UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Amendment No. 1)
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 2017
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File No. 000-52645
FORTEM RESOURCES INC.
(Exact name of registrant as specified in its charter)
Nevada |
| 20-4119257 |
(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
Suite 820, 906 12th Avenue S.W.
Calgary, Alberta, Canada T2R 1K7
(Address of principal executive offices) (Zip Code)
(403) 241-8912
(Registrants telephone number, including area code)
777 N. Rainbow Blvd., Suite 250, Las Vegas, Nevada 89107
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes þ No o
i
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of large accelerated filer, accelerated filer, smaller reporting company, and emerging growth company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | o | Accelerated filer | o |
Non-accelerated filer | o | Smaller reporting company | þ |
(Do not check if a smaller reporting company) |
| Emerging growth company | o |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Yes o No o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No þ
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuers classes of common stock as of the latest practicable date: As of January 29, 2018, there were 117,872,458 shares of common stock, par value $0.001, outstanding.
ii
Explanatory Note
We are filing this amendment No. 1 to amend our quarterly report on Form 10-Q for the quarter ended May 31, 2017, which was originally filed with the Securities and Exchange Commission on July 24, 2017. We are filing this amendment to:
·
Restate our consolidated financial statements as of and for the three months ended May 31, 2017, as a result of an error in the initial measurement of the fair value of Colony Energy, LLC, Black Dragon Energy, LLC, Rolling Rock Resources, LLC, and City of Gold, LLC (collectively, the LLCs) that were acquired in 2017.
·
The Company had measured the above acquisitions based on the quoted market price of the shares issued to acquire the LLCs. However, we have subsequently determined that our common shares are not traded in an active market. Consequently, the Company has measured the acquisitions according at the fair value of the assets acquired as that measurement was the more reliably measurable determinant of fair value.
In connection with the Original Filing, under the direction of our Chief Executive Officer and our Chief Financial Officer, our management evaluated our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act, and concluded that our disclosure controls and procedures were ineffective as of May 31, 2017. Subsequently, the Companys management has determined that the improper design of controls with respect to the calculation of the fair value of the Companys acquisitions was a deficiency in its internal control over financial reporting resulting from the material weakness identified at May 31, 2017.
All other information included in our quarterly report on Form 10-Q for the quarter ended May 31, 2017 has not been amended. Except for the matters described above, this amendment does not modify or update disclosures in the originally filed quarterly report on Form 10-Q, or reflect events occurring after July 24, 2017, which is the date of the filing of the originally filed quarterly report on Form 10-Q.
The certifications of the Companys Chief Executive Officer and Chief Financial Officer are attached to this Amendment as Exhibits 31.1, 31.2, and 32.1 respectively.
iii
Table of Contents
PART I - FINANCIAL INFORMATION | 1 |
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ITEM 1. FINANCIAL STATEMENTS | 1 |
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 21 |
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 30 |
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ITEM 4. CONTROLS AND PROCEDURES | 30 |
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PART II - OTHER INFORMATION | 32 |
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ITEM 1. LEGAL PROCEEDINGS | 32 |
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ITEM 1A. RISK FACTORS | 33 |
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | 40 |
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES | 40 |
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ITEM 4. MINE SAFETY DISCLOSURES | 40 |
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ITEM 5. OTHER INFORMATION | 40 |
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ITEM 6. EXHIBITS | 41 |
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SIGNATURES | 43 |
iv
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2017
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF OPERATIONS
CONSOLIDATED STATEMENTS OF CASH FLOWS
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1
FORTEM RESOURCES INC. | |||||
CONSOLIDATED BALANCE SHEETS | |||||
(Expressed in US dollars - Unaudited) |
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| |
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| May 31, 2017 |
| February 28, 2017 |
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| (Restated Note 15) |
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| $ |
| $ |
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ASSETS | |||||
Current assets |
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| |
| Cash |
| 63,859 |
| 459,481 |
| Receivable |
| 30,262 |
| 27,103 |
| Prepaid expense and other |
| 160,618 |
| 24,099 |
|
|
| 254,739 |
| 510,683 |
Non-current assets |
|
|
|
| |
| Deposit |
| 32,603 |
| 33,082 |
| Equipment |
| 53,234 |
| 54,956 |
| Investment in Asia Pacific Mining Ltd. |
| 1,500,000 |
| - |
| Rights to the acquisition of mineral exploration property |
| 1 |
| - |
| Oil and gas properties, full cost method |
| 1,084,644 |
| 641,494 |
|
|
| 2,925,221 |
| 1,240,215 |
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LIABILITIES AND STOCKHOLDERS' DEFICIT | |||||
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Current liabilities |
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| |
| Accounts payable and accrued liabilities |
| 440,824 |
| 337,506 |
| Due to related parties |
| 48,541 |
| 48,831 |
| Note payable |
| 18,519 |
| 18,825 |
| Advance payable |
| 64,058 |
| - |
| Derivative financial liabilities - warrants |
| 7,286,206 |
| 2,590,477 |
|
|
| 7,858,148 |
| 2,995,639 |
Non-current liabilities |
|
|
|
| |
Due to related party |
| 500,000 |
| - | |
Asset retirement obligation |
| 24,750 |
| 24,546 | |
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|
| 8,382,898 |
| 3,020,185 |
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Stockholders' deficit |
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| |
| Capital stock |
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| Authorized: |
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| 750,000,000 common shares, par value $0.001 per share |
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| |
| Issued and outstanding: |
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|
|
| 115,884,698 common shares (37,537,556 at February 28, 2017) | 107,775 |
| 29,428 | |
| Additional paid in capital |
| 6,153,008 |
| 5,028,885 |
| Share subscriptions receivable |
| - |
| (110,000) |
| Accumulated other comprehensive loss |
| (383,257) |
| (383,257) |
| Accumulated deficit |
| (11,335,203) |
| (6,345,026) |
|
|
| (5,457,677) |
| (1,779,970) |
|
|
| 2,925,221 |
| 1,240,215 |
The accompanying notes are an integral part of these consolidated financial statements
2
FORTEM RESOURCES INC. |
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CONSOLIDATED STATEMENTS OF OPERATIONS |
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(Expressed in US dollars - Unaudited) |
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| For the three months ended May 31, | ||
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| 2017 |
| 2016 |
|
|
| (Restated Note 15) |
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|
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|
| $ |
| $ |
|
|
|
|
|
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General and administrative expenses |
|
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| |
| Accretion |
| 605 |
| 570 |
| Consulting |
| 18,253 |
| 25,481 |
| Depreciation |
| 829 |
| 859 |
| Investor relations |
| 12,984 |
| - |
| Management fees |
| 60,000 |
| 23,079 |
| Office, travel and general (recovery) |
| 108,358 |
| (4,832) |
| Professional fees |
| 91,179 |
| 16,024 |
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Loss from operations |
| (292,208) |
| (61,181) | |
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| Foreign exchange loss |
| (13,881) |
| - |
| Gain on settlement of debt |
| 13,292 |
| 60,232 |
| Interest income |
| 60 |
| 62 |
| Interest expense |
| (2,055) |
| (73,831) |
| Change on fair value adjustment of derivative financial liabilities | (4,695,729) |
| (59,325) | |
| Gain on write-off of accounts payable |
| 344 |
| - |
Net loss |
| (4,990,177) |
| (134,043) | |
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| Foreign currency translation |
| - |
| (19,890) |
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Comprehensive loss |
| (4,990,177) |
| (153,933) | |
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Basic and diluted loss per share |
| (0.07) |
| (0.00) | |
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Weighted average number of basic |
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| |
common shares outstanding |
| 74,905,863 |
| 30,621,927 |
The accompanying notes are an integral part of these consolidated financial statements
3
FORTEM RESOURCES INC. |
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CONSOLIDATED STATEMENTS OF CASH FLOWS |
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(Expressed in US dollars - Unaudited) |
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| For the three months ended May 31, | ||
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| 2017 |
| 2016 |
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| (Restated Note 15) |
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| $ |
| $ |
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Cash flows used in operating activities |
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| ||
| Net loss |
| (4,990,177) |
| (134,043) | |
| Non-cash items |
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| |
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| Accretion |
| 605 |
| 570 |
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| Depreciation |
| 829 |
| 859 |
|
| Gain on settlement of debt |
| (13,292) |
| (60,232) |
|
| Change on fair value adjustment of derivative financial liabilities |
| 4,695,729 |
| 59,325 |
|
| Gain on write-off of accounts payable |
| (344) |
| - |
|
| Interest income |
| (60) |
| (62) |
|
| Interest expense |
| 2,055 |
| 73,831 |
|
| Foreign exchange |
| - |
| (120) |
| Changes in non-cash working capital items |
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| |
|
| Receivable |
| (3,159) |
| (820) |
|
| Prepaid expenses and other |
| (136,519) |
| (5,240) |
|
| Accounts payable and accrued liabilities |
| 112,983 |
| (25,151) |
|
| Cash used in operating activities |
| (331,349) |
| (91,083) |
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Cash flows used in investing activities |
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| ||
| Investments |
| (1,500,000) |
| - | |
| Expenditures on oil and gas properties |
| (365,834) |
| - | |
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| Cash used in investing activities |
| (1,865,834) |
| - |
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Cash flows from financing activities |
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| Net proceeds from common stock issued for cash |
| 1,234,300 |
| - | |
| Share subscriptions receivable |
| 110,000 |
| - | |
| Issuance of convertible debenture |
| - |
| 200,000 | |
| Advances from third party |
| 4,058 |
| - | |
| Net proceeds from (repaid to) related parties |
| 482,647 |
| (96,288) | |
|
| Cash provided by financing activities |
| 1,831,004 |
| 103,712 |
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Effect of foreign exchange |
| (29,443) |
| (32,645) | ||
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Change in cash |
| (395,622) |
| (20,016) | ||
Cash, beginning of period |
| 459,481 |
| 22,426 | ||
Cash, end of period |
| 63,859 |
| 2,410 | ||
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Non-cash transactions |
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| ||
| Common stock issued for oil and gas properties |
| 76,000 |
| - | |
| Advance payable for oil and gas properties |
| 60,000 |
| - |
The accompanying notes are an integral part of these consolidated financial statements
4
FORTEM RESOURCES INC. |
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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT |
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(Expressed in US dollars - Unaudited) |
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| Accumulated |
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| Common Stock | Additional | Share |
| Other | Total | |
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| Number |
| Paid In | Subscriptions | Accumulated | Comprehensive | Stockholders' |
|
| of Shares | Amount | Capital | Receivable | Deficit | Loss | Deficit |
|
|
|
| (Restated Note 15) |
| (Restated Note 15) |
| (Restated Note 15) |
|
|
| $ | $ | $ | $ | $ | $ |
Balance, February 29, 2016 | 30,029,046 | 21,919 | 3,115,078 | - | (3,620,720) | (133,280) | (617,003) | |
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Common stock issued for cash | 3,660,000 | 3,660 | 482,165 | (110,000) | - | - | 375,825 | |
Shares issued to settle debt | 2,574,812 | 2,575 | 618,853 | - | - | - | 621,428 | |
Shares issued for convertible debt | 1,073,698 | 1,074 | 771,989 | - | - | - | 773,063 | |
Bonus units issued | 200,000 | 200 | 40,800 | - | - | - | 41,000 | |
Net loss | - | - | - | - | (2,724,306) | - | (2,724,306) | |
Foreign currency translation | - | - | - | - | - | (249,977) | (249,977) | |
Balance, February 28, 2017 | 37,537,556 | 29,428 | 5,028,885 | (110,000) | (6,345,026) | (383,257) | (1,779,970) | |
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Common stock issued for cash | 2,347,142 | 2,347 | 1,231,953 | 110,000 | - | - | 1,344,300 | |
Shares issued for acquisition | 76,000,000 | 76,000 | (107,830) | - | - | - | (31,830) | |
Net loss | - | - | - | - | (4,990,177) | - | (4,990,177) | |
Balance, May 31, 2017 | 115,884,698 | 107,775 | 6,153,008 | - | (11,335,203) | (383,257) | (5,457,677) |
The accompanying notes are an integral part of these consolidated financial statements
5
FORTEM RESOURCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2017
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, 2017, 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 $11,335,203.
The Companys 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 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 for the year ended February 28, 2017 included in the Companys 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, 2017 are not necessarily indicative of the results that may be expected for the year ending February 28, 2018.
Basis of consolidation
These consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Colony Energy, LLC, Black Dragon Energy, LLC, Rolling Rock Resources, LLC and City of Gold, LLC. All significant intercompany accounts and transactions between the Company and its subsidiaries have been eliminated upon consolidation.
Fair Value of Financial Instruments
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, accounts payable and accrued liabilities, amounts due to related party, 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 instruments 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:
6
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, there for 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 and liabilities required to be recorded at fair value on a recurring basis in accordance with US GAAP as at May 31, 2017. As at May 31, 2017, the Companys Level 3 assets consist of shares and warrants of a private company and Level 3 liabilities consisted of warrants of the Company. The resulting level 3 assets and liabilities 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, 2017, 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.
A summary of the Companys level 3 liabilities for the three months ended May 31, 2017 and year ended February 28, 2017 is as follows:
|
| May 31, 2017 |
| February 28, 2017 |
Warrants |
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Beginning fair value | $ | 2,590,477 | $ | 150,136 |
Issuance |
| - |
| 1,043,074 |
Change in fair value |
| 4,695,729 |
| 1,397,267 |
Ending fair value of warrants |
| 7,286,206 |
| 2,590,477 |
|
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|
Embedded Conversion feature |
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|
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|
Beginning fair value |
| - |
| - |
Bifurcation of embedded conversion feature |
| - |
| 199,999 |
Change in fair value |
| - |
| (199,999) |
Ending fair value of embedded conversion feature |
| - |
| - |
Ending fair value of Level 3 liability | $ | 7,286,206 | $ | 2,590,477 |
Basic and Diluted Income (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 6,123,698 (February 28, 2017 - 6,123,698) potentially dilutive securities excluded from the calculation of diluted loss per share as their effect would be anti-dilutive.
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.
7
Recent Accounting Pronouncements
In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entitys Ability to Continue as a Going Concern, which is intended to define managements responsibility to evaluate whether there is substantial doubt about an organizations ability to continue as a going concern within one year after the date that the financial statements are issued (or within one year after the date that the financial statements are available to be issued when applicable) and to provide related footnote disclosures. The ASU provides guidance to an organizations management, with principles and definitions that are intended to reduce diversity in the timing and content of disclosures that are commonly provided by organizations today in the financial statement footnotes. The ASU is effective for annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016, which for the Company is April 1, 2017. Early adoption is permitted. The adoption of this standard did not have a material impact on the Companys financial position or results of operations.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This ASU is effective for annual periods beginning after December 15, 2018 and interim periods within fiscal years beginning after December 15, 2019. ASU No 2016-15 addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. The adoption of this standard will not have a material impact on the Companys financial position or results of operations.
Other recent accounting pronouncements issued by the 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.
ACQUISITIONS
a)
Acquisition of Colony Energy, LLC
In April 2017, the Company entered into and closed two membership interest purchase agreements with three arms length vendors to acquire all membership interests of Colony Energy, LLC (Colony), a Nevada limited liability company. Colony holds 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 (Godin Property).
In consideration for the acquisition of Colony, the Company issued an aggregate of 21,000,000 shares of its common stock to the three vendors on the closing date (issued at a value of $21,000 ) and agreed to issue an additional 3,000,000 shares (valued at $nil), with 1,000,000 shares to be issued to one of the vendors on each of the first, second and third anniversaries of the closing date.
Colony is not considered a business for accounting purposes and accordingly the transaction is treated as an acquisition of oil and gas property and related net assets.
The assets and liabilities of Colony assumed on the acquisition are as follows:
| $ |
Oil and gas properties | 108,000 |
Accounts payable and accrued liabilities | (13,411) |
Advance payable | (34,058) |
Due to related parties | (60,000) |
|
|
Net assets | 531 |
8
The total consideration for the acquisition is as follows:
| $ |
Value of shares issued | 21,000 |
Less: net assets | (531) |
|
|
Excess consideration paid over the net assets of Colony | 20,469 |
The excess of the consideration over the net assets of Colony has been charged to additional paid in capital. The measurement of the transaction was based on the carrying value of the assets of Colony, which approximated their fair value. The Company intends to perform an assessment of the carrying value of the asset in connection with the preparation of the annual financial statements or earlier if indicators of impairment are identified.
b)
Acquisition of Black Dragon Energy, LLC
In April 2017, the Company entered into and closed a membership interest purchase agreement with two arms length vendors to acquire all membership interests of Black Dragon Energy, LLC (Black Dragon), a Nevada limited liability company. Black Dragon holds the right to acquire a 75% working interest in and to certain leases, hydrocarbons, wells, agreements, equipment, surface rights agreements and assignable permits totaling approximately 165,000 acres (258 sections) at an 80% net revenue interest, located in the Moenkopi formation of the Carbon and Emery Counties, Utah (Black Dragon Property).
