NOTES
TO CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS
For
the three months ended May 31, 2018
(Expressed
in US dollars – Unaudited)
1.
NATURE AND CONTINUANCE OF OPERATIONS
Fortem
Resources Inc. (the “Company”) was incorporated in the State of Nevada on July 9, 2004. The Company focuses its business
efforts on the acquisition, exploration, and development of oil and gas properties.
The
accompanying financial statements have been prepared assuming the Company will continue as a going concern. As of May 31, 2018,
the Company has not achieved profitable operations, has incurred losses in developing its business, and further losses are anticipated.
The Company has an accumulated deficit of $37,807,189.
The
Company has restated its May 31, 2018 consolidated condensed interim financial statements as disclosed in Note 18.
The
Company’s ability to continue as a going concern is dependent upon its ability to obtain the necessary financing to meet
its obligations and pay its liabilities when they come due. To date, the Company has funded operations through the issuance of
capital stock and debt. Management plans to continue raising additional funds through equity or debt financings and loans from
directors. There is no certainty that further funding will be available as needed. These factors raise substantial doubt about
the ability of the Company to continue operating as a going concern. The ability of the Company to continue its operations as
a going concern is dependent upon its ability to raise sufficient new capital to fund its operating commitments and ongoing losses
and ultimately on generating profitable operations. The financial statements do not include any adjustments to be recorded to
assets or liabilities that might be necessary should the Company be unable to continue as a going concern.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
unaudited consolidated condensed interim financial statements of the Company have been prepared in accordance with United States
Generally Accepted Accounting Principles (“GAAP”) for interim financial information and the rules and regulations
of the Securities and Exchange Commission (“SEC”). They do not include all information and footnotes required by GAAP
for complete financial statements. However, except as disclosed herein, there have been no material changes in the information
disclosed in the notes to the financial statements from the year ended February 28, 2018 included in the Company’s Annual
Report on Form 10-K filed with the SEC. The interim unaudited financial statements should be read in conjunction with those financial
statements included in the 10-K report. In the opinion of management, all adjustments considered necessary for fair presentation,
consisting solely of normal recurring adjustments, have been made. Operating results for the three months ended May 31, 2018 are
not necessarily indicative of the results that may be expected for the year ending February 28, 2019.
Basis
of consolidation
These
consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Colony Energy, LLC, (“Colony”)
Black Dragon Energy, LLC, (“Black Dragon”) Rolling Rock Resources, LLC (“Rolling Rock”) and City of Gold,
LLC (“City of Gold”). All significant intercompany accounts and transactions between the Company and its subsidiaries
have been eliminated upon consolidation.
Basic
and Diluted Loss per Share
Earnings
or loss per share (“EPS”) is computed by dividing net income (loss) available to common stockholders by the weighted
average number of common shares outstanding for the period. Diluted EPS is computed by dividing net income (loss) by the weighted-average
of all potentially dilutive shares of the common stock that were outstanding during the years presented. There were 4,050,000
(February 28, 2018 - 5,323,698) potentially dilutive securities excluded from the calculation of diluted loss per share as their
effect would be anti-dilutive.
FORTEM
RESOURCES INC.
NOTES
TO CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS
For
the three months ended May 31, 2018
(Expressed
in US dollars – Unaudited)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Basic
and Diluted Loss per Share (continued)
The
treasury stock method is used in calculating diluted EPS for potentially dilutive stock options and share purchase warrants, which
assumes that any proceeds received from the exercise of in-the-money stock options and share purchase warrants, would be used
to purchase common shares at the average market price for the period.
Use
of Estimates
The
preparation of consolidated condensed interim financial statements in conformity with US GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company
regularly evaluates estimates and assumptions. The Company bases its estimates and assumptions on current facts, historical experience
and various other factors it believes to be reasonable under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent
from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s
estimates. To the extent there are material differences between the estimates and the actual results, future results of operations
will be affected. The most significant estimates with regard to these financial statements relate to carrying values of oil and
gas properties and investments, the assumptions used to record asset retirement obligations, the assumptions used to determine
the fair value of derivative financial assets and liabilities, and valuation of share-based payments.
Recent
Accounting Pronouncements
Other
recent accounting pronouncements issued by the Financial Accounting Standards Board (“FASB”) (including its Emerging
Issues Task Force), the American Institute of Certified Public Accountants, and the SEC did not, or are not believed by management
to, have a material impact on the Company’s present or future financial position, results of operations or cash flows.
3.
LOANS RECEIVABLE FROM RELATED PARTY
During
the year ended February 28, 2018, the Company advanced unsecured loans of $99,135 (AUD125,000) to a company related by virtue
of a common director and significant shareholder. The loans bear interest at 10% per annum and matures between April and June
2019. The total amount receivable at May 31, 2018, including accrued interest is $114,441 (February 28, 2018 - $97,422).
4.
INVESTMENT IN ASIA PACIFIC MINING LTD.
