Denarius Metals — Interim / Quarterly Report 2021

Aug 13, 2020

Condensed Interim Financial Statements of

E. S. I. ENVIRONMENTAL SENSORS INC.

Three months ended June 30, 2020 and 2019

(Unaudited – Prepared by Management)

(Expressed in Canadian Dollars)

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NOTICE OF NO AUDITOR REVIEW OF INTERIM FINANCIAL STATEMENTS

Under National Instrument 51-102, Part 4, subsection 4.3(3)(a), if an auditor has not performed a review of the interim financial statements, they must be accompanied by a notice indicating that the financial statements have not been reviewed by an auditor.

The accompanying unaudited interim financial statements of the Company have been prepared by and are the responsibility of the Company’s management.

The Company’s independent auditor has not performed a review of these financial statements in accordance with standards established by the Canadian Professional Accountants of Canada for a review of interim financial statements by an entity’s auditor.

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E.S.I. ENVIRONMENTAL SENSORS INC. Condensed Interim Statements of Financial Position (Unaudited – Prepared by Management) (Expressed in Canadian Dollars) As at

June 30, 2020 March 31, 2020

Assets Current assets: Cash $1,621 $1,668 Receivables 1,372 285 $2,993 $1,953

Liabilities and Shareholders’ Deficiency Current liabilities: Trade and other payables $1,707,461 $1,699,107 Loans payable (note 4) 226,833 226,833 $1,934,294 $1,925,940

Shareholders’ deficiency: Share capital (note 5) 23,878,935 23,878,935 Contributed surplus (note 6) 3,503,393 3,503,393 Deficit (29,313,629) (29,306,315) $1,931,301 $1,923,987 $2,993 $1,953

Nature of operations and going concern (note 1) Contingent liabilities (note 12) Event after the reporting date (note 13)

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

On behalf of the Board:

“Saf Dhillon” Director

“Allan Glowach” Director

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E. S. I. ENVIRONMENTAL SENSORS INC. Condensed Interim Statements of Loss and Comprehensive Loss (Unaudited – Prepared by Management) (Expressed in Canadian Dollars)

Three months ended June 30, 2020 2019

Operating expenses: Office and miscellaneous ¥ - ¥ 3,932 Professional fees 7,065 355 Transfer agent and filing fees 202 3,884

Operating loss (7,267) (8,171)

Other items: Interest and finance expense (47) -

(47) -

Loss and comprehensive loss for the period ¥ (7,314) ¥ (8,171)

Basic and diluted loss per share $ (0.00) $ (0.00)

Weighted average number of common shares outstanding (basic and diluted) 20,346,755 20,346,755

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

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E. S. I. ENVIRONMENTAL SENSORS INC.

Statements of Changes in Shareholders’ Deficiency (Expressed in Canadian Dollars)

	Number of common shares	Share capital	Contributed surplus	Deficit	Total shareholders’ deficiency
Balance at March 31, 2019	20,346,755	$23,878,935	$ 3,503,393	$(29,284,053)	$(1,901,725)
Net loss	-	-	-	(8,171)	(8,171)
Balance at June 30, 2019	20,346,755	$23,878,935	$ 3,503,393	$(29,292,224)	$(1,909,896)
Balance at March 31, 2020	20,346,755	$23,878,935	$ 3,503,393	$(29,306,315)	$(1,923,987)
Net loss	-	-	-	(7,314)	(7,314)
Balance at June 30, 2020	20,346,755	$23,878,935	$ 3,503,393	$(29,313,629)	$(1,931,301)

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

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E.S.I. ENVIRONMENTAL SENSORS INC. Condensed Interim Statements of Cash Flows (Unaudited – Prepared by Management) (Expressed in Canadian Dollars) For the three months ended June 30,

Cash provided by (used in):

Operations: Loss for the period $$ (7,314) $ (8,171)$ Changes in non-cash operating working capital: Trade receivables (1,087) (361) Trade and other payables 8,354 (514) Due to related parties

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Net cash used in operating activities (47) (9,046)

Change in cash and cash equivalents (47) (9,046)

Cash and cash equivalents, beginning 1,668 15,419

Cash and cash equivalents, end $$ 1,621 $ 6,373$

Supplemental cash flow information (note 10)

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

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1. Nature of Operations and Going Concern:

E.S.I. Environmental Sensors Inc. (the “Company” or “ESI”) was incorporated under the laws of British Columbia. The Company’s principal location is 510 – 580 Hornby Street, Vancouver, BC, Canada, V6C 3B6, and is a reporting issuer in British Columbia and Alberta and is listed on the New Securities Stock Exchange (“NEX”) (the “Exchange”) under the symbol ESV.H. The Company is currently reviewing various strategic acquisition opportunities.