In consideration for the acquisition of Black Dragon, the Company issued an aggregate of 20,000,000 shares of its common stock to the two vendors on the closing date (issued at a value of $20,000 ) and paid $100,000 prior to the closing as a non-refundable deposit.
Black Dragon is not considered a business for accounting purposes and accordingly the transaction is treated as an acquisition of oil and gas property and related net assets
The assets and liabilities of Black Dragon assumed on the acquisition are as follows:
| $ |
Oil and gas properties | 119,863 |
Accounts payable and accrued liabilities | (26,355) |
|
|
Net assets | 93,508 |
The total consideration for the acquisition is as follows:
| $ |
Value of shares issued | 20,000 |
Cash paid | 100,000 |
Less: net assets | (93,508) |
Excess consideration paid over net assets of Black Dragon | 26,492 |
The consideration paid over the assets of Black Dragon has been charged to additional paid in capital. The measurement of the transaction was based on the carrying value of the assets of Black Dragon, which approximated their fair value. The Company intends to perform an assessment of the carrying value of the asset in connection with the preparation of the annual financial statements or earlier if indicators of impairment are identified.
9
c)
Acquisition of Rolling Rock Resources, LLC
In April 2017, the Company entered into and closed a membership interest purchase agreement with two arms length vendors to acquire all membership interests of Rolling Rock Resources, LLC (Rolling Rock), a Nevada limited liability company. Rolling Rock has the right to acquire a 50% working interest in and to certain leases, hydrocarbons, wells, agreements, equipment, surface rights agreements and assignable permits totaling approximately 101,888 acres (160 sections) at an 80% net revenue interest located in the Mancos formation in the Southern Uinta Basin, Utah (Rolling Rock Property).
In consideration for the acquisition of Rolling Rock, the Company issued an aggregate of 20,000,000 shares of its common stock to the two vendors on the closing date (issued at a value of $20,000) and paid $100,000 prior to the closing as a non-refundable deposit.
Rolling Rock is not considered a business for accounting purposes and accordingly the transaction is treated as an acquisition of oil and gas property and related net assets.
The assets and liabilities of Rolling Rock assumed on the acquisition are as follows:
| $ |
Oil and gas properties | 130,397 |
Accounts payable and accrued liabilities | (26,032) |
|
|
Net assets | 104,365 |
The total consideration for the acquisition is as follows:
| $ |
Value of shares issued | 20,000 |
Cash paid | 100,000 |
Less: net assets | (104,365) |
|
|
Excess consideration paid over the net assets of Rolling Rock | 15,635 |
The consideration paid over the assets of Rolling Rock has been charged to additional paid in capital. The measurement of the transaction was based on the carrying value of the assets of Rolling Rock, which approximated their fair value. The Company intends to perform an assessment of the carrying value of the asset in connection with the preparation of the annual financial statements or earlier if indicators of impairment are identified.
d)
Acquisition of City of Gold, LLC
In May 2017, the Company acquired 100% of the membership interest in City of Gold, LLC (City of Gold), a Nevada limited liability company, from two Nevada limited liability companies pursuant to a membership interest purchase agreement. City of Gold has an option to acquire the subsidiary of Asia Pacific Mining Ltd (the Asia Pacific subsidiary), subject to the completion of a binding financing and option agreement (the Option). The Asia Pacific subsidiary owns the City of Gold mining project.
The membership interest purchase agreement provides for a total purchase price consisting of an aggregate of 30,000,000 common shares of its common stock (the Purchase Shares). 15,000,000 of the Purchase Shares were issued at closing (issued at a value of $15,000 ); the remaining 15,000,000 Purchase Shares are to be issued within ten Business Days after City of Gold earns the Option.
10
City of Gold is not considered a business for accounting purposes and accordingly the transaction is treated as an acquisition of available for sale investments, rights to the acquisition of mineral exploration project and related net assets ..
The assets and liabilities of City of Gold assumed on the acquisition are as follows:
| $ |
Investments | 1,500,000 |
Accounts payable and accrued liabilities | (13,932) |
Note payable | (1,516,302) |
|
|
Net liabilities | (30,234) |
The total consideration for the acquisition is as follows:
| $ |
Value of shares issued | 15,000 |
Assumption of note payable | 1,516,302 |
Assumption of accounts payable and accrued liabilities | 13,932 |
Less: Investments | (1,500,000) |
Less: Rights to the acquisition of mineral exploration property | (1) |
|
|
Excess consideration paid over the assets of City of Gold | 45,233 |
The consideration paid over the assets of City of Gold has been charged to additional paid in capital. The measurement of the transaction was based on the carrying value of the assets of City of Gold, which approximated their fair value. The Company intends to perform an assessment of the carrying value of the asset in connection with the preparation of the annual financial statements or earlier if indicators of impairment are identified.
4.
OIL AND GAS PROPERTIES
| Compeer | Godin | Black Dragon | Rolling Rock | Total |
| $ | $ | $ | $ | $ |
Balance, February 28, 2017 | 641,494 | - | - | - | 641,494 |
|
|
|
|
|
|
Acquisition | - | 108,000 | 119,863 | 130,397 | 358,260 |
Exploration | - | - | 25,487 | 69,847 | 95,334 |
Exchange difference | (10,444) | - | - | - | (10,444) |
|
|
|
|
|
|
Balance, May 31, 2017 | 631,050 | 108,000 | 145,350 | 200,244 | 1,084,644 |
Compeer Property
Effective February 21, 2012, the Company entered into a Farmout Agreement (the Agreement) with Harvest Operations Corp. (Farmor). The Agreement provided for the Companys acquisition of an undivided 100% working interest (Working Interest) in a petroleum and natural gas license covering land located in the Compeer Area in the Province of Alberta, Canada (the Compeer Property).
To earn the Working Interest the Company was required to drill, complete, equip or abandon a test well on the Compeer Property (Test Well). On March 14, 2012, the Company obtained operator status and was transferred the well license relating to the Test Well.
11
The Companys Working Interest in the Compeer Property will be held subject to a non-convertible overriding royalty payable to the Farmor (Farmors Royalty). The Farmors Royalty on net crude oil revenues will be measured on a sliding scale from 5% to 15% over a range of production volumes from 1 to 150 barrels per day. The Farmors Royalty on net gas and other petroleum product revenues is 15%.
The Test Well was spudded on May 27, 2012, and on September 5, 2012, the Company received an earning notice granting the Company a 100% working interest in the Compeer Property.
As of May 31, 2017, the Company has incurred $631,050 (February 28, 2017 - $641,494) in exploration costs to drill, complete and equip the Test Well, net of impairment charges in prior periods. The Company also has $32,603 (CAD$44,014) (February 28, 2017 - $33,082 (CAD$43,934)) in bonds held with the Alberta Energy Regulator for its oil and gas properties.
Godin Property
On March 31, 2017, Colony (Note 3) 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;
ii)
$30,000 on or before September 27, 2017; and
iii)
$150,000 upon the rig release of the second well drilled by the Company in the oil and gas assets described above. This amount will be recorded when the criteria has been met.
Black Dragon Property
In March 2017, Black Dragon (Note 3) entered into a purchase and sale agreement (the Black Dragon PSA) to acquire a 75% working interest in and to certain leases, hydrocarbons, wells, agreements, equipment, surface rights agreements and assignable permits totaling approximately 165,000 acres (258 sections) at an 80% net revenue interest located in the Moenkopi formation of the Carbon and Emery Counties, Utah (the Black Dragon Property). Under the Black Dragon PSA, the Company is required to pay the vendor cash consideration totaling $2.7 million based upon the following schedule:
·
$100,000 as a non-refundable deposit within 10 business days of closing (paid);
·
$900,000 on or before September 1, 2017;
·
$900,000 on or before March 1, 2018; and
·
$800,000 on or before September 1, 2018.
However, if the Company pays a total of $2.4 million on or before September 1, 2017, the parties have agreed that the cash consideration above will be deemed to have been paid in full.
Within 10 business days after the later of the Company paying the 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 Vendors right, title and interest in and to the assets, at an 80% Net Revenue Interest in the assets.
12
Carry Obligation
As per the terms of the Black Dragon PSA, and in addition to the 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 cash consideration set out above or (ii) the date that the Company pays all costs and expenses for the drilling, logging, testing and completion two new wells, each well with a horizontal leg extending at least 2,000 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 February 28, 2019, failing which, the Companys right to earn any assignment in and to the assets will terminate immediately. For each vertical well drilled to 200 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.
On or before September 1, 2017, the Company is required to pay the vendor $102,000 for rental, minimum royalty, option payments and shut-in royalty payments due on the leases through December 31, 2018.
Rolling Rock Property
In March 2017, Rolling Rock (Note 3) entered into a purchase and sale agreement (the Rolling Rock PSA) to acquire a 50% working interest in and to certain leases, hydrocarbons, wells, agreements, equipment, surface rights agreements and assignable permits totaling approximately 101,888 acres (160 sections) at an 80% net revenue interest located in the Mancos formation in the Southern Uinta Basin, Utah (the Rolling Rock Property). Under the Rolling Rock PSA, the Company is required to pay the vendor cash consideration totaling $2.4 million based upon the following schedule:
·
$100,000 as a non-refundable deposit within 10 business days of closing (paid);
·
$1,300,000 on or before September 1, 2017;
·
$500,000 on or before March 1, 2018; and
·
$500,000 on or before September 1, 2018.
However, if the Company pays a total of $2.15 million on or before September 1, 2017, the parties have agreed that the cash consideration above will be deemed to have been paid in full. Within 10 business days after the later of the Company paying the cash consideration in full or the Company meeting in full its carry obligation, the vendor agrees to convey to the Company an undivided 50% of the vendors 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 September 1, 2017 (which amount is in addition to the deposit and included in the cash consideration set out above) and the replacement of the vendors bonds on or before September 1, 2017, the vendor agrees to convey to the Company an undivided 50% of the vendors 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.
13
Carry Obligation
As per the terms of the Rolling Rock PSA, and in addition to the 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 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 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 February 28, 2019, failing which, the Companys 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 vendors 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 million.
On or before September 1, 2017, the Company is required to pay the vendor $65,000 for rental, minimum royalty, option payments and shut in royalty payments due on the leases through December 31, 2018.
5.
INVESTMENT IN ASIA PACIFIC MINING LTD.
In April 2017, a binding financing and option agreement (the Agreement) (Note 3 (d)) 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. 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.
6.
RIGHTS TO THE ACQUISITION OF MINERAL EXPLORATION PROJECT
In connection to the acquisition of City of Gold, LLC, the Company owns the right to an option agreement. Under the option agreement, the vendors have agreed to grant to City of Gold the option (the Option) to purchase 100% of the ownership interest in a wholly owned subsidiary of Asia Pacific (the Project Subsidiary) which, in turn, owns 100% of the rights to the City of Gold mineral exploration project located in Myanmar which covers an area of approximately 465 square kilometers in close proximity to hydropower, water, and infrastructure to accommodate exploration and development of the property. The Company can exercise the Option if Asia Pacific completes an additional financing of $1.5 million within 60 days upon the issuance of an exploration license for the City of Gold Project.
14
Once it has exercise 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) 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 US$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 US$100,000 in liabilities and US$5,000,000 or more in working capital and Asia Pacific will have the right to nominate 30% of its directors.
7.
EQUIPMENT
|
| May 31, 2017 | ||||
|
| Cost |
| Accumulated Depreciation |
| Net Book Value |
|
| $ |
| $ |
| $ |
Oil and gas equipment |
| 66,194 |
| 12,960 |
| 53,234 |
|
| February 28, 2017 | ||||
|
| Cost |
| Accumulated Depreciation |
| Net Book Value |
|
| $ |
| $ |
| $ |
Oil and gas equipment |
| 67,289 |
| 12,333 |
| 54,956 |
8.
ACCOUNTS PAYABLE
During the three months ended May 31, 2017, the Company paid $5,565 (CAD$7,500) in cash to settle $18,857 (CAD$25,415) of balance owing to a vendor of the Company. As a result, the Company recorded a gain on settlement of debt of $13,292.
9.
NOTE PAYABLE
As at May 31, 2017, the Company had $18,519 (CAD$25,000) (February 28, 2017 - $18,825 (CAD$25,000)) in short term note obligations. The note payable is unsecured, non-interest bearing and payable upon demand.
10.
ADVANCE PAYABLE
As at May 31, 2017, the Company had $64,058 (February 28, 2017 - $nil) due to two unrelated parties. The balance of $60,000 was related to the acquisition of the Godin property (Note 4) and the remaining balance was related to expenses paid by an unrelated party. The note payable is unsecured, non-interest bearing and payable upon demand.
11.
ASSET RETIREMENT OBLIGATION
The Companys 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 Companys 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.
15
The undiscounted estimate of this liability was $37,035 (CAD$50,000) (February 28, 2017 - $37,650 (CAD$50,000)) 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 $24,750 (CAD$33,412) (February 28, 2017 - $24,546 (CAD$32,597)) as at May 31, 2017.
12.
DERIVATIVE FINANCIAL LIABILITIES - WARRANTS
|
|
|
|
|
Balance, February 29, 2016 |
|
| $ | 150,136 |
Warrants issued |
|
|
| 1,043,074 |
Fair value adjustment |
|
|
| 1,397,267 |
Balance, February 28, 2017 |
|
|
| 2,590,477 |
Fair value adjustment |
|
|
| 4,695,729 |
Balance, May 31, 2017 |
|
| $ | 7,286,206 |
The derivative liability consists of the fair value of share purchase warrants that were issued in unit private placements that have an exercise price in a currency other than the functional currency of the Company.
At May 31, 2017, the fair value of the warrants was determined using the Black-Scholes Option Pricing Model using the following weighted average market assumptions:
|
| May 31, 2017 |
| February 28, 2017 |
Volatility |
| 246% |
| 265% |
Risk-free interest rate |
| 1.24% |
| 1.22% |
Expected life |
| 1.73 years |
| 1.99 years |
Dividend yield |
| nil |
| nil |
13.
SHARE CAPITAL
Three months ended May 31, 2017:
In April 2017, the Company issued 21,000,000 shares with a value of $21,000 in connection to the acquisitions of Colony (Note 3a).
In April 2017, the Company issued 20,000,000 shares with a value of $20,000 in connection to the acquisitions of Black Dragon (Note 3b).
In April 2017, the Company issued 20,000,000 shares with a value of $20,000 in connection to the acquisitions of Rolling Rock (Note 3c).
In May 2017, the Company issued 15,000,000 shares with a fair value of $15,000 in connection to the acquisitions of City of Gold (Note 3d).
During the three month ended May 31, 2017, the Company issued 2,347,142 common shares for total gross proceeds of $1,305,000 pursuant to private placements. The Company paid a total of $70,700 in finders fees in connection with the private placements of equity financings.
16
Year ended February 28, 2017:
In March 2016, the Company issued 500,000 units at a price of $0.10 per unit for a total of $50,000. Each unit consists of one common share of the Company and one common share purchase warrant, with each warrant being exercisable into one additional share at an exercise price of $0.40 for a period of three years. The proceeds for this issuance were received in the year ended February 29, 2016 and on the issuance of these units, the Company allocated $500 to share capital and $49,500 to the warrant liability.
In May 2016, the Company issued 353,521 common shares with a fair price of $0.10 per share for a total of $35,352 to settle accounts payable of $95,584 (CAD$123,733). As a result, the Company recorded a gain on settlement of debt of $60,232.
In May 2016, the Company issued 200,000 units with a fair price of $0.21 per share in regards to the secured convertible debenture (Note 8). Each unit consists of one common share of the Company and one common share purchase warrant. Each warrant is exercisable to purchase one common share at a price of $0.40 per share for a period of two years. The warrants were determined to be derivatives. At issuance date, the fair value of the common shares and warrants was $73,621 with $41,000 allocated to share capital and $32,621 allocated to warrant liability.
In September 2016, the Company issued 250,000 units at a price of $0.10 per unit for gross proceeds of $25,000. Each unit consists of one common share of the Company and one common share purchase warrant, with each warrant being exercisable into one additional share at an exercise price of $0.40 for a period of three years. Upon the issuance of these units, the Company allocated $250 to share capital and $24,750 to the warrant liability.
