Rio Silver Inc. — Audit Report / Information 2019

Jun 1, 2020

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Rio Silver Inc. Audited Consolidated Financial Statements December 31, 2019 and 2018 (Expressed in Canadian dollars)

MANAGEMENT'S RESPONSIBILITY

Management is responsible for the preparation and presentation of the accompanying consolidated financial statements, including responsibility for significant accounting judgments and estimates in accordance with International Financial Reporting Standards. This responsibility includes selecting appropriate accounting principles and methods, and making decisions affecting the measurement of transactions in which objective judgment is required.

In discharging its responsibilities for the integrity and fairness of the consolidated financial statements, management designs and maintains the necessary accounting systems and related internal controls to provide reasonable assurance that transactions are authorized, assets are safeguarded and financial records are properly maintained to provide reliable information for the preparation of consolidated financial statements.

The Board of Directors and Audit Committee are composed primarily of Directors who are neither management nor employees of the Company. The Board is responsible for overseeing management in the performance of its financial reporting responsibilities. The Board fulfils these responsibilities by reviewing the financial information prepared by management and discussing relevant matters with management and external auditors. The Audit Committee has the responsibility of meeting with management and external auditors to discuss the internal controls over the financial reporting process, auditing matters and financial reporting issues. The Board of Directors is also responsible for recommending the appointment of the Company's external auditors.

MNP LLP, an independent firm of Chartered Professional Accountants, is appointed by the shareholders to audit the consolidated financial statements and report directly to them; their report follows. The external auditors have full and free access to, and meet periodically and separately with, both the Audit Committee and management to discuss their audit findings.

(signed) “Chris Verrico” (signed) “Chris Hopton” Chris Verrico Chris Hopton President and Chief Executive Officer Chief Financial Officer

Vancouver, Canada May 29, 2020

2

Independent Auditor's Report

To the Shareholders of Rio Silver Inc.:

Opinion

We have audited the consolidated financial statements of Rio Silver Inc. and its subsidiaries (the "Company"), which comprise the consolidated statements of financial position as at December 31, 2019 and December 31, 2018, and the consolidated statements of loss and comprehensive loss, changes in shareholders’ equity (deficit) and cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as at December 31, 2019 and December 31, 2018, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards.

Basis for Opinion

We conducted our audits in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audits of the consolidated financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Material Uncertainty Related to Going Concern

We draw attention to Note 2 in the consolidated financial statements, which indicates that at December 31, 2019, the Company had no revenues, has a working capital deficit of $580,690, had not achieved profitable operations, had an accumulated deficit of $15,854,350 and expects to incur further losses in the development of its business. As stated in Note 2, these events or conditions, along with other matters as set forth in Note 2, indicate that a material uncertainty exists that may cast significant doubt on the Company’s ability to continue as a going concern. Our opinion is not modified in respect of this matter.

Other Information

Management is responsible for the other information. The other information comprises Management’s Discussion and Analysis.

Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audits of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audits or otherwise appears to be materially misstated. We obtained Management’s Discussion and Analysis prior to the date of this auditor’s report. If, based on the work we have performed on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

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

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Suite 2200, MNP Tower, 1021 West Hastings Street, Vancouver, British Columbia, V6E 0C3, Phone: (604) 685-8408, 1 (877)688-8408

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In preparing the consolidated financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

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

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

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

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

• Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

• Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Company to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

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

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

The engagement partner on the audit resulting in this independent auditor's report is Jenny Lee.

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Vancouver, British Columbia May 29, 2020

Chartered Professional Accountants

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Suite 2200, MNP Tower, 1021 West Hastings Street, Vancouver, British Columbia, V6E 0C3, Phone: (604) 685-8408, 1 (877)688-8408

RIO SILVER INC. CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(Expressed in Canadian dollars)

As at	December 31, 2019	December 31, 2019	December 31, 2018	December 31, 2018
ASSETS
Current Assets
Cash	$	15,504	$	2,766
Other receivable		8,000		13,855
Govemment taxes receivable (Note 6)		17,416		2,512
Prepaid expense		-		1,453
	$	40,920	$	20,586
LIABILITIES
Current Liabilities
Accounts payable and accrued liabilities (Note 8)	$	367,201	$	152,766
Promissory note (Note 11)		10,000		-
Due to related parties (Note 7)		244,409		212,438
		621,610		365,204
Long-term liabilities (Note 8)		-		199,060
		621,610		564,264
SHAREHOLDERS' EQUITY (DEFICIT)
Share capital (Note 9)		11,803,140		11,278,801
Contributed surplus (Note 9)		3,470,520		3,262,508
Accumulated deficit		(15,854,350)		(15,084,987)
		(580,690)		(543,678)
	$	40,920	$	20,586

GOING CONCERN (Note 2) SUBSEQUENT EVENTS (Note 14)

APPROVED ON BEHALF THE BOARD:

“Chris Verrico” Director “Edward J. Badida” Director Chris Verrico Edward J. Badida

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

RIO SILVER INC.

CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS FOR THE YEARS ENDED DECEMBER 31 (Expressed in Canadian dollars)

		2019		2018
Expenses
Exchange loss	$	2,023	$	3,469
Exploration and evaluation expenditures (Note 10)		376,401		72,907
Filling fees		18,275		18,720
Gain on settlment of debt		-		(8,579)
Management fees (Note 7)		78,500		84,000
Office and administration		43,073		41,034
Professional fees		172,243		62,580
Rent		11,000		12,000
Share-based payments (Note 7 and 9)		67,848		4,567
Net loss and comprehensive loss	$	769,363	$	290,698
Net loss per share- basic and diluted	$	0.02	$	0.01
Weighted average number of common shares-basic and diluted		44,041,296		39,479,540

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

RIO SILVER INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)

(Expressed in Canadian dollars, except share number)

