Metallis Resources Inc. — Interim / Quarterly Report 2021

Nov 27, 2021

METALLIS RESOURCES INC. Condensed Interim Financial Statements September 30, 2021

(Expressed in Canadian Dollars)

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METALLIS RESOURCES INC.

Index to Condensed Interim Financial Statements

For the three and nine-month periods ended September 30, 2021

(Expressed in Canadian Dollars)

(Unaudited – prepared by management)

_________	_________
	Page
MANAGEMENT’S RESPONSIBILITY FOR UNAUDITED CONDENSED INTERIM FINANCIAL
STATEMENTS AND NOTICE OF NO AUDITOR REVIEW	3
FINANCIAL STATEMENTS
Condensed Interim Statements of Financial Position	4
Condensed Interim Statements of Operations and Comprehensive Loss	5
Condensed Interim Statements of Changes in Equity	6
Condensed Interim Statements of Cash Flows	7
Notes to Condensed Interim Financial Statements	8-21

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MANAGEMENT’S RESPONSIBILITY FOR UNAUDITED CONDENSED INTERIM FINANCIAL STATEMENTS AND NOTICE OF NO AUDITOR REVIEW

The accompanying condensed interim financial statements of Metallis Resources Inc. (the "Company") are the responsibility of management and have not been reviewed by the Company’s auditors.

These condensed interim financial statements have been prepared by management, on behalf of the Board of Directors, in accordance with the accounting policies disclosed in the notes to the unaudited condensed interim financial statements. Where necessary, management has made informed judgments and estimates in accounting for transactions which were not complete at the financial position date. In the opinion of management, the condensed interim financial statements have been prepared within acceptable limits of materiality and are in accordance with International Accounting Standard 34-Interim Financial Reporting using accounting policies consistent with International Financial Reporting Standards appropriate in the circumstances.

The Company has established processes, which are in place to provide it sufficient knowledge to support management representations that it has exercised reasonable diligence that (i) the condensed interim financial statements do not contain any untrue statement of material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it is made, as of the date of, and for the periods presented by, the condensed interim financial statements and (ii) the condensed interim financial statements fairly present in all material respects the financial condition, results of operations and cash flows of the Company, as of the date of and for the periods presented by the condensed interim financial statements.

The Board of Directors is responsible for reviewing and approving the condensed interim financial statements together with other financial information of the Company and for ensuring that management fulfills its financial reporting responsibilities. An Audit Committee assists the Board of Directors in fulfilling this responsibility. The Audit Committee meets with management to review the financial reporting process and the condensed interim financial statements together with other financial information of the Company. The Audit Committee reports its findings to the Board of Directors for its consideration in approving the condensed interim financial statements together with other financial information of the Company for issuance to the shareholders.

Management recognizes its responsibility for conducting the Company’s affairs in compliance with established financial standards, and applicable laws and regulations, and for maintaining proper standards of conduct for its activities.

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METALLIS RESOURCES INC. Condensed Interim Statements of Financial Position

(Expressed in Canadian Dollars)

(Unaudited – prepared by management)

	September 30, 2021 December 31, 2020 (unaudited) (audited) $ 2,324,489 $ 2,297,180 242,268 180,235 105,329 135,430 48,299 - 15,380 -
ASSETS Current assets Cash and cash equivalents Receivables_(Note 3) Deposits and prepaid expenses(Note 4) Loans due from related parties(Note 10) Due from related party(Note 10) Total current assets Equipment (_Note 5) Exploration and evaluation assets (Notes 6 and 10) Net investment in sublease_(Note 7) Total assets LIABILITIES Current liabilities Accounts payable and accrued liabilities(Note 7) Flow-through premium liability(Note 8) Lease liability(Note 7) Due to related party(Note 10) Total current liabilities Lease liability(Note 7) Total liabilities EQUITY Share capital(Note 9)_ Equity reserves Deficit Total equity Total liabilities and equity
	2,735,765 2,612,845 19,728 34,450 11,670,921 8,843,478 14,792 28,724 $ 14,441,206 $ 11,519,497
	$ 537,667 $ 228,397 67,988 40,361 29,583 37,530 - 210
	635,238 306,498 - 19,918
	635,238 326,416
	22,006,727 18,363,770 4,157,097 3,650,552 (12,357,856) (10,821,241)
	13,805,968 11,193,081
	$ 14,441,206 $ 11,519,497

Nature and Continuance of Operations and Going Concern (Note 1) Events After the Reporting Period (Note 14)

Approved and authorized on behalf of the Board on November 26, 2021

“Fiore Aliperti” Director “ Michael Sikich” Director

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

METALLIS RESOURCES INC.