In November 2016, the Company issued 400,000 common shares at a price of $0.25 per share for gross proceeds of $100,000.
In January 2017, the Company issued 1,680,000 common shares with a fair price of $0.25 per share for a total of $420,000 to settle amounts due to a related party payable of $420,000.
In January 2017, the Company issued 182,832 common shares with a fair price of $0.25 per share for a total of $45,708 to settle accrued liabilities of $76,100. As a result, the Company recorded a gain on settlement of debt of $30,392.
In January 2017, the Company issued 121,888 common shares with a fair price of $0.25 per share for a total of $30,472 to settle amounts due to a related party of $30,472.
In January 2017, the Company issued 236,571 common shares with a fair price of $0.38 per share for a total of $89,897 to settle accounts payable of $59,143. As a result, the Company recorded a loss on settlement of debt of $30,754.
In January 2017, the Company issued 400,000 shares at a price of $0.25 per share for gross proceeds of $100,000.
In February 2017, the Company issued 1,310,000 shares at a price of $0.25 per share for gross proceeds of $327,500.
In February 2017, the Company issued 800,000 units at a price of $0.25 per unit for gross proceeds of $200,000. Each unit consists of one common share of the Company and one common share purchase warrant, with each warrant being exercisable into one additional share at an exercise price of $0.60 for a period of two years. Upon the issuance of these units, the Company allocated $800 to share capital and $199,200 to the warrant liability.
17
In February 2017, the Company issued 1,073,698 units with a fair price of $1,509,022 in connection with the conversion of the convertible debenture (Note 8). Each unit consists of one common share of the Company and one common share purchase warrant, with each warrant being exercisable into one additional share at an exercise price of $0.40 for a period of two years. Upon the issuance of these units, the Company allocated $773,063 to share capital and $735,959 to the warrant liability.
The Company paid a total of $43,225 in finders fees in connection with the private placements of equity financings during the year ended February 28, 2017.
Warrants
Below is a summary of the common share purchase warrant transactions:
| Number of Warrants |
| Weighted Average Exercise Price per Warrant |
|
|
| $ |
Outstanding at February 29, 2016 | 1,080,000 |
| 0.40 |
Issued | 2,823,698 |
| 0.46 |
Expired | (80,000) |
| 1.50 |
Number of warrants at February 28, 2017 and May 31, 2017 | 3,823,698 |
| 0.44 |
A summary of the common share purchase warrants outstanding and exercisable at May 31, 2017 is as follows:
The weighted average exercise price is $0.44 and weighted average life of the warrants is 1.34 years.
Stock Options
The Companys Stock Option Plan allows a maximum 5,579,335 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.
18
A summary of the stock options outstanding and exercisable at May 31, 2017 is as follows:
Exercise Price |
| Number Outstanding and Exercisable |
| Expiry Date | Aggregate Intrinsic Value |
$ |
|
|
|
| $ |
0.10 |
| 2,300,000 |
| November 3, 2020 | 4,370,000 |
As at May 31, 2017, the remaining contractual life of the stock options outstanding was 3.43 years.
The aggregate intrinsic value in the proceeding table represents the total intrinsic value, based on the Companys closing stock price of $2.00 per share as of May 31, 2017.
14.
RELATED PARTY TRANSACTIONS
During the three months ended May 31, 2017, the Company
·
Incurred a total of $60,000 (May 31, 2016 - $23,079) in management fees to a director and officer of the Company.
Due to related parties consist of the following:
| May 31, 2017 | February 28, 2017 |
| $ | $ |
Due to directors and officers of the Company | 48,541 | 48,831 |
As at May 31, 2017, the Company had $500,000 (February 28, 2017 - $nil) in long term note obligations owing to a company with common director. The note payable is unsecured, with an interest of 10% per annum and due on or before January 18, 2019. As at May 31, 2017, the Company has an accrued interest of $18,356.
15.
CORRECTION OF AN ERROR IN PREVIOUSLY ISSUED FINANCIAL STATEMENTS
The Companys previously issued financial statements have been restated to reflect the correction of an error in the initial measurement for the fair value of the acquisitions of Colony Energy, LLC, Black Dragon Energy, LLC, Rolling Rock Resources, LLC, and City of Gold, LLC (collectively, the LLCs) that were acquired in 2017. This restatement was announced in the Companys current report on Form 8-K filed on January 23, 2018.
The Company had measured the above acquisitions based on the quoted market price of the shares issued to acquire the LLCs. The Company has determined that its common shares issued are not traded in an active market. However, the LLCs had concurrently acquired the assets from third parties on an arms length basis and therefore the amount initially recorded by the LLCs provided a more reliable determinant of fair value. Therefore, the Company has revised its accounting to record the transaction based on the fair value of the assets acquired rather than the fair value of the shares issued.
19
The correction of the error is presented in the Companys consolidated financial statements for the period ended May 31, 2017 as follows:
Consolidated balance sheet | As at May 31, 2017 | ||
| As reported | Adjustment | As restated |
| $ | $ | $ |
Rights to the acquisition of mineral exploration property | 39,530,234 | (39,530,233) | 1 |
Oil and gas properties, full cost method | 185,767,964 | (184,683,320) | 1,084,644 |
Deferred tax liabilities | (73,349,071) | 73,349,071 | - |
Additional paid in capital | (150,984,838) | 144,845,330 | (6,139,508) |
Obligation to issue shares | (6,000,000) | 5,986,500 | (13,500) |
Accumulated deficit | 11,302,551 | 32,652 | 11,335,203 |
|
|
Consolidated Statements of Operations | Three months ended May 31, 2017 | ||
| As reported | Adjustment | As restated |
| $ | $ | $ |
Professional fees | 58,527 | 32,652 | 91,179 |
|
|
|
|
Net loss for the period | 4,957,525 | 32,652 | 4,990,177 |
|
|
|
|
Comprehensive loss for the period | 4,957,525 | 32,652 | 4,990,177 |
|
|
|
|
Basic and diluted loss per share | (0.07) | - | (0.07) |
Consolidated statements of cash flows | As at May 31, 2017 | ||
| As reported | Adjustment | As restated |
| $ | $ | $ |
Net loss for the period | 4,957,525 | 32,652 | 4,990,177 |
|
|
|
|
Expenditures on oil and gas properties | 398,486 | (32,652) | 365,834 |
|
|
|
|
Non-cash transections |
|
|
|
Common stock issued for oil and gas properties | 144,800,000 | (144,724,000) | 76,000 |
Obligation to issue shares for oil and gas properties | 6,000,000 | (6,000,000) | - |
20
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Forward Looking Statements
This quarterly report on Form 10-Q contains forward-looking statements. Forward-looking statements are projections in respect of future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as may, should, expects, plans, anticipates, believes, estimates, predicts, potential or continue or the negative of these terms or other comparable terminology. Forward-looking statements made in this Form 10-Q include statements about:
·
our beliefs regarding the future of our competitors;
·
our future capital expenditures;
·
our future exploration programs and results; and
·
our expectation that we will be able to raise capital when we need it.
Assumptions in respect of forward-looking statements have been made regarding, among other things:
·
volatility in market prices for oil and natural gas;
·
volatility in exchange rates;
·
liabilities inherent in oil and natural gas operations;
·
changes or fluctuations in production levels;
·
unexpected adverse weather conditions;
·
stock market volatility and market valuation of our common shares;
·
uncertainties associated with estimating oil and natural gas reserves;
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competition for, among other things, capital, acquisitions of reserves, undeveloped lands and skilled personnel;
·
incorrect assessments of the value of exploration and development programs;
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geological, technical, drilling, production and processing problems;
·
changes in legislation, including changes in tax laws, royalty rates and incentive programs relating to the oil and natural gas industry; and
·
our ability to raise capital.
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These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled Risk Factors and the risks set out below, any of which may cause our or our industrys actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. These risks include, by way of example and not in limitation:
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we may be unable to raise sufficient funds to execute our business plan;
·
we have a limited operating history;
·
we are dependent on a small management team;
·
we may be unable to manage any growth;
·
market conditions or operation impediments may hinder our access to natural gas and oil markets or delay our production;
·
risks inherent in the oil and gas industry;
·
competition for, among other things, capital and skilled personnel; and
·
other factors discussed under the section entitled Risk Factors,
any of which may cause our or our industrys actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.
While these forward-looking statements and any assumptions upon which they are based are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested herein. Except as required by applicable law, including the securities laws of the United States and Canada, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
Our financial statements are stated in United States Dollars (US$) unless otherwise stated and are prepared in accordance with United States Generally Accepted Accounting Principles.
In this quarterly report, unless otherwise specified, all references to common shares refer to the common shares in our capital stock.
As used in this quarterly report on Form 10-Q, the terms we, us our and Fortem mean our company, Fortem Resources Inc.
Restatement
This Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations gives effect to the restatement of our consolidated financial statements for the period ending May 31, 2017. See Note 15 Correction Of An Error In Previously Issued Financial Statements to the Companys consolidated financial statements included in this quarterly report on Form 10-Q/A.
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Corporate Overview
Our company was incorporated under the laws of Nevada on July 9, 2004.
During October 2007 we amended our articles of incorporation to increase the number of our authorized common shares from 75,000,000 to 750,000,000 and to forward stock split our common stock on a 10-for-1 basis. The stock split was based on market conditions and upon a determination by our Board of Directors that the stock split was in our best interests and in the best interests of our shareholders.
On February 28, 2012, we adopted the assumed name of Big Lake Energy Ltd. for use in the Province of Alberta, Canada. On June 5, 2013, we adopted the assumed name of Big Lake Energy Ltd. for use in the Province of British Columbia, Canada.
Effective March 17, 2014, we conducted a one-for-four reverse stock split of our issued and outstanding common stock. As a result, the number of the issued and outstanding common shares decreased from 111,586,705 shares to 27,896,684 shares. Our authorized capital of 750,000,000 shares of common stock with a par value of $0.001 was unchanged.
Effective March 30, 2017, we completed a merger with our wholly-owned subsidiary, Fortem Resources Inc., a Nevada corporation, which was incorporated solely to effect a change in our name. As a result, we have changed our name from Strongbow Resources Inc. to Fortem Resources Inc..
Our Current Business
Compeer Oil and Gas Operations
As of May 31, 2017, we have incurred $631,050 in exploration costs to drill, complete and equip the Test Well. We also recorded $24,750 in asset retirement obligations related to the future plugging and abandonment of the Test Well.
As at July 24, 2017, it is too early to provide stabilized production forecasts.
Colony Energy
On April 7, 2017, we entered into and closed two Membership Interest Purchase Agreements with three arms length vendors to acquire all the membership interests of Colony Energy, LLC, a Nevada limited liability company. Colony Energy holds 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.
The Company intends to develop the Godin Project in three phases beginning with a four well vertical, followed by a four section pad development of 10 wells per pad/per section. Phase 3 is intended to be the full development of 20 sections.
In consideration for the acquisition of Colony, we issued an aggregate of 21,000,000 shares of our common stock to the three vendors on the closing date and agreed to issue an additional 3,000,000 shares on a post-closing basis with 1,000,000 shares to be issued to one of the vendors on the first, second and third anniversaries of the closing date.
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Colony Energy is a party to a Petroleum, Natural Gas and General Rights Conveyance dated as of March 31, 2017 with an arms length vendor and the principal shareholder thereof, pursuant to which the vendor is entitled to receive certain milestone payments from Colony Energy in the aggregate amount of up to $210,000 as partial consideration for the original purchase of the oil and gas assets described above. Pursuant to a Milestone Payment Addendum dated April 7, 2017, we agreed that if Colony Energy fails to make timely payment of any milestone payment and does not remedy such failure within 30 days after receipt of written notice from the vendor, the vendor may elect to: (i) have Colony Energy re-convey the purchased assets to the vendor; or (ii) receive 250,000 shares of our common stock, with such re-conveyance or issuance of shares to be in full and final satisfaction of all obligations to make any further milestone payment.
Black Dragon
On April 12 2017, we entered into and closed a Membership Interest Purchase Agreement (the Black Dragon MPA) with two arms length vendors to acquire all membership interest of Black Dragon Energy, LLC (Black Dragon), a Nevada limited liability company. Black Dragon has the right to acquire a 75% working interest in and to certain leases, hydrocarbons, wells, agreements, equipment, surface rights agreements and assignable permits totaling approximately 165,000 acres (258 sections) at an 80% net revenue interest located in the Moenkopi formation of the Carbon and Emery Counties, Utah (Black Dragon Property).
In consideration for the acquisition of Black Dragon, we issued an aggregate of 20,000,000 shares of our common stock to the two vendors on the closing date and paid $100,000 prior to the closing as a non-refundable deposit. In addition, we assumed the obligation for certain cash payments totaling $2.7 million before September 1, 2018 (or $2.4 million if all payments are made by September 1, 2017) for the working interest in the Black Dragon Property.
Black Dragons sole asset consists of the rights and obligations arising from a Purchase and Sale Agreement dated effective March 1, 2017 (the Black Dragon PSA) between an arms length vendor and Black Dragon. Pursuant to the terms of the Black Dragon MPA, the parties may rescind the transactions, including the issuance of common shares thereunder, upon mutual agreement in the event that Black Dragon elects to terminate the Black Dragon PSA on or before April 17, 2017 due to the assertion by Black Dragon of one or more title defects as determined in accordance with the Black Dragon PSA. In the event that Black Dragon elects such termination and the parties have made certain closing deliveries under the Black Dragon MPA, such closing deliverables will be returned to the providing party and the closing under the Black Dragon MPA will be deemed not to have occurred (except for the payment of $100,000 which was paid prior to closing on a nonrefundable basis).
Under the Black Dragon PSA, Black Dragon has agreed to pay the vendor cash consideration totaling $2.7 million based upon the following schedule:
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$100,000 as a non-refundable deposit within 10 business days of closing (completed);
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$900,000 on or before September 1, 2017;
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$900,000 on or before March 1, 2018; and
·
$800,000 on or before September 1, 2018.
However, if Black Dragon pays a total of $2.4 million on or before September 1, 2017, the parties have agreed that the cash consideration above will be deemed to have been paid in full.
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Carry Obligation
Under the Black Dragon PSA, and in addition to the cash consideration, Black Dragon has agreed 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 Black Dragon pays the full cash consideration set out above or (ii) the date that Black Dragon pays all costs and expenses for the drilling, logging, testing and completion two new wells, each well with a horizontal leg extending at least 2,000 in the target zone within the Moenkopi formation (the Two Obligation Wells). Black Dragon is required to drill to completion or cause to be drilled to completion (or plugging and abandonment) the Two Obligation Wells on or before February 28, 2019, failing which, Black Dragons 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.
Within 10 business days after the later of Black Dragon paying the cash consideration in full or Black Dragon meeting in full its carry obligation, the vendor will convey to Black Dragon an undivided 75% of the Vendors right, title and interest in and to the assets, at an 80% Net Revenue Interest in the assets as further described in the Black Dragon PSA.
On or before September 1, 2017, Black Dragon is required to pay the vendor $102,000 for rental, minimum royalty, option payments and shut-in royalty payments due on the leases through December 31, 2018.
Rolling Rock
On April 17, 2017, we entered into and closed a Membership Interest Purchase Agreement with two arms length vendors to acquire 100% membership interest of Rolling Rock Resources, LLC (Rolling Rock), a Nevada limited liability company. Rolling Rock has the right to acquire a 50% working interest in and to certain leases, hydrocarbons, wells, agreements, equipment, surface rights agreements and assignable permits totaling approximately 101,888 acres (160 sections) at an 80% net revenue interest located in the Mancos formation in the Southern Uinta Basin, Utah (Rolling Rock Property).
In consideration for the acquisition of Rolling Rock, we issued an aggregate of 20,000,000 shares of our common stock to the two vendors on the closing date and paid $100,000 prior to the closing as a non-refundable deposit.
Rolling Rocks sole asset consists of the rights and obligations arising from a Purchase and Sale Agreement dated effective March 1, 2017, as amended (together, the Rolling Rock PSA), between an arms length vendor and Rolling Rock. Upon the satisfaction of the payments and obligations by Rolling Rock as set out below, the vendor has agreed to convey certain leases and related assets (the Leases) to Rolling Rock. The Leases include certain leases, hydrocarbons, wells, agreements, equipment, surface rights agreements and assignable permits all as further set out in the Rolling Rock PSA.
