EV Technology Group Ltd — Annual Report 2020

Oct 14, 2020

CONSOLIDATED FINANCIAL STATEMENTS

For the years ended July 31, 2020 and 2019

(Expressed in Canadian Dollars)

Independent Auditor's Report

To the Shareholders of Blue Sky Energy Inc.

Opinion

We have audited the consolidated financial statements of Blue Sky Energy Inc. and its subsidiary (the "Company"), which comprise the consolidated statements of financial position as at July 31, 2020 and 2019, and the consolidated statements of (loss) income and comprehensive (loss) income, consolidated statements of changes in shareholders' deficiency and consolidated statements of cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

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

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

Material uncertainty related to going concern

We draw attention to Note 1 in the consolidated financial statements, which indicates that the Company incurred a net loss during the year ended July 31, 2020 and, as of that date, the Company's current liabilities exceeded its current assets. As stated in Note 1, these events or conditions, along with other matters as set forth in Note 1, indicate that material uncertainties exist that cast significant doubt on the Company's ability to continue as a going concern. Our opinion is not modified in respect of this matter.

Other information

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

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

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially

inconsistent with the consolidated financial statements or our knowledge obtained in the 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 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 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 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 judgement 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 risks 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.

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 of the audit resulting in this independent auditor's report is Chris Milios.

McGovern Hurley LLP

Chartered Professional Accountants Licensed Public Accountants

Toronto, Ontario October 13, 2020

BLUE SKY ENERGY INC. CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

($ Canadian)	July 31, 2020	July 31, 2019
ASSETS
Current
Cash	$1,504	$555
Amounts receivable (Note 4)	6,009	12,032
Prepaid expenses and deposits	1,500	738
Total assets	$9,013	$13,325
LIABILITIES
Current
Accounts payable and accrued liabilities (Notes 6 and 12)	$1,556,000	$1,665,232
Loans payable (Note 6)	487,713	328,911
Total liabilities	2,043,713	1,994,143
SHAREHOLDERS' DEFICIENCY
Common shares (Note 8(b))	2,840,921	2,840,921
Contributed surplus (Note 8(c))	688,577	802,375
Deficit	(5,564,198)	(5,624,114)
Total shareholders' deficiency	(2,034,700)	(1,980,818)
Total liabilities and shareholders' deficiency	$9,013	$13,325

Nature and continuance of operations (Note 1) Commitments and contingencies (Note 11)

APPROVED ON BEHALF OF THE BOARD ON OCTOBER 13, 2020:

Signed "Ron Hite" , DIRECTOR

Signed "Orlando Bustos" , DIRECTOR

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

	Year ended
($ Canadian)	July 31, 2020	July 31, 2019
Expenses
Wages, salaries and consulting fees (recovery) (Note 12)	$(119,429)	$486,091
Professional fees	28,668	33,377
General office expenses	78,800	74,951
Travel expenses	67	-
Share based compensation (Notes 8(c) and 12)	-	44,648
Shareholder communications and filing fees	24,248	34,729
Foreign exchange loss (gain)	204	(171)
Total expenses before other income and expenses	12,558	673,625
Other income and expenses
Interest (expense)	(41,324)	(29,998)
(Loss) before discontinued operations	(53,882)	(703,623)
Gain on disposal of discontinued operations (Note 7)	-	4,804,947
(Loss) from discontinued operations (Note 7)	-	(87,041)
Net income from discontinued operations	-	4,717,906
Net (loss) income for the year	(53,882)	4,014,283
Other comprehensive income from discontinued operations
Foreign currency translation	-	1,057,680
Comprehesive (loss) income for the year	$(53,882)	$5,071,963
Basic and diluted (loss) income from continuing operations per share	(0.00)	(0.02)
Basic and diluted income from discontinued operations per share	-	0.15
Basic and diluted comprehensive (loss) income per share	(0.00)	0.16

Weighted average number of common shares outstanding basic and diluted 30,884,961 30,884,961

BLUE SKY ENERGY INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIENCY

					AccumulatedOther
($ Canadian)	Common Shares		ContributedSurplus	Deficit	ComprehensiveIncome	Shareholders'Deficiency
	#	$	$	$	$	$
Balance, July 31, 2019	30,884,961	2,840,921	802,375	(5,624,114)	-	(1,980,818)
Forfeited stock options (Note 8(c))	-	-	(113,798)	113,798		-
Loss for the year	-	-	-	(53,882)	-	(53,882)
Balance, July 31, 2020	30,884,961	2,840,921	688,577	(5,564,198)	-	(2,034,700)
Balance, July 31, 2018	30,884,961	2,840,921	765,069	(10,703,419)	1,057,680	(6,039,749)
Option vesting (Note 8(c))	-	-	44,648	-	-	44,648
Expiry of options (Note 8(c))	-	-	(7,342)	7,342	-	-
Income for the year	-	-	-	4,014,283	-	4,014,283
Other comprehensive income for the year	-	-	-	1,057,680	(1,057,680)	-
Balance, July 31, 2019	30,884,961	2,840,921	802,375	(5,624,114)	-	(1,980,818)

