UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q10-Q/A

Amendment No. 1

þ

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period endedNovember 30, 20172018

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)

Suite 820, 906 12th Avenue S.W.

Calgary, Alberta, Canada T2R 1K7

(Address of principal executive offices) (Zip Code)

(403) 241-8912

(Registrant’s telephone number, including area code)

777 N. Rainbow Blvd., Suite 250, Las Vegas, Nevada 89107N/A

 (Former(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 [X] No [  ]

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 [X] No [  ]

Yes þ   No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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):

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 [  ] No [  ]

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

[X]

APPLICABLE ONLY TO CORPORATE ISSUERS

StateIndicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date:As of January 29, 2018,October 15, 2019, there were 117,872,458122,571,156 shares of common stock paroutstanding.

EXPLANATORY NOTE

Fortem Resources Inc. (“we”, our”) is filing this Amendment No. 1 (the “Amendment”) to its Quarter Report on Form 10-Q for the three months ended November 30, 2018 (the “Original Filing”) filed on January 9, 2019. We are filing this Amendment to:

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 November 30, 2018. Subsequently, the Company’s management has determined that the improper design of controls with respect to the calculation of the fair value $0.001, outstanding.of the Company’s acquisitions was a deficiency in its internal control over financial reporting resulting from the material weakness identified at November 30, 2018.

All other information included in our quarterly report on Form 10-Q for the quarter ended November 30, 2018 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 January 9, 2019, which is the date of the filing of the originally filed quarterly report on Form 10-Q.

ii

The certifications of the Company’s Chief Executive Officer and Chief Financial Officer are attached to this Amendment as Exhibits 31.1, 31.2, 32.1 and 32.2 respectively.

Table of Contents

iii

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED NOVEMBER 30, 20172018

FORTEM RESOURCES INC.

CONSOLIDATED CONDENSED INTERIM BALANCE SHEETS

CONSOLIDATED STATEMENTS OF OPERATIONS(Expressed in US dollars - Unaudited)

CONSOLIDATED STATEMENTS OF CASH FLOWS

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITYNature and Continuance of Operations(Note 1), Subsequent Events(Note 18)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The accompanying notes are an integral part of these consolidated condensed interim financial statements

FORTEM RESOURCES INC.

CONSOLIDATED CONDENSED INTERIM STATEMENTS OF OPERATIONS

(Expressed in US dollars - Unaudited)

The accompanying notes are an integral part of these consolidated condensed interim financial statements

CONSOLIDATED CONDENSED INTERIM STATEMENTS OF CASH FLOWS

(Expressed in US dollars - Unaudited)

The accompanying notes are an integral part of these consolidated condensed interim financial statements

FORTEM RESOURCES INC.

CONSOLIDATED CONDENSED INTERIM STATEMENTS OF STOCKHOLDERS’ EQUITY

(Expressed in US dollars - Unaudited)

The accompanying notes are an integral part of these consolidated condensed interim financial statements

FORTEM RESOURCES INC.

NOTES TO CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS

For the three and nine months ended November 30, 20172018

(Expressed in US dollars – Unaudited)

1.

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 consolidated condensed interim financial statements have been prepared assuming the Company will continue as a going concern. As of November 30, 2017,2018, the Company has not achieved profitable operations, has incurred losses in developing its business, and further losses are anticipated. The Company has an accumulated deficit of $14,318,303.$38,575,102.

The Company has restated its November 30, 2018 consolidated condensed interim financial statements as disclosed in Note 19.

The Company’s ability to continue as a going concern is dependent upon its ability to obtain the necessary financing to meet its obligations and pay its liabilities when they come due. To date, the Company has funded operations through the issuance of capital stock and debt. Management plans to continue raising additional funds through equity or debt financings and loans from directors. There is no certainty that further funding will be available as needed. These factors raise substantial doubt about the ability of the Company to continue operating as a going concern. The ability of the Company to continue its operations as a going concern is dependent upon its ability to raise sufficient new capital to fund its operating commitments and ongoing losses and ultimately on generating profitable operations. The consolidated condensed interim financial statements do not include any adjustments to be recorded to assets or liabilities that might be necessary should the Company be unable to continue as a going concern.