Under the Rolling Rock PSA, Rolling Rock has agreed to pay the vendor cash consideration totaling $2.4 million based upon the following schedule:
·
$100,000 as a non-refundable deposit within 5 business days of closing (completed);
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$1,300,000 on or before September 1, 2017;
·
$500,000 on or before March 1, 2018; and
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$500,000 on or before September 1, 2018.
However, if Rolling Rock pays a total of $2,150,000 on or before September 1, 2017, the parties have agreed that the cash consideration above will be deemed to have been paid in full.
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Carry Obligation
Under the Rolling Rock PSA, and in addition to the cash consideration, Rolling Rock has agreed 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 Rolling Rock pays the full cash consideration set out above or (ii) the date that Rolling Rock 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 in the target zone within the Mancos formation (the Three Obligation Wells). Rolling Rock is required to drill to completion or cause to be drilled to completion (or plugging and abandonment) the Three Obligation Wells on or before February 28, 2019, failing which, Rolling Rocks 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 Rolling Rock will have the exclusive option to purchase an additional 25% of the vendors 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 million.
Within 10 business days after the later of Rolling Rock paying the cash consideration in full or Rolling Rock meeting in full its carry obligation, the vendor agreed to convey to Rolling Rock an undivided 50% of the vendors right, title and interest in and to the Leases, or a 80% net revenue interest in the Leases as further described in the Rolling Rock PSA. Notwithstanding this transfer, within 10 business days after the later of payment of $300,000 on or before September 1, 2017 (which amount is in addition to the deposit and included in the cash consideration set out above) and the replacement of the vendors bonds on or before September 1, 2017, the vendor agreed to convey to Rolling Rock an undivided 50% of the vendors right, title and interest in and to the Cisco Dome leases and related assets as further set out in the Rolling Rock PSA. However, if Rolling Rock 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, Rolling Rock is required to reassign the Cisco Dome leases and assets to the vendor without any additional encumbrances.
On or before September 1, 2017, Rolling Rock is required to pay the vendor $65,000 for rental, minimum royalty, option payments and shut-in royalty payments due on the leases through December 31, 2018.
City of Gold
On May 17, 2017, we acquired 100% of the membership interest in City of Gold, LLC, a Nevada limited liability company, from two Nevada limited liability companies pursuant to a Membership Interest Purchase Agreement dated as of May 17, 2017. The Membership Interest Purchase Agreement provides for a total purchase price consisting of an aggregate of 30,000,000 common shares in the capital of our company at a deemed price of $2.00 per. 15,000,000 of these shares were issued at closing (7,500,000 to each transferor); the other 15,000,000 shares are to be issued within ten Business Days after City of Gold, LLC earns the Option (as defined below).
City of Gold, LLCs sole asset consists of 2,930,259 common shares and 2,930,259 share purchase warrants in the capital of Asia Pacific Mining Limited (Asia Pacific) and its rights under a binding financing and option agreement (the Option Agreement) with Asia Pacific and an individual named Nyi Nyi Lwin. City of Gold, LLCs only liabilities consist of three demand notes for an aggregate of $1,500,000.
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Under the Option Agreement, Asia Pacific and Nyi Nyi Lwin have agreed to grant to City of Gold, LLC the option (the Option) to purchase 100% of the ownership interest in a wholly-owned subsidiary of Asia Pacific (the Project Subsidiary) which, in turn, owns 100% of the rights to the City of Gold mineral exploration project located in Myanmar which covers an area of approximately 465 square kilometers in close proximity to hydropower, water, and infrastructure to accommodate exploration and development of the property. City of Gold, LLC can earn the Option upon issuance of an exploration license for the City of Gold Project, subject to a financing condition.
Once it has earned the Option, City of Gold, LLC will have the option to require Asia Pacific to transfer the Project Subsidiary to a Canadian publicly listed company to be selected by City of Gold, LLC (Acquisition Co) for an exercise price consisting of $7,000,000 in cash and 30% 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 City of Gold, LLC 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.
Future Development Costs for Compeer
During fiscal 2018/19, we plan to focus on the exploration and drilling of the Farmout Lands, identify and complete additional asset acquisition(s), and pursue joint venture agreements with third parties to explore for oil and gas in Canada and the United States. We plan to drill 32 additional wells (including 16 Potential reserve category wells) at approximately $800,000 per well from September 2017 to January 2019. Early estimates indicate the costs to perform the work outlined in our business plan would range from $37 million to $40 million.
Results of Operations
The following summary of our results of operations should be read in conjunction with our unaudited financial statements for the three period ended May 31, 2017 and 2016 which are included herein:
|
|
| For the three months ended May 31, | ||
|
|
| 2017 |
| 2016 |
| Oil and gas sales | $ | - | $ | - |
| Expenses | $ | 292,208 | $ | 61,181 |
| Net loss | $ | (4,990,177) | $ | (134,043) |
Revenues
During the three month period ended May 31, 2017, we did not generate any revenue (May 31, 2016 - $nil).
Expenses
Expenses increased during the three month period ended May 31, 2017 to $273,437 as compared to $61,181 during the three month period ended May 31, 2016.
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The table below details the changes in major expenditures for the three months ended May 31, 2017 as compared to the corresponding three months ended May 31, 2016:
Expenses | Increase / Decrease in Expenses | Explanation for Change |
Management fees | Increase of $36,921 | Increase due to increase in CEO compensation. |
Office, travel and general expenses | Increase of $113,190 | Increase due to more corporate activities and foreign exchange loss. |
Professional fees | Increase of $75,155 | Increase due to more professional services used for corporate filings, accounting, and professional services for the acquisitions. |
For the three months ended May 31, 2017, we recorded a loss on the fair value adjustment of derivative financial liability of $4,695,729 May 31, 2016 - $59,325). The derivative liability consists of the fair value of share purchase warrants that were issued in unit private placements that have an exercise price in a currency other than the functional currency of our company. The derivative liability is a non-cash liability as we will not be required to expend any cash.
Liquidity and Capital Resources
Working Capital
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| May 31, 2017 |
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| February 28, 2017 |
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Current Assets | $ | 254,739 |
| $ | 510,683 |
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Current Liabilities | $ | 7,858,148 |
| $ | 2,995,639 |
|
Working Capital (Deficiency) | $ | (7,603,409) |
| $ | (2,484,956) |
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We had cash of $63,859 and a working capital deficit of $7,603,409 as of May 31, 2017 compared to cash of $459,481 and working capital deficit of $2,484,956 as of February 28, 2017.
We anticipate general and administrative expense, excluding impairment of oil and gas property, if any, will be higher than fiscal 2017 during the upcoming fiscal year. In connection with oil and gas operations and the new acquisitions mentioned above, we intend to increase number of executive officers. As a result, we estimate our general and administrative expense will be higher in fiscal 2018.
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Our companys cash will not be sufficient to meet our working capital requirements for the next twelve month period. Our company plans to raise the capital required to satisfy our immediate short-term needs and additional capital required to meet our estimated funding requirements for the next twelve months primarily through the issuance of our equity securities. There is no assurance that our company will be able to obtain further funds required for our continued working capital requirements. The ability of our company to meet our financial liabilities and commitments is primarily dependent upon the continued financial support of our directors and shareholders, the continued issuance of equity to new shareholders, and our ability to achieve and maintain profitable operations.
There is substantial doubt about our ability to continue as a going concern as the continuation of our business is dependent upon obtaining further long-term financing, successful exploration of our property interests, the identification of reserves sufficient enough to warrant development, successful development of our property interests and, finally, achieving a profitable level of operations. The issuance of additional equity securities by us could result in a significant dilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments.
Due to the uncertainty of our ability to meet our current operating and capital expenses, in their report on our audited financial statements for the year ended February 28, 2017, our independent auditors included an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern. Our statements contain additional note disclosures describing the circumstances that lead to this disclosure by our independent auditors.
Cash Flows
|
| Three months ended May 31, 2017 |
|
| Three months ended May 31, 2016 |
|
Net Cash Used in Operating Activities | $ | (331,349) |
| $ | (91,083) |
|
Net Cash Used in Investing Activities | $ | (1,865,834) |
| $ | - |
|
Net Cash Provided by Financing Activities | $ | 1,831,004 |
| $ | 103,712 |
|
Net change in Cash | $ | (395,622) |
| $ | (20,016) |
|
Cash Used in Operating Activities
Our cash used in operating activities for the three months ended May 31, 2017, compared to our cash used in operating activities for the three months ended May 31, 2016, increased by $240,266, primarily due to increase in operating expenses and net loss in the current period.
Cash Used in Investing Activities
Our cash used in investing activities for the three months ended May 31, 2017, compared to our cash used in investing activities for the three months ended May 31, 2016, increased by $1,865,834 due to investment in Asia Pacific and expenditures on oil and gas properties as compared to no expenditure in prior period.
Cash Provided by Financing Activities
Our cash provided by financing activities for the three months ended May 31, 2017, compared to our cash provided by financing activities for the three months ended May 31, 2016, increased by $1,727,292 due to the issuance of 2,347,142 common shares for net proceeds of $1,305,000, and net proceeds from related parties of $482,646 whereby in the comparative period, there were proceeds repaid to related parties of $96,288.
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Contractual Obligations
Our future contractual obligations as of May 31, 2017 consisted of the following:
| Payments due by period |
| ||||||||||||||||||
Contractual Obligations | Total |
| Less than 1 Year |
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| 1-3 Years |
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| 3-5 Years |
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| More than 5 Years |
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Note payable |
| $ | 18,519 |
|
| $ | 18,519 |
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| |
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| |
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| |
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Advance payable |
| $ | 64,058 |
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| $ | 64,058 |
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| |
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| |
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| |
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Due to related party |
| $ | 500,000 |
|
|
| |
|
| $ | 500,000 |
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| |
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| |
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Outstanding Shares, Options, Warrants
As of July 24, 2017, we had 115,884,698 shares of common stock, 2,300,000 stock options and 3,823,698 warrants outstanding.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to our stockholders.
Going Concern
Our interim financial statements and information for the period ended May 31, 2017, have been prepared by our management on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. We have generated no significant revenues to date and have incurred a net loss of $4,990,177 during the three month period ended May 31, 2017, and an accumulated deficit of $11,335,203 from inception. These factors raise substantial doubt about the ability of the Company to continue operating as a going concern. We cannot provide any assurance that we will ultimately achieve profitable operations or become cash flow positive, or raise additional funds through the sale of debt and/or equity.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as that term is defined in Rule 13a-15(e), promulgated by the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our companys reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
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As required by paragraph (b) of Rules 13a-15 under the Securities Exchange Act of 1934, our management, with the participation of our principal executive officer and our principal financial officer, evaluated our companys disclosure controls and procedures as of the end of the period covered by this quarterly report on Form 10-Q. Based on this evaluation, our management concluded that as of the end of the period covered by this quarterly report on Form 10-Q our disclosure controls and procedures were not effective.
Changes in internal control over financial reporting
There were no changes in our internal control over financial reporting during the fiscal quarter ended May 31, 2017 that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.
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Item 1. Legal Proceedings
Other than as disclosed below, we know of no material pending legal proceedings to which our company is a party or of which any of our properties is the subject. In addition, we do not know of any such proceedings contemplated by any governmental authorities.
We know of no material proceedings in which any of our directors, officers or affiliates, or any registered or beneficial stockholder is a party adverse to our company or has a material interest adverse to our company.
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Item 1A. Risk Factors
An investment in our common stock involves a number of very significant risks. You should carefully consider the following risks and uncertainties in addition to other information in this quarterly report in evaluating our company and our business before purchasing shares of our common stock. Our business, operating results and financial condition could be seriously harmed as a result of the occurrence of any of the following risks. You could lose all or part of your investment due to any of these risks. You should invest in our common stock only if you can afford to lose your entire investment.
Risks Related to Our Company
We have a history of losses and this trend may continue and may negatively impact our ability to achieve our business objectives.
We have experienced net losses since inception, and expect to continue to incur substantial losses for the foreseeable future. Our accumulated deficit was $11,335,203 as at May 31, 2017. We may not be able to generate significant revenues in the future. As a result, our management expects our business to continue to experience negative cash flow for the foreseeable future and cannot predict when, if ever, our business might become profitable. We will need to raise additional funds, and such funds may not be available on commercially acceptable terms, if at all. If we are unable to raise funds on acceptable terms, we may not be able to execute our business plan, take advantage of future opportunities, or respond to competitive pressures or unanticipated requirements. This may seriously harm our business, financial condition and results of operations.
We have a limited operating history, which may hinder our ability to successfully meet our objectives.
We have a limited operating history upon which to base an evaluation of our current business and future prospects. We do not have an established history of operating producing properties or locating and developing properties that have oil and gas reserves. As a result, the revenue and income potential of our business is unproven. In addition, because of our limited operating history, we have limited insight into trends that may emerge and affect our business. Errors may be made in predicting and reacting to relevant business trends and we will be subject to the risks, uncertainties and difficulties frequently encountered by early-stage companies in evolving markets. We may not be able to successfully address any or all of these risks and uncertainties. Failure to adequately do so could cause our business, results of operations and financial condition to suffer.
Our operations and proposed exploration activities will require significant capital expenditures for which we may not have sufficient funding and if we do obtain additional financing, our existing shareholders may suffer substantial dilution.
We intend to make capital expenditures far in excess of our existing capital resources to develop, acquire and explore oil and gas properties. We intend to rely on funds from operations and external sources of financing to meet our capital requirements to continue acquiring, exploring and developing oil and gas properties and to otherwise implement our business plan. We plan to obtain additional funding through the debt and equity markets, but we can offer no assurance that we will be able to obtain additional funding when it is required or that it will be available to us on commercially acceptable terms, if at all. In addition, any additional equity financing may involve substantial dilution to our then existing shareholders.
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The successful implementation of our business plan is subject to risks inherent in the oil and gas business, which if not adequately managed, could result in additional losses.
Our oil and gas operations are subject to the economic risks typically associated with exploration and development activities, including the necessity of making significant expenditures to locate and acquire properties and to drill exploratory wells. In addition, the availability of drilling rigs and the cost and timing of drilling, completing and, if warranted, operating wells is often uncertain. In conducting exploration and development activities, the presence of unanticipated pressure or irregularities in formations, miscalculations or accidents may cause our exploration, development and, if warranted, production activities to be unsuccessful. This could result in a total loss of our investment in a particular well. If exploration efforts are unsuccessful in establishing proved reserves and exploration activities cease, the amounts accumulated as unproved costs will be charged against earnings as impairments.
In addition, market conditions or the unavailability of satisfactory oil and gas transportation arrangements may hinder our access to oil and gas markets and delay our production. The availability of a ready market for our prospective oil and gas production depends on a number of factors, including the demand for and supply of oil and gas and the proximity of reserves to pipelines and other facilities. Our ability to market such production depends in substantial part on the availability and capacity of gathering systems, pipelines and processing facilities, in most cases owned and operated by third parties. Our failure to obtain such services on acceptable terms could materially harm our business. We may be required to shut in wells for lack of a market or a significant reduction in the price of oil or gas or because of inadequacy or unavailability of pipelines or gathering system capacity. If that occurs, we would be unable to realize revenue from those wells until arrangements are made to deliver such production to market.
Our future performance is dependent upon our ability to identify, acquire and develop oil and gas properties, the failure of which could result in under use of capital and losses.
Our future performance depends upon our ability to identify, acquire and develop additional oil and gas reserves that are economically recoverable. Our success will depend upon our ability to acquire working and revenue interests in properties upon which oil and gas reserves are ultimately discovered in commercial quantities, and our ability to develop prospects that contain proven oil and gas reserves to the point of production. Without successful acquisition and exploration activities, we will not be able to develop additional oil and gas reserves or generate revenues. We cannot provide you with any assurance that we will be able to identify and acquire additional oil and gas reserves on acceptable terms, or that oil and gas deposits will be discovered in sufficient quantities to enable us to recover our exploration and development costs or sustain our business.
The successful acquisition and development of oil and gas properties requires an assessment of recoverable reserves, future oil and gas prices and operating costs, potential environmental and other liabilities, and other factors. Such assessments are necessarily inexact and their accuracy inherently uncertain. In addition, no assurance can be given that our exploration and development activities will result in the discovery of additional reserves. Our operations may be curtailed, delayed or cancelled as a result of lack of adequate capital and other factors, such as lack of availability of rigs and other equipment, title problems, weather, compliance with governmental regulations or price controls, mechanical difficulties, or unusual or unexpected formations, pressures and or work interruptions. In addition, the costs of exploitation and development may materially exceed our initial estimates.
