MCF Energy Ltd. — Audit Report / Information 2021

Apr 30, 2021

Consolidated Financial Statements

Pinedale Energy Limited

December 31, 2020 and 2019 (Expressed in Canadian Dollars)

Independent Auditor’s Report

To the Shareholders of Pinedale Energy Limited:

Opinion

We have audited the consolidated financial statements of Pinedale Energy Limited and its subsidiaries (the "Company), which comprise the consolidated statements of financial position as at December 31, 2020 and December 31, 2019, and the consolidated statements of income (loss) and comprehensive income (loss), changes in shareholders’ equity (deficit) and cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as at December 31, 2020 and December 31, 2019, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards.

Basis for Opinion

We conducted our audits in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audits of the consolidated financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Material Uncertainty Related to Going Concern

We draw attention to Note 1 in the consolidated financial statements, which indicates that the Company incurred a net loss during the year ended December 31, 2020 and, as at that date, had an accumulated deficit. As stated in Note 1, these events or conditions, along with other matters as set forth in Note 1, indicate that a material uncertainty exists that may cast significant doubt on the Company’s ability to continue as a going concern. Our opinion is not modified in respect of this matter.

Other Information

Management is responsible for the other information. The other information comprises Management’s Discussion and Analysis.

Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audits of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audits or otherwise appears to be materially misstated. We obtained Management’s Discussion and Analysis prior to the date of this auditor’s report. If, based on the work we have performed on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of the 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.

In preparing the consolidated financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company’s financial reporting process.

Auditor's Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit 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 Company’s internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

• Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Company to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audits and significant audit findings, including any significant deficiencies in internal control that we identify during our audits.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

The engagement partner on the audit resulting in this independent auditor's report is Ronald D. Miller.

Vancouver, British Columbia April 30, 2021

Chartered Professional Accountants

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PINEDALE ENERGY LIMITED

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

[Expressed in Canadian dollars]

As at

ASSETS Current Cash and bank balances Receivables and prepaids_[note 4] Total current assets Oil and gas properties[note 6] Total assets LIABILITIES AND SHAREHOLDERS’ EQUITY Current Accounts payable and accrued liabilities[note 5] Current portion of promissory note[notes 8 and 11] Total current liabilities Decommissioning liability[note 7] Promissory note[notes 8 and 11] Long-term debt[note 9] Total liabilities Shareholders’ equity (deficit) Share capital[note 10]_ Contributed surplus Accumulated other comprehensive income Deficit Total shareholders’ (deficit) equity Total liabilities and shareholders’ equity	December 31, 2020 $ December 31, 2019 $
	29,661 747,438 62,396 666,338
	92,057 1,413,776 - 10,755,878
	92,057 12,169,654
	114,739 1,151,654 95,490 -
	210,229 1,151,654 - 912,655 - 3,234,038 - 6,039,420
	210,229 11,337,767
	5,319,746 5,319,746 711,932 688,841 - 732,774 (6,149,850) (5,909,474)
	(118,172) 831,887
	92,057 12,169,654

Nature of operations and going concern (Note 1)

Subsequent events (Note 17)

On behalf of the Board:

“Scott Young” “Claus Andrup” Director Director

The accompanying notes are an integral part of these consolidated financial statements. 2

PINEDALE ENERGY LIMITED

CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)

[Expressed in Canadian dollars]

GENERAL AND ADMINISTRATIVE EXPENSES Administration services Consulting fees_[note 11] Directors’ fees[note 11] Interest[note 8, 9 and 11] Net gain on disposal of subsidiary[note 16] Share based compensation[note 10 and 11] NET LOSS FROM CONTINUING OPERATIONS Loss (gain) from discontinued operations[note 16]_ NET (LOSS) INCOME FOR YEAR Other comprehensive income (loss) Exchange differences from translation of foreign operations COMPREHENSIVE (LOSS) INCOME FOR YEAR Basic and diluted earnings per share Continuing operations Discontinued operations Weighted average number of common shares	Year ended December 31, 2020 Year ended December 31, 2019 $ $
	125,317 107,045 3,000 - 23,484 - 160,414 584,834 (242,211) - 23,091 39,826
	93,095 731,705
	(93,095) (731,705) (147,281) 1,764,806
	(240,376) 1,033,101 (732,774) (192,104)
	(973,150) 840,997
	0.00 (0.01) 0.00 0.02
	112,472,114 112,472,114

The accompanying notes are an integral part of these consolidated financial statements. 3

PINEDALE ENERGY LIMITED

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT)

[Expressed in Canadian dollars]

Balance, December 31, 2018 Share based compensation Discount on related party loan Other comprehensive loss for the year Net income for the year Balance, December 31, 2019 Share based compensation Other comprehensive loss for the year Net loss for the year Balance, December 31, 2020	Number of issued and outstanding Class A Common shares # Share capital $ Contributed Surplus $ Retained earnings $	Accumulated other comprehensive income (loss) $ Total equity $
	112,472,114 5,319,746 430,591 (6,942,575) - - 39,826 - - - 218,424 - - - - - - - - 1,033,101	924,878 (267,360) - 39,826 - 218,424 (192,104) (192,104) - 1,033,101
	112,472,114 5,319,746 688,841 (5,909,474) - - 23,091 - - - - - - - - (240,376)	732,774 831,887 - 23,091 (732,774) (732,774) - (240,376)
	112,472,114 5,319,746 711,932 (6,149,850)	- (118,172)

The accompanying notes are an integral part of these consolidated financial statements. 4

PINEDALE ENERGY LIMITED CONSOLIDATED STATEMENTS OF CASH FLOWS

[Expressed in Canadian dollars]

