Argenta Silver Corp. — Annual Report 2020

Mar 24, 2021

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ANNUAL FINANCIAL REPORT

Years ended December 31, 2020 and 2019

INDEPENDENT AUDITOR’S REPORT

To the Shareholders of Butte Energy Inc.

Opinion

We have audited the accompanying financial statements of Butte Energy Inc. (the “Company”), which comprise the statements of financial position as at December 31, 2020 and 2019, and the statements of net loss and comprehensive loss, shareholders’ equity (deficiency), and cash flow for the years then ended, and notes to the financial statements, including a summary of significant accounting policies.

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

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 audit 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 in our audits is sufficient and appropriate to provide a basis for our opinion.

Material Uncertainty Related to Going Concern

We draw attention to Note 1 of the financial statements, which indicates that the Company has an accumulated deficit of $22,467,881 and working capital of $216,160 as at December 31, 2020. As stated in Note 1, these events and conditions 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 obtained at the date of this auditor's report includes 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 audit 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 audit, 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, 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 IFRS, 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 audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

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 Glenn Parchomchuk.

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Vancouver, Canada March 23, 2021

Chartered Professional Accountants

BUTTE ENERGY INC. STATEMENTS OF FINANCIAL POSITION

EXPRESSED IN CANADIAN DOLLARS

	December 31,	December 31,	December 31,	December 31,
		2020		2019
Assets
Current assets
Cash	$	246,299	$	14,013
Amounts receivable		5,793		5,877
Reclamation deposits(Note 4)		97,038		96,129
		349,130		116,019
Total assets	$	349,130	$	116,019
Liabilities
Current liabilities
Amounts payable and accrued liabilities	$	52,100	$	147,080
Provision for environmental liabilities(Note 5)		80,870		80,870
		132,970		227,950
Long term liabilities
Convertible loan due to a relatedparty (Note 7(c))		-		326,730
Total liabilities		132,970		554,680
Shareholders' equity (deficiency)
Share capital (Note 6)		21,495,478		20,612,174
Equity reserve		1,188,563		389,893
Equity component of convertible loan		-		92,085
Deficit	(22,467,881)		(21,532,813)
Total shareholders' equity (deficiency)		216,160		(438,661)
Total liabilities and shareholders' equity (deficiency)	$	349,130	$	116,019

Nature of operations and going concern (Note 1) Subsequent events (Note 11)

Approved by the Board of Directors and authorized for issue on March 23, 2021

"Geir Liland" Director "D. Jeffrey Harder" Director

See accompanying notes to the financial statements

BUTTE ENERGY INC. STATEMENTS OF NET LOSS AND COMPREHENSIVE LOSS

EXPRESSED IN CANADIAN DOLLARS

		Years ended	December 31,
		2020	2019
Expenses
Advisory and consulting	$	30,000	$ -
Exploration expenses		232	14,480
Professional fees		50,264	77,317
Regulatory and transfer agent		45,491	13,803
Office and administration		11,114	7,002
Share-based compensation(Note 6(c))		798,670	-
		(935,771)	(112,602)
Finance expense (Note 7(b) and 7(c))		(57,033)	(60,684)
Finance income		909	1,902
Gain on write-off of liabilities(Note 8)		56,827	-
		703	(58,782)
Net loss and comprehensive loss	$	(935,068)	$ (171,384)
Basic and diluted lossper share	$	(0.00)	$ (0.00)
Weighted average number of common shares
outstanding- basic and diluted	306,263,390		303,066,402

See accompanying notes to the financial statements

BUTTE ENERGY INC.

STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)

EXPRESSED IN CANADIAN DOLLARS

	Equity Equity component of Total shareholders' Number Amount reserve convertible loan Deficit equity (deficiency) Share capital
Balance at December 31, 2018 Net loss and comprehensive loss	303,066,402 20,612,174 $ 389,893 $ 92,085 $ (21,361,429) $ (267,277) $ - - - - (171,384) (171,384)
Balance at December 31, 2019 Conversion of convertible loan Exercise of warrants Share-based compensation Net loss and comprehensive loss	303,066,402 20,612,174 389,893 92,085 (21,532,813) (438,661) 7,158,900 473,208 - (92,085) - 381,123 7,158,900 410,096 - - - 410,096 - - 798,670 - - 798,670 - - - - (935,068) (935,068)
Balance at December 31, 2020	317,384,202 21,495,478 $ 1,188,563 $ $- (22,467,881) $ 216,160 $

See accompanying notes to the financial statements

BUTTE ENERGY INC. STATEMENTS OF CASH FLOW

EXPRESSED IN CANADIAN DOLLARS

	Years ended	December 31,
	2020	2019
Operating activities
Net loss	$ (935,068)	$ (171,384)
Items not involving cash:
Finance expense	57,033	60,684
Finance income	(909)	-
Gain on write-off of liabilities	(56,827)	-
Share-based compensation	798,670	-
Changes in non-cash working capital items:
Amounts receivable	84	(4,729)
Amounts payable and accrued liabilities	(38,153)	85,399
Provision forenvironmental liabilities	-	14,274
	(175,170)	(15,756)
Investing activities
Increasein reclamationdeposits	-	(1,902)
	-	(1,902)
Financing activities
Proceeds from exercise of warrants	410,096	-
Proceeds received from promissory note	55,000	-
Repayment of promissory note	(55,000)	-
Promissorynoteinterest paid	(2,640)	-
	407,456	-
Change in cash	232,286	(17,658)
Cash, beginning ofyear	14,013	31,671
Cash, end ofyear	$ 246,299	$ 14,013
Supplemental cash flow information:
Payments for interest (Note 7(b))	$ 2,640	$ -
Payments for tax	$ -	$ -
Non-cash transactions:
Issuance of shares for conversion of convertible loan (Note 7(c))	$ 381,123	$ -

See accompanying notes to the financial statements

Butte Energy Inc. Notes to the Financial Statements December 31, 2020 (Expressed in Canadian dollars)

1. NATURE OF OPERATIONS AND GOING CONCERN

Butte Energy Inc. (“Butte” or the “Company”) is incorporated under the Business Corporations Act (British Columbia). The Company’s head office and principal and registered address is 3123-595 Burrard Street, Vancouver, British Columbia, Canada, V7X 1J1. The Company lists its common shares on the NEX board of the TSX Venture Exchange under the symbol BEN.H.

The Company had been engaged in the acquisition, exploration and development of petroleum and natural gas reserves in Western Canada. In 2017 the Company sold its last remaining asset and has no active operations other than the completion of reclamation activities on previously abandoned wells. In October 2020, there was a change of control of the Company with a new board and management team appointed. In February 2021, the Company announced a go-public transaction with Genesis Mining Group (Note 11).

These financial statements have been prepared assuming the Company will continue as a going concern. The Company has an accumulated deficit of $22,467,881 and working capital of $216,160 as at December 31, 2020.

In March 2020, the World Health Organization declared coronavirus COVID-19 a global pandemic. This contagious disease outbreak, which has continued to spread, and any related adverse public health developments, has adversely affected workforces, economies, and financial markets globally, potentially leading to an economic downturn. It is not possible for the Company to predict the duration or magnitude of the adverse results of the outbreak and its effects on the Company’s business or ability to raise funds.

These factors indicate the existence of a material uncertainty that may cast significant doubt about the Company’s ability to continue as a going concern. These financial statements do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary should the going concern basis of accounting be inappropriate.

In order to fund future operations or acquisitions, the Company will need to raise additional funds by way of equity or debt. In February, in connection with the go-public transaction with Genesis Mining Group (Note 11), the Company announced a subscription receipt financing for $55,000,000. However, there is no assurance that the Company will be able to raise such funds on terms acceptable to it.

2. BASIS OF PRESENTATION

(a) Statement of Compliance

These annual 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 International Financial Reporting Interpretations Committee (“IFRIC”).

Significant accounting policies under IFRS are presented in Note 3.

