Gulf & Pacific Equities — Interim / Quarterly Report 2021

Aug 20, 2021

Condensed Interim Financial Statements

Gulf & Pacific Equities Corp.

For the Six Months Ended June 30, 2021 and 2020 (Stated in Canadian Dollars)

INDEX

Condensed Interim Statements of Financial Position	1
Condensed Interim Statements of Income (Loss) and
Comprehensive Income (Loss)	2
Condensed Interim Statements of Changes in Shareholders' Equity	3
Condensed Interim Statements of Cash Flow	4
Notes to the Condensed Interim Financial Statements	5

NOTICE TO READER

The accompanying unaudited condensed interim financial statements have been prepared by the Company's management and the Company’s independent auditors have not performed a review of these interim financial statements

Gulf & Pacific Equities Corp. Condensed Interim Statements of Financial Position Unaudited - See Notice to Reader (Stated in Canadian Dollars)

Assets Cash Accounts receivable Prepaid expenses Right-of-use asset (note 5) Investment properties (note 3) Investments (note 7) Liabilities Accounts payable and accrued liabilities Mortgages (note 4) Lease liability (note 5) Loan payable (note 8) Government loan payable (note 9) Purchase price payable (note 6) Deferred income taxes Shareholders' Equity Share Capital(note 11a) Contributed Surplus Retained Earnings	Assets Cash Accounts receivable Prepaid expenses Right-of-use asset (note 5) Investment properties (note 3) Investments (note 7) Liabilities Accounts payable and accrued liabilities Mortgages (note 4) Lease liability (note 5) Loan payable (note 8) Government loan payable (note 9) Purchase price payable (note 6) Deferred income taxes Shareholders' Equity Share Capital(note 11a) Contributed Surplus Retained Earnings
	$ 40,424,947 $ 40,125,307
	$ 1,971,709 $ 1,924,662 19,826,472 20,366,484 34,087 44,277 1,847,000 1,347,000 37,182 - 658,776 658,776 1,046,000 1,060,000
	25,421,226 25,401,199
	7,453,322 7,453,322 2,946,917 2,812,409 4,603,482 4,458,377
	15,003,721 14,724,108
	$ 40,424,947 $ 40,125,307

The accompanying notes form an integral part of these condensed interim financial statements. Approved on behalf of the Board

"Anthony J. Cohen" , Director "Greg K. W. Wong" , Director

-1-

Gulf & Pacific Equities Corp.

Condensed Interim Statements of Income (Loss) and Comprehensive Income (Loss) For the Six Months Ended June 30 Unaudited - See Notice to Reader

Stated in Canadian dollars

	Six months ended Three months ended
	June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020
Revenue Rental Step rent Common area and realty tax recoveries Expenses Interest (note 4) Operating costs and realty taxes Administration Share-based compensation (note 12) Amortization (note 5) Less: Government grant (note 9) Net Income (Loss) before unrealized gain, fair value adjustment and income taxes Unrealized gain from investments Fair value adjustment (note 3) Net Income (Loss) before income taxes Deferred income tax recovery (expense) Net Income (Loss) and Comprehensive Income (Loss) Income (Loss) per Share - Basic(note 11b) Income (Loss) per Share - Diluted(note 11b) Weighted Average Number of Common Shares Outstanding - Basic(note 11b) Weighted Average Number of Common Shares Outstanding - Diluted(note 11b)	$ 1,330,127 $ 1,354,305 $ 692,129 $ 676,055 (27,951) (34,745) (13,411) (20,517) 570,567 524,770 320,488 281,601
	1,872,743 1,844,330 999,206 937,139
	562,396 579,680 282,715 279,511 792,771 843,317 360,559 569,970 344,573 393,459 188,748 228,273 134,508 - 134,508 - 9,868 9,868 4,934 4,934 (23,472) - (10,803) -
	1,820,644 1,826,324 960,661 1,082,688
	52,099 18,006 38,545 (145,549) 16,272 8,136 8,136 16,272 62,734 129,790 9,294 68,957
	131,105 155,932 55,975 (60,320) 14,000 (33,000) (29,000) (5,000)
	$ 145,105 $ 122,932 $ 26,975 $ (65,320)
	$ 0.01 $ 0.01 $ - $ -
	$ 0.01 $ 0.01 $ - $ -
	21,290,685 21,290,685 21,290,685 21,290,685
	22,190,685 21,534,185 22,190,685 21,290,685

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

-2-

Gulf & Pacific Equities Corp.

