Lithium Chile — Annual Report 2020

May 1, 2021

LITHIUM CHILE INC.

Audited Consolidated Financial Statements Years ended December 31, 2020 and 2019 (Canadian Dollars)

Independent Auditor's Report

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To the Shareholders of Lithium Chile Inc.:

Opinion

We have audited the consolidated financial statements of Lithium Chile Inc. and its subsidiary (the "Corporation"), which comprise the consolidated statements of financial position as at December 31, 2020 and December 31, 2019, and the consolidated statements of loss and comprehensive loss, changes in equity 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, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Corporation as at December 31, 2020 and December 31, 2019, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards.

Basis for Opinion

We conducted our audits 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 Corporation in accordance with the ethical requirements that are relevant to our audits 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 is sufficient and appropriate to provide a basis for our opinion.

Material Uncertainty Related to Going Concern

We draw attention to Note 1 in the consolidated financial statements, which indicates that the Corporation incurred a net loss and negative cash flows from operations during the year ended December 31, 2020. As stated in Note 1, these events or conditions, along with other matters as set forth in Note 1, indicate that a material uncertainty exists that may cast significant doubt on the Corporation’s ability to continue as a going concern. Our opinion is not modified in respect of this matter.

Other Information

Management is responsible for the other information. The other information comprises 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 audits 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 audits 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 on this other information, 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 International Financial Reporting Standards, 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 Corporation’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 Corporation or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Corporation’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 Corporation’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 Corporation’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 Corporation 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.

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

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 Brad Frampton.

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Calgary, Alberta April 29, 2021

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Chartered Professional Accountants

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LITHIUM CHILE INC.

Consolidated Statements of Financial Position

(Canadian Dollars)

LITHIUM CHILE INC. Consolidated Statements of Financial Position (Canadian Dollars)
	Notes		As	at December 31,
			2020		2019
ASSETS
Current
Cash		$	568,339	$	138,445
Receivables			10,104		3,348
Notes and other receivables	4		1,000,000		1,057,637
Prepaid expenses			212,187		199,308
Total current assets			1,790,630		1,398,738
Taxes receivable			219,842		220,456
Notes and other receivables	4		91,876		1,090,056
Mineral properties	5		6,843,653		5,014,228
Total Assets		$	8,946,001	$	7,723,478
LIABILITIES
Trade and other payables		$	432,100	$	135,608
Total liabilities			432,100		135,608
SHAREHOLDERS’ EQUITY
Share capital	6		13,743,986		13,060,338
Contributed surplus			3,722,790		2,832,159
Accumulated other comprehensive (loss) income			(901,086)		(801,825)
Deficit			(8,051,789)		(7,502,802)
Total shareholders’ equity			8,513,901		7,587,870
Total liabilities and shareholders’ equity		$	8,946,001	$	7,723,478

General information 1 Subsequent events 14

Approved on behalf of the Board of Directors

“signed” Al J. Kroontje

“signed”

Ken Booth

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

pg. 6

LITHIUM CHILE INC.

Consolidated Statement of Loss and Comprehensive Loss For the Years Ended

(Canadian Dollars)

For the Years Ended (Canadian Dollars)
				December 31,
			2020		2019
REVENUE
Interest		$	1,820	$	90,506
			1,820		90,506
EXPENSES
General and administrative	7		550,807		1,082,089
Foreign exchange gain			-		(61,970)
Accretion of notes receivable	4		-		(558,178)
Impairment of notes receivable	4		-		1,516,424
Share-based compensation	6(e)		-		386,527
Total expenses			550,807		2,364,892
Net loss			(548,987)		(2,274,387)
Other comprehensive loss
Foreign exchange translation adjustment			(99,261)		(806,565)
NET AND COMPREHENSIVE LOSS		$	(648,248)	$	(3,080,952)
Net loss per share - basic and diluted	6(d)		(0.00)		(0.03)
Weighted average number of shares outstanding	6(d)		110,506,892		101,932,337

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

pg. 7

LITHIUM CHILE INC. Consolidated Statement of Changes in Equity

(Canadian Dollars)

LITHIUM CHILE INC. Consolidated Statement of Changes in Equity (Canadian Dollars)
Notes Share Capital Contributed Surplus	Accumulated Other Comprehens ive Income	Deficit Total Equity
Balance, December 31, 2018 $ 13,029,962 $ 2,298,920 Net loss and comprehensive loss Stock options exercised 16,667 - Reclass on exercise of stock options 13,709 (13,709) Stock-based compensation - 546,948	$ 4,740 (806,565) - - -	$ (5,228,415) $ 10,105,207 (2,274,387) (3,052,277) -- 16,667 - - - 546,948
Balance, December 31, 2019 $ 13,060,338 $ 2,832,159 Issuance of common shares 1,500,000 - Share issue costs (123,385) - Fair value of unit warrants (626,373) 626,373 Fair value of broker warrants (160,428) 160,428 Exercise of broker warrants 34,311 - Reclass on exercise of broker warrants 59,523 (59,523) Net and comprehensive loss - - Gain on retransferred properties - 163,353	$ (801,825) - - - - - - (99,261) -	$ (7,502,802) $ 7,587,870 - 1,500,000 - (123,385) - - - - - 34,311 - - (548,987) (648,248) - 163,353
Balance, December 31, 2020 $ 13,743,986 $ 3,722,790	$ (901,086)	$ (8,051,789) $ 8,513,901

