Consolidated Financial Statements

Transcription

1 Consolidated Financial Statements Years ended September 30, 2016 and 2015

2 AFRICA HYRDOCARBONS INC. December 8, 2016 Management s Report to the Shareholders Management is responsible for the reliability and integrity of these consolidated financial statements. The accompanying consolidated financial statements have been prepared by management in accordance with International Financial Reporting Standards ( IFRS ). The consolidated financial statements are presented in Canadian dollars. The accompanying consolidated financial statements have been prepared using policies and procedures established by management and reflect fairly the Corporation s financial position, results of operations and changes in financial position, within reasonable limits of materiality and within the framework of the accounting policies outlined in the notes to the consolidated financial statements. Management has established and maintains a system of internal controls which is designed to provide reasonable assurance that assets are safeguarded from loss or unauthorized use and financial information is reliable and accurate. The Board of Directors is responsible for ensuring that management fulfills its responsibilities for financial reporting and internal control. The Board is assisted in exercising its responsibilities through the Audit Committee of the Board, which is composed of a majority of nonmanagement directors. The Audit Committee meets periodically with management and the auditors to satisfy itself that management s responsibilities are properly discharged, to review the consolidated financial statements and to recommend approval of the consolidated financial statements to the Board. Signed John Nelson John Nelson, CEO Signed Kari Wilkie Kari Wilkie, CFO

3 Independent Auditors' Report To the Shareholders of Africa Hydrocarbons Inc.: We have audited the accompanying consolidated financial statements of Africa Hydrocarbons Inc., which comprise the consolidated statements of financial position as at September 30, 2016 and 2015, and the consolidated statements of loss and comprehensive loss, changes in equity and cash flows for the years then ended, and notes comprising a summary of significant accounting policies and other explanatory information. Management s Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors' Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of Africa Hydrocarbons Inc. as at September 30, 2016 and 2015 and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards. Emphasis of Matter Without qualifying our option, we draw attention to Note 2 in the consolidated financial statements which discusses Africa Hydrocarbons Inc. s ability to continue as a going concern. These conditions indicate the existence of a material uncertainty which may cast significant doubt about the ability to continue as a going concern. Calgary, Alberta December 8, 2016 Chartered Professional Accountants

4 AFRICA HYRDOCARBONS INC. Consolidated Statements of Financial Position September 30, September 30, Assets Current assets: Cash and cash equivalents $ 193,851 $ 478,978 Trade and other receivables (note 6 and 15) 5,360 9,058 Prepaid expenses and deposits 7,291 1,458 $ 206,502 $ 489,494 Liabilities and Shareholders' Equity Current liabilities: Trade and other payables (note 8 and 15) $ 136,006 $ 73,157 Shareholders' equity Share capital (note 10) 42,900,211 42,900,211 Contributed surplus 9,720,425 9,720,425 Accumulated foreign currency translation 1,456,912 1,457,869 Deficit (54,007,052) (53,662,168) 70, ,337 $ 206,502 $ 489,494 Going concern (note 2) Commitments and contingencies (note 17) See accompanying notes to the consolidated financial statements. Approved for issuance by the Board of Directors on December 8, 2016 Signed John Nelson John Nelson, Director Signed Gord McKay Gord McKay, Director

5 Consolidated Statements of Loss and Comprehensive Loss Year ended September 30, Expenses General and administrative $ 200,493 $ 279,282 Foreign exchange (gain) loss 518 (1,162) Professional fees 89, ,110 Share-based payments (note 10(c)) - 14,099 Impairment of exploration and evaluation assets (note 7) - 757,901 Settlement expense (note 17) 75, ,255 1,154,230 Finance expense (note 11) 2, Loss from continuing operations before income taxes (367,847) (1,154,595) Deferred taxes (note 13) Loss from continuing operations (367,847) (1,154,595) Discontinued operations (note 9 and 17) 22, ,499 Net loss for the year (344,884) (1,009,096) Other comprehensive loss Exchange gain (loss) on translation (957) 70,986 Comprehensive loss for the year $ (345,841) $ (938,110) Net loss per share (note 12): Loss per share from continuing operations: Basic and diluted $(0.00) $(0.01) Loss per share from discontinued operations: Basic and diluted $0.00 $0.00 Net loss per share for the year: Basic and diluted $(0.00) $(0.01) See accompanying notes to the consolidated financial statements.