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The unaudited consolidated condensed interim financial statements of the Company have been prepared in accordance with United States Generally Accepted Accounting Principles (“GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (“SEC”). They do not include all information and footnotes required by GAAP for complete financial statements. However, except as disclosed herein, there have been no material changes in the information disclosed in the notes to the financial statements from the year ended February 28, 20172018 included in the Company’s Annual Report on Form 10-K filed with the SEC. The unaudited consolidated condensed 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 nine months ended November 30, 20172018 are not necessarily indicative of the results that may be expected for the year ending February 28, 2018.2019.

Basis of consolidation

These consolidated condensed interim financial statements include the accounts of the Company and its wholly owned subsidiaries, Colony Energy, LLC, (“Colony”) Black Dragon Energy, LLC, (“Black Dragon”) Rolling Rock Resources, LLC (“Rolling Rock”) and City of Gold, LLC.LLC (“City of Gold”). All significant intercompany accounts and transactions between the Company and its subsidiaries have been eliminated upon consolidation.

Foreign Currency Translation

The Company has changed its functional currency from Canadian Dollars to United States Dollars as at September 1, 2017. Management determined that based on the terms of the agreements pertaining to its oil and gas assets and that it began to pursue financing opportunities in US dollars, the change was required to better reflect the economic environment in which it operates. In accordance with ASC 830-45-10, the previous foreign exchange translation adjustments remain in other comprehensive income and translated amounts of non-monetary assets and liabilities as at August 31, 2017 become the accounting basis for these items in future periods. As at September 1, 2017, the Company’s functional currency and its reporting currency is the United States Dollar.  Foreign denominated monetary assets and liabilities are translated to their United States dollar equivalents using foreign exchange rates which prevailed at the balance sheet date. Revenue and expenses are translated at average rates of exchange during the period. Related translation adjustments are reported as a separate component of stockholders’ equity (deficiency), whereas gains or losses resulting from foreign currency transactions are included in the results of operations.

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, loan receivable, accounts payable and accrued liabilities, amounts due to related parties, advance payable and note payable approximate their carrying value due to the short-term nature of those instruments.

ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:

Level 1 – Quoted prices in active markets for identical assets or liabilities;

Level 2 – Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable; and

Level 3 – Unobservable inputs that are supported by little or no market activity, 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 required to be recorded at fair value on a recurring basis in accordance with US GAAP as at November 30, 2017. As at November 30, 2017, the Company’s Level 3 assets consist of shares and warrants of a private company. The resulting level 3 assets have no active market and are required to be measured at their fair value each reporting period based on information that is unobservable. As at November 30, 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 Company’s level 3 liabilities for the nine months ended November 30, 2017 and year ended February 28, 2017 is as follows:

Basic and Diluted Income (Loss)Loss per Share

EarningsBasic 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 6,123,6982,750,000 (February 28, 20172018 - 6,123,698)5,323,698) potentially dilutive securities excluded from the calculation of diluted loss per share as their effect would be anti-dilutive.

FORTEM RESOURCES INC.

NOTES TO CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS

For the three and nine months ended November 30, 2018

(Expressed in US dollars – Unaudited)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Basic and Diluted Loss per Share (continued)

The treasury stock method is used in calculating diluted EPS for potentially dilutive stock options and share purchase warrants, which assumes that any proceeds received from the exercise of in-the-money stock options and share purchase warrants, would be used to purchase common shares at the average market price for the period.

Use of Estimates

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions. The Company bases its estimates and assumptions on current facts, historical experience and various other factors it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected. The most significant estimates with regard to these financial statements relate to carrying values of oil and gas properties and investments, the assumptions used to record asset retirement obligations, the assumptions used to determine the fair value of derivative financial assets and liabilities, and valuation of share-based payments.

