Graycliff Exploration Limited — Interim / Quarterly Report 2021

May 25, 2021

GRAYCLIFF EXPLORATION LIMITED

Condensed Interim Financial Statements (Unaudited)

For the Three Months Ended March 31, 2021 and 2020

(Expressed in Canadian Dollars)

GRAYCLIFF EXPLORATION LIMITED

Condensed Interim Statements of Financial Position

(unaudited)

As at March 31, 2021 and December 31, 2020

Expressed in Canadian dollars

		March 31,		December 31,
		2021		2020
ASSETS
Current assets
Cash	$	572,262	$	1,026,220
Amounts receivable		41,212		61,364
Prepaid expenses		197,472		41,406
	$	810,946	$	1,128,990
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable and accrued liabilities	$	21,298	$	185,461
Flow-through sharepremium liability (Note 4)		15,770		24,753
		37,068		210,214
Non-Current liabilities
Convertible debenture_(Note 5)_		---		432,396
Total liabilities		37,068		642,610
Shareholders’ equity
Share capital_(Note 6)_		3,122,409		2,206,479
Contributed surplus		311,850		311,850
Equity component of convertible debenture_(Note 5)_		---		114,221
Warrants		81,170		39,238
Deficit		(2,741,551)		(2,185,408)
		773,878		486,380
	$	810,946	$	1,128,990

Nature of Operations and Going Concern (Note 1) Subsequent Events (Note 7)

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

On behalf of the Board,

"Signed" Samuel Hardy

Samuel Hardy Director

"Signed" James Macintosh

James Macintosh Director

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GRAYCLIFF EXPLORATION LIMITED

Unaudited Condensed Interim Statements of Loss and Comprehensive Loss

(unaudited)

For the three months ended March 31, 2021 and 2020

Expressed in Canadian dollars

		2021		2020
Operating Expenses
Project acquisition costs	$	225,000	$	---
Promotion and shareholder communication		155,044		---
Exploration and evaluation		137,161		---
Management fees_(Note 7)_		37,500		26,750
General and administrative costs		29,271		25,997
Professional and consulting fees		3,159		30,522
Corporate advisory fees_(Note 7)_		---		10,250
Net loss and comprehensive loss before other items	$	587,135	$	93,519
Gain on conversion of convertible debenture		(22,009)		---
Deferred income tax recovery		(8,983)		---
Interest income_(Note 3)_		---		(680)
Net loss and comprehensive loss for the period		556,143	$	92,839
Basic and diluted loss per common share(Note 9)	$	(0.03)	$	(0.01)
Weighted average number of shares outstanding during the
period – basic and diluted	18,228,282		15,354,882

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

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GRAYCLIFF EXPLORATION LIMITED

Unaudited Condensed Interim Statements of Changes in Shareholders’ Equity

(unaudited)

For the three months ended March 31, 2021 and 2020

Expressed in Canadian dollars

					Equity
					Component of
	Shares	Share		Contributed	Convertible
	Outstanding	Capital	Warrants	Surplus	Debenture	Deficit	Total
	(##)	($$)	($$)	($$)	($$)	($$)	($$)
Balance at December 31, 2019	15,354,882	733,767	---	---	---	(294,497)	(439,270)
Net loss for theperiod	---	---	---	---	---	(92,839)	(92,839)
Balance at March 31, 2020	15,354,882	733,767	---	---	---	(387,336)	346,431
2185408+5562185408+556143Balan	17,889,882	2,206,479	39,238	311,850	114,221	(2,185,408)	486,380
t D b 31 2020 Issue of share capital - private placements_(Note 6)_	400,000	147,353	41,932	---	---	---	189,285
Issue of share capital - acquisition of mining claims_(Note 6)_	250,000	225,000	---	---	---	---	225,000
Conversion of convertible debentures (Note 5)	905,961	543,577	---	---	(114,221)	---	429,356
Net loss for theperiod	---	---	---	---	---	(556,143)	(556,143)
Balance at March 31, 2021	19,445,843	3,122,409	81,170	311,850	---	(2,741,551)	773,878

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

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GRAYCLIFF EXPLORATION LIMITED Condensed Interim Statements of Cash Flows

(unaudited)

