Stroud Resources Ltd. — Interim / Quarterly Report 2020

Nov 12, 2020

Condensed Interim Consolidated Financial Statements

Stroud Resources Ltd.

For the nine months ended September 30, 2020 and 2019

Management's Responsibility for the Consolidated Financial Statements

The accompanying condensed interim consolidated financial statements of Stroud Resources Ltd. (the "Company") are the responsibility of management and have been approved by the Board of Directors.

The condensed interim consolidated 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 annual consolidated financial statements. Where necessary, management has made informed judgments and estimates in accounting for transactions which were not complete at the date of the condensed interim consolidated statements of financial position. In the opinion of management, the condensed interim consolidated financial statements have been prepared within acceptable limits of materiality and are in accordance with International Financial Reporting Standards.

Management has established systems of internal control over the financial reporting process, which are designed to provide reasonable assurance that relevant and reliable financial information is produced.

The Board of Directors is responsible for reviewing and approving the condensed interim consolidated 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 annual consolidated 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 annual consolidated 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.

Howard Atkinson Mirsad Jakubovic

"Howard Atkinson" "Mirsad Jakubovic" Director Chief Financial Officer Incorporated under the laws of Ontario

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

[Expressed in Canadian dollars]

As at

	September 302020	December 31,2019
	$	$
ASSETS
Current
Cash and cash equivalents	3,722,449	1,351,141
Accounts receivable	56,104	14,012
Prepaid expenses and sundry assets	40,684	22,204
Total current assets	3,819,237	1,387,357
Mineral properties and deferred costs [note 6]	—	—
Oil and gas interests [note 6]	—	—
	3,819,237	1,387,357
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Current
Accounts payable and accrued liabilities	97,950	348,637
Provision [note 7]	—	19,485
Advances from shareholders [note 8]	—	10,343
Total current liabilities	97,950	378,465
Commitments and contingencies [note 2,3,6,8 and 13]
Shareholders' deficiency [note 9]
Share capital	24,179,613	21,869,682
Shares to be issued	97,500	—
Reserves	4,230,194	3,577,072
Deficit	(24,787,751)	(24,439,593)
Accumulated other comprehensive income	1,731	1,731
Total shareholders' deficiency	3,721,287	1,008,892
	3,819,237	1,387,357

See accompanying notes

On behalf of the Board:

"Howard Atkinson" "Mirsad Jakubovic`` Director Director

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS

	For the Three Months For the Three MonthsSeptember 30, 2020Cad $	September 30, 2019Cad$	For the Nine Months For the nine MonthsSeptember 30, 2020Cad $	September 30, 2019Cad$
OIL AND GAS OPERATIONS
Revenue, net of royalties	5,992	8,222	15,300	21,918
Operating expenses	5,767	6,094	18,525	18,720
Income (loss) from oil and gas operations	225	2,128	(3,225)	3,198
Impairment of mineral properties [note 6]	54,808	147,951	186,165	147,951
ADMINISTRATIVE EXPENSES
Administrative fees	7,500	7,500	22,500	22,500
Business development	992	8,117	4,050	9,900
Director fees	11,250	11,250	33,750	33,750
Interest expense	—	1,800	—	7,136
Licences and fees	3,163	14,859	15,300	22,054
Stock-based compensation [note 9[c]]	—	84,000	—	84,000
Office and general	1,027	1,187	2,730	1,469
Professional fees	34,497	11,987	85,440	34,917
Foreign exchange gain	783	9,840	783	(20,746)
Rent	873	820	2,595	2,360
Total administrative expenses	60,085	151,360	167,148	197,340
Loss before income taxes	(114,668)	(297,183)	(356,538)	(342,093)
Interest income	3,551	—	8,380	—
Net loss and comprehensive loss for the period	(111,117)	(297,183)	(348,158)	(342,093)
Basic and fully diluted loss per share	$(0.003)	$(0.015)	$(0.009)	$(0.017)
Weighted average numberof common shares outstanding [000's]	38,698	20,098	38,698	20,098

