McChip Resources Inc — Interim / Quarterly Report 2021

Nov 25, 2021

McChip Resources Inc .

NOTICE OF NO AUDITOR REVIEW –CONDENSED FINANCIAL STATEMENTS

THE ACCOMPANYING CONDENSED FINANCIAL STATEMENTS OF THE COMPANY HAVE BEEN PREPARED BY AND ARE THE RESPONSIBILITY OF THE COMPANY’S MANAGEMENT. THE COMPANY’S INDEPENDENT AUDITOR HAS NOT PERFORMED A REVIEW OF THESE CONDENSED FINANCIAL STATEMENTS IN ACCORDANCE WITH STANDARDS ESTABLISHED BY THE CANADIAN INSTITUTE OF CHARTERED ACCOUNTANTS FOR A REVIEW OF CONDENSED FINANCIAL STATEMENTS BY AN ENTITY’S AUDITOR

NOTE TO READER

THESE CONDENSED FINANCIAL STATEMENTS HAVE BEEN REVISED TO COMPLY WITH THE REQUIREMENTS SPECIFIED BY IAS 34 INTERIM FINANCIAL REPORTING FROM INTERNATIONAL REPORTING STANDARDS AS ISSUED BY THE INTERNATIONAL ACCOUNTING STANDARDS BOARD AS IT PERTAINS TO NOTE 2 – BASIS OF PREPARATION.

Condensed Financial Statements

September 30, 2021

McChip Resources Inc. Condensed Statements of Financial Position

(expressed in Canadian dollars)

As at As at September 30 December 31 2021 2020	As at As at September 30 December 31 2021 2020
Assets Current assets Cash Accounts receivable (Note 15) Income tax receivable (Note 14) Marketable securities (Note 3,6,8,9)	178,084 $ 452,640 $ 555,859 557,746 88 65,791 5,367,979 5,965,022
Non current assets Investment in other companies (Note 4, 6) Investment in petroleum interests (Note 6, 16) Abandonment deposit (Note 17) ROU asset (Note 13) Loan receivable (Note 9)	6,102,010 7,041,199 877,809 667,361 356,237 344,058 85,613 85,712 8,686 20,304 28,300 28,300
	7,458,655 $ 8,186,934 $
Liabilities Current liabilities Accounts payable and accrued liabilities (Note 15) Bank indebtedness (Note 8) Loans payable (Note 9, 18) Lease liability (Note 13)	133,409 $ 199,522 $ 30,000 40,000 595,654 570,417 10,904 14,755
Non current liabilities Longterm lease liability (Note 13)	769,967 824,694 - 6,840
	769,967 831,534
Shareholders' Equity Share capital (Note 10) Contributed surplus (Note 11, 12) Surplus	5,283,162 5,246,662 883,200 897,200 522,326 1,211,538
	6,688,688 7,355,400
	7,458,655 $ 8,186,934 $
Subsequent events (Note 18) Approved on behalf of the Board of Directors:

"R.D. McCloskey" "E.G. Dumond" R D McCloskey, Director E G Dumond, Director

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

2

McChip Resources Inc.

Condensed Statements of Changes in Shareholders' Equity

(expressed in Canadian dollars)

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Number of
Common Contributed Surplus Shareholders'
Shares Share Capital Surplus (Deficit) Equity
Balance at December 31, 2020 5,660,096 $ 5,246,662 $ 897,200 $ 1,211,538 $ 7,355,400
-
Share based compensation (Note 10, 11, 12) 50,000 36,500 (14,000) 22,500
- -
Dividend paid (226,404) (226,404)
Net loss - - - (462,808) (462,808)
Balance at September 30, 2021 5,710,096 $ 5,283,162 $ 883,200 $ 522,326 $ 6,688,688
Balance at December 31, 2019 5,660,096 $ 5,246,662 $ 883,200 $ (466,274) $ 5,663,588
Dividend paid (113,202) (113,202)
- - -
Share-based compensation (Note 12) 14,000 14,000
Net income - - - 603,203 603,203
Balance at September 30, 2020 5,660,096 $ 5,246,662 $ 897,200 $ 23,727 $ 6,167,589
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The accompanying notes are an integral part of these condensed financial statements

3

McChip Resources Inc.

Statements of Operations and Comprehensive Income (Loss)

(expressed in Canadian dollars)

McChip Resources Inc. Statements of Operations and Comprehensive Income (Loss) (expressed in Canadian dollars)
	For the three months ended September 30 2021 2020	For the nine months ended September 30 2021 2020
Revenue Investment in petroleum interests Realized loss on sale of investment in other companies and marketable securities Unrealized appreciation (depreciation) of investment in other companies and marketable securities Other Income	59,194 $ (1,178) $ (126,377) (379,061) (437,159) 519,674 7,023 4,626	110,965 $ 4,949 $ (8,724) (188,613) (195,584) 1,170,360 30,394 32,994
	(497,319) 144,061	(62,949) 1,019,690
Expenses Administrative Amortization Share-based compensation	115,012 127,520 3,873 - - 14,000	388,241 402,487 11,618 - - 14,000
	118,885 141,520	399,859 416,487
Income(loss) beforeprovision for income taxes	(616,204) 2,541	(462,808) 603,203
Provision (recovery) for income taxes Current (Note 14) Deferred (Note 14)	- - - -	- - - -
Net income(loss) and comprehensive income(loss)	- ~~-~~ (616,204) $ 2,541 $	- ~~-~~ (462,808) $ 603,203 $
Income / (loss) per share Basic Diluted	(0.11) $ 0.00 $ (0.11) $ 0.00	(0.08) $ 0.11 $ (0.08) $ 0.11
Weighted average number of common shares outstanding Basic Diluted	5,669,212 5,660,096 5,791,612 5,695,969	5,669,212 5,660,096 5,791,612 5,695,969

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

4

McChip Resources Inc.

