HELIUM EVOLUTION INCORPORATED (formerly Duckhorn Ventures Ltd.)

Consolidated Financial Statements (Expressed in Canadian Dollars) For the years ended December 31, 2021 and 2020

INDEPENDENT AUDITOR’S REPORT

To the Shareholders of

Helium Evolution Incorporated (formerly, Duckhorn Ventures Ltd.)

Opinion

We have audited the accompanying consolidated financial statements of Helium Evolution Incorporated (formerly, Duckhorn Ventures Ltd.) (the “Company”), which comprise the consolidated statements of financial position as at December 31, 2021 and 2020 and the consolidated statements of income (loss) and comprehensive income (loss), changes in shareholders’ deficiency, and cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

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

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, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained in our audit is sufficient and appropriate to provide a basis for our opinion.

Other Information

Management is responsible for the other information. The other information obtained at the date of this auditor's report includes 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 to cease operations, or has no realistic alternative but to do so.

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

Auditor's Responsibilities for the Audit of the Consolidated Financial Statements

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

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

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

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

The engagement partner on the audit resulting in this independent auditor’s report is Zachary Faure.

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Vancouver, Canada April 28, 2022

Chartered Professional Accountants

HELIUM EVOLUTION INCORPORATED (formerly Duckhorn Ventures Ltd.) Consolidated Statements of Financial Position (Expressed in Canadian dollars) As at

	December 31, 2021	December 31, 2020
Assets Current Assets Cash $ GST receivable Investment in Enosi (Note 6) Total Assets $	229 $ 6,072 6,301 - 6,301$	830 11,317
		12,147 207,452
		219,599
Liabilities and Shareholders’ Deficiency Current Liabilities Accounts payable and accrued liabilities (Note 7) $ Promissorynotespayable(Note 5,7)	111,148 $ -	238,436 256,413
Shareholders’ Deficiency Share capital (Note 8) Share-based payment reserve Deficit	111,148 33,333 6,692 (144,872)	494,849 124,653 6,692 (406,595)
	(104,847)	(275,250)
Total Liabilities and Shareholders’ Deficiency $	6,301$	219,599

Nature and continuance of operations (Note 1) Subsequent events (Note 14)

Approved on Behalf of the Board on April 28, 2022:

Greg Robb” Greg Robb – Director	“James Baker”
	James Baker – Director

The accompanying notes are an integral part of these consolidated financial statements.

HELIUM EVOLUTION INCORPORATED (formerly Duckhorn Ventures Ltd.) Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) (Expressed in Canadian dollars) For the years ended December 31

		2021		2020
Expenses
Administration expenses	$	6,075	$	12,420
Filing fees		8,736		1,845
Finance expense (Note 5,7)		7,897		26,597
Professional fees		154,570		126,223
		(177,278)		(167,085)
Other Items
Interest income (Note 6)		-		712
Gain on settlement of promissory note
payable (Note 7)		30,671		-
Gain on debt settlement		-		2,700
Changes in fair value of investment (Note 4)		-		(7,200)
Recovery on write-down of accounts
payable(Note 7)		317,010		-
Income (loss) and comprehensive income (loss)
for theyear	$	170,403	$	(170,873)

Weighted average number of shares
outstanding – basic and diluted		9,429,640		12,465,250
Basic and diluted income(loss) per share	$	0.02	$	(0.01)

The accompanying notes are an integral part of these consolidated financial statements.

HELIUM EVOLUTION INCORPORATED (formerly Duckhorn Ventures Ltd.) Consolidated Statements of Changes in Shareholders’ Deficiency (Expressed in Canadian dollars)

	Share Capital	Share Capital				Total
	Number1	Amount	Reserves		Deficit	Shareholders’
	(Note 8)					Deficiency
Balance, December 31, 2019	12,465,250	$ 124,653	$	6,692	$ (235,722)	$ (104,377)
Loss for theperiod	-	-		-	(170,873)	(170,873)
Balance, December 31, 2020	12,465,250	$ 124,653	$	6,692	$ (406,595)	$ (275,250)
Return to treasury	(9,131,917)	(91,320)		-	91,320	-
Income for theyear	-	-		-	170,403	170,403
Balance, December 31, 2021	3,333,333	$ 33,333	$	6,692	$ (144,872)	$ (104,847)

1On September 1, 2021, the Company completed a consolidation of its issued and outstanding common shares on a 2:1 basis and a total of 9,131,917 post-consolidated common shares of the Company were cancelled and returned to treasury. All share and per share information has been retroactively adjusted to reflect the share consolidation.