Condensed Interim Statements of Changes in Shareholders' Equity For the Six Months Ended June 30 Unaudited - See Notice to Reader Stated in Canadian dollars

Balance - January 1, 2020 Net income and comprehensive income Balance - June 30, 2020 Balance - January 1, 2021 Net income and comprehensive income Share-based compensation (note 12) Balance - June 30, 2021	Share Capital Contributed Retained Shares Amount Surplus Earnings Total
	21,290,685 $ 7,453,322 $ 2,812,409 $ 4,026,767 $ 14,292,498 - - - 122,932 122,932
	21,290,685 $ 7,453,322 $ 2,812,409 $ 4,149,699 $ 14,415,430
	Share Capital Contributed Retained Shares Amount Surplus Earnings Total
	21,290,685 $ 7,453,322 $ 2,812,409 $ 4,458,377 $ 14,724,108 - - - 145,105 145,105 - - 134,508 - 134,508
	21,290,685 $ 7,453,322 $ 2,946,917 $ 4,603,482 $ 15,003,721

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

-3-

Gulf & Pacific Equities Corp. Condensed Interim Statements of Cash Flow For the Six Months Ended June 30 Unaudited - See Notice to Reader

(Stated in Canadian Dollars)

Gulf & Pacific Equities Corp. Condensed Interim Statements of Cash Flow For the Six Months Ended June 30 Unaudited - See Notice to Reader (Stated in Canadian Dollars)
	2021 2020
Cash Provided By: Operating Activities Comprehensive income Add (deduct) items not affecting cash: Addition of deferred financing costs Amortization of deferred financing costs Amortization Deferred income tax expense (recovery) Amortization of deferred leasing costs Step rent Interest expense Interest accretion Government grant Fair value adjustments Share-based compensation Changes in non-cash balances related to operations: Prepaid expenses Accounts receivable Accounts payable and accrued liabilities Financing Activities Repayment of mortgages payable Advance of government loan payable Receipt of mortgage proceeds Receipt (repayment) of loan Interest paid Payment of lease liability Investing Activities Investment property expenditures Increase in cash Cash - beginning of period Cash - end of period	$ 145,105 $ 122,932 - (9,184) 1,528 1,194 9,868 9,868 (14,000) 33,000 98,377 96,878 27,951 34,745 560,215 578,427 654 - (23,472) - (79,006) (137,926) 134,508 -
	861,728 729,934 (248,322) (249,763) 30,320 (55,479) 6,476 38,018
	650,202 462,710
	(541,540) (212,511) 60,000 - - 3,000,000 500,000 (3,000,000) (518,641) (238,407) (11,193) (11,193)
	(511,374) (462,111)
	(63,594) (1,833)
	75,234 (1,234) 147,875 283,625
	223,109 282,391

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

-4-

Gulf & Pacific Equities Corp. Notes to the Condensed Interim Financial Statements For the Six Months Ended June 30, 2021 and 2020 Unaudited - See Notice to Reader (Stated in Canadian Dollars)

Gulf & Pacific Equities Corp. (“the Company”) was incorporated under the Business Corporations Act (Alberta) on April 8, 1998 and on June 17, 1998 filed Articles of Amendment to remove certain private corporation restrictions. The registered address and records office of the Company is located at 18104 102 Avenue N.W., Edmonton, AB. The Company is listed on the TSX Venture Exchange as “TSX-V: GUF”. The Company commenced active operations during the 1999 fiscal year. The Company owns and operates commercial rental properties in Western Canada. The Company does not have any affiliates nor is it the subsidiary of any entity.

In March 2020, the World Health Organization declared a global pandemic related to the outbreak of the novel strain of coronavirus, specifically identified as “COVID-19”. This 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-imposed quarantine periods, and social distancing have caused material disruption to businesses resulting in a global economic disruption. At the same time, global equity markets have experienced historic volatility and weakness. Governments and central banks have reacted with significant monetary and fiscal interventions designed to stabilize domestic economic conditions. The duration and eventual impact of the COVID-19 outbreak is unknown at this time, 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 in future periods.