	Contributed Accumulated Total Equity Number Amount Surplus Deficit (Deficit) Issued Common Shares
BALANCE, DECEMBER 31, 2017 Shares issued for cash (Note 9b(iv)) Share issuance costs (Note 9b(iv)) Shares issued for cash - exercise of warrants (Note 9b(vi)) Shares issued for debt settlement (Note 9b(v)) Shares issued for cash - exercise of options (Note 9b(vii)) Share-based payments (Note 9d) Net loss	$ $ $ $ 37,092,005 11,087,527 3,262,090 (14,794,289) (444,672) 2,000,000 68,723 31,277 - 100,000 - (4,190) - - (4,190) 200,000 14,607 (2,607) - 12,000 857,879 34,315 - - 34,315 900,000 77,819 (32,819) - 45,000 - - 4,567 - 4,567 - - - (290,698) (290,698)
BALANCE, DECEMBER 31, 2018 Shares issued for cash (Note 9b(i)) Share issuance costs (Note 9b(i)) Shares issued for cash - exercise of warrants (Note 9b(ii)) Share-based payments (Note 9d) Shares issued for debt settlement (Note 9b(iii)) Net loss	41,049,884 11,278,801 3,262,508 (15,084,987) (543,678) 11,520,000 433,832 142,168 - 576,000 - (5,124) 1,124 - (4,000) 200,000 15,128 (3,128) - 12,000 - - 67,848 - 67,848 1,610,060 80,503 - - 80,503 - - - (769,363) (769,363)
BALANCE, DECEMBER 31, 2019	54,379,944 11,803,140 3,470,520 (15,854,350) (580,690)

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

RIO SILVER INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31,

(Expressed in Canadian Dollars)

	2019	2018
	$	$
Operating Activities
Net loss for the year	(769,363)	(290,698)
Non-cash items:
Gain on settlment of debt	-	(8,579)
Share-based payments	67,848	4,567
Changes in working capital:
Other receivable	5,856	(13,855)
Government taxes receivable	(14,904)	1,888
Prepaid expense	1,453	(61)
Accounts payable and accrued liabilities	51,054	43,470
Due to relatedparties	76,794	109,422
Cash used in operatingactivities	(581,262)	(153,846)
Financing Activities
Shares issued for cash, net of share issuance costs	572,000	95,810
Option and warrants exercised	12,000	57,000
Promissorynote	10,000	-
Cashprovided byfinancingactivities	594,000	152,810
Increase (decrease) in cash	12,738	(1,036)
Cash,beginningofyear	2,766	3,802
Cash,end ofyear	15,504	2,766

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

Rio Silver Inc. Notes to the Consolidated Financial Statements Years ended December 31, 2019 and 2018 (Expressed in Canadian dollars unless otherwise noted)

1. NATURE OF OPERATIONS

Rio Silver Inc. (the “Company” or “Rio Silver”) is listed on the TSX Venture Exchange (TSXV”) under the symbol “RYO”. It is incorporated in Canada under the Canada Business Corporations Act. The Company’s corporate office and principal place of business is Suite 1600 – 595 Burrard Street, Vancouver, BC, V7X 1L4. The Company’s principal business activity is the acquisition, evaluation and development of mineral properties in the Americas.

2. BASIS OF PRESENTATION AND GOING CONCERN

Statement of compliance

These consolidated financial statements of the Company and its subsidiaries are prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).

These consolidated financial statements were approved and authorized for issuance by the Audit Committee and the Board of Directors on May 29, 2020.

Going concern

The Company is in the process of exploring and evaluating its mineral properties. On the basis of information to date, it has not yet determined whether these properties contain economically recoverable mineral deposits.

The business of mining and exploration involves a high degree of risk and there can be no assurances that the Company’s exploration programs will result in profitable mining operations. Until it is determined that a property contains mineral reserves or resources that can be economically mined, it is classified as an exploration property. The Company’s continued existence is dependent upon the discovery of economically recoverable reserves and resources, securing and maintaining title and beneficial interest in its properties, and making the required payments pursuant to mineral property option agreements.

The Company has raised funds throughout the prior fiscal years and has utilized these funds for working capital and capital expenditures requirements. The ability of the Company to arrange such financing in the future will depend in part upon the prevailing capital market conditions as well as the business performance of the Company. There can be no assurance that the Company will be successful in its efforts to arrange additional financing on terms satisfactory to the Company. If additional financing is raised by the issuance of shares from the treasury of the Company, control of the Company may change and existing shareholders may have their interest diluted. If adequate financing is not available, the Company may be required to relinquish rights to certain of its interests or terminate its operations.

These consolidated financial statements have been prepared on a going-concern basis, which assumes that the Company will be able to realize assets and discharge liabilities in the normal course of business. If the going concern assumption was not used then the adjustments required to report the Company’s assets and liabilities on a liquidation basis could be material to these consolidated financial statements. Accordingly, these consolidated financial statements do not give effect to adjustments, if any, that would be necessary should the Company be unable to continue as a going concern.

At December 31, 2019, the Company had no revenues, had a working capital deficit of $580,690 (December 31, 2018 – working capital deficit of $344,618), had not achieved profitable operations, had an accumulated deficit of $15,854,350 (December 31, 2018 - $15,084,987) and expects to incur further losses in the development of its business, all of which indicates a material uncertainty that may cast significant doubt upon the Company’s ability to continue as a going concern. The Company will require

Rio Silver Inc. Notes to the Consolidated Financial Statements Years ended December 31, 2019 and 2018 (Expressed in Canadian dollars unless otherwise noted)

additional financing in order to conduct its planned work programs on mineral properties, meet its ongoing levels of corporate overhead and discharge its liabilities as they come due.

Basis of presentation

These consolidated financial statements have been prepared on a historical cost basis except for the revaluation of certain financial assets to fair value. In addition, these consolidated financial statements have been prepared using the accrual basis of accounting except for cash flow information.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accounting policies set out below have been applied consistently to all periods presented in the consolidated financial statements.