The accompanying notes are an integral part of these consolidated financial statements.

HELIUM EVOLUTION INCORPORATED (formerly Duckhorn Ventures Ltd.) Consolidated Statements of Cash Flows (Expressed in Canadian dollars) For the years ended December 31,

		2021		2020
Cash provided by (used for):
Operating Activities:
Income (loss) for the year	$	170,403	$	(170,873)
Item not involving cash:
Accrued interest income		-		(712)
Finance expense		7,897		26,597
Gain on settlement of promissory note payable		(30,671)		-
Recovery on write-down of accounts payable		(317,010)		-
Changes in fair value of investment		-		7,200
Gain on debt settlement		-		(2,700)
Net change in non-cash working capital items:
Accounts payable and accrued liabilities		139,722		145,131
GST receivable		5,245		(6,908)
		(24,414)		(2,265)
Financing Activities:
Advances from promissory notes payable		57,000		-
Repayment ofpromissorynotespayable		(33,187)		-
		23,813		-

Decrease in cash for the year		(601)		(2,265)
Cash, beginning of the year		830		3,095
Cash, end of theyear	$	229	$	830

Supplemental information:
Interest paid	$	2,402	$	-
Income taxes paid	$	-	$	-
Promissory note issued to settle accounts payable	$	-	$	5,250
Transfer of marketable securities to settle promissory note	$	-	$	3,600
Enosi shares received to settle promissory note receivable	$	-	$	207,452
Enosi shares used to settlepromissory notepayable	$	207,452	$	-

The accompanying notes are an integral part of these consolidated financial statements.

HELIUM EVOLUTION INCORPORATED (formerly Duckhorn Ventures Ltd.) Notes to the Consolidated Financial Statements For the year ended December 31, 2021 and December 31, 2020 (Expressed in Canadian dollars)

1. NATURE AND CONTINUANCE OF OPERATIONS

Helium Evolution Incorporated (formerly Duckhorn Ventures Ltd.) (the “Company”) was incorporated under the British Columbia Business Corporations Act on March 25, 2019. The head office is located at 400 – 505 3[rd] Street SW, Calgary AB T2P 3E6 and the records and registered office is located at 1665 Ellis St #301, Kelowna, BC V1Y 2B3. The Company has acquired all of the issued and outstanding securities of HEI, a private company formerly known as Helium Evolution Incorporated prior to the acquisition (“PrivCo”), by way of a three-cornered amalgamation involving PrivCo, the Company and 2374145 Alberta Ltd., a wholly owned subsidiary of the Company that was incorporated solely for the purposes of the acquisition (the “Acquisition”).

These consolidated financial statements have been prepared in accordance with IFRS with the assumption that the Company will be able to realize its assets and discharge its liabilities in the normal course of business rather than a process of forced liquidation. These consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.

The Company incurred a net income and comprehensive income of $170,403 for the year ended December 31, 2021. As at December 31, 2021, the Company has an accumulated deficit of $236,192 and a working capital deficiency of $104,847. Continuing business as a going concern is dependent upon the ability of the Company to obtain additional debt or equity financing. Subsequent to December 31, 2021, HEI completed a financing for gross proceeds of $12,300,000 through the issuance of 40,998,636 subscription receipts (“Subscription Receipts”) at a price of $0.30 per Subscription Receipt (Note 14). Management estimates that with proceeds received in the subsequent financing, it has sufficient working capital to sustain operations for the next twelve months.