Condensed Interim Statements of Operations and Comprehensive Loss For the three and nine-month periods ended September 30, 2021 and 2020 (Expressed in Canadian Dollars) (Unaudited – prepared by management)

	Three months ended September 30, 2021 Three months ended September 30, 2020 Nine months ended September 30, 2021 Nine months ended September 30, 2020
Operating Expenses: Advertising, marketing, promotion Consulting fees_(Note 10) Depreciation(Note 5) Investor relations Office and general Professional fees Regulatory and transfer agent fees Rent Share-based compensation Travel Total operating expenses Interest income Finance income on sublease Amortization of discount Gain on settlement of accounts payable and accrued liabilities Other income on settlement of flow-through premium liability(Note 8)_ Income (Loss) and comprehensive income (loss) for the period Basic and diluted loss per common share Weighted average number of common shares outstanding: Basic and diluted	$ 262,412 $ 53,483 $ 538,968 $ 74,296 114,264 95,000 457,487 254,720 5,631 5,654 16,887 16,964 21,000 13,500 66,500 40,500 23,211 23,313 72,418 52,198 6,083 1,232 13,206 5,007 4,585 4,010 36,208 32,281 337 4,712 7,304 12,270 403,682 - 645,490 - - 572 - 9,463
	(841,205) (201,476) (1,854,468) (497,699) 3,641 7,674 11,236 32,298 324 688 1,254 2,322 (651) (1,377) (2,510) (4,646) - - 31,000 - 233,523 204,895 276,873 227,786
	$ (604,368) $ 10,404 $(1,536,615) $ (239,939)
	$ (0.01) $ (0.00) $ (0.03) $ (0.01)
	52,839,878 36,155,767 49,004,726 36,155,767

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

METALLIS RESOURCES INC.

Condensed Interim Statements of Changes in Equity (Expressed in Canadian Dollars) (Unaudited – prepared by management)

	Share Capital Number of Shares Amount Equity Reserves Subscriptions Deficit Total
Balance at December 31, 2019 Share subscriptions Loss for the period Balance at September 30, 2020 Proceeds from private placement Share issuance costs Flow-through share premium liability Share-based compensation Loss for the period Balance at December 31, 2020 Proceeds from private placement Share issuance costs Flow-through share premium liability Proceeds from exercise of stock options Fair value of options exercised Share-based compensation Loss for the period Balance at September 30, 2021
	36,155,767 $ 15,258,506 $ 3,478,431 $ - $ (10,259,433) $ 8,477,504 - - - 10,000 - 10,000 - - - - (239,939) (239,939)
	36,155,767 $ 15,258,506 $ 3,478,431 $ 10,000 $ (10,499,372) $ 8,247,565 7,904,666 3,314,350 - (10,000) - 3,304,350 - (56,603) 11,965 - - (44,638) - (152,483) - - - (152,483) - - 160,156 - - 160,156 - - - - (321,869) (321,869)
	44,060,433 $ 18,363,770 $ 3,650,552 $ - $ (10,821,241) $ 11,193,081 7,604,445 3,726,500 - - - 3,726,500 - (41,695) 6,207 - - (35,488) - (304,500) - - - (304,500) 1,175,000 117,500 - - - 117,500 - 145,152 (145,152) - - - - - 645,490 - - 645,490 - - - - (1,536,615) (1,536,615)
	52,839,878 $ 22,006,727 $ 4,157,097 $ - $ (12,357,856) $ 13,805,968

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

METALLIS RESOURCES INC.

Condensed Interim Statements of Cash Flows For the nine-month periods ended September 30, 2021 and 2020 (Expressed in Canadian Dollars)

(Unaudited – prepared by management)

(Expressed in Canadian Dollars) (Unaudited –prepared by management)
	2021 2020
Cash flows provided by (used in) operating activities Loss for the period Items not affecting operating cash: Amortization of discount Depreciation Interest income Finance income Gain on settlement of accounts payable and accrued liabilities Other income on settlement of flow-through share premium liability Share-based compensation Changes in non-cash working capital items: Receivables Deposits and prepaid expenses Accounts payable and accrued liabilities Due from related party Due to related party Net cash used in operating activities Cash flows provided by (used in) investing activities Investment in exploration and evaluation assets Loans to related parties Purchase of equipment Tax credit received Interest received Net proceeds from investment in sublease Net cash used in investing activities Cash flows provided by (used in) financing activities Proceeds from shares issued Share subscriptions Share issuance costs Lease payments Net cash provided by (used in) financing activities Increase (decrease) in cash and cash equivalents during the period Cash and cash equivalents, beginning of period Cash and cash equivalents, end of period	$ (1,536,615) $ (239,939) 2,510 4,646 16,887 16,964 (11,236) (32,298) (1,254) (2,322) (31,000) - (276,873) (227,786) 645,490 - (60,818) (18,287) 30,101 (29,694) (35,108) (13,889) (15,380) (5,497) (210) (943)
	(1,273,506) (549,045)
	(2,452,066) (1,100,913) (48,299) - (2,165) - - 809,081 10,021 13,260 15,187 15,187
	(2,477,322) (263,385)
	3,844,000 - 10,000 (35,488) - (30,375) (30,375)
	3,778,137 (20,375)
	27,309 (832,805) 2,297,180 1,593,629
	$ 2,324,489 $760,824

Supplemental Disclosure with Respect to Cash Flows (Note 11)

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

METALLIS RESOURCES INC.