In
April 2017, a binding financing and option agreement (the “Agreement”) was assigned to the Company where the Company
subscribed a total of 2,930,259 units in the capital of Asia Pacific Mining Limited (“Asia Pacific”) at a total cost
of $1,500,000, which represents approximately 7.5% of the issued and outstanding shares of Asia Pacific immediately after the
financing. Asia Pacific is a private company registered in Hong Kong and the principal activities of Asia Pacific are exploration
and mining in Myanmar (Note 7) and investment holding. Each unit consisted of one common share and one share purchase warrant
which will entitle the holder of each warrant to acquire an additional share of Asia Pacific at an exercise price of $0.5119 per
share during the term equal to the greater of two years from the closing of additional financing of Asia Pacific according to
the terms of the Agreement or 18 months from the receipts of all necessary permits to carry out the exploration program.
FORTEM
RESOURCES INC.
NOTES
TO CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS
For
the three months ended May 31, 2018
(Expressed
in US dollars – Unaudited)
5.
EQUIPMENT
|
|
May
31, 2018
|
|
|
|
Cost
|
|
|
Accumulated
Depreciation
|
|
|
A.
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
Oil
and gas equipment
|
|
|
71,284
|
|
|
|
17,521
|
|
|
|
53,763
|
|
|
|
February
28, 2018
|
|
|
|
Cost
|
|
|
Accumulated
Depreciation
|
|
|
B.
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
Oil
and gas equipment
|
|
|
71,284
|
|
|
|
16,630
|
|
|
|
54,654
|
|
6.
OIL AND GAS PROPERTIES, FULL COST METHOD
|
|
Canada
|
|
|
US
|
|
|
|
|
|
|
Compeer
|
|
|
Godin
|
|
|
Black
Dragon
|
|
|
Rolling
Rock
|
|
|
Total
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
Balance,
February 28, 2018
|
|
|
693,503
|
|
|
|
60,293,697
|
|
|
|
38,969,690
|
|
|
|
40,094,389
|
|
|
|
140,051,279
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition
|
|
|
-
|
|
|
|
-
|
|
|
|
25,000
|
|
|
|
25,000
|
|
|
|
50,000
|
|
Exploration
|
|
|
-
|
|
|
|
14,143
|
|
|
|
30,430
|
|
|
|
51,329
|
|
|
|
95,902
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
May 31, 2018
|
|
|
693,503
|
|
|
|
60,307,840
|
|
|
|
39,025,120
|
|
|
|
40,170,718
|
|
|
|
140,197,181
|
|
Compeer
Property
The
Compeer Property is located in Alberta, Canada. As of May 31, 2018, the Company has incurred $693,503 (February 28, 2018 - $693,503)
in exploration costs to drill, complete and equip the Test Well, net of impairment charges in prior periods. The Company also
has $43,648 (February 28, 2018 - $43,961) in bonds held with the Alberta Energy Regulator for its oil and gas properties.
Godin
Property
On
March 31, 2017, the Company entered into a petroleum, natural gas and general rights conveyance agreement to acquire a 100% interest
in and to certain petroleum, natural gas and general rights, including Alberta Crown Petroleum and Oil Leases, in 20 contiguous
sections totaling 12,960 acres located in the Godin area of Northern Alberta.
In
addition, the vendor is entitled to receive certain milestone payments from the Company in the aggregate amount up to $210,000
as follows:
|
i)
|
$30,000
on or before June 29, 2017 (settled with the issuance of shares during fiscal 2018);
|
|
ii)
|
$30,000
on or before September 27, 2017 (settled with the issuance of shares during fiscal 2018); and
|
|
iii)
|
$150,000
upon the rig release of the second well drilled by the Company in the oil and gas assets described above.
|
FORTEM
RESOURCES INC.
NOTES
TO CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS
For
the three months ended May 31, 2018
(Expressed
in US dollars – Unaudited)
6.
OIL AND GAS PROPERTIES, FULL COST METHOD (continued)
Godin
Property (continued)
If
the Company fails to make timely payment of any of the milestone payments, and does not remedy such failure within 30 days of
receipt of written notice from the vendor, the vendor may elect either of the following:
|
a.
|
Have
Colony re-convey the assets to one of the project vendors; or
|
|
b.
|
Receive
250,000 common shares of the Company (subject to the availability of a registration exemption).
|
In
November 2017, the Company issued 30,000 shares at a value of $60,000 to settle the milestone payments of $60,000. The Company
is obligated to issue 3,000,000 common shares to one of the vendors of Colony which holds rights in the Godin Property.
Black
Dragon Property
In
March 2017, the Company entered into a purchase and sale agreement (the “Black Dragon PSA”), subsequently amended,
to acquire a 75% working interest in and to certain leases, hydrocarbons, wells, agreements, equipment, surface rights agreements
and assignable permits at an 80% net revenue interest located in the Moenkopi formation of the Carbon and Emery Counties, Utah
(the “Black Dragon Property”). In August 2017 and May 2019, the Company entered into an amendment to the Black Dragon
PSA (the “Black Dragon Amendment”), which amended the terms of the Black Dragon PSA. Under the Black Dragon Amendment,
the Company is required to pay the vendor cash consideration totaling $3,900,000 (the “Black Dragon Cash Consideration”)
based upon the following schedule:
|
●
|
$100,000
as a non-refundable deposit within 10 business days of closing (paid);
|
|
|
|
|
●
|
the
balance of the Black Dragon Cash Consideration by payment to the vendor of an amount equal to 12.5% of any funds received
by the Company from any equity, debt or convertible financing thereof (each, a “Financing”) upon the closing of
each Financing until such amount is paid. In addition: (a) the first $1,500,000 raised by the Company will be exempt from
a 12.5% payment to the vendor if such amount is received prior to the Company’s listing on a stock exchange; and (b)
the full Black Dragon Cash Consideration is required to be paid in full no later than May 1, 2020 regardless of the amount
of funds paid in connection with one or more Financings.