COVID-19 has no physical impact on the three properties located in northern Alberta. However, COVID19 does significantly impact the daily operations of the Company, the operations of the tenants, the rental payments from tenants, the cost of operations at each property and the Company’s ability to access funds in the capital markets for financing.

1. Basis of Presentation

• a) Statement of Compliance

The Company's condensed interim financial statements have been prepared in accordance with IAS 34, Interim Financial Reporting ("IAS 34"). The condensed interim financial statements do not include all of the information required for annual financial statements.

These condensed interim financial statements should be read in conjunction with the Company's audited financial statements for the year ended December 31, 2020.

The policies applied in the Company's condensed interim financial statements are in accordance with International Financial Reporting Standards ("IFRS") effective as of June 30, 2021 as issued by the International Accounting Standards Board.

These financial statements were authorized for issuance by the Board of Directors on August 19, 2021.

-5-

Gulf & Pacific Equities Corp. Notes to the Condensed Interim Financial Statements For the Six Months Ended June 30, 2021 and 2020 Unaudited - See Notice to Reader (Stated in Canadian Dollars)

1. Basis of Presentation (continued)

b) Reclassification

Certain amounts in the prior period statements of income (loss) and comprehensive income (loss) have been reclassified to conform with current period presentation and provide more relevant information. The Company classified the following items:

• For the six months ended June 30, 2020, $96,878 of amortization of deferred leasing costs was reclassified from administration expenses to operating costs and realty taxes.

• For the three months ended June 30, 2020, $48,440 of amortization of deferred leasing costs was reclassified from administration expenses to operating costs and realty taxes.

These reclassifications had no effect on the reported results of operations.

• c) Critical judgments, accounting estimates and assumptions

The Company makes estimates and assumptions that affect the carrying amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amount of earnings for the period. Actual results could differ. The estimates and assumptions that the Company considered critical are described below:

i) Investment properties

The fair value of the investment properties is determined based on either internal valuation models incorporating market evidence or valuations performed by independent third party appraisers. The determination of the fair value of investment properties requires the use of estimates such as future cash flows from assets (such as tenant profiles, future revenue streams and overall repair and condition of the property) and discount rates applicable to those cash flows. These estimates are based on market conditions existing at the reporting date. The following approaches, either individually or in combination, are used in the determination of the fair value of the investment properties:

The Direct Capitalization Income Approach derives market value by estimating the future cash flows that will be generated by the property and then applying an appropriate capitalization rate or discount rate to those cash flows. This approach can utilize the direct capitalization method and/or the discounted cash flow analysis.

The Direct Comparison Approach involves comparing or contrasting the recent sale, listing or optioned prices of properties comparable to the subject and adjusting for any significant differences between them.

Management reviews each appraisal (when obtained) and ensures the assumptions used by the appraisers are reasonable and the final fair value amount reflects those assumptions used in the various approaches above. Where an external appraisal is not obtained at the reporting date, management prepares internal valuations, for each investment property, to estimate the fair value.

-6-

Gulf & Pacific Equities Corp. Notes to the Condensed Interim Financial Statements For the Six Months Ended June 30, 2021 and 2020 Unaudited - See Notice to Reader (Stated in Canadian Dollars)

1. Basis of Presentation (continued)

• c) Critical judgments, accounting estimates and assumptions (continued)

i) Investment properties (continued)

Judgment is also applied in determining the extent and frequency of independent appraisals in order to determine fair values. The significant assumptions used by management in estimating the fair value of investment properties are set out in note 3.

In addition, the Company makes judgments with respect to whether tenant improvement expenditures represent an asset with a future economic benefit to the Company which impacts whether or not such amounts are treated as additions to the investment properties.

ii) Leases

The Company makes judgments in determining whether certain leases, in particular those tenant leases with long contractual terms where the lessee is the sole tenant in a property, are operating or finance leases. The Company has determined that all of its leases are operating leases.

Additional critical accounting estimates and assumptions include those used for estimating current and deferred taxes and purchase price payable, assessing the allowance for doubtful accounts on trade receivables and determining the values of financial instruments for disclosure purposes.