These condensed interim financial statements have been prepared using the going concern assumption, which assumes that the Company will continue in operation for the foreseeable future and be able to realize its assets and discharge its liabilities and commitments in the normal course of operations. The Company has experienced significant losses and negative cash flow from operations over a number of years, has an accumulated deficit of $29,313,629 (March 31, 2020 - $29,306,315), a working capital deficiency of $1,931,301 (March 31, 2020 - $1,923,987) and a shareholder’s deficiency of $1,931,301 (March 31, 2020 - $1,923,987). These conditions raise significant doubt about the Company’s ability to continue as a going concern.

The Company's ability to meet its obligations in the ordinary course of business is dependent upon its ability to establish profitable operations and positive cash flows from operating activities or to obtain additional funding through public or private equity financing, debt, or collaborative or other arrangements. There can be no assurances that financing will be available on terms acceptable to the Company, or at all. These condensed interim financial statements do not reflect adjustments that would be necessary if the going concern assumption were not appropriate. If the Company is unable to continue as a going concern, assets and liabilities would require re-measurement on a liquidation basis, which would differ materially from the going concern basis.

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, have 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 results of operations at this time.

1. Basis of Preparation and Statement of Compliance:

(a) Statement of compliance:

These condensed interim financial statements, including comparatives have been prepared using accounting policies consistent with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and Interpretations issued by the International Financial Reporting Interpretations Committee (“IFRIC”) and in accordance with International Accounting Standards (“IAS”) 34.

The condensed interim financial statements were approved and authorized for issue by the Board of Directors on August 7, 2020.

(b) Basis of presentation:

These condensed interim financial statements have been prepared on the historical cost basis except for certain financial instruments that have been measured at fair value. In addition, these condensed interim financial statements have been prepared using the accrual basis of accounting except for cash flow information. These condensed interim financial statements are presented in Canadian dollars, which is the Company’s functional currency.

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1. Basis of Preparation and Statement of Compliance (continued):

(c) Use of judgments:

The preparation of financial statements in conformity with IFRS requires management to make judgments, and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, revenue and expenses. Actual results may differ from these judgments. Information about critical judgments in applying accounting policies with the most significant effect on the amounts recognized in the financial statements relates to the application of the going concern assumption (note 1).

(d) Use of estimates:

The preparation of financial statements in accordance with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the periods, as well as disclosure of contingent assets and liabilities at the date of the financial statements. Significant areas requiring the use of management estimates related to share-based compensation, warrants, and the recognition of contingent liabilities (note 12). Actual results could differ from those estimates used in the financial statements.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

1. Significant Accounting Policies:

The preparation of the financial data is based on accounting principles and practices consistent with those used in the preparation of the audited financial statements as at March 31, 2020. These condensed interim financial statements should be read in conjunction with the Company’s audited financial statements for the year ended March 31, 2020.

1. Loans Payable:

As at June 30, 2020, the Company has loans payable to three arms’ length parties for a total of $226,833. The loans are unsecured, bear no interest, and have no specific terms of repayment.

1. Share Capital:

(a) Authorized:

Authorized share capital comprises an unlimited number of common shares and an unlimited amount of preferred shares. No preferred shares have been issued.

(b) Issued and outstanding:

As at June 30, 2020 the Company had 20,346,755 common shares issued and outstanding.

(c) Stock options:

The Company has a stock option plan in place under which it is authorized to grant options to executive officers and directors, officers, employees and consultants enabling them to acquire up to 10% of the issued and outstanding common stock of the Company. Under the plan, the option price of any common share in respect of which an option may be granted under the stock option plan shall be fixed by the Board of Directors but shall be not less than the minimum price permitted by the Exchange.

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1. Share Capital (continued):

There are no stock options outstanding at June 30, 2020 and 2019.

(d) Warrants:

There are no warrants outstanding at June 30, 2020 and 2019.

1. Contributed Surplus:

Contributed surplus includes the amounts recorded as share-based compensation and the fair value of warrants issued. As at June 30, 2020, $3,503,393 is recorded as contributed surplus.

1. Segmented Information:

In prior years, the Company’s operations consisted of one reportable operating segment being environmental sensors. The Company is currently reviewing various strategic acquisition opportunities.