OPERATING ACTIVITIES Net (loss) income from continuing operations Net (loss) income from discontinued operations Net (loss) income for year Add item not affecting cash Impairment on oil and gas properties_[note 6] Depletion[note 6] Unrealized gain on derivative financial instruments Share based compensation[note 10 and 11] Non-cash portion of interest expense Net liabilities on disposal of subsidiary Deferred tax expense (recovery)[note 12] Changes in non-cash working capital items Other receivables and prepaids Accounts payable and accrued liabilities Cash provided by operating activities INVESTING ACTIVITIES Investment in oil and gas properties[note 6] Cash used in investing activities FINANCING ACTIVITIES Funds paid on promissory note[note 8] Repayment on long-term debt[note 9]_ Cash (used in) provided by financing activities Increase (decrease) in cash during the year Effects of exchange rate changes on cash Cash, beginning of year Cash, end of year Supplemental cash flow information: Oil and gas additions in accounts payable and accrued liabilities Cash interest paid	Year ended December 31, 2020 $ Year ended December 31, 2019 $
	(93,095) 1,033,101 (147,281) -
	(240,376) 1,033,101 - - 661,099 599,799 - (17,606) 23,091 39,826 85,482 209,461 (480,411) - - (114,547)
	(48,885) 1,750,034 (50,887) 727,306 62,583 (446,777)
	60,581 2,030,563
	(26,428) (31,815)
	(26,428) (31,815)
	(547,509) (500,000) (204,420) (986,550)
	(751,929) (1,486,550)
	(717,777) 512,198 - (17,049) 747,438 252,289
	29,661 747,438
	- 4,699 237,754 735,768

5

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

PINEDALE ENERGY LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

[Expressed in Canadian dollars]

1. NATURE OF OPERATIONS AND GOING CONCERN

Pinedale Energy Limited [“Pinedale” or the “Company”] was incorporated under the British Columbia Business Corporations Act on December 17, 2007. The Company is a junior resource company previously engaged in the identification, and the exploration and development, of both proven and unproven reserves via drilling and/or acquisition with a focus on the State of Wyoming, U.S.A. The address of the Company's registered office is Suite 1500 - 701 West Georgia Street, Vancouver, British Columbia, V7Y 1C6. The Company is trading on the Toronto Venture Exchange (TSX-V) under the trading symbol “MCF”.

On July 31, 2020 the Company sold its interest in its wholly owned subsidiary companies, 0970831 B.C. Ltd and Pinedale Energy Inc., with the result that the Company’s oil and gas assets and related liabilities were disposed of. The consolidated financial statements include the results of the subsidiaries to the date of disposition.

These consolidated financial statements have been prepared on a going concern basis, which assumes that the Company will continue in operation in the foreseeable future and will be able to realize its assets and settle its liabilities in the normal course of business. At December 31, 2020, the Company had cash of $29,661 (2019 - $747,348) and working capital deficiency of $118,172 (2019 – working capital of $262,122). The Company currently has no active business and is not generating any revenues. It has frequently incurred losses and negative cash flows from operations since inception and had an accumulated deficit of $6,149,850 as at December 31, 2020 (2019 – $5,909,474). Whether and when the Company can obtain profitability and positive cash flows from operations is uncertain. These conditions indicate the existence of a material uncertainty that may cast significant doubt on the ability of the Company to continue as a going concern.

The Company’s ability to continue its operations is dependent on its success in raising equity through share issuances, suitable debt financing and/or other financing arrangements. While the Company has been successful in raising equity in the past, there can be no guarantee that it will be able to raise sufficient funds to fund its activities and general and administrative costs in the next twelve months and in the future. These consolidated financial statements do not give effect to the required adjustments to the carrying amounts and classification of assets and liabilities should the Company be unable to continue as a going concern.

On March 11, 2020, there was a global outbreak of COVID-19 (coronavirus), which has had a significant impact on businesses through the restrictions put in place by the Canadian, provincial and municipal governments regarding travel, business operations and isolation/quarantine orders. At this time, it is unknown the extent of the impact of the COVID-19 outbreak may have on the Company as this will depend on future developments that are highly uncertain and that cannot be predicted with confidence. While the extent of the impact is unknown, we anticipate this outbreak may cause staff shortages and increased government regulations, all of which may negatively impact the Company’s business and financial condition.

2. BASIS OF PREPARATION

Statement of compliance

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”) in effect on January 1, 2020.

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PINEDALE ENERGY LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

[Expressed in Canadian dollars]

2. BASIS OF PREPARATION (continued)

These consolidated financial statements were approved for issuance by the Board of Directors on April 28, 2021.

Basis of measurement

The consolidated financial statements have been prepared on the historical cost convention, except for financial assets classified as amortized cost and fair value through profit or loss (“FVTPL”) which are measured at fair value. These consolidated financial statements are presented in Canadian dollars.

Basis of consolidation

The consolidated financial statements include the financial statements of the Company and its whollyowned controlled US subsidiary, Pinedale Energy Inc., as well as the Company’s wholly-owned Canadian subsidiary 0970831 B.C. Ltd. up until their disposal on July 31, 2020. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. All inter-company transactions and balances have been eliminated upon consolidation. The financial statements of the subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

Functional and presentation currency

Items included in the consolidated financial statements are measured using the currency of the primary economic environment in which the entity operates in (the “functional currency”). The consolidated financial statements are presented in Canadian dollars, which is the functional currency of Pinedale Energy Ltd. and 0970831 BC Ltd. The functional currency of Pinedale Energy Inc., is the US dollar. Transactions in currencies other than the functional currency are recorded at the rates of exchange prevailing on the transaction dates. All assets and liabilities are translated into the presentation currency using the exchange rate in effect on the reporting date, shareholders’ equity accounts are translated using the historical rates of exchange and revenue and expenses are translated at the average rate for the year. Exchange gains and losses on translation are included as a separate component of accumulated other comprehensive income.

3. SIGNIFICANT ACCOUNTING POLICIES

Revenue recognition

Pinedale principally generates revenue from the sale of commodities, which include crude oil and natural gas. Revenue associated with the sale of commodities is recognized when control is transferred from Pinedale to its customers. Sales to customers are made pursuant to contracts based on prevailing commodity pricing at or near the time of delivery and volumes of product delivered. Revenues are typically collected in the month following delivery. The Company's commodity sale contracts represent a series of distinct transactions. The Company considers its performance obligations to be satisfied and control to be transferred when all the following conditions are satisfied:

• Pinedale has transferred title and physical possession of the commodity to the buyer;

• Pinedale has transferred the significant risks and rewards of ownership of the commodity to the buyer; and,

• Pinedale has the present right to payment.

7

PINEDALE ENERGY LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

[Expressed in Canadian dollars]

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Revenue is measured based on the consideration specified in a contract with a customer and excludes amounts collected on behalf of third parties. The Company’s revenue transactions do not contain significant financing components.