6 Consolidated Statements of Changes in Equity September 30, September 30, Share capital Balance, beginning of year $ 42,900,211 $ 42,426,781 Issued pursuant to private placement 500,000 Share issue costs, including broker warrants (26,570) Balance, end of year 42,900,211 42,900,211 Warrants Balance, beginning of year 1,916,206 Warrants expired (1,916,206) Balance, end of year Contributed surplus Balance, beginning of year 9,720,425 7,790,120 Share-based payments 14,099 Warrants expired 1,916,206 Balance, end of year 9,720,425 9,720,425 Accumulated foreign currency translation Balance, beginning of year 1,457,869 1,386,883 Gain on translation (957) 70,986 Balance, end of year 1,456,912 1,457,869 Deficit Balance, beginning of year (53,662,168) (52,653,072) Net loss for the year (344,884) (1,009,096) Balance, end of year (54,007,052) (53,662,168) Shareholders equity $ 70,496 $ 416,337 See accompanying notes to consolidated financial statements.

7 Consolidated Statements of Cash Flows Year ended September 30, Cash provided by (used in): Operating activities: Loss from continuing operations $ (344,884) $ (1,154,595) Items not affecting cash: Share-based payments 14,099 Impairment of exploration and evaluation assets 757,901 Cash flows before non-cash operating working capital (344,884) (382,595) Change in non-cash operating working capital: (Increase) decrease in trade and other receivables 3,698 (5,300) Increase in prepaid expenses and deposits (5,833) Increase (decrease) in trade and other payables 62,849 (21,437) Cash flows from non-cash operating working capital 60,714 (409,332) Income (loss) from discontinued operations 22, ,499 Change in non-cash operating working capital: Decrease in trade and other payables (22,963) (145,499) Cash flows used in operating activities (284,170) (409,332) Financing activities: Proceeds received from private placement 500,000 Share issue costs (26,570) Cash flows provided by financing activities 473,430 Investing activities: Additions to exploration and evaluation assets (757,901) Change in non-cash investments working capital: Decrease in trade and other receivables 569,835 Cash flows used in investing activites (188,066) Effect of foreign exchange on cash and cash equivalents (957) 70,986 Net change in cash and cash equivalents (285,127) (52,982) Cash and cash equivalents, beginning of year 478, ,960 Cash and cash equivalents, end of year $ 193,851 $ 478,978 See accompanying notes to the consolidated financial statements.

8 Notes to the Consolidated Financial Statements, page 1 1. Nature of operations and basis of presentation: Africa Hydrocarbons Inc. (the Corporation ) is a public company incorporated under the Company Act, Alberta, Canada and its shares are listed on the NEX on the TSX Venture Exchange. The principal business of the Corporation was to explore natural resource properties. In early 2015, the Corporation ceased to operate in the resource sector and is currently reviewing other business opportunities. The address of the Corporation s main office is Suite 650, th Ave SW, Calgary, AB, T2P 1A1. The Board of Directors approved the consolidated financial statements on December 8, Statement of compliance These consolidated financial statements are prepared in accordance with International Financial Reporting Standards ( IFRS ) as issued by the International Accounting Standards Board ( IASB ) and interpretations issued by the International Financial Reporting Interpretations Committee ( IFRIC ), in effect at October 1, The preparation of financial statements in conformity with IFRS requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management s best knowledge of the amount, event or actions, actual results ultimately may differ from those estimates. Areas where estimates are significant to the consolidated financial statements are disclosed in note 5. Basis of measurement The consolidated financial statements have been prepared on a historical cost basis, except for the revaluation of certain financial assets and financial liabilities to fair value. These consolidated financial statements have been prepared on a going concern basis. Items included in the financial statements of the Corporation and its subsidiaries are measured using the currency of the primary economic environment in which the company operates (the functional currency ). The consolidated financial statements are presented in Canadian dollars, which is the Corporation s functional currency. 2. Going concern: For the year ended September 30, 2016, the Corporation reported a net loss of $344,884 ( $1,009,096) and has a deficit of $54,007,052 ( $53,662,168). The significant net loss is due in part, to the impairment of the exploration and evaluation assets, after results of the completion program on the Tunisia, Bouhajla project. As at September 30, 2016, the Corporation has $193,851 ( $478,978) in cash available to meet its liabilities as they become due. The Corporation will manage its activity levels, expenditures and commitments based on its current cash position. The consolidated financial statements have been prepared on the basis that the Corporation will continue to operate as a going concern, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The Corporation s ability to continue as a going concern is dependent on its ability to generate additional financial resources in order to meet its planned business objectives. Financial resources will come in the form of debt and/or equity financing. The conditions indicate the existence of a material uncertainty that casts significant doubt about the Corporation s ability to continue as a going concern. These consolidated financial statements do not reflect adjustments in the amounts and classifications of assets and liabilities reported that would be necessary if the going concern assumption was not appropriate. Such adjustments could be material.