BLUE SKY ENERGY INC. CONSOLIDATED STATEMENTS OF CASH FLOWS

		Year ended
($ Canadian)	July 31, 2020	July 31, 2019
CASH (USED IN) PROVIDED BY:OPERATING ACTIVITIES
Net (loss) income	$(53,882)	$4,014,283
Items not involving cash:
Interest accrued (Note 6)	41,302	30,000
Share-based compensation (Note 8(c))	-	44,648
Gain on disposal of discontinued operations (Note 7)	-	(4,804,947)
	(12,580)	(716,016)
Net change in non‑cash working capital	(41,103)	623,259
Continued operating activities	(53,683)	(92,757)
Discontinued operations (Note 7)	-	87,041
Net cash flows (used in) operating activities	(53,683)	(5,716)
FINANCING ACTIVITIES
Proceeds from loans payable (Note 6)	60,500	-
Repayment of loans payable (Note 6)	(5,500)	-
Net cash flows provided by financing activities	55,000	-
Effect of exchange rate change	(368)	(171)
CHANGE IN CASH DURING THE YEAR	949	(5,887)
CASH, beginning of the year	555	6,442
CASH, end of the year	$1,504	$555
SUPPLEMENTAL INFORMATION:Interest paid	22	-

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the years ended July 31, 2020 and 2019

1. NATURE AND CONTINUANCE OF OPERATIONS

Blue Sky Energy Inc. (the "Company" or "Blue Sky") is a public company and trades on the NEX board of the TSX Venture Exchange ("TSXV") under the symbol "BSI.H". The Company was continued into Ontario, Canada on September 27, 2013 with a registered office address of 65 Queen Street West, Suite 805, Toronto, ON, M5H 2M5. Blue Sky is an international oil and gas exploration company, primarily engaged in exploring potential opportunities in the domestic and international oil and gas sector with a focus on competitive and stable energy jurisdictions.

Going concern

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the payment of liabilities in the ordinary course of business. Should the Company be unable to continue as a going concern, it may be unable to realize the carrying value of its assets and to meet its liabilities as they become due.

The business of exploration for oil and gas involves a high degree of risk and there can be no assurance that current exploration programs will result in profitable oil and gas operations. The Company's continued existence is dependent upon the acquisition of oil and gas properties, preservation of its interest in the underlying properties, the discovery of economically recoverable reserves, the achievement of profitable operations, or the ability of the Company to raise alternative financing, if necessary, or alternatively upon the Company's ability to dispose of its interests on an advantageous basis.

The Company does not have any operating assets that generate revenues, does not have proven reserves and had a net loss of $53,882 during the year ended July 31, 2020 (July 31, 2019 – net income of $4,014,283). As at July 31, 2020, the Company had a working capital deficiency of $2,034,700 (July 31, 2019 - $1,980,818). Consequently, the Company's ability to continue as a going concern is dependent on the Company's ability to obtain additional financing if, as and when required, and, ultimately, the attainment of profitable operations or the profitable sale of the Company's exploration interests. These conditions indicate the existence of a material uncertainty that may cast significant doubt about the Company's ability to continue as a going concern.

These consolidated financial statements do not give effect to adjustments that would be necessary and could be material to the carrying values and classifications of assets and liabilities should the Company be unable to continue as a going concern.

2. SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of significant accounting policies used in the preparation of these consolidated financial statements.

Statement of compliance

The consolidated financial statements of the Company have been prepared in accordance with International Financial Reporting Standards ("IFRS") issued by the International Accounting Standards Board ("IASB") and interpretations of the International Financial Reporting Interpretations Committee.

Basis of presentation

The consolidated financial statements of the Company have been prepared on an accrual basis and are based on historical costs, modified where applicable. The consolidated financial statements are presented in Canadian dollars unless otherwise noted.

For the years ended July 31, 2020 and 2019

2. SIGNIFICANT ACCOUNTING POLICIES (continued)

Basis of consolidation

These consolidated financial statements include the accounts of the Company, and its wholly-owned subsidiary Sonoro Energy Iraq B.V. ("Sonoro Iraq"). Água Grande Exploração e Produção de Petróleo Ltda ("Agua Grande") was deconsolidated on October 19, 2018 (see Note 7).

Subsidiaries consist of entities over which the Company is exposed to, or has rights to, variable returns as well as the ability to affect those returns through the power to direct the relevant activities of the entity. Subsidiaries are fully consolidated from the date control is transferred to the Company and are deconsolidated from the date control ceases. The consolidated financial statements include all the assets, liabilities, revenues, expenses and cash flows of the Company and its subsidiary after eliminating inter-entity balances and transactions.

Intercompany balances and transactions, and any unrealized income and expenses arising from intercompany transactions, are eliminated in preparing the consolidated financial statements.

Foreign currency translation

The functional currency of an entity is the currency of the primary economic environment in which the entity operates. The functional currency of the Canadian parent company is the Canadian dollar. The Company's former operating subsidiary, Agua Grande, had a Canadian dollar functional currency. The Company's subsidiary, Sonoro Iraq, has a functional currency of the Iraqi Dinar. The reporting currency of the Company is the Canadian dollar.

For individual subsidiary accounts, transactions in foreign currencies are recorded in the functional currency at exchange rates prevailing on the dates of the transactions. At the end of each reporting period, monetary assets and liabilities denominated in foreign currencies are translated at the period end exchange rates. Revenues and expenses are translated at the exchange rates approximating those in effect on the date of the transactions. Exchange gains and losses arising on translation are included in profit and loss.

For presentation of the Company's consolidated accounts, if the functional currency of the Company or its subsidiary is different from the presentation currency as at the reporting date, the assets and liabilities are translated into the presentation currency at the rate ruling at the statement of financial position date and the statement of loss and comprehensive loss is translated using the average exchange rate for the period. The foreign exchange differences are taken directly to a separate component of equity. On disposal of a foreign entity the deferred cumulative amount recognized in equity relating to the particular operation is recognized in the consolidated statements of (loss) income and comprehensive (loss) income.