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Butte Energy Inc. Notes to the Financial Statements December 31, 2020 (Expressed in Canadian dollars)

2. BASIS OF PRESENTATION (Continued)

(b) Basis of Measurement

The financial statements have been prepared on a historical cost basis except where noted in the accounting policies. In addition, these financial statements have been prepared using the accrual basis of accounting except for cash flow information.

(c) Functional and Presentation Currency

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

(d) Management Estimates and Judgments

The preparation of financial statements requires management to make estimates and use judgment regarding the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as at the date of the financial statements and the reported amounts of revenues and expenses during the year. By their nature, estimates are subject to measurement uncertainty and changes in such estimates in future years could require a material change in the financial statements.

Accordingly, actual results may differ from the estimated amounts as future confirming events occur. Significant estimates and judgments made by management in the preparation of these financial statements are as follows:

• (i) Amounts recorded for the provision of environmental liabilities require the use of estimates with respect to the amount and timing of reclamation expenditures. The ultimate amount and timing of the restoration expenses are uncertain and cost estimates can vary in response to many factors. Based on a review of the expected timing of future cashflows, it was management’s judgment that the time value of money was not material and therefore did not need to present value the expenditures expected to be required to settle the obligation.

• (ii) Convertible debentures are accounted for in accordance with their substance and are presented in their component parts of debt and equity. The Company estimates the fair value of the debt component of convertible debentures by calculating the discounted cash flows of the debenture using an effective interest rate of a similar instrument but without the conversion feature. Similar instruments may have certain features that, while similar, may differ, such as the term, amount, security, and credit risk, and therefore management are required to exercise significant judgment or estimate in determining an appropriate discount rate.

• (iii) Tax interpretations, regulations and legislation are subject to change. As such, income taxes are subject to measurement uncertainty. Management assesses deferred income tax assets at the end of the reporting period to determine the likelihood that they will be realized from future taxable earnings.

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Butte Energy Inc. Notes to the Financial Statements December 31, 2020 (Expressed in Canadian dollars)

3. SIGNIFICANT ACCOUNTING POLICIES

The accounting policies set out below have been applied consistently to all years presented in these financial statements, and have been applied consistently by the Company.

(a) Cash

Cash includes deposits held with banks that are available on demand.

(b) 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.

Classification of Financial Assets and Financial Liabilities:

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;

• 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.

The following table shows the measurement categories under IFRS 9 for each class of the Company’s financial assets and financial liabilities:

Financial Asset/Liability	IFRS 9 classification
Cash	FVTPL
Accounts receivable	Amortized cost
Accounts payables	Amortized cost
Convertible loan	Amortized cost

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Butte Energy Inc. Notes to the Financial Statements December 31, 2020 (Expressed in Canadian dollars)

3. SIGNIFICANT ACCOUNTING POLICIES (Continued)

(b) Financial instruments (Continued)

Measurement:

Financial assets at FVOCI

Elected investments in equity instruments at FVOCI are initially recognized at fair value plus transaction costs. Subsequently they are measured at fair value, with gains and losses arising from changes in fair value recognized in other comprehensive income (loss).

Financial assets and liabilities at amortized cost

Financial assets and liabilities at amortized cost are initially recognized at fair value plus or minus transaction costs, respectively, and subsequently carried at amortized cost less any impairment.

Financial assets and liabilities at FVTPL

Financial assets and liabilities carried at FVTPL are initially recorded at fair value and transaction costs are expensed in the statements of net loss and comprehensive loss. Realized and unrealized gains and losses arising from changes in the fair value of the financial assets and liabilities held at FVTPL are included in the statements of net loss and comprehensive loss in the period in which they arise. Where management has opted to recognize a financial liability at FVTPL, any changes associated with the Company’s own credit risk will be recognized in other comprehensive income (loss).

Impairment of financial assets at amortized cost

The Company recognizes a loss allowance for expected credit losses on financial assets that are measured at amortized cost.

At each reporting date, the Company measures the loss allowance for the financial asset at an amount equal to the lifetime expected credit losses if the credit risk on the financial asset has increased significantly since initial recognition.