Recent Accounting Pronouncements

In August 2014, the FASB issued ASU 2014-15,Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, which is intended to define management’s responsibility to evaluate whether there is substantial doubt about an organization’s 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 organization’s 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 March 1, 2017. The adoption of this standard did not have a material impact on the Company’s 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 Company’s financial position or results of operations.

Other recent accounting pronouncements issued by the FASBFinancial Accounting Standards Board (“FASB”) (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants, and the SEC did not, or are not believed by management to, have a material impact on the Company'sCompany’s present or future financial position, results of operations or cash flows.

3. LOANS RECEIVABLE FROM RELATED PARTY

ACQUISITIONS

During the year ended February 28, 2018, the Company advanced unsecured loans of $99,135 (AUD$125,000) to a company related by virtue of a common officer. The loans bear interest at 10% per annum. The total amount receivable at November 30, 2018, including accrued interest is $106,150 (February 28, 2018 - $97,422).

a)

Acquisition of Colony Energy, LLC4. INVESTMENT IN ASIA PACIFIC MINING LTD.

In April 2017, the Company entered into and closed two membership interest purchase agreements with three arm’s 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 (recorded at their par value of $21,000) and agreed to issue an additional 3,000,000 shares, 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 arm’s 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 (recorded at their par 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 net 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 arm’s 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 (recorded at their par 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 net 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 “Agreement”) was assigned to the Option”).  TheCompany where the Company subscribed a total of 2,930,259 units in the capital of Asia Pacific subsidiary owns the City of Gold mining project.

 The membership interest purchase agreement provides forMining Limited (“Asia Pacific”) at a total purchase price consistingcost of an aggregate$1,500,000, which represents approximately 7.5% of 30,000,000 commonthe issued and outstanding shares of itsAsia Pacific immediately after the financing. Asia Pacific is a private company registered in Hong Kong and the principal activities of Asia Pacific are exploration and mining in Myanmar (Note 7) and investment holding. Each unit consisted of one common stock (the “Purchase Shares”). 15,000,000share 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 Purchase Shares were issued at closing (recorded at their par valueAgreement or 18 months from the receipts of $15,000);all necessary permits to carry out the remaining 15,000,000 Purchase Shares are to be issued within ten Business Days after City of Gold earnsexploration program.

FORTEM RESOURCES INC.

NOTES TO CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS

For the Option.three and nine months ended November 30, 2018

(Expressed in US dollars – Unaudited)

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.5. EQUIPMENT

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 net 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.

6. OIL AND GAS PROPERTIES, FULL COST METHOD

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 Company’s acquisition of an undivided 100% working interest (“Working Interest”) in a petroleum and natural gas license covering landCompeer Property is 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.

Canada. The Company’s Working Interest in the Compeer Property will be held subject to a non-convertible overriding royalty payable to the Farmor (“Farmor’s Royalty”).  The Farmor’s 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 Farmor’s 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 November 30, 2017, the Company has incurred $691,282$42,846 (February 28, 20172018 - $641,494) in exploration costs to drill, complete and equip the Test Well, net of impairment charges in prior periods. The Company also has $43,551 (February 28, 2017 - $33,082)$43,961) in bonds held with the Alberta Energy Regulator for its oil and gas properties.

Godin Property

On March 31, 2017, Colony (Note 3a)the Company entered into a petroleum, natural gas and general rights conveyance agreement to acquire a 100% interest in and to certain petroleum, natural gas and general rights, including Alberta Crown Petroleum and Oil Leases in 20 contiguous sections totaling 12,960 acres located in the Godin area of Northern Alberta.

In addition, the vendor is entitled to receive certain milestone payments from the Company in the aggregate amount up to $210,000 as follows:

FORTEM RESOURCES INC.

i)NOTES TO CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS

$30,000 on or before June 29, 2017 (settled withFor the issuance of shares);three and six months ended August 31, 2018

ii)(Expressed in US dollars – Unaudited)

$30,000 on or before September 27, 2017 (settled with the issuance of shares); and

iii)6. OIL AND GAS PROPERTIES, FULL COST METHOD (continued)

$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.