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

pg. 8

LITHIUM CHILE INC. Consolidated Statement of Cash Flows

(Canadian Dollars)

LITHIUM CHILE INC. Consolidated Statement of Cash Flows Canadian Dollars)
			Years	ended	December 31,
	Note		2020		2019
Cash provided by (used in)
OPERATING
Net loss		$	(648,248)	$	(3,080,952)
Add (deduct) items not affecting cash flow:
Foreign exchange translation adjustment			99,261		806,565
Impairment of notes receivable	4		-		1,516,424
Share-based compensation	6		-		386,527
Accretion of notes receivable	4		-		(558,178)
Interest income			(1,820)		(75,662)
Foreign exchange gain	4		-		(61,970)
Receivables			(6,143)		52,678
Trade and other payables			152,631		(10,747)
Prepaid expenses			(12,879)		78,522
Cash flow used in operating activities			(417,198)		(946,793)
INVESTING
Paid exploration and evaluation expenditures	6		(663,834)		(1,336,159)
Option payment			100,000		-
Working capital related to investing activities			-		(139,460)
Collection of loan receivable			-		6,545
Cash flow used in investing activities			(563,834)		(1,469,074)
FINANCING
Issuance of common shares	7		1,500,000		16,667
Share issue costs			(123,385)		-
Exercised warrants			34,311		-
Recovered costs incurred in CGS properties			-		(28,675)
Cash flow provided by (used in) financing activities			1,410,926		(12,008)
Decrease in cash and cash equivalents			429,894		(2,427,874)
Cash and cash equivalents and term deposits, beginning of year			138,445		2,566,319
Cash and cash equivalents, end of year		$	568,339	$	138,445
Cash and cash equivalents is comprised of:
Cash		$	538,339	$	138,445
Termdeposits			-		-
		$	538,339	$	138,445

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

pg. 9

LITHIUM CHILE INC. Notes to the Consolidated Financial Statements Years ended December 31, 2020 and 2019

1. Business Activities

Lithium Chile Inc. (the “Corporation” or “Lithium”) was incorporated as Kairos Capital Corporation by a Certificate of Incorporation issued pursuant to the provisions of the Business Corporations Act (Alberta) on October 18, 2010. The Corporation changed its name to Lithium Chile Inc. by Certificate of Amendment on December 12, 2017. The registered office is located at 900, 903 – 8[th] Avenue SW, Calgary, Alberta, Canada, T2P 0P7.

The Corporation's principal business is the acquisition and development of mining properties in Chile and its common shares trade on the TSX Venture Exchange under the symbol “LITH”.

Going concern

The consolidated financial statements have been prepared by management in accordance with IFRS on a going concern basis. The going concern basis contemplates the realization of assets and the settlement of liabilities in the ordinary course of business. If the Corporation is unable to raise funds to pay its liabilities as they become due and successfully finance its current and future exploration projects, it may not be able to realize its assets and discharge its liabilities in the normal course of operations.

For the year ended December 31, 2020, the Corporation reported a net loss of $548,987 (2019 - $2,274,387) and negative cash flows from operations of $417,198 (2019 - $946,793). These conditions indicate the existence of a material uncertainty which may cast significant doubt related to the Corporation’s ability to continue as a going concern. If the going concern assumption is not appropriate, adjustments may be necessary to the carrying amounts and classification of the Corporation’s assets and liabilities. The accompanying consolidated financial statements do not include any adjustments that may result if the Corporation is unable to continue as a going concern, and, such adjustments could be material.

COVID-19

The COVID-19 outbreak was declared a pandemic by the World Health Organization on March 11, 2020. This has resulted in significant economic uncertainty and governments worldwide are enacting emergency measures to contain 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 globally resulting in an economic slowdown. Global financial markets have experienced significant volatility and weakness as a consequence of this economic uncertainty. The duration and impact of the COVID-19 outbreak is unknown as this time, as is the effectiveness of interventions by governments and central banks as well as the impact on the Corporation.

2. Basis of Presentation

a) Statement of compliance

These consolidated financial statements, including required comparative information, have been prepared in accordance and compliance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and interpretations of the International Reporting Interpretations Committee (“IFRIC”) in effect at January 1, 2020.

These financial statements, and the policies applied herein, were authorized for issue by the Board of Directors on April 29, 2021.

b) Basis of measurement

The consolidated financial statements have been prepared under the historical cost method except for share-based transactions and certain financial instruments which are measured at fair value.

The consolidated financial statements are presented in Canadian dollars, which is the Corporation’s functional currency. The functional currency of the Corporation’s 99% owned subsidiary, Compañía Minera Kairos Chile Limitada (“Minera Kairos”) is the Chilean Peso.

pg. 10

LITHIUM CHILE INC. Notes to the Consolidated Financial Statements Years ended December 31, 2020 and 2019

2. Basis of Presentation (continued)

c) Consolidation

The consolidated financial statements include the accounts of the Corporation and Minera Kairos (hereafter referred to as the “Corporation”), which is a limited liability partnership of which the Corporation owns 99%. The Corporation has consolidated the assets, liabilities and expenses of its subsidiary after the elimination of inter-company transactions and balances. The subsidiary was incorporated in Chile on April 4, 2014 and the principal business is the acquisition and development of mineral properties.

d) Use of judgments and estimates

Management is required to make estimates, judgments and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. Management reviews these judgments, estimates and assumptions on an ongoing basis, including those related to fair values of financial instruments, recoverability of assets and income taxes. Actual results may differ from these estimates.