|
In
addition to revising the Black Dragon Cash Consideration as set out above, the Company has agreed to: (a) issue 250,000 common
shares of the Company to the vendor on or prior to September 1, 2017 (issued at a value of $625,000); and (b) pay the vendor an
additional $25,000 every sixty days commencing September 1, 2017 ($125,000 paid) until such time as the Black Dragon Cash Consideration
is paid in full. Furthermore, as part of the May 2019 amendment, the Company is required to issue 300,000 shares of the Company
to the vendor.
Within
10 business days after the later of the Company paying the Black Dragon Cash Consideration in full or the Company meeting in full
its carry obligation, the vendor will convey to the Company an undivided 75% of the Vendor’s right, title and interest in
and to the assets, at an 80% Net Revenue Interest in the assets.
FORTEM
RESOURCES INC.
NOTES
TO CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS
For
the three months ended May 31, 2018
(Expressed
in US dollars – Unaudited)
6.
OIL AND GAS PROPERTIES, FULL COST METHOD (continued)
Black
Dragon Property (continued)
Carry
Obligation
As
per the terms of the Black Dragon PSA, and in addition to the Black Dragon Cash Consideration, the Company is required to pay
all costs and expenses incurred on the assets with respect to any and all exploration, development and production during the carry
period. The “Carry Period” continues until the later of either (i) the date that the Company pays the full Black Dragon
Cash Consideration set out above or (ii) the date that the Company pays all costs and expenses for the drilling, logging, testing
and completion of two new wells, each well with a horizontal leg extending at least 2,000 feet in the target zone within the Moenkopi
formation (the “Two Obligation Wells”). The Company is required to drill to completion or cause to be drilled to completion
(or plugging and abandonment) the Two Obligation Wells on or before May 1, 2020 failing which, the Company’s right to earn
any assignment in and to the assets will terminate immediately. For each vertical well drilled to 200 feet below the top of the
Kaibab formation through completion (or plugging or abandonment) within a Federal Unit, the obligation deadline will be amended
to the later of (i) the current obligation deadline or (ii) 6 months from the date the rig that drilled such vertical well to
total depth has been removed from the wellsite.
Rolling
Rock Property
In
March 2017, the Company entered into a purchase and sale agreement (the “Rolling Rock PSA”), subsequently amended,
to acquire a 75% working interest in and to certain leases, hydrocarbons, wells, agreements, equipment, surface rights agreements
and assignable permits at an 80% net revenue interest located in the Mancos formation in the Southern Uinta Basin, Utah (the “Rolling
Rock Property”). In August 2017 and May 2019, the Company entered into an amendment to the Rolling Rock PSA (the “Rolling
Rock Amendment”), which amended the terms of the Rolling Rock PSA. Under the Rolling Rock Amendment, the Company is required
to pay the vendor cash consideration totaling $5,400,000 (the “Rolling Rock Cash Consideration”) based upon the following
schedule:
|
●
|
$100,000
as a non-refundable deposit within 10 business days of closing (paid);
|
|
|
|
|
●
|
the
balance of the Rolling Rock Cash Consideration by cash payment to the vendor of an amount equal to 12.5% of any funds received
by the Company from any Financing upon the closing of each Financing until such amount is paid. In addition: (a) the first
$1,500,000 raised by the Company will be exempt from a 12.5% payment to the vendor if such amount is received prior to the
Company’s listing on a stock exchange; and (b) the full Rolling Rock Cash Consideration is required to be paid in full
no later than May 1, 2020 regardless of the amount of funds paid in connection with one or more Financings; and
|
|
|
|
|
●
|
after
payment of the Rolling Rock Cash Consideration, an additional payment of $300,000 (the “Workover Funds”) to the
vendor which is payable by an amount equal to 12.5% of any funds received by the Company from any Financing until the Workover
Funds are paid in full.
|
In
addition to revising the Rolling Rock Cash Consideration as set out above, the Company has agreed to: (a) cause the Company to
issue 250,000 common shares of the Company to the vendor on or prior to September 1, 2017 (issued at a value of $625,000); and
(b) pay the vendor an additional $25,000 every sixty days commencing September 1, 2017 ($125,000 paid) until such time as the
Rolling Rock Cash Consideration and the Workover Funds are paid in full. Furthermore, as part of the May 2019 amendment, the Company
is required to issue 300,000 shares of the Company to the vendor.
FORTEM
RESOURCES INC.
