Record Resources Inc. — Audit Report / Information 2020

May 19, 2021

Silk Road Energy Inc.

FINANCIAL STATEMENTS

For the years ended September 30, 2020 and 2019

(Expressed in Canadian Dollars)

Independent Auditor's Report

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To the Shareholders of Silk Road Energy Inc.:

Opinion

We have audited the financial statements of Silk Road Energy Inc. (the "Company"), which comprise the statements of financial position as at September 30, 2020 and September 30, 2019, and the statements of loss and comprehensive loss, changes in shareholder's deficiency and cash flows for the years then ended, and notes to the financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as at September 30, 2020 and September 30, 2019, and its financial performance and its 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 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 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 a) in the financial statements, which indicates that the Company has incurred a net loss during the year ended September 30, 2020 and, as of that date, the Company had an accumulated deficit. As stated in Note 1 a) , these events or conditions, along with other matters as set forth in Note 1 a), create a material uncertainty which 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 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 financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the 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 Financial Statements

Management is responsible for the preparation and fair presentation of the financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the 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 Financial Statements

Our objectives are to obtain reasonable assurance about whether the 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 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 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 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 financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

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 Leanne Bjalek.

Calgary, Alberta May 14, 2021

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Chartered Professional Accountants

Silk Road Energy Inc. STATEMENTS OF FINANCIAL POSITION

(Expressed in Canadian Dollars) As at September 30,

ASSETS Current assets Cash $ Accountsreceivable	ASSETS Current assets Cash $ Accountsreceivable	2020 52,255 $ 8,400	2019 924 3,236
Petroleumandnaturalgasinterests (Note 5)		60,655 19,801	4,160 21,856
Total assets $		80,456 $	26,016
LIABILITIES Current liabilities Accounts payable and accrued liabilities $ Decommissioningliability (Note 6)		811,203 $ 95,994	761,369 89,705
Total liabilities $		907,197 $	851,074
SHAREHOLDERS' DEFICIENCY Share capital (Note 8) Contributed surplus Deficit		1,321,993 162,341 (2,311,075)	1,214,993 162,341 (2,202,392)
Total shareholders’ deficiency		(826,741)	(825,058)
Total liabilities and shareholders’ deficiency $		80,456 $	26,016
Going Concern (Note 1) Subsequent Event (Note 13) On Behalf of the Board of Directors “Signed Paul Craig” Director	“Signed Vladimir Katic”
	Director

The accompanying notes form an integral part of these financial statements.

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(Expressed in Canadian Dollars) For the years ended September 30,

Silk Road Energy Inc. STATEMENTS OF LOSS AND COMPREHENSIVE LOSS

Other income Royalty recoveries Operating costrecoveries	2020 2019 20,714 5,692 - 2,632
Expenses Operating costs General and administrative Depletion (Note 5) Impairment (Note 5) Accretion(Note 6)	20,714 8,324 19,443 3,105 101,612 115,923 5,793 3,398 1,271 19,880 1,278 1,682
	129,397 143,988
Net loss and comprehensive loss $	(108,683) $ (135,664)
Loss per share Basic and diluted $ Weighted average number of common shares outstanding	(0.01) $ (0.01) 12,012,788 12,012,788

The accompanying notes form an integral part of these financial statements.

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Silk Road Energy Inc. STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICIENCY

(Expressed in Canadian Dollars)

Number of Shares	Share Capital	Contributed Surplus	Deficit Total
Balance at September 30, 2018 12,012,788 Netlossforthe year -	$ 1,214,993 -	$ 162,341 -	$ (2,066,728) $ (689,394) (135,664) (135,664)
Balance at September 30, 2019 12,012,788	1,214,993	162,341	(2,202,392) (825,058)
Preferred shares issued 2,140,000	107,000	-	- 107,000
Net loss for the year -	-	-	(108,683) (108,683)
Balance at September 30, 2020 16,292,788	$ 1,321,993	$ 162,341	$ (2,311,075) $ (826,741)

The accompanying notes form an integral part of these financial statements.