The key estimates and judgments concerning the future and other key sources of estimation uncertainty at the reporting date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities are outlined below.

Judgments

Judgment is used in situations when there is a choice and/or assessment required by management. The following are critical judgments that management has made in the process of applying the Corporation’s accounting policies and that have a significant effect on the amounts recognized in the consolidated financial statements.

Property Title

Although the Corporation takes steps to verify title exploration and evaluation assets in which it has an interest, however, these procedures do not guarantee the Corporation’s title. Such properties may be subject to prior agreements or transfers and title may be affected by undetected defects.

Taxes

The Corporation applies judgment in determining the total provision for current and deferred taxes. There are many transactions and calculations for which the ultimate tax determination and timing of payment is uncertain due to interpretations of complex tax regulations, changes in tax laws, and the amounts and timing of future taxable income. Differences arising between the actual results and the assumptions made, or future changes to such assumptions, could necessitate future adjustments to taxable income and expenses already recorded.

Provisions

Management’s determination of no material restoration, rehabilitation and environmental exposure is based on the facts and circumstances that existed during the year.

Mineral Properties

The application of the Corporation’s accounting policy for exploration and evaluation expenditures requires judgment in determining whether it is likely that future economic benefits are likely to arise from future exploration or sale or where activities have not reached a stage which permits a reasonable assessment of the existence of reserves. The deferral policy requires management to make certain estimates and assumptions about future events or circumstances, in particular whether an economically viable extraction operation can be established. Estimates and assumptions made may change if new information becomes available. If, after the expenditure is capitalized, information becomes available suggesting that the recovery of expenditure is unlikely, the amount capitalized is written off in profit or loss in the period when the new information becomes available.

pg. 11

LITHIUM CHILE INC. Notes to the Consolidated Financial Statements Years ended December 31, 2020 and 2019

2. Basis of Presentation (continued)

Exploration and evaluation assets are reviewed for changes in facts and circumstances suggesting the carrying amount exceeds the recoverable amount at each consolidated statement of financial position date. This determination requires significant judgment. Factors which could trigger an impairment review include, but are not limited to, significant negative industry or economic trends and interruptions in exploration activities. The Corporation’s review considers the following:

• The period for which the Corporation has the right to explore in the specific area has expired during the period or will expire in the near future, and is not expected to be renewed;

• Substantive expenditure on further exploration for and evaluation of mineral resources in the specific area is neither budgeted nor planned;

• Exploration for and evaluation of mineral resources in the specific area have not led to the discovery of commercially viable quantities of mineral resources, and the entity has decided to discontinue such activities in the specific area; and,

• Sufficient data exist to indicate that, although a development in the specific area is likely to proceed, the carrying amount of the exploration and evaluation asset is unlikely to be recovered in full from successful development or by sale.

Recoverability of Notes Receivable

The Corporation expects to receive the face value of the note receivable by its maturity date. Should there be a significant increase in credit risk associated with the note receivable, the amount the Corporation expects to receive could be significantly reduced.

Estimates

Share-Based Compensation

The recognition of expenses associated with the Corporation’s stock option plan requires estimates of the fair value of stock options granted. Determining most of the inputs to the valuation model requires assumptions which include share trading volatility and the expected life of the options.

Deferred Taxes

The calculations for current and deferred taxes require management’s interpretation of tax regulations and legislation in the various tax jurisdictions in which the Corporation operates, which are subject to change. The measurement of deferred tax assets and liabilities requires estimates of the timing of the reversal of temporary differences identified and management’s assessment of the Corporation’s ability to utilize the underlying future tax deductions against future taxable income before they expire, which involves estimating future taxable income.

The Corporation is subject to assessments by various taxation authorities in the tax jurisdictions in which it operates and theses taxation authorities may interpret the tax legislation and regulations differently. In addition, the calculation of income taxes involves many complex factors. As such, income taxes are subject to measurement uncertainty and actual amounts of taxes may vary from the estimates made by management.

3. Summary of Significant Accounting Policies

a) Cash

Cash and cash equivalents, defined as being cashable within 90 days, is comprised of cash on deposit and highly liquid investments at a Canadian and a Chilean financial institution.

pg. 12

LITHIUM CHILE INC. Notes to the Consolidated Financial Statements Years ended December 31, 2020 and 2019

3. Summary of Significant Accounting Policies (continued)

b) Mineral property expenditures

Exploration and evaluation expenditures include the costs of acquiring licenses, exploration and evaluation activity, and the fair value, at the date of acquisition, of exploration and evaluation assets acquired in a business combination. Exploration and evaluation expenditures are capitalized. Costs incurred before the Corporation has obtained legal rights to explore an area are recognized in net loss. Acquisition costs, including general and administration costs, are only capitalized to the extent that these costs can be related directly to operational activities in the relevant area of interest where it is considered likely to be recoverable by future exploration or sale or where the activities have not reached a stage which permits a reasonable assessment of the existence of reserves. Exploration and evaluation assets are assessed for impairment if sufficient evidence exists to determine technical feasibility and commercial viability, and facts and circumstances suggest the carrying amount exceeds the recoverable amount. Once technical feasibility and commercial viability of the extraction of mineral resources in an area of interest are demonstrable, exploration and evaluation assets attributable to the area of interest are first tested for impairment and then reclassified to mining property development assets within property and equipment.

