18(a)

1,035,823

427,610

Net cash generated from (used in) operating activities


(465,677)

Cash flows used in investing activities




Exploration and evaluation assets expenditures


(758,671)

(25,634)

Property, plant and equipment expenditures


(4,880,834)

(5,061,999)

Acquisition of oil and natural gas interests


-

(10,575,276)

Proceeds from disposition of oil and natural gas interests


300,000

-

Changes in non-cash items

18(a)

983,329

(3,430,044)

Net cash used in investing activities


(4,356,176)

(19,092,953)

Cash flows from financing activities




Proceeds from (repayment of) bank debt, net


(4,015,355)

6,494,376

Proceeds from loans payable


-

7,500,000

Repayment of loans payable


-

(500,000)

Proceeds from issuance of equity


9,322,862

5,690,188

Share issuance costs


(499,573)

(429,255)

Net cash from financing activities


4,807,934

18,755,309

Effect of exchange rate changes on cash and cash equivalents held in foreign currency


(1,734)

Net change in cash and cash equivalents


(15,653)

(101,582)

Cash and cash equivalents, beginning of year


64,885

Cash and cash equivalents, end of year

18(b)

$         49,232

$         64,885

 

 

 

Notes to the Financial Statements

Year ended March 31, 2013

(amounts in Canadian dollars)

 

1.      Going Concern

 

These financial statements have been prepared on a going concern basis which presumes that the Company will be able to discharge its obligations and realize its assets in the normal course of business.  The Company had a loss and comprehensive loss of $6.7 million and $2.0 million for the years ended March 31, 2013 and 2012, respectively.  As at March 31, 2013, the Company had a working capital deficiency of $17.2 million that includes $6.7 million in bank debt (excluding derivative assets/liabilities and flow-through share premium).  The Company had unused credit lines of $5.3 million related to its revolving credit facility and $6.5 million related to its development/acquisition facility at March 31, 2013.  At March 31, 2013, the Company was compliant with its lender's covenants.  The regular interim review of the Company's credit facilities, originally scheduled for January 2013, has been delayed so that the bank can review the Company's March 31, 2013 independent engineering reserve report.  Given that the March 31, 2013 reserve report cash flows and production amounts have increased from the previous year, the Company believes that lending limits should remain consistent.  However based on preliminary discussions with the bank there is the possibility that a reduction of the lending limits may occur.  The $1.0 million loan payable (plus accrued interest) outstanding at March 31, 2013, was due January 31, 2013, and the Company has asked for authorization from its bank to repay the loan plus interest.  The bank has stated that no repayments are authorized until the current interim review is completed.  The $7.0 million loan payable (plus accrued interest) outstanding at March 31, 2013, is due January 31, 2014, and the Company is expecting that given its current working capital deficiency, and negative cash flows generated from operating activities in the current year that the amount will likely not be able to be repaid when due.

Management continues to evaluate all financing options, and may use any or all available options should the terms and conditions be suitable given the current working capital deficiency and negative cash flows generated from operating activities as at March 31, 2013 and for the year then ended.  Specifically, management believes the following initiatives and results should allow the Company to improve its financial position in the near future; positive results from wells drilled in March 2013, potential restructuring of its subordinated debt which may include converting a significant portion to equity and extending the repayment terms, discussions with its key equity holders about potentially raising more equity, and operating cost reduction initiatives for several of its marginal producing properties.  The Company cannot provide any assurance that sufficient cash flows generated from operating activities and/or potential equity issuances and debt restructuring will be available on acceptable terms, if at all, to reduce its working capital deficiency.

The above-noted factors describe matters and conditions that indicate the existence of a material uncertainty that may cast significant doubt about the Company's ability to continue as a going concern.  The Company's ability to continue as a going concern is dependent upon its ability to attain profitable operations, generate sufficient funds to continue its exploration and development activities, to repay its debts as they come due, and continue to obtain sufficient capital from investors or other sources of financing to meet its current and future obligations.

Management considers the Company is a going concern and has prepared the financial statements on a going concern basis.

 

2.      Basis of preparation

 

The financial information set out above does not comprise the Company's statutory accounts for the periods ended March 31, 2013 or March 31, 2012 but is derived from those accounts. 

(a)     Statement of compliance

The Company prepares its financial statements in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB").  A summary of the significant accounting policies and methods of computation is presented in note 3 of the Financial Statements.  Management's significant accounting judgments, estimates and assumptions used in the preparation of the financial statements for the years ended March 31, 2013 and 2012 are included in note 4 of the Financial Statements.