Principles of consolidation

The consolidated financial statements of the Company consolidate the accounts of the following companies:

Company Rio Silver Inc. Rio Silver Exploration Ltd. Minera Rio Plata S.A.C.	Location Canada Canada Peru	Ownership Principal Activity - Parent company 100% Holding company 100% Exploration company

The results of the subsidiaries are included in the consolidated statements of loss and comprehensive loss and statements of cash flows from the effective date of acquisition. All inter-company transactions, balances, income and expenses are eliminated in full on consolidation.

Functional currency and foreign operation

IFRS requires that the functional currency of each entity in the consolidated group be determined separately in accordance with the indicators as per IAS 21 – Foreign exchange and should be measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The parent and subsidiaries’ functional currency is the Canadian dollar for operations in both Peru and Canada. The consolidated financial statements are presented in Canadian dollars, which is the parent and subsidiaries’ presentation currency.

Financial instruments

Financial assets

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.

Subsequent to initial recognition, all financial assets are classified and subsequently measured at amortized cost, fair value through other comprehensive income (FVOCI) or through net income (FVTPL). Interest income 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 other receivable. Financial assets measured at FVTPL are comprised of cash.

Rio Silver Inc. Notes to the Consolidated Financial Statements Years ended December 31, 2019 and 2018 (Expressed in Canadian dollars unless otherwise noted)

A financial asset is measured at amortized cost if it meets both of the following conditions and is not designated at FVTPL:

• it is held within a business model whose objective is to hold assets to collect contractual cash flows; and

• its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

Equity investments held for trading are classified as FVTPL. For all other equity investments that are not held for trading, the Company, on initial recognition, may irrevocably elect to present subsequent changes in the investment's fair value in other comprehensive income (OCI). This election is made on an investment-by-investment basis.

The Company reclassifies debt instruments only when its business model for managing those financial assets has changed. Reclassifications are applied prospectively from the reclassification date and any previously recognized gains, losses or interest are not restated.

The Company recognizes a loss allowance for the expected credit losses associated with its financial assets. Expected credit losses are measured to reflect a probability-weighted amount, the time value of money, and reasonable and supportable information regarding past events, current conditions and forecasts of future economic conditions.

The Company applies the simplified approach for accounts receivable that do not contain a significant financing component. 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.

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

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

Financial liabilities

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.

Subsequent to initial recognition, all financial liabilities are measured at amortized cost using the effective interest rate method, unless they must be measured at FVTPL (such as derivatives) or if the Company elects to measure them at FVTPL. Interest, gains and losses relating to a financial liability are recognized in profit or loss. Financial liabilities measured at amortized cost are comprised of accounts payable and accrued liabilities, promissory note and due to related parties.

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

Rio Silver Inc. Notes to the Consolidated Financial Statements Years ended December 31, 2019 and 2018 (Expressed in Canadian dollars unless otherwise noted)

Interest

Interest income and expense are recognized in profit or loss using the effective interest method. The ‘effective interest rate’ is the rate that exactly discounts estimated future cash payments over the expected life of the financial instrument to the gross carrying amount of the financial asset or the amortized cost of the financial liability. The effective interest rate is calculated considering all contractual terms of the financial instruments, except for the expected credit losses of financial assets.

The ‘amortized cost’ of a financial asset or financial liability is the amount at which the instrument is measured on initial recognition minus principal repayments, plus or minus any cumulative amortization using the effective interest method of any difference between the initial amount and maturity amount and adjusted for any expected credit loss allowance. The ‘gross carrying amount’ of a financial asset is the amortized cost of a financial asset before adjusting for any expected credit losses.

Interest income and expense is calculated by applying the effective interest rate to the gross carrying amount of the financial asset (when the asset is not credit-impaired) or the amortized cost of the financial liability.

Where a financial asset has become credit-impaired subsequent to initial recognition, interest income is calculated in subsequent periods by applying the effective interest method to the amortized cost of the financial asset. If the asset subsequently ceases to be credit-impaired, calculation of interest income reverts to the gross basis.

Offsetting

Financial assets and financial liabilities are offset, with the net amount presented in the statement of financial position, when, and only when, the Company has a current and legally enforceable right to set off the recognized amounts and intends either to settle on a net basis or realize the asset and settle the liability simultaneously.

Income and expenses are presented on a net basis only when permitted under IFRS, or when arising from a group of similar transactions if the resulting income and expenses are not material.

Exploration and evaluation expenditures

The Company expenses exploration and evaluation expenditures as incurred. Exploration and evaluation expenditures include property option payments and other property acquisition and preservation costs and exploration and evaluation activities. The Company records property option payments and government assistance received on account of exploration and evaluation activities on a net basis against expenditures.

Share-based payment transactions

The fair value of share options granted to directors, officers, employees, and consultants is recognized as an expense over the vesting period using the graded vesting method with a corresponding increase in equity. An individual is classified as an employee when the individual is an employee for legal or tax purposes (direct employee) or provides services similar to those performed by a direct employee, including directors of the Company. The fair value is measured at the grant date and recognized over the period during which the options vest. The fair value of the options granted is measured using the BlackScholes option-pricing model, taking into account the terms and conditions upon which the options were granted. At the end of each reporting period, the amount recognized as an expense is adjusted to reflect the actual number of share options that are expected to vest. Share-based payments incorporates an expected forfeiture rate.

Rio Silver Inc. Notes to the Consolidated Financial Statements Years ended December 31, 2019 and 2018 (Expressed in Canadian dollars unless otherwise noted)

Fair value of the warrants issued with common shares

Proceeds from unit placements are allocated between common shares and warrants issued using the residual method. The proceeds are first attributed to the warrants according to the fair market value at the time of issuance with the residual amount allocated to the common shares. The Company uses the BlackScholes pricing model to determine the fair value of the warrants issued.

Income taxes

Income tax expense consists of current and deferred tax expense. Current and deferred tax are recognized in profit or loss except to the extent that it relates to items recognized directly in equity or other comprehensive income.