For the three months ended March 31, 2021 and March 31, 2020

Expressed in Canadian dollars

		2021		2020
CASH PROVIDED BY (USED IN):
OPERATING ACTIVITIES
Net loss for the period	$	(556,143)	$	(92,839)
Common shares issued for mining claims		225,000		---
Deferred income tax recovery		(8,983)		---
Accrued interest on convertible debenture		6,462		---
Loan accretion on convertible debenture		12,507		---
Gain on conversion of debenture		(22,009)		---
Interest on advances receivable		---		(680)
Net change in non-cash working capital balances:
Amounts receivable		20,152		(79,122)
Prepaid expenses		(156,066)		2,529
Accounts payable and accrued liabilities		(164,163)		(14,525)
Net cash flows used in operating activities		(643,243)		(184,637)
FINANCING ACTIVITIES
Issue of share capital – private placements, net of issuance costs		189,285		---
Net cash flows from financing activities		189,285		---
Net decrease in cash		(453,958)		(184,637)
Cash, beginning of the period		1,026,220		425,782
Cash, end of the period	$	572,262	$	241,145

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

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GRAYCLIFF EXPLORATION LIMITED Notes to the Condensed Interim Financial Statements (unaudited) For the three months ended March 31, 2021 and 2020

Expressed in Canadian dollars unless otherwise indicated

1. Nature of Operations and Going Concern

Graycliff Exploration Limited (formerly 1093683 B.C. Ltd.), a company incorporated under the laws of British Columbia, Canada (the “ Company ” or “ Graycliff ”) is engaged in the acquisition, exploration, development and extraction of natural resources, specifically precious metals.

Its head office is located at 2702-401 Bay Street Toronto, ON M5H 2Y4. The Company is listed on the Canadian Securities Exchange, trading under the symbol “GRAY” and effective December 16, 2020, it began trading on the OTCQB Venture Marketplace (“OTCQB”) under the symbol “GRYCF”

Mineral exploration projects, even when successful, require large amounts of exploration investment to prove mineable reserves, generally over long periods of time, prior to commencement of production. The ability of the Company to continue as a going concern is dependent upon, among other things, being able to obtain additional financing, the continued support of its existing shareholders, and the outlining and development of commercial deposits of metals at its project to generate positive cash flows from operations. While the Company has been successful in securing financing and identifying suitable properties to date, there is no assurance that the Company will continue to be successful in achieving these objectives.

As at March 31, 2021, the Company had a working capital balance of $773,878 (December 31, 2020 - $918,776) and an accumulated deficit of $2,741,551 (December 31, 2020 - $2,185,408). The Company’s ability to continue operations is dependent on management’s ability to secure additional financing, and while it has been successful in doing so in the past, there can be no assurances that it will be able to do so in the future. These conditions indicate the existence of material uncertainties that may cast significant doubt about the Company's ability to continue as a going concern.

The ability of the Company to realize the costs it has incurred to date on its properties is dependent upon the Company being able to identify economically recoverable reserves, to finance their development costs and to resolve any environmental, regulatory or other constraints, which may hinder the successful development of the reserves. Although the Company has taken steps to verify title to the properties on which it is conducting exploration and development activities and in which it has an interest, in accordance with industry standards for the current stage of exploration and development of such properties, these procedures do not guarantee the Company's title. Property title may be subject to government licensing requirements or regulations, unregistered prior agreements, unregistered claims, and non-compliance with regulatory and environmental requirements.

The accompanying annual financial statements have been prepared using International Financial Reporting Standards applicable to a going concern. Accordingly, they do not give effect to adjustments that would be necessary should the Company be unable to continue as a going concern. It would, in this situation, be required to realize its assets and liquidate its liabilities and commitments in other than the normal course of business and at amounts different from those in the accompanying Financial Statements. Such adjustments could be material.

Since December 31, 2019, the outbreak of the novel strain of coronavirus, specifically identified as “COVID-19”, has resulted in governments worldwide enacting emergency measures to combat the spread of the virus. These measures, which include the implementation of travel bans, self-imposing quarantine period and social distancing, have caused material disruption to businesses globally resulting in an economic slowdown. Governments and central banks have reacted with significant monetary and fiscal interventions designed to stabilize economic conditions. While COVID 19 has caused the Company to alter the way it conducts business, and has resulted in some travel being curtailed, it does not seem to have had any significant adverse effect on operations. The duration and impact of the COVID-19 outbreak is unknown currently, as is the efficacy of the government and central bank interventions. It is not possible to reliably estimate the length and severity of these developments and the impact on the financial results and condition of the Company and its operating subsidiaries in future periods.

These unaudited condensed interim financial statements have been prepared on the basis of accounting principles applicable to a going concern, which assumes the realization of assets and discharge of liabilities in the normal course of business. Accordingly, they do not give effect to adjustments that would be necessary should the Company be unable to continue as a going concern. It would, in this situation, be required to realize its assets and liquidate its liabilities and commitments in other than the normal course of business and at amounts different from those in the accompanying Financial Statements. Such adjustments could be material.