NOTES
TO CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS
For
the three months ended May 31, 2018
(Expressed
in US dollars – Unaudited)
6.
OIL AND GAS PROPERTIES, FULL COST METHOD (continued)
Rolling
Rock Property (continued)
Within
10 business days after the later of the Company paying the Rolling Rock Cash Consideration in full or the Company meeting in full
its carry obligation, the vendor agrees to convey to the Company an undivided 75% of the vendor’s right, title and interest
in and to the Leases, or a 80% net revenue interest in the Leases. Notwithstanding this transfer, within 10 business days after
the later of payment of $300,000 on or before May 1, 2020 (which amount is in addition to the deposit and included in the Rolling
Rock Cash Consideration set out above) and the replacement of the vendor’s bonds on or before July 1, 2019, the vendor agrees
to convey to the Company an undivided 75% of the vendor’s right, title and interest in and to the Cisco Dome leases and
related assets. However, if the Company fails to timely meet any of its obligations under the Rolling Rock PSA, after having taken
assignment of the Cisco Dome leases and assets, then, if the vendor elects in its sole discretion, the Company is required to
reassign the Cisco Dome leases and assets to the vendor without any additional encumbrances.
Carry
Obligation
As
per the terms of the Rolling Rock PSA, and in addition to the Rolling Rock Cash Consideration, the Company is required to pay
all costs and expenses incurred on the Leases with respect to any and all exploration, development and production during the carry
period. The “Carry Period” continues until the later of either (i) the date that the Company pays the full Rolling
Rock Cash Consideration set out above or (ii) the date that the Company pays all costs and expenses for the drilling, logging,
testing and completion of three new wells in each of the three Federal Units, each well with a horizontal leg extending at least
1,000 feet in the target zone within the Mancos formation (the “Three Obligation Wells”). The Company is required
to drill to completion or cause to be drilled to completion (or plugging and abandonment) the Three Obligation Wells on or before
May 1, 2020, failing which, the Company’s right to earn any assignment in and to the Leases will terminate immediately.
For each vertical well drilled to the top of the Dakota formation through completion (or plugging or abandonment) within a Federal
Unit, the obligation deadline will be amended to the later of (i) the current obligation deadline or (ii) 6 months from the date
the rig that drilled such vertical well to total depth has been removed from the wellsite.
The
obligation well in the Grand Mancos Unit will be a vertical well drilled to a depth sufficient to test the Granite Walsh formation
within such Federal Unit. For this well, completion (or plugging and abandonment) is expected to take place no later than 2 months
after the rig that drilled to total depth has been removed from the wellsite and for a period of 6 months after completion of
this obligation well (or plugging and abandonment), and the Company will have the exclusive option to purchase an additional 25%
of the vendor’s right, title and interest in and to the leases with respect to the Granite Walsh formation within the boundary
of the Grand Mancos Unit for an additional payment of $10,000,000.
7.
RIGHTS TO THE ACQUISITION OF MINERAL EXPLORATION PROJECT
In
connection to the acquisition of City of Gold, LLC in fiscal 2018, the Company owns the right to an option agreement. Under the
option agreement, the vendors have agreed to grant to the Company an option (the “Option”) to purchase 100% of the
ownership interest in a wholly owned subsidiary of Asia Pacific (Note 4) (the “Project Subsidiary”) which, in turn,
owns 100% of the rights to the City of Gold mineral exploration project located in Myanmar.
The
Company will be granted the Option upon satisfaction of the following:
|
●
|
Subscription
of 976,753 units of Asia Pacific for a purchase price of $500,000 on or prior to March 2, 2017 (completed);
|
|
|
|
|
●
|
Subscription
of 976,753 units of Asia Pacific for a purchase price of $500,000 on or prior to March 16, 2017 (completed);
|
|
|
|
|
●
|
Subscription
of 976,753 units of Asia Pacific for a purchase price of $500,000 on or prior to April 28, 2017 (completed); and
|
|
|
|
|
●
|
Subscription
of 2,930,261 units of Asia Pacific for a purchase price of $1,500,000 (the “Final Funding Tranche”), due within
60 days of issuance of an exploration license for the City of Gold Project by the Government of Myanmar.
|
FORTEM
RESOURCES INC.
NOTES
TO CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS
For
the three months ended May 31, 2018
(Expressed
in US dollars – Unaudited)
7.
RIGHTS TO THE ACQUISITION OF MINERAL EXPLORATION PROJECT (continued)
Upon
the closing of the Final Funding Tranche, the Company will have earned the Option.
Once
it has exercised the Option, the Company may, at its discretion, require Asia Pacific to transfer the Project Subsidiary to another
Canadian publicly listed company to be selected by the Company (“Acquisition Co”)(if the Project Subsidiary is not
transferred to another Canadian publicly list company, Acquisition Co means the Company) for an exercise price consisting of $7,000,000
in cash and thirty percent of the issued and outstanding share capital of Acquisition Co (calculated on a fully diluted basis,
excluding up to 10% in stock options, but including shares Acquisition Co may have issued in order to raise the exercise price
of $7,000,000 and an additional $5,000,000 in working capital). Half of the cash portion of the exercise price must be paid upon
exercise of the Option; the balance is to be paid on the first anniversary of the exercise and is to be evidenced by a one-year
secured term note. Although the Company has the right to select Acquisition Co., it must select a Canadian publicly listed company
that meets certain criteria – at exercise of the Option, Acquisition Co must have less than $100,000 in liabilities and
$5,000,000 or more in working capital and Asia Pacific will have the right to nominate 30% of its directors.