Godin Property (continued)

If the Company fails to make timely payment of any of the milestone payments, and does not remedy such failure within 30 days of receipt of written notice from the vendor, sole recourse will be a claim for debt against the Company for an amount equal to the missed milestone payment. As at November 30, 2017, the vendor has not filed a claim againstmay elect either of the Company. following:

In November 2017, the Company issued 30,000 shares at a value of $79,500$60,000 to settle the milestone payments of $60,000,$60,000. During the period ended November 30, 2018, the Company issued 1,000,000 common shares to one of the vendors of Colony which holds rights in the Godin Property and recorded a lossis obligated to issue 2,000,000 common shares to one of debt settlement of $19,500.the vendors.

Black Dragon Property

In March 2017, (and later amended in August 2017), Black Dragon (Note 3b)the Company entered into a purchase and sale agreement (the “Black Dragon PSA”), subsequently amended, to acquire a 75% working interest in and to certain leases, hydrocarbons, wells, agreements, equipment, surface rights agreements and assignable permits 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”). In August 2017 Black Dragonand May 2019, the Company entered into a secondan amendment to the Black Dragon PSA (the “Black Dragon Amendment”), which amended the terms of the Black Dragon PSA. Under the Black Dragon Amendment, the Company is required to pay the vendor cash consideration totaling $3.9 million$3,900,000 (the “Black Dragon Cash Consideration”) based upon the following schedule:

·

$100,000 as a non-refundable deposit within 10 business days of closing (paid);

·

the balance of the Black Dragon Cash Consideration by payment to the vendor of an amount equal to 25% of any funds received by the Company from any equity, debt or convertible financing thereof (each, a “Financing”) upon the closing of each Financing until such amount is paid.  In addition: (a) the first $1.5 million raised by the Company will be exempt from a 25% payment to the vendor if such amount is received prior to the Company’s listing on a stock exchange; and (b) the full Black Dragon Cash Consideration is required to be paid in full no later than December 31, 2018 regardless of the amount of funds paid in connection with one or more Financings.  This change modified the original requirement to pay US$900,000 on or before September 1, 2017, US$900,000 on or before March 1, 2018 and US$800,000 on or before September 1, 2018.

In addition to revising the Black Dragon Cash Consideration as set out above, the Company has agreed to: (a) issue 250,000 common shares of the Company to the vendor on or prior to September 1, 2017 (issued at a value of $500,000)$625,000); and (b) pay the vendor an additional $25,000 every sixty days commencing September 1, 2017 ($50,000200,000 paid) until such time as the Black Dragon Cash Consideration is paid in full.

As an added incentive for early payment Furthermore, as part of the Black Dragon Cash Consideration, such sum will be reduced by $100,000 for each calendar month itMay 2019 amendment, the Company is paid in full priorrequired to December 31, 2018 for a maximum discountissue 300,000 shares of 12 months or $1.2 million.the Company to the vendor.

Within 10 business days after the later of the Company paying the Black Dragon Cash Consideration in full or the Company meeting in full its carry obligation, the vendor will convey to the Company an undivided 75% of the Vendor’s right, title and interest in and to the assets, at an 80% Net Revenue Interest in the assets.

On August 16, 2018, the Company entered into a third amendment to purchase and sale agreement (the “Black Dragon Third Amendment”), which amended the terms of the Black Dragon PSA. The Black Dragon Third Amendment has the effect of postponing the balance of the Black Dragon Cash Consideration relating to the Black Dragon Property under the Black Dragon PSA from September 1, 2018 to October 1, 2019.

FORTEM RESOURCES INC.