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 consolidated 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.

Loss per share and comprehensive loss per share

Loss per share is based on the weighted average number of common shares outstanding for the year. In a year when the Company reports a loss and comprehensive loss, the effect of potential issuances of shares under options and warrants outstanding would be anti-dilutive and, therefore basic and diluted loss and comprehensive loss per share are the same.

Significant accounting judgements and estimates

The preparation of these consolidated financial statements requires management to make judgment, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities at the date of the financial statements and reported amounts of expenses during the reporting period. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual outcomes could differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and further periods if the review affects both current and future periods.

Critical accounting judgments

The critical judgments that the Company’s management has made in the process of applying the Company’s accounting policies that have the most significant effect on the amounts recognized in these consolidated financial statements are as follows:

Rio Silver Inc. Notes to the Consolidated Financial Statements Years ended December 31, 2019 and 2018 (Expressed in Canadian dollars unless otherwise noted)

Evaluation of the Company’s ability to continue as a going concern

As at December 31, 2019, the Company has working capital deficit of $568,490 (2018: $344,618) and has incurred accumulated deficit of $15,854,350 (2018: $15,084,987) since incorporation. The Company possesses $15,504 (2018: $2,766) in cash. The continuation of the Company as a going concern is dependent upon its ability to execute its strategy and finance the operations through achieving positive cash flow from operations of by obtaining additional funding through debt or equity financing involves judgments. Management routinely plans future activities including forecasting future cash flows. Management has reviewed their plan with the Directors and has collectively formed a judgement that the Company has adequate resources to continue as a going concern for the foreseeable future, which Management and the Directors have defined as being at least the next 12 months. In arriving at this judgment, Management has prepared the cash flow projections of the Company. Directors have reviewed this information provided by management and have considered the financial resources available to the Company. The expected cash flows have been modeled based on anticipated debt and equity funding programmed into the model and reducing over time.

Management has assessed and concluded that the going concern assumption is appropriate for a period of at least twelve months following the end of the reporting period. Management applied significant judgement in arriving at this conclusion by considering the following:

• The amount of cash on hand as of year end;

• The ability to source new debt and equity financing to provide sufficient cash flow to continue to fund operations and other committed expenditures; and

• The ability to delay the payment for the due to related parties balance in order to manage cash flows.

Considering the above, Management and Directors continue to adopt the going concern basis in preparing the consolidated financial statements.

Given the judgement involved, actual results may lead to a materially different outcome.

Determination of functional currency of the Company

The functional currency for each of the Company and its subsidiary is the currency of the primary economic environment in which each entity operates. The determination of each entity’s functional currency requires analyzing facts that are considered primary factors, and if the result is not conclusive, the secondary factors. The analysis requires management to apply significant judgment since primary and secondary factors may be mixed. In determining its functional currency, management analyzed both the primary and secondary factors, including the currency of each entity’s operating cash flow, and sources of financing.

Key sources of estimation uncertainty

Deferred taxes

The calculation of deferred tax is based on assumptions, which are subject to uncertainty as to timing and which tax rates are expected to apply when temporary differences reverse. Deferred tax recorded is also subject to uncertainty regarding the magnitude on non-capital losses available for carry forward and of the balances in various tax pools.

Rio Silver Inc. Notes to the Consolidated Financial Statements Years ended December 31, 2019 and 2018 (Expressed in Canadian dollars unless otherwise noted)

Share-based payment transactions and FV value of warrants issued with common shares

The fair value of share-based payment and fair value of warrants are determined using the Black-Scholes option pricing model. Estimating fair value requires determining the most appropriate valuation model for a grant of equity instruments, which is dependent on the terms and conditions of the grant. Option-pricing models require the use of highly subjective estimates and assumptions including the expected stock price volatility. Changes in the underlying assumptions can materially affect the fair value estimates and, therefore, existing models do not necessarily provide reliable measurement of the fair value of the Company’s stock options and warrants issued with common shares.

New accounting standard adopted

IFRS 16 Leases:

Effective January 1, 2019 (hereafter referred to as the “date of initial application”), the Company adopted IFRS 16 Leases as issued by the IASB in January 2016. The standard sets out the principles for the recognition, measurement, presentation and disclosure of leases for both the lessee and lessor. The standard supersedes the requirements in IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC 15 Operating Leases Incentives, and SIC 27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease.

There was no material impact on the consolidated financial statements from the retrospective application of IFRS 16 Leases as the Company has no leases.

IFRS 9 Financial Instruments (Amendments)

In October 2017, the International Accounting Standards Board (IASB) issued amendments to IFRS 9 Financial Instruments, incorporated into Part I of the CPA Canada Handbook – Accounting by the Accounting Standards Board (AcSB) in November 2017, to address the classification of certain prepayable financial assets.

The amendments clarify that a financial asset that would otherwise have contractual cash flows that are solely payments of principal and interest but do not meet that condition only as a result of a prepayment feature with negative compensation may be eligible to be measured at either amortized cost or fair value through other comprehensive income. This classification is subject to the assessment of the business model in which the particular financial asset is held as well as consideration of whether certain eligibility conditions are met. The amendments are effective for annual period beginning on or after January 1, 2019. Earlier application is permitted. The adoption of this standard did not have material impact to the Company’s consolidated financial statements.

IFRIC 23 Uncertainty over Income Tax Treatments

In June 2017, the IFRS Interpretation Committee issued IFRIC 23, which clarifies how the recognition and measurement requirements of IAS 12 Income Taxes are applied where there is uncertainty over income tax treatments. IFRIC 23 becomes effective for annual periods beginning on or after January 1, 2019 and is to be applied retrospectively with early adoption permitted. The adoption of this standard did not have material impact to the Company’s consolidated financial statements.