Notes to the Condensed Interim Financial Statements For the nine-month period ended September 30, 2021 (Expressed in Canadian Dollars)

1. NATURE AND CONTINUANCE OF OPERATIONS AND GOING CONCERN

Metallis Resources Inc. (“the Company”) was incorporated under the Business Corporations Act (British Columbia) on June 19, 2007. The Company’s shares are listed on the TSX Venture Exchange (“TSX-V”) under the symbol “MTS” and on the OTCQB Venture Market under the symbol "MTLFF". The Company’s registered and head office is located at Suite #604 - 850 West Hastings Street, Vancouver, British Columbia, Canada, V6C 1E1, and its website is at www.metallisresources.com.

The Company is engaged in the exploration of mineral properties and has not yet determined whether any of its properties contain economically recoverable reserves. To date, the Company has not earned any operating revenues and is in the exploration stage. The mining exploration business involves a high degree of risk. The recoverability of the amounts expended on mineral interests by the Company is dependent upon the existence of economically recoverable reserves, the ability of the Company to obtain necessary financing to complete the exploration and development of its mineral properties and upon future profitable production or proceeds from disposition of its mineral interests.

The Company operates in a single jurisdiction with the single business activity of exploration and, accordingly, segmented information is not required.

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

Going Concern of Operations

These financial statements have been prepared on the basis that the Company will continue as a going concern which assumes that the Company will be able to continue operating for the foreseeable future and will be able to realize its assets and discharge its liabilities and commitments in the normal course of operations. As an exploration stage company, the Company has incurred net operating losses since its inception and the ability of the Company to continue as a going concern depends upon its ability to raise adequate financing when required and to ultimately develop profitable operations.

In recent years, the Company has raised funds from equity investors to provide for its exploration and working capital needs. The most recent private placement was completed in the current fiscal year, raising $3.7 million. In assessing whether the going concern assumption is appropriate, management takes in account all available information about the future, which is at least, but is not limited to, twelve months from the end of the reporting period. Management has assessed that the Company currently has sufficient funds to execute its Phase I exploration programs and fund its corporate operations for the ensuing year.

On March 11, 2020, the World Health Organization declared coronavirus COVID-19 a global pandemic. The pandemic has continued to spread with new variants arising from time to time, resulting in adverse public health developments. It has impacted global workforces, economies, and financial markets. It is not possible at this time for the Company to predict the duration or magnitude of the adverse results of the pandemic nor its future impacts on the Company’s business or operations.

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METALLIS RESOURCES INC.

Notes to the Condensed Interim Financial Statements For the nine-month period ended September 30, 2021 (Expressed in Canadian Dollars)

1. NATURE AND CONTINUANCE OF OPERATIONS AND GOING CONCERN (continued)

Going Concern of Operations (continued)

Other fundraising may be undertaken from time to time, and may include private placements, convertible debentures, third party earn-ins or joint ventures using debt or equity financing structures. To the extent future financing is not available, future working capital commitments beyond 2021 may not be satisfied and future exploration programs may face curtailment and could result in a loss of property ownership or earning opportunities for the Company. In addition, should the Company be unable to realize its assets and discharge its liabilities in the normal course of business, the net realizable value of its assets may be materially less than the amounts recorded on the statements of financial position. These financial statements do not include adjustments to amounts and classifications of assets and liabilities that might be necessary should the Company be unable to continue operations.

2. SIGNIFICANT ACCOUNTING POLICIES

The Company’s accounting policies have been applied consistently to all periods presented in these condensed interim financial statements.

Basis of presentation

These condensed interim financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS"), as issued by the International Accounting Standards Board (“IASB”) and Interpretations issued by the International Financial Reporting Interpretations Committee (“IFRIC”).

These condensed interim financial statements have been prepared on a historical cost basis, except for certain financial instruments which are recorded at fair value. In addition, these condensed interim financial statements have been prepared using the accrual basis of accounting, except for cash flow information.

These condensed interim financial statements should be read in conjunction with the Company’s annual financial statements and notes thereto for the year ended December 31, 2020. These condensed interim financial statements do not include all disclosures required in annual financial statements but rather they follow recommendations for condensed interim financial statements in accordance with International Accounting Standard 34, Interim Financial Reporting (“IAS 34”) as issued by the International Accounting Standards Board (“IASB”). These condensed interim financial statements follow the same accounting policies and methods of their application as those followed in the December 31, 2020 annual financial statements.