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Silk Road Energy Inc. STATEMENTS OF CASH FLOWS For the years ended September 30, 2020 & 2019

		2020		2019
OPERATING ACTIVITIES
Net loss for the year	$	(108,683)	$	(135,664)
Depletion (Note 5)		5,793		3,398
Impairment (Note 5)		1,271		19,880
Accretion (Note 6)		1,278		1,682
Change in working capital accounts:
Account receivable		(5,162)		27,040
Accounts payable and accruedliabilities		49,834		84,630
Cash provided by (used in) operating activities		(55,669)		966
FINANCING ACTIVITIES
Issuance ofpreferred shares (Note 8)		107,000		-
Cash provided by financing activities		107,000		-
Increase in cash		51,331		966
Cash (bank indebtedness), beginning of year		924		(42)
Cash, end ofyear	$	52,255	$	924

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Silk Road Energy Inc. NOTES TO THE FINANCIAL STATEMENTS For the years ended September 30, 2020 & 2019

1. Nature of Operations and Going Concern

Silk Road Energy Inc. (the "Company") was incorporated under the laws of the Province of Alberta on November 9, 2010. The Company’s principal business activity is the exploration, development and production of petroleum and natural gas assets in Alberta. The address of the registered head office is Suite 1900, 520 3[rd] Avenue SW, Calgary, AB T2P 0R3

a) Going concern

The Company has been cease traded since August 9, 2019. During the year, the Company incurred net losses of $108,683 (2019 – $135,664), had accumulated a deficit of $2,311,073 (2019 - $2,202,392) and no current sources of cash inflows. These factors indicate the existence of a material uncertainty which may cast significant doubt about the Company’s ability to continue as a going concern. Management has been and continues to be active in seeking alternative sources of funding to lift its cease trade order. The Company is also looking for potential asset acquisitions that will generate future positive cash flows.

The Company's ability to continue as a going concern is dependent upon its ability to complete asset acquisitions, attain profitable operations, generate sufficient funds to commence its future operations to repay its debts as they come due, and continue to obtain sufficient capital from investors or other sources of financing to meet its current and future obligations. However, there is no assurance that these initiatives will close as anticipated, and the Company may require additional sources of financing.

These financial statements do not reflect the adjustments or reclassification of assets and liabilities which would be necessary if the Company were unable to continue as a going concern and therefore be required to realize its assets and liabilities in other than the normal course of business and potentially at amounts significantly different from those recorded in these financial statements.

b) COVID-19

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 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. These uncertainties arise from the inability to predict the ultimate geographic spread of the disease, and the duration of the outbreak, including the duration of travel restrictions, business closures or disruptions, and quarantine/isolation measures that are currently, or may be put, in place by Canada and other countries to fight the virus. While the extent of the impact is unknown, we anticipate this outbeak and increased government regulations, which may delay the finalization of any pending transactions and may negatively impact the Company’s business and financial condition.

2. Basis of Preparation

a) Statement of compliance

These financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and the Interpretations of the IFRS Interpretations Committee (“IFRIC”) and in effect at October 1, 2019.

The financial statements were authorized for issue by the Board of Directors on May 14 2021.

b) Basis of measurement

These financial statements have been prepared on a historical cost basis except for cash and share-based payment transactions which are measured at fair value.

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Silk Road Energy Inc. NOTES TO THE FINANCIAL STATEMENTS For the years ended September 30, 2020 & 2019

2. Basis of Preparation (continued)

c) Functional and presentation currency

The financial statements are presented in Canadian dollars, which is the Company’s functional currency.

d) Use of estimates and judgments

The preparation of the Company’s financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and contingent liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting year. By their nature, these estimates are subject to measurement uncertainty and effect on financial statements or changes in such estimates in future years could be material. The estimates and underlying assumptions are reviewed by management on an ongoing basis. Revisions to estimates are recognized in the year in which the estimate is revised.

In the process of applying the Company’s accounting policies, management has made the following judgments, estimates, and assumptions which have the most significant effect on the amounts recognized in the financial statements.

Cash-generating-units (“CGUs”) determination

The determination of CGUs requires judgment in defining the smallest identifiable group of assets that generate cash inflows that are largely independent of the cash inflows from other assets or groups of assets. CGUs are determined by similar geological structure, shared infrastructure, geographical proximity, commodity type, similar exposure to market risk and materiality. The Company has determined that at September 30, 2020 it has two (2019 – two) CGUs being Thornbury and Bashaw.

Oil & gas reserves

Oil and gas development and production properties are depleted on a unit of production basis at a rate calculated by reference to prove and probable reserves determined in accordance with the Society of Petroleum Engineers rules and incorporating the estimated future cost of developing and extracting those reserves. Oil and gas reserves are also used to evaluate impairment of petroleum and natural gas interests. Commercial reserves are determined using estimates of oil and natural gas in place, recovery factors, discount rates and forward future prices. Future development costs are estimated using assumptions as to the number of wells required to produce the commercial reserves, the cost of such wells and associated production facilities, and other capital costs. There are numerous uncertainties inherent in estimating oil and gas reserves. Estimating reserves is very complex, requiring many judgments based on geological, geophysical, engineering and economic data. These estimates may change, having either a positive or negative impact on the statement of loss and comprehensive loss as further information becomes available and as the economic environment changes.