Condensed Statements of Cash Flows

(expressed in Canadian dollars)

	For the three months ended September 30 2021 2020	For the nine months ended September 30 2021 2020
Operating activities Net income (loss) Items not affecting cash: Loss on sale of marketable securities and investments in other companies Amortization Share-based compensation Change in long term lease liability Unrealized (appreciation) depreciation of investment in other companies and marketable securities	(616,204) $ 2,541 $ 126,377 379,061 3,873 - - 14,000 (4,034) - 437,159 (519,674)	(462,808) $ 603,203 $ 8,724 188,613 11,618 - - 14,000 (10,691) - 195,584 (1,170,360)
(Increase) decrease in accounts receivable Increase in income taxes recoverable Increase (decrease)inaccounts payable and accruedliabilities	(52,829) (124,072) (14,713) 11,229 65,703 114,066 (8,296) 5,479	(257,573) (364,544) 1,887 47,919 65,703 114,066 (66,113) (28,856)
Cash provided by (used in) operating activities	(10,135) 6,702	(256,096) (231,415)
Investing activities Investment in petroleum interests Decrease in abandonment deposit fund Sale of marketable securities and investments Purchase of marketable securities Purchase of investmentsinothercompanies	(4,864) (5,741) 99 140 218,408 480,281 (60,410) (429,405) - -	(12,179) (15,908) 99 874 518,474 2,501,779 (316,005) (1,922,609) (20,182) (6,255)
Cash provided by investing activities	153,233 45,275	170,207 557,881
Financing activities Increase (decrease) in bank indebtedness Increase (decrease) in loans payable Dividend paid Exercise ofstockoptions	15,000 10,000 (157,412) (48,585) - - - -	(10,000) 30,000 25,237 (491,886) (226,404) (113,202) 22,500 -
Cash used in financing activities	(142,412) (38,585)	(188,667) (575,088)
Net increase (decrease) in cash Cash, beginning of period	686 13,392 177,398 155,943	(274,556) (248,622) 452,640 417,957
Cash, end ofperiod	178,084 $ 169,335 $	178,084 $ 169,335 $
Interestpaid duringthe year	- $ 6,408 $	11,436 $ 25,029 $
Incometaxesrefunded duringthe year	(65,703) $ (114,066) $	(65,703) $ (114,066) $

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

5

Notes to Condensed Financial Statements

(expressed in Canadian dollars)

1. Nature of Operations

McChip Resources Inc. (“McChip” or “the Company”) was incorporated in the Province of Ontario, Canada by letters patent dated March 8, 1935, as Madsen Red Lake Gold Mines Limited. Pursuant to Articles of Amendment dated May 21, 1981, the name of the Company was changed to McChip Resources Inc. and the common shares are listed on the TSX Venture Exchange, symbol MCS. McChip invests in petroleum interests in Western Canada, as well as direct and indirect interests in minerals. The indirect interests are in the form of marketable securities and investment in other companies which are listed on recognized exchanges. The registered office of the Company is Suite 1910, 130 Adelaide Street West, Toronto, ON, M5H 3P5.

The global outbreak of COVID-19 (coronavirus), has had a significant impact on businesses through the restrictions put in place by the Canadian, provincial and municipal governments regarding travel, business operations and isolation/quarantine orders. At this time, it is unknown the extent of the impact the COVID-19 outbreak may have on the Company as this will depend on future developments that are highly uncertain and that cannot be predicted with confidence. These uncertainties arise from the inability to predict the ultimate geographic spread of the disease, and the duration of the outbreak, including the duration of travel restrictions, business closures or disruptions, and quarantine/isolation measures that are currently, or may be put, in place by Canada and other countries to fight the virus.

2. Summary of Significant Accounting Policies

a) Statement of compliance

The condensed financial statements of the Company 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").

The condensed financial statements as at and for the nine months ended September 30, 2021 were approved and authorized for issue by the board of directors on November 25, 2021.

b) Basis of preparation

The condensed financial statements are presented in Canadian dollars, which is also the functional currency of the Company.

The condensed financial statements are prepared on the historical cost basis except that financial instruments classified as fair value through profit or loss which are stated at their fair value, and have been prepared using the accrual basis of accounting except for cash flow information.

c) Revenue Recognition

The Company’s accounting policy for revenue recognition under IFRS 15 is as follows:

To determine the amount and timing of revenue to be recognized, the Company follows a 5-step process:

1. Identifying the contract with a customer

2. Identifying the performance obligations

3. Determining the transaction price

4. Allocating the transaction price to the performance obligations

5. Recognizing revenue when/as performance obligation(s) are satisfied.

The operators of the various petroleum interests recognize the revenue from the sale of petroleum and natural gas when the product passes through the sales outlet meter of the processing plants. The Company recognizes the earnings from its investment in petroleum interests to the extent it is earned and receivable from these operations, and is not subject to a significant reversal in revenue. The Company does not operate any of the interests it has in oil and natural gas. Any change in fair value in investments in petroleum interests is also included as part of revenue.