NOTES TO CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS

For the three and nine months ended November 30, 2018

(Expressed in US dollars – Unaudited)

6. OIL AND GAS PROPERTIES, FULL COST METHOD (continued)

Black Dragon Property (continued)

Carry Obligation

As per the terms of the Black Dragon PSA, and in addition to the Black Dragon Cash Consideration, the Company is required to pay all costs and expenses incurred on the assets with respect to any and all exploration, development and production during the carry period. The “Carry Period” continues until the later of either (i) the date that the Company pays the full Black Dragon Cash Consideration set out above or (ii) the date that the Company pays all costs and expenses for the drilling, logging, testing and completion of two new wells, each well with a horizontal leg extending at least 2,000’2,000 feet in the target zone within the Moenkopi formation (the “Two Obligation Wells”). The Company is required to drill to completion or cause to be drilled to completion (or plugging and abandonment) the Two Obligation Wells on or before February 28, 2019,May 1, 2020, failing which, the Company’s right to earn any assignment in and to the assets will terminate immediately. For each vertical well drilled to 200’200 feet below the top of the Kaibab formation through completion (or plugging or abandonment) within a Federal Unit, the obligation deadline will be amended to the later of (i) the current obligation deadline or (ii) 6 months from the date the rig that drilled such vertical well to total depth has been removed from the wellsite.

Rolling Rock Property

In March 2017, Rolling Rock (Note 3c)the Company entered into a purchase and sale agreement (the “Rolling Rock PSA”), subsequently amended, to acquire a 50%75% 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”).In. In August 2017 Rolling Rockand May 2019, the Company entered into a secondan amendment to the Rolling Rock PSA (the “Rolling Rock Amendment”), which amended the terms of the Rolling Rock PSA. Under the Rolling Rock Amendment, the Company is required to pay the vendor cash consideration totaling $3.6 million(the$5,400,000 (the “Rolling Rock Cash Consideration”) based upon the following schedule:

·

$100,000 as a non-refundable deposit within 10 business days of closing (paid);

·

the balance of the Rolling Rock Cash Consideration by cash payment to the vendor of an amount equal to 25% of any funds received by the Company from any Financing upon the closing of each Financing until such amount is paid.  In addition: (a) the first $1.5 million raised by the Company will be exempt from a 25% payment to the vendor if such amount is received prior to the Company’s listing on a stock exchange; and (b) the full Rolling Rock Cash Consideration is required to be paid in full no later than December 31, 2018 regardless of the amount of funds paid in connection with one or more Financings.  This change modified the original requirement to pay US$1.3 million on or before September 1, 2017, $500,000 on or before March 1, 2018 and $500,000 on or before September 1, 2018; and

·

after payment of the Rolling Rock Cash Consideration, an additional payment of $300,000 (the “Workover Funds”) to the vendor which is payable by an amount equal to 25% of any funds received by the Company from any Financing until the Workover Funds are paid in full.

In addition to revising the Rolling Rock Cash Consideration as set out above, Rolling Rockthe Company has agreed to: (a) cause the Company to issue 250,000 common shares of the Company to the vendor on or prior to September 1, 2017 (issued at a value of $500,000)$625,000); and (b) pay the vendor an additional $25,000 every sixty days commencing September 1, 2017 ($50,000200,000 paid) until such time as the Rolling Rock Cash Consideration and the Workover Funds are paid in full.

As an added incentive for early payment Furthermore, as part of the Rolling Rock Cash Consideration, such sum will be reduced by $100,000 for each calendar month itMay 2019 amendment, the Company is paid in full priorrequired to December 31, 2018 for a maximum discountissue 300,000 shares of 12 months or $1.2 million.the Company to the vendor.

Within 10 business days after the later of the Company paying the Rolling Rock Cash Consideration in full or the Company meeting in full its carry obligation, the vendor agrees to convey to the Company an undivided 50%75% of the vendor’s right, title and interest in and to the Leases, or a 80% net revenue interest in the Leases. Notwithstanding this transfer, within 10 business days after the later of payment of $300,000 on or before SeptemberMay 1, 20172020 (which amount is in addition to the deposit and included in the Rolling Rock Cash Consideration set out above) and the replacement of the vendor’s bonds on or before SeptemberJuly 1, 2017,2019, the vendor agrees to convey to the Company an undivided 50%75% of the vendor’s right, title and interest in and to the Cisco Dome leases and related assets. However, if the Company fails to timely meet any of its obligations under the Rolling Rock PSA, after having taken assignment of the Cisco Dome leases and assets, then, if the vendor elects in its sole discretion, the Company is required to reassign the Cisco Dome leases and assets to the vendor without any additional encumbrances.