Depletion

Depletion of petroleum and natural gas interests is provided using the unit-of-production method and is based on production volumes (before royalties) in relation to total estimated gross proved and probable reserves as determined at year-end by the Company’s independent engineers. Natural gas reserves and production are converted at the energy equivalent of six thousand cubic feet to one barrel of oil. Calculations for depletion of petroleum and natural gas interests including production equipment and facilities are based on total capitalized costs plus estimated future development costs of proved and probable reserves less the estimated net realizable value of production equipment and facilities after the reserves are fully produced. Exploration and evaluation costs are excluded from depletion calculations.

The calculation of the unit-of-production rate of depletion could be impacted to the extent that actual production in the future is different from current forecast production. This would generally result from significant changes in any of the factors or assumptions used in estimating reserves.

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Silk Road Energy Inc. NOTES TO THE FINANCIAL STATEMENTS For the years ended September 30, 2020 & 2019

2. Basis of Preparation (continued)

d) Use of estimates and judgments (continued)

These factors could include:

• Changes in proved and probable reserves.

• Changes in estimates of future development costs.

• The effect on proved and probable reserves of differences between actual production as compared to forecasts as well as commodity price assumptions.

• Unforeseen operational issues.

Impairment indicators

The Company assesses its petroleum and natural gas (“P&NG”) interests for possible impairment if there are events or changes in circumstances that indicate the carrying values of the assets may not be recoverable. Such indicators include changes in the Company’s business plans, changes in commodity prices, evidence of physical damage and significant downward revisions to estimated recoverable volumes or increases in estimated future development expenditures. The assessment of impairment for P&NG interests involves comparing the carrying value of the CGU with the higher of value in use and fair value less costs to sell. Determination as to whether and how much an asset is impaired involves management estimates on highly uncertain matters such as future commodity prices, the effects of inflation on operating expenses, discount rates, production profiles and the outlook for regional supply-and-demand conditions for crude oil, natural gas and liquids.

Decommissioning obligations

Decommissioning obligations will be incurred by the Company at the end of the operating life of certain facilities and properties. Decommissioning obligations are estimated based on current legal and constructive requirements, technology, price levels and expected plans for remediation and are inflated to the date of decommissioning of the asset and discounted at a risk-free rate. The ultimate decommissioning costs are uncertain and cost estimates can vary in response to many factors including changes to relevant regulatory requirements, the emergence of new restoration techniques or experience at other production sites. The expected timing and amount of expenditure can also change, for example in response to changes in reserves or changes in laws and regulations or their interpretation. As a result, there could be significant adjustments to the provisions established which would affect future financial results.

Provision for expected credit losses

The Company's accounts receivables are typically short-term in nature and the Company recognizes an amount equal to the lifetime expected credit losses (“ECL”) on receivables for which there has been a significant increase in credit risk since initial recognition. The Company measures expected credit losses based on historical experience and including forecasted economic conditions. The amount of ECLs is sensitive to changes in circumstances of forecast economic conditions.

Share based payments

The fair value of stock options granted is recognized using the Black-Scholes option pricing model. Measurement inputs include the Company’s share price on the measurement date, the exercise price of the options, the expected volatility of the Company’s shares, expected life of the options, expected dividends, and the risk-free rate of return. The Company estimates volatility based on the historical volatility of similar entities following a comparable period in their lives. The expected life of the options is based on historical experience and estimates of the holder’s behaviour. Dividends are not factored in as the Company does not expect to pay dividends in the foreseeable future. Management also makes an estimate of the number of options that will be forfeited, and the rate is adjusted to reflect the number of options that actually vest.

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Silk Road Energy Inc. NOTES TO THE FINANCIAL STATEMENTS For the years ended September 30, 2020 & 2019

2. Basis of Preparation (continued)

d) Use of estimates and judgments (continued)

Deferred taxes

Uncertainties exist with respect to the interpretation of complex tax regulations and the amount and timing of future taxable income. The Company establishes provisions, based on reasonable estimates, for possible consequences of audits by the tax authorities. The amount of such provisions is based on various factors, such as experience of previous tax audits and differing interpretations of tax regulations by the taxable entity and the responsible tax authority. Deferred tax assets are recognized for all unused tax losses to the extent that it is probable that taxable earnings will be available against which the losses can be utilized. Significant management judgment is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and the level of future taxable earnings together with future tax planning strategies.

3. Significant Accounting Policies

The assessment of the Company’s ability to execute its strategy by funding future working capital involves judgment. Estimates and assumptions are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstance. There is a material uncertainty regarding the Company’s ability to continue as a going concern. The Company’s principal source of cash is from private placements. The Company is dependent on raising funds in order to have sufficient capital to be able to identify, evaluate and then acquire an interest in assets or a business.

a) Joint arrangements

The Company conducts many of its oil and gas production activities through jointly controlled operations and the financial statements reflect only the Company’s proportionate interest in such activities.