Royalty income is recognized as earned as per the terms of the overriding royalty agreement in accordance with IFRS 15. Revenue is recognized when it is no longer susceptible to market factors and is no longer subject to a significant reversal in revenue.

McChip Resources Inc 6

Notes to Condensed Financial Statements

(expressed in Canadian dollars)

Investment transactions are accounted for as of the settlement date. Realized gains and losses from investment transactions are calculated on an average cost basis. The difference between fair value and average cost is included in the Statements of Operations and Comprehensive Income as part of the “Unrealized appreciation (depreciation) of investment in other companies and marketable securities”.

d) Cash

Cash includes balances held with a Canadian chartered bank and brokerage accounts.

e) Financial instruments

Financial assets

Recognition and initial measurement

The Company recognizes financial assets when it becomes party to the contractual provisions of the instrument. Financial assets are measured initially at their fair value plus, in the case of financial assets not subsequently measured at fair value through profit or loss, transaction costs that are directly attributable to their acquisition. Transaction costs attributable to the acquisition of financial assets subsequently measured at fair value through profit or loss are expensed in profit or loss when incurred.

Classification and subsequent measurement

On initial recognition, financial assets are classified as subsequently measured at amortized cost, fair value through other comprehensive income (“FVOCI”) or fair value through profit or loss (“FVTPL”). The Company determines the classification of its financial assets, together with any embedded derivatives, based on the business model for managing the financial assets and their contractual cash flow characteristics.

Financial assets are classified as follows:

• Amortized cost - Assets that are held for collection of contractual cash flows where those cash flows are solely payments of principal and interest are measured at amortized cost. Interest revenue is calculated using the effective interest method and gains or losses arising from impairment, foreign exchange and derecognition are recognized in profit or loss. Financial assets measured at amortized cost are comprised of accounts receivable, abandonment deposit and loan receivable.

• Fair value through other comprehensive income - Assets that are held for collection of contractual cash flows and for selling the financial assets, and for which the contractual cash flows are solely payments of principal and interest, are measured at fair value through other comprehensive income. Interest income calculated using the effective interest method and gains or losses arising from impairment and foreign exchange are recognized in profit or loss. All other changes in the carrying amount of the financial assets are recognized in other comprehensive income. Upon derecognition, the cumulative gain or loss previously recognized in other comprehensive income is reclassified to profit or loss. The Company does not hold any financial assets measured at fair value through other comprehensive income.

• Mandatorily at fair value through profit or loss - Assets that do not meet the criteria to be measured at amortized cost, or fair value through other comprehensive income, are measured at fair value through profit or loss. All interest income and changes in the financial assets’ carrying amount are recognized in profit or loss. Financial assets mandatorily measured at fair value through profit or loss are comprised of cash, marketable securities, investment in petroleum interests and investment in other companies.

• Designated at fair value through profit or loss – On initial recognition, the Company may irrevocably designate a financial asset to be measured at fair value through profit or loss in order to eliminate or significantly reduce an accounting mismatch that would otherwise arise from measuring assets or liabilities, or recognizing the gains and losses on them, on different bases. All interest income and changes in the financial assets’ carrying amount are recognized in profit or loss. The Company does not hold any financial assets designated to be measured at fair value through profit or loss.

McChip Resources Inc 7

Notes to Condensed Financial Statements

(expressed in Canadian dollars)

Business model assessment

The Company assesses the objective of its business model for holding a financial asset at a level of aggregation which best reflects the way the business is managed, and information is provided to management. Information considered in this assessment includes stated policies and objectives.

Contractual cash flow assessment

The cash flows of financial assets are assessed as to whether they are solely payments of principal and interest on the basis of their contractual terms. For this purpose, ‘principal’ is defined as the fair value of the financial asset on initial recognition. ‘Interest’ is defined as consideration for the time value of money, the credit risk associated with the principal amount outstanding, and other basic lending risks and costs. In performing this assessment, the Company considers factors that would alter the timing and amount of cash flows such as prepayment and extension features, terms that might limit the Company’s claim to cash flows, and any features that modify consideration for the time value of money.

Impairment

The Company recognizes a loss allowance for the expected credit losses associated with its financial assets, other than financial assets measured at fair value through profit or loss. Expected credit losses are measured to reflect a probabilityweighted amount, the time value of money, and reasonable and supportable information regarding past events, current conditions and forecasts of future economic conditions.

The Company groups its financial assets into Stage 1, Stage 2 and Stage 3 as described below:

Stage 1 – Receivables that have not experienced a significant increase in credit risk since initial recognition; Stage 2 – Receivables that have experienced a significant increase in credit risk since initial recognition; Stage 3 – Receivables for which there is objective evidence of impairment.

Significant increase in credit risk

The Company has established a policy to assess, at the end of each reporting period, whether a financial instrument’s credit risk has increased significantly since initial recognition, by considering the change in the risk of default occurring over the remaining life of the financial instrument. IFRS 9 provides a rebuttable presumption that a significant increase in credit risk (“SICR”) has occurred if contractual payments are more than 30 days past due. The Company has not rebutted this presumption. Additional risk factors may be considered such as changes in financial condition of the borrower and other borrower specific information and other forward looking information.

Definition of default

The Company considers a financial instrument defaulted and therefore Stage 3 (credit-impaired) for ECL calculations in all cases when the borrower becomes 90 days past due on its contractual payments. In certain other cases, where qualitative thresholds indicate unlikeliness to pay as a result of a credit event, the Company carefully considers whether the event should result in an assessment at Stage 2 or 3 for ECL calculations.