During
the year ended February 28, 2018, in connection with the acquisition of City of Gold, LLC, the Company allocated $39,530,234 to
the rights to the acquisition of mineral exploration project. During fiscal 2018, the Company determined that there were impairment
indicators and wrote down the rights to $1. As a result, the Company recorded an impairment of rights to the mineral exploration
project of $39,530,233 and a deferred tax liability recovery of $9,500,000, for a net write off of $30,030,233.
8.
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
|
|
May
31, 2018
|
|
|
February
28, 2018
|
|
|
|
|
$
|
|
|
|
$
|
|
Accounts
payable
|
|
|
785,154
|
|
|
|
652,279
|
|
Accrued
liabilities
|
|
|
85,014
|
|
|
|
79,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
870,168
|
|
|
|
731,638
|
|
9.
NOTE PAYABLE
As
at May 31, 2018, the Company had $19,942 (February 28, 2018 - $19,942) in short term note obligations. The note payable is unsecured,
non-interest bearing and payable upon demand.
10.
ADVANCE PAYABLE
As
at May 31, 2018, the Company had $nil (February 28, 2018 - $4,058) due to a related party. The balance was related to expenses
paid by a related party. A $60,000 advance payable was unsecured, non-interest bearing and payable upon demand (Note 6). During
the three months end May 31, 2018, the advance payable was forgiven and the Company recorded a gain of settlement of debt of $4,058.
FORTEM
RESOURCES INC.
NOTES
TO CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS
For
the three months ended May 31, 2018
(Expressed
in US dollars – Unaudited)
11.
ASSET RETIREMENT OBLIGATION
The
Company’s asset retirement obligation consists of reclamation and closure costs associated with the Test Well in the Compeer
Property. The asset retirement obligation was estimated based on the Company’s understanding of its requirements to reclaim
currently disturbed areas. Significant reclamation and closure activities include land rehabilitation, water, removal of building
and well facilities and tailings reclamation. The undiscounted estimate of this liability was $38,615 (February 28, 2018 - $39,035)
reflecting payments commencing in 2024. This estimate was adjusted for an inflation rate of 2.00% and then discounted at a rate
of 10.00% for a net present value of $28,385 (February 28, 2018 - $28,352) as at May 31, 2018.
|
|
$
|
|
Balance,
February 28, 2017
|
|
|
24,546
|
|
Foreign
exchange adjustment
|
|
|
1,272
|
|
Accretion
expense
|
|
|
2,534
|
|
Balance,
February 28, 2018
|
|
|
28,352
|
|
Foreign
exchange adjustment
|
|
|
(659
|
)
|
Accretion
expense
|
|
|
692
|
|
Balance,
May 31, 2018
|
|
|
28,385
|
|
12.
SHARE CAPITAL
Three
months ended May 31, 2018
In
March 2018, the Company issued 1,273,698 shares in relation to the exercise of 1,273,698 warrants for total proceeds of $509,479.
During
the three months ended May 31, 2018, the Company issued 25,000 common shares for total gross proceeds of $50,000 pursuant to a
private placement.
Year
ended February 28, 2018:
In
April 2017, the Company issued 21,000,000 shares with a fair value of $37,800,000 in connection to the acquisition of Colony.
In
April 2017, the Company issued 20,000,000 shares with a fair value of $38,000,000 in connection to the acquisition of Black Dragon.
In
April 2017, the Company issued 20,000,000 shares with a fair value of $39,000,000 in connection to the acquisition of Rolling
Rock.
In
May 2017, the Company issued 15,000,000 shares with a fair value of $30,000,000 in connection to the acquisition of City of Gold.
In
September 2017, the Company issued 250,000 shares with a fair value of $625,000 in connection to the Black Dragon Property (Note
6).
In
September 2017, the Company issued 250,000 shares with a fair value of $625,000 in connection to the Rolling Rock Property (Note
6).
FORTEM
RESOURCES INC.
NOTES
TO CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS
For
the three months ended May 31, 2018
(Expressed
in US dollars – Unaudited)
12.
SHARE CAPITAL (continued)
Year
ended February 28, 2018 (continued)
In
November 2017, the Company issued 30,000 shares with a fair value of $60,000 to settle an advance payable of $60,000 in connection
to the Godin property (Note 6).
In
December 2017, the Company issued 400,000 shares with a value of $720,000 for obligation to issue shares. In addition, the Company
issued 7,760 shares with a fair value of $15,632 to settle accounts payable of $15,632.
In
December 2017, the Company issued 800,000 shares in relation to the exercise of 800,000 warrants for total proceeds of $480,000.
As at February 28, 2018, $200,000 are recorded as share subscriptions receivable and received by the Company in March 2018.
