IMPACT SILVER CORP — Interim / Quarterly Report 2021

May 25, 2021

IMPACT SILVER CORP.

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

March 31, 2021 and 2020

Unaudited

NOTICE OF NO REVIEW BY AUDITOR

In accordance with National Instrument 51 – 102 Continuous Disclosure Obligations of the Canadian Securities Administrators WE HEREBY GIVE NOTICE THAT the condensed consolidated interim financial statements which follow this notice have not been reviewed by an auditor.

IMPACT Silver Corp.

Condensed Consolidated Interim Statements of Financial Position

(Canadian dollars) Unaudited

ASSETS	March 31, 2021 December 31, 2020
Current Cash Trade and other receivables_(Note 3) Inventories(Note 4) Investments Value added and other taxes receivable Right-of-use assets(Note 5) Property, plant and equipment (Note 7) Exploration and evaluation assets(Note 8)_	$ 21,749,001 $ 20,385,551 1,739,805 1,379,217 694,326 1,213,996 75,000 -
	24,258,132 22,978,764 500,665 575,192 86,541 103,475 18,675,290 19,302,596 21,549,773 21,871,603
	$ 65,070,401 $ 64,831,630

LIABILITIES
Current Trade payables and accrued liabilities Lease liabilities_(Note 6) Lease liabilities(Note 6)_ Reclamation provision Deferred income tax liabilities SHAREHOLDERS' EQUITY	$ 2,277,351 $ 2,589,464 48,678 61,672
	2,326,029 2,651,136 13,305 16,997 741,468 761,228 3,138,403 2,713,220
	6,219,205 6,142,581
Share capital Warrants(Note 11(c)) Contributed surplus Accumulated other comprehensive loss Accumulated deficit	80,463,330 79,325,168 2,799,986 2,954,251 8,369,286 7,523,552 (8,457,421) (7,047,278) (24,323,985) (24,066,644)
	58,851,196 58,689,049
	$ 65,070,401 $ 64,831,630

Nature of operations (Note 1)

ON BEHALF OF THE BOARD:

“F.W. Davidson” , Director “P. Tredger” , Director

-The accompanying notes form an integral part of these consolidated financial statements-

IMPACT Silver Corp. Condensed Consolidated Interim Statements of Loss For the Three Months Ended March 31

(Canadian dollars) Unaudited

	2021 2020
Revenue Cost of sales Operating expenses_(Note 10) Amortization and depletion Mine operating income (loss) General and administrative expenses Accounting, audit and legal Amortization Investor relations, promotion and travel Management fees and consulting Office, rent, insurance and sundry Office salaries and services Share-based payments(Note 11(b))_ Operating income (loss) Other income (expenses) Finance cost Finance income Foreign exchange gain (loss) Other (expense) income Income before taxes Current income tax expense Deferred income tax expense Net loss	$ 5,375,860 $ 3,413,708 3,431,094 3,115,147 278,163 415,300
	3,709,257 3,530,447
	1,666,603 (116,739)
	52,403 46,629 10,788 3,862 15,103 77,786 78,210 82,134 121,578 52,877 182,437 125,053 943,511 -
	1,404,030 388,341
	262,573 (505,080)
	(12,019) (10,372) 33,792 13,919 82,998 561,026 (8,126) (34)
	96,646 564,539
	359,219 59,459 91,981 122,594 524,579 27,039
	$ (257,341) $ (90,174)
Loss per share – Basic and Diluted(Note 11(d)) Weighted average number of shares outstanding – Basic and Diluted	$ 0.00 $ 0.00
	143,308,379 110,284,045

-The accompanying notes form an integral part of these consolidated financial statements-

IMPACT Silver Corp.

Condensed Consolidated Interim Statements of Comprehensive Loss

For the Three Months Ended March 31

(Canadian dollars) Unaudited

	2021 2020
Net loss Other comprehensive loss Items that may be subsequently reclassified to profit or loss Cumulative translation adjustment Items that will not be subsequently reclassified to profit or loss Loss on investments Comprehensive loss	$ (257,341) $ (90,174) (1,400,143) (4,218,295) (10,000) (1,250)
	$ (1,667,484) $ (4,309,719)

-The accompanying notes form an integral part of these consolidated financial statements-

IMPACT Silver Corp.