The Company applies the simplified approach for accounts receivable. Using the simplified approach, the Company records a loss allowance equal to the expected credit losses resulting from all possible default events over the assets’ contractual lifetime.

The Company assesses whether a financial asset is credit-impaired at the reporting date. Regular indicators that a financial instrument is credit-impaired include significant financial difficulties as evidenced through borrowing patterns or observed balances in other accounts and breaches of borrowing contracts such as default events or breaches of borrowing covenants. For financial assets assessed as credit-impaired at the reporting date, the Company continues to recognize a loss allowance equal to lifetime expected credit losses.

For financial assets measured at amortized cost, loss allowances for expected credit losses are presented in the statements of financial position as a deduction from the gross carrying amount of the financial asset.

Financial assets are written off when the Company has no reasonable expectations of recovering all or any portion thereof.

McChip Resources Inc 8

Notes to Condensed Financial Statements

(expressed in Canadian dollars)

Derecognition of financial assets

The Company derecognizes a financial asset when its contractual rights to the cash flows from the financial asset expire.

Financial liabilities

Recognition and initial measurement

The Company recognizes a financial liability when it becomes party to the contractual provisions of the instrument. At initial recognition, the Company measures financial liabilities at their fair value plus transaction costs that are directly attributable to their issuance, with the exception of financial liabilities subsequently measured at fair value through profit or loss for which transaction costs are immediately recorded in profit or loss.

Classification and subsequent measurement

Subsequent to initial recognition, all financial liabilities are measured at amortized cost using the effective interest rate method. Interest, gains and losses relating to a financial liability are recognized in profit or loss.

The financial instruments of the Company are classified as follows:

	IFRS 9	IFRS 9
	Classification	Measurement
Cash	FVTPL	Fair value
Accounts receivable / abandonment deposit	Amortized cost	Amortized cost
Loan receivable	Amortized cost	Amortized cost
Marketable securities	FVTPL	Fair value
Investment inpetroleum interests	FVTPL	Fair value
Investment in other companies	FVTPL	Fair value
Bank indebtedness	Other financial liabilities	Amortized cost
Loanpayable	Other financial liabilities	Amortized cost
Accounts payable and accrued liabilities	Other financial liabilities	Amortized cost
Lease liability	Other financial liabilities	Amortized cost

Derecognition of financial liabilities

The Company derecognizes a financial liability only when its contractual obligations are discharged, cancelled or expire.

f) Marketable securities

Marketable securities are carried at fair value. These marketable securities are in shares of companies listed on a recognized exchange and are predominately natural resource based. The intention, on acquisition, is to hold these securities for a period of less than twelve months.

g) Investment in other companies

Investments in other companies are carried at fair value. These investments are in shares or other financial instruments of companies predominately listed on a recognized exchange and are natural resource based.

h) Investment in petroleum interests

This investment represents participation agreements with Signalta Resources Limited (“Signalta”), a Canadian controlled private company and other similar operators based in Calgary, Alberta. As this amount represents residual interests it has been considered as an investment in equity interests. Typically, the Company’s proportionate share of specific yearly investment programs would range from less than 1% to 1%. The Company, by agreement, does not exercise joint control or significant influence over Signalta, as operator of the petroleum participations.

i) Income taxes

Income tax expense consists of current and deferred tax expense. Income tax expense is recognized in the Statements of Operations and Comprehensive Income.

McChip Resources Inc 9

Notes to Condensed Financial Statements

(expressed in Canadian dollars)

Current tax is recognized and measured at the amount expected to be recovered from or payable to the taxation authorities based on the income tax rates enacted or substantively enacted at the end of the reporting period and includes any adjustment to taxes payable in respect of previous years.

Deferred tax is recognized on any temporary differences between the carrying amounts of assets and liabilities in the condensed financial statements and the corresponding tax bases used in the computation of taxable earnings. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period when the asset is realized and the liability is settled. The effect of a change in the enacted or substantively enacted tax rates is recognized in net earnings and comprehensive income or in equity depending on the item to which the adjustment relates.

Deferred tax assets are recognized to the extent future recovery is probable. At each reporting period end, deferred tax assets are reduced to the extent that it is no longer probable that sufficient taxable earnings will be available to allow all or part of the asset to be recovered.

j) Use of estimates

The preparation of the condensed financial statements in accordance with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the condensed financial statements, and the reported amounts of revenues and expenses during the reporting period. These estimates are reviewed periodically, and as adjustments become necessary, they are made in the period in which they become known. Actual results could differ from those estimates.

Accounts which require management to make material estimates in determining amounts recorded include fair value of petroleum interests, fair value of share purchase warrants, impairment of financial assets and investments in securities not quoted in an active market.

Fair value of investment in securities not quoted in an active market and petroleum interests:

Where the fair values of financial assets recorded on the statements of financial position cannot be derived from active markets, they are determined using a variety of valuation techniques. The inputs to these models are derived from observable market data where possible, but where observable market data is not available, judgement is required to establish fair values.

Fair value of share purchase warrants:

The fair value of share purchase warrants is valued either at their quoted market values if traded on an active market, impairment of financial assets, or valued through specified option pricing models based on specific criteria.

The model used by management is the Black – Scholes model which requires six key inputs to determine a value for a share purchase warrant: risk free interest rate, exercise price, market price at date of issue, expected dividend yield, expected life and expected volatility. Certain of the inputs are estimates which involve considerable judgement and are, or could be, affected by significant factors that are out of the Company’s control. For example, a longer expected life of the warrant or a higher volatility number used would result in an increase in the warrant value.