See accompanying notes

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the Three	For the Three	For the Nine Months	For the Nine
	Months Ended	Months Ended	Ended	Months Ended
OPERATING ACTIVITIES	September 30, 2020Cad $	September 30, 2019Cad$	September 30, 2020Cad $	September 30, 2019Cad$
Net loss for the period	(111,117)	(297,183)	(348,158)	(342,093)
Add items not involving cash
Stock-based compensation	—	84,000	—	84,000
Foreign exchange gain not realized	—	(30,172)	—	(21,159)
Impairment of mineral properties	54,808	147,951	186,165	147,951
Net change in non-cash working capital balances
related to operations [note 10]	(15,172)	13,937	(330,744)	84,293
Cash provided (used) in operating activities	(71,481)	(81,467)	(492,737)	(47,008)
INVESTING ACTIVITIES
Mineral properties and deferred costs	(54,808)	(147,951)	(186,165)	(147,951)
Cash used in investing activities	(54,808)	(147,951)	(186,165)	(147,951)
FINANCING ACTIVITIES
Issuance of common shares and warrants under private
placement, net of issuance costs	2,767,556	446,491	2,767,556	446,491
Shares to be issued on exercise of options	97,500	—	97,500	—
Issuance of common shares on exercise of warrants	195,497	—	195,497	—
Advances from shareholders	—	(84,480)	(10,343)	(118,904)
Cash provided by financing activities	3,060,553	362,011	3,050,210	327,587
Net increase (decrease) in cash and cash equivalents
during the period	2,934,264	132,593	2,371,308	132,628
Cash and cash equivalents, beginning of period	788,185	98	1,351,141	63
Cash and cash equivalents, end of period	3,722,449	132,691	3,722,449	132,691

See accompanying notes

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (DEFICENCY)

[Expressed in Canadian dollars]

	Common shares		Shares to be issued		Other reserves	Deficit	Accumulatedothercomprehensiveincome	Totalshareholders'equity(deficiency)
	#	$	#	$	$	$	$	$
December 31, 2018	19,644,067	19,968,215	—	—	3,100,823	(24,601,565)	1,731	(1,530,796)
Net loss for the period	—	—	—	—	—	(18,768)	—	(18,768)
March 31, 2019	19,644,067	19,968,215	—	—	3,100,823	(24,620,333)	1,731	(1,549,564)
Net loss for the period	—	—	—	—	—	(26,142)	—	(26,142)
June 30, 2019	19,644,067	19,968,215	—	—	3,100,823	(24,646,475)	1,731	(1,575,706)
Issuance of shares in private placement [note 9(a)]	3,909,939	347,491	—	—	—	—	—	347,491
Issuance of warrants [note 9(b)]	—	(99,000)	—	—	99,000	—	—	—
Issuance of shares on conversion of debt [note 9(e)]	—	—	3,857,605	578,642	—	—	—	578,642
Share based compensation expense [note 9(c)]	—	—	—	—	84,000	—	—	84,000
Net loss for the period	—	—	—	—	—	(297,183)	—	(297,183)
September 30, 2019	23,554,006	20,216,706	3,857,605	578,642	3,283,823	(24,943,658)	1,731	(862,756)
Issuance of shares in private placement [note 9(a)]	9,423,394	1,486,466	—	—	—	—	—	1,486,466
Issuance of warrants [note 9(b)]	—	(219,250)	—	—	219,250	—	—	—
Issuance of shares on conversion of debt [note 9(e)]	3,857,605	385,760	(3,857,605)	(578,642)	—	—	—	(192,882)
Share based compensation expense [note 9(c)]	—	—	—	—	73,999	—	—	73,999
Net income for the period	—	—	—	—	—	504,065	—	504,065
December 31, 2019	36,835,005	21,869,682	—	—	3,577,072	(24,439,593)	1,731	1,008,892
Net loss for the period	—	—	—	—	—	(123,032)	—	(123,032)
March 31, 2020	36,835,005	21,869,682	—	—	3,577,072	(24,562,625)	1,731	885,860
Net loss for the period	—	—	—	—	—	(114,009)	—	(114,009)
June 30, 2020	36,835,005	21,869,682	—	—	3,577,072	(24,676,634)	1,731	771,851
Issuance of shares in private placement [note 9(a)]	7,500,000	2,767,556	—	—	—	—	—	2,767,556
Issuance of warrants [note 9(b)]		(653,122)	—	—	653,122	—	—	—
Issuance of shares pursuant to options exercised	1,303,313	195,497	—	—	—	—	—	195,497
Shares to be issued	—	—	275,000	97,500	—	—	—	97,500
Net loss for the period	—	—	—	—	—	(111,117)	—	(111,117)
September 30, 2020	45,638,318	24,179,613	275,000	97,500	4,230,194	(24,787,751)	1,731	3,721,287