Use of estimates and judgments

The preparation of the Company's consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities and contingent liabilities at the date of the consolidated financial statements and reported amounts of revenues and expenses during the reporting period. Estimates and assumptions are continuously 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. However, actual outcomes can differ from these estimates.

Exploration and evaluation expenditures

Pre-exploration costs

Costs that are incurred prior to obtaining the legal right to explore, develop or extract resources are recognized as expenses in the consolidated statement of (loss) income.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the years ended July 31, 2020 and 2019

2. SIGNIFICANT ACCOUNTING POLICIES (continued)

Exploration and evaluation expenditures (continued)

Exploration and evaluation expenditures

Exploration and evaluation costs are those expenditures incurred on projects where the Company has a legal right to explore and for which technical feasibility and commercial viability have been determined. These costs are initially capitalized as exploration and evaluation assets and include acquisition of rights to explore, exploration drilling, and any other activities relating to evaluation of technical feasibility and commercial viability of extracting oil and gas resources. The Company expenses items that are not directly attributable to exploration and evaluation assets.

Expenditures that are capitalized are recorded at cost. Costs that are capitalized are accumulated in cost centers by well, field or exploration area pending determination of technical feasibility and commercial viability.

When technical feasibility and commercial viability is determinable, exploration and evaluation assets attributable to those reserves are first tested for impairment and then reclassified from exploration and evaluation assets to a separate category within property and equipment referred to as oil and natural gas development and production assets. The Company recognized an impairment of exploration and evaluation expenditures of $nil during the year ended July 31, 2020 (July 31, 2019 - $nil).

Provisions

General

Provisions are recognized when (a) the Company has a present obligation (legal or constructive) as a result of a past event, and (b) it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the Company expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain.

The expense relating to any provision is presented in the consolidated statement of operations, net of any reimbursement. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as a finance cost in the consolidated statement of operations.

Onerous contracts

Onerous contracts are present obligations arising under onerous contracts that are recognized and measured as provisions. An onerous contract is considered to exist where the Company has a contract under which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it.

Decommissioning obligations

The Company records a liability for the fair value of legal or constructive obligations associated with the decommissioning of long-lived tangible assets in the period in which they are incurred. The decommissioning liability is recognized at the present value of the estimated future cash flow associated with the decommissioning of the applicable assets or properties. On recognition of the liability there is a corresponding increase in the carrying amount of the related asset known as the decommissioning cost, which is depleted on a unit-ofproduction basis over the life of the reserves. The liability is adjusted each reporting period to reflect the passage of time using the discount rate, with the interest charged to earnings, and for revisions to the estimated future cash flows. Actual costs incurred upon settlement of the obligations are charged against the liability.

As at July 31, 2020 and 2019 the Company did not have any decommissioning obligations.

For the years ended July 31, 2020 and 2019

2. SIGNIFICANT ACCOUNTING POLICIES (continued)

Joint arrangements

A joint arrangement is defined as one over which two or more parties have joint control, which is the contractually agreed of sharing of control over an arrangement. This exists only when the decisions about the relevant activities (being those that significantly affect the returns of the arrangement) require the unanimous consent of the parties sharing control. There are two types of joint arrangements, joint operations ("JO") and joint ventures ("JV"). A JO is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets and obligations for the liabilities, relating to the arrangement. A JV is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture. The Company did not have any joint arrangements during the years ended July 31, 2020 and 2019.

Cash and cash equivalents

Cash and cash equivalents include cash on hand and deposits held with banks that have a maturity of less than three months at the date they are acquired. The Company did not have any cash equivalents as at July 31, 2020 and 2019.

Financial assets and liabilities

Financial assets

Initial recognition and measurement

Non-derivative financial assets within the scope of IFRS 9 are classified and measured as "financial assets at fair value", as either fair value through profit or loss ("FVPL") or fair value through other comprehensive income ("FVOCI"), and "financial assets at amortized costs", as appropriate. The Company determines the classification of financial assets at the time of initial recognition based on the Company's business model and the contractual terms of the cash flows.

All financial assets are recognized initially at fair value plus, in the case of financial assets not at FVPL, directly attributable transaction costs on the trade date at which the Company becomes a party to the contractual provisions of the instrument.

Financial assets with embedded derivatives are considered in their entirety when determining their classification at FVPL or at amortized cost.

Subsequent measurement – financial assets at amortized cost

After initial recognition, financial assets measured at amortized cost are subsequently measured at the end of each reporting period at amortized cost using the Effective Interest Rate ("EIR") method. Amortized cost is calculated by taking into account any discount or premium on acquisition and any fees or costs that are an integral part of the EIR. The EIR amortization is included in finance income in the consolidated statements of (loss) income. The Company measures cash and amounts receivable at amortized cost.

Subsequent measurement – financial assets at FVPL

Financial assets measured at FVPL include financial assets management intends to sell in the short term and any derivative financial instrument that is not designated as a hedging instrument in a hedge relationship. Financial assets measured at FVPL are carried at fair value in the consolidated statements of financial position with changes in fair value recognized in other income or expense in the consolidated statements of (loss) income. The Company does not measure any financial assets at FVPL.