Recent accounting pronouncements not yet effective

Certain pronouncements have been issued by the IASB or the IFRS Interpretations Committee (“IFRIC”) that are mandatory for accounting periods ending after these consolidated financial statements. Some

Rio Silver Inc. Notes to the Consolidated Financial Statements Years ended December 31, 2019 and 2018 (Expressed in Canadian dollars unless otherwise noted)

are not applicable or do not have a significant impact to the Company and have been excluded from the discussion below.

The following new standards, amendments and interpretations that have not been early adopted in these consolidated financial statements will or may have an effect on the Company’s future results and financial position:

IAS 1 Presentation of Financial Statements

Amendments to IAS 1, issued in October 2018, provide clarification on the definition of material and how it should be applied. The amendments also align the definition of material across IFRS standards and other publications.

The amendments are effective for annual periods beginning on or after January 1, 2020 and are required to be applied prospectively. The Company is currently assessing the impact of these amendments on its consolidated financial statements.

4. CAPITAL MANAGEMENT

The capital structure of the Company consists of equity attributable to common shareholders and includes share capital of $11,803,140 (December 31, 2018 - $11,278,801), contributed surplus of $3,470,520 (December 31, 2018 - $3,262,508), and deficit of $15,854,350 (December 31, 2018 - $15,084,987).

When managing capital, the Company’s objective is to ensure continuance as a going concern as well as to maintain optimal returns to shareholders and benefits for other stakeholders. Management adjusts the capital structure as necessary in order to support the acquisition, exploration and development of mineral properties. The Board of Directors does not establish quantitative return on capital criteria for management, but rather relies on the expertise of the Company’s management team to sustain the future development of the business.

The properties in which the Company currently has interests are in the exploration stage; as such, the Company is dependent on external financing to fund its activities (see note 2). In order to carry out the planned exploration and pay for administrative costs, the Company will spend its existing working capital and raise additional funds as needed. The Company will continue to assess new properties and seek to acquire interests in additional properties if it feels there is sufficient geologic or economic potential and if it has adequate financial resources to do so.

Management reviews its capital management approach on an ongoing basis and believes that this approach, given the relative size of the Company, is appropriate.

There were no changes in the Company’s approach to capital management during the year ended December 31, 2019. The Company is not subject to externally imposed capital requirements.

5. FINANCIAL INSTRUMENTS RISK FACTORS

The Company’s activities expose it to a variety of financial risks. The Company’s overall business strategies, tolerance of risk and general risk management philosophy are determined by the directors in accordance with prevailing economic and operating conditions.

The Company has the following financial instruments as of December 31, 2019 and December 31, 2018:

Rio Silver Inc. Notes to the Consolidated Financial Statements Years ended December 31, 2019 and 2018

(Expressed in Canadian dollars unless otherwise noted)

Financial assets Cash Other receivables Financial liabilities Accounts payable and accrued liabilities Promissory note Due to related parties Long-term liabilities	December 31, 2019 December 31, 2018 Categories $ $
	FVTPL 15,504 2,766 Amortized cost 8,000 13.855 Amortized cost 367,201 152,766 Amortized cost 10,000 - Amortized cost 244,409 212,438 Amortized cost - 199,060

Fair value of financial instruments

The Company classifies its fair value measurements in accordance with the three level fair value hierarchies as follows:

Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2 - inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

Level 3 - inputs for the asset or liability that are not based on observable market data (unobservable inputs).

The fair value of cash, other receivables, accounts payable and accrued liabilities, promissory note and due to related parties approximate their carrying values due to the short-term nature of these instruments. The fair value of long-term liabilities is determined by discounting future payments of loan principals and interests under the loans at prevailing market interest rates at each reporting date. The difference between the fair value and carrying amount is minimal.

Financial risk management objectives and policies

The risks associated with these consolidated financial instruments and the policies on how to mitigate these risks are set out below. Management monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner.

Credit risk

Credit risk is the risk of loss associated with the counterparty’s inability to fulfill its payment obligations. The Company’s credit risk is attributable to cash. Cash is held with a reputable Canadian chartered bank, from which management believes the risk of credit loss to be minimal.

Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company’s approach to managing liquidity risk is to ensure that it will have sufficient cash available to meet liabilities when they become due and payable. As at December 31, 2019, the Company had cash of $15,504 (December 31, 2018 - $2,766) to settle current liabilities of $621,610 (December 31, 2018 - $365,204) (see note 2). All of the Company’s financial liabilities have contractual maturities of 30 days or

Rio Silver Inc. Notes to the Consolidated Financial Statements Years ended December 31, 2019 and 2018 (Expressed in Canadian dollars unless otherwise noted)

less and are subject to normal trade terms with the exception of $nil (December 31, 2018 - $199,060) payable to a former CEO (Note 8). This amount is not expected to be paid until the Company’s working capital position has improved.

Market risk

Market risk is the risk of loss that may arise from changes in market factors such as, foreign currencies and commodity and equity prices.

Foreign exchange risk

Foreign currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Company’s functional currency, and that of all its subsidiaries, is the Canadian dollar. Some of the operational and other expenses incurred outside of Canada are paid in US dollars or Peruvian Nuevo sol. All assets and liabilities of the Company are recorded in Canadian dollars and as a result, fluctuations in the US dollar or Peruvian Nuevo sol vis-à-vis the Canadian dollar result in foreign exchange gains/losses. The Company currently has no plans for hedging its foreign currency transactions.

The Company has net financial labilities of approximately $14,120 (2018: $6,939) that are denominated in US dollars. A 5% change in the US dollars to the Canadian dollar exchange rate would impact the Company’s net loss and comprehensive loss by $918 (2018: $494).

The Company also has net financial assets of approximately $3,595 (2018 – $3,595) that are denominated in Peruvian Nuevo sol. A 5% change in the Peruvian Nuevo sol to the Canadian dollar exchange rate would impact the Company’s net loss and comprehensive loss by $70 (2018 - $73).

