FORTEM RESOURCES INC. The following discussion should be read in conjunction with our financial statements and the related notes that appear elsewhere in this annual report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward looking statements. Factors that could cause or contribute to such differences include those discussed below and elsewhere in this annual report on Form 10-K.
28 General
We are focused on the acquisition, exploration, and development of oil and gas
properties in
Results of Operations
Years Ended
The following summary of our results of operations should be read in conjunction
with our audited financial statements for the years ended
February 29, 2020 February 28, 2019
Revenue $ - $ -
Expenses (1,380,589 ) (1,377,152 )
Net Loss $ (67,961,387 ) $ (1,549,470 )
Revenues
During the years ended
Expenses
Expenses increased slightly during the year ended
The table below details the changes in major expenditures for the year ended
Increase /
Decrease in
Expenses Expenses Explanation for ChangeConsulting fees Decrease of Decrease in the current period as consulting
$239,293 fees related to the oil and gas properties inCanada and US are capitalized in fiscal 2020.
Management fees Decrease of Decreased due to lower management fees paid
$85,000 to the CEO.
Office, travel Increase of Increased due to more corporate activities,
and general$50,771 higher insurance costs, marketing, and expenses travel expenses for site visits and marketing. Professional Increase of Increased in the current year as more fees$273,501 professional services were used for corporate filings, accounting, and professional services.
For the year ended
29
Liquidity and Capital Resources
Working Capital
At February 29, 2020 At February 28, 2019
Current assets $ 100,853 $ 129,661
Current liabilities 3,321,545 1,290,159
Working capital deficit $ (3,220,692 ) $ (1,160,498 )
We had cash of
Due to the slowdown of the world economy as a result of the COVID-19 pandemic, we intend to decrease the level of operations. As a result, we estimate our general and administrative expense will be lower in fiscal 2021.
Our company's 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
Cash Flows
Year Year
ended ended
February 29 , February 28,
2020 2019
Cash used in operating activities
(524,753 ) (894,281 )
Change in cash $ (22,149 ) $ (141,724 ) Cash Used in Operating Activities
Our cash used in operating activities for the year ended
30
Cash Provided by Financing Activities
Our cash provided by financing activities for the year ended
Cash Used in Investing Activities
Our cash used in investing activities for the year ended
Outstanding Shares, Options,
As of
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 audited financial statements and information for the year ended
Application of Critical Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions. The Company bases its estimates and assumptions on current facts, historical experience and various other factors it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company's estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected. The most significant estimates with regard to these financial statements relate to carrying values of oil and gas properties and investments, the assumptions used to record asset retirement obligations, the assumptions used to determine the fair value of derivative financial assets and liabilities, and valuation of share-based payments.
The process of estimating carrying value of oil and gas properties and unproven properties is complex, requiring significant decisions in the evaluation of all available geological, geophysical, engineering, and economic data. The data for a given property may also change substantially over time as a result of numerous factors including, but not limited to, additional development activity, evolving production history, and continual reassessment of the viability of production under varying economic conditions. As a result, material revisions to existing reserve estimates may occur from time to time. Although every reasonable effort is made to ensure that the Company's reserve estimates represent the most accurate assessments possible, subjective decisions, and available data for our various fields make these estimates generally less precise than other estimates included in financial statement disclosures. Where impairment indicators are present, the Company uses the probable reserves to prepare a value estimate using a discounted cash flow ("DCF") model over the estimated production life and discount rates commensurate with estimated risks associated with those cash flows.
31 Foreign Currency Translation
The Company's functional currency is the United States Dollar. The Company's equity and debt financings as well as the majority of the Company's expenses and acquisitions are denominated in US dollars.
Foreign denominated monetary assets and liabilities are translated to their
Oil and Gas Properties
The Company utilizes the full cost method to account for its investment in oil and gas properties. Accordingly, all costs associated with acquisition, exploration and development of oil and gas reserves, including such costs as leasehold acquisition costs, interest costs relating to unproved properties, geological expenditures, tangible and intangible development costs including direct internal costs are capitalized to the full cost pool on a country-by country basis. When the Company commences production from established proven oil and gas reserves, capitalized costs, including estimated future costs to develop the reserves and estimated abandonment costs, net of salvage, will be depleted on the units-of-production method using estimates of proved reserves. Costs of unproved properties are not amortized until the proved reserves associated with the projects can be determined or until impairment occurs. If an assessment of such properties indicates that properties are impaired, the amount of impairment is added to the capitalized cost base to be amortized.