FORTEM RESOURCES INC.

NOTES TO CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS

For the three and nine months ended November 30, 2018

(Expressed in US dollars – Unaudited)

6. OIL AND GAS PROPERTIES, FULL COST METHOD (continued)

Rolling Rock Property (continued)

Carry Obligation

As per the terms of the Rolling Rock PSA, and in addition to the Rolling Rock Cash Consideration, the Company is required to pay all costs and expenses incurred on the Leases with respect to any and all exploration, development and production during the carry period. The “Carry Period” continues until the later of either (i) the date that the Company pays the full Rolling Rock Cash Consideration set out above or (ii) the date that the Company pays all costs and expenses for the drilling, logging, testing and completion of three new wells in each of the three Federal Units, each well with a horizontal leg extending at least 1,000’1,000 feet in the target zone within the Mancos formation (the “Three Obligation Wells”). The Company is required to drill to completion or cause to be drilled to completion (or plugging and abandonment) the Three Obligation Wells on or before February 28, 2019,May 1, 2020, failing which, the Company’s right to earn any assignment in and to the Leases will terminate immediately. For each vertical well drilled to the top of the Dakota formation through completion (or plugging or abandonment) within a Federal Unit, the obligation deadline will be amended to the later of (i) the current obligation deadline or (ii) 6 months from the date the rig that drilled such vertical well to total depth has been removed from the wellsite.

The obligation well in the Grand Mancos Unit will be a vertical well drilled to a depth sufficient to test the Granite Walsh formation within such Federal Unit. For this well, completion (or plugging and abandonment) is expected to take place no later than 2 months after the rig that drilled to total depth has been removed from the wellsite and for a period of 6 months after completion of this obligation well (or plugging and abandonment), and the Company will have the exclusive option to purchase an additional 25% of the vendor’s right, title and interest in and to the leases with respect to the Granite Walsh formation within the boundary of the Grand Mancos Unit for an additional payment of $10 million.$10,000,000.

5.

INVESTMENT IN ASIA PACIFIC MINING LTD.

In April 2017, a binding financing and option agreement (the “Agreement”) (Note 3d) 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.

7. RIGHTS TO THE ACQUISITION OF MINERAL EXPLORATION PROJECT

In connection to the acquisition of City of Gold, LLC in fiscal 2018, the Company owns the right to an option agreement. Under the option agreement, the vendors have agreed to grant to City of Gold the Company an option (the “Option”) to purchase 100% of the ownership interest in a wholly owned subsidiary of Asia Pacific (Note 4) (the “Project Subsidiary”) which, in turn, owns 100% of the rights to the City of Gold mineral exploration project located in Myanmar which covers an area of approximately 465 square kilometers in close proximity to hydropower, water, and infrastructure to accommodate exploration and developmentMyanmar.

The Company will be granted the Option upon satisfaction of the property. Thefollowing:

Upon the closing of the Final Funding Tranche, the Company can exercisewill have earned the Option if Asia Pacific completes an additional financing of $1.5 million within 60 days uponOption.

FORTEM RESOURCES INC.

NOTES TO CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS

For the issuance of an exploration license for the City of Gold Project.three and nine months ended November 30, 2018

(Expressed in US dollars – Unaudited)

7. RIGHTS TO THE ACQUISITION OF MINERAL EXPLORATION PROJECT (continued)

Once it has exercised the Option, the Company may, at its discretion, require Asia Pacific to transfer the Project Subsidiary to another Canadian publicly listed company to be selected by the Company (“Acquisition Co”)(if (if the Project Subsidiary is not transferred to another Canadian publicly listlisted company, Acquisition Co means the Company) for an exercise price consisting of $7,000,000 in cash and thirty percent of the issued and outstanding share capital of Acquisition Co (calculated on a fully diluted basis, excluding up to 10% in stock options, but including shares Acquisition Co may have issued in order to raise the exercise price of $7,000,000 and an additional $5,000,000 in working capital). Half of the cash portion of the exercise price must be paid upon exercise of the Option; the balance is to be paid on the first anniversary of the exercise and is to be evidenced by a one-year secured term note. Although the Company has the right to select Acquisition Co., it must select a Canadian publicly listed company that meets certain criteria – at exercise of the Option, Acquisition Co must have less than US$100,000$100,000 in liabilities and US$5,000,000$5,000,000 or more in working capital and Asia Pacific will have the right to nominate 30% of its directors.