We have a very small management team and the loss of any member of our team may prevent us from implementing our business plan in a timely manner.
We have two executive officers and a limited number of additional consultants upon whom our success largely depends. We do not maintain key person life insurance policies on our executive officers or consultants, the loss of which could seriously harm our business, financial condition and results of operations. In such an event, we may not be able to recruit personnel to replace our executive officers or consultants in a timely manner, or at all, on acceptable terms.
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Future growth could strain our personnel and infrastructure resources, and if we are unable to implement appropriate controls and procedures to manage our growth, we may not be able to successfully implement our business plan.
We may experience rapid growth in our operations, which will place a significant strain on our management, administrative, operational and financial infrastructure. Our future success will depend in part upon the ability of our management to manage growth effectively. This may require us to hire and train additional personnel to manage our expanding operations. In addition, we must continue to improve our operational, financial and management controls and our reporting systems and procedures. If we fail to successfully manage our growth, we may be unable to execute upon our business plan.
Market conditions or operation impediments may hinder our access to natural gas and oil markets or delay our production.
The marketability of production from our properties depends in part upon the availability, proximity and capacity of pipelines, natural gas gathering systems and processing facilities. This dependence is heightened where this infrastructure is less developed. Therefore, if drilling results are positive in certain areas of our oil and gas properties, a new gathering system would need to be built to handle the potential volume of gas produced. We might be required to shut in wells, at least temporarily, for lack of a market or because of the inadequacy or unavailability of transportation facilities. If that were to occur, we would be unable to realize revenue from those wells until arrangements were made to deliver production to market.
Our ability to produce and market natural gas and oil is affected and also may be harmed by:
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the lack of pipeline transmission facilities or carrying capacity;
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government regulation of natural gas and oil production;
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government transportation, tax and energy policies;
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changes in supply and demand; and
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general economic conditions.
We might incur additional debt in order to fund our exploration and development activities, which would continue to reduce our financial flexibility and could have a material adverse effect on our business, financial condition or results of operations.
If we incur indebtedness, the ability to meet our debt obligations and reduce our level of indebtedness depends on future performance. General economic conditions, oil and gas prices and financial, business and other factors affect our operations and future performance. Many of these factors are beyond our control. We cannot assure you that we will be able to generate sufficient cash flow to pay the interest on our current or future debt or that future working capital, borrowings or equity financing will be available to pay or refinance such debt. Factors that will affect our ability to raise cash through an offering of our capital stock or a refinancing of our debt include financial market conditions, the value of our assets and performance at the time we need capital. We cannot assure you that we will have sufficient funds to make such payments. If we do not have sufficient funds and are otherwise unable to negotiate renewals of our borrowings or arrange new financing, we might have to sell significant assets. Any such sale could have a material adverse effect on our business and financial results.
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Our properties and/or future properties might not produce, and we might not be able to determine reserve potential, identify liabilities associated with the properties or obtain protection from sellers against them, which could cause us to incur losses.
Although we have reviewed and evaluated our properties in a manner consistent with industry practices, such review and evaluation might not necessarily reveal all existing or potential problems. This is also true for any future acquisitions made by us. Inspections may not always be performed on every well, and environmental problems, such as groundwater contamination, are not necessarily observable even when an inspection is undertaken. Even when problems are identified, a seller may be unwilling or unable to provide effective contractual protection against all or part of those problems, and we may assume environmental and other risks and liabilities in connection with the acquired properties.
If we or our operators fail to maintain adequate insurance, our business could be materially and adversely affected.
Our operations are subject to risks inherent in the oil and gas industry, such as blowouts, cratering, explosions, uncontrollable flows of oil, gas or well fluids, fires, pollution, earthquakes and other environmental risks. These risks could result in substantial losses due to injury and loss of life, severe damage to and destruction of property and equipment, pollution and other environmental damage, and suspension of operations. We could be liable for environmental damages caused by previous property owners. As a result, substantial liabilities to third parties or governmental entities may be incurred, the payment of which could have a material adverse effect on our financial condition and results of operations.
Any prospective drilling contractor or operator which we hire will be required to maintain insurance of various types to cover our operations with policy limits and retention liability customary in the industry. We also have acquired our own insurance coverage for such prospects. The occurrence of a significant adverse event on such prospects that is not fully covered by insurance could result in the loss of all or part of our investment in a particular prospect which could have a material adverse effect on our financial condition and results of operations.
The oil and gas industry is highly competitive, and we may not have sufficient resources to compete effectively.
The oil and gas industry is highly competitive. We compete with oil and natural gas companies and other individual producers and operators, many of which have longer operating histories and substantially greater financial and other resources than we do, as well as companies in other industries supplying energy, fuel and other needs to consumers. Our larger competitors, by reason of their size and relative financial strength, can more easily access capital markets than we can and may enjoy a competitive advantage in the recruitment of qualified personnel. They may be able to absorb the burden of any changes in laws and regulation in the jurisdictions in which we do business and handle longer periods of reduced prices for oil and gas more easily than we can. Our competitors may be able to pay more for oil and gas leases and properties and may be able to define, evaluate, bid for and purchase a greater number of leases and properties than we can. Further, these companies may enjoy technological advantages and may be able to implement new technologies more rapidly than we can. Our ability to acquire additional properties in the future will depend upon our ability to conduct efficient operations, evaluate and select suitable properties, implement advanced technologies and consummate transactions in a highly competitive environment.
Complying with environmental and other government regulations could be costly and could negatively impact our production.
Our business is governed by numerous laws and regulations at various levels of government. These laws and regulations govern the operation and maintenance of our facilities, the discharge of materials into the environment and other environmental protection issues. Such laws and regulations may, among other potential consequences, require that we acquire permits before commencing drilling and restrict the substances that can be released into the environment with drilling and production activities.
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Under these laws and regulations, we could be liable for personal injury, clean-up costs and other environmental and property damages, as well as administrative, civil and criminal penalties. Prior to commencement of drilling operations, we may secure limited insurance coverage for sudden and accidental environmental damages as well as environmental damage that occurs over time. However, we do not believe that insurance coverage for the full potential liability of environmental damages is available at a reasonable cost. Accordingly, we could be liable, or could be required to cease production on properties, if environmental damage occurs.
The costs of complying with environmental laws and regulations in the future may harm our business. Furthermore, future changes in environmental laws and regulations could result in stricter standards and enforcement, larger fines and liability, and increased capital expenditures and operating costs, any of which could have a material adverse effect on our financial condition or results of operations.
Shortages of rigs, equipment, supplies and personnel could delay or otherwise adversely affect our cost of operations or our ability to operate according to our business plans.
If drilling activity increases in Alberta or Canada generally, a shortage of drilling and completion rigs, field equipment and qualified personnel could develop. The demand for and wage rates of qualified drilling rig crews generally rise in response to the increasing number of active rigs in service and could increase sharply in the event of a shortage. Shortages of drilling and completion rigs, field equipment or qualified personnel could delay, restrict or curtail our exploration and development operations, which could in turn harm our operating results.
We will be required to replace, maintain or expand our reserves in order to prevent our reserves and production from declining, which would adversely affect cash flows and income.
In general, production from natural gas and oil properties declines over time as reserves are depleted, with the rate of decline depending on reservoir characteristics. If we are not successful in our exploration and development activities, our proved reserves will decline as reserves are produced. Our future natural gas and oil production is highly dependent upon our ability to economically find, develop or acquire reserves in commercial quantities.
To the extent cash flow from operations is reduced, either by a decrease in prevailing prices for natural gas and oil, or an increase in exploration and development costs, and external sources of capital become limited or unavailable, our ability to make the necessary capital investment to maintain or expand our asset base of natural gas and oil reserves would be impaired. Even with sufficient available capital, our future exploration and development activities may not result in additional proved reserves, and we might not be able to drill productive wells at acceptable costs.
The oil and gas exploration and production industry historically is a cyclical industry and market fluctuations in the prices of oil and gas could adversely affect our business.
Prices for oil and gas tend to fluctuate significantly in response to factors beyond our control. These factors include:
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weather conditions;
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economic conditions, including demand for petroleum-based products;
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actions by OPEC, the Organization of Petroleum Exporting Countries;
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political instability in the Middle East and other major oil and gas producing regions;
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governmental regulations, both domestic and foreign;
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domestic and foreign tax policy;
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the pace adopted by foreign governments for the exploration, development, and production of their national reserves;
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the price of foreign imports of oil and gas;
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the cost of exploring for, producing and delivering oil and gas;
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the discovery rate of new oil and gas reserves;
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the rate of decline of existing and new oil and gas reserves;
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available pipeline and other oil and gas transportation capacity;
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the ability of oil and gas companies to raise capital;
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the overall supply and demand for oil and gas; and
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the availability of alternate fuel sources.
Changes in commodity prices may significantly affect our capital resources, liquidity and expected operating results. Price changes will directly affect revenues and can indirectly impact expected production by changing the amount of funds available to reinvest in exploration and development activities. Reductions in oil and gas prices not only reduce revenues and profits, but could also reduce the quantities of reserves that are commercially recoverable. Significant declines in prices could result in non-cash charges to earnings due to impairment.
Changes in commodity prices may also significantly affect our ability to estimate the value of producing properties for acquisition and divestiture and often cause disruption in the market for oil and gas producing properties, as buyers and sellers have difficulty agreeing on the value of the properties. Price volatility also makes it difficult to budget for and project the return on acquisitions and the exploration and development of projects. We expect that commodity prices will continue to fluctuate significantly in the future.
Our ability to produce oil and gas from our properties may be adversely affected by a number of factors outside of our control which may result in a material adverse effect on our business, financial condition or results of operations.
The business of exploring for and producing oil and gas involves a substantial risk of investment loss. Drilling oil and gas wells involves the risk that the wells may be unproductive or that, although productive, the wells may not produce oil or gas in economic quantities. Other hazards, such as unusual or unexpected geological formations, pressures, fires, blowouts, loss of circulation of drilling fluids or other conditions may substantially delay or prevent completion of any well. Adverse weather conditions can also hinder drilling operations. A productive well may become uneconomic if water or other deleterious substances are encountered that impair or prevent the production of oil or gas from the well. In addition, production from any well may be unmarketable if it is impregnated with water or other deleterious substances. There can be no assurance that oil and gas will be produced from the properties in which we have interests. In addition, the marketability of oil and gas that may be acquired or discovered may be influenced by numerous factors beyond our control. These factors include the proximity and capacity of oil and gas, gathering systems, pipelines and processing equipment, market fluctuations in oil and gas prices, taxes, royalties, land tenure, allowable production and environmental protection. We cannot predict how these factors may affect our business.
We may be unable to retain our leases and working interests in our leases, which would result in significant financial losses to our company.
Our properties are held under oil and gas leases. If we fail to meet the specific requirements of each lease, such lease may terminate or expire. We cannot assure you that any of the obligations required to maintain each lease will be met. The termination or expiration of our leases may harm our business. Our property interests will terminate unless we fulfill certain obligations under the terms of our leases and other agreements related to such properties. If we are unable to satisfy these conditions on a timely basis, we may lose our rights in these properties. The termination of our interests in these properties may harm our business. In addition, we will need significant funds to meet capital requirements for the exploration activities that we intend to conduct on our properties.
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Our Godin project is complex undertakings and may not be completed at our estimated cost or at all.
We, through our wholly owned subsidiary Colony Energy, LLC, holds 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. The Godin project is complex, subject to extensive governmental regulation and will require significant additional financing. There can be no assurance that the necessary governmental approvals will be granted or that such financing could be obtained on commercially reasonable terms or at all, or that if one or more of these projects are completed that they will be successful or that we realize a return on our investment.
Risks Relating to Our Common Stock
A decline in the price of our common stock could affect our ability to raise further working capital and adversely impact our ability to continue operations.
A prolonged decline in the price of our common stock could result in a reduction in the liquidity of our common stock and a reduction in our ability to raise capital. Because a significant portion of our operations have been and will be financed through the sale of equity securities, a decline in the price of our common stock could be especially detrimental to our liquidity and our operations. Such reductions may force us to reallocate funds from other planned uses and may have a significant negative effect on our business plan and operations, including our ability to develop new properties and continue our current operations. If our stock price declines, we can offer no assurance that we will be able to raise additional capital or generate funds from operations sufficient to meet our obligations. If we are unable to raise sufficient capital in the future, we may not be able to have the resources to continue our normal operations.
The market price for our common stock may also be affected by our ability to meet or exceed expectations of analysts or investors. Any failure to meet these expectations, even if minor, may have a material adverse effect on the market price of our common stock.
If we issue additional shares in the future, it will result in the dilution of our existing shareholders.
Our articles of incorporation, as amended, authorize the issuance of up to 750,000,000 shares of common stock with a par value of $0.001. Our board of directors may choose to issue some or all of such shares to acquire one or more businesses or to provide additional financing in the future. The issuance of any such shares will result in a reduction of the book value and market price of the outstanding shares of our common stock. If we issue any such additional shares, such issuance will cause a reduction in the proportionate ownership and voting power of all current shareholders. Further, such issuance may result in a change of control of our corporation.
Trading of our stock may be restricted by the Securities Exchange Commissions penny stock regulations, which may limit a stockholders ability to buy and sell our stock.
The Securities and Exchange Commission has adopted regulations which generally define penny stock to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and accredited investors. The term accredited investor refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the Securities and Exchange Commission, which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customers account.
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The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customers confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchasers written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit the marketability of our common stock.
The Financial Industry Regulatory Authority, or FINRA, has adopted sales practice requirements which may also limit a stockholders ability to buy and sell our stock.
In addition to the penny stock rules described above, FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customers financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.
Our common stock is illiquid and the price of our common stock may be negatively impacted by factors which are unrelated to our operations.
Our common stock currently trades on a limited basis on OTCQB operated by the OTC Markets Group. Trading of our stock through OTCQB is frequently thin and highly volatile. There is no assurance that a sufficient market will develop in our stock, in which case it could be difficult for shareholders to sell their stock. The market price of our common stock could fluctuate substantially due to a variety of factors, including market perception of our ability to achieve our planned growth, quarterly operating results of our competitors, trading volume in our common stock, changes in general conditions in the economy and the financial markets or other developments affecting our competitors or us. In addition, the stock market is subject to extreme price and volume fluctuations. This volatility has had a significant effect on the market price of securities issued by many companies for reasons unrelated to their operating performance and could have the same effect on our common stock.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Since the beginning of the three month period ended May 31, 2017, we have not sold any equity securities that were not registered under the Securities Act of 1933 that were not previously reported in an annual report on Form 10-K, in a quarterly report on Form 10-Q or in a current report on Form 8-K.