2. Summary of Significant Accounting Policies

The Company’s complete accounting policies have been included in the audited financial statements for the year ended December 31, 2020. The accounting policies the Company followed in the preparation of these condensed interim financial statements were the same as those applied by the Company in the annual financial statements as at and for the year ended December 31, 2020.

3. Investment Properties

Balance - Opening Additions Leasing costs Leasing costs amortization Accrued rent receivable Fair value adjustment Balance - Ending	June 30, 2021 December 31, 2020
	$ 39,600,000 $ 39,600,000 - - 63,594 - (98,377) (193,575) (27,951) (62,728) 62,734 256,303
	$ 39,600,000 $ 39,600,000

The Company holds three investment properties and determines the fair value of each investment property based on external appraisals and internal review.

-7-

Gulf & Pacific Equities Corp. Notes to the Condensed Interim Financial Statements For the Six Months Ended June 30, 2021 and 2020 Unaudited - See Notice to Reader (Stated in Canadian Dollars)

3. Investment Properties (continued)

External appraisals for the three properties, totaling $41,400,000, were obtained for the year ended December 31, 2016. As at June 30, 2021, internal fair value for the three properties of $39,600,000 (December 31, 2020 - $39,600,000) was determined based on the direct capitalization income approach as defined below. Capitalization rates of 7.00% to 7.25% as at June 30, 2021 (December 31, 2020 - 7.00% to 7.25%) were used to determine the fair value of the properties. The weighted average capitalization rate for June 30, 2021 was 7.15% (December 31, 2020 - 7.15%).

As at June 30, 2021, management performed an assessment of the underlying inputs and principles of the December 31, 2016 appraisals. As a result, management recorded an aggregate fair value adjustment of $62,734 to increase the carrying value of the properties as at June 30, 2021.

The internal fair values were based on the direct capitalization income approach with reference to the direct comparison approach and external appraisers for additional support. The fair value is determined by applying a capitalization rate to stabilized net operating income which incorporates allowances for vacancy, management fees and structural reserves for capital expenditures for the investment property. The resulting capitalized value is further adjusted, where appropriate, for costs to stabilize the income and non-recoverable capital expenditures.

Management will obtain new external appraisals if the conditions disclosed change materially. The Company has classified the three investment properties as level 3 based on the fair value hierarchy.

The recent outbreak of COVID-19 has resulted in governments enacting emergency measures to combat the spread of the virus. These measures which include the implementation of travel bans, selfimposed quarantine periods, and social distancing have caused material disruption to businesses resulting in a global economic disruption. As at June 30, 2021, the duration and eventual impact of the COVID-19 outbreak is unknown. It is currently not possible to estimate the long term impact that COVID-19 will have in determining estimates of fair market value for the Company's investment properties. The significant assumptions used in the assessment of fair value could potentially be impacted, all of which may impact the underlying valuation of the investment properties.

-8-

Gulf & Pacific Equities Corp. Notes to the Condensed Interim Financial Statements For the Six Months Ended June 30, 2021 and 2020 Unaudited - See Notice to Reader (Stated in Canadian Dollars)

4. Mortgages

Mortgage payable, bearing interest at 5.85%, repayable monthly in blended principal and interest payments of $3,835, due December 1, 2023 Mortgage payable, bearing interest at 5.26%, repayable monthly in fixed payments of $112,710, due April 1, 2023 Mortgage payable, bearing interest at 5.26%, repayable monthly in fixed payments of $29,597, due April 1, 2023 Loan payable, bearing interest at 5.26%, repayable monthly in fixed payments of $2,215, due April 1, 2023 Non-revolving loan payable, bearing interest at 4.48%, repayable monthly in fixed principal payments of $17,535 plus interest, due April 1, 2025 Unamortized mortgage financing costs	June 30, 2021 December 31, 2020
	$ 281,147 $ 295,704 13,050,172 13,379,105 3,426,837 3,513,211 256,446 262,910 2,840,743 2,945,956
	19,855,345 20,396,886 (28,873) (30,402)
	$ 19,826,472 $ 20,366,484

The mortgages are secured by a general security agreement, the underlying revenue-producing properties, an assignment of rents and an assignment of fire insurance.

