Founders Metals Inc. — Interim / Quarterly Report 2021

Apr 29, 2021

FOUNDERS METALS INC.

(formerly Avalon Works Corp.)

Consolidated Interim Financial Statements

For the three and six months ended February 28, 2021 and 2020

Expressed in Canadian Dollars

(Unaudited)

To the shareholders of Founders Metals Inc:

The consolidated interim financial statements of Founders Metals Inc. (the “Company”) for the three and six months ended February 28, 2021 and 2020 have been compiled by management.

No audit or review of this information has been performed by the Company’s auditors.

FOUNDERS METALS INC. Consolidated Interim Statements of Financial Position Expressed in Canadian Dollars

( unaudited )

As at ASSETS Current Cash Good and services tax receivable Exploration and evaluation properties (note 4) LIABILITIES Current Accounts payable and accrued liabilities EQUITY Share capital (note 5) Option and warrant reserve Deficit	February 28 August 31 2021 2020 (unaudited) $ 4,204,754 $ 247 29,761 -
	4,234,515 247 7,632,025 -
	$ 11,866,540 247
	$ 48,761 $ 232,854
	12,229,911 206,000 117,536 14,400 (529,668) (453,007)
	11,817,779 (232,607)
	$ 11,866,540 247

Approved by the Board of Directors on April 30, 2021

Director (signed by) “Nicholas Stajduhar”

Director (signed by) “John Williamson”

The accompanying notes form an integral part of these financial statements

( unaudited )

Consolidated Interim Statements of Loss and Comprehensive Loss Expressed in Canadian Dollars

FOUNDERS METALS INC.

For the	three	months ended	months ended	February 28	six	months ended	months ended	February 28
		2021		2020		2021		2020
Expenses
Advertising and promotion		1,028		-		1,028		-
Consulting fees		9,000		-		16,600		-
Office and administration		(311)		9,294		827		10,511
Professional fees		36,026		13,071		44,699		21,821
Regulatory and filing fees		12,139		-		13,507		-
		(57,882)		(22,365)		(76,661)		(32,332)
Comprehensive income (loss) for the period	$	(57,882)	$	(22,365)	$	(76,661)	$	(32,332)
Basic and diluted income (loss) per common	share
	$	(0.01)	$	(0.00)	$	(0.01)	$	(0.00)
Basic and diluted weighted average
number of common shares outstanding		9,203,532		4,297,422		8,789,805		4,297,422

The accompanying notes form an integral part of these financial statements

( unaudited )

Consolidated Interim Statements of Changes in Equity Expressed in Canadian Dollars

FOUNDERS METALS INC.

Balance at August 31, 2019 Net loss Balance at February 29, 2020 Options issued Net loss Balance at August 31, 2020 Shares issued for cash Shares issued for property Shares issued for debt settlement Share issuance costs Share issuance costs – non-cash Warrants issued Net loss Balance at February 28, 2021	Share capital Option and warrant reserve Deficit Total equity $ 206,000 $ - $ (369,954) $ (163,954) - - (32,332) (32,332)
	$ 206,000 $ - $ (402,286) $ (196,286) - 14,400 - 14,400 - - (50,721) (50,721)
	$ 206,000 $ 14,400 $ (453,007) $ 232,607 5,394,888 - - 5,394,888 7,100,000 - - 7,100,000 25,000 - - 25,000 (392,841) - - (392,841) (103,136) - - (103,136) - 103,136 - 103,136 - - (76,661) (76,661)
	$12,229,911 $ 117,536 $ (529,668) $11,817,779

The accompanying notes form an integral part of these financial statements

FOUNDERS METALS INC. Consolidated Interim Statements of Cash Flows Expressed in Canadian Dollars

( unaudited )

For the six months ended Cash provided by (used in): Operating activities Net loss Changes in non-cash working capital: Goods and services tax receivable Prepayments and receivables Accounts payable and accrued liabilities Cash used in operating activities Investing activities Exploration and evaluation property acquisition payments (note 4) Cash used in investing activities Financing activities Proceeds from private placements (note 5) Cash share issuance costs Cash provided by financing activities Net increase (decrease) in cash Cash, beginning of period Cash, end of period	February 28 February 29 2021 2020 $ (76,661) $ (32,332) (29,761) - - 5023 (184,093) 2597
	(290,515) (24,712)
	(532,025) -
	(532,025) -
	5,419,888 - (392,841) - 5,027,047 -
	4,204,507 (24,712) 247 35,622
	$ 4,204,754 $ 10,910

The accompanying notes form an integral part of these financial statements

FOUNDERS METALS INC. Notes to the Consolidated Interim Financial Statements For the three and six months ended February 28, 2021 and 2020 Expressed in Canadian Dollars

( unaudited )

1. Nature of operations

Avalon Works Corp. (“Avalon” or the “Company”) was incorporated under the Canada Business Corporations Act on April 6, 2000. The Company terminated its operations in 2007. On July 31, 2009, the Company's Securities were delisted from the TSX Venture Exchange (“TSXV”). The Company obtained its certificate of revival on November 9, 2018 and the revocation of cease trade orders on September 24, 2019.