9 Notes to the Consolidated Financial Statements, page 2 3. Significant accounting policies: These policies have been applied consistently for all periods presented in these consolidated financial statements. a.) Basis of consolidation The consolidated financial statements include the accounts of the Corporation and its wholly-owned subsidiaries: Watutatu Inc., Africa Hydrocarbons (Bahamas) Ltd., and Africa Hydrocarbons Tunisia Ltd. Subsidiaries are entities controlled by the Corporation. Control exists when the Corporation has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that are currently exercisable are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Inter-company transactions, balances and unrealized gains or losses with the subsidiaries are eliminated. The financial statements of the subsidiaries are prepared using consistent accounting policies with that of the Corporation. b.) Joint operations Certain of the Corporation s oil and gas activities are conducted through joint operations. A joint operation is an arrangement that the Corporation controls jointly with one or more other investors, and the investors have rights to the assets, and obligations for the liabilities, relating to the arrangement. Substantially all of the Corporation s oil and gas activities are conducted jointly with others, and the consolidated financial statements reflect only the Corporation s proportionate interest in such activities. c.) Cash and cash equivalents Cash comprises cash on hand. Other investments (term deposits and certificates of deposit) with an original term to maturity at purchase of three months or less that are redeemable at any time are reported as cash equivalents in the consolidated statement of financial position. d.) Exploration and evaluation assets Exploration and evaluation ( E&E ) assets consist of the Corporation s oil and natural gas exploration projects that are pending the determination of proved reserves. The Corporation accounts for E&E costs in accordance with the requirements of IFRS 6 Exploration for and Evaluation of Mineral Resources. E&E costs relating to activities to explore and evaluate oil and natural gas properties are initially capitalized and include costs associated with the acquisition of licenses, technical services and studies, seismic acquisition, exploration drilling and testing, directly attributable overhead and administration expenses, and the costs associated with retiring the assets. E&E costs do not include general prospecting or evaluation costs incurred prior to having obtained the legal rights to explore an area, which are recognized immediately in the statement of comprehensive loss. Once the technical feasibility and commercial viability of E&E assets are determined and a development decision is made by management, the E&E assets are tested for impairment upon reclassification to property, plant and equipment. The technical feasibility and commercial viability of extracting a mineral resource is considered to be determined when proved reserves are determined to exist.

10 Notes to the Consolidated Financial Statements, page 3 3. Significant accounting policies (continued): E&E assets are also tested for impairment when facts and circumstances suggest that the carrying amount of E&E assets may exceed their recoverable amount, by comparing the relevant costs to the fair value of cash generating units ( CGUs ). Indications of impairment include leases approaching expiry, the existence of low benchmark commodity prices for an extended period of time, significant downward revisions in estimated reserves, increases in estimated future exploration or development expenditures, and significant adverse changes in the applicable legislative or regulatory frameworks. e.) Property, plant and equipment Development and production Property, plant and equipment is measured at cost less accumulated depletion and depreciation and impairment provisions. When significant components of an item of property, plant and equipment, including oil and natural gas interests, have different useful lives, they are accounted for separately. The deemed cost of an asset comprises its purchase price, construction and development costs, costs directly attributable to bringing the asset into operation, the estimate of any asset retirement costs, and applicable borrowing costs. Property acquisition costs are comprised of the aggregate amount paid and the fair value of any other consideration given to acquire the asset. Oil and natural gas properties within each CGU are depleted using the unit-of-production method over proved reserves. The unit ofproduction rate takes into account expenditures incurred to date, together with future development expenditures required to develop proved reserves. Derecognition An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is recognized in the consolidated statement of loss and comprehensive loss. Impairment The Corporation assesses property, plant and equipment for impairment whenever events or changes in circumstances indicate that the carrying value of an asset or CGU may not be recoverable. Indications of impairment include the existence of low benchmark commodity prices for an extended period of time, significant downward revisions of estimated reserves, or increases in estimated future development expenditures. If any such indication of impairment exists, the Corporation performs an impairment test related to the assets or CGU. Individual assets are grouped for impairment assessment purposes into CGU s, which are the lowest level at which there are identifiable cash inflows that are largely independent of the cash inflows of other groups of assets. A CGU s recoverable amount is the higher of its fair value less costs of disposal ( FVLCOD ) and its value in use ( VIU ). FVLCOD is determined to be the amount for which the asset could be sold in an arm s length transaction. VIU is based upon the estimated before tax net present value of the Corporations proved plus probable reserves, as prepared by independent reserve evaluators. Where the carrying amount of a CGU exceeds its recoverable amount, the CGU is considered impaired and is written down to its recoverable amount. In subsequent periods, an assessment is made at each reporting date to determine whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is reestimated and the net carrying amount of the asset or CGU is increased to its revised recoverable amount. The recoverable amount cannot exceed the carrying amount that would have been determined, net of depletion, had no impairment loss been recognized for the asset in prior periods. Such reversal is recognized in the consolidated statement of loss and comprehensive loss. After a reversal, the depletion charge is adjusted in future periods to allocate the asset s revised carrying amount over its remaining useful life.