If at the reporting date, the financial asset has not increased significantly since initial recognition, the Company measures the loss allowance for the financial asset at an amount equal to twelve month expected credit losses. The Company applies the simplified method and measures a loss allowance equal to the lifetime expected credit losses for trade receivables.

The Company recognizes in the statements of net loss and comprehensive loss, as an impairment gain or loss, the amount of expected credit losses (or reversal) that is required to adjust the loss allowance at the reporting date to the amount that is required to be recognized.

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Butte Energy Inc. Notes to the Financial Statements December 31, 2020 (Expressed in Canadian dollars)

3. SIGNIFICANT ACCOUNTING POLICIES (Continued)

(b) Financial instruments (Continued)

Fair value hierarchy

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.

The fair value of cash is measured based on level 1 inputs of the fair value hierarchy.

(c) Property, plant and equipment and intangible exploration assets

Pre-license costs are recognized in the statement of net loss and comprehensive loss as incurred.

Exploration and evaluation costs, including the costs of acquiring licenses and directly attributable general and administrative costs, initially are capitalised as either tangible or intangible exploration and evaluation (“E&E”) assets according to the nature of the assets acquired. The costs are accumulated in cost centres by well, field or exploration area pending determination of technical feasibility and commercial viability.

E&E assets are assessed for impairment if (i) sufficient data exists to determine technical feasibility and commercial viability, and (ii) facts and circumstances suggest that the carrying amount exceeds the recoverable amount. For purposes of impairment testing, E&E assets are allocated to cash-generating units.

Property, plant and equipment (“PP&E”) are stated at cost less depletion, depreciation and accumulated impairment losses. The cost of an item of PP&E consists of the purchase price, any costs directly attributable to bringing the asset to the location and condition necessary for its intended use and an initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located.

Gains and losses on disposal of an item of PP&E, including oil and natural gas interests, are determined by comparing the proceeds from disposal with the carrying amount of PP&E and are recognized net in the statement of net loss and comprehensive loss.

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Butte Energy Inc. Notes to the Financial Statements December 31, 2020 (Expressed in Canadian dollars)

3. SIGNIFICANT ACCOUNTING POLICIES (Continued)

(c) Property, plant and equipment and intangible exploration assets (Continued)

The net carrying value of development or production assets is depleted using the unit of production method by reference to the ratio of production in the year to the related proven and probable reserves, 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. Independent reserve engineers review these estimates at least annually.

For other assets, depreciation is recognized in the statement of net loss and comprehensive loss on a declining balance basis over the estimated useful lives of each part of an item of PP&E. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Company will obtain ownership by the end of the lease term. There is no depreciation of land.

At each reporting date, there is a review of depreciation methods, useful lives and residual values.

(d) Impairment of non-financial assets

The carrying amounts of the Company’s non-financial assets, other than E&E assets and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. For goodwill and other intangible assets that have indefinite lives or that are not yet available for use, an impairment test is completed each year. E&E assets are assessed for impairment when they are reclassified to PP&E as oil and natural gas interests, and also if facts and circumstances suggest that the carrying amount exceeds the recoverable amount.

For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (CGU). The recoverable amount of an asset or a CGU is the greater of its value in use and its fair value less costs to sell. 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. Value in use is generally computed by reference to the present value of the future cash flows expected to be derived from production of proven and probable reserves.

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 the statement of net loss and comprehensive loss. Impairment losses recognized in respect of CGU’s are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amounts of the other assets in the unit (group of units) on a pro rata basis.

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Butte Energy Inc. Notes to the Financial Statements December 31, 2020 (Expressed in Canadian dollars)

3. SIGNIFICANT ACCOUNTING POLICIES (Continued)

(d) Impairment of non-financial assets (Continued)

An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognized in prior years are assessed at each reporting date for any indications that the loss has decreased or no longer exists. Reversal of an impairment loss occurs 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.

(e) Provisions

A provision is recognized if, due to a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation.

Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. Provisions are not recognized for future operating losses

(f) Asset retirement obligations (ARO)

The Company’s activities give rise to dismantling, decommissioning and site disturbance re-mediation activities. Provision is made for the estimated cost of site restoration, and capitalized in the relevant asset category.