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
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ITEM 6. EXHIBITS
No. | Description |
3.1 | Articles of Incorporation (incorporated by reference from our registration statement on Form SB-2 filed on December 1, 2006) |
3.2 | Corporate Bylaws (incorporated by reference from our registration statement on Form SB-2 filed on December 1, 2006) |
3.3 | Certificate of Change (incorporated by reference from our current report on Form 8-K filed on October 22, 2007) |
3.4 | Certificate of Amendment (incorporated by reference from our current report on Form 8-K filed on February 15, 2008) |
3.5 | Articles of Merger dated effective March 30, 2017 (incorporated by reference from our current report on Form 8-K filed on March 30, 2017) |
10.1 | Farmout Agreement, Compeer Area with Harvest Operations Corp. effective February 21, 2012 (incorporated by reference from our annual report on Form 10-K filed on May 29, 2012) |
10.2 | Debt Settlement Agreement dated October 16, 2014, amongst the Company, Professional Trading S.A. and Stockbridge Resources Corp. (incorporated by reference from our current report on Form 8-K filed on October 20, 2014) |
10.3 | Employment Agreement dated April 23, 2015 with Kent Edney (incorporated by reference from our current report on Form 8-K filed on May 5, 2015) |
10.4 | Stock Option Agreement dated November 3, 2015 with Michael Caetano (incorporated by reference from our current report on Form 8-K filed on November 6, 2015) |
10.5 | Stock Option Agreement dated November 3, 2015 with Robert DaCunha (incorporated by reference from our current report on Form 8-K filed on November 6, 2015) |
10.6 | Stock Option Agreement dated November 3, 2015 with Robert Madzej (incorporated by reference from our current report on Form 8-K filed on November 6, 2015) |
10.7 | Debt Settlement Agreement dated April 11, 2016 with Apex Energy Consultants Inc. (incorporated by reference from our current report on Form 8-K filed on May 19, 2016) |
10.8 | Debt Settlement Agreement dated April 11, 2016 with Chamonix Canada Inc. (incorporated by reference from our current report on Form 8-K filed on May 19, 2016) |
10.9 | Debt Settlement Agreement dated January 13, 2017 with Precision Asset Consulting Executives Inc. (incorporated by reference from our current report on Form 8-K filed on February 3, 2017) |
10.10 | Debt Settlement Agreement dated January 13, 2017 with Seahawk Capital Corp. (incorporated by reference from our current report on Form 8-K filed on February 3, 2017) |
10.11 | Debt Settlement Agreement dated January 13, 2017 with CNK Enterprises Inc. (incorporated by reference from our current report on Form 8-K filed on February 3, 2017) |
10.12 | Debt Settlement Agreement dated January 30, 2017 with 2232985 Ontario Inc. (incorporated by reference from our current report on Form 8-K filed on February 3, 2017) |
10.13 | Membership Interest Purchase Agreement dated April 7, 2017 with Blue Phoenix Energy, LLC and Pacific Petroleum, LLC (incorporated by reference from our current report on Form 8-K filed on April 12, 2017) |
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10.14 | Membership Interest Purchase Agreement dated April 12, 2017 with Blue Phoenix Energy, LLC and Pacific Petroleum, LLC (incorporated by reference from our current report on Form 8-K filed on April 17, 2017) |
10.15 | Membership Interest Purchase Agreement dated April 17, 2017 with MAB Resources Holdings LLC and JM Magna Holdings LLC (incorporated by reference from our current report on Form 8-K filed on April 21, 2017) |
10.16 | Membership Interest Purchase Agreement dated May 17, 2017 with MAB Resources Holdings LLC and JM Magna Holdings LLC (incorporated by reference from our current report on Form 8-K filed on May 24, 2017) |
31.1* | Certification of Marc A. Bruner Pursuant to Section 302 of the Sarbanes-Oxley Act Of 2002 |
31.2* | Certification of Robert DaCunha Pursuant to Section 302 of the Sarbanes-Oxley Act Of 2002 |
32.1* | Certification of Marc A. Bruner Pursuant to Section 906 of the Sarbanes-Oxley Act Of 2002 |
32.2* | Certification of Robert DaCunha Pursuant to Section 906 of the Sarbanes-Oxley Act Of 2002 |
99.1 | Audit Committee Charter (incorporated by reference from our annual report on Form 10-K filed on June 14, 2013) |
101.INS* | XBRL INSTANCE DOCUMENT |
101.SCH* | XBRL TAXONOMY EXTENSION SCHEMA |
101.CAL* | XBRL TAXONOMY EXTENSION CALCULATION LINKBASE |
101.DEF* | XBRL TAXONOMY EXTENSION DEFINITION LINKBASE |
101.LAB* | XBRL TAXONOMY EXTENSION LABEL LINKBASE |
101.PRE* | XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
FORTEM RESOURCES INC.
By /s/ Marc A. Bruner
Marc A. Bruner
Chief Executive Officer
President, Chairman and Director
(Principal Executive Officer)
Date: January 29, 2018
By /s/ Robert Da Cunha
Robert Da Cunha
Chief Financial Officer
Director
(Principal Financial Officer and Principal Accounting Officer)
Date: January 29, 2018
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Exhibit 31.1
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Marc A. Bruner, certify that:
1. | I have reviewed this quarterly report on Form 10-Q/A of Fortem Resources Inc.; | |
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2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
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3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
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4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: | |
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| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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| (c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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| (d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
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5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): | |
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| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
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| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
January 29, 2018
/s/ Marc A. Bruner
Marc A. Bruner
President, Chairman and Director
(Principal Executive Officer)
Exhibit 31.2
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Robert Da Cunha, certify that:
1. | I have reviewed this quarterly report on Form 10-Q/A of Fortem Resources Inc.; | |
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2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
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3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
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4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: | |
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| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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| (c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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| (d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
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5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): | |
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| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
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| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
January 29, 2018
/s/ Robert Da Cunha
Robert Da Cunha
Chief Financial Officer and Director
(Principal Accounting Officer and Principal Financial Officer)
Exhibit 32.1
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, Marc A. Bruner, hereby certifies, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. | the quarterly report on Form 10-Q/A of Fortem Resources Inc. for the period ended May 31, 2017 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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2. | the information contained in the Form 10-Q/A fairly presents, in all material respects, the financial condition and results of operations of Fortem Resources Inc. |
January 29, 2018
| /s/ Marc A. Bruner |
| Marc A. Bruner |
| President, Chairman and Director |
| (Principal Financial Officer and Principal Accounting Officer) |
Exhibit 32.2
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, Robert Da Cunha, hereby certifies, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. | the quarterly report on Form 10-Q/A of Fortem Resources Inc. for the period ended May 31, 2017 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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2. | the information contained in the Form 10-Q/A fairly presents, in all material respects, the financial condition and results of operations of Fortem Resources Inc. |
January 29, 2018
| /s/ Robert Da Cunha |
| Robert Da Cunha |
| Chief Financial Officer and Director |
| (Principal Financial Officer and Principal Accounting Officer) |
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Document and Entity Information |
3 Months Ended |
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May 31, 2017
shares
| |
Document and Entity Information: | |
Entity Registrant Name | Fortem Resources Inc. |
Document Type | 10-Q |
Document Period End Date | May 31, 2017 |
Trading Symbol | ftmr |
Amendment Flag | true |
Entity Central Index Key | 0001382231 |
Current Fiscal Year End Date | --02-28 |
Entity Common Stock, Shares Outstanding | 115,884,698 |
Entity Filer Category | Smaller Reporting Company |
Entity Current Reporting Status | Yes |
Entity Voluntary Filers | No |
Entity Well-known Seasoned Issuer | No |
Document Fiscal Year Focus | 2018 |
Document Fiscal Period Focus | Q1 |
Amendment Description | We are filing this amendment No. 1 to amend our quarterly report on Form 10-Q for the quarter ended May 31, 2017, which was originally filed with the Securities and Exchange Commission on July 24, 2017. |
FORTEM RESOURCES INC. - Consolidated Balance Sheets - USD ($) |
May 31, 2017 |
Feb. 28, 2017 |
|||||
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Current Assets: | |||||||
Cash | $ 63,859 | $ 459,481 | |||||
Receivable | 30,262 | 27,103 | |||||
Prepaid expense and other | 160,618 | 24,099 | |||||
Total Current Assets | 254,739 | 510,683 | |||||
Non-current Assets: | |||||||
Deposit | 32,603 | 33,082 | |||||
Equipment | 53,234 | 54,956 | |||||
Investment in Mining Company | [1] | 1,500,000 | |||||
Rights to the acquisition of mineral exploration property | 1 | ||||||
Oil and gas properties, full cost method | 1,084,644 | 641,494 | |||||
Total Assets | 2,925,221 | 1,240,215 | |||||
Current liabilities: | |||||||
Accounts payable and accrued liabilities | 440,824 | 337,506 | |||||
Due to related parties | 48,541 | 48,831 | |||||
Note payable | 18,519 | 18,825 | |||||
Advance payable | 64,058 | ||||||
Derivative financial liabilities - warrants | 7,286,206 | 2,590,477 | |||||
Total Current Liabilities | 7,858,148 | 2,995,639 | |||||
Non-current liabilities: | |||||||
Due to related party | 500,000 | ||||||
Asset retirement obligation | 24,750 | 24,546 | |||||
Total Liabilities | 8,382,898 | 3,020,185 | |||||
Stockholders' Deficit: | |||||||
Capital stock | [2] | 107,775 | 29,428 | ||||
Additional paid-in capital | 6,153,008 | 5,028,885 | |||||
Share subscriptions receivable | (110,000) | ||||||
Accumulated other comprehensive loss | (383,257) | (383,257) | |||||
Accumulated deficit | (11,335,203) | (6,345,026) | |||||
Total Stockholders' Equity | (5,457,677) | (1,779,970) | |||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ 2,925,221 | $ 1,240,215 | |||||
|
Statement of Financial Position - Parenthetical - $ / shares |
May 31, 2017 |
Feb. 28, 2017 |
---|---|---|
Statement of Financial Position | ||
Common Stock, Par Value | $ 0.001 | $ 0.001 |
Common Stock, Shares Authorized | 750,000,000 | 750,000,000 |
Common Stock, Shares Issued | 115,884,698 | 37,537,556 |
Common Stock, Shares Outstanding | 115,884,698 | 37,537,556 |
FORTEM RESOURCES INC. - Consolidated Statements of Operations - USD ($) |
3 Months Ended | |
---|---|---|
May 31, 2017 |
May 31, 2016 |
|
General and administrative expenses | ||
Accretion | $ 605 | $ 570 |
Consulting | 18,253 | 25,481 |
Depreciation | 829 | 859 |
Investor relations | 12,984 | |
Management fees | 60,000 | 23,079 |
Office, travel and general (recovery) | 108,358 | (4,832) |
Professional fees | 91,179 | 16,024 |
Loss from operations | (292,208) | (61,181) |
Foreign exchange loss | (13,881) | |
Gain on settlement of debt | 13,292 | 60,232 |
Interest income | 60 | 62 |
Interest expense | (2,055) | (73,831) |
Change on fair value adjustment of derivative financial liabilities | (4,695,729) | (59,325) |
Gain on write-off of accounts payable | 344 | |
Net loss | (4,990,177) | (134,043) |
Foreign currency translation | (19,890) | |
Comprehensive loss | $ (4,990,177) | $ (153,933) |
Basic and diluted loss per share | $ (0.07) | $ (0.00) |
Weighted average number of basic common shares outstanding | 74,905,863 | 30,621,927 |
1. Nature and Continuance of Operations |
3 Months Ended |
---|---|
May 31, 2017 | |
Notes | |
1. Nature and Continuance of Operations | 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, 2017, 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 $11,335,203.
The Companys 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 |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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May 31, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Notes | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2. Summary of Significant Accounting Policies | 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation The unaudited 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 for the year ended February 28, 2017 included in the Companys 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, 2017 are not necessarily indicative of the results that may be expected for the year ending February 28, 2018.
Basis of consolidation These consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Colony Energy, LLC, Black Dragon Energy, LLC, Rolling Rock Resources, LLC and City of Gold, LLC. All significant intercompany accounts and transactions between the Company and its subsidiaries have been eliminated upon consolidation.
Fair Value of Financial Instruments 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, accounts payable and accrued liabilities, amounts due to related party, 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 instruments 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, there for 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 and liabilities required to be recorded at fair value on a recurring basis in accordance with US GAAP as at May 31, 2017. As at May 31, 2017, the Companys Level 3 assets consist of shares and warrants of a private company and Level 3 liabilities consisted of warrants of the Company. The resulting level 3 assets and liabilities 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, 2017, 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.
A summary of the Companys level 3 liabilities for the three months ended May 31, 2017 and year ended February 28, 2017 is as follows:
Basic and Diluted Income (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 6,123,698 (February 28, 2017 - 6,123,698) potentially dilutive securities excluded from the calculation of diluted loss per share as their effect would be anti-dilutive.
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.
Recent Accounting Pronouncements
In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entitys Ability to Continue as a Going Concern, which is intended to define managements responsibility to evaluate whether there is substantial doubt about an organizations ability to continue as a going concern within one year after the date that the financial statements are issued (or within one year after the date that the financial statements are available to be issued when applicable) and to provide related footnote disclosures. The ASU provides guidance to an organizations management, with principles and definitions that are intended to reduce diversity in the timing and content of disclosures that are commonly provided by organizations today in the financial statement footnotes. The ASU is effective for annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016, which for the Company is April 1, 2017. Early adoption is permitted. The adoption of this standard did not have a material impact on the Companys financial position or results of operations.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This ASU is effective for annual periods beginning after December 15, 2018 and interim periods within fiscal years beginning after December 15, 2019. ASU No 2016-15 addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. The adoption of this standard will not have a material impact on the Companys financial position or results of operations.
Other recent accounting pronouncements issued by the 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. Acquisitions |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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3. Acquisitions | 3. ACQUISITIONS
a) Acquisition of Colony Energy, LLC
In April 2017, the Company entered into and closed two membership interest purchase agreements with three arms length vendors to acquire all membership interests of Colony Energy, LLC (Colony), a Nevada limited liability company. Colony holds 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 (Godin Property).
In consideration for the acquisition of Colony, the Company issued an aggregate of 21,000,000 shares of its common stock to the three vendors on the closing date (issued at a value of $21,000) and agreed to issue an additional 3,000,000 shares (valued at $nil), with 1,000,000 shares to be issued to one of the vendors on each of the first, second and third anniversaries of the closing date.
Colony is not considered a business for accounting purposes and accordingly the transaction is treated as an acquisition of oil and gas property and related net assets.
The assets and liabilities of Colony assumed on the acquisition are as follows:
The total consideration for the acquisition is as follows:
The excess of the consideration over the net assets of Colony has been charged to additional paid in capital. The measurement of the transaction was based on the carrying value of the assets of Colony, which approximated their fair value. The Company intends to perform an assessment of the carrying value of the asset in connection with the preparation of the annual financial statements or earlier if indicators of impairment are identified.
b) Acquisition of Black Dragon Energy, LLC
In April 2017, the Company entered into and closed a membership interest purchase agreement with two arms length vendors to acquire all membership interests of Black Dragon Energy, LLC (Black Dragon), a Nevada limited liability company. Black Dragon holds the right to acquire a 75% working interest in and to certain leases, hydrocarbons, wells, agreements, equipment, surface rights agreements and assignable permits totaling approximately 165,000 acres (258 sections) at an 80% net revenue interest, located in the Moenkopi formation of the Carbon and Emery Counties, Utah (Black Dragon Property).
In consideration for the acquisition of Black Dragon, the Company issued an aggregate of 20,000,000 shares of its common stock to the two vendors on the closing date (issued at a value of $20,000) and paid $100,000 prior to the closing as a non-refundable deposit.
Black Dragon is not considered a business for accounting purposes and accordingly the transaction is treated as an acquisition of oil and gas property and related net assets
The assets and liabilities of Black Dragon assumed on the acquisition are as follows:
The total consideration for the acquisition is as follows:
The consideration paid over the assets of Black Dragon has been charged to additional paid in capital. The measurement of the transaction was based on the carrying value of the assets of Black Dragon, which approximated their fair value. The Company intends to perform an assessment of the carrying value of the asset in connection with the preparation of the annual financial statements or earlier if indicators of impairment are identified.
c) Acquisition of Rolling Rock Resources, LLC
In April 2017, the Company entered into and closed a membership interest purchase agreement with two arms length vendors to acquire all membership interests of Rolling Rock Resources, LLC (Rolling Rock), a Nevada limited liability company. Rolling Rock has the right to acquire a 50% working interest in and to certain leases, hydrocarbons, wells, agreements, equipment, surface rights agreements and assignable permits totaling approximately 101,888 acres (160 sections) at an 80% net revenue interest located in the Mancos formation in the Southern Uinta Basin, Utah (Rolling Rock Property).
In consideration for the acquisition of Rolling Rock, the Company issued an aggregate of 20,000,000 shares of its common stock to the two vendors on the closing date (issued at a value of $20,000) and paid $100,000 prior to the closing as a non-refundable deposit.
Rolling Rock is not considered a business for accounting purposes and accordingly the transaction is treated as an acquisition of oil and gas property and related net assets.
The assets and liabilities of Rolling Rock assumed on the acquisition are as follows:
The total consideration for the acquisition is as follows:
The consideration paid over the assets of Rolling Rock has been charged to additional paid in capital. The measurement of the transaction was based on the carrying value of the assets of Rolling Rock, which approximated their fair value. The Company intends to perform an assessment of the carrying value of the asset in connection with the preparation of the annual financial statements or earlier if indicators of impairment are identified.
d) Acquisition of City of Gold, LLC
In May 2017, the Company acquired 100% of the membership interest in City of Gold, LLC (City of Gold), a Nevada limited liability company, from two Nevada limited liability companies pursuant to a membership interest purchase agreement. City of Gold has an option to acquire the subsidiary of Asia Pacific Mining Ltd (the Asia Pacific subsidiary), subject to the completion of a binding financing and option agreement (the Option). The Asia Pacific subsidiary owns the City of Gold mining project.
The membership interest purchase agreement provides for a total purchase price consisting of an aggregate of 30,000,000 common shares of its common stock (the Purchase Shares). 15,000,000 of the Purchase Shares were issued at closing (issued at a value of $15,000); the remaining 15,000,000 Purchase Shares are to be issued within ten Business Days after City of Gold earns the Option.
