Edge Resources Inc. 3rd Quarter Results -3-

These condensed interim 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 $3.9 million for the nine month period ended December 31, 2014. As at December 31, 2014, the Company had a working capital deficiency of $7.4 million (March 31, 2014 - $6.9 million) that includes $5.8 million (March 31, 2014 - $5.7 million) in bank debt (excluding derivative assets/liabilities).

As per note 6, the Company has a revolving credit facility with a $17.0 million limit, and as of December 31, 2014, there was $11.2 million available for use. However, given the amount available for use under the facility is also limited by the "senior debt to cash flow" ratio, the actual limit will vary on a period by period basis. The calculations of the applicable ratios as of December 31, 2014 are presented in note 17. Management actively forecasts applicable cash flows and will conduct an appropriate capital program based on estimated future credit facility availability. Management believes with its current credit facility, positive expected operating cash flows in the near future despite the recent significant decline in world oil prices and cash flows generated from its hedging program, that the Company will generate sufficient cash flows to meet its foreseeable obligations in the normal course of operations. Management has significantly delayed the Company's capital programs until the pricing environment improves and has and continues to work on strategies to reduce general and administrative and operating costs subsequent to December 31, 2014.

Management has been and continues to be active in seeking alternative sources of funding to help accelerate its planned capital expenditure program, and to ultimately reduce its total debt. The Company cannot provide any assurance that sufficient cash flows will be generated from operating activities to reduce its working capital deficiency and to carry out its planned capital expenditure program.

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 condensed interim financial statements on a going concern basis.

   2.      Basis of preparation 
   (a)     Statement of compliance 

These condensed interim financial statements are unaudited and have been prepared in accordance with International Accounting Standard ("IAS") 34, "Interim Financial Reporting" using accounting policies consistent with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB"). Certain information and disclosures normally included in the annual financial statements prepared in accordance with IFRS have been condensed or omitted.

The condensed interim financial statements should be read in conjunction with the Company's audited annual financial statements as at and for the year ended March 31, 2014 and the notes thereto. All accounting policies and methods of computation followed in the preparation of these condensed interim financial statements are consistent with those of the previous financial year, except as detailed in note 2 (c) "Changes in accounting policies" in these condensed interim financial statements.

   3.      Property, plant and equipment 
 
                                      Oil and 
                                       natural      Corporate 
                                    gas interests    and other      Total 
Cost 
Balance at March 31, 2013            $ 42,244,490     $ 57,198   $ 42,301,688 
     Capital expenditures               3,634,251       13,607      3,647,858 
     Transfers from exploration 
      and evaluation assets               589,255            -        589,255 
     Disposition (1)                     (60,000)            -       (60,000) 
     Change in decommissioning 
      provisions                        (128,000)            -      (128,000) 
Balance at March 31, 2014            $ 46,279,996     $ 70,805   $ 46,350,801 
     Capital expenditures               2,115,818        4,006      2,119,824 
    Change in decommissioning 
     provisions (note 8)                1,945,000            -      1,945,000 
--------------------------------  ---------------  -----------  ------------- 
Balance at December 31, 2014         $ 50,340,814     $ 74,811   $ 50,415,625 
--------------------------------  ---------------  -----------  ------------- 
Accumulated depletion and 
 depreciation and impairment 
 losses 
Balance at March 31, 2013             $ 6,588,000     $ 28,264    $ 6,616,264 
    Depletion and depreciation 
     expense                            1,962,000        9,500      1,971,500 
    Disposition(1)                        (5,000)            -        (5,000) 
--------------------------------  ---------------  -----------  ------------- 
Balance at March 31, 2014             $ 8,545,000     $ 37,764    $ 8,582,764 
    Depletion and depreciation 
     expense                            1,357,000        7,600      1,364,600 
    Impairment loss (2)                 4,400,000            -      4,400,000 
Balance at December 31, 2014         $ 14,302,000     $ 45,364   $ 14,347,364 
--------------------------------  ---------------  -----------  ------------- 
 
 
                               Oil and 
                                natural      Corporate 
                             gas interests    and other      Total 
Net carrying value: 
-------------------------  ---------------  -----------  ------------- 
    At March 31, 2014         $ 37,734,996     $ 33,041   $ 37,768,037 
-------------------------  ---------------  -----------  ------------- 
    At December 31, 2014      $ 36,038,814     $ 29,447   $ 36,068,261 
-------------------------  ---------------  -----------  ------------- 
 

(1) On May 15, 2013, the Company completed an asset swap transaction with an unrelated third party such that $200,000 of oil and natural gas interests were swapped for $200,000 of undeveloped lands. The carrying amount of the oil and natural gas interests was $15,000, including a decommissioning provision of $40,000, resulting in a gain on sale of $185,000 for the nine month period ended December 31, 2013.

(2) Due to continued weak commodity prices, the Company performed an impairment test at December 31, 2014 which resulted in recording an impairment loss of $4,400,000 based on an estimated recoverable value of $8,100,000 for the Willesden Green CGU. The impairment was a result of a change to the future cash flow estimates due to a significant decline in the forecast commodity prices at December 31, 2014 compared to March 31, 2014. The recoverable amounts of the Company's CGUs were estimated at the fair value less costs of disposal based on the net present value of the before tax cashflows from oil and natural gas proved plus probable reserves estimated by the Company's management team and calculated at a 10% discount rate for oil interests and a 20% discount rate for natural gas interests. The following represents the forecast prices used to determine fair value in the December 31, 2014 impairment test:

   4.      Bank debt 

In July 2014, the Company replaced its bank debt lender with another Canadian chartered bank. In conjunction with this replacement, the previous bank debt lender was repaid in full and those lending facilities cancelled.

As at December 31, 2014, the Company had lending facilities with a Canadian chartered bank, consisting of a $17 million revolving demand operating credit facility of which $5.8 million was drawn under guaranteed notes. 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 rate on the facility is bank prime plus 1.75% per annum. Guaranteed notes are subject to a 2.75% acceptance fee plus an applicable market interest rate. The facilities are secured by a general security agreement covering all assets of the Company including a subordination agreement with the lender in note 7, and repayments are interest only, subject to the bank's right of demand. The revolving credit facility provides that advances may be made by way of direct advances, guaranteed notes, or standby letters of credit/guarantee.

The revolving facility has the following financial covenant requirements (calculations are presented in note 17):

-- The working capital ratio must be maintained above 1.0:1. The working capital ratio is defined as current assets (excluding derivative assets if any) plus the undrawn availability of the revolving facility to current liabilities (excluding the current portion of bank debt and derivative liabilities if any).

-- The senior debt to cash flow ratio must not exceed 3.0:1 (3.5:1 for the period ended December 31, 2014 only). The senior debt to cash flow ratio is defined as the amount drawn under the bank facility to net income for the trailing one year period from the balance sheet date adjusted for non-cash items, and less dividends declared and repayments of shareholder loans.