Pinedale does not have any long-term contracts with unfulfilled performance obligations and does not disclose information about remaining performance obligations with an original expected duration of 12 months or less.

Joint interests

A portion of the Company’s exploration, development and production activities are conducted jointly with others through unincorporated joint ventures. These consolidated financial statements reflect only the Company’s proportionate interest of these joint operations and the proportionate share of the relevant revenue and related costs.

Cash

Cash consists of deposits held in banks. The Company places its cash with institutions of high-credit worthiness.

Royalties and production tax

Oil and gas royalties are paid, pursuant to lease agreements, to the owners of the mineral rights, which can include private citizens, state governments or the federal government. Royalties can also be granted out of the lessee’s interest in the lease (often referred to as an overriding royalty). Royalties are recorded at the time the product is sold and are calculated in accordance with the applicable lease agreements. Production taxes are recorded at the time transfer of title occurs. Production taxes are calculated in accordance with the applicable regulations, are paid to the state government and are a fixed percentage of revenue.

Oil and gas properties

Pre-exploration expenditures

Expenditures made by the Company before acquiring the legal right to explore a specific area do not meet the definition of an asset, and therefore are expensed by the Company as incurred.

Exploration and evaluation expenditures

Once a legal right to explore has been obtained, costs directly associated with an exploration well are capitalized as exploration and evaluation assets (“E&E”). These assets include, but are not limited to, exploration license expenditures, leasehold property acquisition costs, evaluation costs including drilling costs directly attributable to an identifiable well and directly attributable general and administrative costs. These costs are accumulated in cost centers by property and are not subject to depletion until technical feasibility and commercial viability has been determined.

Exploration and evaluation assets are assessed for impairment when facts and circumstances suggest that the carrying value exceeds the recoverable amount.

8

PINEDALE ENERGY LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

[Expressed in Canadian dollars]

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

The technical and commercial viability of extracting petroleum resources is considered to be determinable when proved and probable reserves are determined to exist. A review of each exploration license or field is carried out, at least annually, to ascertain whether proved and probable reserves have been discovered. Upon determination of proved and probable reserves, exploration and evaluation assets attributable to these reserves are tested for impairment and reclassified to oil and gas properties.

Development and production costs

Oil and gas development and production assets are measured at cost less accumulated depletion and accumulated impairment losses. Oil and gas properties include costs related to drilling development wells, well completions, infrastructure construction, successful E&E projects and estimated decommissioning liabilities.

The costs of planned major overhaul, turnaround activities and equipment replacement that maintain oil and gas properties and benefit future years of operations are capitalized. Recurring planned maintenance activities performed on shorter intervals are expensed as operating costs. Replacements outside of a major overhaul or turnaround are capitalized when it is probable that future economic benefits will flow to the Company and the associated carrying amount of the replaced asset (or part of a replaced asset) is derecognized.

Development and production assets are grouped into cash generating units (“CGU”) for impairment testing and depletion calculations. CGUs are defined as the lowest grouping of integrated assets that generate identifiable cash inflows that are largely independent of the cash inflows of other assets or groups of assets. The classification of assets into CGUs requires significant judgement and interpretations with respect to the integration between assets, the existence of active markets, shared infrastructures, and the way in which management monitors the Company’s operations.

Gains and losses on disposal of an item of oil and gas properties, including oil and natural gas interests, are determined by comparing the proceeds from disposal with the carrying amount of oil and gas properties and are recognized in the consolidated statement of income (loss) and comprehensive income (loss).

Subsequent costs

Costs incurred subsequent to commercial production including the costs of replacement are recognized in the consolidated statement of income (loss) and comprehensive income (loss) as incurred unless they increase the future economic benefits in the assets to which they relate.

Depletion

Depletion of oil and gas properties is determined using the unit-of-production method based on production volumes in relation to the total estimated proved and probable reserves as determined on an annual basis in compliance with NI 51-101 – Standards of Disclosure of Oil and Gas Activities , taking into account estimated future development costs necessary to bring those reserves into production. Future development costs are estimated taking into account the level of development required to produce the reserves. These estimates are reviewed by independent reserve engineers at least annually. Natural gas reserves and production are converted at the energy equivalent of six thousand cubic feet to one barrel of oil.

9

PINEDALE ENERGY LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

[Expressed in Canadian dollars]

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Proved and probable reserves are estimated using independent reserve engineer reports and represent the estimated quantities of crude oil, natural gas and natural gas liquids which geological, geophysical and engineering data demonstrate with a 90% degree of certainty to be recoverable in future years from known proved and probable reservoirs and which are considered commercially producible.

Impairment

Exploration and evaluation assets are assessed for impairment when they are reclassified to developing and producing assets, as oil and gas properties, and also if facts and circumstances suggest that the carrying amount exceeds the recoverable amount.

Development and production assets are grouped into a CGU for impairment testing. A CGU’s recoverable amount is the higher of its fair value less costs of disposal and its value in use. Where the carrying amount of a CGU exceeds its recoverable amount, the asset group is considered impaired and it is written down to its recoverable amount. Impairment losses are recognized in the consolidated statement of income (loss) and comprehensive income (loss).

Fair value less costs of disposal is determined to be the amount for which the asset could be sold in an arm’s length transaction. Fair value less costs of disposal can be determined by using an observable market or by using discounted future net cash flows.

Value in use is determined by estimating the present value of the future net cash flows expected to be derived from the continued use of the asset or CGU.

Impairment losses recognized in prior years are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depletion and depreciation or amortization, if no impairment loss had been recognized.

Financial instruments

Effective January 1, 2018, the Company adopted IFRS 9, Financial Instruments. Financial instruments are recognized when the Company becomes a party to the contractual provisions of the instrument. Financial assets and liabilities are not offset unless the Company has the current legal right to offset and intends to settle on a net basis or settle the asset and liability simultaneously.

The Company characterizes its fair value measurements into a three-level hierarchy depending on the degree to which the inputs are observable, as follows:

• Level 1 inputs are quoted prices in active markets for identical assets and liabilities;

• Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability either directly or indirectly; and,

• Level 3 inputs are unobservable inputs for the asset or liability.

