Edgewater Exploration Ltd. — Annual Report 2021

Apr 28, 2022

EDGEWATER EXPLORATION LTD.

CONSOLIDATED FINANCIAL STATEMENTS (Expressed in Canadian Dollars)

DECEMBER 31, 2021 AND 2020

Independent auditor's report

To the Shareholders of Edgewater Exploration Ltd.

Our opinion

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of Edgewater Exploration Ltd. and its subsidiaries (together, the Company) as at December 31, 2021 and 2020, and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards (IFRS).

What we have audited

The Company's consolidated financial statements comprise:

• the consolidated balance sheets as at December 31, 2021 and 2020;
• the consolidated statements of changes in shareholders' deficit for the years then ended;
• the consolidated statements of loss (income) and comprehensive loss for the years then ended;
• the consolidated statements of cash flows for the years then ended;
• the notes to the consolidated financial statements, which include significant accounting policies and other explanatory information.

Basis for opinion

We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the consolidated financial statements section of our report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Independence

We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in Canada. We have fulfilled our other ethical responsibilities in accordance with these requirements.

Other information

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

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

PricewaterhouseCoopers LLP PricewaterhouseCoopers Place, 250 Howe Street, Suite 1400, Vancouver, British Columbia, Canada V6C 3S7 T: +1 604 806 7000, F: +1 604 806 7806

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

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 consolidated financial statements

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

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

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

Auditor's responsibilities for the audit of the consolidated financial statements

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

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

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

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
• Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Company to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the 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 Dean Larocque.

/s/PricewaterhouseCoopers LLP

Chartered Professional Accountants

Vancouver, British Columbia April 27, 2022

EDGEWATER EXPLORATION LTD. CONSOLIDATED BALANCE SHEETS

(Expressed in Canadian Dollars)

On behalf of the Board:
"Danny Lee"Director	"Douglas Forster"		Director

EDGEWATER EXPLORATION LTD. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT (Expressed in Canadian Dollars) FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2021

	Common shares
	Number		Amount		Share-basedpaymentsreserve		Warrantsreserves		Accumulatedothercomprehensiveincome		Accumulateddeficit		Total
Balance - January 1, 2020	38,673,609	s	31,278,896	s	4,799,488	- S	$6,743,013$ $		1,103,327	s	(45,078,098)	- S	(1, 153, 374)
Net income for the year	-		$\overline{\phantom{a}}$		$\overline{\phantom{a}}$		$\blacksquare$		$\overline{\phantom{a}}$		8,868		8,868
Foreign currency translation	۰		$\overline{\phantom{a}}$		۰		$\sim$		(133.968)		$\sim$		(133,968)
Balance - December 31, 2020	38,673,609	s	31,278,896	s	4,799,488	-S	6,743,013	s	969,359	s	(45,069,230)	-S	(1,278,477)

	Common shares
	Number		Amount		Share-basedpaymentsreserve		Warrantsreserves		Accumulatedothercomprehensiveincome		Accumulateddeficit	Total
Balance - January 1, 2021	38.673.609	s	31.278.895	s	4,799,487	s	$6.743.013$ $		969.359	s	$(45,069,230)$ $	(1, 278, 477)
Net loss for the year	۰		٠		۰		۰		$\overline{\phantom{a}}$		(198, 739)	(198, 739)
Issued on exercise of warrants	250,000		54,790		$\overline{\phantom{a}}$		(4,790)		$\overline{\phantom{a}}$		$\overline{\phantom{a}}$	50,000
Foreign currency translation	۰		۰		$\overline{\phantom{a}}$		٠		179.951		$\overline{\phantom{a}}$	179,951
Balance - December 31, 2021	38.923.609		31.333.685	s	4,799,487	s	6.738.223	s	1.149.308		$(45.267.970)$ $	(1, 247, 266)

EDGEWATER EXPLORATION LTD. CONSOLIDATED STATEMENTS OF LOSS (INCOME) AND COMPREHENSIVE LOSS (Expressed in Canadian Dollars) FOR THE YEARS ENDED DECEMBER 31

	2021	2020
EXPENSES
Accounting and audit fees	$40,530	$44,749
Insurance	12,293	14,315
Legal	25,575	(15,860)
Office costs	22,380	27,727
Regulatory fees	13,349	11,730
Shareholder relations	1,217	1,273
	115,343	83,935
OTHER EXPENSE (INCOME)
Interest and other income	(6,938)	(11,595)
Foreign exchange loss (gain)	90,334	(81,209)
Net loss (income) for the year	198,739	(8,868)
OTHER COMPREHENSIVE LOSS (INCOME)
Items that will be reclassified subsequently to profit or loss:
Foreign currency translation	(179,951)	133,968
Comprehensive loss for the year	$18,788	$125,100
Loss per share – basic and diluted	$0.00	$0.00
Weighted average number of shares outstanding:
Basic and diluted	38,754,088	38,673,609