3. RECEIVABLES

	September 30, 2021 December 31, 2020
BC Mineral Exploration Tax Credit* Recoverable sales taxes - Canada Accrued interest Total receivables	$ 119,009 $ 119,009 121,781 60,963 1,478 263
	$ 242,268 $ 180,235

• BC METC was received subsequent to September 30, 2021.

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METALLIS RESOURCES INC.

Notes to the Condensed Interim Financial Statements For the nine-month period ended September 30, 2021 (Expressed in Canadian Dollars)

4. DEPOSITS AND PREPAID EXPENSES

The deposits and prepaid expenses of the Company consist of the following:

	September 30, 2021 December 31, 2020
Advances on exploration drilling, surveys and helicopters Prepaid insurance Prepaid internet communications and marketing campaigns Prepaid storage Rental deposit Third party consulting fees paid in advance	$ 95,000 $ 15,000 1,642 9,029 2,000 4,000 647 2,611 6,040 6,040 - 98,750
	$ 105,329 $135,430

5. EQUIPMENT

Cost:	Right-of-use assets Furniture & fixtures Computers and software Total
Balance, December 31, 2019 and 2020 Additions during the period	$ 60,828 $ 3,692 $ 19,296 $ 83,816 - - 2,165 2,165
Balance, September 30, 2021	$ 60,828 $ 3,692 $ 21,461 $ 85,981
Accumulated depreciation:
Balance, December 31, 2019 Depreciation for the year	$ 10,138 $ 462 $ 16,066 $ 26,666 20,276 646 1,778 22,700
Balance, December 31, 2020 Depreciation for the period	30,414 1,108 17,844 49,366 15,207 387 1,293 16,887
Balance, September 30, 2021	$ 45,621 $ 1,495 $ 19,137 $ 66,253
Net book values: September 30, 2021 December 31, 2020	$ 15,207 $ 2,197 $ 2,324 $ 19,728 $ 30,414 $ 2,584 $ 1,452 $ 34,450

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METALLIS RESOURCES INC.

Notes to the Condensed Interim Financial Statements For the nine-month period ended September 30, 2021 (Expressed in Canadian Dollars)

6. EXPLORATION AND EVALUATION ASSETS – Kirkham Property

	Balance, December 31, 2019 Additions Balance, December 31, 2020 Additions Balance, September 30, 2021
Acquisition costs Assays and lab analysis Community relations Accommodations and camp Drilling Field expenses and core shack Geological and geophysical Helicopters and aircraft support Licenses, claim fees and permits Recovery of expenses Write-downs	$ 495,801 $ - $ 495,801 $ - $ 495,801 263,768 37,744 301,512 58,981 360,493 78,211 43,661 121,872 40,000 161,872 825,187 484,253 1,309,440 485,360 1,794,800 2,390,783 816,951 3,207,734 907,291 4,115,025 76,248 3,720 79,968 18,918 98,886 1,358,879 539,549 1,898,428 472,857 2,371,285 1,859,912 698,050 2,557,962 844,122 3,402,084 101,014 57,848 158,862 24,263 183,125 (1,071,292) (132,942) (1,204,234) (24,349) (1,228,583) (83,867) - (83,867) - (83,867)
	$ 6,294,644 $ 2,548,834 $ 8,843,478 $ 2,827,443 $ 11,670,921

Kirkham Property – Golden Triangle, Skeena Mining Division, British Columbia, Canada

The Kirkham Property (the “Property”) is comprised of 30 mineral claims situated in the “Golden Triangle” region of north-western British Columbia, Canada. The Property was assembled by the Company through a series of transactions between 2013 and 2015 including staking, re-staking and acquisitions from third parties.

Twenty (20) of the mineral claims are subject to third-party Net Smelter Return (“NSR”) royalties of 2%. The Company is entitled to purchase each 1% increment of the NSR royalty for $500,000.

Recovery of expenses is primarily composed of BC Mineral Exploration tax credits receivable but may also include provincial tax recoveries or vendor credits.

No impairments on the Property were observed during the period ended September 30, 2021 or the year ended December 31, 2020.

Title to mineral properties involves certain inherent risks due to the difficulties of determining the validity of certain claims, as well as the potential for problems arising from the frequently ambiguous conveyance history characteristic of many mineral properties. To the best of its knowledge, the Company's title to all of its mineral claims and properties are in good standing.

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Notes to the Condensed Interim Financial Statements For the nine-month period ended September 30, 2021 (Expressed in Canadian Dollars)

METALLIS RESOURCES INC.