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PINEDALE ENERGY LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

[Expressed in Canadian dollars]

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Classification and measurement of financial assets

The initial classification of a financial asset depends upon the Company’s business model for managing its financial assets and the contractual terms of the cash flows. There are three measurement categories into which the Company classified its financial assets:

• Amortized Cost: Includes assets that are held within a business model whose objective is to hold assets to collect contractual cash flows and its contractual terms give rise on specified dates to cash flows that represent solely payments of principal and interest. Financial instruments under this classification include cash, accounts receivable, accounts payable and accrued liabilities, promissory notes and long-term debt;

• Fair Value through Other Comprehensive Income ("FVOCI"): Includes assets that are held within a business model whose objective is achieved by both collecting contractual cash flows and selling the financial assets, where its contractual terms give rise on specified dates to cash flows that represent solely payments of principal and interest; or,

• Fair Value Through Profit or Loss ("FVTPL"): Includes assets that do not meet the criteria for amortized cost or FVOCI and are measured at fair value through profit or loss. This includes all derivative financial instruments.

At initial recognition, the Company measures a financial asset at its fair value and, in the case of a financial asset not at FVTPL, including transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at FVTPL are recorded as an expense in the consolidated statement of income (loss) and comprehensive income (loss).

Financial assets are reclassified subsequent to their initial recognition only if the business model for managing those financial assets changes. The affected financial assets will be reclassified on the first day of the first reporting period following the change in the business model. A financial asset is derecognized when the rights to receive cash flows from the asset have expired or have been transferred and the Company has transferred substantially all the risks and rewards of ownership.

Impairment of financial assets

The Company recognizes loss allowances for expected credit losses ("ECLs") on its financial assets measured at amortized cost. Due to the nature of its financial assets, the Company measures loss allowances at an amount equal to expected lifetime ECLs. Lifetime ECLs are the anticipated ECLs that result from all possible default events over the expected life of a financial asset. ECLs are a probabilityweighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the Company expects to receive). ECLs are discounted at the effective interest rate of the related financial asset. The Company does not have any financial assets that contain a financing component.

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PINEDALE ENERGY LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

[Expressed in Canadian dollars]

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Classification and measurement of financial liabilities

A financial liability is initially classified as measured at amortized cost or FVTPL. A financial liability is classified as measured at FVTPL if it is held-for-trading, a derivative, or designated as FVTPL on initial recognition. The classification of a financial liability is irrevocable.

Financial liabilities at FVTPL are measured at fair value with changes in fair value, along with any interest expense, recognized in the consolidated statement of income (loss) and comprehensive income (loss). Other financial liabilities are initially measured at fair value less directly attributable transaction costs and are subsequently measured at amortized cost using the effective interest method. Interest expense and foreign exchange gains and losses are recognized in the consolidated statement of income (loss) and comprehensive income (loss). Any gain or loss on derecognition is also recognized in the consolidated statement of income (loss) and comprehensive income (loss).

Derivative Financial Instruments

Derivative financial instruments are used to manage economic exposure to market risks relating to commodity prices. Policies and procedures are in place with respect to required documentation and approvals for the use of derivative financial instruments. Where specific financial instruments are executed, the Company assesses, both at the time of purchase and on an ongoing basis, whether the financial instrument used in the particular transaction is effective in offsetting changes in fair values or cash flows of the transaction.

Risk management assets and liabilities are derivative financial instruments classified as measured at FVTPL unless designated for hedge accounting. Derivative instruments that do not qualify as hedges, or are not designated as hedges, are recorded using mark-to-market accounting whereby instruments are recorded in the consolidated statement of financial position as either an asset or liability with changes in fair value recognized in the consolidated statement of income (loss) and comprehensive income (loss) as a gain or loss on risk management. The estimated fair value of all derivative instruments is based on quoted market prices or, in their absence, third-party market indications and forecasts.

Share capital

Financial instruments issued by the Company are classified as equity only to the extent that they do not meet the definition of a financial liability or financial asset. The Company’s common shares, stock options and warrants are classified as equity instruments.

Incremental costs directly attributable to the issue of new shares are shown as a deduction, net of tax, from the proceeds.

Share based compensation

Share based compensation to non-employees are measured at fair value of goods and services received or the fair value of the equity instrument issued, if it is determined that the fair value of the goods or services cannot be reliably measured, and are recorded at the date the goods or services are received.

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PINEDALE ENERGY LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

[Expressed in Canadian dollars]

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Share based compensation to employees are measured at the fair value of the instruments issued and amortized over the vesting periods. The corresponding amount is recorded in contributed surplus.

The fair value of options are determined using the Black-Scholes Option Pricing Model. The number of shares and options expected to vest are reviewed and adjusted at the end of each reporting period such that the amount recognized for services received as consideration for the equity instruments granted shall be based on the number of equity instruments that eventually vest. When the options are exercised, the applicable amounts are transferred to share capital.

Related party transactions

Parties are considered to be related if one party has the ability to directly or indirectly control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties subject to common control are also considered to be related. Related parties may be individuals or corporate entities. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties.

Provisions

Provisions are recognized for liabilities of uncertain timing or amounts that have arisen as a result of past transactions, including legal or constructive obligations and it is probable that there will be a requirement to settle. The provision is measured at the best estimate of the present value of the amount required to settle the obligation using a pre-tax rate reflecting current market assessment, the time value of money and the risk specific to the obligation. Future increases resulting from the passing of time will be recognized as an accretion expense.

Decommissioning liabilities

Decommissioning liabilities include those legal or constructive obligations to retire assets such as well sites, gathering systems, natural gas processing plants and access roads at the end of their productive lives. The obligation is recognized when a property is acquired or a well is completed. The amount recognized in the consolidated statement of financial position is the present value of estimated future expenditures required to settle an obligation using a risk-free rate. A corresponding asset equal to the initial estimated liability is capitalized as part of the cost of the related long-lived asset. Changes in the estimated liability resulting from revisions to estimated timing or future decommissioning cost estimates are recognized as a change in the decommissioning cost and related long-lived asset. The amount capitalized is depleted with oil and gas properties based on the unit of production method. Increases in the decommissioning liabilities resulting from the passage of time are recognized as finance expense in the consolidated statement of income (loss) and comprehensive income (loss). Actual costs incurred to retire assets are charged against the decommissioning liability. Differences between the actual costs incurred and the liability accrued are recognized in the consolidated statement of income (loss) and comprehensive income (loss) when reclamation of the area is completed.

average market price of the shares for the year. The effect is to increase the number of shares used to calculate diluted earnings per share and is only recognized when the effect is dilutive.