During
the year ended February 28, 2018, the Company issued 2,597,142 common shares for total gross proceeds of $1,805,000 pursuant to
private placements. The Company paid a total of $105,200 in finder’s fees in connection with the private placements of equity
financings.
Warrants
Below
is a summary of the common share purchase warrant transactions:
|
|
Number
of Warrants
|
|
|
Weighted
Average Exercise Price per Warrant
|
|
|
|
|
|
|
|
$
|
|
Outstanding
at February 28, 2017
|
|
|
3,823,698
|
|
|
|
0.44
|
|
Exercised
|
|
|
(800,000
|
)
|
|
|
0.60
|
|
Outstanding
at February 28, 2018
|
|
|
3,023,698
|
|
|
|
0.40
|
|
Exercised
|
|
|
(1,273,698
|
)
|
|
|
0.40
|
|
Outstanding
at May 31, 2018
|
|
|
1,750,000
|
|
|
|
0.40
|
|
A
summary of the common share purchase warrants outstanding and exercisable at May 31, 2018 is as follows:
Exercise
Price
|
|
|
Number
Outstanding
|
|
|
Expiry
Date
|
$
|
|
|
|
|
|
|
|
|
0.40
|
*
|
|
|
1,000,000
|
|
|
March
8, 2019
|
|
0.40
|
*
|
|
|
500,000
|
|
|
March
9, 2019
|
|
0.40
|
**
|
|
|
250,000
|
|
|
September
22, 2019
|
|
|
|
|
|
1,750,000
|
|
|
|
*
Warrants exercised subsequent to the period end
**
Warrants expiry date postponed due to trading blackout
The
weighted average exercise price is $0.40 and weighted average life of the warrants is 0.85 years.
FORTEM
RESOURCES INC.
NOTES
TO CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS
For
the three months ended May 31, 2018
(Expressed
in US dollars – Unaudited)
12.
SHARE CAPITAL (continued)
Stock
Options
The
Company’s Stock Option Plan allows a maximum 9,777,115 shares to be reserved for issuance under the plan. Options granted
under the plan may not have a term exceeding 10 years and vesting provisions are at the discretion of the Board of Directors.
A
summary of the stock options outstanding and exercisable at May 31, 2018 is as follows:
Exercise
Price
|
|
|
Number
Outstanding
and Exercisable
|
|
|
Expiry
Date
|
|
Aggregate
Intrinsic Value
|
|
$
|
|
|
|
|
|
|
|
|
|
$
|
|
|
0.10
|
|
|
|
2,300,000
|
|
|
November
3, 2020
|
|
|
5,957,000
|
|
*
300,000 options exercised subsequent to the period end
As
at May 31, 2018, the remaining contractual life of the stock options outstanding was 2.43 years.
The
aggregate intrinsic value in the proceeding table represents the total intrinsic value, based on the Company’s closing stock
price of $2.69 per share as of May 31, 2018.
13.
RELATED PARTY TRANSACTIONS
Due
to related parties consist of the following:
|
|
May
31, 2018
|
|
|
February
28, 2018
|
|
|
|
|
$
|
|
|
|
$
|
|
Due
to directors and officers of the Company
|
|
|
336,679
|
|
|
|
445,912
|
|
As
at May 31, 2018, the Company had $nil (February 28, 2018 - $500,000) in note obligations owing to a company with a common director.
The note payable is unsecured, with an interest of 10% per annum and due on or before January 18, 2019. In March 2018, the Company
repaid the principal balance of $500,000 owed on this note. As at May 31, 2018, the Company has an accrued interest balance of
$57,260 (February 28, 2018 - $55,753). During the three months end May 31, 2018, the advance payable was forgiven and the Company
recorded a gain of settlement of debt of $4,058.
Amounts
due to related parties are unsecured with no specific terms of repayment.
14.
DERIVATIVE FINANCIAL LIABILITIES - WARRANTS
Balance,
February 28, 2017
|
|
$
|
2,590,477
|
|
Reallocation
of derivative liability to equity upon the change in functional currency
|
|
|
(2,590,477
|
)
|
Balance,
February 28, 2018 and May 31, 2018
|
|
$
|
-
|
|
The
derivative financial liabilities related to warrants resulted from the difference in currencies of the warrants (US$) and the
functional currency of the Company (formerly C$). As at March 1, 2017, the Company changed its functional currency to the US dollar
as a result of US dollar financings at which time the derivative was re-measured and derecognized.
FORTEM
RESOURCES INC.
NOTES
TO CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS
For
the three months ended May 31, 2018
(Expressed
in US dollars – Unaudited)
15.
FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENT
The
estimated fair values for financial instruments are determined based on relevant market information. These estimates involve uncertainties
and cannot be determined with precision. The estimated fair value of cash, receivable, loan receivable from related party, investment
in Asia Pacific Mining Ltd, accounts payable and accrued liabilities, due to related parties, related party loan payable, advance
payable and note payable approximate their carrying value due to the short-term nature of those instruments.