Impairment of financial assets:

The measurement of impairment losses under IFRS 9 requires judgment, in particular, the estimation of the amount and timing of future cash flows and collateral values when determining impairment losses.

k) Accounting for share-based compensation

The grant date fair value of options allotted to directors, officers, and employees is recognized as an expense, with a corresponding increase in contributed surplus, over the period that the grantee becomes unconditionally entitled to the options. The amount recognized as an expense is adjusted to reflect the actual number of share options for which the related service and non-market vesting conditions are met.

The fair value of share options is measured at the grant date, using an option pricing model that takes into account the exercise price, the term of the option, the current share price, the expected volatility of the underlying shares, the expected dividend yield, the forfeiture and the risk-free rate for the term of the option. If the options are exercised, contributed surplus will be reduced by the applicable amount with a corresponding charge to share capital.

For equity-settled share-based payment transactions, the Company measures the goods or services received, and the corresponding increase in equity, directly, at the fair value of the goods or services received, unless that fair value cannot be estimated reliably, in which case, the Company measures their value, and the corresponding increase in equity, indirectly, by reference to the fair value of the equity instruments granted.

McChip Resources Inc 10

Notes to Condensed Financial Statements

(expressed in Canadian dollars)

l) Income (loss) per share

The Company presents basic and diluted income/(loss) per share (“IPS”) data for its common shares. Basic IPS is calculated by dividing the income attributable to common shareholders of the Company by the weighted average number of common shares outstanding during the year. Diluted IPS is determined by adjusting the income attributable to common shareholders and the weighted average number of common shares outstanding, for the effects of all potential dilutive common shares, which comprise share options granted to directors, officers, employees, consultants and other service providers of the Company. The weighted average number of common shares outstanding are increased to include additional shares from the assumed exercise of share options, if dilutive.

m) Impairment

Non-financial assets

The carrying amounts of the Company’s non-financial assets, other than deferred tax assets, are reviewed annually to determine whether there is any indication of impairment. If any such indication exists then the asset’s recoverable amount is estimated.

The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purposes of impairment testing, assets are grouped together into the smallest group of assets that generates cash flows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the cash-generating unit).

An impairment loss is recognized if the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognized in profit or loss. Impairment losses recognized in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then reduce the carrying amount of the other assets in the units (group of units) on a pro-rata basis.

In respect of other assets, impairment losses recognized in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.

n) Dividends

Dividends on common shares are recognized in the condensed financial statements in the year in which the dividends are approved by the Board of Directors.

o) New accounting standards adopted by the Company

IFRS 16 Leases

The Company assesses whether a contract is or contains a lease, at inception of a contract. The Company recognizes a rightof-use asset and a corresponding lease liability with respect to all lease agreements in which it is the lessee, except for shortterm leases (defined as leases with a lease term of 12 months or less) and leases of low value assets. For these leases, the Company recognizes the leases as an operating expense on a straight-line basis over the term of the lease.

The Company presents right-of-use assets in “ROU asset” and lease liabilities in “Lease liabilities” in the statement of financial position.

Lease liability

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by using the rate implicit in the lease. If this rate cannot be readily determined, the Company uses its incremental borrowing rate. The incremental borrowing rate is defined as the rate of interest that the Company would have to pay to borrow, over a similar term and with a similar security, the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment.

Lease payments included in the measurement of the lease liability comprise:

• fixed lease payments (including in-substance fixed payments), less any lease incentives;

• variable lease payments that depend on an index or rate, initially measured using the index or rate at the commencement date;

McChip Resources Inc 11

Notes to Condensed Financial Statements

(expressed in Canadian dollars)

• the amount expected to be payable by the lessee under residual value guarantees;

• the exercise of purchase options, if the lessee is reasonably certain to exercise the options; and

• payments of penalties for terminating the lease, if the lease term reflects the exercise of an option to terminate the lease.

The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the effective interest method) and by reducing the carrying amount to reflect the lease payments made. The Company remeasures the lease liability (and makes corresponding adjustment to the related right-of-use asset) whenever:

• the lease term has changed or there is a change in the assessment of exercise of a purchase option, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate

• the lease payments change due to changes in an index or rate or a change in expected payment under a guaranteed residual value, in which cases the lease liability is remeasured by discounting the revised lease payments using the initial discount rate (unless the lease payments change is due to a change in a floating interest rate, in which a revised discount rate is used)

• a lease contract is modified and the lease modification is not accounted for as a separate lease, in which case the liability is remeasured by discounting the revised lease payments using a revised discount rate

Right-of-use assets

The right-of-use assets comprise the initial measurement of the corresponding lease liability, lease payments made at or before the commencement day and any initial direct costs. They are subsequently measured at cost less accumulated depreciation and impairment losses.

Whenever the Company incurs an obligation for costs to dismantle and remove a leased asset, restore the site on which it is located or restore the underlying asset to the condition required by the terms and conditions of the lease, a provision is recognized and measured under IAS 37. The costs are included in the related right-of-use asset, unless the costs are incurred to produce inventories.

Right-of-use assets are depreciated over the shorter period of lease term and useful life of the underlying asset. If a lease transfers ownership of the underlying asset or the cost of the right-of-use asset reflects that the Company expects to exercise a purchase option, the related right-of-use asset is depreciated over the useful life of the underlying asset. The depreciation starts at commencement date of the lease.