1. Financial Instruments:

Risk disclosures:

a) Credit risk:

Credit risk is the risk of loss resulting from the failure of a customer or counterparty to meet its contractual obligations to the Company. The carrying value of these financial assets represents the Company’s estimate of maximum credit exposure.

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and receivables.

b) Currency risk:

The Company’s functional currency is the Canadian dollar and major purchases are transacted in Canadian dollars. The Company is not exposed to foreign currency risk.

c) Liquidity risk:

Liquidity risk arises through excess of financial obligations over available financial assets due at any point in time. The Company’s objective in managing liquidity risk is to raise sufficient funds through loans and issuance of common shares in order to meet financial obligations. As of June 30, 2020, the Company had a working capital deficiency of $1,931,301 (March 31, 2020 - $1,923,987).

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1. Financial Instruments (continued):

d) Fair values:

The fair values of the Company’s cash and receivables, trade and other payables and loans payable are estimated to approximate their carrying values due to the immediate or short-term to maturity of these financial instruments.

Financial instruments measured at fair value are classified into one of three levels in the fair value hierarchy according to the relative reliability of the inputs used to estimate the fair values. The three levels of the fair value hierarchy are:

• Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities;
• Level 2 – Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly; and
• Level 3 – Inputs that are not based on observable market data.

e) Interest rate risk:

The Company had outstanding fixed rate debt in the form of loans payable. A 100-basis point change in interest rates did not have a significant impact on net loss.

1. Capital Management:

The Company’s objectives when managing capital are to ensure sufficient liquidity for operations and adequate funding for growth and capital expenditures while maintaining an efficient balance between debt and equity. The capital structure of the Company currently consists of shareholders’ deficiency. The Company makes adjustments to its capital structure upon approval from its Board of Directors, in light of economic conditions and the Company’s working capital requirements. There were no changes in the Company’s approach to capital management during the period. The Company does not presently utilize any quantitative measures to monitor its capital.

1. Supplemental Cash Flow Information:

There is no supplemental cash flow information for the periods ended June 30, 2020 and 2019.

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1. Related Party Transactions:

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Company.

There were no related party transactions for the periods ended June 30, 2020 and 2019.

1. Contingent Liabilities:

Indemnification:

The Company is party to a variety of agreements in the ordinary course of business under which it may be obligated to indemnify a third party with respect to certain matters. The impact on the Company’s future financial results is not subject to reasonable estimation because considerable uncertainty exists as to whether claims will be made and the final outcome of potential claims. To date, the Company has not incurred material costs related to these types of indemnifications.

Contingencies:

The Company has provided for certain amounts that are in dispute or in the process of being negotiated for settlement.

1. Event after the reporting date:

In July 2020, The Company’s board of directors has approved a consolidation of the Company's common share capital on a one-for-seven basis and a change of name to ESV Resources Ltd. The Company currently has 20,346,755 common shares outstanding and, following completion of the share consolidation, it is expected to have approximately 2,906,680 shares outstanding.

In connection with completion of the share consolidation, the Company intends to offer up to 21,428,570 post-share consolidation units (each, a "Unit") by way of non-brokered private placement (the "Private Placement"). The Units will be offered at a price of $0.07 per share, for gross proceeds of up to $1,500,000. Each Unit will consist of one post-share consolidation common share and one-quarter-of-one transferable share purchase warrant (each whole warrant, a "Warrant"). Each Warrant will entitle the holder to acquire an additional post-share consolidation common share at a price of $0.10 for a period of twelve months.

The Company intends to use the net proceeds of the Private Placement to pay down existing trade payables, to cover the costs associated with the share consolidation and name change, to satisfy continuous disclosure and regulatory obligations, and to evaluate potential strategic acquisition opportunities. In connection with completion of the Private Placement, the Company may pay finders' fees to eligible parties who have assisted in introducing subscribers to the Company.

In addition to the Private Placement, the Company also intends to settle (the "Debt Settlement") outstanding indebtedness of up to $300,000, owing to certain arms-length creditors, through the issuance of up to 4,285,714 post-share consolidation common shares at a price of $0.07 per share.

All securities to be issued in connection with the Private Placement, and the Debt Settlement, will be subject to a four-month-and-one-day statutory hold period in accordance with applicable securities laws and the policies of the TSX Venture Exchange. Completion of the share consolidation, the name change, the Private Placement and the Debt Settlement, remains subject to the approval of the TSX Venture Exchange. Completion of the share consolidation is also subject to the Company meeting certain public distribution requirements prescribed by the TSX Venture Exchange.