Commodity and equity price risk

The Company is exposed to price risk with respect to commodity prices. Commodity price risk is defined as the potential adverse impact on earnings and economic value due to commodity price movements and volatilities. The Company closely monitors commodity prices, particularly as they relate to base and precious metals, individual equity movements, and the stock market in general to determine the appropriate course of action to be taken by the Company.

As of December 31, 2019 and December 31, 2018, the Company’s sole financial instrument carried at fair value, being cash, was recorded at level 1 in the fair value hierarchy.

Accounts payable and accrued liabilities of the Company are principally comprised of amounts outstanding for trade purchases relating to exploration activities, amounts payable for financing activities and payroll liabilities.

6. Government Taxes Recoverable

Government taxes recoverable consists of GST/HST recoverable and VAT receivable in Peru. At December 31, 2019, the Company anticipates full recovery of these amounts and therefore no impairment has been recorded against these receivables.

7. Related Party Transactions

The Company defines key management as its Board of Directors, President and Chief Executive Officer and Chief Financial Officer. Remuneration of key management personnel:

Rio Silver Inc. Notes to the Consolidated Financial Statements Years ended December 31, 2019 and 2018

(Expressed in Canadian dollars unless otherwise noted)

	2019	2018
	$	$
Management fees	78,500	84,000
Accounting fees	31,500	-
Share-based payments	43,526	-
	153,526	84,000

The Company’s related parties consist of its Directors, Chief Executive Officer, and Chief Financial Officer. The following is a summary of the Company’s related party transactions and balances during the year:

• (a) Due to related parties includes $6,375 (December 31, 2018 - $12,000) payable to a private company owned by the Company’s current CEO; $9,450 (December 31, 2018 - $nil) payable to the Company’s current CFO and $135,000 (December 31, 2018 - $120,000) to the Company’s former CFO; and $nil (December 31, 2018 - $44,000) payable to the Company’s Chairman and $30,588 (December 31, 2018 - $nil) payable to a Company’s director.

• (b) Due to related parties includes $12,396 (December 31, 2018 - $36,438) payable to current directors and officers and a former officer for services provided and reimbursable expenses incurred on behalf of the Company in the normal course of business. These amounts are unsecured, non-interest bearing and without fixed repayment terms.

• (c) Due to related parties includes $50,600 (December 31, 2018 - $nil) of cash advanced from current directors, CEO and former CFO. These amounts are unsecured, non-interest bearing and without fixed repayment terms.

8. Long-term liabilities

Long-term liabilities consists of $nil (December 31, 2018 - $199,060) payable to the Company’s former CEO earned in his capacity as CEO of the Company up to July 12, 2013. Payment to the Company’s former CEO has been deferred until the Company’s working capital position has improved. As at December 31, 2019, such balance of $199,060 has been included in accounts payable and accrued liabilities.

9. Share Capital and Reserves

(a) Authorized:

Unlimited number of voting common shares without par value.

Unlimited number of non-voting preferred shares issuable in a series. The directors may determine the number of shares of each series and fix the designation, privileges, rights, restrictions and conditions attaching to each series subject to the filing of Articles of Amendment.

(b) Share transactions:

The share transactions for the years ended December 31, 2019 and 2018 are as follows:

• (i) On November 7, 2019, the Company completed a private placement for total gross proceeds of $576,000. The private placement consists of 11,520,000 units at $0.05 per unit. Each unit consists of one common share of the Company and one common share purchase warrant. Each warrant is

Rio Silver Inc. Notes to the Consolidated Financial Statements Years ended December 31, 2019 and 2018 (Expressed in Canadian dollars unless otherwise noted)

exercisable into one additional common share of the Company at a price of $0.07 per share until May 7, 2021, unless the closing price of the common shares of the Company is $0.15 or higher for fifteen (15) consecutive trading days any time after the date that is four months and a day after issue, in which case the Warrants will expire thirty (30) calendar days after notice to Warrant holders announcing an earlier expiry date (the "Accelerated Expiry"). The Company paid finders' fees of $4,000 in cash and issued 80,000 finder warrants fair value at $1,124, with each such finder warrant entitling the holder thereof to acquire one common share of the Company at a price of $0.07 per share until May 7, 2021, subject to the Accelerated Expiry. As a result, the Company issued 11,520,000 common share purchase warrants valued at $142,168. The fair value of the common share purchase warrants issued in the financing was estimated using the Black-Scholes pricing model with the following assumptions: expected dividend yield 0%, expected volatility 102%, risk free interest rate of 1.63%, expected life of one and a half year, and a share price of $0.04.

• (ii) During the year ended December 31, 2019, there were 200,000 warrants exercised at $0.06 per share for gross proceeds of $12,000.

• (iii) During the year ended December 31, 2019, the Company settled an aggregate of $80,503 in indebtedness owed to certain arm’s length and non-arm’s length creditors through the issuance of an aggregate of 1,610,060 common shares at a deemed issuance price of $0.05 per common share.

• (iv) On June 1, 2018, the Company completed a non-brokered private placement financing (the “Financing”) of 2,000,000 units at $0.05 per unit for gross proceeds of $100,000. Each unit consisted of one common share of the Company and one common share purchase warrant exercisable at $0.06 until June 1, 2019 unless the closing price of the common shares of the Company is $0.10 or higher for twenty (20) consecutive trading days any time after October 2, 2018, in which case the warrants will expire thirty (30) days after notice to warrant holders announcing an earlier expiry date. Finder’s fees of $2,800 were paid in connection with the financing. As a result of the Financing the Company issued 2,000,000 common share purchase warrants (valued at $31,279) with an exercise price of $0.06. The fair value of the common share purchase warrants issued in the Financing was estimated using the Black-Scholes pricing model with the following assumptions: expected dividend yield 0%, expected volatility 134%, risk free interest rate of 1.8%, expected life of one year, and a share price of $0.06.

• (v) On July 4, 2018, the Company issued 857,859 common shares with a fair value of $34,315 on settlement of debt amounting to $42,894. A total of 497,000 of the foregoing common shares were issued to an officer and a director of the Company for a settlement amount of $24,860. The Company recorded a gain on settlement of debt of $8,579 in the consolidated statement of loss and comprehensive loss for the year ended December 31, 2018.