Condensed Consolidated Interim Statements of Changes in Shareholders’ Equity For the Three Months Ended March 31

(Canadian dollars) Unaudited

For the Three Months Ended March 31 (Canadian dollars) Unaudited
Shares Outstanding	Share Capital ($) Warrants ($) Contributed Surplus ($) Accumulated Other Comprehensive Income ($) Retained Deficit ($)	Total Shareholders’ Equity ($)
Balance at January 1, 2020 110,262,345 Net loss for the period - Warrants exercised 63,000 Cumulative translation adjustments - Loss on investments -	63,923,949 2,193,199 7,628,059 (4,899,146) (26,367,656) - - - - (90,174) 24,199 (4,650) - - - - - - (4,218,295) - - - - (1,250) -	42,478,405 (90,174) 19,549 (4,218,295) (1,250)
Balance at March 31, 2020 110,325,345 Balance at January 1, 2021 141,410,247 Net loss for the period - Share-based compensation expense - Warrants exercised 2,172,272 Stock options exercised 230,000 Cumulative translation adjustments - Loss on investments -	63,948,148 2,188,549 7,628,059 (9,118,691) (26,457,830) 79,325,168 2,954,251 7,523,552 (7,047,278) (24,066,644) - - - - (257,341) - - 943,511 - - 905,035 (154,265) - - - 233,127 - (97,777) - - - - - (1,400,143) - - - - (10,000) -	38,188,235 58,689,049 (257,341) 943,511 750,770 135,350 (1,400,143) (10,000)
Balance atMarch31,2021 143,812,519	80,463,330 2,799,986 8,369,286 (8,457,421) (24,323,985)	58,851,196

• The accompanying notes form an integral part of these consolidated financial statements –

IMPACT Silver Corp.

Condensed Consolidated Interim Statements of Cash Flows

For the Three Months Ended March 31

(Canadian dollars) Unaudited

Cash resources provided by (used in)	2021 2020
Operating activities Net loss Items not affecting cash Amortization and depletion Share-base payments Deferred income tax expense Accretion expense Unrealized loss on foreign exchange Changes in non-cash working capital Trade and other receivables Income taxes receivable Inventories Trade payables Income taxes payable Investing activities Proceeds on the sale of long-lived assets Additions of long-lived assets Financing activities Repayment of lease liability Proceeds from the exercise of warrants Proceeds from the exercise of stock options Net change in cash Cash - Beginning of period Cash - End of period	$ (257,341) $ (90,174) 288,951 419,162 943,511 - 524,579 27,039 10,798 7,964 (112,242) (88,928) (372,225) 428,182 (1,386) (439) 474,938 54,544 (223,175) (218,788) 3,380 117,082
	1,279,788 655,644
	50,000 - (829,934) (533,985)
	(779,934) (533,985)
	(22,524) (26,657) 750,770 - 135,350 19,550
	863,596 (7,107)
	1,363,450 114,552 20,385,551 3,773,062
	$ 21,749,001 $ 3,887,614

-The accompanying notes form an integral part of these consolidated financial statements-

IMPACT Silver Corp.

Notes to the Condensed Consolidated Interim Financial Statements March 31, 2021

(Canadian dollars) Unaudited

1. Nature of operations

IMPACT Silver Corp. and its subsidiaries (collectively, “IMPACT” or the “Company”) are engaged in silver mining and related activities including exploration, development and mineral processing in Mexico. The Company operates a series of mines near Zacualpan in the State of Mexico and in Guerrero State and produces silver, lead, zinc and gold sold in the form of lead and zinc concentrates. The registered address of the Company is 705 – 543 Granville Street, Vancouver, British Columbia.

The business of mining and exploring for minerals involves a high degree of risk and there can be no assurance that the current exploration and development programs will result in ongoing profitable mining operations. The investment in and expenditures on exploration and evaluation assets comprise a significant portion of the Company’s assets. The recovery of the Company’s investment in these exploration and evaluation assets and the attainment of profitable operations are dependent upon future commodity prices, the ongoing discovery and development of economic ore on these properties and the ability to arrange sufficient financing to bring the ore estimates into production. The ultimate outcome of these matters cannot presently be determined because they are contingent on future events.