13

PINEDALE ENERGY LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

[Expressed in Canadian dollars]

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Earnings (loss) per share

Earnings (loss) per share is calculated by dividing the net income (loss) for the year by the weighted average number of common shares outstanding during the year. The calculation of diluted earnings per share assumes any outstanding options and warrants are exercised and class B common shares are converted into class A common shares and proceeds are used to repurchase common shares at the

Income taxes

Income tax expense is comprised of current and deferred tax. Current tax and deferred tax are recognized in the consolidated statement of income (loss) and comprehensive income (loss) except to the extent that it relates to a business combination, or to items recognized directly in equity.

Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.

Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.

Deferred tax is not recognized for the following temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss, and differences relating to investments in subsidiaries and jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable future. In addition, deferred tax is not recognized for taxable temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.

A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.

Significant accounting estimates, judgments and assumptions

The preparation of these consolidated financial statements requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual outcomes could differ from these estimates. Certain estimates by their nature are uncertain. The impacts of such estimates could be pervasive throughout the financial statements and may require accounting adjustments based on future occurrences. Revisions to accounting estimates are recognized in the period in which the estimate is revised and future periods if the revision affects both current and future periods. These estimates are based on historical experience, current and future

14

PINEDALE ENERGY LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

[Expressed in Canadian dollars]

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

economic conditions and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

The following accounting policies are subject to such judgements and because of the uncertainty associated with the estimation process they could have the most significant impact on the reported results and financial position:

Reserves

The estimate of oil and gas reserves is integral to the calculation of the amount of depletion to be charged to the consolidated statement of income (loss) and comprehensive income (loss) and is also a key determinant in assessing whether the carrying value of any of the Company’s oil and gas properties have been impaired. Changes in reported reserves can impact asset carrying values. The Company’s reserves are evaluated and reported on by independent reserve engineers in accordance with National Instrument 51-101 – Standards of Disclosure of Oil and Gas Activities . Reserve estimation is based on a variety of factors which are subject to significant judgement and interpretation.

Decommissioning liability

At the end of the operating life of the Company’s facilities and properties and upon retirement of its petroleum and natural gas assets, decommissioning costs will be incurred by the Company. This requires judgment regarding the abandonment date, future environmental and regulatory legislation, the extent of reclamation activities, the engineering methodology for estimating cost, future removal technologies in determining the removal cost and discount rates to determine the present value of these cash flows.

Fair value of related party promissory note

Management assesses the coupon interest rate on related party loans payable compared to the estimated interest rate if the loan payable was received from a third party. The third party interest rate is based on various assumptions and is an estimate that is updated by management on an individual loan payable basis. Changes in the assumptions may materially affect the initial fair value of the related party loan payable and subsequent interest payments made to reflect the loan payable at amortized cost.

Oil and gas properties

The Company assesses at each reporting date whether or not there is an indication that an asset may be impaired. If any indication exists that an asset may be impaired, the Company estimates the recoverable amount determined based on the higher of value-in-use and fair value less costs to sell. These calculations are based on a number of factors which are subject to estimates and assumptions.

Deferred taxes

Tax interpretations, regulations and legislation in the various jurisdictions in which the Company operates are subject to change. As such income taxes are subject to measurement uncertainty. Deferred tax assets are assessed by management at the end of each reporting period to determine the likelihood that they will be realized from future taxable earnings.

15

PINEDALE ENERGY LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

[Expressed in Canadian dollars]

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Share-based compensation

Compensation costs accrued for under the Company's Stock Option plan are subject to the estimation of what the ultimate payout will be using the Black-Scholes pricing model which is based on significant assumptions such as the future volatility of the market price of Pinedale’s shares.

Adoption of new and revised standards

The following standards, amendments and interpretations have been issued but are not yet effective:

The IASB issued an amendment to IAS 16, Property, Plant and Equipment to prohibit the deducting from mineral properties, plant and equipment amounts received from selling items produced while bringing an asset into the location and condition necessary for it to be capable of operating in the manner intended by management. The amendment will require sales proceeds and related costs to be recognized in the statement of earnings (loss). The amendment is effective for annual reporting periods beginning on or after January 1, 2022, with earlier application permitted. This amendment is not expected to have a material impact on the Company.

The IASB issued “Interest Rate Benchmark Reform – Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16)” with amendments that address issues that might affect financial reporting after the reform of an interest rate benchmark, including its replacement with alternative benchmark rates. The amendments are effective for annual reporting periods beginning on or after January 1, 2021. This amendment is not expected to have a material impact on the Company.

There are no other IFRS standards or International Financial Reporting Interpretations Committee interpretations that are not yet effective or early adopted that are expected to have any impact on the Company.

4. RECEIVABLES AND PREPAIDS

The receivables and prepaids balance consists of the following:

Trade Receivables Prepaid expenses Income taxes receivable	December 31, 2020 December 31, 2019
	$ - $ 633,471 61,250 29,063 1,146 3,804
	$ 62,396 $ 666,338

As at December 31, 2020, all of the Company's receivables were outstanding for less than 90 days.

16

PINEDALE ENERGY LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

[Expressed in Canadian dollars]

5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

The accounts payable and accrued liabilities balance consists of the following:

Accounts payable Accrued liabilities	December 31, 2020 December 31, 2019
	$ 71,446 $1,008,816 43,293 142,838
	$114,739 $1,151,654

6. OIL AND GAS PROPERTIES

Sublette County, State of Wyoming, U.S.A.