(b)     Basis of measurement

The financial statements have been prepared on a historical cost basis, except for derivative instruments, which are measured at fair value.

(c)       Functional and presentation currency

These financial statements are presented in Canadian dollars, which is the Company's functional currency.

3.      Asset acquisitions

Fiscal 2012

During the year ended March 31, 2012, the Company completed acquisitions of certain conventional producing oil and natural gas assets for $10.6 million after closing adjustments.  The purchases were recognized as business combinations in accordance with IFRS 3 - Business Combinations, as the acquired assets and liabilities assumed constituted a business.  The assets acquired are a strategic fit with the Company's existing asset portfolio because the Company increased their share of production in existing areas which increased operational efficiencies and diversified the Company's product mix.  The purchase prices were allocated to the net assets acquired as follows:

Oil and natural gas interests

$        12,649,276

Decommissioning provisions

(2,074,000)

Total net assets acquired and cash consideration

$        10,575,276

The Company used its existing credit facility and additional loans to fund the acquisitions.  The Company incurred $200,043 in fees associated with the completion of the acquisitions, which were expensed in profit or loss as general and administrative costs.

These financial statements incorporate the results of operations of the acquired properties from their closing dates being, October 5, 2011, October 28, 2011 and January 31, 2012, respectively, onwards.  The assets' revenues and net incomes since the acquisition date, and pro forma revenues and net incomes giving effect to the asset acquisitions as if they had occurred on April 1, 2011 are not practicable to determine.  The operations of these assets are not managed as a separate business unit or division of the Company and general business overhead and other costs of the Company are not allocated or identified on a specific property basis.  Any such allocation would be arbitrary and would require significant assumptions and estimates about what management's intent would have been during those periods.

4.      Property, plant and equipment


Oil and natural gas interests

Corporate and other

Total





Cost




Balance at April 1, 2011

$  17,530,514

$      29,572

$  17,560,086

Capital expenditures

5,047,773

14,226

5,061,999

Acquisition of oil and natural gas interests (note 5)

12,649,276

-

12,649,276

Transfers from exploration and evaluation assets (note 7)

125,436

-

125,436

Change in decommissioning provisions (note 11)

1,296,000

-

1,296,000

Balance at March 31, 2012

36,648,999

43,798

36,692,797

Capital expenditures

4,867,434

13,400

4,880,834

Transfers from exploration and evaluation assets (note 7)

316,057

-

316,057

Change in decommissioning provisions (note 11)

412,000

-

412,000

Balance at March 31, 2013

$  42,244,490

$      57,198

$  42,301,688

Accumulated depletion and depreciation and impairment losses




Balance at April 1, 2011

$       251,000

$        9,464

$       260,464

Depletion and depreciation expense

1,734,000

8,800

1,742,800

Balance at March 31, 2012

1,985,000

18,264

2,003,264

Depletion and depreciation expense

3,240,000

10,000

3,250,000

Impairment loss

1,363,000

-

1,363,000

Balance at March 31, 2013

$    6,588,000

$      28,264

$    6,616,264






Oil and natural gas Interests

Corporate and other

Total





Net carrying value:




At March 31, 2012

$  34,663,999

$      25,534

$  34,689,533

At March 31, 2013

$  35,656,490

$      28,934

$  35,685,424

(a)     Impairment loss

For the year ended March 31, 2013, the impairment loss of $1,363,000 (2012 - $Nil) was related to the Willesden Green CGU.  The impairment was a result of a change to proved and probable reserve estimates and related cash flows as determined by the Company's external reserve evaluators, as well as a significant decline in the forecast natural gas prices at March 31, 2013 compared to March 31, 2012.


The recoverable amount of the Willesden Green CGU was estimated as the fair value less costs to sell based on the net present value of the before tax net cash flows from oil and natural gas proved plus probable reserves estimated by the Company's external reserve evaluators discounted at a rate of 10% per annum.

The following represent the forecast prices used to determine fair value in the March 31, 2013 impairment test:

Average Price Forecast (1)




Calendar year

WTI

Cushing

40° API

Bow River

25° API

Alberta

AECO-C

Spot

Exchange rate


(US$/bbl)

(CDN$/bbl)

(CDN$/mcf)

(US$/CDN$)

2013

92.00

68.00

3.35

1.00

2014

91.80

67.75

3.75

1.00

2015

91.55

70.50

4.05

1.00

2016

93.40

71.25

4.35

1.00

2017

92.00

70.85

4.65

1.00

2018 - 2022

93.85 to 101.60

71.65 to 78.20

5.10 to 6.45

1.00


Escalation rate of 2% thereafter (2)



(1)       The benchmark prices listed above are adjusted for quality differentials, heat content, distance to market and other factors in performing the impairment test.