The Company applies IAS 36 Impairment of Assets to determine whether a right-of-use asset is impaired.

IFRIC 23 Uncertainty over Income Tax Treatments

In June 2017, the International Accounting Standards Board (IASB) issued a new International Financial Reporting Interpretations Committee (IFRIC) interpretation, incorporated into Part 1 of the CPA Canada Handbook – Accounting by the Accounting Standards Board (AcSB) in September 2017, to specify how to reflect the effects of uncertainty in accounting of income taxes. IAS 12 Income Taxes provides requirements on the recognition and measurement of current or deferred income tax liabilities and assets. However, it does not provide a specific requirement for the accounting for income tax when the application of tax law to a particular transaction or circumstances is uncertain. As a result, the interpretation aims to reduce the diversity in how entities recognise and measure tax liability or tax asset when there is uncertainty over income tax treatments. For the year beginning January 1, 2019 the implementation of IFRIC 23 did not have a material effect on the condensed financial statements.

3. Marketable Securities

The marketable securities on hand at September 30, 2021, had a fair value of $5,367,979 and a cost of $6,496,811 (December 31, 2020 - $5,965,022 and $6,707,998). These marketable securities are in shares and warrants of companies listed on a recognized exchange and are primarily natural resource based. Some of these marketable securities were pledged as security for the loans payable, see Notes 8 and 9. The intention, on acquisition, is to hold these securities for a period of less than twelve months.

McChip Resources Inc 12

Notes to Condensed Financial Statements

(expressed in Canadian dollars)

4. Investment in Other Companies

The investment in other companies at September 30, 2021 amount to $877,809 and have a cost of $416,658 (December 31, 2020 - $667,361 and $396,475). These investments are in shares and other financial instruments of companies and are primarily natural resource based. The intention, on acquisition, is to hold these investments for periods, more likely than not, in excess of twelve months.

5 . Capital Management

The Company’s capital structure consists of its shareholders’ equity. The Company manages its capital structure and makes adjustments to it, based on the funds available, to support the core nature of its business. The Company maintains its capital structure by using internally generated funds as the need arises. The Board of Directors does not establish quantitative return on capital criteria for management, but rather relies on the expertise of management to sustain future development of the business. The Company is not subject to externally imposed capital requirements.

Management reviews its approach to capital management on an ongoing basis and believes that this approach is reasonable considering the relative size of the Company.

There were no changes in the Company’s approach to capital management during this reporting period.

6. Financial Risk Factors

The Company’s financial risk exposure and the impact of its financial instruments are summarized below :

Credit risk

The Company’s credit risk is attributable to accounts receivable and loan receivable. In the opinion of management, the credit risk with respect to these instruments is low. Accounts receivable represent amounts due from petroleum interest revenue. Management has assessed that there is no expected credit loss attributed to accounts receivable.

Liquidity risk

The Company ensures that there is sufficient cash and other short term assets readily convertible into cash in order to meet its liabilities when they come due. Additionally, the Company has secured a short-term working capital line of credit with its bank, at September 30, 2021 and December 31, 2020 the outstanding amount is $30,000 and $40,000 respectively, $40,000 represents an interest free CEBA (Canada Emergency Business Account) loan, $10,000 of which was forgivable and the balance was repaid April 15, 2021.

The Company has no long term credit facility, trade and other payables have maturity dates of less than sixty days and are subject to normal trade terms. The Company’s short-term bank indebtedness related to the Company’s broker account, which carries no interest rate, and was secured by investments held by the Company, and had no set terms of repayment. Management believes that the liquidity risk is low.

Interest rate risk

The Company has a bank credit facility for short term working capital purposes and loans payable to supplement its investment strategies. The facility exposes the Company to interest rate risk which fluctuates in accordance with market rates. Management believes the interest rate risk to be low.

Foreign currency risk

The Company is exposed to foreign currency risk. This would be in conjunction with its investments in currency of the United States of America. This is a negligible part of the Company’s business and with the amount of foreign currency involved management considers the foreign currency risk to be low.

Commodity price risk

The Company is exposed to price risk with respect to the fluctuations in commodity prices. The volatility of prices received by the operator for the oil and natural gas produced will affect the Company’s available cash and profits.

Fair Value

Fair value is determined using the following methods and assumptions:

The carrying value of accounts receivable, accounts payable and accrued liabilities and, loans payable approximate their fair value due to the relatively short periods to maturity of these instruments. The carrying value of the floating rate loans payable is assumed to approximate its fair value as interest is based on market related variable rates.

Cash, marketable securities and investment in other companies, and investment in petroleum interest are carried at fair value.

McChip Resources Inc 13

Notes to Condensed Financial Statements

(expressed in Canadian dollars)

Sensitivity Analysis

As at September 30, 2021, had the prices on the respective stock exchanges for marketable securities and publicly held investments in other companies raised or lowered by 5%, with all other variables held constant, the equity of the Company would have increased or decreased by $295,865 December 31, 2020 - $313,945).

Fair Value Hierarchy

Financial instruments recorded at fair value are classified using a fair value hierarchy that reflects the significance of inputs used in their measurement. The fair value hierarchy has the following levels:

Level 1 – inputs are unadjusted quoted prices of identical instruments in active markets.

Level 2 – inputs other than quoted prices included in Level 1 that are observable for the comparable asset or liability, either directly or indirectly.