The consolidated financial statements have been prepared on a going concern basis, which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business as they come due into the foreseeable future. The Company estimates that it has adequate financial resources for the next twelve months.

2. Basis of Preparation

Statement of compliance

The Company’s consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and Interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”). These unaudited condensed interim financial statements have been prepared in accordance with IAS 34, Interim Financial Reporting. All material intercompany balances have been eliminated. The accounting policies applied in the preparation of these unaudited condensed financial statements are consistent with those applied and disclosed in the Company’s audited consolidated financial statements for the year ended December 31, 2020.

IMPACT Silver Corp.

Notes to the Condensed Consolidated Interim Financial Statements March 31, 2021

(Canadian dollars) Unaudited

2. Basis of Preparation – continued

As all the disclosures required by IFRS are not included, these interim statements should be read in conjunction with the audited financial statements of IMPACT Silver Corp. (“the Company”) for the year ended December 31, 2020.

Except when otherwise stated, all amounts are presented in Canadian (“CDN”) dollars, which is the presentation currency of the Company.

The condensed consolidated interim financial statements were authorised for issue by the Board of Directors on May 21, 2021.

3. Trade and other receivables

The following table details the composition of trade and other receivables at:

Value added taxes receivable – current portion Trade and other receivables Prepaids	March 31, 2021 December 31, 2020
	$ 336,859 $ 320,613 1,265,854 898,327 137,092 160,277
	$ 1,739,805 $ 1,379,217

4. Inventories

The following table details the composition of inventories at:

Materials and supplies Stockpile inventory Concentrate inventory	March 31, 2021 December 31, 2020
	$ 478,345 $ 410,100 112,362 42,616 103,619 761,280
	$ 694,326 $ 1,213,996

The amount of inventories recognized as an expense during the period ended March 31, 2021 was $3,431,094 (March 31, 2020 - $3,115,147).

IMPACT Silver Corp.

Notes to the Condensed Consolidated Interim Financial Statements March 31, 2021

(Canadian dollars) Unaudited

5. Right-of-use assets

Details are as follows:

Balance at January 1, 2020 Additions Amortization Foreign exchange movement Balance at December 31, 2020 Additions Amortization Foreign exchange movement Balance at March 31, 2021	Land $ 155,856 59,874 (107,891) (4,364) 103,475 7,378 (21,723) (2,589) $ **86,541 **
6. Lease Liabilities Details are as follows: Balance at January 1, 2020 Interest Repayments Additions Foreign exchange movement Balance at December 31, 2020 Interest Repayments Additions Foreign exchange movement Balance at March 31, 2021 Less: current portion Non-current lease liabilities	$ 156,604 7,573 (140,893) 59,874 (4,489) 78,669 1,221 (23,745) 7,378 (1,540) 61,983 (48,678) $ 13,305

The Company’s leased assets are for office leases and land. The lease liabilities were discounted at the Company’s incremental borrowing rate. The weighted average rate applied at January 1, 2019 was 8.0%. Operating lease expenses relating to short-term and low-value leases not included in the measurement of lease obligations for the three months ended March 31, 2021 was $24,458.

IMPACT Silver Corp.

Notes to the Condensed Consolidated Interim Financial Statements March 31, 2021

(Canadian dollars) Unaudited

6. Lease Liabilities - continued

The expected timing of undiscounted lease payments is as follows:

Less than one year $ One to five years $	March 31, 2021 December 31, 2020
	51,409$ 65,496 13,918 16,937
	65,327 $ 82,433

7. Property, plant and equipment

Details are as follows:

Cost Balance at January 1, 2020 Additions Disposals Change in reclamation estimate Foreign exchange movement	Plant and mine equipment ($) Vehicles ($) Office furniture and equipment ($) Surface rights ($)	Mining Assets ($)	Total ($)
	9,799,315 488,225 207,749 1,130,664 163,750 59,226 32,959 - - (15,524) - - - - - - (675,961) (33,910) (8,462) (78,531)	29,034,828 592,103 - 295,628 (1,805,844)	40,660,781 848,038 (15,524) 295,628 (2,602,708)
Balance at December 31, 2020 Additions Foreign exchange movement	9,287,104 498,017 232,246 1,052,133 26,790 56,614 3,491 - (365,991) (19,908) (4,793) (42,059)	28,116,715 276,720 (945,999)	39,186,215 363,615 (1,378,750)
Balance at March31, 2021	8,947,903 534,723 230,944 1,010,074	27,447,436	38,171,080
Accumulated amortization Balance at January 1, 2020 Amortization for the period Disposals Foreign exchange movement	6,971,583 423,609 154,503 - 389,971 20,218 27,497 - - (13,649) - - (474,048) (29,053) (7,163) -	12,207,380 916,729 - (703,958)	19,757,075 1,354,415 (13,649) (1,214,222)
Balance at December 31, 2020 Amortization for the period Foreign exchange movement	6,887,506 401,125 174,837 - 78,107 6,085 7,775 - (272,476) (15,646) (4,138) -	12,420,151 175,024 (362,560)	19,883,619 266,991 (654,820)
Balance at March 31, 2021	6,693,137 391,564 178,474 -	12,232,615	19,495,790
Net book value
At December 31, 2020	2,399,598 96,892 57,409 1,052,133	15,696,564	19,302,596
At March 31, 2021	2,254,766 143,159 52,470 1,010,074	15,214,821	18,675,290

IMPACT Silver Corp. Notes to the Condensed Consolidated Interim Financial Statements March 31, 2021

(Canadian dollars) Unaudited

8. Exploration and evaluation assets

Balance at January 1, 2020	$	22,071,788
Additions		953,751
Foreignexchange		(1,153,936)
Balance at December 31, 2020		21,871,603
Additions		457,397
Recoveries		(135,000)
Foreignexchange		(644,227)
Balance at March 31, 2021	$	21,549,773

9. Key management personnel compensation

Key management includes the Chief Executive Officer, Chief Financial Officer, Vice-President Exploration and Board of Directors and Audit Committee members. The remuneration of directors and other members of key management personnel for the three months ended March 31 is as follows:

Salaries and fees Share based compensation	2021 2020
	$ 118,812 $ 103,770 581,310 -
	$ 700,122 $ 103,770

10. Expenses by nature

The following table details the nature of expenses within cost of goods sold for the three months ended March 31:

Production costs Administration Transportation Wages and salaries	2021 2020
	$ 2,017,422 $ 1,755,265 163,896 106,019 149,845 126,090 1,099,931 1,127,773
	$ 3,431,094 $ 3,115,147

11. Equity

a) Share capital

Authorised share capital consists of an unlimited number of common shares without par value.

On August 20, 2020, the Company completed a brokered private placement for aggregate gross proceeds of $9.5 million from the issuance of 10,049,096 units of the Company at $0.95 per unit. Each unit consists of one common share and one-half share purchase warrant, each whole purchase warrant exercisable into one common share at a price of $1.30 for a period of 24 months from the date of issuance. The Company paid cash commissions of 6% of the gross proceeds from certain subscribers in the private placement and the agents were granted, and subscribed for, an aggregate of 598,089 broker warrants entitling the holder to acquire one unit at a price of $0.95 per unit.

On April 16, 2020, the Company closed a non-brokered private placement for 6,666,634 units of the Company at a price of $0.30 per unit for gross proceeds of $2.0 million. Each unit consists of one common share and one common share purchase warrant. Each warrant entitles the holder to purchase one common share at a price of $0.385 for a period of 36 months from the date of issuance.

IMPACT Silver Corp.

Notes to the Condensed Consolidated Interim Financial Statements March 31, 2021

(Canadian dollars) Unaudited

11. Equity – continued

a) Share capital - continued

On August 12, 2019, the Company closed a non-brokered private placement which was completed in four tranches. The private placement raised aggregate gross proceeds of $4.9 million by issue of 7,500,000 series 1 units at a price of $0.26 per unit and 10,344,827 series 2 units at a price of $0.29 per unit. Each series 1 unit consists of one common share and one warrant. Each series 1 warrant entitles the holder to purchase one common share at a price of $0.30 per common share for a period of 36 months from the date of issuance. Each series 2 unit consists of one common share and one warrant. Each series 2 warrant entitles the holder to purchase one common share at a price of $0.385 per common share for a period of 36 months from the date of issuance.