See accompanying notes

[Expressed in Canadian dollars unless otherwise noted]

For the nine months ended September 30, 2020 and 2019

1. CORPORATE INFORMATION

Stroud Resources Ltd. [the "Company" or "Stroud"] was incorporated on March 18, 1983 under the laws of the Province of Ontario. Stroud is an international mineral exploration company with an exploration portfolio in Canada and Mexico. The Company holds its interest in its Mexican properties through its wholly owned subsidiary, Compañia Minera San Diego y La Espanola S.A. de C.V. ["Compañia Minera"], which holds prospecting and exploration permits for the properties. The address of the Company's registered office is 1090 Don Mills Rd. Suite 404, Toronto, Ontario, M3C 3R6, Canada.

2. CONTINUANCE OF OPERATIONS AND GOING CONCERN

The Company has not yet determined whether its properties contain mineral reserves that are economically recoverable. The recoverability of the amounts shown for mineral properties and deferred costs is dependent upon the existence of economically recoverable resources, the ability of the Company to obtain all necessary permits and raise financing to complete the exploration and development, and future profitable production or proceeds from the disposition of such properties. Although the Company has taken steps to verify title to the properties on which it is conducting exploration and in which it has an interest, in accordance with industry standards for the current stage of exploration of such properties, these procedures do not guarantee the Company's title. Property title may be subject to government licensing requirements or regulations, social licensing requirements, unregistered prior agreements, unregistered claims, aboriginal claims, and non-compliance with regulatory and environmental requirements. The Company's assets may also be subject to increases in taxes and royalties, renegotiation of contracts, expropriation of properties, currency exchange fluctuations and restrictions and political uncertainty. These risks may adversely affect the investment in the properties and may result in the impairment or loss of all or part of the Company's mineral properties.

These condensed interim consolidated financial statements have been prepared using accounting policies applicable to a going concern, which contemplates the realization of assets and settlement of liabilities in the normal course of business as they become due. The Company has an accumulated deficit of $24,787,751 at September 30, 2020 [December 31, 2019 – $24,439,593] of which a net loss of $348,158 was incurred during the current period [2019 – $44,910]. For the nine months ended September 30, 2020, the Company had negative operating cash flows of $492,737 [2019 – negative $90,194].

Subsequent to the end of the period, the Company issued 3,141,131 common shares upon the exercise of warrants for gross proceeds of $471,170 and completed the issue of 275,000 common shares for options exercised and previously recorded as shares to be issued.

The Company expects that it has sufficient cash to continue operations during 2021-2022. In order to continue its operations beyond that, the Company requires additional financing which, if not raised, would result in the curtailment of activities, and to the extent appropriate counterparties can be found, the sale, option or joint venturing of assets may be warranted. The Company's ability to continue to meet its obligations and carry out its planned exploration activities is uncertain and dependent upon its ability to obtain further funds. There can be no assurances that the Company will be able to raise sufficient financing or on terms acceptable to management.

[Expressed in Canadian dollars unless otherwise noted]

For the nine months ended September 30, 2020 and 2019

If the going concern assumption is not appropriate, adjustments will be necessary to carrying amounts and classification of assets, liabilities and expenses in the condensed interim consolidated financial statements. Such adjustments could be material.

3. BASIS OF PRESENTATION

Statement of compliance

These condensed interim consolidated financial statements, including comparative figures, have been prepared in accordance with International Financial Reporting Standards ["IFRS"] as issued by the International Accounting Standards Board ["IASB"].

The condensed interim consolidated financial statements were authorized for issue on November 12, 2020, the date the Board of Directors approved the condensed interim consolidated financial statements.

Significant accounting judgments, estimates, and assumptions

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Company's accounting policies.

[a] Principles of consolidation

The condensed interim consolidated financial statements reflect the financial position and results of operations of the Company and its wholly owned subsidiary Compañia Minera. All intercompany transactions and balances have been eliminated.

[b] Comprehensive income (loss)

Comprehensive income (loss) is comprised of net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) is comprised of the cumulative translation adjustment of the Company's whollyowned subsidiary Compañia Minera. The components of comprehensive income (loss), if any, are disclosed in the condensed interim consolidated statements of income (loss) and comprehensive income (loss).

[c] Cash and cash equivalents

Cash and cash equivalents consist of cash on hand, balances with banks, and short-term fixed income deposits with original maturity dates shorter than three months. As at September 30, 2020, the Company had $3,750,000 in interest bearing accounts with a Canadian financial institution [December 31, 2019- $1,300,000].

