Genoil Management Discussion & Analysis

Dated as of November 3, 2015

This Management’s Discussion and Analysis (MD&A) is dated November 3, 2015, and should be read in conjunction with the audited financial statements for the year ended December 31, 2013.  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 30, 2013 and 2012 and the audited financial statements and MD&A for the year ended December 31, 2013.  This commentary is based upon information available to October 30, 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.

Hebei Zhongjie Petrochemical Group – 2015 Update

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 25^th, 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 – 2013- 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 Sea^TM 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 Sea^TM 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 – 2013-2015

The Company currently has seven full time employees, sixteen 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 2013 – 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. 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.

Subsequent to December 31, 2013, Genoil grew its engineering team recently with the new 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.

Subsequent to December 31, 2013, 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.

Subsequent to December 31, 2013, 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.

Subsequent to December 31, 2013, 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. Genoil welcomes Joseph back. 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, 2013, 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, 2013, the Company’s operating expenses were much lower than those in both the comparable quarter ending December 31, 2012, and the preceding quarter ending September 30, 2013 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 2013. 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. In 2013 discussions are ongoing.

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 2013 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 $2,259,499 to $1,037,951 or a 54% reduction reflects a successful achievement by management to develop new strategies and to operate much more efficiently and to close deals on a lower budget. This will continue at a more substantially lower rate into 2014 where administrative expenses were further reduced by around 80%.

Another paramount issue is liquidity.   The current assets of Genoil are $371,687 and its current Liabilities are $4,509,302.   The $2,415,331 in debentures maturing in October 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.

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, 2013, the Company had certain obligations and assets denominated in U.S. dollars and there were no contracts in place to manage this exposure.

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