11 Notes to the Consolidated Financial Statements, page 4 3. Significant accounting policies (continued): f.) Decommissioning liabilities A provision is recognized for the present value of the future cost of abandonment of oil and gas wells and related facilities. This provision is recognized when a legal or constructive obligation arises. The estimated costs, based on engineering cost levels prevailing at the reporting date, are computed on the basis of the latest assumptions as to the scope and method of abandonment. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a risk free rate, updated at each reporting date that reflects current market assessments of the time value of money and the risks specific to the obligation. The corresponding amount is capitalized as part of exploration and evaluation expenditure or property, plant and equipment and is amortized on a unit-of-production basis as part of the depreciation, depletion and amortization charge. Any adjustment arising from the reassessment of estimated cost of decommissioning liabilities is capitalized, whilst the charge arising from the accretion of the discount applied to the decommissioning liabilities is treated as a component of finance costs. The Corporation does not currently have any decommissioning obligations. g.) Foreign currency translations The functional currency of the Corporation is Canadian dollars and the functional currency of Watutatu Inc., Africa Hydrocarbons (Bahamas) Ltd., and Africa Hydrocarbons Tunisia Ltd. is US dollars. Transactions in foreign currencies are translated to the respective functional currency at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to the functional currency at the exchange rate at that date. Non-monetary items are measured in terms of historical cost in a foreign currency and are translated using the exchange rate at the date of the transaction. The foreign currency gains or losses resulting from such transactions are recognized in the consolidated statement of loss and comprehensive loss. The assets and liabilities of the Corporation s subsidiaries which have functional currencies different from the presentation currency of the Corporation are translated to the presentation currency at the rate of exchange in effect at the financial period end; revenue and expenses are translated at average exchange rates (unless the average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of the transactions). All resulting exchange gains or losses are recognized as a foreign currency translation adjustment and included as a separate component of accumulated other comprehensive loss. h.) Taxes The Corporation follows the liability method of accounting for taxes. Under this method, deferred tax assets and liabilities are recognized based on the estimated tax effects of temporary differences in the carrying amount of assets and liabilities in the consolidated financial statements and their respective tax bases. Deferred tax assets and liabilities are calculated using the enacted or substantively enacted income tax rates that are expected to apply when the asset is recovered or the liability is settled. Deferred tax assets or liabilities are not recognized when they arise on the initial recognition of an asset or liability in a transaction (other than in a business combination) that, at the time of the transaction, affects neither accounting nor taxable profit. Deferred tax assets for deductible temporary differences and tax loss carryforwards are recognized to the extent that it is probable that future taxable profits will be available against which the temporary differences or tax loss carryforwards can be utilized. The carrying amount of deferred tax assets is reviewed at each reporting date, and is reduced if it is no longer probable that sufficient future taxable profits will be available against which the temporary differences or tax loss carryforwards can be utilized. Current tax is calculated based on net earnings for the year, adjusted for items that are non-taxable or taxed in different periods, using income tax rates that are enacted or substantively enacted at each reporting date. Income taxes are recognized in equity or other comprehensive income, consistent with the items to which they relate.