[d] Mineral properties and deferred costs

The Company is in the exploration stage with respect to its investment in mineral properties and follows the practice of capitalizing all costs relating to the acquisition of, exploration for and development of mineral claims and crediting any revenues received prior to commercial production against the cost of the related claims. Such costs include, but not are not limited to, geological, geophysical studies, exploratory drilling and sampling.

[Expressed in Canadian dollars unless otherwise noted]

For the nine months ended September 30, 2020 and 2019

At such time as commercial production commences, these costs will be charged to operations on a unit-ofproduction method based on proven and probable reserves. Mineral properties and deferred costs are assessed for impairment when facts and circumstances suggest that the carrying amount may exceed its recoverable amount. Once the technical feasibility and commercial viability of the extraction of mineral resources in an area of interest are demonstrable, mineral properties and deferred costs attributable to that area of interest are first tested for impairment and then reclassified to mining property and development assets within property, plant and equipment.

[e] Equipment

Equipment is stated at cost less accumulated depreciation and accumulated impairment losses, if any. The cost of an item consists of the purchase price, any costs directly attributable to bringing the asset to the location and condition necessary for its intended use and an initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located.

Depreciation is provided at rates calculated to write off the cost of equipment, less the estimated residual value, using the declining balance method over the following expected useful lives:

Drilling Equipment 20%

If impairment indicators are present, the Company compares the carrying value of an asset to its estimated net recoverable amount, based on estimated future cash flows to determine whether there is any impairment. The depreciation method, useful life and residual values are assessed annually.

[f] Share-based payments

Share-based payments to employees are measured at the fair value of the instruments issued at the grant date and amortized over the vesting periods. Share-based payments to non-employees are measured at the fair value of goods or services received or the fair value of the equity instruments issued at the grant date, if it is determined the fair value of the goods or services cannot be reliably measured and are recorded at the date the goods or services are received.

The amount expensed for stock option compensation is based on the application of the Black-Scholes option pricing model, which is highly dependent on the expected volatility of the Company's registered shares and the expected life of the options. On exercise, the original value recorded for options is reclassified to share capital with the exercise price received. On expiry, the original value recorded for options remains in reserves.

[g] Determination of reserves and resources

The Company uses the services of experts to estimate the indicated and inferred resources of its mineral properties in Mexico and oil and gas interests in Canada. These experts express an opinion based on certain technological and legal information as prepared by management as being current, complete and accurate as of the date of their calculations and in compliance with National Instrument 43-101. These estimated resources are used in the evaluation of the carrying values, amortization rates and the timing of cash flows.

[Expressed in Canadian dollars unless otherwise noted]

For the nine months ended September 30, 2020 and 2019

[h] Income taxes

Current income taxes are recognized for the estimated income taxes payable for the current year. Deferred income tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and on unclaimed losses carried forward and are measured using the substantively enacted tax rates that are expected to be in effect when the differences are expected to reverse, or losses are expected to be utilized.

Deferred tax liabilities are recognized for all taxable temporary differences, except:

• When the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss;
• In respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognized for all deductible temporary differences, the carryforward of unused tax credits and any unused tax losses. Deferred tax assets are recognized to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carryforward of unused tax credits and unused tax losses can be utilized, except:

• When the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss;
• In respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are recognized only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilized.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized, or the liability is settled, based on tax rates [and tax laws] that have been enacted or substantively enacted at the reporting date.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to settle current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Company intends to settle its current tax assets and liabilities on a net basis.

The Company is subject to income, value added, withholding and other taxes. Significant judgment is required in determining the Company's provisions for taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Company recognizes liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. The determination of the Company's income, value added, withholding and other tax liabilities requires interpretation of complex laws and regulations. The Company's interpretation of taxation law as applied to transactions and activities may not

[Expressed in Canadian dollars unless otherwise noted]

For the nine months ended September 30, 2020 and 2019

coincide with the interpretation of the tax authorities. All tax related filings are subject to government audit and potential reassessment subsequent to the financial statement reporting period. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the tax related accruals and deferred income tax provisions in the period in which such determination is made.