EDGEWATER EXPLORATION LTD. CONSOLIDATED STATEMENTS OF CASH FLOWS (Expressed in Canadian Dollars) FOR THE YEARS ENDED DECEMBER 31

	2021	2020
CASH PROVIDED BY (USED IN):
Cash flows from operating activities:
Net income (loss) for the year	$(198,739)	$8,868
Interest income reclassified to cash flow from investing activities	(6,938)	(11,595)
Non-cash items:
Amortization of provision for loss on lease	-	3,685
Unrealized foreign exchange	88,852	(52,656)
Changes in non-cash working capital:
GST and other receivables	(83)	25
Prepaid expenses	(16,736)	12,124
Trade and other payables	(4,364)	(15,542)
	(138,008)	(55,091)
Cash flows from investing activities:
Interest income	6,938	11,595
Redemption of short-term investment	3,068	53,653
	10,006	65,248
Cash flows from financing activities:
Shares issued on warrant exercises	50,000	-
	50,000	-
Effect of exchange rate on cash	(29,924)	(143)
Increase (decrease) in cash	(107,926)	10,014
Cash – beginning of year	444,184	434,170
Cash – end of year	$336,258	$444,184

1. NATURE OF OPERATIONS

Edgewater Exploration Ltd. and its subsidiaries (collectively, "Edgewater" or the "Company") are in the mineral property exploration and development business. Edgewater Exploration Ltd., the parent, is a public company that is listed on the NEX board of the TSX Venture Exchange (symbol: EDW.H). It is incorporated in Canada and its head office is located at 1560 – 200 Burrard Street, Vancouver, British Columbia, V6C 3L6.

The Board of Directors approved these consolidated financial statements for issue on April 27, 2022.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Statement of compliance

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS").

Basis of measurement

The financial statements have been prepared under the historical cost convention.

Basis of consolidation

These consolidated financial statements incorporate the financial statements of the Company and its subsidiaries. The significant subsidiaries of the Company are as follows:

Entity	Location	2021	2020
Subsidiaries (Consolidated)
Mineira de Corcoesto, S.L.	Spain	100%	100%
Corcoesto, S.A.	Panama	100%	100%

Subsidiaries are entities over which the Company has control. The Company controls an entity when it is exposed to, or has rights to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date which control is transferred until the date that control ceases. All intercompany transactions and balances have been eliminated on consolidation.

Significant judgments, estimates and assumptions

The preparation of the Company's financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Estimates and assumptions are continually evaluated and are based on management's experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Actual results could differ from these estimates.

Cash

Cash includes cash on account, demand deposits and money market investments with maturities from the date of acquisition of three months or less, which are readily convertible to known amounts of cash and are subject to insignificant changes in value.

Short-term investment

Investments held for a period not exceeding one year or with an outstanding term to maturity not exceeding one year are classified as short-term investments. Short-term investments are recorded at amortized cost with interest earned while holding them reported as interest income in the statement of comprehensive loss.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd.)

Income taxes

Income tax is recognized in profit or loss except to the extent that it relates to items recognized directly in equity, in which case it is recognized in equity. Current tax expense is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at year end, adjusted for amendments to tax payable with regards to previous years.

Deferred tax is recorded using the asset-liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realization or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the date of the balance sheet.

A deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be available against which the asset can be utilized. To the extent that the Company does not consider it probable that a future tax asset will be recovered, it does not recognize the asset. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Company intends to settle its current tax assets and liabilities on a net basis.

Share capital

The Company records proceeds from share issuances net of issue costs and any tax effects. The Company records proceeds from the exercise of stock options and warrants as share capital in the amount for which the option or warrant enabled the holder to purchase a share in the Company. Share capital issued for non-monetary consideration is recorded at the fair value of the non-monetary consideration received, or at the fair value of the shares issued if the fair value of the non-monetary consideration cannot be measured reliably on the date of issue. The proceeds from the issue of units is allocated between common shares and common share purchase warrants on a relative fair value basis, wherein, the fair value of the common shares is based on the market close on the date the units are issued; and the fair value of the common share purchase warrants is determined using the Black-Scholes pricing model.

Loss per share

The Company presents basic loss per share for its common shares, calculated by dividing the loss attributable to common shareholders of the Company by the weighted average number of common shares outstanding during the year. Diluted loss per share does not adjust the loss attributable to common shareholders or the weighted average number of common shares outstanding when the effect is anti-dilutive.

Financial instruments

Financial assets

The Company classifies its financial assets into the following categories:

Held at amortized cost

Financial assets with fixed or determinable payments that are not quoted on an active market are held at amortized cost. Such assets are initially recognized at fair value plus any directly attributable transaction costs. Subsequent to initial recognition such financial assets are measured at amortized cost using the effective interest method. This category includes cash and short-term investment.