Asset retirement obligations are measured at the present value of management’s best estimate of expenditures required to settle the present obligation at the statement of financial position date. Subsequent to the initial measurement, the obligation is adjusted at the end of each period to reflect the passage of time and changes in the estimated future cash flows underlying the obligation.

The increase in the provision due to the passage of time is recognized as finance costs in the statement of net loss and comprehensive loss whereas increases/decreases due to changes in the estimated future cash flows are capitalized. Actual costs incurred upon settlement of the asset retirement obligations are charged against the provision to the extent the provision was established.

(g) Convertible debentures

Convertible debentures and debenture units with detachable equity are accounted for in accordance with their substance and are presented in their component parts of debt and equity. The debt component is measured at the present value of the cash payments of interest and principal due over the term of the debentures using interest rates of comparable non-convertible debt. The difference between the face value of the debentures and the debt component value is allocated to the equity component, to the

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Butte Energy Inc. Notes to the Financial Statements December 31, 2020 (Expressed in Canadian dollars)

3. SIGNIFICANT ACCOUNTING POLICIES (Continued)

(g) Convertible debentures (Continued)

extent that the fair value of a detachable equity instrument does not exceed the fair value of the underlying common share. When the convertible debentures are distributed in conjunction with warrants, the fair value of the warrants and the conversion feature is estimated using the Black-Scholes option valuation model. The residual equity component is allocated pro rata between the conversion feature and the warrants based on their relative fair values.

Financing costs are allocated proportionally to the debt component and the equity component. The debt component, net of its proportional financing costs, is accreted to its face value through an interest charge over its term to maturity using the effective interest rate method. Upon conversion of the debentures, the debt portion related to the principal amount of debt converted is recognized as a charge to share capital.

(h) Share capital

Common shares are classified as equity. Incremental costs directly attributable to the issue of common shares and share options are recognized as a deduction from equity, net of any tax effects.

(i) Income tax

Income tax expense comprises current and deferred tax. Income tax expense is recognized in the statement of net loss and comprehensive loss except to the extent that it relates to items recognized directly in equity, in which case it is recognized in equity.

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

Deferred tax is recognized on 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 on the initial recognition of assets or liabilities in a transaction that is not a business combination. 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, 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.

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Butte Energy Inc. Notes to the Financial Statements December 31, 2020 (Expressed in Canadian dollars)

3. SIGNIFICANT ACCOUNTING POLICIES (Continued)

(i) Income tax (Continued)

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.

(j) Loss per share

Basic earnings per share is calculated by dividing the profit or loss attributable to common shareholders of the Company by the weighted average number of common shares outstanding during the period. Diluted earnings per share is determined by adjusting the profit or loss attributable to common shareholders and the weighted average number of common shares outstanding for the effects of dilutive instruments such as options granted to employees. Diluted earnings per share does not adjust the earnings attributable to common shareholders or the weighted average number of common shares outstanding when the effect is anti-dilutive.

(k) Segmented reporting

The Company operates in a single reportable operating segment, which historically has consisted of the acquisition of and exploration and development of oil and gas properties. The Company currently has no active operations other than the completion of reclamation activities on previously abandoned wells, and has been evaluating potential opportunities, including those outside of the oil and gas industry (Note 1).

4. RECLAMATION DEPOSITS

In January 2018, the Company was required to provide a security deposit to the Alberta Energy Regulator in order for the Company to proceed with the finalization of the reclamation on previously abandoned wells. These deposits are refundable upon final acceptance of the reclamation certificates by the Alberta Energy Regulator.

The deposits are held in trust in an interest-bearing bank account. Interest income on the account is recorded in finance income in the statements of net loss and comprehensive loss.

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Butte Energy Inc. Notes to the Financial Statements December 31, 2020 (Expressed in Canadian dollars)

5. PROVISION FOR ENVIRONMENTAL LIABILTIES

The company recorded a provision for the completion of reclamation activities on previously abandoned wells.