On April 2, 2020, the Company completed a $3,000,000 non-revolving loan financing from Canadian Western Bank. The non-revolving loan is repayable in monthly payments of principal and interest, at a fixed rate of 4.48% for the first 5 years, starting August 1, 2020. The proceeds from the new loan were used to repay the principal on the existing loan payable disclosed in note 8.

Due to the impact of COVID-19, the Company and Lender agreed to defer payments of interest and principal for 4 of the 5 mortgages during the months of April, May, and June of 2020. Interest continued to accrue on the deferred payments and regular payments resumed in July of 2020.

The unamortized mortgage financing costs consist of fees and costs incurred to obtain the mortgage financing less accumulated amortization. For the six months ended June 30, 2021, interest expense on the statement of income (loss) and comprehensive income (loss) includes amortized mortgage financing costs of $1,528 (2020 - $1,194).

-9-

Gulf & Pacific Equities Corp. Notes to the Condensed Interim Financial Statements For the Six Months Ended June 30, 2021 and 2020 Unaudited - See Notice to Reader (Stated in Canadian Dollars)

5. Right-of-Use Asset and Lease Liability

a) Right-of-use asset

The following is the continuity of the cost and accumulated amortization of right-of-use asset as at and for the period end:

Cost Balance, beginning of the period Lease additions Balance, end of the period Accumulated amortization Balance, beginning of the period Amortization Balance, end of the period Carrying amount	June 30, 2021 December 31, 2020
	$ 80,590 $ 80,590 - -
	$ 80,590 $ 80,590
	$ 39,472 $ 19,736 9,868 19,736
	$ 49,340 $ 39,472
	$ 31,250 $ 41,118

b) Lease liability

The following is the continuity of the lease liability as at and for the period end:

Balance, beginning of the period Lease additions Lease payments Interest expense on lease liability Balance, end of the period	June 30, 2021 December 31, 2020
	$ 44,277 $ 63,874 - - (11,193) (22,385) 1,003 2,788
	$ 34,087 $ 44,277

The Company used its incremental borrowing rate of 5.25% to measure the lease liability.

Future minimum lease payments under the lease liability are as follows:

2021 2022 2023 Total minimum lease payments Less: future interest expense Present value of minimum lease payments	$ 11,193 22,385 1,865
	35,443 (1,356)
	$ 34,087

-10-

Gulf & Pacific Equities Corp. Notes to the Condensed Interim Financial Statements For the Six Months Ended June 30, 2021 and 2020 Unaudited - See Notice to Reader (Stated in Canadian Dollars)

6. Purchase Price Payable

In December 2006, the Company acquired the Tri-City Mall in Cold Lake, Alberta and agreed to pay an additional $658,776 if and when the property became fully leased at any time up to December 31, 2021. Since the Company expects to fully lease the property by this time, the contingency has been fully provided for and was added to the cost of the acquisition. As at June 30, 2021 and December 31, 2020, the property was not fully leased.

7. Financial instruments hierarchy and investments at fair value

Fair value measurements are based on a three-level fair value hierarchy based on inputs used in determining fair value of financial assets and liabilities. The hierarchy of inputs is summarized as follows:

Level 1 - inputs used to value financial assets and liabilities are unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2 - inputs used to value financial assets and liabilities are other than quoted prices included in Level 1 that are observable either directly or indirectly for the asset or liability.

Level 3 - inputs used to value financial assets and liabilities are not based on observable market data.

As at June 30, 2021, the Company holds 1,627,200 (December 31, 2020 - 1,627,200) common shares of a related company at a fair value of $56,952 (December 31, 2020 - $40,680). The companies are related by virtue of the fact that they have the same President and CFO. Original cost of the investment was $81,360. The aforementioned investment is classified as level 1 in the fair value hierarchy.

The Company did not record any transfers between fair value levels during the period.

8. Loan Payable

The loan payable is due to a related corporation, Ceyx Properties Ltd. During the year ended December 31, 2020, the Company repaid $3,000,000 of loan principal. During the six months ended June 30, 2021 the Company received additional loan proceeds of $500,000. The balance outstanding as at June 30, 2021 is $1,847,000 (December 31, 2020 - $1,347,000).