[i] Provision for environmental rehabilitation

If required, a provision will be made for asset retirement, restoration and for environmental rehabilitation costs [which include the dismantling and demolition of infrastructure, removal of residual materials and remediation of disturbed areas] in the financial period when the related environmental disturbance occurs, resulting in a legal or constructive obligation to the Company. The provision would be based on the estimated future costs using information available at the condensed interim consolidated statement of financial position date. The provision would be discounted using a current market-based pre-tax discount rate and the accretion of the discount would be included in amortization and accretion expense. At the time of establishing the provision, a corresponding asset would be capitalized, where it gives rise to a future benefit, and depreciated over future production from the mine to which it relates.

Any provision would be reviewed on an annual basis for changes to obligations, legislation or discount rates that effect change in cost estimates or life of operations. The cost of the related asset would be adjusted for changes in the provision resulting from changes in the estimated cash flows or discount rate, and the adjusted cost of the asset would be depreciated prospectively. As at September 30, 2020 and December 31, 2019, management has estimated that no material provision is required for any environmental rehabilitation.

[j] Foreign currency

The functional currency of the Company is the Canadian dollar and the functional currency of the Company's subsidiary is the Mexican peso. The condensed interim consolidated financial statements are presented in Canadian dollars, which is the Company's presentation currency.

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transaction or valuation where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the condensed interim consolidated statements of loss.

The results and financial position of entities that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

• assets and liabilities for each condensed interim consolidated statement of financial position presented are translated at the closing rate at the date of that statement of financial position
• income and expenses for each condensed interim consolidated statement of income (loss) and comprehensive income (loss) are translated at average exchange rates [unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the date of the transaction]; and

[Expressed in Canadian dollars unless otherwise noted]

For the nine months ended September 30, 2020 and 2019

• all resulting exchange differences are recognized as a separate component of equity [accumulated other comprehensive income (loss)].

On consolidation, exchange differences arising from the translation of the net investment in foreign operations are recorded in equity. When a foreign operation is partially disposed of or sold, exchange differences that were recorded in equity are recognized in the condensed interim consolidated statements of loss as part of the gain or loss on disposal or sale.

[k] Financial instruments and liabilities

Financial assets

Initial recognition and measurement

Non-derivative financial assets within the scope of IFRS 9 are classified and measured as "financial assets at fair value", as either FVPL or FVOCI, and "financial assets at amortized costs", as appropriate. The Company determines the classification of financial assets at the time of initial recognition based on the Company's business model and the contractual terms of the cash flows.

All financial assets are recognized initially at fair value plus, in the case of financial assets not at FVPL, directly attributable transaction costs on the trade date at which the Company becomes a party to the contractual provisions of the instrument.

Financial assets with embedded derivatives are considered in their entirety when determining their classification at FVPL or at amortized cost. Cash and cash equivalent and accounts receivable are measured at amortized cost.

Subsequent measurement – financial assets at amortized cost

After initial recognition, financial assets measured at amortized cost are subsequently measured at the end of each reporting period at amortized cost using the Effective Interest Rate ("EIR") method. Amortized cost is calculated by taking into account any discount or premium on acquisition and any fees or costs that are an integral part of the EIR. The EIR amortization is included in finance income in the condensed interim consolidated statements of income (loss).

Subsequent measurement – financial assets at FVPL

Financial assets measured at FVPL include financial assets management intends to sell in the short term and any derivative financial instrument that is not designated as a hedging instrument in a hedge relationship. Financial assets measured at FVPL are carried at fair value in the condensed interim consolidated statements of financial position with changes in fair value recognized in other income or expense in the condensed interim consolidated statements of income (loss). The Company does not measure any financial assets at FVPL.

Subsequent measurement – financial assets at FVOCI

Financial assets measured at FVOCI are non-derivative financial assets that are not held for trading and the Company has made an irrevocable election at the time of initial recognition to measure the assets at FVOCI. The Company does not measure any financial assets at FVOCI.

[Expressed in Canadian dollars unless otherwise noted]

For the nine months ended September 30, 2020 and 2019

After initial measurement, investments measured at FVOCI are subsequently measured at fair value with unrealized gains or losses recognized in other comprehensive income or loss in the condensed interim consolidated statements of comprehensive loss. When the investment is sold, the cumulative gain or loss remains in accumulated other comprehensive income or loss and is not reclassified to profit or loss.

Dividends from such investments are recognized in other income in the condensed interim consolidated statements of income (loss) when the right to receive payments is established.

Derecognition

A financial asset is derecognized when the contractual rights to the cash flows from the asset expire, or the Company no longer retains substantially all the risks and rewards of ownership.