• On July 5, 2019, a total of 4,752,770 series 1 units were issued for aggregate gross proceeds of $1.2 million.

• On July 24, 2019, a total of 2,747,230 series 1 units were issued for aggregate gross proceeds of $0.7 million.

• On August 2, 2019, a total of 8,433,759 series 2 units were issued for aggregate gross proceed of $2.4 million.

• On August 12, 2019, a total of 1,911,068 series 2 units were issues for aggregate gross proceeds of $0.6 million.

On January 18, 2019, the Company closed the second tranche of a non-brokered private placement which commenced in 2018. The private placement raised aggregate gross proceeds of $1.7 million by issue of 6,453,253 units at a price of $0.27 per unit. Each unit consists of one common share and one warrant. Each warrant entitles the holder to purchase one common share at a price of $0.35 per common share for a period of 24 months from the date of issuance.

• On November 30, 2018, a total of 2,031,500 units were issued for aggregate gross proceeds of $0.5 million.

• On January 18, 2019, a total of 4,421,753 units were issued for aggregate gross proceeds of $1.2 million

b) Stock options

The Company has established a stock option plan whereby the board of directors may, from time to time, grant options to directors, officers, employees or consultants. Under the terms of the Company’s fixed stock option plan, the maximum number of shares reserved for issuance is 10% of the issued shares of the Company or 12,936,917 shares. Options granted must be exercised no later than five years from date of grant or extension or such lesser period as determined by the Company’s board of directors. The exercise price of an option is not less than the closing price on the TSX Venture Exchange on the last trading day preceding the grant.

On January 18, 2021 the Company granted stock options under its Stock Option Plan to directors, officers, employees and consultants exercisable for 2,110,000 shares of the Company. The options are exercisable on or before January 18, 2026 at a price of $0.90 per share. Options vested 100% on the date granted.

The Black Scholes Option Pricing Model was used to estimate the fair value of stock options for calculating stockbased compensation expense. The Company recognized a stock-based compensation expense and an increase to contributed surplus based on a grading vesting schedule using the following assumptions:

Date Granted	January 18, 2021
Numberofoptions granted	2,110,000
Risk-free interest rate	0.14%
Expected dividend yield	Nil
Expected share price volatility	84.516%
Expected option life in years	2.5

The expected volatility is based on the historical and implied volatility of the Company’s common share price on the TSX Venture Exchange. The risk-free interest rate assumption is based on the Bank of Canada marketable bonds with a remaining term equal to the stock options’ expected life. Option pricing models require the input of highly subjective

IMPACT Silver Corp.

Notes to the Condensed Consolidated Interim Financial Statements March 31, 2021

(Canadian dollars) Unaudited

11. Equity – continued

b) Stock options – continued

The expected volatility is based on the historical and implied volatility of the Company’s common share price on the TSX Venture Exchange. The risk-free interest rate assumption is based on the Bank of Canada marketable bonds with a remaining term equal to the stock options’ expected life. Option pricing models require the input of highly subjective assumptions including the expected price volatility. Changes in the subjective input assumptions can materially affect the fair value estimate, and therefore the existing models do not necessarily provide a reliable single measure of the fair value of the Company’s stock options.

The total fair value of share-based payment expense on stock options granted to employees and consultants of the Company for the three months ended March 31, 2021 is $943,511 (March 31, 2020 – $nil).