Subsequent measurement – financial assets at FVOCI

Financial assets measured at FVOCI are non-derivative financial assets that are not held for trading and the Company has made an irrevocable election at the time of initial recognition to measure the assets at FVOCI. The Company does not measure any financial assets at FVOCI.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the years ended July 31, 2020 and 2019

2. SIGNIFICANT ACCOUNTING POLICIES (continued)

Financial assets and liabilities (continued)

Subsequent measurement – financial assets at FVOCI (continued)

After initial measurement, investments measured at FVOCI are subsequently measured at fair value with unrealized gains or losses recognized in other comprehensive income or loss in the consolidated statements of comprehensive (loss) income. When the investment is sold, the cumulative gain or loss is not reclassified to profit or loss.

Dividends from such investments are recognized in other income in the consolidated statements of (loss) income when the right to receive payments is established.

Derecognition

A financial asset is derecognized when the contractual rights to the cash flows from the asset expire, or the Company no longer retains substantially all the risks and rewards of ownership.

Impairment of financial assets

The Company's only financial assets subject to impairment are amounts receivable, which are measured at amortized cost. The Company has elected to apply the simplified approach to impairment as permitted by IFRS 9, which requires the expected lifetime loss to be recognized at the time of initial recognition of the receivable. To measure estimated credit losses, amounts receivable have been grouped based on shared credit risk characteristics, including the number of days past due. An impairment loss is reversed in subsequent periods if the amount of the expected loss decreases and the decrease can be objectively related to an event occurring after the initial impairment was recognized.

Financial liabilities

Initial recognition and measurement

Financial liabilities are measured at amortized cost, unless they are required to be measured at FVPL as is the case for held for trading or derivative instruments, or the Company has opted to measure the financial liability at FVPL. All financial liabilities are recognized initially at fair value.

Subsequent measurement – financial liabilities at amortized cost

After initial recognition, financial liabilities measured at amortized cost are subsequently measured at the end of each reporting period at amortized cost using the EIR method. Amortized cost is calculated by taking into account any discount or premium on acquisition and any fees or costs that are an integral part of the EIR. The Company's financial liabilities include accounts payable and accrued liabilities, and loans payable, which are each measured at amortized cost.

Subsequent measurement – financial liabilities at FVPL

Financial liabilities measured at FVPL include any derivative financial instrument that is not designated as a hedging instrument in a hedge relationship. Financial a measured at FVPL are carried at fair value in the consolidated statements of financial position with changes in fair value recognized in other income or expense in the consolidated statements of (loss) income. The Company does not measure any financial liability as financial liability at FVPL.

Derecognition

A financial liability is derecognized when the obligation under the liability is discharged, cancelled or expires with any associated gain or loss recognized in other income or expense in the consolidated statements of (loss) income.

For the years ended July 31, 2020 and 2019

2. SIGNIFICANT ACCOUNTING POLICIES (continued)

Share capital

Proceeds from the issuance of common shares are classified as equity. Incremental costs directly attributable to the issuance of shares are recognized as a deduction from equity.

Share based payments

Share-based payments to employees are measured at the fair value of the instruments issued and amortized over the vesting periods. Share-based payments to non-employees are measured at the fair value of goods or services received or the fair value of the equity instruments issued, if it is determined the fair value of the goods or services cannot be reliably measured, and are recorded at the date the goods or services are received. The Company has issued options to acquire common shares to directors, officers, employees and consultants of the Company. These options are accounted for using the fair-value method which estimates the value of the options at the date of the grant using the Black-Scholes option pricing model. The fair-value thus established is recognized as compensation expense over the vesting period of the options with an equivalent increase to contributed surplus. The amount in contributed surplus relates to unexpired awards which have vested and when exercised the value in contributed surplus is transferred to common shares. A forfeiture rate is estimated on the grant date and is subsequently adjusted to reflect the actual number of options that vest.

Interest income

Interest income is reported on an accrual basis using the effective interest method.

Finance costs

Finance costs include interest expenses and other costs in association to borrowing funds as well as any expense relating to accretion incurred in relation to Blue Sky's decommissioning obligations (if any). All applicable borrowing costs attributable to qualifying assets, which are assets that take more than twelve months to construct, are to be capitalized along with the corresponding asset until that asset is ready for use. All other borrowing costs are recognized in net loss as incurred.

Income taxes

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

Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized 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.

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.

For the years ended July 31, 2020 and 2019

2. SIGNIFICANT ACCOUNTING POLICIES (continued)

(Loss) income per share

Basic (loss) income per share is calculated using the weighted average number of shares outstanding during the period. Diluted (loss) income per share is calculated by assuming that any proceeds from the exercise of dilutive stock options and warrants would be used to repurchase common shares at the average market price during the period, with the incremental number of shares being included in the denominator of the diluted loss per share calculation. The diluted (loss) income per share calculation excludes any potential conversion of options and warrants that would be anti-dilutive.

Discontinued operations

A discontinued operation is a component of the Company's business, the operations and cash flows of which can be clearly distinguished and which:

• represents a separate major line of business or geographical area of operations;
• is part of single co-ordinated plan to dispose of a separate major line of business;
• is a subsidiary acquired exclusively with a view to re-sale.

Classification as a discontinued operation occurs at the earlier of disposal or when the operation meets the criteria to be classified as heldfor-sale. When an operation is classified as discontinued operation, the comparative consolidated statement of (loss) income and comprehensive (loss) income is re-presented as if the operation had been discontinued from the start of the comparative year.