Impairment of financial assets

The Company's only financial assets subject to impairment are other accounts receivable, which are measured at amortized cost. The Company has elected to apply the simplified approach to impairment as permitted by IFRS 9, which requires the expected lifetime loss to be recognized at the time of initial recognition of the receivable. To measure estimated credit losses, accounts receivable are grouped based on shared credit risk characteristics, including the number of days past due. An impairment loss is reversed in subsequent periods if the amount of the expected loss decreases and the decrease can be objectively related to an event occurring after the initial impairment was recognized.

Financial liabilities

Initial recognition and measurement

Financial liabilities are measured at amortized cost, unless they are required to be measured at FVPL as is the case for held for trading or derivative instruments, or the Company has opted to measure the financial liability at FVPL. The Company's financial liabilities include accounts payable and accruals and advances from shareholders which are each measured at amortized cost. All financial liabilities are recognized initially at fair value.

Subsequent measurement – financial liabilities at amortized cost

After initial recognition, financial liabilities measured at amortized cost are subsequently measured at the end of each reporting period at amortized cost using the EIR method. Amortized cost is calculated by taking into account any discount or premium on acquisition and any fees or costs that are an integral part of the EIR. The EIR amortization is included in finance cost in the condensed interim consolidated statements of income (loss).

Derecognition

A financial liability is derecognized when the obligation under the liability is discharged, cancelled or expires with any associated gain or loss recognized in other income or expense in the condensed interim consolidated statements of income (loss).

[Expressed in Canadian dollars unless otherwise noted]

For the nine months ended September 30, 2020 and 2019

[l] Income (loss) per share

The basic income (loss) per share is computed by dividing the net income (loss) by the weighted average number of common shares outstanding during the year. The diluted income (loss) per share reflects the potential dilution of common share equivalents, such as outstanding stock options and share purchase warrants, in the weighted average number of common shares outstanding during the year, if dilutive. The "treasury stock method" is used for the assumed proceeds upon the exercise of the options and warrants that are used to purchase common shares at the average market price during the year.

[m]Significant accounting judgments

The critical judgments that the Company's management has made in the process of applying the Company's accounting policies, apart from those involving estimations, that have the most significant effect on the amounts recognized in the Company's condensed interim consolidated financial statements, are related to the economic recoverability of the mineral and oil and gas properties and deferred costs (note 3(d) and note 6), equipment (note 3(e)), functional currency determination for the Company and its subsidiary (note 3(j)), appropriateness of expenditures renounced for flow through purposes, valuation of provisions for environmental rehabilitation (note 3(i)), determination of income, value added, withholding and other taxes (note 3(h)), and assumption of going concern (note 2).

[n] Significant accounting estimates

The preparation of these condensed interim consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the condensed interim consolidated financial statements and reported amounts of expenses during the reporting period. Actual outcomes could differ from these estimates. The condensed interim consolidated financial statements include estimates which, by their nature, are uncertain. The impacts of such estimates are pervasive throughout the condensed interim consolidated financial statements and may require accounting adjustments based on future occurrences. Revisions to accounting estimates are recognized in the period in which the estimate is revised.

Significant assumptions about the future and other sources of estimation uncertainty that management has made at the condensed interim consolidated statements of financial position date, that could result in a material adjustment to the carrying amounts of assets and liabilities, in the event that actual results differ from assumptions made, relate to, but are not limited to, the following:

• impairment of non-financial assets (notes 3(d), (e), (g), (q) and (r) and note 6);
• the inputs used in accounting for share-based compensation expense in the condensed interim consolidated statements of income (loss) and comprehensive income (loss) (notes 3(f) and 9(c));
• the provision for income taxes which is included in the consolidation statements of income (loss) and comprehensive income (loss) and composition and valuation of deferred income tax assets and liabilities included in the condensed interim consolidated statements of financial position (note 3(h) and11); and
• the inputs used in determining the various commitments and contingencies accrued in the condensed interim consolidated statements of financial position (notes 6, 7 and 13).

[Expressed in Canadian dollars unless otherwise noted]

For the nine months ended September 30, 2020 and 2019

[o] Flow-through shares

Flow-through shares issued are recognized in share capital based on the quoted market price of the Company's shares on the date of issue. Any premium between the amount recognized in common shares and the amount the investor pays for the shares is recognized as a deferred gain, which is recognized in net income as gain on flowthrough share premium when the eligible expenditures are renounced and the related spending has occurred. The Company also indemnifies the subscribers of flow-through shares against any tax related amounts that become payable as a result of the Company not fulfilling its responsibility pursuant to the subscription agreements between the Company and the subscribers.