		Provision
Balance, December 31, 2018	$	66,596
Additions		14,274
Balance, December 31, 2019		80,870
Additions		8,000
Settlement of liabilities		(8,000)
Balance, December 31, 2020	$	80,870

6. SHARE CAPITAL

(a) Authorized

Authorized share capital consists of an unlimited number of common shares without nominal or par value.

(b) Issued and fully paid common shares

As at December 31, 2020, there were 317,384,202 common shares issued and outstanding.

Settlement of debt

On October 8, 2020, the Company issued 6,000,000 units of the Company at $0.05 per unit, with each unit consisting of one common share and one common share purchase warrant, exercisable at a price of $0.05 until October 8, 2021 to settle $300,000 principal debt of the convertible loan (Note 7(c)). The Company also issued 1,158,900 units of the Company at $0.07 per unit, with each unit consisting of one common share and one common share purchase warrant, exercisable at a price of $0.095 until October 8, 2021 to settle $81,123 of accrued interest relating to the debenture (Note 7(c)).

Exercise of warrants

On October 13, 2020, 7,158,900 warrants or all of the issued warrants issued as per above were exercised for proceeds of $410,096.

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Butte Energy Inc. Notes to the Financial Statements December 31, 2020 (Expressed in Canadian dollars)

6. SHARE CAPITAL (Continued)

(c) Share options

The Company has established a rolling Share Option Plan (the “Plan”). Under the Plan, the number of shares reserved for issuance may not exceed 10% of the total number of issued and outstanding shares and, to any one optionee, may not exceed 5% of the issued shares on a yearly basis. The maximum term of each option shall not be greater than ten years. The exercise price of each option shall not be less than the market price of the Company’s shares at the date of grant. Options granted to consultants performing investor relations activities shall vest over a minimum of 12 months with no more than 1/4 of such Options vesting in any three month period. All other options vest at the discretion of the Board of Directors.

On October 8, 2020, 11,000,000 share options were granted to directors, officers, consultants and charitable organizations at a price of $0.10 per share, exercisable until October 8, 2030. Using the Black-Scholes valuation model, the grant date fair value was $798,670, or $0.073 per option.

The following weighted average assumptions were used for the valuation of the share options:

	2020
Risk-free interest rate	0.51%
Expected life (years)	10 years
Annualized volatility	75%
Dividend rate	0.00%

A summary of the changes in share options is presented below:

	Number of	Weighted average	Weighted average
	options		exercise price
Balance, December 31, 2018 and 2019	-	$	-
Granted	11,000,000		0.10
Balance,December 31,2020	11,000,000	$	0.10

The following table summarizes information about the share options outstanding and exercisable at December 31, 2020:

Outstanding
and exercisable	Exerciseprice	Expirydate
11,000,000	$0.10	October 8,2030

17

Butte Energy Inc. Notes to the Financial Statements December 31, 2020 (Expressed in Canadian dollars)

6. SHARE CAPITAL (Continued)

(d) Warrants

A summary of the changes in warrants is presented below:

	Warrants	Weighted average	Weighted average
	outstanding		exercise price
Balance, December 31, 2018 and 2019	-	$	-
Issued	7,158,900		0.06
Exercised	(7,158,900)		(0.06)
Balance,December 31,2020	-	$	-

7. RELATED PARTY TRANSACTIONS

(a) Compensation of key management personnel

Key management personnel are those persons who have authority and responsibility for planning, directing, and controlling the activities of the Company, directly or indirectly. Senior management personnel include the Company’s executive officers and members of the Board of Directors.

During the year ended December 31, 2020, key management personnel compensation included share-based compensation of $145,213 (2019: $nil) (Note 6(c)).

(b) Demand promissory note due to a related party

On May 7, 2020, the Company borrowed the principal amount of $55,000 from a former majority shareholder, Stone’s Throw Capital Inc. (“Stone’s Throw”), which bore interest at 12% per annum and was due on demand. Interest expense was included in finance expense in the statements of net loss and comprehensive loss. In October 2020, the Company repaid $57,640 of promissory notes and accrued interest.