Recoverability of the carrying amount of any exploration and evaluation assets is dependable on successful development and commercial exploitation, or alternatively, sale of the respective areas of interest.

Actual costs incurred upon settlement of the decommissioning liability are charged against the provision to the extent the provision was established.

c) Fair value of financial instruments

The Corporation has classified its financial instrument fair values based on the required three level hierarchy:

• Level 1: Valuations based on quoted prices in active markets for identical assets or liabilities;

• Level 2: Valuations based on observable inputs other than quoted active market prices; and,

• Level 3: Valuations based on significant inputs that are not derived from observable market data, such as discounted cash flows methods.

The fair value hierarchy level at which a fair value measurement is categorized is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety.

d) Provisions

A provision is recognized if, as a result of a past event, the Corporation 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, risk-free rate that reflects current market assessments of the time value of money and the risks specific to the liability. Provisions are not recognized for future operating losses.

A provision for onerous contracts is recognized when the expected benefits to be derived by the Corporation from a contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Corporation recognizes any impairment loss on associated assets.

e) Share capital

Proceeds from the issuance of common shares are classified as equity on the consolidated statement of financial position. Incremental costs directly attributable to the issuance of shares are recognized as a deduction, net of any tax effects.

f) Share purchase warrants

The Corporation issues share purchase warrants in connection with certain equity transactions. The fair value of the warrants, as determined using the Black-Scholes pricing model on a residual value basis is credited to equity reserves. The recorded value of the share purchase warrants is transferred to share capital upon exercise.

pg. 13

LITHIUM CHILE INC. Notes to the Consolidated Financial Statements Years ended December 31, 2020 and 2019

3. Summary of Significant Accounting Policies (continued)

g) Share-based payments

The Corporation follows the fair value method for recognition of stock options awarded to directors, officers and consultants. Under this method, the equity instruments are recorded at their fair value based on the market price on the date of grant. For stock options, the fair value is estimated using the Black Scholes option pricing model that takes into account, as of the grant date, the exercise price, the expected life of the option, the current price of the underlying stock, its expected volatility, expected dividends of the stock and the risk-free interest rate over the expected life of the option. Compensation costs are recognized over the vesting period of the stock options.

Share-based compensation expense is recorded to profit and loss or mineral properties with a corresponding increase recorded to contributed surplus. Cash consideration received when options are exercised is credited to share capital along with the related amount previously recorded in contributed surplus.

h) Loss per share

Loss per share is computed by dividing the loss for the year by the weighted average number of common shares outstanding during the year. Basic and diluted loss per share for each year presented are the same due to the potential issuances of shares under warrant or share option agreements being, in total, anti-dilutive.

i) Foreign operations

For entities whose functional currency is the Canadian dollar, transactions in currencies other than the Corporation's functional currency are recognized at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are translated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not translated. Exchange differences on monetary items are recognized in the year in which they arise.

The financial results of foreign operations that have a functional currency different from the presentation currency are translated into the presentation currency. Income and expenditures of foreign operations are translated at the average rate of the exchange for the year. All assets and liabilities are translated at the rate of exchange ruling at the reporting date. Differences arising on translation are recognized as other comprehensive loss (“OCL”).

j) Taxes

Taxes are comprised of current and deferred taxes. Tax expense is recognized in the profit or loss except to the extent that it relates to items recognized directly in other comprehensive loss or elsewhere in shareholders’ equity, in which case the related tax expense or recovery is also recognized directly in other comprehensive loss or elsewhere in shareholders’ equity.

Current tax expense is the expected cash tax payable on the taxable loss for the year, using tax rates enacted, or substantively enacted, at the end of the reporting period, and any adjustment to tax payable in respect of previous years.

Deferred tax expense and related liability is recognized with respect to temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred tax is determined on a non-discounted basis using tax rates and laws that have been enacted or substantively enacted at the reporting date and are expected to continue to apply when the deferred tax asset or liability is settled. Deferred tax assets are recognized to the extent that it is probable that the assets can be recovered.

k) Common control transactions

Transactions between entities that are subject to common control require that the assets be transferred at their carrying value. Any difference between the proceeds received and the carrying amount of the assets transferred is recognized in contributed surplus.

pg. 14

LITHIUM CHILE INC. Notes to the Consolidated Financial Statements Years ended December 31, 2020 and 2019

3. Summary of Significant Accounting Policies (continued)

l) Financial Instruments

The Corporation measures its financial assets and liabilities at fair value on initial recognition, which is typically the transaction price unless a financial instrument contains a significant financing component. Subsequent measurement is dependent on the financial instruments’ classifications.

Financial assets are classified and measured based on the business model in which they are held and the characteristics of their contractual cash flows. IFRS 9 contains three principal classification categories for financial assets: measured at amortized cost, fair value through OCL (FVOCL) and fair value through profit and loss (FVTPL). The classification categories are as follows:

• A financial asset is measured at amortized cost if it is held within a business model whose objective is to hold assets to collect contractual cash flows and its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. Financial assets measured at amortized cost are measured using the effective interest method.

• Financial assets at fair value through other comprehensive income: assets that are held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets and its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

• Financial assets at fair value through profit or loss: assets that do not meet the criteria for amortized cost or fair value through other comprehensive income.

Financial assets are derecognized when the contractual rights to the cash flows from the financial assets expire or when the contractual rights to those assets are transferred.