7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES AND LEASE LIABILITY

Accounts payable and accrued liabilities for the Company are comprised as follows:

Accounts payable Accrued liabilities	September 30, 2021 December 31, 2020
	$ 537,667 $ 198,397 - 30,000 $ 537,667 $ 228,397

Lease liability at September 30, 2021 is calculated as follows:

Balance, December 31, 2019 Lease payments Amortization of discount Balance, December 31, 2020 Lease payments Amortization of discount Balance, September 30, 2021 Short-term portion of lease liability Long-term portion of lease liability Balance, September 30, 2021	$ 92,102 (40,500) 5,846
	$ 57,448 (30,375) 2,510
	$ 29,583
	$ 29,583 -
	$ 29,583

Lease payments required over the next five years, including variable costs not subject to IFRS 16, are as follows:

Year ended December	31,	2021	$	17,992
Year ended December	31,	2022		35,984
Year ended December	31,	2023		-
Year ended December	31,	2024		-
Year ended December	31,	2025		-
Total			$	53,976

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METALLIS RESOURCES INC.

Notes to the Condensed Interim Financial Statements For the nine-month period ended September 30, 2021 (Expressed in Canadian Dollars)

7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES AND LEASE LIABILITY (continued)

The reconciliation of the Company’s net investment in sublease is as follows:

Balance, beginning of period Finance income Lease payments received Balance, end of period	Nine months ended September 30, Year ended December 31, 2020
	$ 28,724 $ 46,051 1,254 2,923 (15,186) (20,250)
	$14,792 $28,724

Maturity analysis of lease payments receivable and reconciliation to net investment in sublease:

Undiscounted lease payments receivable Variable cost portion Undiscounted finance lease payments Finance income Net investment in sublease	2021 2022 Total
	$ 8,996 $ 17,992 $ 26,988 (3,933) (7,867) (11,800)
	5,063 10,125 15,188 (230) (166) (396)
	$ 4,833 $ 9,959 $ 14,792

8. FLOW-THROUGH PREMIUM LIABILITY

During the nine-month period ended September 30, 2021, the Company issued 6,090,000 flow-through shares at a price of $0.50 per share for gross proceeds of $3,045,000 (the “Financing”) and recognized a flow-through premium liability of $304,500 as the difference between the flow-through share price and the non-flow-through share price in the concurrent offering of flow-through and non-flow-through units. The Company incurred qualifying exploration expenses of $2,728,370 during the period. The first $363,254 of those expenditures was applied against the remaining obligation in respect of a flow-through private placement completed in October 2020. The balance of $2,365,116 was applied against the obligation to spend $3,045,000 arising from the current period private placement, leaving a balance to spend of $679,884 by the end of 2022.

The incurrence of qualifying exploration expenses reduces the flow-through share premium liability, which the Company recognizes as other income on settlement of flow-through share premium liability. The following table summarizes the changes in flow-through premium liability:

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Notes to the Condensed Interim Financial Statements For the nine-month period ended September 30, 2021 (Expressed in Canadian Dollars)

METALLIS RESOURCES INC.

1. FLOW-THROUGH PREMIUM LIABILITY (continued)

Changes in Flow-through premium liability: Balance, beginning of period Liability incurred on flow-through shares issued Settlement of flow-through share premium liability upon incurring eligible expenditures Balance, end of period	Nine months ended September 30, 2021 Year ended December 31, 2020
	$ 40,361 $ 227,786 304,500 152,483 (276,873) (339,908)
	$67,988 $40,361

9. SHARE CAPITAL

Authorized: Unlimited common shares, without par value

Issued: 52,839,878 common shares (December 31, 2020 – 44,060,433 common shares)

Transactions in 2021:

• a) On May 10, 2021, the company closed a two-tranche private placement for total proceeds of $3,726,500, consisting of 1,514,445 non-flow-through units at a price of $0.45 per unit for proceeds of $681,500 and 6,090,000 flow-through units at a price of $0.50 per flow-through unit for proceeds of $3,045,000.

Each non-flow-through unit consists of one common share and one-half of a non-flow-through, nontransferable share purchase warrant. Each whole warrant entitles the holder to purchase one additional common share at a price of $0.65 per share for a 2-year period.

Each flow-through unit consists of one flow-through common share and one-half of a non-flow-through, non-transferable share purchase warrant. Each whole warrant entitles the holder to purchase one additional common share at a price of $0.70 per share for a 2-year period. The flow-through shares will qualify as “flow-through shares” for the purpose of the Income Tax Act (Canada) (the “Act”). The proceeds of the flow-through private placement will be incurred on “Canadian exploration expenses” (within the meaning of the Act). The Company will renounce these expenses to the purchasers with the effective date no later than December 31, 2021, and as required under the Act.

The Company paid a total of $13,800 in cash finders’ fees and issued 27,600 finder’s warrants exercisable at $0.50 per share for two years from the date of issuance. The finders warrants were valued at $6,207 under the Black Scholes pricing model. Other filing and transfer agent fees totalling $21,688 were incurred in connection with the financing. Shares and warrants issued on closing are subject to a trading hold period expiring four months plus one day from the date of issuance.