The promissory note is presented in the financial statements as follows:

		2020		2019
Balance, Janaury 1	$	-	$	-
Proceeds received from issue of demand promissory note		55,000		-
Finance expense		2,640		-
Settlement		(57,640)		-
Balance,December 31	$	-	$	-

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Butte Energy Inc. Notes to the Financial Statements December 31, 2020 (Expressed in Canadian dollars)

7. RELATED PARTY TRANSACTIONS (Continued)

(c) Convertible loan due to a related party

On January 3, 2018, the Company borrowed the principal amount of $300,000 from Stone’s Throw, which bore interest at 10% per annum and was repayable on the date that is 12 months from the date of issuance. In January 2019, the term of the convertible loan was extended to January 4, 2021 from January 3, 2019.

In October 2020, the debt owing on the principal amount and accrued interest was assumed by a third party and settled by the Company.

On October 8, 2020, the Company issued 6,000,000 units of the Company at $0.05 per unit, with each unit consisting of one common share and one common share purchase warrant, exercisable at a price of $0.05 until October 8, 2021 to settle $300,000 principal debt. The Company also issued 1,158,900 units of the Company at $0.07 per unit, with each unit consisting of one common share and one common share purchase warrant, exercisable at a price of $0.095 until October 8, 2021 to settle $81,123 of accrued interest.

The convertible loan was classified as debt with the residual value allocated to shareholders’ equity. The initial fair value of the liability portion of the convertible loan was determined using a market interest rate of 13% for an equivalent non-convertible loan at the issue date. The liability is subsequently recognized on an amortized cost basis until extinguished on conversion or maturity of the convertible loan. The remainder of the proceeds is allocated to the conversion option and recognized in shareholders’ equity and not subsequently remeasured. At conversion, during the year ended December 31, 2020, $92,085 of equity portion of convertible loan was reclassified to share capital.

Interest expense was calculated by applying the effective interest rate of 13% to the liability component and was included in finance expense in the statements of net loss and comprehensive loss.

The convertible loan is presented in the financial statements as follows:

		2020		2019
Balance, Janaury 1	$	326,730	$	266,046
Finance expense		54,393		60,684
Conversionto commonshares		(381,123)		-
Balance,December 31	$	-	$	326,730

(d) Advance from a related party

On September 11, 2020, Stone’s Throw advanced $32,000 to the Company. This loan was non-interest bearing and payable on demand. In October 2020, the Company repaid $32,000 of advances.

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Butte Energy Inc. Notes to the Financial Statements December 31, 2020 (Expressed in Canadian dollars)

8. WRITE-OFF OF LIABILITIES

During the year ended December 31, 2020, the Company wrote off $56,827 of accounts payable related to legal fees from 2019, resulting in a gain on write-off of liabilities in the statement of net loss and comprehensive loss.

9. FINANCIAL INSTRUMENTS

Financial Risk Management and Fair Value Measurement

The Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk management framework. The Company’s financial instruments consist of cash, amounts receivable, reclamation deposits and amounts payable and accrued liabilities, and convertible loans. Their carrying values approximate fair value due to the short-term nature of these instruments. There are no financial instruments carried at fair value.

Financial Instrument Risk Exposure

The Company is exposed in varying degrees to a variety of financial instrument related risks. The Board approves and monitors the risk management processes.

Credit Risk

Credit risk arises from the potential for non-performance by counterparties of contractual financial obligations. The Company is exposed to credit risk on cash. The Company reduces its credit risk on cash by maintaining its bank account with a large international financial institution. The maximum exposure to credit risk is equal to the carrying value of its cash.

Liquidity Risk

The Company’s cash is invested in bank accounts which are available on demand. As at December 31, 2020, the Company had working capital of $216,160. Subsequent to December 31, 2020, the Company announced a private placement of $55,000,000 (Note 11).

Market Risk

Market risk is the risk of loss that may arise from changes in market factors such as interest rates, foreign currency and price risk.

a) Interest Rate Risk

The Company is nominally exposed to interest rate risk. The Company’s cash earns interest at variable rates. Interest rate exposure is considered to be insignificant.

b) Foreign Currency Risk

The Company is nominally exposed to material currency risk.