Financial liabilities – The classification of financial liabilities is determined by the Corporation at initial recognition. The classification categories are as follows:

• Financial liabilities measured at amortized cost: financial liabilities initially measured at fair value less directly attributable transaction costs and are subsequently measured at amortized cost using the effective interest method. Interest expense is recognized in the Consolidated Statement of Comprehensive Income.

• Financial liabilities measured at fair value through profit or loss: financial liabilities measured a fair value with changes in fair value and interest expense recognized in the Consolidated Statement of Loss and Comprehensive Loss.

Below is a summary indicating the classification and measurement bases of the Corporation’s financial instruments:

Financial Instrument	Classification	Measurement
Assets:
Cash	Amortized cost	Amortized cost
Receivables	Amortized cost	Amortized cost
Notes and other receivables	Amortized cost	Amortized cost
Liabilities:
Trade and other payables	Amortized cost	Amortized cost

The Corporation utilizes an “expected credit loss” (“ECL”) model for determining impairment or recognition of credit losses on financial assets measured at amortized cost (“AC”) or at FVTOCL.

pg. 15

LITHIUM CHILE INC. Notes to the Consolidated Financial Statements Years ended December 31, 2020 and 2019

4. Notes and Other Receivables

Notes and other receivables are comprised of the following:

	December 31, 2020	December 31, 2020	December 31, 2019	December 31, 2019
Note receivable from an officer (a)	$	88,540	$	88,244
Note receivable from Kairos Metals (b)		1,000,000		1,000,000
Note receivable from San Lorenzo (b)		-		1,1,057,638
Interest receivable		3,336		1,812
Advances to San Lorenzo (c)		-		-
Balance, end ofyear	$	1,091,876	$	2,147,694

Balance, end ofyear	$ 1,091,876	$ 2,147,694
The notes receivable are allocated as follows:
	December 31, 2020	December 31, 2019
Current	1,000,000	1,057,638
Long-term	91,876	1,090,056
Total	1,091,876	2,147,694

a) Note receivable from an officer

Pursuant to an employment agreement entered into during 2017, the Corporation loaned an officer $93,200 to purchase 233,000 shares of the Corporation. The note bears interest at 2% per annum is repayable in annual instalments of 5% of the principal sum each January 1[st] commencing January 1, 2020 plus interest and is due in full October 30, 2022.

The shares are held as security for the note receivable and shall be released on a proportionate basis following each annual loan repayment. The loan was repaid in full, with interest, subsequent to the year ended December 31, 2020.

b) Notes receivable

During the year ended December 31, 2020, an agreement was entered into with the respective parties that will result in certain properties being transferred to the Corporation (the “Retransfer Agreement”). As a result of the negotiated Retransfer Agreement, the values and terms of the notes receivable were adjusted as follows:

• The Kairos Metals note receivable was written down from US$1,150,000 to CAD$1,000,000 with the repayment term extended from May 16, 2020 to November 30, 2021 and is unsecured.

• The San Lorenzo note receivable was adjusted from US$1,600,000 to the net estimated recoverable amount of CAD$1,057,638, being the carrying value of the properties to be re-transferred. The properties were retransferred to the Corporation during the second quarter of 2020.

The Retransfer agreement was approved by TSX during the year ended December 31, 2020.

		Kairos Metals		San Lorenzo
Face value of note receivable issued	$	1,564,000	$	2,217,216
Fair value adjustment at time of issuance		(441,048)		(625,255)
Accretion		127,371		186,063
Interest accrued		20,038		29,726
Non-interest bearing loan		-		30,096
Balance December 31, 2018		1,270,361		1,837,846
Accretion		233,000		325,178
Interest accrued		29,808		44,337
Foreign exchange effect		(73,600)		(121,543)
Property costs incurred to prior to re-transfer		-		28,675
Impairment		(459,569)		(1,056,855)
Balance December 31, 2019		1,000,000		1,057,638
Retransfer of properties		-		(1,057,638)
Balance, December 31, 2020	$	1,000,000	$	-

pg. 16

LITHIUM CHILE INC. Notes to the Consolidated Financial Statements Years ended December 31, 2020 and 2019

4. Notes and Other Receivables (continued)

The fair value adjustment and related accretion of the Kairos Metals note receivable was charged to operations in the consolidated Statements of Loss and Comprehensive Loss. The San Lorenzo note receivable was issued on the transfer of the properties and is considered a common control transaction and as such, the difference between the carrying value of the properties and note receivable was charged to contributed surplus.

c) Advances to San Lorenzo

The advances to San Lorenzo were unsecured, non-interest bearing and due on demand.

5. Mineral properties - exploration and evaluation expenditures

The Corporation’s exploration and evaluation expenditures relate to mineral properties in Chile and are as follows:

Balance, December 31, 2018	$	4,067,099
Additions to lithium claims		1,496,580
Foreign exchange effect		(549,451)
Balance, December 31, 2019		5,014,228
Additions to lithium claims		675,972
Re-transfer of copper/gold/silver claims (note 4)		1,056,320
Additions to copper/gold/silver claims		236,817
Option payments		(100,000)
Foreign exchange effect		(39,684)
Balance, December 31, 2020	$	6,843,653

Mineral Property Description

As at December 31, 2020, the Corporation held in Chile a lithium property portfolio comprising approximately 71,900 hectares of exploration claims and a copper-gold property portfolio comprising approximately 22,429 hectares of exploration claims.