In March 2020 the World Health Organization declared coronavirus COVID-19 a global pandemic. This contagious disease outbreak, which has continued to spread, and any related adverse public health developments, has adversely affected workforces, economies, and financial markets globally, potentially leading to an economic downturn. To date, COVID-19 has not had an adverse impact on the Company.

2. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

The preparation of these consolidated financial statements in conformity with International Financial Reporting Standards (“IFRS”) requires management to make estimates, judgments and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

(a) Critical accounting estimates

Critical accounting estimates are estimates and assumptions made by management that may result in a material adjustment to the carrying amount of assets and liabilities within the next financial year included:

i. Income tax

Tax provisions are based on enacted or substantively enacted laws. Changes in those laws could affect amounts recognized in profit or loss both in the period of change, which would include any impact on cumulative provisions, and in future periods. Deferred tax assets (if any) are recognized only to the extent it is considered probable that those assets will be recoverable. This involves an assessment of when those deferred tax assets are likely to reverse and a judgment as to whether or not there will be sufficient taxable profits available to offset the tax assets when they do reverse. This requires assumptions regarding future profitability and is therefore inherently uncertain. To the extent assumptions regarding future profitability change, there can be an increase or decrease in the amounts recognized in respect of deferred tax assets as well as the amounts recognized in profit or loss in the period in which the change occurs.

ii. Stock options

Determining the fair value of stock options requires estimates related to the choice of a pricing model, the estimation of stock price volatility, the expected forfeiture rate and the expected term of the underlying instruments. Any changes in the estimates or inputs utilized to determine fair value could have a significant impact on the Company’s future operating results or on other components of shareholders’ equity.

2. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (continued)

(b) Critical accounting judgment

Information about critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the statements are, but are not limited to, the following:

i. Going concern

The preparation of the consolidated financial statements requires management to make judgments regarding the going concern of the Company as previously discussed in Note 1.

3. SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of presentation

These consolidated financial statements have been prepared in accordance with IFRS as issued by the International Accounting Standards Board (“IASB”) and interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”). These consolidated financial statements have been prepared on a historical cost basis, except for financial instruments classified as financial instruments at fair value through profit or loss and financial instruments classified as FVTOCI, which are stated at their fair value. In addition, these consolidated financial statements have been prepared using the accrual basis of accounting, except for cash flow information. These consolidated financial statements were authorized by the Audit Committee and the Board of Directors of the Company on April 28, 2022.

(b) Consolidation

These consolidated financial statements include the accounts of the Company and its whollyowned subsidiary 2374154 Alberta Ltd. which was incorporated on September 13, 2021 for the purpose of the transaction with Helium Evolution Incorporated as described in Note 14. All significant intercompany balances, transactions and any unrealized gains and losses arising from intercompany transactions, have been eliminated.

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

(c) Share-based payments

The stock option plan allows Company directors, officers, employees and consultants to acquire shares of the Company. The fair value of options granted is recognized as a share-based payment expense with a corresponding increase in shareholders’ equity. An individual is classified as an employee when the individual is an employee for legal or tax purposes (direct employee) or provides services similar to those performed by a direct employee. Consideration paid on the exercise of stock options is credited to share capital and the fair value of the options is reclassified from share-based payment reserve to share capital.

In situations where equity instruments are issued to non-employees and some or all of the services received by the entity as consideration cannot be specifically identified, they are all measured at the fair value of the share-based payment. Otherwise, share-based payments are measured at the fair value of the services received.

The fair value is measured at grant date and each tranche is recognized over the period during which the options vest. The fair value of the options granted is measured using the Black-Scholes option pricing model taking into account the terms and conditions upon which the options were granted. At each reporting date, the amount recognized as an expense is adjusted to reflect the number of stock options that are expected to vest.

Common shares are classified as share capital. Incremental costs directly attributable to the issue of common shares are recognized as a deduction from equity, net of any tax effects.