12 Notes to the Consolidated Financial Statements, page 5 3. Significant accounting policies (continued): i.) Share-based payments The Corporation s Stock Option Plan (the Option Plan ) provides current employees with the right to elect to receive common shares in exchange for options surrendered. The Corporation records compensation expense over the graded vesting period based on the fair value of options granted. Compensation expense is recorded in the consolidated statement of loss and comprehensive loss as sharebased payment expense with a corresponding credit to contributed surplus. When stock options are exercised, the proceeds, together with the amount recorded in contributed surplus, are recorded in share capital. The fair value of stock options granted is estimated using the Black-Scholes option pricing model, taking into account amounts that are believed to approximate the forfeiture rate, volatility of the trading price of the Corporation s shares, the expected lives of the awards of share-based payments, the fair value of the Corporation s stock and the risk-free interest rate, as determined at the grant date. Forfeitures are estimated through the vesting period based on past experience and future expectations, and adjusted upon actual vesting. j.) Financial instruments The Corporation classifies its financial instruments into one of the following categories: fair value through profit or loss; held-tomaturity investments; loans and receivables; available-for-sale financial assets; and financial liabilities measured at amortized cost. All financial instruments are measured at fair value on initial recognition. Measurement in subsequent periods is dependent on the classification of the respective financial instrument. Fair value through profit or loss financial instruments are subsequently measured at fair value with changes in fair value recognized in the consolidated statement of loss and comprehensive loss. All other categories of financial instruments are measured at amortized cost using the effective interest method except for available-for-sale financial assets that are measured at fair value through other comprehensive income. Cash and cash equivalents and trade and other receivables are classified as loans and receivables. Trade and other payables are classified as other financial liabilities measured at amortized cost. Transaction costs in respect of financial instruments at fair value through profit or loss are recognized immediately in the consolidated statement of loss and comprehensive loss. Transaction costs in respect of other financial instruments are included in the initial measurement of the financial instrument and amortized to the consolidated statement of loss and comprehensive loss using the effective interest method. Impairment of financial assets At each reporting date, the Corporation assesses whether there is objective evidence that a financial asset is impaired. If such evidence exists, an impairment loss is recognized in the consolidated statement of loss and comprehensive loss. Impairment losses on financial assets carried at amortized cost, including loans and receivables, are calculated as the difference between the amortized cost of the loan or receivable and the present value of the estimated future cash flows, discounted using the instrument s original effective interest rate. Impairment losses on financial assets carried at amortized cost are reversed in subsequent periods if the amount of the loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized. k.) Comprehensive loss Comprehensive loss is comprised of the Corporation s net loss and other comprehensive loss. Other comprehensive loss includes foreign currency translation of subsidiaries with a different functional currency than the Corporation. l.) Per common share amounts Basic per share amounts are calculated by dividing the net earnings or loss by the weighted average number of shares outstanding during the year. Diluted per share amounts are calculated by using the treasury stock method, by adjusting the weighted average number of shares outstanding for the potential number of issued instruments which may have a dilutive effect on net earnings or loss. This method assumes that proceeds received from the exercise of in-the-money instruments are used to repurchase common shares at the average market price for the year.