The capitalized costs included in the full cost pool are subject to a "ceiling test", which limits such costs to the aggregate of the (i) estimated present value, using a ten percent discount rate, of the future net revenues from proved reserves, based on current economic and operating conditions, (ii) the lower of cost or estimated fair value of unproven properties included in the costs being amortized, (iii) the cost of properties not being amortized, less (iv) income tax effects related to differences between the book and tax basis of the cost of properties not being amortized and the cost or estimated fair value of unproved properties included in the costs being amortized.
Sales of proved and unproved properties are accounted for as adjustments of capitalized costs with no gain or loss recognized, unless such adjustments would significantly alter the relationship between capitalized costs and proved reserves of oil and gas, in which case the gain or loss is recognized in the statement of operations. The Company's oil and gas properties are under development with minimal production to date. Accordingly, no amortization is being recorded.
Asset Retirement Obligations
The Company records the fair value of an asset retirement obligation as a liability in the period in which it incurs an obligation associated with the retirement of tangible long-lived assets that result from the acquisition, construction, development and/or normal use of the assets. The estimated fair value of the asset retirement obligation is based on the current cost escalated at an inflation rate and discounted at a credit adjusted risk-free rate. This liability is capitalized as part of the cost of the related asset and amortized over its useful life. The liability accretes until the Company settles the obligation.
Equipment
Equipment is recorded at cost and amortized on a straight line basis over 20 years.
Deferred Income Taxes
The Company recognizes deferred tax assets and liabilities for both the expected impact of differences between the financial statement amount and the tax basis of assets and liabilities and for the expected future tax benefit to be derived from tax losses and tax credit carryforwards. The Company records a valuation allowance against deferred tax assets when it is considered more likely than not that all or a portion of our deferred tax assets will not be realized. In making this determination, the Company is required to give significant weight to evidence that can be objectively verified. It is generally difficult to conclude that a valuation allowance is not needed when there is significant negative evidence, such as cumulative losses in recent years. Forecasts of future taxable income are considered to be less objective than past results.
32
In addition to considering forecasts of future taxable income, the Company is also required to evaluate and quantify other possible sources of taxable income in order to assess the realization of the Company's deferred tax assets, namely the reversal of existing deferred tax liabilities, the carry back of losses and credits as allowed under current tax law, and the implementation of tax planning strategies. Evaluating and quantifying these amounts involves significant judgments. Each source of income must be evaluated based on all positive and negative evidence; this evaluation involves assumptions about future activity. Certain taxable temporary differences that are not expected to reverse during the carry forward periods permitted by tax law cannot be considered as a source of future taxable income that may be available to realize the benefit of deferred tax assets.
Environmental Expenditures
Oil and gas activities are subject to extensive federal and state environmental laws and regulations. These laws, which are constantly changing, regulate the discharge of materials into the environment and may require the Company to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites.
Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefits are expensed. Expenditures that have future economic benefits are capitalized. Liabilities for expenditures of a non-capital nature are recorded when an environmental assessment and/or remediation is probable, and the costs can be reasonably estimated.
Impairment of Long-Term Assets
The Company assesses its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Oil and gas interests accounted for under the full cost method where proved reserve assets are subject to a ceiling test and unproved reserve assets are reviewed for impairment indicators and, where such indicators are present, prepares a DCF to determine value, as described above, are excluded from this requirement.
Loss per share
We present both basic and diluted earnings (loss) per share (EPS) on the face of the statements of operations. Basic EPS is computed by dividing net earnings (loss) available to common shareholders by the weighted average number of shares outstanding during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period including convertible debt, stock options, and warrants, using the treasury stock method. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. Diluted EPS figures are equal to those of basic EPS for each period since we have incurred losses since inception.
Share-Based Payments
The Company follows the fair value recognition provisions in ASC 718, Stock Compensation ("ASC 718") and the provisions of ASC 505 ("ASC 505") for stock-based transactions with non-employees. Stock based compensation expense recognized during the year includes compensation expense for all share-based payments based on a grant date fair value estimated in accordance with the provisions in the FASB guidance for stock compensation. The grant date is the date at which an employer and employee reach a mutual understanding of the key terms and conditions of a share based payment award.
Derivative Financial Instruments
The Company evaluates the financial instruments such as convertible notes to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then revalued at each reporting date, with changes in the fair value reported in the statements of operations. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period.
Recently issued accounting pronouncements
In
Other recent accounting pronouncements issued by the
© Edgar Online, source