On February 26, 2021, the Company completed a reverse take-over pursuant to the policies of the TSXV to acquire an aggregate 100% interest in the Elmtree Gold Project in northeast New Brunswick (note 4). Effective March 25, 2021, Avalon Works Corp changed its name to Founders Metals Inc. and now trades under the symbol “FDR” on the TSXV.

The address of the Company’s corporate office and principal place of business is 250 Southridge NW, Suite 300, Edmonton, AB, T6H 4M9. The Company’s principal business is to acquire, explore and develop the gold and mineral exploration Elmtree Gold Project located in New Brunswick.

2. Basis of presentation

These consolidated interim financial statements have been prepared in accordance with International Accounting Standard (“IAS”) 34 “Interim Financial Reporting” as issued by the International Accounting Standards Board (“IASB”).

These financial statements were authorized for issue by the Board of Directors of the Company on April 30, 2021.

These financial statements are presented in Canadian Dollars, unless otherwise noted and have been prepared on a historical cost basis. The Canadian dollar is the functional and presentation currency of the Company.

3. Management estimates and judgments

The preparation of these consolidated interim financial statements requires management to make certain estimates, judgments and assumptions that affect the amounts reported and disclosed in its consolidated interim financial statements and related notes. Those include estimates that, by their nature, are uncertain and actual results could differ materially from those estimates. The impacts of such estimates may require accounting adjustments based on future results. Revisions to accounting estimates are recognized in the period in which the estimate is revised.

The areas which require management to make significant estimates, judgments and assumptions in determining carrying values are consistent with those applied and disclosed in the Company’s financial statements for the year ended August 31, 2020, unless otherwise stated.

4. Exploration and evaluation properties

On February 26, 2021, the Company acquired the Elmtree Gold property, a mineral exploration property comprised of two mineral exploration properties respectively comprised of 24 and 25 contiguous mineral claims totaling 1,063,326 hectares in northeast New Brunswick. To acquire the property, the Company paid $350,000 cash to the vendor and issued 14,000,000 common shares of the Company at a deemed price of $0.50 per share for a total consideration of $7,350,000. The vendor retains a 2% net smelter royalty. The Company also paid an arm’s length third party a finders’ fee of 200,000 common shares of the Company at a deemed price of $0.50 per share. Transaction cost of $283,025 are included in acquisition cost.

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FOUNDERS METALS INC. Notes to the Consolidated Interim Financial Statements For the three and six months ended February 28, 2021 and 2020 Expressed in Canadian Dollars

( unaudited )

Total costs incurred by the Company on the Elmtree property are summarized as follows:

		Acquisition		Exploration		Total
Balance, August 31, 2020		-		-		-
Acquisition costs		7,632,025		-		7,632,025
Balance, February 28, 2021	$	7,632,025	$	-	$	7,632,025

5. Share capital

a) Common shares

On February 25, 2021, the Company consolidated all its issued and outstanding common shares based on one postconsolidation common share for every 4.9362 pre-consolidation common shares. All share data and equity-based instruments have been retroactively adjusted to give effect to the consolidation.

The Company’s articles authorize an unlimited number of common shares without par value and an unlimited number of preferred shares.

A summary of changes in common share capital in the period is as follows:

Balance at August 31, 2020 Shares issued in private placements Shares issued for debt settlement Shares issued to acquire property (note 4) Share issuance cost Balance at February 28, 2021	Number of shares Amount
	4,297,422 206,000 14,304,750 5,394,888 500,000 25,000 14,200,000 7,100,000 - (495,977) 33,302,172 $ 12,229,911

On February 1, 2021, the Company completed a non-brokered bridge financing by issuing 400,000 units of the Company at a price of $0.375 per unit for gross proceeds of $150,000. Included in the bridge financing was the settlement of a convertible debenture in the amount of $50,000 into 133,000 Bridge Units of the Company. Each unit consists of one common share of the Company and one-half of a common share purchase warrant. Each whole warrant entitles the holder to purchase one common share of the Company at a price of $0.75 for a period of one year from the date of issuance.