13 Notes to the Consolidated Financial Statements, page 6 4. Accounting standards: Future accounting standards Certain new standards, interpretations, amendments and improvements to existing standards were issued by the IASB or IFRIC that are mandatory for accounting periods beginning after October 1, 2016 or later periods. The standards impacted that are applicable to the Corporation are as follows: a.) IFRS 9, Financial Instruments was issued in November 2009 as the first step in its project to replace IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 introduces new requirements for classifying and measuring financial assets. The IASB intends to expand IFRS 9 during the intervening period to add new requirements for impairment and hedge accounting. IFRS 9 is effective for reporting periods beginning on or after January 1, The Company continues to assess this new standard, but does not expect it to have a significant impact. b.) IFRS 15, Revenue from Contracts with Customers was issued in May 2015 to replace IAS 18 Revenue and IAS 11 Construction Contracts, and several revenue related interpretations. The new standard establishes a control-based revenue recognition model and provides additional guidance in many areas not covered in detail under existing IFRSs, including how to account for arrangements with multiple performance obligations, variable pricing, customer refund rights, supplier repurchase options and other common complexities. IFRS 15 is effective for reporting periods beginning on or after January 1, The Company continues to assess this new standard, but does not expect it to have a significant impact. c.) IFRS 16, Leases was issued on January 13, 2016, the IASB issued IFRS 16 Leases which replaces IAS 17. The new standard introduces a single lessee accounting model and requires a lessee to recognize assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. A lessee is required to recognize a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. This standard substantially carries forward the lessor accounting requirements of IAS 17, while requiring enhanced disclosures to be provided by lessors. Other areas of the lease accounting model have been impacted, including the definition of a lease. Transitional provisions have been provided. The standard becomes effective January 1, The Corporation is currently assessing the impact of this standard. 5. Critical accounting estimates and judgments: The Corporation has made estimates and assumptions regarding certain assets, liabilities, and expenses in the preparation of the consolidated financial statements. Such estimates primarily relate to unsettled transactions and events as of the date of the consolidated financial statements. Accordingly, actual results may differ from estimated amounts. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below. Accounting Estimates: a.) Share-based payments The Corporation has made various assumptions in estimating the fair values of the common stock options granted including expected volatility, expected exercise behavior and future forfeiture rates. At each period end, options outstanding are re-measured for changes in the fair value of the liability due to forfeitures. b.) Acquisitions The allocation of the purchase price of acquisitions contains estimates as to the fair market value of the assets acquired and liabilities assumed. Accounting Judgments: a.) Impairment The determination of impairment on the Corporation s exploration and evaluation assets requires analyzing facts that are considered indicators of impairment. The analysis requires the Corporation to apply significant judgment since the indicators may be mixed. In determining impairment, the Corporation analyzed the internal and external indicators for impairment, including outcome of the drilling and completion programs, costs incurred on individual projects and future forecasts and budgets for the assets.

14 Notes to the Consolidated Financial Statements, page 7 5. Critical accounting estimates and judgments (continued): b.) Deferred taxes Tax interpretations, regulations and legislation are subject to change and as such income taxes are subject to measurement uncertainty. Deferred tax assets are assessed by management at the end of the reporting period to determine the likelihood that they will be realized from future taxable earnings. Actual results may differ from these estimates due to, among other factors, future changes in business environment, currently unknown changes in income tax legislation, or results from the final review of tax returns by tax authorities. c.) Functional currency The determination of the Corporation s functional currency requires analyzing facts that are considered primary factors, and if the results are not conclusive, secondary factors. The analysis requires the Corporation to apply significant judgment since primary and secondary factors may be mixed. In determining its functional currency the Corporation analyzed both the primary and secondary factors, including the currency of the Corporation s revenues, operating costs, general and administrative costs and financing proceeds in the countries that it operates in. 6. Trade and other receivables: September 30, 2016 September 30, 2015 GST/HST recoverable $5,360 $7,693 Quebec refundable tax credits 1,365 $5,360 $9, Exploration and evaluation assets: A reconciliation of the carrying amount of exploration and evaluation assets as at September 30, 2016 is set out below. Tunisia, Bouhajla project Balance, September 30, 2014 $ Additions 757,901 Impairment (757,901) Balance, September 30, 2015 and 2016 $ On October 20, 2014, the Corporation completed its recompletion program on the Tunisia, Bouhajla project and determined that the first exploration well will be plugged and abandoned. With this information, the Corporation took a full impairment on the project for the year ended September 30, 2014 of $15,837,495 as well as another $757,901 for the year ended September 30, On March 2, 2015, pursuant to the terms of the farmout agreement, the Corporation has forfeited its entire interest on the Bouhajla project. The Joint Venture partner for the Bouhajla project has initiated an arbitration process in relation to prior billings and payments made on the Corporation s forfeited interest. 8. Trade and other payables: September 30, 2016 September 30, 2015 Trade payables $24,906 $17,694 Accrued liabilities 75,000 22,963 Other accrued payables 36,100 32,500 $136,006 $73,157