[p] Other accounting changes

Uncertainty over Income Tax Treatments

On January 1, 2019, the Company adopted IFRIC 23 - Uncertainty over Income Tax Treatment ("IFRIC 23"). IFRIC 23 sets out how to determine the accounting tax position when there is uncertainty over income tax treatments. The impact of the adoption of this interpretation did not have a material impact on the Company's condensed interim consolidated financial statements.

Certain pronouncements were issued by the IASB or the IFRIC that are mandatory for accounting periods commencing on or after January 1, 2020. The following have not yet been adopted and are being evaluated to determine their impact on the Company.

IAS 1 – Presentation of Financial Statements ("IAS 1") and IAS 8 – Accounting Policies, Changes in Accounting Estimates and Errors ("IAS 8") were amended in October 2018 to refine the definition of materiality and clarify its characteristics. The revised definition focuses on the idea that information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general-purpose financial statements make on the basis of those financial statements. The amendments are effective for annual reporting periods beginning on or after January 1, 2020.

[q] Impairment of long-lived assets

At each reporting date, the carrying amounts of the Company's long-lived assets are reviewed to determine whether there is any indication that those assets are impaired. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment, if any. The recoverable amount is the higher of fair value less costs to sell and value in use, which is the present value of future cash flows expected to be derived from the asset. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount and the impairment loss is recognized in profit or loss for the period.

For the purposes of impairment testing, long-lived assets are allocated to cash-generating units to which the exploration activity relates. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, so that the increased carrying amount does not exceed the carrying amount

[Expressed in Canadian dollars unless otherwise noted]

For the nine months ended September 30, 2020 and 2019

that would have been determined had no impairment loss been recognized for the asset (or cash-generating unit) in prior periods. A reversal of an impairment loss is recognized immediately in profit or loss.

[r] Oil and gas interests

Costs capitalized include land acquisition costs, geological and geophysical expenditures, rentals on undeveloped properties and drilling and overhead expenses related to exploration and development activities.

Revenue, net of royalties from oil and gas operations is recognized when title passes from the Company to the customer, generally at the time of shipment.

The costs related to oil and gas interests are depleted and amortized on a unit-of-production basis. The carrying values of oil and gas assets are reviewed periodically, when impairment factors exist, for possible impairment. The recoverable amounts of oil and gas assets are determined based on the higher of value-in-use calculations and fair values less costs to sell. These calculations require the use of estimates and assumptions. Estimates include but are not limited to estimates of the discounted future after-tax cash flows expected to be derived from the Company's oil and gas assets and the discount rate.

[s] Provisions

The Company records provisions which include various estimates, including the Company's best estimate of the future costs associated with settlement of the obligation, with discount rates applied. Such estimates are necessarily calculated with reference to external sources, all of which are subject to annual review and change.

4. FINANCIAL INSTRUMENTS AND CAPITAL RISK MANAGEMENT

The Company's financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities and advances from shareholders. Unless otherwise noted, the Company is not exposed to significant interest rate, currency or credit risks arising from these financial instruments.

Fair value

The fair values of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities and advances from shareholders approximates their carrying values due to their short-term maturity.

Credit risk

Credit risk arises when a failure by counterparties to discharge their obligations could reduce the amount of future cash inflows from financial assets on hand at the condensed interim consolidated statement of financial position dates.

[i] Cash and cash equivalents

The Company minimizes its exposure to credit risk by keeping the majority of its cash and cash equivalents as cash on deposit with a major Canadian chartered bank. Management expects the credit risk to be minimal.

[Expressed in Canadian dollars unless otherwise noted]

For the nine months ended September 30, 2020 and 2019

[ii] Receivables

Management does not expect these counterparties to fail to meet their obligations. Accounts receivable are in good standing as of September 30, 2020 and December 31, 2019. The Company does not have receivables that it considers impaired or otherwise uncollectible.

Foreign currency risk

The prices paid by the Company for some services and supplies are paid in U.S. dollars or Mexican pesos and the Company generally raises funds in Canadian dollars. As at September 30, 2020 and December 31, 2019, the Company believes the currency risk is limited and not a risk to be hedged at the present time.