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GRAYCLIFF EXPLORATION LIMITED Notes to the Condensed Interim Financial Statements (unaudited) For the three months ended March 31, 2021 and 2020

Expressed in Canadian dollars unless otherwise indicated

2. Basis of Presentation

Statement of compliance

The Company applies International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and interpretations issued by the IFRS Interpretations Committee (“IFRIC”). These unaudited condensed interim financial statements have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting. Accordingly, they do not include all of the information required for full annual financial statements required by IFRS as issued by IASB and interpretations issued by IFRIC.

The policies applied in these unaudited condensed interim financial statements are based on IFRS issued and outstanding as of July 10, 2020, the date the Board of Directors approved the financial statements. The same accounting policies and methods of computation are followed in these unaudited condensed interim financial statements as compared with the most recent annual financial statements as at and for the year ended December 31, 2020, except as noted below. Any subsequent changes to IFRS that are given effect in the Company’s annual financial statements for the year ending December 31, 2020 could result in restatement of these unaudited condensed interim financial statements.

Basis of presentation

These unaudited condensed interim financial statements have been prepared on a historical cost basis, with the exception of financial instruments classified at fair value through profit or loss ("FVTPL"). In addition, these unaudited interim condensed financial statements have been prepared using the accrual basis of accounting except for cash flow information.

Functional and presentation currency

These unaudited condensed interim financial statements are presented in Canadian Dollars, which is also the functional currency of the Company. All financial information is expressed in Canadian Dollars otherwise stated and has been rounded to the nearest dollar.

New Accounting Standards Issued But Not Yet Effective

Certain new accounting standards and interpretations have been published that are not mandatory for the current period and have not been early adopted. These standards are not expected to have a material impact on Graycliff in the current or future reporting periods.

IFRSs effective as of January 1, 2021 Interest Rate Benchmark Reform – IBOR ‘phase 2’ (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16)

The amendments have had no impact on the condensed interim consolidated financial statements.

3. Amounts Receivable

On January 15, 2020, the Company advanced $50,000 to Venex Capital (“Venex”), a Company controlled by one of Graycliff’s former directors, in the form of an unsecured demand loan bearing interest at 5% per annum. On February 13, 2020, the Company advanced a further $25,000 to Venex in the form of an unsecured demand loan bearing interest at 5% per annum. On June 30, 2020, Venex repaid $25,000 of the initial $50,000 demand loan, resulting in a balance of $50,000 plus accrued interest of $1,612 included in Advances Receivable at June 30, 2020. On July 13, 2020, July 21, 2020 and July 29, 2020, Venex repaid a further $7,500, $22,500 and $20,000, respectively, of the demand loan receivable leaving only accrued interest of $1,774 outstanding as of December 31, 2020 and March 31, 2021.

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GRAYCLIFF EXPLORATION LIMITED Notes to the Condensed Interim Financial Statements (unaudited) For the three months ended March 31, 2021 and 2020

Expressed in Canadian dollars unless otherwise indicated

4. Flow-through Share Premium Liability

The flow-through common shares issued in the financing completed on December 23, 2020 were issued at a premium to the market price in recognition of the tax benefits accruing to subscribers. The flow-through premium was calculated to be $31,200.

The flow-through premium is derecognized through income as the eligible expenditures are incurred. For the year ended December 31, 2020, the Company satisfied $161,182 of its $780,000 flow-through expenditure commitment by incurring eligible expenditures and as a result the flow-through premium was reduced to $24,753. For the three months ended March 31, 2021, the Company satisfied an additional $135,707 of its flowthrough expenditure commitment, reducing the flow-through expenditure premium to $15,770.

As at March 31, 2021, the Company was committed to spend $483,111 in eligible flow-through expenditures by December 31, 2021.

5. Convertible Debenture

On September 24, 2020 Graycliff closed a $530,000 non-brokered private placement offering of 5% unsecured convertible debentures (the “Debenture”) at an issue price of $1,000 per Debenture. The Debenture had a maturity of twenty-four months and bore interest at a rate of 5% per annum, payable at maturity in cash or common shares of the Company (“Common Shares”) at a conversion price of $0.60 per common share. Each holder had the option to convert prior to maturity at the same conversion price.

The fair value of the liability was recorded at $415,031, discounted at an effective interest rate of 18%. The $114,969 residual value of the Debenture is allocated to the conversion feature. The Company incurred transaction costs of $3,450 which was allocated pro-rata on the value of the conversion feature and the liability component.