(d) Income (loss) per share

The Company presents basic and diluted income (loss) per share (“EPS”) data for its common shares. Basic EPS is calculated by dividing the profit or loss attributable to common shareholders of the Company by the weighted average number of common shares outstanding during the period, adjusted for own shares held. Diluted income (loss) per share is calculated by dividing the income by the weighted average number of common shares outstanding assuming that the proceeds to be received on the exercise of dilutive share options and warrants are used to repurchase common shares at the average market price during the period. In the Company’s case, diluted loss per share is the same as basic loss per share.

(e) Related party transactions

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Related parties may be individuals or corporate entities. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties.

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

(f) Provisions

A provision is recognized if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognized as finance cost. The Company does not have any provisions for the period presented.

(g) Income taxes

Current tax is the expected tax payable or receivable on the taxable income or loss for the year using tax rates enacted or substantially enacted at the reporting date.

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 purpose. Deferred tax is not recognized for the following temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable operations, and differences relating to investments in subsidiaries and jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable future. 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 substantially enacted by the reporting date.

Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax assets and liabilities, 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 for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they 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.

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

(h) Financial instruments

Financial assets

The Company classifies its financial assets in the following categories: at fair value through profit or loss (“FVTPL”), at fair value through other comprehensive income (“FVTOCI”) or at amortized cost. The determination of the classification of financial assets is made at initial recognition. Equity instruments that are held for trading (including all equity derivative instruments) are classified as FVTPL; for other equity instruments, on the day of acquisition the Company can make an irrevocable election (on an instrument-by-instrument basis) to designate them as at FVTOCI.

The Company’s accounting policy for each of the categories is as follows:

Financial assets at FVTPL: Financial assets carried at FVTPL are initially recorded at fair value and transaction costs are expensed in profit or loss. Realized and unrealized gains and losses arising from changes in the fair value of the financial assets held at FVTPL are included in the statement of (loss) income in the period.

Financial assets at FVTOCI: Investments in equity instruments at FVTOCI are initially recognized at fair value plus transaction costs. Subsequently they are measured at fair value, with gains and losses arising from changes in fair value recognized in other comprehensive income (loss) in which they arise.

Financial assets at amortized cost: A financial asset is measured at amortized cost if the objective of the business model is to hold the financial asset for the collection of contractual cash flows, and the asset's contractual cash flows are comprised solely of payments of principal and interest. They are classified as current assets or non-current assets based on their maturity date and are initially recognized at fair value and subsequently carried at amortized cost less any impairment.

Impairment of financial assets at amortized cost: The Company assesses all information available, including on a forward-looking basis, the expected credit losses associated with its assets carried at amortized cost. The impairment methodology applied depends on whether there has been a significant increase in credit risk. To assess whether there is a significant increase in credit risk, the Company compares the risk of a default occurring on the asset as the reporting date, with the risk of default as at the date of initial recognition, based on all information available, and reasonable and supportive forward-looking information.

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

(h) Financial instruments (continued)

Financial liabilities

Financial liabilities are non-derivatives and are recognized initially at fair value, net of transaction costs, and are subsequently stated at amortized cost. Any difference between the amounts originally received, net of transaction costs, and the redemption value is recognized in profit or loss over the period to maturity using the effective interest method.

Financial liabilities are classified as current or non-current based on their maturity date. Financial liabilities include accounts payable and accrued liabilities, and promissory notes payable.

4. INVESTMENTS

Changes in the Company's investments at fair value were as follows:

	December 31,	2021	December 31,2020
	$		$
Opening Balance		-	10,800
Disposal of investment (Note 7)		-	(3,600)
Changes in fair value of investments		-	(7,200)
Ending Balance		-	-

Publicly traded securities

The Company's publicly traded securities can be sold at any time at the Company's discretion subject to market conditions and from time to time hold period restrictions of not more than four months pursuant to the terms of each respective private placement subscription agreement, as well as escrow restrictions, if applicable. During the year ended December 31, 2020, the Company sold 180,000 common shares of World Class Extractions Inc. (“WCE”) with a fair value of $3,600 to ECC. As consideration, the promissory note between ECC and the Company was reduced by $6,300, resulting in a gain of $2,700. See Note 7 for details relating to this promissory note. As at December 31, 2021 and 2020 the Company did not own any investments in publicly traded securities.