(2)       Percentage change represents the change in each year after 2022 to the end of the reserve life.

5.      Bank debt

As at March 31, 2013, the Company had lending facilities with a Canadian chartered bank, consisting of a $12.0 million revolving demand credit facility, and a $6.5 million demand development/acquisition facility, of which $6.7 million ($6.0 million under bankers' acceptances and $0.7 million under the prime-based lending) and $Nil were drawn, respectively.  The revolving facility is a borrowing base facility that is determined based on, among other things, the Company's current reserve report, results of operations, current and forecasted commodity prices and the current economic environment.  The revolving credit facility contains standard commercial covenants for facilities of this nature.  The Company also has available a risk management facility which allows the Company to conduct certain financial risk management options.  The interest rates on the facilities are bank prime plus 0.75% per annum and bank prime plus 1.25% per annum, respectively.  Bankers' acceptances are subject to a 2% acceptance fee plus an applicable market interest rate.  The facilities are secured by a $50.0 million demand debenture and a general security agreement covering all assets of the Company.  The revolving credit facility provides that advances may be made by way of direct advances, bankers' acceptances, or standby letters of credit/guarantee.  Advances on the development/acquisition facility are subject to bank approval; however they are generally limited to the lesser of the estimated development/acquisition cost and the bank's internal valuation of associated reserves.  Repayments for the revolving facility are interest only, and repayments for the development/acquisition line are determined by the bank based on their evaluation of the specific circumstances, both subject to the bank's right of demand.


The only financial covenant on the revolving facility is a requirement for the Company to maintain a current ratio (as defined in the credit agreement and further described in note 22) of not less than 1.0:1.0, and such ratio is to be tested at the end of each fiscal quarter.  The Company was in compliance with this financial covenant as at March 31, 2013.  A condition of the risk management facility is the Company must not hedge greater than 50% of its oil and natural gas production.

The regular interim review of the Company's credit facilities, originally scheduled for January 2013, has been delayed so that the bank can review the Company's March 31, 2013 independent engineering reserve report.  Given that the March 31, 2013 reserve report cash flows and production amounts have increased from the previous year, the Company believes that lending limits should remain consistent.  However based on preliminary discussions with the bank there is the possibility that a reduction of the lending limits may occur.  The Company expects that the review will be finalized by early July 2013.

6.      Loans payable

As at March 31, 2013, the Company has loans payable with principal amounts totalling $8.0 million, which bear interest as to $7.0 million at 10% per annum and $1.0 million at 12% per annum, and are secured against the assets of the Company as a second charge to the Company's lending facility (note 9).  Per the lending agreement for the $7.0 million loan, if interest is not paid by the 15th of each month, the lender has the option to require the full amount to become due and payable immediately.  No interest payments have been made, however the lender has not exercised the option to make the amounts due immediately.  Any interest and principal repayments for these loans is subject to the bank's prior approval.  The loans payable are due to a company that is also a shareholder of the Company.

The following table summarizes changes in the loans payable:


10% loan

12% loan

Total


due January 2014

due January 2013


Principal




Balance March 31, 2011

$                       -

$         1,500,000

$          1,500,000

Amount loaned

7,500,000

-

7,500,000

Amount repaid in cash

-

(500,000)

(500,000)

Amount repaid with common shares (note 13(b))

(500,000)

-

(500,000)

Balance March 31, 2013 and March 31, 2012

$         7,000,000

$         1,000,000

$          8,000,000

Interest




Balance March 31, 2011

$                      -

$           70,849

$             70,849

Amount paid in cash

(5,205)

(100,932)

(106,137)

Interest expense

120,273

130,357

250,630

Balance March 31, 2012

115,068

100,274

215,342

Interest expense

700,000

120,000

820,000

Balance March 31, 2013

$            815,068

$            220,274

$          1,035,342





Total loan payable at March 31, 2012

$         7,115,068

$         1,100,274

$          8,215,342

Total loan payable at March 31, 2013

$         7,815,068

$         1,220,274

$          9,035,342


The $1.0 million loan payable (plus accrued interest) outstanding at March 31, 2013, was due January 31, 2013, and the Company has asked for authorization from its bank to repay the loan plus interest.  The bank has stated that no repayments are authorized until the current interim review is completed.  The $7.0 million loan payable (plus accrued interest) outstanding at March 31, 2013, is due January 31, 2014, and the Company is expecting that given its current working capital deficiency and negative cash flows generated from operating activities in the current year, that the amount will likely not be able to be repaid when due.  The Company is currently in negotiations with the lender to restructure the loans which may result in an extension to repayment due dates and/or conversion of some of the amounts to equity.