15 Notes to the Consolidated Financial Statements, page 8 9. Discontinued operations: West Raglan Property: On May 3, 2012, but effective April 1, 2012, the Corporation signed a dilution agreement that relinquishes all of its working and royalty interests in relation to the West Raglan project. Certain accruals remained on the Corporation s consolidated statement of financial position that related to refundable tax credits in Quebec. The Corporation wrote off the trade and other receivable accrual for the year ended September 30, 2014, and its trade and other payables in the year ended September 30, 2015 and No further reassessments or requirements have been requested from the Quebec government. The table below summarizes the discontinued operation expense: Year ended September 30, Quebec refundable tax credits $22,963 $145,499 $22,963 $145, Share capital: a.) Authorized: Unlimited number of common voting shares and preferred shares b.) Issued: Number of Shares Amount Balance, September 30, ,109,838 $42,426,781 Issued pursuant private placement 50,000, ,000 Share issue costs (26,570) Balance, September 30, ,109,838 $42,900,211 Balance, September 30, ,109,838 $42,900,211 On June 24, 2015, the Corporation completed a private placement offering pursuant to which the Corporation issued 50,000,000 common shares at $0.01 per common share and raised gross proceeds of $500,000. The Corporation incurred share issue costs of $26,570. c.) Stock options: The Corporation has a stock option plan whereby a maximum of 10% of the issued and outstanding common shares of the Corporation may be reserved for issuance pursuant to the exercise of stock options. The stock options vest immediately on the date of grant unless otherwise required by the exchange or imposed by the Corporation. A summary of the Corporation s stock options, and the changes during the period then ended is as follows: September 30, 2016 September 30, 2015 Number of Options Weighted Average Exercise Price Number of Options Weighted Average Exercise Price Options outstanding, beginning of year 1,500,000 $0.30 5,450,000 $0.24 Granted Expired (3,950,000) $(0.21) Options outstanding and exercisable, end of year 1,500,000 $0.30 1,500,000 $0.30

16 Notes to the Consolidated Financial Statements, page Share capital (continued): The following table summarizes information about stock options outstanding and exercisable at September 30, 2016: Exercise Prices Number Weighted Average Remaining Life Weighted Average Exercise Price $0.30 1,500, years $0.30 1,500, years $0.30 The fair values of the Corporation s options issued were estimated using the Black-Scholes option pricing model. Expected volatility was estimated by considering historic average share price volatility. The inputs used to measure the fair value of options issued were as follows: September 30, 2014 Volatility % Risk free interest rate 1.78% Expected life 5.00 years Share-based payments totaling $Nil were expensed during the year ended September 30, 2016 (2015 $14,099). (d) Warrants: September 30, 2016 September 30, 2015 Number of Warrants Weighted Average Exercise Price Number of Warrants Weighted Average Exercise Price Warrants outstanding, beginning of year 34,902,778 $0.30 Expired (34,902,778) $0.30 Warrants outstanding, end of year 11. Finance expense (income) The Corporation s finance expense (income) consists of the following: Year ended September 30, Bank fees $692 $2,775 Interest revenue 1,900 (2,410) Finance expense (income) $2,592 $ Per share amounts: The number of shares that have been included in the computation of basic and diluted loss per share are as follows: Year ended September 30, Weighted average shares outstanding, basic and diluted 164,109, ,534,496 In calculating diluted loss per common share for the year ended September 30, 2016 and 2015, the Corporation excluded all options as the exercise price is greater than the average market price of the common shares for the year.

17 Notes to the Consolidated Financial Statements, page Income tax: The income tax provision differs from income taxes, which would result from applying the expected tax rate to net loss before income taxes. The differences between the expected income tax expenses and the actual income tax provision are summarized as follows: September 30, 2016 September 30, 2015 Loss from continuing operations $(367,847) $(1,154,595) Expected income tax recovery at 27.0% ( %) (99,317) (294,422) Share-based payments - 3,595 Effect of change in tax rate and other items ,241 Deferred tax assets not recognized 99, ,586 Total income taxes (recovery) $ $ The Alberta corporate tax rate increased effective July 1, 2015, resulting in an increase in in the Corporation s combined statutory tax rate. Deferred tax assets have not been recognized in respect of the following items: September 30, 2016 September 30, 2015 Deductible temporary differences $23,702,683 $25,340,471 Tax losses 11,445,612 10,686,225 Investment tax credits 786,204 1,714,992 Total $35,934,499 $37,741,688 Deferred tax assets have not been recognized in respect of these items because it is not probable that future taxable profit will be available against which the Corporation can utilize the benefits thereon. The Corporation has $9,078,617 of non-capital losses in Canada, which expire between 2026 and The Corporation has losses of $7,041 in Tunisia, which expire between 2018 and The Corporation has capital loss carryforwards of $2,359,954, which have no expiry date.