Joint control exists for contractual arrangements governing the Company's assets whereby the Company has less than 100 per cent working interest, all of the partners have control of the arrangement collectively, and spending on the project requires unanimous consent of all parties that collectively control the arrangement and share the associated risks. The Company does not have any joint arrangements that are structured through joint venture arrangements.

b) Financial instruments

i) Financial assets - The classification of financial assets is based on the Company’s assessment of its business model for holding financial assets and the contractual terms of the cash flows. The classification categories are as follows:

• Financial assets measured at amortized cost: 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 are solely payments of principal and interest on the principal amount outstanding.

• Financial assets at fair value through other comprehensive income (“FVOCI”): assets that are held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets and its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

• Financial assets at fair value through profit or loss (“FVTPL”): assets that do not meet the criteria for amortized cost or FVOCI.

Financial assets measured at amortized cost are measured at cost using the effective interest method. The amortized cost is reduced by impairment losses at an amount equal to the lifetime expected credit losses that result from all possible default events over the expected life of the financial instrument. Loss allowances for financial assets measured at amortized cost are deducted from the gross carrying amounts of the assets and the loss is recognized in the statements of loss and comprehensive loss. When a trade receivable is uncollectible, it is written off against the provision for expected credit losses.

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Silk Road Energy Inc. NOTES TO THE FINANCIAL STATEMENTS For the years ended September 30, 2020 & 2019

3. Significant Accounting Policies (continued)

b) Financial instruments ( continued )

Financial assets are derecognized when the contractual rights to the cash flows from the financial asset expire or when the contractual rights to those assets are transferred.

Cash has been classified as FVTPL. Accounts receivable has been classified as amortized cost.

ii) Financial liabilities - The classification of financial liabilities is determined by the Company at initial recognition. The classification categories are as follows:

• Financial liabilities measured at amortized cost: financial liabilities initially measured at fair value less directly attributable transaction costs and are subsequently measured at amortized cost using the effective interest method. Interest expense is recognized in statement of loss and comprehensive loss.

• Financial liabilities measured at fair value through profit or loss: financial liabilities measured at fair value with changes in fair value and interest expense recognized in the statement of loss and comprehensive loss.

Financial liabilities are derecognized when the obligation in discharged, cancelled or expired. Accounts payable and accrued liabilities have been classified as amortized cost.

c) Revenue recognition

The Company principally generates revenue from the sale of commodities, which primarily consist of natural gas. Revenue associated with the sale of commodities is recognized when control is transferred from the Company to its customers. 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:

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

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

• The Company has the present right to payment.

Revenue is measured based on the consideration specified in a contract with the customer. Payment terms for the Company’s commodity sales contracts are on the 25th of the month following delivery. The Company does not have any contracts where the period between the transfer of the promised goods or services to the customer and payment by the customer exceeds one year. As a result, the Company does not adjust its revenue transactions for the time value of money. Revenue represents the Company’s share of commodity sales net of royalty obligations to governments and other mineral interest owners.

The Company enters into contracts with customers that can have performance obligations that are unsatisfied (or partially unsatisfied) at the reporting date. The Company applies a practical expedient of IFRS 15 and does not disclose information about remaining performance obligations that have original expected durations of one year or less, or for performance obligations where the Company has a right to consideration from a customer in an amount that corresponds directly with the value to the customer of the Company’s performance completed to date.

Contract modifications with the Company’s customers could change the scope of the contract, the price of the contract, or both. A contract modification exists when the parties to the contract approve the modification either in writing, orally, or based on the parties’ customary business practices. Contract modifications are accounted for either as a separate contract when there is an additional product at a stand-alone selling price, or as part of the existing contract, through either a cumulative catch-up adjustment or prospectively over the remaining term of the contract, depending on the nature of the modification and whether the remaining products are distinct.

The Company has applied the practical expedient to recognize revenue in the amount to which the Company has the right to invoice. As such, no disclosure is included relating to the amount of transaction price allocated to remaining performance obligations and when these amounts are expected to be recognized as revenue.

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Silk Road Energy Inc. NOTES TO THE FINANCIAL STATEMENTS For the years ended September 30, 2020 & 2019

3. Significant Accounting Policies (continued)

d) Petroleum and natural gas (“P&NG”) interests

P&NG interests are carried at cost, less accumulated depletion and accumulated impairment losses. The cost of an item of P&NG interests consists of the purchase price, any costs directly attributable to bringing the asset into the location and condition necessary for its intended use, a discounted current estimate of the decommissioning costs and borrowing costs for qualifying assets.