The loan is unsecured, has no fixed terms of repayment, with access to a maximum value of up to $6,000,000, with interest payable at 6% per annum. Interest is accrued but not compounded. The loan is to be used for financing of the leasing and development of the investment properties, along with general working capital purposes. The companies are related by virtue of the fact that they have the same President.

-11-

Gulf & Pacific Equities Corp. Notes to the Condensed Interim Financial Statements For the Six Months Ended June 30, 2021 and 2020 Unaudited - See Notice to Reader (Stated in Canadian Dollars)

9. Government Loan Payable

On February 2, 2021, the Company obtained a $40,000 interest-free loan from the Government of Canada under the Canada Emergency Business Account ("CEBA") COVID-19 Economic Response Plan. The loan is interest free until December 31, 2022. If the Company has repaid at least $30,000 of the loan balance by December 31, 2022, the remaining $10,000 balance is forgiven. If $30,000 of the loan is not repaid by December 31, 2022, an interest rate of 5% per annum is charged on the remaining balance with interest payable on the last day of each month and the outstanding loan balance payable in full by December 31, 2025.

The $40,000 of loan proceeds were initially recorded at fair value of $27,331 using an effective rate of 5% to determine the fair value of the interest-free period. The difference between the amount received in cash and the related fair value was recognized as a government grant on the statements of income (loss) and comprehensive income (loss).

On April 14, 2021, the Company obtained additional $20,000 of loan proceeds as part of the expansion of the CEBA program. The terms of the CEBA program were amended such that if the Company has repaid at least $40,000 of the loan balance by December 31, 2022, the remaining $20,000 balance is forgiven. The additional $20,000 loan proceeds were initially recorded at fair value of $9,197 using an effective rate of 5% to determine the fair value of the interest-free period. The difference between the amount received in cash and the related fair value was recognized as a government grant on the statements of statements of income (loss) and comprehensive income (loss).

The summary of the residual value of the loan is as follows:

Balance - January 1, 2021 Loan received Fair value adjustment attributed to government grant Payments Interest accretion Balance - June 30, 2021	$ - 60,000 (23,472) - 654
	$ 37,182

As at June 30, 2021, the government loan payable has a face value of $60,000.

-12-

Gulf & Pacific Equities Corp. Notes to the Condensed Interim Financial Statements For the Six Months Ended June 30, 2021 and 2020 Unaudited - See Notice to Reader (Stated in Canadian Dollars)

10. Reconciliation of movements of liabilities to cash flows arising from financing activities

Balance - January 1, 2021 Proceeds Payment of principal Addition of deferred financing costs Amortized deferred financing costs Interest expense Interest paid Balance - June 30, 2021	Mortgages Loan Interest Payable Payable payable
	$ 20,366,484 $ 1,347,000 $ 1,493,906 - 500,000 - (541,540) - - - - - 1,528 - - 518,641 - 40,571 (518,641) - -
	$ 19,826,472 $ 1,847,000 $ 1,534,477

As at June 30, 2021, interest payable of $1,534,477 (December 31, 2020 - $1,493,906) is included in accounts payable and accrued liabilities.

11. Share capital and earnings per share

a) Share Capital

The Company is authorized to issue unlimited preference shares and unlimited common shares. The number of issued and outstanding common shares at June 30, 2021 is as follows:

Common shares Shares outstanding - January 1, 2020, December 31, 2020 and June 30, 2021	Number Amount
	21,290,685 $ 7,453,322

b) Earnings per share

For the six months ended June 30, 2021, basic earnings per share has been calculated using the weighted average number of shares outstanding of 21,290,685 (2020 - 21,290,685).

For the six months ended June 30, 2021, diluted earnings per share has been calculated using weighted average number of shares outstanding of 22,190,685 (2020 - 21,534,185) and includes 900,000 (2020 - 243,500) unexercised dilutive options.