During the year ended December 31, 2020, the Company recorded accretion expense of $13,026 and interest expense of $7,042 as finance interest expense in profit and loss.

expense of $7,042 as finance interest expense in profit and loss.
Principal amount	$	530,000
Equity allocation – conversion feature		(114,969)
Transaction costs		(3,450)
Transaction costs allocated to equity		747
Interest expense		7,042
Accretion expense		13,026
Balance, December 31, 2020	$	432,396
Interest expense		6,462
Accretion expense		12,507
Balance on conversion	$	451,365

On March 31, 2021 these debentures were converted to common shares in advance of their maturity date. As a result of the early conversion, the Company issued 905,961 common shares, including 22,628 common shares that were issued for the accrued interest on the Debentures. The Company recognized a gain on conversion of $22,009 representing the difference between the principal amount of the debt and accrued interest thereon and the discounted book value of the debt.

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GRAYCLIFF EXPLORATION LIMITED Notes to the Condensed Interim Financial Statements (unaudited) For the three months ended March 31, 2021 and 2020

Expressed in Canadian dollars unless otherwise indicated

6. Share Capital

Common Shares Authorized

Unlimited number of common shares with no par value

Common Shares Issued:

	Number of Shares Amount
	Balance, December 31, 2019 15,354,882 $ 733,767 Acquisition of mining claims 975,000 828,750 Issued on private placements 1,560,000 780,000 Cash share issue costs --- (65,600) Finder’s warrants --- (39,238) Flow-through share premium --- (31,200)
	Balance, December 31, 2020 17,889,882 $ 2,206,479 Acquisition of mining claims 250,000 225,000 Issued on private placements 400,000 200,000 Cash share issue costs --- (10,715) Warrant allocation --- (41,932) Conversion of debentures 905,961 543,577
	Balance, March 31, 2021 19,445,843 $ 3,122,409

On October 15, 2020, the Company acquired additional mining claims at the Company’s Shakespeare Gold Project. Under the terms of the acquisition, Graycliff issued 975,000 common shares for the new claims, resulting in a cost of $828,750, recorded as project acquisition costs in operations.

On December 23, 2020 the Company closed a non-brokered flow-through private placement totaling $780,000 priced at $0.50 per common share, resulting in the issuance of 1,560,000 flow-through common shares. In connection with this financing, the Company paid finder’s fee commissions of $61,200 cash and 113,600 broker warrants.

On January 20, 2021, Graycliff completed a non-brokered private placement offering of 400,000 units issued at a price of $0.50 per unit for gross proceeds of $200,000. Each unit is comprised of one common share and onehalf of one common share purchase warrant. Each whole warrant is exercisable to acquire one common share for a period of 24 months following the closing at an exercise price of $0.60 per common share. The Company paid finder’s fee commissions of $9,200 cash and 18,400 finder’s warrants on the financing. Each finder’s warrant has a strike price of $0.50 per share and an expiry two years from the closing.

Warrants

In connection with the December 23, 2020 flow-through financing, the Company issued 113,600 broker warrants, with each warrant having an exercise price of $0.50 per share and an expiry two years from the date of issuance. These warrants were issued on January 19, 2023 concurrent with the closing of the second tranche of the financing. The $39,238 value of these warrants was calculated using the Black-Scholes option pricing model with the following weighted average assumptions: share price - $0.48; risk free rate of return – 0.22%; expected volatility - 154%; expected life - 2 years; expected dividend yield - 0%.

In connection with the January 19, 2021 financing, the Company issued 200,000 warrants with an exercise price of $0.60 per common share and 18,400 broker warrants, with each broker warrant having an exercise price of $0.50 per common share. All of these warrants have an expiry two years from the date of issuance. The $41,932 value of these warrants was calculated using the Black-Scholes option pricing model with the following weighted average assumptions: share price - $0.47; risk free rate of return – 0.16%; expected volatility - 100%; expected life - 2 years; expected dividend yield - 0%.

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GRAYCLIFF EXPLORATION LIMITED Notes to the Condensed Interim Financial Statements (unaudited) For the three months ended March 31, 2021 and 2020

Expressed in Canadian dollars unless otherwise indicated

6. Share Capital (Cont’d)

At March 31, 2021, there were 332,000 warrants outstanding, with each warrant entitling the holder to acquire one common share of the Company at the prices noted below:

			Remaining
			Contractual Life
Number	Value Assigned	Exercise Price	In Years	Expiry Date
132,000	$ 43,617	$0.50	1.80	January 19, 2023
200,000	37,553	$0.60	1.80	January 19, 2023
332,000	$81,170	$0.56	1.80