On February 26, 2021, the Company issued 7,177,000 units of the Company at a price of $0.50 per unit for gross proceeds of $3,588,500. Each unit consists of one common share of the Company and one common share purchase warrant. Each whole warrant entitles the holder to purchase one common share of the Company at a price of $0.75 for a period of two years from the date of issuance.

On February 26, 2021, the Company completed a flow-through placement of 2,640,000 shares at $0.55 per share for gross proceeds of $1,452,000. The Company is committed to incur eligible exploration expenditures to the extent of the flow-through proceeds raised by February 26, 2022.

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FOUNDERS METALS INC. Notes to the Consolidated Interim Financial Statements For the three and six months ended February 28, 2021 and 2020 Expressed in Canadian Dollars

( unaudited )

Escrowed Common Shares

Upon closing of the transaction on February 26, 2021, 14,049,867 common shares of the Company and 24,867 common share purchase warrants will be subject to a Tier 2 Value Escrow Agreement. Under the Tier 2 Value Escrow Agreement, 10% of the escrowed common shares will be released from escrow on the issuance of the Final Exchange Bulletin (the "Initial Release") and an additional 15% will be released on the dates that are 6 months, 12 months, 18 months, 24 months, 30 months and 36 months following the Initial Release. As of the date of these financial statements, 12,644,880 common shares and 22,380 common share purchase warrants remained in escrow.

b) Stock options

The Company’s has a stock option plan (the “Plan”) for directors, officers, employees, and consultants. The Plan provides for the issuance of incentive options to acquire up to a total of 10% of the issued and outstanding common shares of the Company. The exercise price of each option shall not be less than the minimum prescribed amount allowed under the TSX. The options can be granted for a maximum term of 5 years with vesting provisions determined by the Company.

A summary of stock option activity in the periods is as follows:

Outstanding options, August 31, 2020 Issued Outstanding options, February 28, 2021	Weighted Number of average options exercise price
	- - 91,162 0.50
	91,162 $ 0.50

A summary of stock options outstanding and exercisable is as follows:

		February 28, 2021	February 28, 2021				August 31, 2020
			Remaining				Remaining
	Exercise	Number of	contractual life		Exercise	Number of	contractual life
	Price	options	(years)		Price	options	(years)
$	0.50	91,162	4.4	$	0.50	91,162	5.0	i
$	0.50	91,162	4.4	$	0.50	91,162	5.0

i On August 5, 2020, the Company granted stock options to acquire up to an aggregate 91,162 common shares of the Company under the Plan, vesting immediately upon grant. The stock options are exercisable at a price of $0.50 per common share and have an expiry date of August 5, 2025 or earlier in accordance with the terms of the Plan. The estimated fair value of these options of $14,400, or $0.16 per option, has been recorded as share-based compensation expense during the year ended August 31, 2020 and as an increase to option and warrant reserve, and was calculated using the Black-Scholes Option Pricing Model using the following grantdate assumptions: weighted average grant date stock price $0.25; expected life, 5 years; expected volatility, 100%; risk-free rate 0.25%; expected dividends, 0%. The options were issued with an exercise price equal to the quoted market price of the Company’s common shares on the date of issuance.

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FOUNDERS METALS INC. Notes to the Consolidated Interim Financial Statements For the three and six months ended February 28, 2021 and 2020 Expressed in Canadian Dollars

( unaudited )

• c) Warrants

The Following is a summary of the changes in the Company’s warrants during the periods:

Outstanding warrants, August 31, 2020 Issued Outstanding warrants, February 28, 2021		Weighted Number of average Warrants exerciseprice
		- $ - 7,831,400 0.74 7,831,400 $ 0.74

A summary of the warrants outstanding and exercisable is as follows:

		February 28, 2021	February 28, 2021				August 31, 2020
			Remaining				Remaining
	Exercise	Number of	contractual life		Exercise	Number of	contractual life
	Price	warrants	(years)		Price	warrants	(years)
$	0.75	200,000	0.9	$	-	-	-
	0.75	7,177,000	2.0		-	-	-
	0.50	296,000	2.0		-	-	-	i
	0.55	158,400	2.0		-	-	-	ii
$	0.74	7,831,400	2.0	$	-	-	-

• i During the three months ended February 28, 2021, 296,000 warrants were issued to agents pursuant to the non-brokered private placement closing on February 26, 2021 as compensation for services provided by the agents. The estimated fair value of the agents’ warrants of $65,120, or $0.22 per agents’ warrant, has been recorded as a decrease to share capital as a cost of share issuance and an increase to option and warrant reserve, and was calculated using the Black Scholes Option Pricing Model with the following grant-date assumptions: grant date stock price $0.50; expected life, 2 years; expected volatility, 80%; risk free rate, 0.30%; expected dividends, 0%.