-13-

Gulf & Pacific Equities Corp. Notes to the Condensed Interim Financial Statements For the Six Months Ended June 30, 2021 and 2020 Unaudited - See Notice to Reader (Stated in Canadian Dollars)

11. Share capital and earnings per share (continued)

b) Earnings per share (continued)

Net income Basic weighted average common shares outstanding Basic & Diluted earnings per share Basic weighted average common shares outstanding Effect of unexercised dilutive options Diluted weighted average common shares outstanding Diluted earnings per share	June 30, 2021 June 30, 2020
	$ 145,105 $ 122,932 21,290,685 21,290,685
	$ 0.01 $ 0.01
	21,290,685 21,290,685 900,000 243,500
	22,190,685 21,534,185
	$ 0.01 $ 0.01

12. Share-based compensation

• a) The Stock Option Plan reserves a maximum of 10% of the issued and outstanding shares of the Company (determined at the time of the stock option grant) for issuance upon the exercise of stock options granted pursuant to the Stock Option Plan. Stock options granted have a term that does not exceed 10 years and the exercise prices and vesting provisions are determined by the Board of Directors.

A summary of the status of the Company’s Plan as at June 30, 2021 and December 31, 2020 and the changes during the years is presented below:

Outstanding and exercisable, beginning of period Granted/vested Forfeited Expired Outstanding and exercisable, end of period	2021 2020
	Weighted Weighted Average exercise Average exercise Options price per option Options price per option
	873,500 $ 0.267 1,041,000 $ 0.257 900,000 0.180 - - - - (17,500) 0.254 (193,500) - (150,000) 0.200
	1,580,000 $ 0.223 873,500 $ 0.267

-14-

Gulf & Pacific Equities Corp. Notes to the Condensed Interim Financial Statements For the Six Months Ended June 30, 2021 and 2020 Unaudited - See Notice to Reader (Stated in Canadian Dollars)

12. Share-based compensation (continued)

On April 23, 2021, the Company granted and issued an aggregate of 900,000 stock options to the Company's directors and officers. The stock options were granted in accordance with the Company's stock option plan and are exercisable for a period of ten (10) years from the date of issuance at an exercise price of $0.18 per share. The stock options vested immediately upon issuance.

The share-based compensation expense for options issued to directors, officers and employees was determined based on the estimated fair value of the options at the grant date based on the Black-Scholes option pricing model, with the following assumptions:

Expected dividend yield	Nil
Risk-free interest rate	1.61%
Expected life	10 years
Expected volatility	84%
Stock price	$0.18

Expected volatility is based on the historical volatility of the Company.

During the six months ended June 30, 2021, 193,500 stock options expired unexercised.

• b) As at June 30, 2021, options which had been granted to certain directors, officers, employees and consultants to purchase common shares of the Company subject to various requirements were outstanding as follows:

			Exercise price	Exercise price
Outstanding	Exercisable	Year of grant	per	option	Expiry date
330,000	330,000	2012	$	0.260	April 30, 2022
200,000	200,000	2014	$	0.370	April 25, 2024
150,000	150,000	2017	$	0.205	April 26, 2027
900,000	900,000	2021	$	0.180	April 23, 2031
1,580,000	1,580,000

-15-

Gulf & Pacific Equities Corp. Notes to the Condensed Interim Financial Statements For the Six Months Ended June 30, 2021 and 2020 Unaudited - See Notice to Reader (Stated in Canadian Dollars)

13. Financial Instruments and Risk Management

Fair Value

The Company's cash, accounts receivable and other financial liabilities, which includes loan payable, purchase price payable, and accounts payable and accrued liabilities, are carried at amortized cost, which approximates fair value due to their short-term nature. Such fair value estimates may not necessarily be indicative of the amounts that the Company might pay or receive in actual market transactions.

Management has determined that the fair value of mortgages payable does not differ from its carrying value as underlying interest rates are not materially different than current market conditions. The valuation method is classified as level 2 on the fair value hierarchy. The Company has no financial instruments at level 3.

The Company is exposed to the following risks as a result of holding financial instruments: market risk (i.e. interest rate risk, currency risk and other price risks that impact the fair values of financial instruments); credit risk; and liquidity risk.

The following is a description of these risks and how they are managed:

Market Risk

Market risk is defined for these purposes as the risk that the fair value or future cash flows of a financial instrument held by the Company will fluctuate because of changes in market prices. Market risk includes the risk of changes in interest rates, currency exchange rates and changes in market prices due to factors other than interest rates or currency exchange rates such as changes in equity prices, commodity prices or credit spreads.

The Company has fixed rate mortgages and as a result, fluctuations in interest rates does not have a significant impact on the Company as at June 30, 2021. The Company is subject to fair value risk on its fixed rate mortgages.