7.

EQUIPMENT

8.

ACCOUNTS PAYABLE

During the nine monthsyear ended November 30, 2017,February 28, 2018, in connection with the acquisition of City of Gold, LLC, the Company paid $5,693 in cashallocated $39,530,234 to settle $19,292the rights to the acquisition of balance owingmineral exploration project. The Company determined that there were impairment indicators and wrote down the rights to a vendor of the Company.$1. As a result, the Company recorded an impairment of rights to the mineral exploration project of $39,530,233 and a gain on settlementdeferred tax liability recovery of debt$9,500,000.

8. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

9. RELATED PARTY TRANSACTIONS

Due to/from related parties consist of $13,599.the following:

9.

NOTE PAYABLE

As at November 30, 2017,2018, the Company made prepayments of $90,000 (February 28, 2018 - $nil) to an officer and director of the Company for future management fees, pursuant to a consulting agreement, which is included in prepaid expenses.

As at November 30, 2018, the Company had $19,943$nil (February 28, 20172018 - $18,825)$500,000) in note obligations owing to a company with a common director. The note payable was unsecured, with an interest of 10% per annum and due on or before January 18, 2019. In March 2018, the Company repaid the principal balance of $500,000 owed on this note. As at November 30, 2018, the Company has an accrued interest balance of $57,261 (February 28, 2018 - $55,753). During the nine months end November 30, 2018, the advance payable was forgiven and the Company recorded a gain of settlement of debt of $4,058.

Amounts due to/from related parties are unsecured with no specific terms of repayment.

FORTEM RESOURCES INC.

NOTES TO CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS

For the three and nine months ended November 30, 2018

(Expressed in US dollars – Unaudited)

10. NOTE PAYABLE

As at November 30, 2018, the Company had $19,942 (February 28, 2018 - $19,942) in short term note obligations. The note payable is unsecured, non-interest bearing and payable upon demand.

10.

11. ADVANCE PAYABLE

As at November 30, 2017,2018, the Company had $4,058$nil (February 28, 20172018 - $nil)$4,058) due to an unrelateda related party. The balance was related to expenses paid by an unrelated party. TheA $60,000 advance payable iswas unsecured, non-interest bearing and payable upon demand.demand (Note 6). During the nine months end November 30, 2017,2018, the advance payable was forgiven and the Company issued 30,000 shares atrecorded a valuegain of $60,000 to settlesettlement of debt of $4,058.

During the nine months ended November 30, 2018, the Company received an advance of $100,000 (C$130,000). As at November 30, 2018, the Company had $100,000 (February 28, 2018 - $nil) due to a third party. The long term advance payable was unsecured, with an interest of $60,000, related to the acquisition of the Godin property (Note 4).10% per annum and due on or before August 31, 2020.

11.

12. ASSET RETIREMENT OBLIGATION

The Company’s asset retirement obligation consists of reclamation and closure costs associated with the Test Well inrelates to the Compeer Property. The asset retirement obligation was estimated based on the Company’s understanding of its requirements to reclaim currently disturbed areas. Significant reclamation and closure activities include land rehabilitation, water, removal of building and well facilities and tailings reclamation. The undiscounted estimate of this liability was $39,885$37,590 (February 28, 20172018 - $37,650)$39,035) reflecting payments commencing in 2024. This estimate was adjusted for an inflation rate of 2.00% and then discounted at a rate of 10.00% for a net present value of $27,190$28,979 (February 28, 20172018 - $24,546)$28,352) as at November 30, 2017.2018.

12.

DERIVATIVE FINANCIAL LIABILITIES - WARRANTS