The Company’s oil and gas assets comprised seventeen leases in Sublette County in the State of Wyoming. In July 2020, the Company completed the sale of its wholly-owned subsidiary, 0970831 B.C. Ltd., and its indirect wholly-owned subsidiary, Pinedale Energy Inc., which holds the oil and gas assets, pursuant to a Share Transfer and Assignment Agreement. ( Notes 16)

The carrying values of the oil and gas assets were as follows:

The carrying values of the oil and gas assets were as follows:
Balance, December 31, 2018	$11,693,786
Additions	31,815
Change in decommissioning liability	177,977
Depletion	(599,799)
Reportingcurrencytranslation adjustment	(547,900)
Balance, December 31, 2019	$10,755,878
Additions	26,428
Depletion	(661,099)
Reportingcurrencytranslation adjustment	354,939
Balance, July 31, 2020	$10,476,146
Disposition_[Note 16]_	(10,476,146)
Balance December 31, 2020	$ -

17

PINEDALE ENERGY LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

[Expressed in Canadian dollars]

7. DECOMMISSIONING LIABILITY

The Company estimated the total undiscounted amount of cash flow required to settle its decommissioning obligation is approximately $1,034,739 (2019 - $986,146). The payments to settle this obligation are expected to occur from 2039 to 2065 (Note 3). All decommissioning liabilities were eliminated upon sale of the Company’s subsidiaries on July 31, 2020 (Note 16).

Balance, December 31, 2018	$751,831
Accretion of discount	19,037
Change in estimate	177,977
Reportingcurrencytranslation adjustment	(36,190)
Balance, December 31, 2019	$912,655
Accretion of discount	1,316
Reportingcurrencytranslation adjustment	29,432
Balance, July 31, 2020	$943,403
Disposition	(943,403)
Balance, December 31, 2020	$ -

8. PROMISSORY NOTE

• a) On September 1, 2017, the Company executed a promissory note to secure a loan advance of $4,000,000. The promissory note payable was secured against the assets of the Company, bears interest at a rate of 10% per annum which can be repaid at any time without penalty with a maturity date of September 1, 2021. During the year ended December 31, 2020, the Company made principal repayments of $643,000 (2019 - $500,000). In addition, the Company recognized $72,639 and $85,482 of interest expense and accretion, respectively. As at July 31, 2020, the Company had $2,676,520 outstanding on the note. The note was assumed by the purchasers of the Company’s subsidiaries at the time of disposition. (Note 16)

• b) On September 16, 2020, the Company executed a promissory note of US$75,000 to secure shortterm financing for working capital purposes. The note is unsecured, interest free and is repayable on June 30, 2021.

9. LONG-TERM DEBT

On June 30, 2015, the Company’s wholly owned subsidiary, Pinedale Energy Inc., entered into a US$25 million revolving credit facility with CrossFirst Bank. The amount available under these facilities (“Collateral Borrowing Base”) is re-determined at least twice a year and is primarily based on the Company’s oil and gas reserves, the lending institution’s forecast commodity prices, the current economic environment and other factors. As at July 31, 2020 the Collateral Borrowing Base was US$6.0 million.

At July 31, 2020, the Company had a balance due of $6,031,800 (US$ 4,500,000) under its existing credit facility (December 31, 2019 - $6,039,420). The liability remained with the Company’s subsidiary when it was sold. resulting in a balance owing of $nil at December 31, 2020 (Note 16).

18

PINEDALE ENERGY LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

[Expressed in Canadian dollars]

10. SHARE CAPITAL

Authorized

The Company is authorized to issue:

• An unlimited number of voting Class A common shares without par value; and

• An unlimited number of voting Class B common shares without par value.

Issued and outstanding

As at December 31, 2020, there were 112,472,114 Class A shares outstanding and no Class B shares outstanding.

Stock option plan

The Company has a 20% fixed stock option plan under which stock options to purchase common shares of the Company may be granted to directors, officers and consultants.

In May 2020, the Company cancelled an aggregate of 1,314,064 incentive stock options which were granted in 2017 to certain directors, officers and consultants. Following the cancellation of the stock options there are no stock options issued and outstanding under the Company’s 2017 stock option plan. No stock options were granted in 2020, 2019 or 2018.

During the year ended December 31, 2017, the Company granted 1,314,064 options with an exercise price of $0.26 and an expiry date of June 26, 2022. In connection with this grant the company recorded a share based compensation expense of $23,091 during the period ended December 31, 2020 (December 31, 2019 – $39,826).

	Stock	Weighted-Average	Weighted-Average
	Options	Exercise Price	Remaining Life
Balance at December 31, 2018	1,314,064	$ 0.26	3.49
Granted	-	-	-
Balance at December 31, 2019	1,314,064	$ 0.26	2.49
Granted	-	-	-
Cancelled	(1,314,064)	-	-
Balance at December 31, 2020	-	-	-

Warrants

On April 30, 2016, the Company issued 999,999 warrants as part of a non-brokered private placement. These warrants have an exercise price of $0.26 and expire on April 29, 2021.

On June 26, 2017, the Company issued 5,000,000 warrants as part of a non-brokered private placement. These warrants have an exercise price of $0.26 and expire on June 26, 2022.

On October 26, 2017, the Company issued 5,000,000 warrants as part of a non-brokered private placement. These warrants have an exercise price of $0.36 and expire on October 26, 2022.

On July 3, 2018, 1,000,000 warrants expired.

19

PINEDALE ENERGY LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

[Expressed in Canadian dollars]

10. SHARE CAPITAL (continued)

As at December 31, 2020, the Company has a total of 10,999,999 warrants outstanding and exercisable in which the weighted average exercise price and the weighted average remaining life was $0.30 and 1.53 years, respectively (December 31, 2019 - $0.30 and 2.53 years, respectively).

11. RELATED PARTY TRANSACTIONS

Transactions with related parties and key management personnel were in the normal course of operations and are measured at the exchange amount established and agreed to by the related parties.

		December 31,
	December 31, 2020	2019
Interest on promissory notes	$72,639	$365,616
Remuneration of key management personnel(1)
Consulting fees	$84,000	$144,000
Management fees	-	-
Directors fees	$27,484	$12,000
Share based compensation	$15,394	$26,550

(1) Key management personnel identified above are consistent with the disclosure on Named Executive Officers provided in the Company’s Information Circular to shareholders for the respective years.

The promissory note described in Note 8 was payable to two Directors of the Company. The promissory note payable is at agreed upon terms. During the year ended December 31, 2020, the Company paid $72,639 (2019 – $365,616) in interest on the promissory note.

As at December 31, 2020, accounts payable and accrued liabilities included $24,658 (2019 - $12,000) payable to these related parties.