A summary of the Company’s stock options as at March 31, 2021 and the changes for the periods ended on these dates is as follows:

is as follows:
		Weighted Average
	Number	ExercisePrice ($)
At January 1, 2020	5,185,000	0.55
Exercised	(545,000)	0.40
Forfeited	(30,000)	0.98
At December 31, 2020	4,610,000	0.57
Granted	2,110,000	0.90
Exercised	(230,000)	0.59
At March 31, 2021	6,490,000	0.67

The following	table summarizes information	about the stock options	outstanding at March 31,	2021:
Exercise		Weighted Average
Price	Number of Options	Remaining Life	Number of Options
PerShare	Outstanding	(Years)	Exercisable	ExpiryDate
$0.98	1,470,000	0.32	1,470,000	July 27, 2021
$0.35	1,160,000	1.47	1,160,000	September 20, 2022
$0.36	1,750,000	3.57	1,750,000	October 24, 2024
$0.90	2,110,000	4.81	2,110,000	January18,2026
	6,490,000	2.86	6,490,000

IMPACT Silver Corp.

Notes to the Condensed Consolidated Interim Financial Statements March 31, 2021

(Canadian dollars) Unaudited

11. Equity – continued

c) Warrants

A summary of the Company’s warrants as at March 31, 2021 and the changes for the periods ended on these dates is as follows:

		Weighted Average Exercise
	Number	Price ($)
At January 1, 2020	23,900,655	0.35
Issued	12,289,268	0.79
Exercised	(13,887,172)	0.36
At December 31, 2020	22,302,751	0.58
Exercised	(2,172,272)	0.35
At March 31, 2021	20,130,479	0.61

The fair value of each warrant granted is estimated at the time of grant using the Black-Scholes option pricing model with assumptions as follows:

	July 5	July 24	Aug 2	Aug 12
Date Granted	2019	2019	2019	2019
	July 5	July 24	Aug 2	Aug 12
ExpiryDate	2022	2022	2022	2022
Number of warrants granted	4,752,770	2,747,230	8,433,759	1,911,068
Risk-free interest rate	1.69%	1.51%	1.41%	1.39%
Expected dividend yield	Nil	Nil	Nil	Nil
Expected share price volatility	72.93%	74.32%	75.39%	75.81%
Expected warrant life in years	1.5	1.5	1.5	1.5

	April 16	Aug 20	Aug 20
Date Granted	2020	2020	2020
	April 16	Aug 20	Aug 20
Expiry Date	2023	2022	2022
Number of warrants granted	6,666,634	5,024,545	598,089
Risk-free interest rate	0.34%	0.26%	0.26%
Expected dividend yield	Nil	Nil	Nil
Expected share price volatility	79.48%	89.00%	89.00%
Expected warrant life in years	1.5	1.5	1.5

Pricing models require the input of highly subjective assumptions including the expected share price volatility. Changes in the subjective input assumptions can materially affect the fair value estimate.

(Canadian dollars) Unaudited

IMPACT Silver Corp. Notes to the Consolidated Financial Statements March 31, 2021

11. Equity – continued

d) Loss per share

Details of the calculation of loss per share are set out below:

		2021		2020
Net income (loss) attributable to
shareholders	$	(257,341)	$	(90,174)
Weighted average number of shares
outstanding – Basic and Diluted		143,308,379		110,284,045
Income (loss) pershare	$	0.00	$	0.00

12. Segmented information

The Company has one operating segment and two reportable segments based on geographic area:

i) Mexico – This part of the business includes the Company’s mining operations and exploration properties ii) Canada – This part of the business includes head office and group services

The segments are determined based on the reports reviewed by the Chief Executive Officer (who is considered the Chief Operating Decision Maker) to make decisions about resources to be allocated to the segment and assess its performance and for which discrete financial information is available.

Details for the three months ended March 31 are as follows:

Details for the three months ended March 31 are as follows:
	2021 2020
Revenue by geographic area Mexico Net loss by geographic area Mexico Canada Assets by geographical area Mexico Canada Property, plant and equipment by geographical area Mexico Canada	$ 5,375,860 $ 3,413,708
	$ 1,042,231 $ 178,369 (1,299,572) (268,543)
	$ (257,341) $ (90,174)
	March 31, December 31, 2021 2020
	$ 46,702,933 $ 47,186,039 18,367,468 17,645,591
	$ 65,070,401 $ 64,831,630
	$ 18,641,122 $ 19,261,918 34,168 40,678
	$ 18,675,290 $ 19,302,596