Accounting pronouncements not yet adopted

Certain pronouncements were issued by the IASB or the IFRIC that are mandatory for accounting periods on or after August 1, 2020 or later periods. Many are not applicable or do not have a significant impact to the Company and have been excluded. The following have not yet been adopted and are being evaluated to determine their impact on the Company's consolidated financial statements.

IAS 1 – Presentation of Financial Statements ("IAS 1") and IAS 8 – Accounting Policies, Changes in Accounting Estimates and Errors ("IAS 8") were amended in October 2018 to refine the definition of materiality and clarify its characteristics. The revised definition focuses on the idea that information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements. The amendments are effective for annual reporting periods beginning on or after January 1, 2020.

Other accounting changes

The Company adopted a number of new IFRS standards, interpretations, amendments and improvements of existing standards. These included IFRS 16 and IFRIC 23. The adoption of these standards on August 1, 2019 did not have a material impact on the Company's consolidated financial statements.

3. CRITICAL JUDGEMENTS AND ESTIMATION UNCERTAINTIES

The preparation of the consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions about future events that affect the amounts reported in the consolidated financial statements and related notes to the financial statements. Although these estimates are based on management's best knowledge of the amount, event or actions, actual results could differ from those estimates and these estimates could be material.

For the years ended July 31, 2020 and 2019

3. CRITICAL JUDGEMENTS AND ESTIMATION UNCERTAINTIES (continued)

The areas which require management to make significant judgments, estimates and assumptions in determining carrying values include, but are not limited to:

Assets' carrying values and impairment charges

In the determination of carrying values and impairment charges, management looks at the higher of recoverable amount or fair value less costs to sell in the case of assets and at objective evidence, significant or prolonged decline of fair value on financial assets indicating impairment. These determinations and their individual assumptions require that management make a decision based on the best available information at each reporting period.

Share-based payments and warrants

Management determines costs for share-based payments and warrants using market-based valuation techniques. The fair value of the market-based and performance-based share awards are determined at the date of grant using generally accepted valuation techniques. Assumptions are made and judgment used in applying valuation techniques. These assumptions and judgments include estimating the future volatility of the stock price, expected dividend yield, future employee turnover rates and future employee stock option exercise behaviors and corporate performance. Similar calculations are made in order to value warrants. Such judgments and assumptions are inherently uncertain. Changes in these assumptions affect the fair value estimates.

Income, value added, withholding and other taxes

The Company is subject to income, value added, withholding and other taxes. Significant judgment is required in determining the Company's provisions for taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Company recognizes liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. The determination of the Company's income, value added, withholding and other tax liabilities requires interpretation of complex laws and regulations. The Company's interpretation of taxation law as applied to transactions and activities may not coincide with the interpretation of the tax authorities. All tax related filings are subject to government audit and potential reassessment subsequent to the financial statement reporting period. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the tax related accruals and deferred income tax provisions in the period in which such determination is made.

Contingencies and provisions

Contingencies can be either possible assets or possible liabilities arising from past events which, by their nature, will only be resolved when one or more future events not wholly within our control occur or fail to occur. The assessment of such contingencies inherently involves the exercise of significant judgment and estimates of the outcome of future events. In assessing loss contingencies related to legal proceedings that are pending against us or un-asserted claims, that may result in such proceedings or regulatory or government actions that may negatively impact our business or operations, the Company and its legal counsel evaluate the perceived merits of any legal proceedings or un-asserted claims or actions as well as the perceived merits of the nature and amount of relief sought or expected to be sought, when determining the amount, if any, to recognize as a contingent liability or assessing the impact on the carrying value of assets. Contingent assets are not recognized in the consolidated financial statements.

Foreign currency determination

Under IFRS, each entity must determine its own functional currency, which becomes the currency that entity measures its results and financial position in. Judgment is necessary in assessing each entity's functional currency. In determining the functional currencies of the Company and its subsidiaries, the Company considered many factors, including the currency that mainly influences sales prices for goods and services, the currency of the country whose competitive forces and regulations mainly determine the sales prices, and the currency that mainly influences labour material and other costs for each consolidated entity.

4. AMOUNTS RECEIVABLE

Amounts receivable balances as at July 31, 2020 and July 31, 2019 consist of amounts receivable from the Government of Canada for Harmonized Sales Taxes (HST).

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the years ended July 31, 2020 and 2019

5. EXPLORATION AND EVALUATION EXPENDITURES

On November 29, 2016, the Company acquired from Sonoro Energy International Holdings B.V. (the "Vendor") all the issued and outstanding shares of Sonoro Iraq, a company incorporated in the Netherlands and the designated operator and holder of the license agreement with the Al-Salah ad Din Provincial Government of Iraq for bitumen exploration and asphalt production (the "Salah ad Din License") defined in the license as hydrocarbons with an API gravity of less than 25 degrees.

On March 15, 2017, the Company announced that it had received a letter from the Republic of Iraq Salah Ad Din Investment Commission confirming the resumption of work and removal of Force Majeure status related to the Asphalt License that the Company controls through its subsidiary, Sonoro Iraq, subject to securing an investment license. Once the investment license is granted, the Company can plan a new work program. To date, the Company is still waiting for the grant of the investment license.

There were no exploration and evaluation expenditures for the years ended July 31, 2020 and 2019.