• (vi) During the year ended December 31, 2018, there were 200,000 warrants exercised at $0.06 per share for gross proceeds of $12,000.

• (vii) During the year ended December 31, 2018, there were 900,000 options exercised at $0.05 per share for gross proceeds of $45,000.

(c) Warrants

The following is a summary of the changes in warrants during the year:

Rio Silver Inc. Notes to the Consolidated Financial Statements Years ended December 31, 2019 and 2018

(Expressed in Canadian dollars unless otherwise noted)

			Weighted average
		Weighted	remaining
	Number of	average	contractual life
	Warrants	exercise price	(year)
Balance at December 31, 2017	2,750,000	$ 0.055	0.31
Warrants granted	2,000,000	$ 0.060	0.42
Warrants exercised	(200,000)	$ 0.060	-
Balance at December 31, 2018	4,550,000	$ 0.057	0.67
Warrants exercised	(200,000)	$ 0.060	-
Warrants expired	(3,100,000)	$ 0.060	-
Warrant granted	11,600,000	$ 0.070	1.35
Balance at December 31, 2019	12,850,000	$ 0.069	1.22

The following warrants are outstanding as at December 31, 2019:

				Number of Warrants as at
ExpiryDate		ExercisePrice		December 31,2019
January 19, 2020	$		0.060	1,250,000
May 7, 2021	$		0.070	11,600,000
				12,850,000

1,250,000 warrants expired unexercised subsequent to the year end (refer to Note 14a).

During the year ended December 31, 2018, the Company extended the expiry dates of 1,500,000 warrants from February 23, 2018 to August 23, 2019, and 1,250,000 warrants from July 19, 2018 to January 19, 2020.

(d) Stock Options

The Company has adopted an incentive stock option plan for employees, consultants, officers and directors. The number of common shares reserved for issue under the stock option plan may not exceed 10% of the number of issued and outstanding common shares of the Company at any given time. The term of options granted under the stock option plan may not exceed ten years from the date of the grant. The Board of Directors will determine the vesting period within the exercisable term and options granted to consultants performing investor relations activities shall vest over a minimum of 12 months with no more than ¼ of such options vesting in any 3-month period. The option exercise price, also determined by the Board of Directors of the Company, may not be less than the lower of the market price for the common shares at the grant date and $0.05.

A summary of changes in common stock options outstanding is presented below:

								Number of
		Number of				Expired/	Number of	Options
		Options as of	Granted	Exercised		Cancelled	Options as of	Exercisable as of
	Exercise	December 31,	During the	During the		During the	December,	December 31,
Expiry Date	Price	2018	Year	Year		Year	2019	2019
August 9, 2019	$0.05	400,000	-		-	(400,000)	-	-
May 18, 2020	$0.05	150,000	-		-	-	150,000	150,000
May 21, 2021	$0.05	-	850,000		-	-	850,000	850,000
November 21, 2022	$0.05	-	3,200,000		-	-	3,200,000	3,200,000
		550,000	4,050,000		-	(400,000)	4,200,000	4,200,000

Rio Silver Inc. Notes to the Consolidated Financial Statements Years ended December 31, 2019 and 2018

(Expressed in Canadian dollars unless otherwise noted)

									Number of
		Number of				Expired/		Number of	Options
		Options as of	Granted	Exercised		Cancelled		Options as of	Exercisable as of
	Exercise	December 31,	During the	During the		During the		December 31,	December 31,
Expiry Date	Price	2017	Year	Year		Year		2018	2018
January 25, 2018	$0.05	300,000	-		-	(300,000)		-	-
February 04, 2018	$0.50	200,000	-		-	(200,000)		-	-
June 26, 2019	$0.26	60,000	-		-	(60,000)		-	-
August 9, 2019	$0.05	1,300,000	-	(900,000)			-	400,000	400,000
May 18, 2020	$0.05	-	150,000		-		-	150,000	150,000
		1,860,000	150,000	(900,000)		(560,000)		550,000	550,000

The weighted average contractual life remaining of all stock options as at December 31, 2019 is 2.50 years (December 31, 2018: 0.63 years).

The fair value of the options granted was estimated using the Black-Scholes option pricing model with the following weighted average estimated assumptions:

		2019	2018
Risk-free	interest rate	1.55%	1.9%
Dividend	yield	0%	0%
Volatility		112% to 115%	119%
Expected	life	1.5 to 3 years	2 years

For the year ended December 31, 2019, share-based compensation in the amount of $67,848 (2018 - $4,567) was recognized in the Company’s consolidated statements of loss and comprehensive loss. 150,000 options expired unexercised subsequent to the year end (refer to Note 14b).

10. Exploration and Evaluation Expenditures

	Niñobamba	Palpa Dorado
Accumulated costs/ expenditures	Peru	Peru		Gerow Lake	Total
Balance, December 31, 2017	3,002,840		-	876,633	3,879,473
Acquisition costs and annual fees	41,517		-	-	41,517
Expenditures	31,390		-	-	31,390
Balance, December 31, 2018	3,075,747		-	876,633	3,952,380
Acquisition costs and annual fees	-	334,090		-	334,090
Expenditures	42,311		-	-	42,311
Balance,December 31,2019	3,118,058	334,090		876,633	4,328,781

On October 30, 2019, the Company closed a Transfer Agreement dated September 3, 2019, pursuant to which the Company’s subsidiary, Minera Rio Plata S.A.C. acquired 100% rights of 2 mining concessions (Palpa Dorado property) located in Moro district of Santa province, Ancash, Peru.

The total purchase price agreed upon by Transfer Agreement amounts to the sum of US$250,000 which will be paid as follows:

• On the signing date, the sum of US$100,000 will be paid as down payment (paid);

• On September 30, 2019, the sum of US$100,000 will be paid as down payment (paid);

• On October 15, 2019, the sum of US$50,000 will be paid(paid).