Level 3 – one or more significant inputs used in a valuation technique are unobservable in determining fair values of the instruments.

Balance – September 30, 2021		Level 1		Level 2		Level 3		Total
Cash	$	178,084	$	-	$	-	$	178,084
Marketable Securities		5,039,490		328,489		-		5,367,979
Investment in other companies		877,809		-		-		877,809
Investment in petroleum interests		-		-		356,058		356,237
Total	$	6,095,534	$	328,489	$	356,058	$	6,780,109
Balance – December 31, 2020		Level 1		Level 2		Level 3		Total
Cash	$	452,640	$	-	$	-	$	452,640
Marketable Securities		5,611,533		328,489		25,000		5,965,022
Investment in other companies		667,361		-		-		667,361
Investment in petroleum interests		-		-		344,058		344,058
Total	$	6,731,534	$	328,489	$	369,058	$	7,429,081

7. Royalty Interest

The Company entered into a purchase and sale agreement with Altius Royalty Corporation (the “Purchaser”) on November 1, 2017 with respect to certain of its mineral rights in the Rocanville Area of Saskatchewan. Pursuant to the terms of the purchase and sale agreement the Purchaser paid $3,000,000 on closing and in addition, annual instalment payments of $500,000 for a term of ten years, conditional on certain annual potash production levels and grades being achieved.

8. Bank Indebtedness

The Company has an operating line of credit in the amount of $160,000 that bears interest at the annual rate of prime plus 0.5%. As at September 30, 2021 bank indebtedness was $30,000, (December 31, 2020 – $nil). To support the line of credit, the Company had cash of $167,873 and marketable securities having a fair value of $57,100 respectively (December 31, 2020 cash of $165,304, and marketable securities having a fair value of $46,200) held as security. In addition, the Company received an interest free $40,000 CEBA (Canada Emergency Business Account) loan, $10,000 forgivable and the balance repaid on April 15, 2021.

9. Loans Payable / Receivable

The loans payable represents broker margin accounts. Broker margin accounts consists of cash owed by the Company to its brokers. As at September 30, 2021 the balance was $595,654 (December 31, 2020 - $570,417) and is secured by certain of the Company's marketable securities. Interest payable on the margin accounts are at the rates of prime plus 1.00% to prime plus 1.50% annually. The broker margin account is due on demand.

The net loan receivable, representing an advance to an unrelated company at September 30, 2021 was $28,300 (2020 – $28,300). The gross loan receivable of $35,300 bears interest at eight percent (8%) per annum to be calculated and paid annually from the date of advance. The loan receivable was amended subsequent to year end and is now due for repayment on January 19, 2022 and is unsecured. Management have concluded that the credit risk with respect to this instrument is at

McChip Resources Inc 14

Notes to Condensed Financial Statements

(expressed in Canadian dollars)

stage 2 and has been assessed on a life time expected credit loss (Lifetime ECL) since the amount due is in 2022. Management have determined that an ECL rate of 20% on principal of $7,000 credit loss provision is reasonable. This is due primarily to the maturity date extension requested by the Holder of the loan, which initially fell due on January 19, 2019.

10. Share Capital

a) Authorized: Unlimited common shares b) Common shares issued:

	Number of shares	Value
Balance – December 31, 2020	5,660,096	$5,246,662
Exercise of stock options	50,000	36,500
Balance-September 30, 2021	5,710,096	$5,283,162

Earnings (loss) per share:

The following table reconciles the numerator and denominator for the calculation of basic and diluted earnings per share:

For the nine
months ended September 30 For the year ended December 31
2021	2020
Numerator Net income (loss) attributed to common shareholders $ (471,317) $ 1,791,014 Basic Weighted average number of shares outstanding 5,660,096 5,660,096 Effect of dilutive securities adjusted for exercise of options 22,894 2,043 Diluted weighted average number of shares outstanding 5,682,990 5,662,139
Basic earnings (loss) per share $ (0.08) $ 0.32 Diluted earnings (loss) per share (0.08) 0.32

11. Contributed Surplus

The September 30, 2021 contributed surplus balance was $883,200 (December 31, 2020 $897,200). These amounts are related to stock options that have been granted and exercised on the Company’s common shares.

12. Share - based Compensation

Stock options

The Company has adopted a Stock Option Plan (the “Plan”). Pursuant to the Plan, the Board of Directors may, from time to time at its discretion, allocate non-transferable options to purchase shares, to directors, officers, employees and consultants of the Company.

Under the Plan, the aggregate number of shares to be issued upon the exercise of outstanding options granted hereunder may not exceed 560,000 shares.

Exercise prices shall be determined by the Board of Directors. The exercise price shall not be less than the closing price (the ‘market price’) of the shares on the exchange immediately preceding the day on which the Board grants the options and provides notice to the exchange. There is no vesting period and the term is five years for options granted.

No stock options were outstanding on September 30, 2021 (December 31, 2020 – 400,000). Effective September 26, 2016 stock options on 350,000 common shares were granted to directors, officers and employees of the Company at $0.60 per share and have expired on September 25, 2021. On August 26, 2020, 50,000 were granted at $0.45 per share to expire August 25, 2025. Stock options on 50,000 shares were exercised effective May 28, 2021.