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METALLIS RESOURCES INC.

Notes to the Condensed Interim Financial Statements For the nine-month period ended September 30, 2021 (Expressed in Canadian Dollars)

9. SHARE CAPITAL (continued)

Transactions in 2021: (continued)

• b) During the period ended September 30, 2021, 1,175,000 stock options were exercised for total proceeds of $117,500. Directors and officers exercised 850,000 of these options for proceeds of $85,000. The fair value of the exercised options, using the Black-Scholes model, was $145,152, recorded as an increase to share capital and a deduction from contributed surplus.

Transactions in 2020:

On October 16, 2020, the Company closed a private placement $3,314,350 consisting of 3,049,666 flowthrough units issued at a price of $0.45 per flow-through unit for proceeds of $1,372,350 and 4,855,000 nonflow-through units issued at a price of $0.40 per unit for proceeds of $1,942,000. Each flow-through unit consisted of one flow-through common share and one non-flow-through, non-transferable share purchase warrant entitling the holder to purchase one additional non-flow-through common share at a price of $0.68 per share for a 3-year period. Each non-flow-through unit consisted of one common share and one non-flowthrough, non-transferable share purchase warrant entitling the holder to purchase one additional common share at a price of $0.60 per share for a 3-year-period. The Company recorded a flow-through premium liability of $152,483 in respect of the flow-through share issuance as a deduction from share capital.

The Company recorded total share issuance costs in the private placement of $56,603 comprised of cash commissions of $24,150, filing and certificate fees of $20,488 and 53,666 finders’ warrants fair valued at $11,965 using the Black-Scholes options pricing model. The finders’ warrants are exercisable at $0.40 per share for a three-year period.

Stock options:

The Company has a stock option plan in place under which it is authorized to grant options to its directors, executive officers, employees and consultants. At the Company’s previous Annual General Meeting held on September 15, 2020, the shareholders re-approved the adoption of a 10% Rolling Stock Option Plan. The exercise price of each stock option equals the market price of the Company's stock as calculated on the date of grant. The options can be granted for a maximum term of 5 years and vest at the discretion of the Board of Directors at the time of grant.

Stock options granted to employees or consultants in respect of investor relations activities follow the vesting provisions of the TSX-V, which allow for vesting of options as to no more than 25% of the grant vesting each three months, measured from the date of grant.

For the period ended September 30, 2021, the Company recorded share-based compensation of $645,490 as follows:

• i) $19,528 in respect of the portion of 100,000 investor relations options granted in 2020 which vested during the current period;

• ii) $194,735 in respect of 550,000 stock options granted to consultants, exercisable at $0.50 per share for a five-year period;

• iii) $27,545 in respect of 120,000 stock options granted to a consultant, exercisable at $0.45 per share for a two-year period; and

• iv) $403,682 in respect of 1,900,000 stock options granted to directors, officers and consultants, exercisable at $0.39 per share for a five-year period.

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Notes to the Condensed Interim Financial Statements For the nine-month period ended September 30, 2021 (Expressed in Canadian Dollars)

METALLIS RESOURCES INC.

9. SHARE CAPITAL (continued)

Stock options: (continued)

The following weighted average parameters were used for determination of fair value of the option grants described above:

Risk-free interest rate	0.64%
Expected life	4 years
Annualized volatility	102.8%
Forfeiture rate	0%
Dividends	0%
Weighted average fair value of options	$0.26

Stock option transactions are summarized as follows:

ck option transactions are summarized as follows:
	Number of stock options outstanding Weighted average exercise price
Balance, December 31, 2019 Options granted Balance, December 31, 2020 Options exercised Options granted Balance, September 30, 2021	3,035,000 $ 0.62 450,000 0.40
	3,485,000 $ 0.59 (1,175,000) 0.10 2,570,000 0.42
	4,880,000 $ 0.62

As at September 30, 2021, the following incentive stock options are outstanding and exercisable:

Expiry Date	Number of Options Vested and exercisable Exercise Price ( $ ) Weighted remaining contractual life (years)
August 18, 2022 April 23, 2023 July 13, 2023 August 9, 2023 October 6, 2025 April 12, 2026 September 27, 2026 Total outstandingoptions	760,000 760,000 0.39 0.88 120,000 120,000 0.45 1.56 1,000,000 1,000,000 1.35 1.78 100,000 100,000 1.05 1.86 450,000 425,000 0.40 4.02 550,000 550,000 0.50 4.53 1,900,000 1,900,000 0.39 5.98
	4,880,000 4,855,000 3.79

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METALLIS RESOURCES INC.