Rio Silver Inc. Notes to the Consolidated Financial Statements Years ended December 31, 2019 and 2018 (Expressed in Canadian dollars unless otherwise noted)

The Niñobamba concession is located in the Department of Ayacucho, Peru and is owned 100% by the Company’s wholly owned Peruvian subsidiary, Minera Rio Plata S.A.C., and is not subject to any royalties or exploration expenditures commitments.

The Gerow Lake property is a base metal project located in northwestern Ontario. The Company has a 100% interest subject to a 2.5% NSR applicable to 40% of the revenue generated from 14 of the 36 mineral claims (the Company having the right to purchase 1% of the NSR for $1,000,000) and, a 2% NSR on 100% of the claims (the Company having the right to purchase the NSR for $200,000).

11 ． Promissory Note

The promissory note is due on demand bearing interest at 12% per annum.

12. Segmented Information

The Company as one reportable operating segment: mineral exploration and development in two geographic locations being Peru and Canada.

The Company’s consolidated net loss by geographic locations for the years ended December 31, 2019 and 2018 are as follows:

and 2018 are as follows:
	2019	2018
	$	$
Consolidated net loss
Canada	402,807	217,791
Peru	366,556	72,907
	769,363	290,698

The Company’s total assets by geographic locations for the years ended December 31, 2019 and 2018 are as follows:

	2019	2018
	$	$
Total assets
Canada	30,847	4,137
Peru	10,073	16,449
	40,920	20,586

13. Income Taxes

Income tax expense

The reconciliation of the combined Canadian federal and provincial statutory income tax rate of 27% (2018 – 26.5%) to the effective tax rate is as follows:

Rio Silver Inc. Notes to the Consolidated Financial Statements Years ended December 31, 2019 and 2018

(Expressed in Canadian dollars unless otherwise noted)

Net Loss before recovery of income taxes Expected income tax recovery Change in tax rates and foreign tax rates Non-deductible expenses Share issuance cost recorded to equity Prior period true-up Gain on settlement of debt Change in tax benefits not recognized Income tax expense (recovery) expense	2019 2018 $ $ (769,363) (290,698)
	(207,730) (77,190) (51,060) 1,450 21,800 3,470 (1,080) - 2,280 (141,980) 4,350 7,980 231,440 206,270
	- -

Unrecognized deferred tax assets

Deferred taxes are provided as a result of temporary differences that arise due to the differences between the income tax values and the carrying amount of assets and liabilities. Deferred tax assets have not been recognized in respect of the following deductible temporary differences:

	2019	2018
	$	$
Mineral properties	5,889,900	5,897,290
Non-capital losses carried forward	4,979,250	4,314,200
Unpaid amounts	371,020	375,060
Share issuance costs	7,940	6,990

Peruvian losses of approximately $2,726,800 may be carried forward indefinitely but may only be applied against 50% of taxable income in each subsequent year. Share issue and financing costs will be fully amortized in 2023. The remaining deductible temporary differences may be carried forward indefinitely. Deferred tax assets have not been recognized in respect of these items because it is not probable that future taxable profit will be available against which the group can utilize the benefits therefrom.

The Company’s Canadian non-capital income tax losses expire as follows:

	Total
	$
2025	108,290
2026	373,170
2027	266,650
2028	313,880
2030	57,070
2031	219,110
2032	46,250
2035	220,660
2036	251,750
2037	21,090
2038	45,360
2039	329,170
	2,252,450

Rio Silver Inc. Notes to the Consolidated Financial Statements Years ended December 31, 2019 and 2018 (Expressed in Canadian dollars unless otherwise noted)

14. Subsequent Events

• a) On January 19, 2020, 1,250,000 shareholders warrants expired unexercised.

• b) On May 18, 2020, 150,000 options expired unexercised.

• c) Subsequent to year ended December 31, 2019, the Company signed a Memorandum of Understanding ("MOU") with Peruvian Metals Corp ("Peruvian Metals") to jointly explore the Palta Dorada Au-Ag-Cu property ("Palta Dorada" or the "Property") by initially conducting a detailed sampling and mapping program along with a bulk sampling campaign and processing the mineral at Peruvian Metals' 80% owned Aguila Norte Processing Plant ("Aguila Norte or Plant").

The Property is located in the Ancash Mining Department in Northern Peru and covers an area of approximately 1200 hectares. The MOU establishes a joint effort to explore and develop the property. Any sales from metal concentrates produced from the bulk sampling activity and all operational expenses will be shared between companies. Peruvian Metals' 80% owned Plant will charge the joint effort commercial mineral processing rates on a similar basis to its other clients for processing the bulk samples.

Peruvian Metals will also have the option to earn a 50% ownership in the Property. Equal ownership will occur once Peruvian Metals has matched Rio Silver's acquisition price of the project of $250,000 US by assuming all capital and exploration expenditures. Any shortfall of capital expense by Peruvian Metals will require a cash payment to the joint effort by December 31, 2021. Both companies will enter into a definitive shareholder agreement in Peru shortly.

• d) Subsequent to year-end, there was a global outbreak of COVID-19 (coronavirus), which 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. As a result, global equity markets and oil prices have experienced significant volatility and weakness. 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.

• e) Subsequent to the year ended December 31, 2019, the Company closed non-brokered private placement to issue 6,400,000 Units at a price of $0.025 per Unit for gross proceeds of $160,000. Each Unit consists of one common share and one transferable share purchase warrant. Each warrant is exercisable into one additional common share of the Company at a price of $0.08 per share until May 12, 2022. The Company paid finders’ fees of $2,000 in cash and issued 40,000 broker warrants, with each such broker warrant entitling the holder to acquire one common share of the Company at a price of $0.08 per share until May 12, 2022. The proceeds will be used to fund ongoing operational expenditures, demand loan payments and critical sustaining costs including concession taxes in Peru.