6. TRADE AND OTHER PAYABLES

	July 31, 2020	July 31, 2019
Accounts payable and other	$1,328,111	$1,164,843
Accrued liabilities	227,889	500,389
Total accounts payable and accrued liabilities	$1,556,000	$1,665,232
Loans payable	487,713	328,911
Balance, end of year	$2,043,713	$1,994,143

The Company incurred an unsecured loan from Aberdeen International Inc. on May 10, 2017 of $50,000 which was subsequently increased to $250,000 on May 15, 2017 with an original maturity date of July 5, 2017. Interest accrues at 12% annually. The loan maturity was extended until December 31, 2017 with the payment of an arrangement fee of $12,500. The loan was further extended, is due on demand, and at July 31, 2020, the loan balance including accrued interest and arrangement fees was $358,993 (July 31, 2019 - $328,911).

A loan of $62,500 from 2227929 Ontario Inc. was included in accounts payable and accrued liabilities as at July 31, 2019. It was non-interest bearing and due on demand. On August 16, 2019, this loan was reclassified to loans payable as a loan agreement was made with 2227929 Ontario Inc. where it accrues interest at 12% annually and has a maturity date of February 18, 2020. During August 2019, an additional loan of $5,500 was received from 2227929 Ontario Inc. and repaid by the Company. On February 6, 2020, the Company drew down an additional amount of $35,000 on the loan. The loan is unsecured. On July 31, 2020, the loan balance including accrued interest was $106,738. As of the approval date of these consolidated financial statements, the loan is in default. The lender has not proceeded with any collection actions.

On September 16, 2019, the Company incurred an unsecured loan from Questcap Inc. in the amount of $10,000 which accrues interest at 12% annually and has a maturity date of June 30, 2020. On July 31, 2020, the loan balance including accrued interest was $11,052. As of the approval date of these consolidated financial statements, the loan is in default. The lender has not proceeded with any collection actions.

On October 23, 2019, the Company incurred an unsecured loan from Sulliden Mining Inc. in the amount of $10,000 which accrues interest at 12% annually and had a maturity date of June 30, 2020. On June 30, 2020, the loan was extended to January 31, 2021. On July 31, 2020, the loan balance including accrued interest was $10,930.

7. DISCONTINUED OPERATIONS

On November 9, 2017, the Company signed an agreement to dispose of its wholly owned Brazilian subsidiary, Agua Grande, to Umeq Al-Nahrain for General Trading, Import & Export Ltd., an Iraqi corporation, for a nominal $1. The transaction closed on October 19, 2018 at which time the subsidiary was deconsolidated and a non-cash gain of $4,804,947 was recognized on the consolidated statement of (loss) income for the year ended July 31, 2019.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the years ended July 31, 2020 and 2019

7. DISCONTINUED OPERATIONS (continued)

The operating results related to this subsidiary have been included in discontinued operations in the consolidated statements of (loss) income and comprehensive (loss) income and the consolidated statements of cash flows for the years ended July 31, 2020 and 2019.

	Year ended July 31,		Year ended July 31,
		2020	2019
(Loss)
Foreign exchange (loss) on translation	$	-	$(87,041)
	$	-	$(87,041)

8. CAPITAL STOCK

a. Authorized

Unlimited number of common shares, without par value Unlimited number of 1st and 2nd preferred shares, without par value, issuable in series

b. Common shares issued

	Number of shares	Amount
Balance at July 31, 2018 and 2019, July 31, 2020	28,445,326	$2,840,921

There were no new common shares issued for the years ended July 31, 2020 and 2019.

c. Contributed surplus

The Company has granted options for the purchase of common shares to its directors, officers, consultants and employees. The aggregate number of shares that may be issuable pursuant to options granted under the Stock Option Plan will not exceed 10% of the issued common shares of the Company at the date of grant. No more than 5% of the issued shares of the Company may be granted to any one optionee, and no more than 2% of the issued shares of the Company may be granted to any one consultant or person engaged in investor relations activities in any 12 month period. The options are non-transferable and non-assignable and may be granted for a term not exceeding five years. The exercise price of the options may not be less than the market price of the Blue Sky common shares at the time of the option grant.

On October 31, 2019, 125,000 options expired, unexercised.

On November 30, 2019, 30,000 options expired, unexercised.

As at July 31, 2020, the following stock options were outstanding:

Number of	Number of	Grant	Expiration	Exercise			Grant date
options	options	date	date	price	Estimated	Expected	Expected	Expected	Risk-free
outstanding exercisable					fair valuevested	volatility	life(years)	dividendyield	interestrate
840,000		840,000 8-Feb-17	8-Feb-22 $	0.80	$616,715	154%	5	0%	1.01%
50,000		50,000 8-Feb-17	8-Feb-22 $	1.00	$ 36,324	154%	5	0%	1.01%
50,000		50,000 8-Feb-17	8-Feb-22 $	1.50	$ 35,538	154%	5	0%	1.01%
940,000	940,000			$0.85	$688,577		-

During the year ended July 31, 2020, 155,000 options were forfeited. For the year ended July 31, 2019, 10,000 options expired, unexercised. There are 940,000 options outstanding as at July 31, 2020. The weighted average remaining life of the options is 1.53 years (July 31, 2019 – 2.53 years).