20

PINEDALE ENERGY LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

[Expressed in Canadian dollars]

12. INCOME TAX

Income tax expense

The following table reconciles the expected income tax expense at the Canadian statutory income tax rate to the amounts recognized in the consolidated statement of income (loss) and comprehensive income (loss) for the year ended December 31, 2020 and 2019.

Net income (loss) before taxes Current statutory income tax rate Expected income tax expense (recovery) Non-deductible items Change in estimates Foreign exchange and other Settlement of intercompany balances Foreign tax rate difference Change in deferred tax asset not recognized Income tax expense (recovery) Current tax expense (recovery) Deferred tax expense (recovery)	2020 $ 2019 $
	(240,376) 867,728 27% 27%
	(64,902) 234,287 17,365 31,330 (365) (163,221) 9,991 (44,944) (402,141) - 10,081 (64,393) 429,971 (158,432)
	- (165,373)
	- (50,826) - (114,547)
	- (165,373)

Deferred tax liabilities

Deferred taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and their corresponding values for tax purposes.

Details of deferred tax assets (liabilities) are as follows:

USA Net operating losses Oil andgasproperties	2020 $ 2019 $
	- - 106,831 - (106,831)
Net deferred tax asset(liability)	- -
Canada Non-capital losses Capital losses Intercompany balances Promissory note	48,729 - 95,900 47,795 - (47,795) - (24,090) (48,729) (71,810)
Net deferred tax asset (liability)	- -

21

PINEDALE ENERGY LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

[Expressed in Canadian dollars]

12. INCOME TAX (continued)

The unrecognized deductible temporary differences are as follows:

USA Net operating losses Other receivables Decommissioning liability Oil andgasproperties	2020 $ 2019 $
	- 2,819,198 - - - 702,691 -
Unrecognized deductible temporarydifferences	- 3,521,889
Canada Non capital losses Financing costs Capital losses	108,120 55,174 2,626 5,253 2,624,786 19,944
Unrecognized deductible temporary differences	2,735,531 80,370

As at December 31, 2020, the Company has not recognized a deferred tax asset in respect of capital loss carryforwards of approximately $2,978,820 (2019: $19,944) which may be carried forward indefinitely to apply against taxable capital gains in future years for Canadian income tax purposes, subject to the final determination by taxation authorities. The Company has not recognized a deferred tax asset in respect of non-capital loss carryforwards of approximately $108,120 (2019: $55,174) which expire from 2037 to 2039 for Canadian income tax purposes, subject to final determination by taxation authority.

13. CAPITAL MANAGEMENT

It is management’s objective to safeguard its capital in order that it will be able to continue as a going concern in the best interest of all stakeholders. The capital of the Company consists of cash and the items included in the consolidated shareholders’ equity, which is consistent with the prior year.

The Company currently has limited sources of revenues. As such, the Company is dependent upon external financings to fund activities. In order to finance future projects and to pay for administrative activities, the Company will spend its existing working capital and raise additional funds as needed. Management reviews its capital management practices on an ongoing basis and believes that their approach, given the relative size of the Company, is reasonable. There have been no changes to the Company capital management process in the past year.

22

PINEDALE ENERGY LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

[Expressed in Canadian dollars]

14. FINANCIAL INSTRUMENTS RISK EXPOSURE AND RISK MANAGEMENT

The Company is exposed in varying degrees to a variety of financial instrument related risks. The main types of risks are credit risk, liquidity risk and market risk. These risks arise throughout the normal course of operations and all transactions are undertaken as a going concern. The type of risk exposure and the way in which such exposure is managed is provided as follows:

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 Company is exposed to credit risk primarily associated with cash and receivables. The carrying amounts of these assets included on the consolidated statement of financial position represent the maximum credit exposure. The Company limits exposure to credit risk by maintaining its cash with institutions of high creditworthiness.

The Company’s investment policy is to hold cash in interest-bearing bank accounts.

The maximum credit risk exposure associated with cash and receivables is the total carrying value.

Foreign exchange risk

Foreign exchange risk arises from the changes in foreign exchange rates that may affect the fair value or future cash flows of the Company's financial assets or liabilities. The Company’s exposure to foreign exchange risk since the disposition of its investments in its subsidiaries is minimal.

Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash. The Company manages its capital in order to meet short term business requirements, after taking into account cash flows, capital expenditures and cash holdings. The Company believes that these sources should be sufficient to cover the likely short term requirements. In the long term, the Company may have to issue additional equity to ensure there is cash available for its programs. All current financial liabilities, being accounts payable and accrued liabilities, are payable within a 90 day period and are to be funded from cash.

Interest rate risk

The Company has no exposure to interest rate risk since disposing of its subsidiaries. All interest bearing debt was assumed by the subsidiaries.

Fair value

The carrying value of the Company's cash, receivables, accounts payable and accrued liabilities, and debt approximate fair value due to their immediate and short-term nature. The Company classifies its fair value measurements with the following fair value hierarchy:

Level 1 - Unadjusted quoted prices at the measurement date for identical assets or liabilities in active markets

23

PINEDALE ENERGY LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

[Expressed in Canadian dollars]

14. FINANCIAL INSTRUMENTS RISK EXPOSURE AND RISK MANAGEMENT (continued)

Level 2 - Observable imports other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3 - Unobservable imports which are supported by little or no market activity.

There has been no change between levels during the year. The Company’s risk management contracts are classified as Level 2.

The fair values of the Company’s financial instruments are outlined below:

		2020
	FVTPL	Amortized Cost		Fair value
Asset (liability)			Level 1	Level 2	Level 3
Cash	$29,661	-	$29,661	-	-
Receivables and prepaids	-	62,396	-	62,396
Accounts payable and accrued liabilities	-	(114,739)	-	(114,739)	-
Promissorynote	-	(95,490)	-	(95,490)	-

		2019
	FVTPL	Amortized Cost	Fair value
Asset (liability)			Level 1	Level 2	Level 3
Cash	$747,438	-	$747,438 -		-
Receivables and prepaids	-	666,338	-	666,338	-
Accounts payable and accrued liabilities	-	(1,151,654)	-	(1,151,654)	-
Promissory note	-	(3,234,038)	-	(3,234,038)	-
Long-term debt	-	(6,039,420)	-	(6,039,420)	-

24

PINEDALE ENERGY LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

[Expressed in Canadian dollars]

15. SEGMENT INFORMATION

The Company has no operating activities and as at December 31, 2020, the Company did not have any reportable operating segments as a result of the sale of its Subsidiaries.