Oil and gas capitalized costs are depleted using the unit-of-production method. Depletion is calculated using the ratio of production in the period to the remaining total proved and probable reserves before royalties, taking into account future development costs prior to inflation necessary to bring those reserves into production.

These estimates are evaluated and reported on by independent reserve engineers annually. Proven 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 specified degree of certainty to be recoverable in future years from known reservoirs and which are considered commercially producible.

Changes in estimates such as quantities of proved and probable reserves that affect unit-of-production calculations are applied on a prospective basis.

An item of P&NG interests is derecognized upon disposal or is impaired when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss on disposal of the asset, determined as the difference between the net proceeds and the carrying amount of the asset, is recognized in loss in the period incurred.

e) Impairment of assets

Non-financial assets

At each financial reporting date, the carrying amounts of P&NG interests are reviewed to determine whether there is any indication that those assets are impaired. If such indication exists, an estimate of the recoverable amount of the asset is calculated.

In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Fair value less cost to sell is derived by estimating the discounted after-tax future net cash flows. Discounted future net cash flows are based on forecasted commodity prices and costs over the expected economic life of the reserves and discounted market-based rates to reflect a market participant view of the risks associated with the assets.

An impairment loss is recognized if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment losses are recognized in net loss. Impairment losses recognized in prior periods 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, if no impairment loss had been recognized. A reversal of an impairment loss is recognized immediately in net loss.

Tax expense is comprised of current and deferred tax expenses. Tax expense is recognized in net loss except to the extent that the tax expense related to items recognized in other comprehensive income or directly in equity.

Current tax expense is based on the results for the period as adjusted for items that are not taxable or not deductible. Current tax is calculated using tax rates and laws that were enacted or substantively enacted at the end of the reporting period. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. Provisions are established where appropriate on the basis of amounts expected to be paid to the tax authorities.

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Silk Road Energy Inc. NOTES TO THE FINANCIAL STATEMENTS For the years ended September 30, 2020 & 2019

3. Significant Accounting Policies (continued)

e) Impairment of assets (continued)

Deferred tax is recognized using the liability method. Under this method, deferred tax assets and liabilities are recognized in relation to temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. 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, 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 to the extent that it is probable that future taxable profits will be available against which the temporary difference 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.

Deferred tax assets and liabilities are not recognized in respect of temporary differences that arise on initial recognition of assets and liabilities acquired other than in a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit.

f) Per share amounts

Basic loss per share are computed using the weighted average number of common shares outstanding during the year. The Company uses the treasury stock method to compute the dilutive effect of options, warrants and similar instruments. Under this method the dilutive effect on loss per share is calculated presuming the exercise of outstanding options, warrants and similar instruments. It assumes that proceeds received from the exercise of “in-the-money” stock options and warrants would be used to purchase common shares at the average market price during the year. However, the calculation of diluted loss per share excludes the effects of various conversions and exercise of options and warrants that would be anti-dilutive.

Shares held in escrow that are only released upon contingent events are not included in the calculation of the weighted average number of common shares.

g) Decommissioning liability

The Company’s activities give rise to dismantling, decommissioning and site remediation activities. A provision is made for the estimated cost of site restoration and capitalized in the relevant asset category.

Decommissioning liabilities are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the statement of financial position date. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation discounted using a market risk-free rate, updated at each reporting date. The increase in the provision due to the passage of time is recognized as accretion expense, within financing fees, whereas increases or decreases due to changes in the estimated cost are capitalized as P&NG interests. Actual costs incurred upon settlement of the decommissioning liability reduce the liability to the extent the provision was established. The related decommissioning asset is depleted on the same basis as the P&NG interests to which it relates.

h) Contingencies

When a contingency is substantiated by confirming events, can be reliably measured and will likely result in an economic outflow, a liability is recognized in the financial statements as the best estimate required to settle the obligation. A contingent liability is disclosed where the existence of an obligation will only be confirmed by future events, or where the amount of a present obligation cannot be measured reliably or will likely not result in an economic outflow. Contingent assets are only disclosed when the inflow of economic benefits is probable. When the economic benefit becomes virtually certain, the asset is no longer contingent and is recognized in the financial statements.

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Silk Road Energy Inc. NOTES TO THE FINANCIAL STATEMENTS For the years ended September 30, 2020 & 2019

3. Significant Accounting Policies (continued)

i) Share based payments

Equity-settled share-based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date.

The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Company’s estimate of equity instruments that will eventually vest. At the end of each reporting period, the Company revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognized in net loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to contributed surplus.

Equity-settled share-based payment transactions with parties other than employees are measured at the fair value of the goods or services received, except where that fair value cannot be estimated reliably, in which case they are measured at the fair value of the equity instruments granted, measured at the date the Company obtains the goods or the counterparty renders the service.

j) Equity instruments

Common shares and preferred shares are presented in share capital within shareholders’ equity. Incremental costs directly attributable to the issue of common shares and preferred shares are recognized as a deduction from share capital.