McChip Resources Inc 15

Notes to Condensed Financial Statements

(expressed in Canadian dollars)

A summary of the status of the Company's outstanding stock options as of September 30, 2021 and December 31, 2020, and changes during the period ended on those dates are presented in the following table:

September 30, 2021	September 30, 2021	December 31, 2020	December 31, 2020
Number Exerciseprice		Number Exerciseprice
Outstanding and exercisable, beginning 400,000 $0.58 Exercised 50,000 $0.45 Expired 350,000 N/A Granted Nil N/A		350,000 $0.60 Nil N/A Nil N/A 50,000 $0.45
Outstanding, endingand exercisable Nil	$0.60	400,000	$0.58

Stock option disclosure

The fair market value of stock options granted on August 26, 2020 that expire August 25, 2025 was estimated using the Black Scholes fair value option-pricing model and the following assumptions were used:

Dividend yield	0.00%
Risk-free interest rate	0.33%
Expected stock volatility	76.76%
Forfeiture rate	0.00%
Weighted-average expected life in years	5.00
Weighted-average share price	$0.45
Exerciseprice	$0.45

The effect in accounting for the share-based compensation of $14,000 determined for the year ended December 31, 2020, was the recognition of share-based compensation expense and contributed surplus for options granted. The options vested fully on grant.

The fair market value of stock options granted on September 26, 2016 that expire September 25, 2021 was estimated using the Black Scholes fair value option-pricing model and the following assumptions were used:

Dividend yield	0.00%
Risk-free interest rate	0.54%
Expected stock volatility	65.15%
Forfeiture rate	0.00%
Weighted-average expected life in years	5.00
Weighted-average share price	$0.60
Exerciseprice	$0.60

Option pricing models require the use of highly subjective estimates and assumptions including the expected stock price volatility. Volatility is based on the historical volatility of the Company’s common shares. Changes to the estimates and assumptions may materially affect the calculations. The effect in accounting for the share-based compensation of $128,000 determined for the year ended December 31, 2016, was the recognition of share-based compensation expense and contributed surplus for options granted. The options vested fully on grant.

The weighted average remaining contractual life is nil.

13. Leases

The Company has a lease for head office space that was entered into during the year with a third party. The lease is reflected on the statement of financial position as a right-of-use asset and lease liability. The initial term of the lease is twenty-two months beginning December 1, 2020 and ending August 1, 2022. The incremental borrowing rate and term length used in the calculation of the right-of-use asset and discounted lease liability amounts are 2.95% and 21 months, respectively.

McChip Resources Inc 16

Notes to Condensed Financial Statements

(expressed in Canadian dollars)

Property Plant and Equipment
		ROU Asset
Cost	$	-
Balance: January 1, 2020		21,595
Additions		-
Disposals
Balance: December 31, 2020		21,595
Additions
Disposals		-
Balance: September 30, 2021	$	21,595
Accumulated amortization
Balance: January 1, 2020	$	-
Amortization		1,291
Disposals		-
Balance: December 31, 2020		1,291
Amortization		11,618
Disposals		-
Balance: September 30, 2021	$	12,909

Lease liabilities

The continuity of lease liability is as follows:

		Liability
Balance-December 31, 2019	$	-
Contractual payments		27,562
Amount attributable to interest		(455)
Security deposit		(5,512)
Balance - December 31, 2020	$	21,595
Contractual payments		(10,691)
Balance–September 30, 2021		10,904
Current portion - due within one year		10,904

14. Income Taxes

The Company’s income tax (recovery) is allocated as follows:

		September 30, 2021			December 31, 2020
Current tax (recovery) expense	$		-	$	(64,516)
Deferred tax (recovery) expense			-		-
	$		-	$	(64,516)

15. Related Party Transactions and Disclosure

Included in accounts receivable as at September 30, 2021 is an amount due from a related company that has a common director and officer of $18,836 (December 31, 2020 – $7,098). The amount receivable and/or payable was the result of the Company's investment in petroleum interests which is in the normal course of its business.

Included in accounts receivable as a September 30, 2021 is an amount due from a related company that has a common director and officer of nil (December 31, 2019 - $12,508). The amount receivable was the result of the Company’s lease for head office space.

Included in accounts payable as at September 30, 2021, is an amount due to a related party who is a director, and officer of the Company of $244 (December 31, 2020 - $2,301).

McChip Resources Inc 17

Notes to Condensed Financial Statements

(expressed in Canadian dollars)

Administrative fees were paid to a related party in the amount of $2,566 for the nine months ended September 30, 2021 (December 2020 - $966).

Key management personnel, directors’ compensation

	September 30, 2021	September 30, 2020
Short-term employee benefits $ 152,195 $ 152,195 Directors’ fees 9,000 9,000 Share-based compensation expense nil nil

16. Investment in petroleum interests

Balance -	December 31, 2019		$	360,504
	Additions			21,257
	Change in fair value	(i)		(37,703)
Balance -	December 31, 2020		$	344,058
	Additions			12,179
	Change in fair value
	September 30, 2021		$	356,237

• (i) Based on a discounted cash flow analysis a change in fair value of $37,703 was recognized in 2020. Key assumptions included a 12.5% discount rate on a twenty year cash flow projection utilizing the AECO–C spot price ranging from $2.51 to $3.21 per MCF for natural gas.

17. Abandonment Deposit

The abandonment deposit is held with Signalta Resources Limited for the purposes of the future well abandonment for the Company’s investment in petroleum interests. The Company has made all requested upfront payments for future reclamation costs as at September 30, 2021.

18. Subsequent events

On October 21, 2021, stock options on 450,000 common shares were granted at $0.93 per share to directors, officers and employees of the Company and expire October 20, 2026.

McChip Resources Inc 18