Financial liabilities

Financial liabilities are classified into the following:

Held at amortized cost

This category includes trade and other payables, which are recognized at amortized cost using the effective interest method.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd.)

Share-based payments

The Company grants stock options to certain directors, employees, and consultants of the Company. Each tranche in an award is considered a separate award with its own vesting period and grant date fair value. The fair value of each tranche is measured at the date of grant using the Black-Scholes option pricing model. Compensation expense is recognized over the tranche's vesting period by increasing share-based payments reserve based on the number of awards expected to vest. The number of awards expected to vest is reviewed at least annually, with any impact being recognized immediately. Consideration received on the exercise of stock options is recorded as share capital and the related share-based payments reserve is transferred to share capital.

Currency translation

Items included in the financial statements of each of the group's entities are measured using the currency of the primary economic environment in which the entity operates, which is known as the functional currency. The functional currency of Edgewater Exploration Ltd. (parent) and Corcoesto S.A. is the Canadian dollar while the functional currency of Mineira de Corcoesto, S.L. is the Euro. The presentation currency of the consolidated financial statements is the Canadian dollar.

The results and financial position of subsidiaries that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

• Assets and liabilities are translated at the period-end exchange rate;
• Income and expenses are translated at average exchange rates for the period; and
• All resulting exchange differences are recognized in other comprehensive income as cumulative translation adjustments.

On consolidation, exchange differences arising from the translation of the net investment in foreign entities are taken to other comprehensive income as foreign currency translation reserve. When a foreign operation is sold or control is lost, such exchange differences are recognized in the consolidated statement of loss and comprehensive loss as part of the gain or loss on disposition.

3. SHORT-TERM INVESTMENT

A guaranteed investment certificate ("GIC") with a principal value of $459,044 (2021 - $462,112) is held with a Canadian chartered bank as of December 31, 2021. The GIC matures in February 2022 and is redeemable at any time without penalty.

4. TRADE AND OTHER PAYABLES

	December 31,	December 31,
	2021	2020
Trade payables and accruals	$32,591	$ 31,321
Arbitration settlement liability	2,049,937	2,170,643
	$2,082,528	$ 2,201,964

On April 14, 2020, the Tribunal in Corcoesto S.A. v the Kingdom of Spain rendered its award. Corcoesto S.A., the Company's Panamanian subsidiary, had commenced arbitration in 2016 under the Spain-Panama bilateral investment treaty and the UNCITRAL Arbitration Rules (1976). The seat of the arbitration was Paris, France. Following a hearing in April 2018, the Tribunal rejected unanimously the first four of five jurisdictional objections raised by the Kingdom of Spain but upheld, by majority, the fifth jurisdictional objection, finding that Corcoesto S.A. was incorporated at a time when the dispute was foreseeable. The majority concluded on that basis that it had no jurisdiction to decide on the merits

4. TRADE AND OTHER PAYABLES (cont'd.)

of the claims. The dissenting arbitrator opined that the majority's decision erred in both law and fact and that the Tribunal did have jurisdiction and should have decided the merits of the claims. Accordingly, the claims were dismissed and the Tribunal awarded costs of $2,088,643 to be paid by the Company's Panamanian subsidiary, Corcoesto S.A. to the Kingdom of Spain. Management's view is that this award of costs relates solely to Corcoesto S.A. and accordingly, the Tribunal has no recourse against Edgewater Exploration Ltd.

5. SHARE CAPITAL

The authorized share capital of the Company is comprised of an unlimited number of common shares without par value.

(a) Stock Options

There were no stock options outstanding as of December 31, 2021 and 2020.

(b) Share Purchase Warrants

A summary of the Company's share purchase warrants as of December 31, 2021 is presented below:

Exerciseprice	January 1,2021	Exercised*	Expired	December 31,2021	Expiry date	Remainingcontractuallife in years
$0.20	5,000,0005,000,000	(250,000)(250,000)	(4,750,000)(4,750,000)	--	September 8, 2021	-

*****Of the 250,000 warrants exercised during 2021, 125,000 warrants were exercised by a director of the Company.

A summary of the Company's share purchase warrants as of December 31, 2020 is presented below:

Exerciseprice	January 1,2020	December 31,2020	Expiry date	Remainingcontractuallife in years
$0.20	5,000,000	5,000,000	September 8, 2021	0.69
	5,000,000	5,000,000
	$0.20	$0.20	Weighted average exercise price

6. RELATED PARTY TRANSACTIONS

During 2021, 125,000 warrants were exercised by a director of the Company at an exercise price of $0.20 for gross proceeds of $25,000.

7. SEGMENTED INFORMATION

The Company operates in a single segment. The Company's business is the acquisition, exploration, evaluation, and development of mineral resource properties, which was previously conducted in Spain. The Company has no reportable segment revenues.