Mineral Property Expenditure

The Mineral Properties do not require any minimum work or expenditure commitments. The Corporation is obligated to make annual tax payments of US$1.50/hectare to the Chilean government in relation to exploration concessions and US$7.50 in relation to exploitation claims.

The Corporation has reviewed its mineral properties for impairment indicators at December 31, 2020 and 2019 and determined there were no indicators of impairment.

6. Share Capital

a) Authorized:

Unlimited number of common voting shares and preferred shares without nominal or par value.

The preferred shares may be issued in one or more series and the directors are authorized to fix the number of shares in each series and to determine the designation, rights, privileges, restrictions, and conditions attached to the shares of each series. No preferred shares have been issued since the Corporation’s inception.

pg. 17

LITHIUM CHILE INC. Notes to the Consolidated Financial Statements Years ended December 31, 2020 and 2019

6. Share Capital (continued)

b) Issued Common Shares

Issued share capital is as follows.

Issued share capital is as follows.
	#	$
Balance, December 31, 2018	101,875,168	13,029,962
Share issued on exercise of stock options	66,667	16,667
Reclass on exercise of options	-	13,709
Balance, December 31, 2019	101,941,835	13,060,338
Shares issued for cash	15,000,000	1,500,000
Exercise of broker warrants	343,120	34,311
Reclass on exercise of warrants	-	59,523
Fair value of unit warrants	-	(626,373)
Share issue costs:
Expenditures	-	(123,385)
Fair value ofbroker’swarrants	-	(160,428)
Balance, December 31, 2020	117,284,955	13,743,986

• During the year ended December 31, 2019, 66,667 common shares were issued on the exercise stock options for proceeds of $16,667.

• During the year ended December 31, 2020, share capital changed as follows:

• i) In June 2020, the Corporation closed a private placement of units of the Corporation at a price of $0.10 per unit (the “Units”) in two tranches. Each Unit is comprised of one common share and one half (1/2) of one common share purchase warrant (a “Warrant”) of the Corporation. Each whole Warrant entitles the holder to purchase one full common share of the Corporation at a price of $0.25 for 1 year from the date of issuance of the Warrants.

  • Tranche one was comprised of 7,550,000 Units of the Corporation for gross proceeds of $755,000.

• Tranche two was comprised of 7,450,000 Units of the Corporation for gross proceeds of $745,000.

Share issue costs of $283,813 include finders’ fees totaling $102,600, legal and regulatory fees of $20,785 and $160,428 being the fair value of the brokers’ warrants.

ii) In November 2020, 343,120 broker warrants were exercised for gross proceeds of $34,311.

c) Warrants

The details of the broker warrants are as follows at December 31, 2020:

	June,
Date of Issuance	2020
Exercise price of broker warrants	$ 0.10
# of broker warrants issued	1,026,000
# of broker warrants exercised	(343,120)
# of broker warrants expired	-
Balance, December 31, 2020	682,880

pg. 18

LITHIUM CHILE INC. Notes to the Consolidated Financial Statements Years ended December 31, 2020 and 2019

6. Share Capital (continued)

The Unit warrants expire one year from the date of issuance. At December 31, 2020 the Unit warrants outstanding are as follows and have an average remaining term to expiry of 3 months:

	June,
Date of Issuance	2020
Exercise price of Unit warrants	$ 0.25
# of Unit warrants issued	7,500,000
# of Unit warrants exercised	-
# of Unit warrants expired	-
Balance, December 31, 2020	7,500,000

The fair value of the warrants has been estimated at the date of grant using the Black-Scholes option pricing model on the following assumptions:

		Year Ended December	Year Ended December	Year Ended December	31, 2020
	Broker	Warrants			Unit	Warrants
	Tranche 1	Tranche 2			Tranche 1	Tranche 2
Dividend yield	0%		0%		0%		0%
Expected volatility	93.32%	93.32%			93.32%		93.32%
Risk-free interest rate	0.25%		0.25%		0.25%		0.25%
Forfeiture rate	0%		0%		0%		0%
Share price – on issuance	$ 0.22	$	0.26	$	0.22	$	0.26
Exercise price	$ 0.10	$	0.10	$	0.25	$	0.25
Term	12 months	12 months			12 months	12	months
Fair value per warrant	$ 0.1346	$	0.1714	$	0.0703	$	0.0969

d) Loss per share

The basic and diluted loss per share as calculated is based on the weighted average number of shares outstanding during the year as follows:

	Year ended	December 31,
	2020	2019
Weighted average number of common shares
Issued and outstanding at beginning of year	101,941,835	101,875,168
Effect of share issuance	8,565,057	57,169
Weighted average number of common shares–basic and diluted	110,506,892	101,932,337

e) Stock Option Plan

The Corporation has adopted an incentive stock option plan in accordance with the policies of TSX Venture (the “Stock Option Plan”) for the benefit of directors, officers, employees and other key personnel of the Corporation. A maximum of 10% of the issued and outstanding Common Shares of the Corporation are reserved for issuance pursuant to the exercise of stock options to be granted to directors, officers, employees and other key personnel of the Corporation. In addition, the number of common shares reserved for issuance to any one person shall not exceed five percent (5%) and for consultants shall not exceed two percent (2%) of the issued and outstanding common shares. The Stock Option Plan provides that the terms of the options and the option price shall be fixed by the directors subject to the price restrictions and other requirements imposed by TSX Venture. Stock options granted under the Stock Option Plan may not be exercisable for a period longer than ten (10) years and the exercise price must be paid in full upon exercise of the option.