5. RELATED PARTY TRANSACTIONS

The Company has identified its directors and certain senior officers as its key management personnel and the compensation costs for key management personnel and companies related to them are recorded at their exchange amounts as agreed upon by transacting parties.

Summary of expenses incurred:

Summaryof expenses incurred:
Nature	For the year ended	For the year ended
	December 31, 2021	December 31, 2020
	$	$
Interest on
promissorynotes	7,897	26,597

The Company has secured promissory notes with different related parties; ECC and The Emprise Special Opportunities Fund (2017) (“ESOF 2017”) are both shareholders of the Company. During fiscal 2020, an additional $5,250 was secured from ESOF 2017. During the year ended December 31, 2021, an additional $7,000 was secured from ESOF 2017. See Note 7 for details relating to these promissory notes.

Amounts due to related parties included in promissory notes payable:

Nature	Relationship	December 31,	December 31,
		2021	2020
Promissory note (ECC)	Shareholder of the Company	$ -	$ 18,535
Promissorynote(ESOF(2017))	Shareholder of the Company	$ -	$237,878

6. INVESTMENT IN ENOSI

ENOSI

In August 2019, the Company entered into a non-binding letter of intent (the “LOI”) with Enosi Pharmaceuticals Corp. (“Enosi”) with respect to the proposed acquisition by the Company of all the issued and outstanding equity securities of Enosi, and pursuant to which the Company loaned $200,000 to Enosi. The principal outstanding under this promissory note bore interest at the simple rate of 10% per annum. On January 13, 2020, the Company and Enosi entered into an agreement to restructure their proposed transaction (the “Settlement Agreement”), resulting in the Company acquiring an equity interest in Enosi. Pursuant to the Settlement Agreement, Enosi issued 82,500 common shares in its capital to the Company in full satisfaction of all obligations owing by Enosi to the Company.

6. INVESTMENT IN ENOSI (continued)

ENOSI (continued)

During the year ended December 31, 2021, the Company transferred the 82,500 common shares to ESOF 2017 for full and final settlement of the $200,000 note owing to ESOF (note 7) as well as $38,123 in interest payable, thereby recording a gain of $30,671.

7. ACCOUNTS PAYABLE AND PROMISSORY NOTES PAYABLE

ACCOUNTS PAYABLE

During the year ended December 31, 2021, a creditor agreed to forgive outstanding balances that totalled $267,010. This resulted in the Company recognizing and recording a gain on forgiveness of debt.

Axis Capital

During the year ended December 31, 2021, the Company received a $50,000 short-term loan which was forgiven in connection with the Acquisition.

ECC

Pursuant to an agreement dated March 25, 2019, the Company purchased 90,000 common shares (subsequently split 2:1 resulting in 180,000 common shares) of WCE from ECC for an aggregate price of $21,150, payable by promissory note. The principal outstanding under this promissory note bears interest at the simple rate of 10% per annum. The entire unpaid principal and any interest is fully and immediately payable upon demand. The Company may repay the principal and all accrued interest thereon at any time and from time to time without notice or penalty.

During the year ended December 31, 2020, the Company sold its investment in WCE to ECC. As consideration for the transfer, the promissory note was reduced by $6,300, resulting in a gain on debt settlement of $2,700. The Company incurred interest expense of $1,208 on the promissory note during the year ended December 31, 2021 (2020 - $2,057). As of December 31, 2021, the promissory note had a balance of $nil (December 31, 2020 - $18,535) including accrued interest payable of $nil, (December 31, 2020 - $388).

7. ACCOUNTS PAYABLE AND PROMISSORY NOTES PAYABLE (continued)

THE EMPRISE SPECIAL OPPORTUNITIES FUND (2017) LIMITED PARTNERSHIP (“ESOF2017”)

Pursuant to an agreement dated August 30, 2019, the Company received $200,000 from ESOF2017, payable by promissory note. The promissory note bears interest at the simple rate of 12% per annum and is unsecured. The entire unpaid principal and any interest is fully and immediately payable upon demand. The Company may repay the principal and all accrued interest thereon at any time and from time to time without notice or penalty.