7. SEGMENTED INFORMATION (cont'd.)

	December 31,2021	December 31,2020
Assets by geographic location, at cost
Canada
Total assets	$795,071	$899,799
Total liabilities	$23,579	$23,205
Spain
Total assets	$34,060	$23,689
Total liabilities	$2,052,817	$2,178,758

The following geographic data denotes net losses based on their country of origin for the year ended December 31:

	2021	2020
Canada	$76,649 $	1,157
Spain	122,090	(10,025)
Loss for the year	$198,739 $ (8,868)

8. FINANCIAL INSTRUMENTS

The Company's financial assets and liabilities consist of cash, other receivables, short-term investment, and trade and other payables.

(a) Liquidity Risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. The Company attempts to ensure there is sufficient access to funds to meet short-term business requirements. One of management's goals is to maintain an optimal level of liquidity through the active management of the Company's assets, liabilities, and cash flows. The Company prepares annual budgets which are approved by the Board of Directors and prepares cash flows and liquidity forecasts when appropriate. The Company's cash is held as cash deposits or invested in GICs which are available on demand to fund the Company's short-term financial obligations.

As of December 31, 2021, the Company had a working capital deficit of $1,247,266, as a result of the accrual of the arbitration award costs in the Company's Panamanian subsidiary (Note 4). Management considers that the Company has sufficient available cash and cash equivalents to be able to continue in operations for at least the next twelve months.

(b) Credit Risk

The Company's credit risk is primarily attributable to its cash, short-term investment, and other receivables. The risk exposure is limited to their carrying values at the balance sheet date. Cash is held as cash deposits or invested in GICs with counterparties that carry investment grade ratings as assessed by external rating agencies.

(c) Market Risks

The significant market risks to which the Company is exposed are currency risk and interest rate risk. The Company does not currently use derivative or hedging instruments to reduce its exposure to fluctuations in such risks.

8. FINANCIAL INSTRUMENTS (cont'd.)

i) Currency Risk

The Company's functional currency is the Canadian dollar. The functional currencies of the Company's subsidiaries are the Euro and Panamanian Balboa. The Company is exposed to foreign currency risk on cash and receivable balances and the settlement of purchases that are denominated in other than the functional currencies.

ii) Interest Rate Risk

The Company's interest rate risk arises from the interest earned on its deposits and short-term investment. Deposits including its short-term investment are invested on a short-term basis to enable adequate liquidity for payment of operational expenditures. The Company's other financial assets and liabilities are not subject to interest rate risk since they do not bear interest.

(d) Capital Management

The Company's objectives in managing its capital resources are to safeguard the entity's ability to continue as a going concern and maximize returns to shareholders in the context of the market. The Company satisfies its capital requirements through management of its cash resources and by utilizing equity issues, as necessary, based on the prevailing economic conditions of both the industry and the capital markets and the underlying risk characteristics of the related assets. The Company's principal source of capital is from the issuance of common shares. To meet the objectives, management monitors the Company's ongoing capital requirements against net working capital and assesses additional capital requirements on a case-by-case basis. The Company is not subject to any externally imposed capital requirements. The capital structure of the Company consists of equity attributable to common shareholders, comprised of issued capital, share-based payments reserve, warrants reserve, accumulated other comprehensive income, and deficit.

9. INCOME TAXES

The reconciliation of the income tax provision computed at statutory rates to the reported income tax provision for the years ended December 31 is as follows:

	2021	2020
Loss for the year before income taxesEffective statutory rate	$198,73927%	$8,86827%
Expected income tax benefit	$53,660	$2,394
Other items	1,232,027	578,454
Change in tax benefits not recognized	(1,285,686)	(580,848)
	$-	$-

Deferred income tax assets and liabilities reflect the net effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The significant components of the Company's deferred income tax assets and liabilities as at December 31 are as follows:

	2021	2020
Deferred income tax assets not recognized:
Non-capital loss carry-forwards	$9,513,247	$10,798,577
Undeducted share issue costs	-	356
	$9,513,247	$10,798,933

The Company has non-capital losses of approximately $37.2 million (2020 - $42.4 million), which can be used to reduce taxable income in future years. Non-capital loss carryforwards in Canada and Spain are approximately $9.7 million and $27.5 million, respectively. The non-capital loss carryforwards in Canada are subject to expiry between 2027 and 2041.

9. INCOME TAXES (cont'd.)

The non-capital losses in Spain are not subject to expiry.

In accordance with Spain legislation, income taxes cannot be considered definitive until they have been inspected and agreed by the Spanish tax authorities or before the relevant inspection year has lapsed. As a consequence of the different fiscal legislation interpretation, additional liabilities could arise from such tax inspections. Management does not expect that such tax liabilities, if they occur, will significantly affect the accounts of the Company.