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the years ended July 31, 2020 and 2019

8. CAPITAL STOCK (continued)

c. Contributed surplus (continued)

Option transactions during the years were as follows:

	Number of	Weighted average
	stock options	exercise price ($)
Balance, July 31, 2018	1,105,000	0.84
Expired	(10,000)	0.80
Balance, July 31, 2019	1,095,000	0.84
Forfeited	(155,000)	0.80
Balance, July 31, 2020	940,000	0.85

9. INCOME TAXES

a. Provision for income taxes

Major items causing the Company's effective income tax rate to differ from the combined Canadian federal and provincial statutory rate of 26.5% (2019– 26.5%) were as follows:

	2020	2019
	$	$
(Loss) before discontinued operations and income taxes	(53,882)	(703,623)
Expected income tax (recovery) based on statutory rate	(14,000)	(186,000)
Adjustment to expected income tax benefit:
Permanent differences and other	(836,000)	12,000
Change in unrecorded tax asset	850,000	174,000
Deferred income tax provision (recovery)	-	-

b. Deferred income tax balances

Deferred tax assets have not been recognized in respect of these items because it is not probable that future taxable profit will be available against which the Company can use the benefits.

Deferred income tax assets have not been recognized in respect of the following deductible temporary differences:

	2020$	2019$
Non-capital loss carry-forwards	6,376,000	6,322,000
Capital loss carry-forwards	8,242,000	1,941,000
Total	14,618,000	8,263,000

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the years ended July 31, 2020 and 2019

9. INCOME TAXES (continued)

b. Deferred income tax balances (continued)

As at July 31, 2020, the Company has estimated non-capital loss for Canadian income tax purposes of approximately $6,376,000 (2019 - $6,322,000) available to use against future taxable income. The non-capital tax losses expire between 2031 and 2040.

2031	$670,000
2032	1,326,000
2033	1,097,000
2034	504,000
2035	433,000
2036	219,000
2037	628,000
2038	786,000
2039	659,000
2040	54,000
	$6,376,000

10. NET (LOSS) INCOME PER SHARE

The number of shares used to calculate the basic and diluted net (loss) income from continuing operations per share and the basic and diluted income from discontinued operations per share for the years ended July 31, 2020 and 2019 included the weighted average number of Blue Sky common shares outstanding of 30,884,961 respectively plus nil shares related to the dilutive effect of the conversion of stock options as the stock options would be anti-dilutive.

11. COMMITMENTS AND CONTINGENCIES

Sonoro Iraq acquisition

On November 29, 2016, the Company acquired Sonoro Iraq. See Note 5. In consideration for the acquisition, the Company will make the following contingent payments to the Vendor, totaling $4 million:

• $1 million on first production of petroleum and asphalt;
• $1 million once production hits 15,000 barrels per day;
• $1 million once production hits 40,000 barrels per day; and
• $1 million once production hits 80,000 barrels per day.

All production is as defined in the Salah ad Din License dated October 2, 2010. In the event that no production is achieved related to the Salah ad Din License agreement, no consideration or payments shall be owing or payable to the Vendor. As triggering events have not taken place as at July 31, 2020, these amounts have not been recorded in these consolidated financial statements.

Management contracts

The Company is party to certain management and independent contractor contracts. These contracts require payments of approximately $720,000 to be made upon the occurrence of a change in control to the officers of the Company. As a triggering event has not taken place, the contingent payments have not been reflected in these consolidated financial statements. The Company is also committed to payments upon termination of approximately $240,000 pursuant to the terms of these contracts.

For the years ended July 31, 2020 and 2019

11. COMMITMENTS AND CONTINGENCIES (continued)

Contingencies

Oil and gas operations are subject to extensive controls and regulations imposed by various levels of government that may be amended from time to time. The Company's operations may require licenses and permits from various governmental authorities in the countries in which it operates. There can be no assurance that the Company will be able to obtain all necessary licenses and permits that may be required to carry out exploration and development of its projects.

Environmental

The Company's exploration and evaluation activities are subject to laws and regulations governing the protection of the environment. These laws and regulations are continually changing and generally becoming more restrictive. The Company believes its operations are materially in compliance with all applicable laws and regulations. The Company has made, and expects to make in the future, expenditures to comply with such laws and regulations.

Novel Coronavirus

The Company's operations could be significantly adversely affected by the effects of a widespread global outbreak of a contagious disease, including the recent outbreak of respiratory illness caused by COVID-19. The Company cannot accurately predict the impact COVID-19 will have on its operations and the ability of others to meet their obligations with the Company, including uncertainties relating to the ultimate geographic spread of the virus, the severity of the disease, the duration of the outbreak, and the length of travel and quarantine restrictions imposed by governments of affected countries. In addition, a significant outbreak of contagious diseases in the human population could result in a widespread health crisis that could adversely affect the economies and financial markets of many countries, resulting in an economic downturn that could further affect the Company's operations and ability to finance its operations.

12. RELATED PARTY DISCLOSURES

Key management personnel compensation

In addition to their contracted fees, executive officers participate in the Company's share option program. Certain executive officers are subject to a mutual termination notice of twelve months. See Note 11. Key management personnel compensation comprised:

	Year ended		Year ended
	July 31, 2020		July 31, 2019
Short term employee benefits	$-	$	164,556
Share-based payments	-		28,337
	$-	$	192,893
repayment.
13.FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
Fair value
maturity of these instruments.

During the year ended July 31, 2020, the Company recorded a recovery of $487,500 in consulting fees accrued for Ahmed Said, CEO and director of the Company included in wages, salaries and consulting fees in the consolidated statements of loss and comprehensive loss.

Included in accounts payable and accrued liabilities as at July 31, 2020, is $63,889 (July 31, 2019 - $476,389) owing to key management personnel for business and operational consulting services. Such amounts are unsecured, non-interest bearing, with no fixed terms of repayment.

See Note 6 for outstanding loan payable owing to Aberdeen International Inc., an entity which owns common shares of the Company.

13. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

Fair value

Blue Sky's financial instruments as at July 31, 2020, consists of cash, amounts receivable, accounts payable and accrued liabilities and loans payable and the amounts reflected in the consolidated statements of financial position approximate fair value due to the short-term

For the years ended July 31, 2020 and 2019

13. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)

Fair value (continued)

Financial instruments recorded at the reporting date at fair value are classified into one of three levels based upon the fair value hierarchy. Items are categorized based on inputs used to derive fair value based on:

Level 1 - quoted prices that are unadjusted in active markets for identical assets or liabilities;

Level 2 - inputs other than quoted prices included in level 1 that are observable for the asset/liability either directly or indirectly; and Level 3 - inputs for the instruments are not based on any observable market data.

The Company had no financial instruments recorded at fair value in the consolidated statements of financial position at July 31, 2020 and 2019.

Fair value estimates are made at the relevant transaction date, based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties in significant matters of judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect these estimates.

Risk management overview

The Company has exposure to credit, liquidity and market risks from its use of financial instruments. This note provides information about the Company's exposure to each of these risks, the Company's objectives, policies and processes for measuring and managing risk. Further quantitative disclosures are included throughout these consolidated financial statements.

Credit risk

Credit risk is the risk of financial loss to the Company if a counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Company's receivables.

The carrying amount of accounts receivable represents the maximum credit exposure. As at July 31, 2020 the Company's total receivable was $6,009 (July 31, 2019 - $12,032). There were no derivative instruments held at July 31, 2020 and 2019.

Market risk

Market risk is the risk that changes in market conditions, such as commodity prices, interest rates, and foreign exchange rates, will affect the Company's net income or the value of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable limits, while maximizing the Company's returns.

(i) Commodity price risk

Commodity price risk is the risk that future cash flows will fluctuate as a result of changes in commodity prices. Commodity prices for petroleum and natural gas are impacted by not only the relationship between the Canadian and United States dollar, as outlined below, but also global economic events that dictate the levels of supply and demand. Lower commodity prices can also reduce the Company's ability to raise capital. As the Company is not generating revenues, commodity price risk does not directly impact the Company's financial results.

(ii) Foreign exchange risk

Foreign currency exchange rate risk is the risk that the fair value of future cash flows will fluctuate as a result of changes in foreign exchange rates.

As at July 31, 2020, the Company had the following assets and liabilities denominated in foreign currencies:

July 31, 2020	USD$	Euro
Cash	$1	$-
Accounts payable and accrued liabilities	(38)	(121)
	$(37) $	(121)

For the years ended July 31, 2020 and 2019

13. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)

Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with the financial liabilities. The Company's financial liabilities consist of accounts payable, accrued liabilities and loans payable.

The Company prepares annual capital expenditure budgets, which are monitored and updated as considered necessary. Financial modeling is used to provide economic outlooks and the Company utilizes authorizations for expenditures on projects to monitor capital expenditures.

Accounts payable and accrued liabilities consist of invoices payable to trade suppliers for office, field operating activities and capital expenditures. The Company processes invoices within a normal payment period. Accounts payable have contractual maturities of less than one year.

The Company has unsecured loans bearing annual interest rates of 12% (see Note 6).

Sensitivity analysis

The Company, for accounting purposes, measures its cash and amounts receivable at amortized cost. Accounts payable, accrued liabilities and loans payable are measured for accounting purposes at amortized cost. As of July 31, 2020, both the carrying and fair value amounts of the Company's financial instruments are approximately equivalent due to the short term maturity of these instruments.

The sensitivity analysis shown in the notes below may differ materially from actual results. Based on management's knowledge of and experience with the financial markets, the Company believes the following movements are "reasonably possible" over a one year period:

• (i) Cash is subject to floating interest rates. As at July 31, 2020, if interest rates had decreased/increased by 1% with all other variables held constant, there would not have been a material impact to the (loss) income for the year ended July 31, 2020 given the low level of cash on hand throughout this year.
• (ii) Cash, accounts payable and accrued liabilities and provisions denominated in US dollar or European Euros are subject to foreign currency risk. As at July 31, 2020, had the US dollar and Euros weakened/strengthened by 5% against the Canadian dollar with all other variables held constant, there would have been a change of approximately $12 in the Company's net (loss) income.

14. CAPITAL MANAGEMENT

The Company considers the aggregate of its common shares, contributed surplus and deficit as capital. The Company's objective, when managing capital, is to ensure sufficient resources are available to meet day to day operating requirements and to safeguard its ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders.

At July 31, 2020, the Company has no cash-generating operations; therefore, the only source of cash flow is generated from financing activities. The Company's officers and senior management are in the process of searching for additional business opportunities. Potential business activities are appropriately evaluated by senior management and a formal review and approval process has been established at the Board of Director level. The Company may enter into new financing arrangements to meet its objectives for managing capital, until such time as a viable business activity is operational and the Company can thereby internally generate sufficient capital to cover its operational requirements.

The Company's officers and senior management take full responsibility for managing the Company's capital and do so through quarterly meetings and regular review of financial information. The Company's Board of Directors is responsible for overseeing this process.

The Company is not subject to any capital requirements imposed by a lending institution or regulatory body, other than of the TSXV which requires adequate working capital or financial resources of the greater of (i) $50,000 and (ii) an amount required in order to maintain operations and cover general and administrative expenses for a period of 6 months. As of July 31, 2020, the Company may not be compliant with the policies of the TSXV. The impact of this violation is not known and is ultimately dependent on the discretion of the TSXV.