During the year ended December 31, 2020, ESOF 2017 advanced a further $5,250, and during the year ended December 31, 2021, an additional $7,000. During the year ended December 31, 2021, with the transfer of the 82,500 Enosi shares (Note 6), the Company repaid the promissory note of $200,000 plus interest of $38,123, thereby recognizing a gain of $30,671.

The Company incurred interest expense of $6,689 on the promissory note during the year ended December 31, 2021 (December 31, 2020 - $24,540). As at December 31, 2021, the promissory note had a balance of $nil, (2020 - $237,878) including accrued interest payable of $nil, (2020 - $32,628).

8. SHARE CAPITAL

(a) Authorized

Unlimited number of common and preferred shares without par value.

(b) Issued and outstanding

As at December 31, 2021 the Company had 3,333,333 common shares issued and outstanding. There are no preferred shares issued or outstanding.

During the year ended December 31, 2020 there was no share capital activity.

During the year ended December 31, 2021 9,131,917 common shares were returned to treasury and cancelled. As a result, $91,320 was removed from share capital.

	Number of
	Shares	Amount
		$
Balance, December 31, 2019, and 2020	12,465,250	124,653
September 1, 2021 – return to treasury	(9,131,917)	(91,320)
Balance, December 31, 2021	3,333,333	33,333

8. SHARE CAPITAL (continued)

(c) Stock options

On March 25, 2019, the Company adopted a stock option plan (the “Stock Option Plan”) whereby it can grant incentive stock options to directors, officers, employees, and technical consultants of the Company. The maximum number of shares that may be reserved for issuance under the Stock Option Plan is limited to 10% of the issued common shares of the Company at any time. The vesting period for all options is at the discretion of the Board of Directors. The exercise price will be set by the Board of Directors at the time of grant and cannot be less than the discounted market price (if any) of the Company’s common shares.

The Stock Option Plan provides that the number of common shares that may be reserved for the issuance to any one individual upon exercise of all stock options held by such an individual may not exceed 5% of the issued common shares, if the individual is a director or officer, or 2% of the issued common shares, if the individual is a consultant or engaged in providing investor relations services, on a yearly basis. All options granted under the Stock Option Plan will expire not later than the date that is ten years from the date that such options are granted. Options terminate earlier as follows: (i) immediately in the event of dismissal with cause; (ii) 90 days from date of termination other than for cause; or (iii) one year from the date of death or disability. Options granted under the Stock Option Plan are not transferable or assignable other than by will or other testamentary instrument or pursuant to the laws of succession.

Share purchase option transactions are summarized as follows:

		Weighted
		Average
	Number	Exercise Price
Outstanding and exercisable, December 31,
2019, and 2020	1,245,000	$ 0.04
Cancelled	(1,245,000)	$0.04
Outstanding, December 31, 2021	-	-

9. BASIC AND DILUTED INCOME PER SHARE

The calculation of basic and diluted income per share for the year ended December 31, 2021 was based on the income attributable to common shareholders of $170,403 and the weighted average number of common shares outstanding of 9,429,640.

10. INCOME TAXES

The following table reconciles the amount of income tax recoverable on application of the combined statutory Canadian federal and provincial income tax rates:

	2021	2020
Income (loss) before income taxes	$ 170,403	$ (170,873)
Expected income tax recovery at statutory rates	46,000	(46,000)
Change in unrecognized deferred tax assets	(46,000)	46,000
Income tax expense(recovery)	$ -	$ -

Significant components of the Company’s deferred income tax assets (liabilities) not recognized are shown below:

	2021	2020
Deferred tax assets (liabilities)
Allowable capital losses	2,000	2,000
Expected income tax recovery at statutory rates	65,000	111,000
	67,000	113,000
Unrecognized deferred tax assets	(67,000)	(113,000)
Net deferred tax assets	$ -	$ -

The significant components of the Company’s temporary differences, unused tax credits and unused tax losses that have not been included on the consolidated statement of financial position are as follows:

	2021	Expiry date range	2020	Expiry date range
Temporary Differences
Allowable capital losses	$ 7,000	No expiry date	$ 7,000	No expiry date
Non-capital losses available
for future periods	$ 240,000	2039 to 2041	$ 410,000	2039 to 2040

11. SEGMENTED INFORMATION

The Company operates in one segment, being the investigation and evaluation of business opportunities in which to participate. All of the Company’s assets are held in Canada.