The Company has adopted a residual value method with respect to the measurement of shares and warrants issued as private placement units, whereby the carrying amount of the warrants is determined based on any difference between gross proceeds and the estimated fair market value of the shares. If the proceeds from the offering are less than or equal to the estimated fair market value of shares issued, no value is assigned to the warrants. Any value attributed to the warrants is recorded as reserves. Warrants that are issued as payment to a finder or other transaction costs are accounted for as share-based payments. The Company does not measure the impact of modification to the terms of warrants previously issued.

4. Accounting Pronouncements

a) Future account pronouncements issued but not yet applied

The International Accounting Standards Board (IASB) has issued a number of new standards to come into effect in future periods. Some updates that are not applicable or are not consequential to the Company may have been excluded from the list below.

Business Combinations:

Business Combinations – Effective January 1, 2020, the Company has adopted amendments defining a business from IFRS 3 – Business Combinations. The amendments are intended to provide additional guidance to determine if a transaction should be recorded as a business combination or an asset acquisition. The amendments clarify the minimum requirements for a business, remove the assessment of whether market participants are can replace any missing elements, add guidance to help entities assess if an acquired process is substantive, narrow the definitions of a business and of outputs, and introduce an optional fair value concentration test.

To be considered a business under the amendments to IFRS 3, an acquisition would have to include an input and a substantive process that together significantly contribute to the ability to create outputs. The optional concentration test permits a simplified assessment that results in an asset acquisition if substantially all of the fair value of the gross assets is concentrated in a single identifiable asset or a group of similar identifiable assets. An entity may elect to apply or not apply, the test. An entity may make such an election separately for each transaction or other event. The amendments of IFRS 3 had no impact on the Company for the year ended September 30, 2020.

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Silk Road Energy Inc. NOTES TO THE FINANCIAL STATEMENTS For the years ended September 30, 2020 & 2019

5. Petroleum and Natural Gas Interests

Cost
Balance, September 30, 2018	$	248,080
Change in decommissioning liability (Note 6)		8,937
Balance, September 30, 2019	$	257,017
Change in decommissioning liability (Note 6)		5,009
Balance, September 30, 2020	$	262,026
Accumulated depletion and depreciation
Balance, September 30, 2018	$	211,883
Impairment		19,880
Depletion		3,398
Balance, September 30, 2019	$	235,161
Impairment		1,271
Depletion		5,793
Balance, September 30, 2020	$	242,225
Net book value, September30,2019	$	21,856
Net book value, September 30, 2020	$	19,801

At September 30, 2020, the Company determined that indicators of impairment existed as a result of the decline in the market price of oil and gas. The Company performed an impairment test and recorded impairment of $1,271 (2019 - $19,880) on its Bashaw CGU which brings the value of the CGU to $19,801 (2019 - $21,856). The Company determined the recoverable amounts for its CGUs using the fair value less costs to sell method based on internally generated cash flow projections. In determining fair value less costs to sell, the Company considered recent transactions within the industry, long-term views of commodity prices, evaluated reserve volumes, and discount rates specific to the CGU. The calculation of the recoverable amount is sensitive to the assumptions regarding discount rates and commodity prices. The estimate of fair value less costs to sell at 2% (2019 – 2%) was determined using a discount rate of 15% (2019 – 15%) and forecasted cash flows, with escalating prices and future development costs for the Company’s proved (2019 - proved) reserves. The Company did not include any recoverable amount for its probable reserves. The forecast prices used to estimate the fair value less cost to sell are based on the below management’s estimates.

Year	AECO Spot($/MMBTU)	Year	AECO Spot($/MMBTU)
2020	1.76	2023	2.33
2021	2.02	2024	2.38
2022	2.29	Thereafter	2.43

Changes in any of the key judgments, such as a downward revision in reserves, a decrease in forecast benchmark commodity prices, changes in foreign exchange rates, an increase in royalties, or an increase in operating costs would change the recoverable amounts of assets and any changes to the impairment charges would affect net loss. An increase in the discount rate of 5% would result in an additional impairment of $2,233.

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Silk Road Energy Inc. NOTES TO THE FINANCIAL STATEMENTS For the years ended September 30, 2020 & 2019

6. Decommissioning Liability

Balance at September 30, 2018	$	79,086
Accretion		1,682
Changeinestimate		8,937
Balance at September 30, 2019	$	89,705
Accretion		1,278
Change in estimate		5,011
Balance at September 30, 2020	$	95,994

The Company estimates that the total undiscounted amount of cash flows required to settle its decommissioning liability is approximately $95,994 (2019 - $89,705) which will be incurred over the next 11 years ( 2019 – 12 years). Settlement of the obligations will be funded from general corporate funds at the time of retirement. An inflation rate of approximately 2.31% has been applied to the estimated abandonment and reclamation costs. Discount rates ranging from 1.02% to 1.67% (2019 – 1.57% to 2.42%) were used to calculate the present value of the decommissioning liability.