18 Notes to the Consolidated Financial Statements, page Key management compensation and related party transactions: Related party transactions are in the normal course of operations and are made in terms equivalent to those that prevail in arm s length transactions, which is the amount of consideration established and agreed to by the related parties. The following is a summary of the related party transactions that occurred throughout the years ended September 30, 2016 and 2015: a.) Paid $90,000 ( $104,500) for consulting fees and paid $24,000 ( $24,000) for rent supplement to a company controlled by the CEO and share-based payments of $Nil ( $2,820) to the CEO. b.) Paid $9,000 ( $45,000) for consulting fees to a company controlled by the previous CFO and share-based payments of $Nil ( $1,880) to the CFO. c.) Paid $26,650 ( $27,500) and accrued $2,500 ( $2,500) for directors fees and $Nil ( $6,579) for share-based payments paid to directors. 15. Financial instruments: The carrying values of the Corporation s financial instruments by category were as follows: September 30, 2016 Asset (liability) Fair value through profit or loss Loans and receivables at amortized cost Financial liabilities at amortized cost Cash and cash equivalents $ $193,851 $ Trade and other receivables 5,360 Trade and other payables (136,006) $ $199,211 $(136,006) September 30, 2015 Asset (liability) Fair value through profit or loss Loans and receivables at amortized cost Financial liabilities at amortized cost Cash and cash equivalents $ $478,978 $ Trade and other receivables 9,058 Trade and other payables (73,157) $ $488,036 $(73,157) The carrying value of the Corporation s financial instruments approximate their fair value. Financial risk factors a.) Credit risk: Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. The Corporation s cash and cash equivalents, and trade and other receivables are exposed to credit risk. The credit risk on cash and cash equivalents is not considered significant because the counterparties are highly-rated financial institutions. The credit risk on trade and other receivables is not considered significant because the counterparties are the federal government for $5,360.

19 Notes to the Consolidated Financial Statements, page Financial instruments (continue): b.) Liquidity risk: Liquidity risk is the risk that the Corporation will not be able to meet its financial obligations as they are due. The Corporation s approach to managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when due, without incurring unacceptable losses or risking harm to the Corporation s reputation. The following are the contractual maturities of financial liabilities as at September 30, 2016: Financial Liabilities < One Year > One Year Trade and other payables $136,006 $ Total $136,006 $ The following are the contractual maturities of financial liabilities as at September 30, 2015: Financial Liabilities < One Year > One Year Trade and other payables $73,157 $ Total $73,157 $ c.) Market risk: Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices, such as interest rates and foreign exchange rates that will affect the Corporation s comprehensive loss or the value of financial instruments. The objective of market risk management is to control market risk exposures within acceptable limits, while maximizing returns. Interest rate risk is the risk that future cash flows will fluctuate as a result in changes in market interest rates. The Corporation is exposed to interest rate risk to the extent the changes in market interest rates will impact the Corporation s bank. The Corporation has not entered into any interest rate swaps or financial contracts to date. With regards to interest rate risk, a change of 1% in the effective interest rate would have a minimal impact on the consolidated statement of loss and comprehensive loss. Foreign currency exchange rate risk is the risk that the fair value or future cash flows will fluctuate as a result of changes in foreign exchange risks. The Corporation is exposed to foreign exchange rate risk since the exploration and development costs of its Tunisia Project will mostly be denominated in U.S. dollars. The effect of at 1% change in the exchange rate would have approximately a $157,373 impact on the consolidated statement of loss and comprehensive loss. 16. Capital disclosures: In the definition of capital, the Corporation includes shareholders equity. The Corporation`s objectives when managing capital is to safeguard the entity's ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders. The Corporation sets the amount of capital in proportion to risk. The Corporation manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Corporation may issue new shares, or engage in debt financing. The Corporation is not exposed to external capital requirements.

20 Notes to the Consolidated Financial Statements, page Commitment and contingencies: Revenu Quebec and the Ministere des Ressources naturelles et de la Faune of Quebec have denied certain exploration expenditures for prior years in the determination of the refundable provincial tax credits and mining duties refund. The Corporation has appealed these reassessments. If the Corporation is not successful with its objections, the Corporation may potentially have to repay refunds of up to $168,462, which has been recorded in trade and other payables. On May 13, 2016, $145,499 will no longer be applicable for reassessment. The remaining payable of $22,983 has become disqualified as of May 13, 2016 and was written off in the year ended September 30, The Corporation is involved in litigation matters arising out of the ordinary course and conduct of its business from operations conducted in Tunisia. A claim on behalf of a former partner is proceeding to arbitration in the sum of US135,989. A settlement payment of $75,000 has been accrued in the financial statements. The final outcome of the settlement has not been reached and is still considered to be undeterminable.