12. MANAGEMENT OF CAPITAL

Capital is comprised of the Company’s shareholders’ deficiency and any debt that it may issue. The Company’s objectives when managing capital are to maintain financial strength and to protect its ability to meet its ongoing liabilities, to continue as a going concern, to maintain creditworthiness and to maximize returns for shareholders over the long term. Protecting the ability to pay current and future liabilities includes maintaining capital above minimum regulatory levels, current financial strength rating requirements and internally determined capital guidelines and calculated risk management levels.

The Company manages its capital structure to maximize its financial flexibility making adjustments to it in response to changes in economic conditions and the risk characteristics of the underlying assets and business opportunities. The Company does not presently utilize any quantitative measures to monitor its capital, but rather relies on the expertise of the Company’s management to sustain the future development of the business. Management reviews its capital management approach on an ongoing basis and believes that this approach, given the relative size of the Company, is reasonable. As at December 31, 2021, the Company is not subject to any externally imposed capital requirements. There were no changes to the Company’s approach to capital management during the year.

13. FINANCIAL INSTRUMENTS

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. The type of risk exposure and the way in which such exposure is managed is provided as follows:

Market Risk

Market risk is the risk that the fair value or future cash flows from a financial instrument will fluctuate because of changes in market prices or prevailing conditions. Market risk comprises three types of risk: currency risk, interest rate risk and other price risk and are disclosed as follows:

(i) Currency risk

Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Company holds no financial instruments that are denominated in a currency other than Canadian dollars. As at December 31, 2021, the Company is not exposed to currency risk.

(ii) Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows will fluctuate as a result of changes in market risk. The Company’s sensitivity to interest rates relative to its cash balances is currently immaterial. The Company also has no long-term debt with variable interest rates, so it has no negative exposure to changes in the market interest rate.

13. FINANCIAL INSTRUMENTS (continued)

Market Risk (continued)

(iii) Price rate 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. Management closely monitors individual equity movements and the stock market to determine the appropriate course of action to be taken by the Company. Given the Company’s limited market exposure at this time it has assessed there to be a low level of price rate risk.

Credit Risk

Credit risk is the risk of an unexpected loss if a customer or third party to a financial instrument fails to meet its contractual obligations. The Company’s credit risk is primarily attributable to its liquid financial assets including cash. The Company limits the exposure to credit risk by only investing its cash with high-credit quality financial institutions. Management believes that the credit risk related to its cash is negligible.

Liquidity Risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. At December 31, 2021, the Company has limited sources of revenue and has a cash balance of $229 to settle current liabilities of $111,148. As such, at December 31, 2021 the Company has insufficient cash to fund corporate overhead costs and the repayment of the Company’s debt obligations for the next year. However, subsequent to the year end, HEI completed a financing for gross proceeds of $12.3 million through the issuance of 40,998,636 Subscription Receipts at a price of $0.30 per Subscription Receipt. Management feels this should allow the Company to meet its operational cash requirements for the next year.

Fair Value Risk

When participating in investment activities, the Company may incur losses if it is unable to resell the securities it has purchased or if it is forced to liquidate its holdings at less than their respective carrying values. The Company is also exposed to fair value risk as a result of its trading activities in publicly traded securities. All the Company's investments are carried on a FVTPL basis and are recorded at their fair value. As such, changes in fair value affect earnings as they occur.

13. FINANCIAL INSTRUMENTS (continued)

Fair Value Risk (continued)

The fair value of cash, accounts receivable, and accounts payable and accrued liabilities at December 31, 2021 approximate their carrying values due to their short term to maturity.