7. Income Tax

The net tax provision differs from that expected by applying the combined federal and provincial income tax rates of 26.88% (2019 – 26.88%) for the year ended September 30, 2020.

		2020		2019
Loss before taxes	$	(108,683)	$	(135,664)
Statutory tax rate		24.75%		26.88%
Expected income tax recovery		(26,899)		(36,466)
Change in enacted tax rates		1,902		65,795
Taxbenefitnotrecognized		24,997		(29,329)
Deferred tax recovery	$	-	$	-
etails of deferred tax assets (liabilities) are as follows:
		2020		2019
Petroleum and natural gas interests	$	20,591	$	(18,672)
Decommissioningliability		(20,591)		18,672
Net deferred tax liability	$	-	$	-

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

• 14 -

Silk Road Energy Inc. NOTES TO THE FINANCIAL STATEMENTS For the years ended September 30, 2020 & 2019

7. Income Tax (continued )

Details of the unrecognized deductible temporary differences are as follows:

etails of the unrecognized deductible temporary differences are	as follows:
		2020		2019
Decommissioning liability	$	20,591	$	81,183
Non-capital losses		1,668,107		1,567,767
Unrecognized deductible temporarydifferences	$	1,688,698	$	1,648,950

At this stage of the Company’s development, it cannot be reasonably estimated that there will be future taxable profits, accordingly there were no deferred income tax assets recognized.

As at September 30, 2020, the Company has a non-capital loss carry-forward balance of approximately $1,668,107 (2019 - $1,567,767) available to reduce future years' income for tax purposes. These losses will begin to expire in 2033 if not utilized.

8. Share Capital

a) Authorized

Unlimited number of common shares without par value

Unlimited number of preferred shares without par value

• b) Issued – Common shares

ssued – Common shares
	Number of common shares	Amount ($)
Balance, September 30, 2019, and 2020	12,012,788	1,214,993
ssued – Preferred shares
	Number of preferred shares	Amount ($)
Balance, September 30, 2019	-	-
Preferred shares issued	4,280,000	107,000
Balance, September 30, 2020	4,280,000	107,000

• c) Issued – Preferred shares

The company issued 4,280,000 preferred share units consisting of one Class A Preferred share and a one half of one preferred share purchase warrant. Each warrant entitles the holder thereof to acquire one preferred share of the corporation at a price of $0.10 for a period of twelve months following the closing date. At any time the Company may redeem the preferred shares into common shares for the redemption amount of $0.025 per preferred share or convert the preferred shares into common shares at a one to one ratio.

d) Warrants

		Weighted		Weighted
		average		average
	Number of	exercise		expiry date
	warrants	price	Amount ($)	(years)
Balance, September 30, 2019	-	-	-	-
Warrants issuedpursuant toprivateplacement	1,070,000	0.10	-	1
Balance, September 30, 2020	1,070,000	0.10	-	0.76

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Silk Road Energy Inc. NOTES TO THE FINANCIAL STATEMENTS For the years ended September 30, 2020 & 2019

9. Share-based Compensation

The Company has adopted an incentive stock option plan which provides that the Board of Directors of the Company may from time to time, in its discretion, and in accordance with the Exchange requirements, grant to directors, officers, employees and consultants to the Company, non-transferable options to purchase common shares, provided that the number of common shares reserved for issuance will not exceed 10% of the issued and outstanding common shares.

The following table summarizes information about stock options outstanding and exercisable:

		2020			2019
		Weighted	Weighted		Weighted	Weighted
		Average	Average		Average	Average
	Number of	Exercise	Remaining	Number of	Exercise	Remaining
	Options	Price	Life (years)	Options	Price	Life (years)
Balance, beginning of
year	1,743,506	$0.11	0.97	1,743,506	$ 0.11	1.97
Expired	(1,743,506)	(0.11)	-	-	-	-
Balance,end ofyear	-	-	-	1,743,506	$0.11	1.97

10. Financial Instruments and Risk Management

The Company’s financial instruments are comprised of cash, accounts receivable and accounts payable and accrued liabilities. Fair values of financial instruments and discussion of risks associated with financial instruments are presented as follows:

Fair value of financial instruments

The Company classifies the fair value of the financial instruments according to the following hierarchy based on the amount of observable inputs used to value the instrument.

• Level 1 – inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.