ASC
820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure
fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input
that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure
fair value:
Level
1 – Quoted prices in active markets for identical assets or liabilities;
Level
2 – Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable; and
Level
3 – Unobservable inputs that are supported by little or no market activity, therefore requiring an entity to develop its
own assumptions about the assumption that market participants would use in pricing.
The
Company had certain level 3 assets required to be recorded at fair value on a recurring basis in accordance with US GAAP as at
May 31, 2018. As at May 31, 2018, the Company’s Level 3 assets consist of shares and warrants of a private company. The
resulting level 3 assets have no active market and are required to be measured at their fair value each reporting period based
on information that is unobservable. As at May 31, 2018, the fair value of the level 3 assets was equal to $1,500,000 with their
fair value based on the price paid to acquire the investment.
16.
SEGMENTED INFORMATION
The
Company has one operating segment, being the acquisition and exploration of oil and gas properties. Geographic information is
as follows:
|
|
As
at May 31, 2018
|
|
|
|
Canada
|
|
|
US
|
|
|
Total
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
Deposit
|
|
|
43,648
|
|
|
|
-
|
|
|
|
43,648
|
|
Equipment
|
|
|
53,763
|
|
|
|
-
|
|
|
|
53,763
|
|
Oil
and gas properties, full cost method
|
|
|
61,001,343
|
|
|
|
79,195,838
|
|
|
|
140,197,181
|
|
|
|
|
61,098,754
|
|
|
|
79,195,838
|
|
|
|
140,294,592
|
|
|
|
As
at February 28, 2018
|
|
|
|
Canada
|
|
|
US
|
|
|
Total
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Deposit
|
|
|
43,961
|
|
|
|
-
|
|
|
|
43,961
|
|
Property
and equipment
|
|
|
54,654
|
|
|
|
-
|
|
|
|
54,654
|
|
Oil
and gas properties, full cost method
|
|
|
60,987,200
|
|
|
|
79,064,079
|
|
|
|
140,051,279
|
|
|
|
|
61,085,815
|
|
|
|
79,064,079
|
|
|
|
140,149,894
|
|
17.
SUBSEQUENT EVENTS
a)
Subsequent to May 31, 2018, the Company:
|
i)
|
Issued
1,500,000 common shares upon exercise of 1,500,000 warrants of the Company for total proceeds of $600,000.
|
|
|
|
|
ii)
|
Issued
600,000 common shares for gross proceeds of $1,200,000 pursuant to a private placement.
|
|
|
|
|
iii)
|
Issued
300,000 common shares upon exercise of 300,000 warrants of the Company for total proceeds of $30,000.
|
FORTEM
RESOURCES INC.
NOTES
TO CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS
For
the three months ended May 31, 2018
(Expressed
in US dollars – Unaudited)
17.
SUBSEQUENT EVENTS (continued)
|
b)
|
In
September 2018, the Company entered into an asset purchase agreement (the “Agreement”) with a major Canadian oil
and gas company to purchase a 100% working interest in three oil leases in north central Alberta, Canada (the “Transaction”).
The Company and the vendor entered into various extension agreements whereby the closing date of the Transaction was extended
to a date on or before November 19, 2019 and a total deposit of $379,894 (C$500,000) was paid.
|
|
|
|
|
c)
|
In
February 2019, the Company received a loan of $500,000 from a third party. The loan was unsecured, with an interest rate of
10% per annum and payable in 18 months.
|
|
|
|
|
d)
|
In
April 2019, the Company received a loan of $290,000 from a third party. The loan was unsecured, with an interest rate of 10%
per annum and payable in 20 months.
|
|
|
|
|
e)
|
In
May 2019, the Company received a loan of $270,000 from a third party. The loan was unsecured, with an interest rate of 10%
per annum and payable in 18 months.
|
|
|
|
|
f)
|
In
July 2019, the Company received a loan of $275,000 from a third party. The loan was unsecured, with an interest rate of 10%
per annum and payable in 18 months.
|
18.
CORRECTION OF ERRORS IN PREVIOUSLY ISSUED FINANCIAL STATEMENTS
The
Company’s previously issued financial statements have been restated to reflect the correction of errors relating to the
valuation of shares issued in connection to the acquisitions of Colony Energy, LLC, Black Dragon Energy, LLC, Rolling Rock Resources,
LLC, and City of Gold, LLC (collectively, “the LLCs”) during the three months ended May 31, 2017. These shares should
have been reported using the fair value of the shares on the date it was issued. This restatement was announced in the Company’s
current report on Form 8-K filed on July 15, 2019.
The
Company had measured the above acquisitions based on the par value of the shares issued to acquire the LLCs. The Company has determined
that its common shares issued are traded in an active market and should have been recorded based on the quoted market price of
the shares on the date it was issued. Therefore, the Company has revised its accounting to record the transactions based on the
fair value of the shares issued.
The
derivative financial liabilities related to warrants resulted from the difference in currencies of the warrants (US$) and the
functional currency of the Company (formerly C$). As at March 1, 2017, the Company changed its functional currency to the US dollar
at which time the derivative was re-measured and derecognized. However, the Company continued to calculate the loss on fair value
adjustment of derivative financial liabilities during the three months ended May 31, 2017.