Notes to the Condensed Interim Financial Statements For the nine-month period ended September 30, 2021 (Expressed in Canadian Dollars)

9. SHARE CAPITAL (continued)

Warrants:

Through certain unit offerings that completed, the Company has issued warrants in addition to shares. Warrant transactions are summarized as follows:

	Number of Warrants outstanding Weighted average exercise price
Balance at December 31, 2019 Warrants issued Balance at December 31, 2020 Warrants issued Warrants expired Balance at September 30, 2021	948,571 $ 1.60 7,958,332 0.63
	8,906,903 $ 0.73 3,829,822 0.69 (948,571) 1.60
	11,788,154 $ 0.65

As at September 30, 2021, the following warrants are outstanding:

Expiry Date	Number of Warrants Exercise Price ( $ ) Weighted average remaining contractual life (years)
April 30, 2023 April 30, 2023 April 30, 2023 May 7, 2023 May 7, 2023 May 7, 2023 October 7, 2023 October 7, 2023 October 7, 2023 October 16, 2023 October 16, 2023 October 16, 2023 Total	380,555 0.65 1.58 2,985,000 0.70 1.58 24,000 0.50 1.58 376,667 0.65 1.60 60,000 0.70 1.60 3,600 0.50 1.60 4,805,000 0.60 2.02 2,383,000 0.68 2.02 7,000 0.40 2.02 50,000 0.60 2.04 666,666 0.68 2.04 46,666 0.40 2.04
	11,788,154 1.88

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METALLIS RESOURCES INC.

Notes to the Condensed Interim Financial Statements For the nine-month period ended September 30, 2021 (Expressed in Canadian Dollars)

10. RELATED PARTY TRANSACTIONS

The following related parties, for the periods presented, include directors and key management personnel, including those entities in which such individuals may hold positions that result in them having control or significant influence over the financial or operation policies of these entities:

• a) Avanti Consulting Inc., a company controlled by the current Chief Executive Officer and director of the Company, provides consulting services to the Company;

• b) Lever Capital Corp., a company owned by the current Chief Financial Officer and director, provides consulting services to the Company;

• c) D. G. Dupre and Associates Inc., is a company that is controlled by the Vice-President of Exploration of the Company which provides the Company with geological consulting services, the amounts of which are capitalized under exploration and evaluation assets;

• d) DRW Geological Consultants Ltd. is a company controlled by a director of the company and which provides occasional geological consulting services to the Company, the amounts of which are capitalized under exploration and evaluation assets;

• e) Magma Geosciences Inc. is a company controlled by the Vice-President of Geoscience Services (the position was established June 1, 2021), and which provides geological consulting services to the Company, the amounts of which are capitalized as geological costs under exploration and evaluation assets; and

• f) Etruscus Resources Corp., a public company related through two common directors and a common officer, subleases office space from the Company, shares certain administrative expenses and also shared an exploration camp this past season, all of which results in occasional reimbursable amounts.

The aggregate value of fee-based transactions (exclusive of share-based compensation) and outstanding balances relating to the above noted related parties are as follows:

		Transactions
		for	Transactions for	Balance		Balance
		the period ended	the year ended	receivable as at		payable as	at
		September 30,	December 31,	September 30,		December 31,
		2021	2020	2021		2020
Avanti Consulting Inc.	(a)	$ 113,000	$ 132,000	$	-	$	-
Lever Capital Corp.	(b)	68,000	84,000		-		-
D.G. Dupre and Associates Inc.	(c)	48,500	60,000		-		-
DRW Geological Consultants Ltd.	(d)	-	2,500		-	(210)
Magma Geosciences Inc.	(e)	44,000	-		-		-
Etruscus Resources Corp.	(f)	-	-	15,380			-
Total		$ 273,500	$278,500	$ 15,380		$(210)

Loans to related parties:

During the nine-month period ended September 30, 2021, directors and officers exercised 850,000 stock options for cash proceeds of $85,000. Income tax and CPP was recorded in respect of the option benefits calculated at the time of exercise. The Company remitted the amounts to the CRA, and recorded the amounts as loans receivable, totalling $48,119. The loans have a one-year term, are payable on demand and mature on May 15, 2022, with interest at CRA prescribed rates, currently 1%. As at September 30, 2021, accrued interest receivable was $180 for total loans and interest receivable of $48,299.

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METALLIS RESOURCES INC.

Notes to the Condensed Interim Financial Statements For the nine-month period ended September 30, 2021 (Expressed in Canadian Dollars)

11. SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS

The significant non-cash investing and financing transactions during the period ended September 30, 2021 are as follows:

• a) A total flow-through premium liability of $304,500 was recorded as a deduction from share capital, in respect of flow-through shares issued by the Company;

• b) Qualifying exploration expenditures incurred during the period resulted in a $276,873 reduction of the flow-through premium liability, recorded as other income on settlement of flow through premium liability;

• c) The Company issued 27,600 finders’ warrants valued at $6,207 shown on the statements of changes in equity as an issuance cost;

• d) As at September 30, 2021, exploration and evaluation asset cost recoveries of $119,009 were included in receivables; and

• e) As at September 30, 2021, exploration and evaluation asset costs of $532,036 were included in accounts payable and accrued liabilities.