The breakdown by geographic area as at December 31, 2019 is as follows:

	Canada United States Total
Current assets	$159,203 $1,254,573 $1,413,776
Non-current assets	- 10,755,878 10,755,878
Total assets	$159,203 $12,010,451 $12,169,654
Total liabilities	$3,304,614 $8,033,153 $11,337,767
Revenues	$ - $5,116,046 $5,116,046
Operating expenses	- 2,815,023 2,815,023
	- 2,301,023 2,301,023
General and administrative expenses (860,368) (572,927) (1,433,295)
Net income before taxes	(860,368) 1,728,096 867,728
Income tax expense	- (92,074) (92,074)
Income tax recovery	257,447 - 257,447
Net income $(602,921) $1,636,022 $1,033,101

16. DISPOSITION OF WHOLLY OWNED ENTITIES

In July 2020 the Company completed the sale of its wholly-owned subsidiary, 0970831 B.C. Ltd., and its indirect wholly-owned subsidiary, Pinedale Energy Inc., which holds the oil and gas assets, pursuant to a Share Transfer and Assignment Agreement. Pursuant to the terms and conditions of the Share Transfer Agreement: (i) all of the issued and outstanding shares of 0970831 B.C. Ltd. were transferred to the purchasers; and (ii) all outstanding indebtedness of the Company owed to the purchasers, and all indebtedness owed to the Company by the Company's indirect wholly-owned subsidiary Pinedale Energy Inc., was assigned to and assumed by 0970831 B.C. Ltd. ( Notes 4, 5(a) and 6).

The Company reported a net gain on disposal of its subsidiaries of $242,211 comprised of the following:

	$
Net assets disposed of	(9,409,512)
Promissory note payable assumed by purchaser	2,676,520
Loan liability assumed by purchaser	6,031,800
Decommissioning liability assumed by purchaser	943,403
Net gain on disposal	242,211

The Company has presented the disposal of the shares of the Subsidiaries as discontinued operations, and accordingly, has reclassified the results of operations of the discontinued operations during the year ended December 31, 2019.

25

PINEDALE ENERGY LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

[Expressed in Canadian dollars]

16. DISPOSITION OF WHOLLY OWNED ENTITIES (continued)

Below summarizes the results of discontinued operations of the Company’s interest in its Oil and Gas subsidiaries for the years ended December 31, 2020 and 2019.

REVENUE Natural gas sales Royalties Net oil and gas revenue OPERATING EXPENSE Consulting fees Depletion Production tax Gathering Lease operating Transportation GENERAL AND ADMINISTRATIVE EXPENSES Administration services Consulting fees Director’s fees Interest NET (LOSS) INCOME BEFORE TAXES Income tax recovery Deferred tax recovery NET (LOSS) INCOME FROM DISCONTINUED OPERATIONS	Year ended December 31, 2020 Year ended December 31, 2019 $ $
	1,973,557 6,534,532 (632,037) (1,418,486)
	1,341,520 5,116,046
	8,422 17,741 661,099 599,799 (327,936) 617,693 299,440 711,621 356,540 837,536 15,772 30,633
	1,013,337 2,815,023
	328,183 2,301,023
	204,203 157,503 104,439 164,998 4,000 - 162,822 379,089
	475,464 701,590
	(147,281) 1,599,433 - (50,826) - (114,547)
	(147,281) 1,764,806

The net cash flows used in discontinued operations during the years ended December 31, 2020 and 2019 were ($429,225) and $556,687 respectively.

26

PINEDALE ENERGY LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

[Expressed in Canadian dollars]

16. DISPOSITION OF WHOLLY OWNED ENTITIES (continued)

The breakdown of the net cash flows used in discontinued operations for the years ended December 31 2020, and 2019 is as follows:

020, and 2019 is as follows:
Operating activities Investing activities Financing activities Net cash flows used in discontinued operations	Year ended December 31, 2020 Year ended December 31, 2019
	(7,705) 2,061,224 (338,529) 486,844 (82,991) (1,991,381)
	(429,225) 556,687

17. SUBSEQUENT EVENTS

On October 6, 2020 the Company announced that it had executed a definitive merger agreement with Flavocure Biotech, Inc. (“Flavocure”), and entered into an engagement letter (the “Engagement Letter”) with Leede Jones Gable Inc. in respect of a proposed offering by Pinedale of subscription receipts pursuant to which Pinedale will raise gross proceeds of up to $3,000,000, subject to a minimum offering of $1,500,000.

Further to the letter of intent entered into on May 19, 2020, the Company has entered into a binding merger agreement (the “Merger Agreement”) with Flavocure and Pinedale USA Inc. (“Pinedale Sub”) a wholly-owned subsidiary of the Company, in respect of a statutory merger under the Delaware General Corporation Law (the “Proposed Transaction”). Upon completion of the Proposed Transaction, the resulting company (the “Resulting Issuer”) will continue to carry on the business of Flavocure, is expected to change its name to “Flavocure Biotech, Inc.” and is expected to remain listed on the TSX Venture Exchange (the “Exchange”).

Pursuant to the Merger Agreement, Pinedale is required to implement a 10:1 consolidation of its outstanding Common Shares. Thereafter, Flavocure will merge with Pinedale Sub, and the shareholders of Flavocure will receive post-consolidation Common Shares of the Resulting Issuer based upon the exchange ratio, which is 65 post-consolidation Common Shares for each share of common stock of Flavocure. Certain convertible notes issued by Flavocure will be automatically converted into Flavocure common stock in connection with the Proposed Transaction. The board of directors and officers of the Resulting Issuer will be changed to appoint nominees determined by Flavocure.

The Proposed Transaction has not yet completed and is subject to the satisfaction of various conditions that are customary for a transaction of this nature, including but not limited to, the approval by the shareholders of Flavocure, and the receipt of all requisite regulatory, stock exchange, or governmental authorizations and consents, including the TSX-V.

27