Credit Risk

Credit risk arises from the possibility that tenants may experience financial difficulty and be unable to fulfil their lease commitments. The Company mitigates this risk of credit loss by diversifying its tenant mix and by limiting its exposure to any one tenant. The Company believes that the credit risk of trade accounts receivable is minimal as the balance receivable is limited to the amount receivable as at June 30, 2021 of $226,845 (December 31, 2020 - $257,165).

Rent and common area and realty tax recoveries are past due when a tenant has failed to make a payment when contractually due. Rent past due amounts to $151,414 (December 31, 2020 - $140,913).

-16-

Gulf & Pacific Equities Corp. Notes to the Condensed Interim Financial Statements For the Six Months Ended June 30, 2021 and 2020 Unaudited - See Notice to Reader (Stated in Canadian Dollars)

13. Financial Instruments and Risk Management (continued)

Equity Risk

The Company is exposed to price risk with respect to equity prices. Equity price risk is defined as the potential adverse impact on the Company's earnings due to movements in individual equity prices or general movements in the level of the stock market. The Company's investment in the common shares of a related company, Plato Gold Corp., is subject to fair value fluctuations arising from changes in the equity market. At June 30, 2021, should the equity prices of the Company’s holdings increase or decrease by 5%, the impact on net income would be approximately $2,848 (December 31, 2020 - $2,034).

Liquidity Risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. The Company manages liquidity risk through the management of its capital structure and financial leverage, as outlined in note 14. It also manages liquidity risk by continuously monitoring actual and projected cash flows. The Board of Directors reviews and approves the Company’s operating and capital budgets, as well as any material transactions out of the ordinary course of business. The Company is subject to the risk associated with debt financing, including the ability to refinance indebtedness at maturity. The Company believes these risks are mitigated through the use of long-term debt with maturities over an extended period of time.

As at June 30, 2021, the Company’s financial liabilities include accounts payable and accrued liabilities, purchase price payable, loan payable, government loan payable and mortgages.

14. Capital Management

The Company’s objectives when managing capital are:

• a) to safeguard the entity’s ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits to other stakeholders, and

• b) to provide adequate return to shareholders by obtaining an appropriate amount of debt commensurate with the level of risk, to reduce after-tax cost of capital.

The Company sets the amount of capital in proportion to risk. The Company includes equity in its definition of capital. Equity is comprised of share capital, contributed surplus and retained earnings. The Company manages its capital structure and makes adjustments in light of changes in economic conditions and the risk characteristic of underlying assets. In order to maintain or adjust capital structure, the Company may repurchase shares, return capital to shareholders, issue new shares or sell assets to reduce debt.

The Company’s objective is met by retaining adequate liquidity to provide for the possibility that cash flows from assets will not be sufficient to meet future cash flow requirements.

-17-

Gulf & Pacific Equities Corp. Notes to the Condensed Interim Financial Statements For the Six Months Ended June 30, 2021 and 2020 Unaudited - See Notice to Reader (Stated in Canadian Dollars)

15. Related Party Transactions

During the six months ended June 30, 2021, the Company:

a) Charged rent to related parties, Plato Gold Corp., $1,200 (2020 - $1,200) and Ceyx Properties Ltd., $1,800 (2020 - $1,800). The companies are related by virtue of the fact that they have the same President. As at June 30, 2021, included in accounts receivable is an amount of $15,000 (December 31, 2020 - $13,800) due from these related parties.

b) Was charged consulting fees of $60,078 (2020 - $57,188) Greg K. W. Wong, an officer of the Company. As at June 30, 2021, accounts payable and accrued liabilities included $Nil (December 31, 2020 - $Nil) of consulting fees payable to this officer.

c) Incurred accounting fees of $44,000 (2020 - $71,000) with an accounting firm, Forbes Andersen LLP, in which Paul Andersen, one of the Company’s officers, is a partner. As at June 30, 2021, accounts payable and accrued liabilities included $11,085 (December 31, 2020 - $35,000) owing to this accounting firm.

d) Other related party transactions and balances are disclosed in notes 7, 8 and 12.

These transactions are in the normal course of operations and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties.

-18-