Stock Options

At March 31, 2021, the Company has outstanding share purchase options enabling holders to acquire common shares of the company as follows:

shares of the company	as follows:
			Weighted
			Average	Exercise
	Options	Options	Remaining	Price
Grant Date	Outstanding	Vested	Life (Years)	($)	Expiry Date
December 4, 2019	800,000	800,000	3.68	0.15	December 4, 2024
August 13, 2020	50,000	50,000	4.37	0.38	August 13, 2025
September 3, 2020	300,000	300,000	4.43	0.56	September 3, 2025
October 13,2020	200,000	200,000	4.54	0.85	October 13,2025
	1,350,000	1,350,000	4.00	0.35

7. Related Party Transactions

Related parties include the Board of Directors, close family members, other key management individuals and enterprises that are controlled by these individuals as well as certain persons performing similar functions.

Related party transactions conducted in the normal course of operations are measured at the fair value and approved by the Board of Directors in strict adherence to conflict of interest law and regulations.

The Company incurred the following charges with directors and/or officers of the Company and/or companies controlled by them for the three-month periods ended March 31, 2021 and 2020:

	March 31, 2021	March 31, 2020
	($)	($)
Consulting – President and CEO	15,000	7,500
Consulting – CFO	10,500	5,250
Consulting–Venex Capital (controlled by a former director)	---	10,250
	25,500	23,000

As at March 31, 2021, included in accounts payable and accrued liabilities is $NIL (December 31, 2020 - $NIL) due to the Company’s President and CEO, $3,955 (December 31, 2020 - $NIL) due to the Company’s CFO, and $NIL (December 31, 2020 - $4,070) due to a Company Director.

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GRAYCLIFF EXPLORATION LIMITED Notes to the Condensed Interim Financial Statements (unaudited) For the three months ended March 31, 2021 and 2020

Expressed in Canadian dollars unless otherwise indicated

8. Mineral Property Interests

On August 23, 2019, the Company signed an option agreement to acquire the Shakespeare Property in Ontario. Pursuant to this agreement, the Company allotted 500,000 common shares to the individuals from whom this property was optioned. These shares were subscribed and paid for as part of the October 24, 2019 financing. The vendors hold a 2% net smelter return royalty (“NSR”) on these claims. The company can purchase 1% in return for $2 million, thereby reducing the NSR to 1%.

The following are share and exploration expenditure commitments under the option agreement:

Share commitments:

• 500,000 shares within 24 months from the closing date of the option agreement (completed).

Exploration commitments:

• Incur exploration expenditures of $100,000 within 12 months of the regulatory body approval of the transaction (completed).

• Incur additional exploration expenditures of $200,000 within 24 months from the closing date of the option agreement; and an additional 500,000 shares.

On October 15, 2020, the Company announced the acquisition of 15 additional mining claims comprising approximately 330 hectares at the Company’s Shakespeare Gold Project. Under the terms of the acquisition, Graycliff issued 975,000 common shares for the new claims.

On March 30, 2021, the Company announced that, in return for 250,000 common shares, it acquired key mining leases and claims which consolidate the ground surrounding the past producing Shakespeare Gold Mine located within Graycliff‘s Shakespeare Gold Project.

9. Loss Per Share

The calculation of basic loss per share for the three months ended March 31, 2021 and 2020 was based on total loss attributable to common shareholders of $556,143 (2020 - $92,839) and a weighted average number of common shares outstanding of 18,228,282 (2020 – 15,354,882).

Diluted loss per share equals basic loss per share as all outstanding options and warrants were anti-dilutive for all periods presented.

10. Subsequent Events

On April 14, 2021, the Company completed of a non-brokered private placement offering of 1,246,333 non flowthrough units (the “NFT Unit”) at $0.75 per NFT Unit and 1,875,000 flow through shares (“FT Share”) at a price of $0.80 per FT Share of the Company for gross proceeds of $2,434,750. Each NFT Unit consists of one common share which is not a “flow-through” share and one-half purchase warrant (“NFT Warrant”). Each whole NFT Warrant will entitle the holder to purchase one additional common share which is not a “flow-through” share at a price of $1.00 for two years from the closing. The Company paid finder’s fee commissions of $167,808 cash and issued 214,993 finder’s warrants on the Financing. Each finder’s warrant has an exercise price of $0.75 per share and an expiry two years from the closing.

On April 8, 2021 and April 21, 2021, a total of 375,000 options were exercised resulting in $67,750 in proceeds

for the Company.

On April 23, 2021, the Company issued a total of 900,000 stock options to directors, officers and consultants. These options have a five-year life, and an exercise price of $0.75 and vested immediately.

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