pg. 19

LITHIUM CHILE INC. Notes to the Consolidated Financial Statements Years ended December 31, 2020 and 2019

6. Share Capital (continued)

A summary of the stock option plan and changes during the years then ended is as follows:

	December	31, 2020	31, 2020	December	December	31, 2019
	# of Stock		Weighted	# of Stock		Weighted
	Options		Average Price	Options		Average Price
Balance, beginning of year	5,083,333	$	0.36	4,450,000	$	0.33
Granted	-	$	-	700,000	$	0.52
Forfeited (i)	(400,000)	$	0.52	-	$	-
Exercised	-	$	-	(66,667)	$	0.25
Balance end of year	4,683,333	$	0.43	5,083,333	$	0.36

A summary of the stock options outstanding is as follows:

As at December 31, 2020

		Weighted Average
Options		Remaining Contractual	Exercisable
Outstanding	Exercise Price	Life(years)	Options	Expiry Date
525,000	$0.10	0.1	525,000	February 18, 2021
2,358,333	$0.25	1.1	2,358,333	February 17, 2022
600,000	$0.45	1.6	600,000	August 22, 2022
900,000	$1.05	2.1	900,000	February 20, 2023
300,000	$0.52	3.1	300,000	January 7, 2024
4,683,333		1.4	4,683,333

As at December 31, 2019

		Weighted Average
Options		Remaining Contractual	Exercisable
Outstanding	Exercise Price	Life(years)	Options	Expiry Date
525,000	$0.10	1.1	525,000	February 18, 2021
2,358,333	$0.25	2.1	2,008,334	February 17, 2022
600,000	$0.45	2.6	600,000	August 22, 2022
900,000	$1.05	3.1	600,000	February 20, 2023
700,000	$0.52	4.1	350,000	January 7, 2024
5,083,333		2.5	4,083,334

(i) On January 7, 2019 the Corporation issued 700,000 stock options, at an exercise price of $0.52 to a director and a consultant, of which 50% stock options vest on the date of the grant and the remainder vest one year from the date of grant. The stock options expire on January 7, 2024 and had a fair value of $329,000 on the date of issuance. During the year ended December 31, 2020, 400,000 of these options were forfeited.

The fair value of stock options issued was estimated at the date of grant using the Black-Scholes option pricing model using the following assumptions:

	January	7, 2019
Dividend yield		0%
Expected volatility		149%
Risk-free interest rate		1.83%
Forfeiture rate		nil
Term		5 years
Share price - issuance	$	0.52
Fair valueper option	$	0.47

pg. 20

LITHIUM CHILE INC. Notes to the Consolidated Financial Statements Years ended December 31, 2020 and 2019

7. General and Administrative Expenses by Nature

General and Administrative Expenses by Nature
		Year ended		December 31,
		2020		2019
Wages and employee benefits	$	184,097	$	232,579
Professional fees		35,631		61,236
Consulting fees		57,216		217,650
Rent		4,807		48,904
Office		76,141		137,517
Travel and entertainment		4,000		234,257
Business development		188,915		149,946
	$	550,807	$	1,082,089

8. Related Party Transactions

• a) During the years ended December 31, 2020 and 2019, the Corporation incurred expenses or revenue included in the Consolidated Statements of Loss and Comprehensive Loss, as follows:

Consolidated Statements of Loss and Comprehensive Loss, as follows:
Year ended December 31,		2020		2019
Administrative and accounting services provided by officers	$	28,950	$	97,650
Fees paid to directors or a firm controlled by a director		-		65,000
Rent and office expenses charged by a company with common directors and officers		3,525		18,220
Promissory note interest earned from a company related by a common director		-		44,337
Loan interest earned from a director		1,820		1,812
Loan interest earned from a company related by a common director	$	-	$	29,808

The above transactions were in the normal course of operations and were initially recorded at fair value.

b) The related party amounts included in the Consolidated Statements of Financial Position, are as follows:

As at December 31,		2020		2019
Due to officers for administrative and accounting services (included in trade and other
payables)	$	2,100	$	5,650
Consulting services provided by an officer (included in Mineral Properties)		111,103		186,807
Due to an officer for consulting services (included in trade and other payables)		79,670		11,677
Due from an officer including accrued interest (included in notes receivable)	$	91,875	$	90,056

9. Financial Instruments

The Corporation is exposed to minimal credit risk, liquidity and interest rate risks. The Corporation manages its exposure to these risks by operating in a manner that minimizes its exposure to the extent practical. There are no differences in the carrying values and fair values of the Corporation’s financial instruments due to the short-term maturities and current interest rates except as discussed in note 4, Notes and Other Receivables.

a) Foreign exchange risk

The Corporation is exposed to the risk of changes in the Canadian/U.S. dollar exchange rate and in the U.S./Chilean Peso exchange rate for services and geological costs that are denominated in Chilean Peso and converted to U.S. dollars or directly influenced by U.S. dollar (USD) benchmark prices. A hypothetical change of 10% to the foreign exchange rate between Canadian/U.S. and US/Chilean Peso would not have a material impact of the Corporation’s loss during the year.

pg. 21

LITHIUM CHILE INC. Notes to the Consolidated Financial Statements Years ended December 31, 2020 and 2019

9. Financial Instruments (continued)

b) Credit Risk

Credit risk is the risk of loss associated with the counterparty’s inability to fulfill its payment obligations. The Corporation believes it has negligible credit risk due to its non-operating status and the nature of the receivables. The original notes receivable of US$2,750,000 are due from a mining exploration company and as such, involve a high degree of risk. At year end, the notes were written down to the estimated collectible amounts (see note 4). There is minimal credit risk associated with the Corporation’s cash balance as it is held with major Canadian financial institutions.

c) Liquidity Risk

The Corporation’s approach to managing liquidity risk is to ensure that it will have sufficient liquidity to meet its liabilities when due. As at December 31, 2020, the Corporation had a working capital balance of $1,361,820 (2019 - $6,185), however, the Corporation may require additional working capital to fund operations over the next 12 months.