• ii During the three months ended February 28, 2021, 158,400 warrants were issued to agents pursuant to the non-brokered private placement closing on February 26, 2021 as compensation for services provided by the agents. The estimated fair value of the agents’ warrants of $38,016, or $0.24 per agents’ warrant, has been recorded as a decrease to share capital as a cost of share issuance and an increase to option and warrant reserve, and was calculated using the Black Scholes Option Pricing Model with the following grant-date assumptions: grant date stock price $0.55; expected life, 2 years; expected volatility, 80%; risk free rate, 0.30%; expected dividends, 0%.

6. Financial instruments and risk management

Fair value of financial instruments

IFRS requires disclosures about the inputs to fair value measurements for financial assets and liabilities recorded at fair value, including their classification within a hierarchy that prioritizes the inputs to fair value measurement.

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FOUNDERS METALS INC. Notes to the Consolidated Interim Financial Statements For the three and six months ended February 28, 2021 and 2020 Expressed in Canadian Dollars

( unaudited )

The three levels of hierarchy are:

• Level 1 - Quoted prices 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 or liability,

• either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

• Level 3 - Inputs for the asset or liability that are not based on observable market data.

The Company’s cash and cash equivalents are classified as Level 1, whereas accounts receivable and prepayments, and accounts payable and accrued liabilities are classified as Level 2. As at February 28, 2021, the Company believes that the carrying values of cash, accounts payable and accrued liabilities approximate their fair values because of their nature and relatively short maturity dates or durations.

Financial instruments risk

The Company is exposed in varying degrees to a variety of financial instrument related risks. The Board of Directors approves and monitors the risk management processes, inclusive of documented investment policies, counter party limits, and controlling and reporting structures. The type of risk exposure and the way in which such exposure is managed is provided as follows:

Credit risk

Credit risk is defined as the risk of loss associated with counterparty’s inability to fulfill its payment obligations. The maximum exposure to credit risk is the carrying amount of the Company’s financial assets.

Liquidity risk

Liquidity risk is defined as the risk that the Company will not be able to settle its obligations as they come due. The Company has a planning and budgeting process in place to help determine the funds required to support the Company’s normal operating requirements on an ongoing basis. The Company ensures that there are sufficient funds available to meet its short-term business requirements by taking into account the anticipated cash expenditures for its exploration and other operating activities, and its holding of cash and cash equivalents. The Company will pursue further equity or debt financing as required to meet its commitments. There is no assurance that such financing will be available or that it will be available on favourable terms.

As at February 28, 2021, the Company’s financial liabilities consist of its accounts payable and accrued liabilities, which are all current obligations.

Foreign currency risk

Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in foreign exchange rates. The Company’s exposure to foreign exchange risk is minimal.

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FOUNDERS METALS INC. Notes to the Consolidated Interim Financial Statements For the three and six months ended February 28, 2021 and 2020 Expressed in Canadian Dollars

( unaudited )

Classification of financial instruments

Financial assets included in the statement of financial position are as follows:

ancial assets included in the statement of financial position are as follows:
		February 28		August 31
		2021		2020
Financial asset at amortized cost
Cash	$	4,204,754	$	427
	$	4,204,754	$	427
ancial liabilities included in the statement of financial position are as follows:
		February 28		August 31
		2021		2020
Non-derivative financial liabilities
Accounts payable and accrued liabilities	$	48,761	$	232,854
	$	48,761	$	232,854

Financial liabilities included in the statement of financial position are as follows:

Capital management

The Company monitors its equity as capital.

The Company’s objectives in managing its capital are to maintain a sufficient capital base to support its operations and to meet its short-term obligations and at the same time preserve inventor’s confidence and retain the ability to seek out and acquire new projects of merit. The Company is not exposed to any externally imposed capital requirements.

7. Related party transactions

Unless otherwise noted, related party transactions were incurred in the normal course of operations and are measured at the amount established and agreed upon by the related parties. The Company incurred and paid fees to directors and officers for management and professional services as follows:

For the period ended Management fees paid to former key management and directors	February 28 February 29 2021 2020
	$ 9,000 $ -
	$ 9,000 $ -

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