The
correction of the error is presented in the Company’s consolidated condensed interim balance sheet as at May 31, 2018 as
follows:
Consolidated
Balance Sheet
|
|
As
at May 31, 2018
|
|
|
|
As
reported
|
|
|
Adjustment
|
|
|
As
restated
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Oil
and gas properties, full cost method
|
|
|
2,777,256
|
|
|
|
137,419,925
|
|
|
|
140,197,181
|
|
Deferred
tax liabilities
|
|
|
-
|
|
|
|
(16,215,677
|
)
|
|
|
(16,215,677
|
)
|
Additional
paid in capital
|
|
|
(18,437,779
|
)
|
|
|
(138,676,753
|
)
|
|
|
(157,114,532
|
)
|
Obligation
to issue shares
|
|
|
-
|
|
|
|
(5,400,000
|
)
|
|
|
(5,400,000
|
)
|
Accumulated
deficit
|
|
|
14,934,685
|
|
|
|
22,872,504
|
|
|
|
37,807,189
|
|
No
changes were made to the Company’s consolidated condensed interim statements of operations and statements of cashflows for
the three months ended May 31, 2018.
FORTEM
RESOURCES INC.
NOTES
TO CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS
For
the three months ended May 31, 2018
(Expressed
in US dollars – Unaudited)
18.
CORRECTION OF ERRORS IN PREVIOUSLY ISSUED FINANCIAL STATEMENTS (continued)
The
correction of the error is presented in the Company’s consolidated condensed interim balance sheet as at February 28, 2018
as follows:
Consolidated
Balance Sheet
|
|
As
at February 28, 2018
|
|
|
|
As
reported
|
|
|
Adjustment
|
|
|
As
restated
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Oil
and gas properties, full cost method
|
|
|
2,631,354
|
|
|
|
137,419,925
|
|
|
|
140,051,279
|
|
Deferred
tax liabilities
|
|
|
-
|
|
|
|
(16,215,677
|
)
|
|
|
(16,215,677
|
)
|
Additional
paid in capital
|
|
|
(17,879,597
|
)
|
|
|
(138,676,753
|
)
|
|
|
(156,556,350
|
)
|
Obligation
to issue shares
|
|
|
-
|
|
|
|
(5,400,000
|
)
|
|
|
(5,400,000
|
)
|
Accumulated
deficit
|
|
|
14,650,095
|
|
|
|
22,872,504
|
|
|
|
37,522,599
|
|
The
correction of the error is presented in the Company’s consolidated condensed interim statements of operations and statements
of cashflows for the three months ended May 31, 2017 as follows:
Consolidated
Statements of Operations
|
|
For
the three months ended May 31, 2017
|
|
|
|
As
reported
|
|
|
Adjustment
|
|
|
As
restated
|
|
Professional
fees
|
|
|
91,179
|
|
|
|
(32,652
|
)
|
|
|
58,527
|
|
Impairment
to right to the mineral exploration project
|
|
|
-
|
|
|
|
39,530,233
|
|
|
|
39,530,233
|
|
Loss
on fair value adjustment of derivative financial liabilities
|
|
|
4,695,729
|
|
|
|
(4,695,729
|
)
|
|
|
-
|
|
Loss
before income tax
|
|
|
4,990,177
|
|
|
|
34,801,852
|
|
|
|
39,792,029
|
|
Deferred
tax recovery
|
|
|
-
|
|
|
|
(9,500,000
|
)
|
|
|
(9,500,000
|
)
|
Loss
and comprehensive loss for the period
|
|
|
4,990,177
|
|
|
|
25,301,852
|
|
|
|
30,292,029
|
|
Basic
and diluted loss per share
|
|
|
(0.07
|
)
|
|
|
(0.33
|
)
|
|
|
(0.40
|
)
|
Consolidated
Statements of Cash Flows
|
|
For
the three months ended May 31, 2017
|
|
|
|
As
reported
|
|
|
Adjustment
|
|
|
As
restated
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Loss
and comprehensive loss for the period
|
|
|
(4,990,177
|
)
|
|
|
(25,301,852
|
)
|
|
|
(30,292,029
|
)
|
Impairment
to right to the mineral exploration project
|
|
|
-
|
|
|
|
39,530,233
|
|
|
|
39,530,233
|
|
Deferred
tax recovery
|
|
|
-
|
|
|
|
(9,500,000
|
)
|
|
|
(9,500,000
|
)
|
Loss
on fair value adjustment of derivative financial liabilities
|
|
|
4,695,729
|
|
|
|
(4,695,729
|
)
|
|
|
-
|
|
Expenditures
on oil and gas properties
|
|
|
(411,827
|
)
|
|
|
(32,652
|
)
|
|
|
(379,175
|
)
|
Non-cash
transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for acquisitions
|
|
|
76,000
|
|
|
|
144,724,000
|
|
|
|
144,800,000
|
|
Oil
and gas properties expenditures in accounts payable
|
|
|
-
|
|
|
|
19,311
|
|
|
|
19,311
|
|
Deferred
tax on acquisitions
|
|
|
-
|
|
|
|
16,215,677
|
|
|
|
16,215,677
|
|