• Level 2 – inputs to the valuation methodology included quoted prices for identical assets or liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. Level 2 valuations are based on inputs, including quoted forward prices for commodities, time value and volatility factors, which can be substantially observed or corroborated in the marketplace.

• Level 3 – inputs to the valuation methodology are not based on observable market data.

Level 1 assumptions are used to value cash. The carrying value for cash, accounts receivable, bank indebtedness and accounts payable and accrued liabilities approximate their fair value due to the short-term nature of these financial instruments.

The Company manages risk through establishing policies that provide management oversight related to the risks of operations, including ensuring that risks are identified and assessed, and appropriate policies are in place and effective. Financial instruments present a number of specific risks. Market risk is the risk that the fair value of a financial instrument will fluctuate because of changes in market prices. For purposes of this disclosure, market risk is segregated into three categories: interest rate risk, commodity price risk and foreign currency risk. Other risks associated with financial instruments include credit risk and liquidity risk.

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Silk Road Energy Inc. NOTES TO THE FINANCIAL STATEMENTS For the years ended September 30, 2020 & 2019

10. Financial Instruments and Risk Management ( Continued )

Interest rate risk

Interest rate risk is the risk that future cash flows will fluctuate as a result of changes in market interest rates. The Company has no financial instruments that create interest rate risk exposure.

Commodity risk

The nature of the Company’s operations results in exposure to commodity price fluctuations. The Company closely monitors commodity prices to determine the appropriate course of action to be taken by the Company. The Company does not hedge commodity price risk and has no physical forward price or financial derivative sales contracts as at or during the year ended September 30, 2020.

During the year if production remained constant and the Company realized commodity prices changed by $1.00 per thousand cubic foot, the Company’s net loss would not vary significantly.

Foreign Currency risk

Prices for petroleum are determined in global markets and generally denominated in United States dollars. The Company had no forward exchange rate contracts in place nor any working capital items denominated in foreign currencies for the year ended September 30, 2020. An increase in the value of the Canadian dollar relative to the U.S. dollar decreases the revenues received from the sale of petroleum and natural gas commodities. Correspondingly, a decrease in the value of the Canadian dollar relative to the U.S. dollar increases the revenues received from the sale of petroleum and natural gas commodities. The impact of such exchange rate fluctuations is not material.

Credit risk

Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations. Substantially all of the Company’s accounts receivable include trade accounts receivables from petroleum and natural gas marketers and goods and services tax receivable and are subject to normal credit risk. The maximum exposure to credit risk is calculated as the total value of accounts receivable as at September 30, 2020. Significant changes in industry conditions and risks that negatively impact customers' ability to generate cash flow will increase the risk of not collecting receivables. Management believes the risk is mitigated by the size and reputation of the companies purchasing its oil and natural gas production as well as by the accounts receivable due from the government for goods and services tax receivable.

Accounts receivable consist mainly of GST receivable from the Government of Canada. The Company has been successful in recovering input tax credits and believes credit risk with respect to receivables to be insignificant.

Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they are due. The Company manages its cash inflows from operations and capital expenditures to ensure it will have sufficient liquidity to meet its liabilities when due. The Company's ongoing liquidity is impacted by various external events and conditions, including commodity price fluctuations and the global economic environment.

The Company’s financial liabilities consist of bank indebtedness, accounts payable and accrued liabilities. Accounts payable consist of invoices payable to trade suppliers for general, administrative, royalty, production and capital expenditures. All financial liabilities are current in nature.

• 17 -

Silk Road Energy Inc. NOTES TO THE FINANCIAL STATEMENTS For the years ended September 30, 2020 & 2019

11. Related party transactions

During the year ended September 30, 2020, management compensation of $18,000 (2019 - $18,000) to a company owned by the CFO of the Company. All these transactions were entered into in the normal course of operations.

Key management include all officers and directors of the Company.

		2020		2019
Keymanagement compensation	$	18,000	$	18,000

As at September 30, 2020, there was $536,365 (2019 - $538,015) of accounts payable and accruals to key management.

12. Capital Management

The Company’s policy is to maintain a strong and stable capital base for the objectives of maintaining financial flexibility, to sustain the development of the Company’s current capital projects and for future development of the Company. The Company manages its capital structures and makes adjustments to it in light of changes in economic condition and risk characteristics of the underlying assets The Company monitors its working capital and expected capital spending and issues share capital to manage its development plans. The Company is not subject to any externally imposed capital requirements.

The Company considers its capital structure to include shareholders’ equity.

13. Subsequent Event

Private placement

In February 2021, the Company completed a private placement. The Company has issued 2,300,000 subscription units for total proceeds of $57,500. Each unit is made up of 1 Class A preferred share in the amount of $0.025 and a half of a preferred share purchase warrant in the amount of $0.10.

• 18 -