Financial instruments measured at fair value are classified into one of three levels in the fair value hierarchy according to the relative reliability of the inputs used to estimate the fair values. The three levels of the fair value hierarchy are:

Level 1 Unadjusted quoted prices in active markets for identical assets or liabilities Level 2 Inputs other than quoted prices that are observable for the assets or liability either directly or indirectly; and Level 3 Inputs that are not based on observable market data.

14. SUBSEQUENT EVENT

On March 11, 2022, the Company and PrivCo completed a business combination, whereby the Company acquired all of the issued and outstanding securities of PrivCo by way of a three-cornered amalgamation involving PrivCo, the Company and 2374145 Alberta Ltd., a wholly-owned subsidiary of the Company that was incorporated solely for the purposes of the acquisition (the “Acquisition”).

Upon completion of the Acquisition the Company changed its name from Duckhorn Ventures Ltd. to Helium Evolution Incorporated.

PrivCo is a Canadian-based helium exploration and production company focused on developing assets in southern Saskatchewan.

Under the terms of the Acquisition, shareholders of PrivCo were issued common shares of the Company (the “Consideration Shares”) in exchange for PrivCo Shares on a 1 PrivCo Share for 1.00542 Consideration Shares basis.

In connection with the Acquisition, PrivCo completed a financing for gross proceeds of $12,300,000 through the issuance of 40,998,636 Subscription Receipts at a price of $0.30 per Subscription Receipt. Upon closing of the Acquisition, each Subscription Receipt automatically converted into one common share of PrivCo, which was subsequently exchanged for 1.00542 common shares in the capital of the Company.

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Helium Evolution Incorporated — Audit Report / Information 2021

47789_rns_2022-04-29_0ff8f988-14f6-458e-8ce2-0be379dca537.pdf

HELIUM EVOLUTION INCORPORATED (formerly Duckhorn Ventures Ltd.)

INDEPENDENT AUDITOR’S REPORT

Opinion

Basis for Opinion

Other Information

Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements

Auditor's Responsibilities for the Audit of the Consolidated Financial Statements

1. NATURE AND CONTINUANCE OF OPERATIONS

2. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

(a) Critical accounting estimates

i. Income tax

ii. Stock options

2. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (continued)

(b) Critical accounting judgment

i. Going concern

3. SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of presentation

(b) Consolidation

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

(c) Share-based payments

(d) Income (loss) per share

(e) Related party transactions

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

(f) Provisions

(g) Income taxes

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

(h) Financial instruments

Financial assets

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

(h) Financial instruments (continued)

Financial liabilities

4. INVESTMENTS

Publicly traded securities

5. RELATED PARTY TRANSACTIONS

Amounts due to related parties included in promissory notes payable:

6. INVESTMENT IN ENOSI

ENOSI

6. INVESTMENT IN ENOSI (continued)

ENOSI (continued)

7. ACCOUNTS PAYABLE AND PROMISSORY NOTES PAYABLE

ACCOUNTS PAYABLE

Axis Capital

ECC

7. ACCOUNTS PAYABLE AND PROMISSORY NOTES PAYABLE (continued)

THE EMPRISE SPECIAL OPPORTUNITIES FUND (2017) LIMITED PARTNERSHIP (“ESOF2017”)

8. SHARE CAPITAL

(a) Authorized

(b) Issued and outstanding

8. SHARE CAPITAL (continued)

(c) Stock options

9. BASIC AND DILUTED INCOME PER SHARE

10. INCOME TAXES

11. SEGMENTED INFORMATION

12. MANAGEMENT OF CAPITAL

13. FINANCIAL INSTRUMENTS

Market Risk

(i) Currency risk

(ii) Interest rate risk

13. FINANCIAL INSTRUMENTS (continued)

Market Risk (continued)

(iii) Price rate risk

Credit Risk

Liquidity Risk

Fair Value Risk

13. FINANCIAL INSTRUMENTS (continued)

Fair Value Risk (continued)

14. SUBSEQUENT EVENT

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Helium Evolution Incorporated Audit Report / Information 2021