The significant non-cash investing and financing transactions during the nine-month period ended September 30, 2020 were as follows:

• f) As at September 30, 2020, exploration and evaluation asset costs of $498,781 were included in accounts payable and accrued liabilities; and

• g) Sufficient qualifying exploration expenditures were incurred to offset the flow-through premium liability in the amount of $227,786, recorded as other income on settlement of flow-through premium liability for the period.

12. FINANCIAL AND CAPITAL RISK MANAGEMENT

Financial instruments

The Company’s financial instruments consist of cash and cash equivalents, receivables, deposits, accounts payable, lease liability and due to related parties. Except for cash and cash equivalents, all financial instruments held by the Company are measured at amortized cost. Nevertheless, the fair values of these financial instruments approximate their carrying value due to their short-term maturities. The fair values of cash and cash equivalents are measured at fair value through profit or loss and any changes to fair value subsequent to initial recognition are recorded in profit or loss for the period in which they occur.

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METALLIS RESOURCES INC.

Notes to the Condensed Interim Financial Statements For the nine-month period ended September 30, 2021 (Expressed in Canadian Dollars)

12. FINANCIAL AND CAPITAL RISK MANAGEMENT (continued)

Fair values of financial instruments are classified in a fair value hierarchy based on the inputs used to determine fair values, as follows:

The three levels of the fair value hierarchy are:

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

The fair values of cash and cash equivalents are measured based on Level 1 inputs of the fair value hierarchy.

The Company’s risk exposures and the impact on the Company’s financial instruments are summarized below:

Credit Risk

Credit risk arises from the potential that one or more counterparties fail to meet their obligations. The Company is normally exposed to credit risk through its cash and cash equivalents and receivables. The Company manages credit risk associated with its cash and cash equivalents by using reputable financial institutions, from which management believes the risk to be remote. Receivables primarily consist of recoverable Canadian sales taxes, Canadian mineral exploration tax credits and accrued interest, which management believes the collectability of these amounts to be assured.

Liquidity Risk

The Company’s approach to managing liquidity risk is to ensure that it will have sufficient liquidity to meet liabilities when due. As at September 30, 2021, the Company has cash and cash equivalents of $2.3 million (December 31, 2020 - $2.3 million) to settle total current liabilities of $0.6 million (December 31, 2020 - $0.3 million). The Company has sufficient liquidity for its working capital requirements over the ensuing year and its 2022 Phase I field exploration programs.

The Company has historically relied on equity financings and non-core asset sales for its capital requirements. It will continue to depend upon equity capital as required and may also enter into convertible debentures, earnin arrangements, joint ventures or the sale of certain property interests. There can be no assurance the Company will be able to obtain its future financings on acceptable terms. The ability of the Company to continue this course will depend, in part, on the prevailing market conditions and the market interest in financing the Company’s mineral property exploration programs.

Interest rate risk

The Company is not exposed to material risk in the event of interest rate fluctuations. The Company has no long-term debt other than a lease liability, has not entered into any interest rate swaps or other financial arrangements that mitigate the exposure to interest rate fluctuations, and current interest rates remain historically low. For these reasons, the Company believes it is not subject to material risks should interest rates change.

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METALLIS RESOURCES INC.

Notes to the Condensed Interim Financial Statements For the nine-month period ended September 30, 2021 (Expressed in Canadian Dollars)

12. FINANCIAL AND CAPITAL RISK MANAGEMENT (continued)

Foreign currency risk

The Company's functional currency is the Canadian dollar and immaterial amounts are in other currencies. Management believes the foreign exchange risk derived from currency conversions is not significant and therefore does not hedge its foreign exchange risk.

13. CAPITAL MANAGEMENT

The Company endeavors to maintain appropriate levels of capital and liquidity. Sufficient liquidity is required to meet liabilities and financial obligations as they become due. The Company has no commercial operations or source of revenue, no long-term debt other than a lease liability, and no externally imposed capital requirements other than those specified under continuous listing requirements. The Company's capital is, therefore, its issued share capital. The capital required for operations and property exploration is expected to continue to come from the issuance of common shares or units for the foreseeable future. The Company's objectives of capital and liquidity management are to fund critical exploration work, meet on-going liabilities, maintain creditworthiness, minimize shareholder dilution and to ultimately maximize returns for shareholders over the long term.

There were no changes in the Company’s capital management objectives during the period ended September 30, 2021.

The Company is not subject to externally imposed capital requirements.

14. EVENTS AFTER THE REPORTING PERIOD

The Company’s Annual General and Special Meeting was held on October 29, 2021 and all resolutions passed.

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