City of Gold is not considered a business for accounting purposes and accordingly the transaction is treated as an acquisition of available for sale investments, rights to the acquisition of mineral exploration project and related net assets.
The assets and liabilities of City of Gold assumed on the acquisition are as follows:
The total consideration for the acquisition is as follows:
The consideration paid over the assets of City of Gold has been charged to additional paid in capital. The measurement of the transaction was based on the carrying value of the assets of City of Gold, which approximated their fair value. The Company intends to perform an assessment of the carrying value of the asset in connection with the preparation of the annual financial statements or earlier if indicators of impairment are identified. |
4. Oil and Gas Properties |
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4. Oil and Gas Properties | 4. OIL AND GAS PROPERTIES
Compeer Property
Effective February 21, 2012, the Company entered into a Farmout Agreement (the Agreement) with Harvest Operations Corp. (Farmor). The Agreement provided for the Companys acquisition of an undivided 100% working interest (Working Interest) in a petroleum and natural gas license covering land located in the Compeer Area in the Province of Alberta, Canada (the Compeer Property).
To earn the Working Interest the Company was required to drill, complete, equip or abandon a test well on the Compeer Property (Test Well). On March 14, 2012, the Company obtained operator status and was transferred the well license relating to the Test Well.
The Companys Working Interest in the Compeer Property will be held subject to a non-convertible overriding royalty payable to the Farmor (Farmors Royalty). The Farmors Royalty on net crude oil revenues will be measured on a sliding scale from 5% to 15% over a range of production volumes from 1 to 150 barrels per day. The Farmors Royalty on net gas and other petroleum product revenues is 15%.
The Test Well was spudded on May 27, 2012, and on September 5, 2012, the Company received an earning notice granting the Company a 100% working interest in the Compeer Property.
As of May 31, 2017, the Company has incurred $631,050 (February 28, 2017 - $641,494) in exploration costs to drill, complete and equip the Test Well, net of impairment charges in prior periods. The Company also has $32,603 (CAD$44,014) (February 28, 2017 - $33,082 (CAD$43,934)) in bonds held with the Alberta Energy Regulator for its oil and gas properties.
Godin Property
On March 31, 2017, Colony (Note 3) 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; ii) $30,000 on or before September 27, 2017; and iii) $150,000 upon the rig release of the second well drilled by the Company in the oil and gas assets described above. This amount will be recorded when the criteria has been met.
Black Dragon Property
In March 2017, Black Dragon (Note 3) entered into a purchase and sale agreement (the Black Dragon PSA) to acquire a 75% working interest in and to certain leases, hydrocarbons, wells, agreements, equipment, surface rights agreements and assignable permits totaling approximately 165,000 acres (258 sections) at an 80% net revenue interest located in the Moenkopi formation of the Carbon and Emery Counties, Utah (the Black Dragon Property). Under the Black Dragon PSA, the Company is required to pay the vendor cash consideration totaling $2.7 million based upon the following schedule:
However, if the Company pays a total of $2.4 million on or before September 1, 2017, the parties have agreed that the cash consideration above will be deemed to have been paid in full.
Within 10 business days after the later of the Company paying the 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 Vendors right, title and interest in and to the assets, at an 80% Net Revenue Interest in the assets.
Carry Obligation
As per the terms of the Black Dragon PSA, and in addition to the 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 cash consideration set out above or (ii) the date that the Company pays all costs and expenses for the drilling, logging, testing and completion two new wells, each well with a horizontal leg extending at least 2,000 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 February 28, 2019, failing which, the Companys right to earn any assignment in and to the assets will terminate immediately. For each vertical well drilled to 200 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.
On or before September 1, 2017, the Company is required to pay the vendor $102,000 for rental, minimum royalty, option payments and shut-in royalty payments due on the leases through December 31, 2018.
Rolling Rock Property
In March 2017, Rolling Rock (Note 3) entered into a purchase and sale agreement (the Rolling Rock PSA) to acquire a 50% working interest in and to certain leases, hydrocarbons, wells, agreements, equipment, surface rights agreements and assignable permits totaling approximately 101,888 acres (160 sections) at an 80% net revenue interest located in the Mancos formation in the Southern Uinta Basin, Utah (the Rolling Rock Property). Under the Rolling Rock PSA, the Company is required to pay the vendor cash consideration totaling $2.4 million based upon the following schedule:
However, if the Company pays a total of $2.15 million on or before September 1, 2017, the parties have agreed that the cash consideration above will be deemed to have been paid in full. Within 10 business days after the later of the Company paying the cash consideration in full or the Company meeting in full its carry obligation, the vendor agrees to convey to the Company an undivided 50% of the vendors 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 September 1, 2017 (which amount is in addition to the deposit and included in the cash consideration set out above) and the replacement of the vendors bonds on or before September 1, 2017, the vendor agrees to convey to the Company an undivided 50% of the vendors 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 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 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 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 February 28, 2019, failing which, the Companys 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 vendors 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 million.
On or before September 1, 2017, the Company is required to pay the vendor $65,000 for rental, minimum royalty, option payments and shut in royalty payments due on the leases through December 31, 2018. |
5. Investment in Asia Pacific Mining Ltd. |
3 Months Ended |
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May 31, 2017 | |
Notes | |
5. Investment in Asia Pacific Mining Ltd. | 5. INVESTMENT IN ASIA PACIFIC MINING LTD.
In April 2017, a binding financing and option agreement (the Agreement) (Note 3 (d)) 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. 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. |
6. Rights To The Acquisition of Mineral Exploration Project |
3 Months Ended |
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May 31, 2017 | |
Notes | |
6. Rights To The Acquisition of Mineral Exploration Project | 6. RIGHTS TO THE ACQUISITION OF MINERAL EXPLORATION PROJECT
In connection to the acquisition of City of Gold, LLC, the Company owns the right to an option agreement. Under the option agreement, the vendors have agreed to grant to City of Gold the option (the Option) to purchase 100% of the ownership interest in a wholly owned subsidiary of Asia Pacific (the Project Subsidiary) which, in turn, owns 100% of the rights to the City of Gold mineral exploration project located in Myanmar which covers an area of approximately 465 square kilometers in close proximity to hydropower, water, and infrastructure to accommodate exploration and development of the property. The Company can exercise the Option if Asia Pacific completes an additional financing of $1.5 million within 60 days upon the issuance of an exploration license for the City of Gold Project.
Once it has exercise 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) 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 US$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 US$100,000 in liabilities and US$5,000,000 or more in working capital and Asia Pacific will have the right to nominate 30% of its directors. |
7. Equipment |
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7. Equipment | 7. EQUIPMENT
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8. Accounts Payable |
3 Months Ended |
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May 31, 2017 | |
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8. Accounts Payable | 8. ACCOUNTS PAYABLE
During the three months ended May 31, 2017, the Company paid $5,565 (CAD$7,500) in cash to settle $18,857 (CAD$25,415) of balance owing to a vendor of the Company. As a result, the Company recorded a gain on settlement of debt of $13,292. |
9. Note Payable |
3 Months Ended |
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May 31, 2017 | |
Notes | |
9. Note Payable | 9. NOTE PAYABLE
As at May 31, 2017, the Company had $18,519 (CAD$25,000) (February 28, 2017 - $18,825 (CAD$25,000)) in short term note obligations. The note payable is unsecured, non-interest bearing and payable upon demand. |
10. Advance Payable |
3 Months Ended |
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May 31, 2017 | |
Notes | |
10. Advance Payable | 10. ADVANCE PAYABLE
As at May 31, 2017, the Company had $64,058 (February 28, 2017 - $nil) due to two unrelated parties. The balance of $60,000 was related to the acquisition of the Godin property (Note 4) and the remaining balance was related to expenses paid by an unrelated party. The note payable is unsecured, non-interest bearing and payable upon demand. |
11. Asset Retirement Obligation |
3 Months Ended |
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May 31, 2017 | |
Notes | |
11. Asset Retirement Obligation | 11. ASSET RETIREMENT OBLIGATION
The Companys 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 Companys 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 $37,035 (CAD$50,000) (February 28, 2017 - $37,650 (CAD$50,000)) 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 $24,750 (CAD$33,412) (February 28, 2017 - $24,546 (CAD$32,597)) as at May 31, 2017. |
12. Derivative Financial Liabilities - Warrants |
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12. Derivative Financial Liabilities - Warrants | 12. DERIVATIVE FINANCIAL LIABILITIES - WARRANTS
The derivative liability consists of the fair value of share purchase warrants that were issued in unit private placements that have an exercise price in a currency other than the functional currency of the Company.
At May 31, 2017, the fair value of the warrants was determined using the Black-Scholes Option Pricing Model using the following weighted average market assumptions:
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13. Share Capital |
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13. Share Capital | 13. SHARE CAPITAL
Three months ended May 31, 2017:
In April 2017, the Company issued 21,000,000 shares with a value of $21,000 in connection to the acquisitions of Colony (Note 3a).
In April 2017, the Company issued 20,000,000 shares with a value of $20,000 in connection to the acquisitions of Black Dragon (Note 3b).
In April 2017, the Company issued 20,000,000 shares with a value of $20,000 in connection to the acquisitions of Rolling Rock (Note 3c).
In May 2017, the Company issued 15,000,000 shares with a fair value of $15,000 in connection to the acquisitions of City of Gold (Note 3d).
During the three month ended May 31, 2017, the Company issued 2,347,142 common shares for total gross proceeds of $1,305,000 pursuant to private placements. The Company paid a total of $70,700 in finders fees in connection with the private placements of equity financings.
Year ended February 28, 2017:
In March 2016, the Company issued 500,000 units at a price of $0.10 per unit for a total of $50,000. Each unit consists of one common share of the Company and one common share purchase warrant, with each warrant being exercisable into one additional share at an exercise price of $0.40 for a period of three years. The proceeds for this issuance were received in the year ended February 29, 2016 and on the issuance of these units, the Company allocated $500 to share capital and $49,500 to the warrant liability.
In May 2016, the Company issued 353,521 common shares with a fair price of $0.10 per share for a total of $35,352 to settle accounts payable of $95,584 (CAD$123,733). As a result, the Company recorded a gain on settlement of debt of $60,232.
In May 2016, the Company issued 200,000 units with a fair price of $0.21 per share in regards to the secured convertible debenture (Note 8). Each unit consists of one common share of the Company and one common share purchase warrant. Each warrant is exercisable to purchase one common share at a price of $0.40 per share for a period of two years. The warrants were determined to be derivatives. At issuance date, the fair value of the common shares and warrants was $73,621 with $41,000 allocated to share capital and $32,621 allocated to warrant liability.
In September 2016, the Company issued 250,000 units at a price of $0.10 per unit for gross proceeds of $25,000. Each unit consists of one common share of the Company and one common share purchase warrant, with each warrant being exercisable into one additional share at an exercise price of $0.40 for a period of three years. Upon the issuance of these units, the Company allocated $250 to share capital and $24,750 to the warrant liability.
In November 2016, the Company issued 400,000 common shares at a price of $0.25 per share for gross proceeds of $100,000.
In January 2017, the Company issued 1,680,000 common shares with a fair price of $0.25 per share for a total of $420,000 to settle amounts due to a related party payable of $420,000.
In January 2017, the Company issued 182,832 common shares with a fair price of $0.25 per share for a total of $45,708 to settle accrued liabilities of $76,100. As a result, the Company recorded a gain on settlement of debt of $30,392.
In January 2017, the Company issued 121,888 common shares with a fair price of $0.25 per share for a total of $30,472 to settle amounts due to a related party of $30,472.
In January 2017, the Company issued 236,571 common shares with a fair price of $0.38 per share for a total of $89,897 to settle accounts payable of $59,143. As a result, the Company recorded a loss on settlement of debt of $30,754.
In January 2017, the Company issued 400,000 shares at a price of $0.25 per share for gross proceeds of $100,000.
In February 2017, the Company issued 1,310,000 shares at a price of $0.25 per share for gross proceeds of $327,500.
In February 2017, the Company issued 800,000 units at a price of $0.25 per unit for gross proceeds of $200,000. Each unit consists of one common share of the Company and one common share purchase warrant, with each warrant being exercisable into one additional share at an exercise price of $0.60 for a period of two years. Upon the issuance of these units, the Company allocated $800 to share capital and $199,200 to the warrant liability.
In February 2017, the Company issued 1,073,698 units with a fair price of $1,509,022 in connection with the conversion of the convertible debenture (Note 8). Each unit consists of one common share of the Company and one common share purchase warrant, with each warrant being exercisable into one additional share at an exercise price of $0.40 for a period of two years. Upon the issuance of these units, the Company allocated $773,063 to share capital and $735,959 to the warrant liability.
The Company paid a total of $43,225 in finders fees in connection with the private placements of equity financings during the year ended February 28, 2017.
Warrants
Below is a summary of the common share purchase warrant transactions:
A summary of the common share purchase warrants outstanding and exercisable at May 31, 2017 is as follows:
The weighted average exercise price is $0.44 and weighted average life of the warrants is 1.34 years.
Stock Options
The Companys Stock Option Plan allows a maximum 5,579,335 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, 2017 is as follows:
As at May 31, 2017, the remaining contractual life of the stock options outstanding was 3.43 years.
The aggregate intrinsic value in the proceeding table represents the total intrinsic value, based on the Companys closing stock price of $2.00 per share as of May 31, 2017. |
14. Related Party Transactions |
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14. Related Party Transactions | 14. RELATED PARTY TRANSACTIONS
During the three months ended May 31, 2017, the Company
Due to related parties consist of the following:
As at May 31, 2017, the Company had $500,000 (February 28, 2017 - $nil) in long term note obligations owing to a company with common director. The note payable is unsecured, with an interest of 10% per annum and due on or before January 18, 2019. As at May 31, 2017, the Company has an accrued interest of $18,356. |
15. Correction of An Error in Previously Issued Financial Statements |
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15. Correction of An Error in Previously Issued Financial Statements | 15. CORRECTION OF AN ERROR IN PREVIOUSLY ISSUED FINANCIAL STATEMENTS
The Companys previously issued financial statements have been restated to reflect the correction of an error in the initial measurement for the fair value of the acquisitions of Colony Energy, LLC, Black Dragon Energy, LLC, Rolling Rock Resources, LLC, and City of Gold, LLC (collectively, the LLCs) that were acquired in 2017. This restatement was announced in the Companys current report on Form 8-K filed on January 23, 2018.
The Company had measured the above acquisitions based on the quoted market price of the shares issued to acquire the LLCs. The Company has determined that its common shares issued are not traded in an active market. However, the LLCs had concurrently acquired the assets from third parties on an arms length basis and therefore the amount initially recorded by the LLCs provided a more reliable determinant of fair value. Therefore, the Company has revised its accounting to record the transaction based on the fair value of the assets acquired rather than the fair value of the shares issued.
The correction of the error is presented in the Companys consolidated financial statements for the period ended May 31, 2017 as follows:
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2. Summary of Significant Accounting Policies: Basis of Presentation (Policies) |
3 Months Ended |
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May 31, 2017 | |
Policies | |
Basis of Presentation | Basis of Presentation The unaudited 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 for the year ended February 28, 2017 included in the Companys 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, 2017 are not necessarily indicative of the results that may be expected for the year ending February 28, 2018. |
2. Summary of Significant Accounting Policies: Basis of Consolidation (Policies) |
3 Months Ended |
---|---|
May 31, 2017 | |
Policies | |
Basis of Consolidation | Basis of consolidation These consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Colony Energy, LLC, Black Dragon Energy, LLC, Rolling Rock Resources, LLC and City of Gold, LLC. All significant intercompany accounts and transactions between the Company and its subsidiaries have been eliminated upon consolidation. |
2. Summary of Significant Accounting Policies: Fair Value of Financial Instruments (Policies) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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May 31, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Policies | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value of Financial Instruments | Fair Value of Financial Instruments 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, accounts payable and accrued liabilities, amounts due to related party, 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 instruments 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, there for 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 and liabilities required to be recorded at fair value on a recurring basis in accordance with US GAAP as at May 31, 2017. As at May 31, 2017, the Companys Level 3 assets consist of shares and warrants of a private company and Level 3 liabilities consisted of warrants of the Company. The resulting level 3 assets and liabilities 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, 2017, 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.
A summary of the Companys level 3 liabilities for the three months ended May 31, 2017 and year ended February 28, 2017 is as follows:
|
2. Summary of Significant Accounting Policies: Basic and Diluted Income (loss) Per Share (Policies) |
3 Months Ended |
---|---|
May 31, 2017 | |
Policies | |
Basic and Diluted Income (loss) Per Share | Basic and Diluted Income (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 6,123,698 (February 28, 2017 - 6,123,698) potentially dilutive securities excluded from the calculation of diluted loss per share as their effect would be anti-dilutive.