Subsequent to the year ended December 31, 2020, the Corporation closed a private placement for gross proceeds of $4,024,180.

The following are the financial liabilities at December 31:

2020	Less	than 1year	1 – 3years		3+years			Total
Trade and otherpayables	$	432,102	$-	$	-	$		432,102
	$	432,102	$-	$	-	$		432,102
2019	Less	than 1year	1 – 3years		3+years			Total
Trade and otherpayables	$	135,608	$-	$	-		$	135,608
	$	135,608	$-	$	-		$	135,608

d) Interest Rate Risk

The Corporation believes it has negligible interest rate risk due to its cash balances and the notes receivable bear interest at a fixed rate.

10. Management of Capital

The Corporation's capital currently consists of common shares. Its principal source of cash is from the issuance of common shares. The Corporation's capital management objectives are to safeguard its ability to continue as a going-concern and to have sufficient capital to be able to identify, evaluate and then acquire an interest in a business or assets. The Corporation does not have any externally imposed capital requirements to which it is subject. The Corporation manages the capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets.

The Corporation’s objective when managing capital is to safeguard the Corporation’s ability to continue as a going concern, such that it can provide returns for shareholders and benefits for other stakeholders.

pg. 22

LITHIUM CHILE INC. Notes to the Consolidated Financial Statements Years ended December 31, 2020 and 2019

11. Income Taxes

The provision for income taxes differs from the amount obtained by applying the combined Canadian federal and provincial income tax rate to the loss for the year. The differences relate to the following items:

Year ended December 31, 2020 Year ended December 31, 2019	Year ended December 31, 2020 Year ended December 31, 2019	Year ended December 31, 2020 Year ended December 31, 2019
Loss before income taxes $ Corporate income tax rate	548,987 $ 24.0%	2,245,712 26.5%
Anticipated tax recovery Tax rate differential between Canada and Chile Share-based compensation Other Change in deferred tax assets not recognized	(131,757) (138) - (21,452) 153,347	(595,114) 8,331 102,430 311,935 172,418
Income taxprovision $	- $	-

Details of the unrecognized deductible temporary differences are as follows:

Year ended December 31, 2020 Year ended December 31, 2019 Share issuance costs $ 262,047 $ 462,097 Non-capital losses - Canada 5,933,146 4,942,347 Notes receivable 568,830 1,456,069 $ 6,764,023 $ 6,860,513	Year ended December 31, 2020 Year ended December 31, 2019 Share issuance costs $ 262,047 $ 462,097 Non-capital losses - Canada 5,933,146 4,942,347 Notes receivable 568,830 1,456,069 $ 6,764,023 $ 6,860,513	Year ended December 31, 2020 Year ended December 31, 2019 Share issuance costs $ 262,047 $ 462,097 Non-capital losses - Canada 5,933,146 4,942,347 Notes receivable 568,830 1,456,069 $ 6,764,023 $ 6,860,513
	262,047 $ 5,933,146 568,830	462,097 4,942,347 1,456,069
	6,764,023 $	6,860,513

As at December 31, 2020, the Corporation has the following amounts available to be deducted against future taxable income:

income:
		Amount		Expiry Date
Non-capital losses	$	4,953,487		2031 - 2039
Share issue costs		462,097	20% per annum-2022

12. Key Management Compensation

Key management personnel compensation, being officers and directors, is as follows:

		2020		2019
Salaries, directors’ fees and other benefits	$	320,053	$	537,036
Share-based compensation		-		245,002
	$	320,053	$	782,038

13. Segmented information

The Corporation reports its financial results as one reportable segment as this is how the financial information is reviewed by the chief decision makers of the Corporation.

The following table provides information regarding the location of the Corporation’s non-current assets on a geographic basis.

basis.
		2020		2019
Canada	$	91,842	$	1,090,056
Chile		7,063,495		6,071,865
	$	7,155,371	$	7,161,921

pg. 23

LITHIUM CHILE INC. Notes to the Consolidated Financial Statements Years ended December 31, 2020 and 2019

14. Subsequent Event

On February 24, 2021 the Corporation closed a private placement of units (the “Units”) for gross proceeds of approximately $4,024,000 (the “Offering”). Each Unit is comprised of one (1) common share of the Corporation (a “Common Share”) and one (1) Common Share purchase warrant (“Warrant”). Each Warrant is exercisable at $0.60 per Common Share for a period of 24 months from the date of closing of the Offering. The Warrants issued pursuant to the Offering contain an acceleration clause such that the expiry date for the Warrants may be accelerated at the Corporation's discretion upon the Common Shares trading at or above $0.75 per share for a period of 20 consecutive trading days. If the Corporation elects to trigger the acceleration clause, the Warrants must be exercised within thirty days from receipt of notice from the Corporation that the acceleration clause has been triggered.

pg. 24