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Butte Energy Inc. Notes to the Financial Statements December 31, 2020 (Expressed in Canadian dollars)

9. FINANCIAL INSTRUMENTS (Continued)

Financial Instrument Risk Exposure (Continued)

Market Risk (Continued)

c) Price Risk

The Company is exposed to price risk with respect to equity prices. Equity price risk is defined as the potential adverse impact on the Company’s earnings due to movements in individual equity prices or general movements in the level of the stock market. The Company closely monitors individual equity movements and the stock market to determine the appropriate course of action to be taken by the Company.

10. INCOME TAX

Reconciliation of effective tax rate:

		2020		2019
Loss for theyear	$	(935,068)	$	(171,384)
Expected income tax (recovery)		(252,000)		(46,274)
Change in unrecognized deductible temporary differences		36,000		46,274
Permanent differences		216,000		-
Total income tax expense(recovery)	$	-	$	-

There is no recognition of deferred tax assets in respect of the following items:

		2020		2019
Deferred tax assets (liabilities)
Exploration and evaluation assets	$	1,628,000	$	1,628,000
Debt with accretion		-		32,000
Non-capital losses available for futureperiod		3,257,000		3,188,000
		4,885,000		4,848,000
Unrecognized deferred tax assets		(4,885,000)		(4,848,000)
Net deferred tax assets(liabilities)	$	-	$	-

The significant components of the Company’s temporary differences, unused tax credits and unused tax losses that have not been included on the consolidated statement of financial position are as follows:

		2020	Expiry Date Range		2019	ExpiryDate Range
Temporary Differences
Exploration and evaluation assets	$	6,030,000	No expiry date	$	6,030,000	No expiry date
Debt with accretion		-	No expiry date		119,000	No expiry date
Non-capital losses available for futureperiods		12,023,000	2024 to 2040		11,806,000	2024 to 2039

21

Butte Energy Inc. Notes to the Financial Statements December 31, 2020 (Expressed in Canadian dollars)

11. SUBSEQUENT EVENTS

Go-public Transaction

In February 2021, the Company entered into an arms-length, legally binding letter of intent dated February 12, 2021 with Genesis Group Limited (“Genesis Mining Group”) to acquire (the “Transaction”):

• (a) all of Genesis Mining Group’s intellectual property relating to cryptocurrency mining operations, including its proprietary (i) datacentre construction, layout, and cooling system known as “AC/DC”; (ii) datacentre monitoring and optimization software platform known as “Hexa”; (iii) blockchain data analysis tool known as "Block Explorer"; and (iv) cryptocurrency market forecasting software platform known as “Janus”; and

• (b) all rights to Genesis Mining Group’s more than 200MW pipeline of contracted cryptocurrency mining data centre construction and expansion projects in Europe and North America.

The Company will constitute Genesis Mining Group’s core business going forward. Concurrent with closing of the Transaction (“Closing”), Genesis Mining Group (or its affiliates and principals) will be issued such number of shares of the Company as will constitute approximately 80% of the issued and outstanding common shares following completion of the equity financing and consolidation (described below). Closing is subject to receipt of TSXV approval, completion of definitive documentation, any requisite shareholder approvals, and completion of the consolidation and equity financing.

Share consolidation

On or before Closing, a consolidation of the Company’s issued and outstanding share capital on the basis of one new common share for every four outstanding common shares will be completed.

Concurrent financing

In connection with the Transaction, the Company will complete a non-brokered private placement (the “Private Placement”) of 55,000,000 subscription receipts (“Subscription Receipts”) at a price of $1.00 per Subscription Receipt for gross proceeds of $55,000,000. Each Subscription Receipt will convert into one post-consolidation common share of the Company immediately prior to the completion of the Transaction. Proceeds from the Private Placement will be used to commence initial deployments of capital into Genesis Mining Technologies’ existing pipeline and for general working capital. A finders’ fee of up to 6% of gross proceeds of the Private Placement will be paid in cash to certain finders at closing of the Transaction.

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