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. |
2. Summary of Significant Accounting Policies: Recent Accounting Pronouncements (Policies) |
3 Months Ended |
---|---|
May 31, 2017 | |
Policies | |
Recent Accounting Pronouncements | Recent Accounting Pronouncements
In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entitys Ability to Continue as a Going Concern, which is intended to define managements responsibility to evaluate whether there is substantial doubt about an organizations ability to continue as a going concern within one year after the date that the financial statements are issued (or within one year after the date that the financial statements are available to be issued when applicable) and to provide related footnote disclosures. The ASU provides guidance to an organizations management, with principles and definitions that are intended to reduce diversity in the timing and content of disclosures that are commonly provided by organizations today in the financial statement footnotes. The ASU is effective for annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016, which for the Company is April 1, 2017. Early adoption is permitted. The adoption of this standard did not have a material impact on the Companys financial position or results of operations.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This ASU is effective for annual periods beginning after December 15, 2018 and interim periods within fiscal years beginning after December 15, 2019. ASU No 2016-15 addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. The adoption of this standard will not have a material impact on the Companys financial position or results of operations.
Other recent accounting pronouncements issued by the 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. |
2. Summary of Significant Accounting Policies: Fair Value of Financial Instruments: Fair Value of Financial Instruments Table Text Block (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Fair Value of Financial Instruments Table Text Block |
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3. Acquisitions: Acquisitions of Colony Energy LLC Table Text Block (Tables) |
3 Months Ended | ||||||||||||||||||||||||
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May 31, 2017 | |||||||||||||||||||||||||
Tables/Schedules | |||||||||||||||||||||||||
Acquisitions of Colony Energy LLC Table Text Block |
The total consideration for the acquisition is as follows:
|
3. Acquisitions: Acquisitions of Black Dragon Energy LLC Table Text Block (Tables) |
3 Months Ended | ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
May 31, 2017 | |||||||||||||||||||||
Tables/Schedules | |||||||||||||||||||||
Acquisitions of Black Dragon Energy LLC Table Text Block |
The total consideration for the acquisition is as follows:
|
3. Acquisitions: Acquisition of Rolling Rock Resources LLC Table Text Block (Tables) |
3 Months Ended | ||||||||||||||||||||||
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May 31, 2017 | |||||||||||||||||||||||
Tables/Schedules | |||||||||||||||||||||||
Acquisition of Rolling Rock Resources LLC Table Text Block |
The total consideration for the acquisition is as follows:
|
3. Acquisitions: Acquisition of City of Gold LLC Table Text Block (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||
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May 31, 2017 | |||||||||||||||||||||||||||||
Tables/Schedules | |||||||||||||||||||||||||||||
Acquisition of City of Gold LLC Table Text Block |
The total consideration for the acquisition is as follows:
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7. Equipment: Property, Plant and Equipment (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Property, Plant and Equipment |
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12. Derivative Financial Liabilities - Warrants: Schedule of Assumptions Used (Tables) |
3 Months Ended | |||||||||||||||||||||||||
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May 31, 2017 | ||||||||||||||||||||||||||
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Schedule of Assumptions Used |
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13. Share Capital: Warrants Outstanding Table Text Block (Tables) |
3 Months Ended | ||||||||||||||||||||||||
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May 31, 2017 | |||||||||||||||||||||||||
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Warrants Outstanding Table Text Block |
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13. Share Capital: A Summary of The Common Share Purchase Warrants Outstanding and Exercisable At May 31, 2017 Is As Follows (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
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A Summary of The Common Share Purchase Warrants Outstanding and Exercisable At May 31, 2017 Is As Follows: |
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13. Share Capital: A Summary of The Stock Options Outstanding and Exercisable At May 31, 2017 Is As Follows (Tables) |
3 Months Ended | ||||||||||||||||||
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May 31, 2017 | |||||||||||||||||||
Tables/Schedules | |||||||||||||||||||
A Summary of The Stock Options Outstanding and Exercisable At May 31, 2017 Is As Follows: |
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14. Related Party Transactions: Schedule of Related Party Transactions (Tables) |
3 Months Ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
May 31, 2017 | ||||||||||
Tables/Schedules | ||||||||||
Schedule of Related Party Transactions |
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15. Correction of An Error in Previously Issued Financial Statements: Condensed Balance Sheet (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||
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Tables/Schedules | |||||||||||||||||||||||||||||||||||||||||
Condensed Balance Sheet |
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15. Correction of An Error in Previously Issued Financial Statements: Statements of Operations Table Text Block (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||
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May 31, 2017 | |||||||||||||||||||||||||||||||||||||||||
Tables/Schedules | |||||||||||||||||||||||||||||||||||||||||
Statements of Operations Table Text Block |
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15. Correction of An Error in Previously Issued Financial Statements: Condensed Cash Flow Statement (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||
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May 31, 2017 | |||||||||||||||||||||||||||||||||||||||||
Tables/Schedules | |||||||||||||||||||||||||||||||||||||||||
Condensed Cash Flow Statement |
|
3. Acquisitions: Acquisitions of Colony Energy LLC Table Text Block (Details) - USD ($) |
May 31, 2017 |
Feb. 28, 2017 |
---|---|---|
Due to related parties | $ 48,541 | $ 48,831 |
Colony Energy, LLC | ||
Oil and Gas Properties Acquisition | 108,000 | |
Accounts Payable and Accrued Liabilities, Current | (13,411) | |
Advance Payable | (34,058) | |
Due to related parties | (60,000) | |
Net Assets | 531 | |
Value of Shares Issued | 21,000 | |
Less: Net Assets | (531) | |
Excess Consideration Paid Over the Net Assets | $ 20,469 |
3. Acquisitions: Acquisitions of Black Dragon Energy LLC Table Text Block (Details) - Black Dragon Energy, LLC |
May 31, 2017
USD ($)
|
---|---|
Oil and Gas Properties Acquisition | $ 119,863 |
Accounts Payable and Accrued Liabilities, Current | (26,355) |
Net Assets | 93,508 |
Value of Shares Issued | 20,000 |
Cash Paid | 100,000 |
Less: Net Assets | (93,508) |
Consideration Paid Over the Net Liabilities | $ 26,492 |
3. Acquisitions: Acquisition of Rolling Rock Resources LLC Table Text Block (Details) - Rolling Rock Resources, LLC |
May 31, 2017
USD ($)
|
---|---|
Oil and Gas Properties Acquisition | $ 130,397 |
Accounts Payable and Accrued Liabilities, Current | (26,032) |
Net Assets | 104,365 |
Value of Shares Issued | 20,000 |
Cash Paid | 100,000 |
Less: Net Assets | (104,365) |
Consideration Paid Over the Net Liabilities | $ 15,635 |
3. Acquisitions: Acquisition of City of Gold LLC Table Text Block (Details) - City of Gold, LLC |
May 31, 2017
USD ($)
|
---|---|
Investments | $ 1,500,000 |
Accounts Payable and Accrued Liabilities, Current | (13,932) |
Other Notes Payable | (1,516,302) |
Liabilities | (30,234) |
Value of Shares Issued | 15,000 |
Assumption of Note Payable | 1,516,302 |
Assumption of Accounts Payable and Accrued Liabilities | 13,932 |
Less: Investments | (1,500,000) |
Less: Rights of the acquisition of mineral exploration property | (1) |
Excess Consideration Paid Over the Assets of City of Gold | $ 45,233 |
4. Oil and Gas Properties (Details) - USD ($) |
3 Months Ended | 12 Months Ended |
---|---|---|
May 31, 2017 |
Feb. 28, 2017 |
|
Exploration and Production Costs | $ 631,050 | $ 641,494 |
Compeer | ||
Oil and Gas Properties | 631,050 | 641,494 |
Exchange Difference | (10,444) | |
Godin | ||
Oil and Gas Properties | 108,000 | |
Acquisition | 108,000 | |
Black Dragon | ||
Oil and Gas Properties | 145,350 | |
Acquisition | 119,863 | |
Exploration | 25,487 | |
Rolling Rock | ||
Oil and Gas Properties | 200,244 | |
Acquisition | 130,397 | |
Exploration | 69,847 | |
Total | ||
Oil and Gas Properties | 1,084,644 | $ 641,494 |
Acquisition | 358,260 | |
Exploration | 95,334 | |
Exchange Difference | $ (10,444) |
7. Equipment: Property, Plant and Equipment (Details) - USD ($) |
May 31, 2017 |
Feb. 28, 2017 |
---|---|---|
Cost | ||
Property, Plant and Equipment, Net | $ 66,194 | $ 67,289 |
Accumulated Depreciation | ||
Property, Plant and Equipment, Net | 12,960 | 12,333 |
Net Book Value | ||
Property, Plant and Equipment, Net | $ 53,234 | $ 54,956 |
8. Accounts Payable (Details) |
May 31, 2017
USD ($)
|
---|---|
Details | |
Settlement of Debt | $ 5,565 |
Gain on Debt Settlement | $ 13,292 |
9. Note Payable (Details) |
May 31, 2017
USD ($)
|
---|---|
Details | |
Notes and Loans Payable | $ 18,519 |
10. Advance Payable (Details) |
May 31, 2017
USD ($)
|
---|---|
Details | |
Due to Unrelated Parties | $ 64,058 |
12. Derivative Financial Liabilities - Warrants (Details) - Derivative Financial Liabilities - Warrants - USD ($) |
3 Months Ended | 12 Months Ended | |
---|---|---|---|
May 31, 2017 |
Feb. 28, 2017 |
Feb. 29, 2016 |
|
Warrants | $ 7,286,206 | $ 2,590,477 | $ 150,136 |
Warrants Issued | 1,043,074 | ||
Fair Value Adjustment of Warrants | $ 4,695,729 | $ 1,397,267 |
12. Derivative Financial Liabilities - Warrants: Schedule of Assumptions Used (Details) |
3 Months Ended | 12 Months Ended |
---|---|---|
May 31, 2017 |
Feb. 28, 2017 |
|
Details | ||
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Volatility Rate, Minimum | 246.00% | 265.00% |
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Risk Free Interest Rate, Minimum | 1.24% | 1.22% |
Expected Life | 1 year 8 months 23 days | 1 year 11 months 26 days |
13. Share Capital (Details) - USD ($) |
1 Months Ended | 3 Months Ended | 9 Months Ended | 12 Months Ended | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2016 |
May 31, 2017 |
Nov. 30, 2016 |
Feb. 28, 2017 |
Apr. 30, 2017 |
Feb. 27, 2017 |
Feb. 26, 2017 |
Jan. 31, 2017 |
Jan. 30, 2017 |
Jan. 29, 2017 |
Jan. 28, 2017 |
Jan. 27, 2017 |
Nov. 29, 2016 |
May 31, 2016 |
May 30, 2016 |
Mar. 30, 2016 |
|
Common Stock, Shares Issued | 115,884,698 | 37,537,556 | ||||||||||||||
Due to related parties | $ 48,541 | $ 48,831 | ||||||||||||||
Colony | ||||||||||||||||
Common Stock, Shares Issued | 21,000 | |||||||||||||||
Black Dragon | ||||||||||||||||
Common Stock, Shares Issued | 20,000 | |||||||||||||||
Rolling Rock | ||||||||||||||||
Common Stock, Shares Issued | 20,000 | |||||||||||||||
City of Gold | ||||||||||||||||
Common Stock, Shares Issued | 15,000 | |||||||||||||||
During the Three Months Ended May 31, 2017 | ||||||||||||||||
Common Stock, Shares Issued | 2,347,142 | |||||||||||||||
Gross Proceeds for Subscriptions | $ 1,305,000 | |||||||||||||||
During the Year Ended February 28, 2017 | ||||||||||||||||
Common Stock, Shares Issued | 250,000 | 1,310,000 | 800,000 | 1,073,698 | 1,680,000 | 182,832 | 121,888 | 236,571 | 400,000 | 400,000 | 353,521 | 200,000 | 500,000 | |||
Gross Proceeds for Subscriptions | $ 25,000 | $ 327,500 | $ 200,000 | $ 1,509,022 | $ 100,000 | $ 100,000 | $ 50,000 | |||||||||
Finder's Fees | $ 70,700 | 43,225 | ||||||||||||||
Shares Issued, Price Per Share | $ 0.10 | $ 0.21 | ||||||||||||||
Represents the monetary amount of SharesIssuedForServices, during the indicated time period. | $ 73,621 | |||||||||||||||
Share Capital | 250 | 41,000 | ||||||||||||||
Warrant Liability | $ 24,750 | $ 32,621 | ||||||||||||||
Related Party Transaction, Due from (to) Related Party | $ 420,000 | |||||||||||||||
Accrued Liabilities, Current | $ 76,100 | |||||||||||||||
Due to related parties | $ 30,472 | |||||||||||||||
Accounts Payable, Current | $ 59,143 |
13. Share Capital: Warrants Outstanding Table Text Block (Details) - $ / shares |
3 Months Ended | |
---|---|---|
May 31, 2017 |
Feb. 29, 2016 |
|
Details | ||
Class of Warrant or Right, Outstanding | 3,823,698 | 1,080,000 |
Class of Warrant or Right, Exercise Price of Warrants or Rights | $ 0.44 | $ 0.40 |
Debt Conversion, Converted Instrument, Warrants or Options Issued | 2,823,698 | |
Warrants per share issued | $ 0.46 | |
Warrants Expired | (80,000) | |
Warrants Expired Price Per Share | $ 1.50 |
13. Share Capital: A Summary of The Stock Options Outstanding and Exercisable At May 31, 2017 Is As Follows (Details) |
3 Months Ended |
---|---|
May 31, 2017
USD ($)
$ / shares
shares
| |
Details | |
Exercise Price | $ / shares | $ 0.10 |
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number | shares | 2,300,000 |
Expiration Date | Nov. 03, 2020 |
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Outstanding, Aggregate Intrinsic Value | $ | $ 4,370,000 |
14. Related Party Transactions (Details) - USD ($) |
3 Months Ended | |
---|---|---|
May 31, 2017 |
May 31, 2016 |
|
Details | ||
Management Fees | $ 60,000 | $ 23,079 |
14. Related Party Transactions: Schedule of Related Party Transactions (Details) - USD ($) |
May 31, 2017 |
Feb. 28, 2017 |
---|---|---|
Details | ||
Due to related parties | $ 48,541 | $ 48,831 |
15. Correction of An Error in Previously Issued Financial Statements: Statements of Operations Table Text Block (Details) - USD ($) |
3 Months Ended | |
---|---|---|
May 31, 2017 |
May 31, 2016 |
|
Professional fees | $ 91,179 | $ 16,024 |
Net loss | (4,990,177) | (134,043) |
Comprehensive loss | $ (4,990,177) | $ (153,933) |
Basic and diluted loss per share | $ (0.07) | $ (0.00) |
As Reported | ||
Professional fees | $ 58,527 | |
Net loss | 4,957,525 | |
Comprehensive loss | $ 4,957,525 | |
Basic and diluted loss per share | $ (0.07) | |
Adjustment | ||
Professional fees | $ 32,652 | |
Net loss | 32,652 | |
Comprehensive loss | 32,652 | |
As Restated | ||
Professional fees | 91,179 | |
Net loss | 4,990,177 | |
Comprehensive loss | $ 4,990,177 | |
Basic and diluted loss per share | $ (0.07) |
15. Correction of An Error in Previously Issued Financial Statements: Condensed Cash Flow Statement (Details) - USD ($) |
3 Months Ended | |
---|---|---|
May 31, 2017 |
May 31, 2016 |
|
Net loss | $ (4,990,177) | $ (134,043) |
Common stock issued for oil and gas properties | 76,000 | |
As Reported | ||
Net loss | 4,957,525 | |
Expenditures on Oil and Gas Properties | 398,486 | |
Common stock issued for oil and gas properties | 144,800,000 | |
Obligation to Issue Shares for Oil and Gas Properties | 6,000,000 | |
Adjustment | ||
Net loss | 32,652 | |
Expenditures on Oil and Gas Properties | (32,652) | |
Common stock issued for oil and gas properties | (144,724,000) | |
Obligation to Issue Shares for Oil and Gas Properties | (6,000,000) | |
As Restated | ||
Net loss | 4,990,177 | |
Expenditures on Oil and Gas Properties | 365,834 | |
Common stock issued for oil and gas properties | $ 76,000 |
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