7.      Share capital

(a)     Authorized

Unlimited number of voting common shares without par value

Unlimited number of preferred shares issuable in series

(b)     Issued and outstanding

Common Shares

Number of Shares

Stated Value

Balance as at April 1, 2011

60,429,008

$18,848,895

Issue of common shares for cash

18,642,511

5,191,488

Issue of flow-through common shares for cash

1,108,222

498,700

Issue of common shares for repayment of loans payable

3,333,333

500,000

Issue of common shares for services

208,333

31,250

Flow-through share premium

-

(129,363)

Value of warrants in units

-

(339,439)

Share issue costs paid in cash

-

(429,255)

Share issue costs paid in common shares and warrants

-

(78,878)

Balance as at March 31, 2012

83,721,407

$24,093,398

Issue of common shares for cash

41,315,917

8,291,422

Issue of flow-through common shares for cash

3,223,250

1,031,440

Issue of common shares for services

541,666

81,250

Flow-through share premium

-

(225,628)

Share issue costs paid in cash

-

(499,573)

Share issue costs paid in common shares

-

(81,250)

Balance as at March 31, 2013

128,802,240

$32,691,059


(c)     Financings

Fiscal 2013

i)       In May 2012, the Company closed a private placement of 21,666,667 common shares at $0.15 per share for cash proceeds of $3,250,000.  Finder's fees totalling 5% of the proceeds were paid as to 2.5% in cash and 2.5% in common shares of the Company, being $81,250 and 541,666 common shares at $0.15 per share plus additional issuance costs of $14,985.

ii)       In December 2012, the Company closed private placements whereby 19,649,250 common shares were issued at a weighted average price of $0.26 per share and 3,223,250 flow-through common shares were issued at a price of $0.32 per share, for gross cash proceeds of $6.1 million ($5.7 million net of finder's fees and other issuance costs).  The issuance of flow-through shares resulted in the recognition of an obligation of $225,628 recorded as a flow-through share premium liability.  The Company has committed to spend 100% of the flow-through funds on qualifying expenditures by December 31, 2013.  At March 31, 2013, the Company reduced the flow-through share premium pro rata as a result of $501,000 of qualifying expenditures incurred.

Fiscal 2012

i)      During March 2012, the Company completed an equity issuance whereby 11,666,666 common shares were issued at $0.15 per share.  8,333,333 of these common shares were issued for gross cash proceeds of $1.25 million, and 3,333,333 were issued to settle $500,000 of loans payable (note 10).  The Company also issued 208,333 common shares for $31,250 and paid $31,250 cash as finder's fees for the equity issuance which has been included in share issue costs.

ii)     During April, May and July 2011, the Company completed equity issuances whereby 10,309,178 common shares were issued at a price of $0.38 per share and 1,108,222 flow-through common shares were issued at $0.45 per share, for gross proceeds of $4.4 million.  In conjunction with these financings the Company also issued 5,155,970 warrants and 748,026 broker's warrants.  The net proceeds on these issuances were $4.1 million, after cash share issuance costs.

The pro-rata fair value method was used to value the above issuances because the common shares and warrants were issued as one unit.  As a result, $339,439 was attributed to the warrants and the remaining amount recorded in share capital.  $47,628 representing the fair value of the broker warrants was calculated using the Black-Scholes option pricing model and are included in share issue costs with a corresponding amount credited to warrants on the balance sheet.  A non-cash charge of $129,363 with a corresponding credit to flow-through premium liability was recorded related to the flow-through shares issued.  The flow-through premium liability was subsequently eliminated due to qualifying expenditures incurred during the remainder of the year.

6.      Availability of Report & Accounts

Copies of the Report and Accounts will be posted to shareholders shortly, will be available from the Company's registered office Elveden House, Suite 1400, 717-7th Avenue SW, Calgary, Alberta T2P 0Z3 and will be available from the Company's website www.edgeres.com.

In addition to the Report and Accounts, the Management's Discussion and Analysis for the year ended March 31, 2013 is also available on the Company's website www.edgeres.com.

 

 

 

 


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