Interest rate risk

Interest rate risk arises because of changes in market interest rates. The Company is exposed to interest rate risk on short-term advances and advances from shareholders. Due to the short-term nature of these borrowings and the fixed nature of their interest rates, the Company believes interest rate risk is minimal.

Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its obligations associated with financial liabilities as they come due. The Company's objective is to maintain sufficient liquid resources to meet operational requirements. The cash in the Company is sufficient to fund operations during 2020 and 2021. Following that, the Company will raise additional monies to fund future exploration programs, but there can be no assurance that it will be successful in these efforts (note 2).

Capital risk

The Company's objectives when managing capital are: [i] to safeguard the Company's ability to continue as a going concern in order to pursue the development of its mineral properties and provide returns for shareholders, and [ii] to maintain a flexible capital structure, which optimizes the cost of capital at an acceptable risk. The Company includes the components of shareholders' equity, cash and cash equivalents and short-term investments, if any, in the management of capital.

The Company manages the capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust the capital structure, the Company may attempt to issue new shares, issue new debt, acquire or dispose of assets or adjust the amount of cash and cash equivalents and short-term investments.

To facilitate the management of its capital requirements, the Company prepares forecasts or expenditure budgets for its activities that are used to monitor performance. Variances to plan will result in adjustments to capital deployment subject to various factors and industry conditions. The Company's activities and associated forecasts or budgets are approved by the Board of Directors.

The Company's capital management objectives, policies and processes have remained unchanged during the period ended September 30, 2020 and the year ended December 31, 2019.

[Expressed in Canadian dollars unless otherwise noted]

For the nine months ended September 30, 2020 and 2019

The Company's investment policy is to invest its cash in highly liquid, short-term, interest-bearing investments with maturities of less than a year from the original date of acquisition, selected with regard to the expected timing of expenditure from operations.

Commodity price risk

The ability of the Company to explore and evaluate its exploration and evaluation properties and the future profitability of the Company are directly related to the price of certain minerals and natural gas. The Company monitors commodity prices to determine the appropriate course of action to be taken.

5. EQUIPMENT

Equipment consists of drill equipment with a cost of $674,382. The equipment was impaired in 2015 and the net book value at September 30, 2020 and December 31, 2019 is $nil.

6. MINERAL PROPERTIES AND DEFERRED COSTS AND OIL AND GAS INTERESTS

The mineral properties to which the Company has exploration rights are as follows:

Santo Domingo Property	2020	2019
	$	$
Balance, Beginning of period	—	—
Additions	186,165	518,185
Recovery of contingency settlement	—	(837,855)
Write-off of contingency settlement	—	837,855
Impairment	(186,165)	(518,185)
Balance, end of period	—	—

Hislop Project

The Company holds a net smelter royalty ("NSR") of 0.5% on properties located in Hislop Township, Ontario. The property owner of the Hislop Project may purchase the royalty for $1,000,000.

Leckie Project

The Company holds a 1% NSR on the Leckie Project. Temagami Gold Inc. ("Temagami"), the property owner of the Leckie Project can purchase the NSR for $500,000 for each 0.5% of royalty. The Company holds 750,000 common shares of Temagami. As at September 30, 2020, Temagami is a privately held corporation and a market price for its shares could not be established. The Company attributed a value of $nil to the shares of Temagami which it holds.

Santo Domingo Project

The Company has a 100% interest in Compañia Minera. Compañia Minera owns certain mineral concessions in the state of Jalisco, Mexico. The Company was obligated to pay Eagle Graphite Incorporated ["Eagle"] (formerly Amerix

[Expressed in Canadian dollars unless otherwise noted]

For the nine months ended September 30, 2020 and 2019

Precious Metals Corporation) a royalty fee of 5% from any of Compañia Minera's net proceeds of sale of minerals to a maximum of $1,000,000. On August 22, 2019, the Company and Eagle agreed to amend the agreement to reduce the royalty to 2.5% to a maximum of $500,000. The Company has the right to purchase the royalty for $300,000 any time prior to August 31, 2021. The Company paid $100,000 to amend the original agreement.

An additional amount of USD $2,450,000 ($3,201,146) was to be paid in quarterly installments to a prior owner, if and when revenue is generated from minerals extracted by Compañia Minera, commencing three months after the start of commercial production. Each quarterly installment will be equal to 0.5% of the net smelter return [defined as revenue actually received by Compañia Minera from the sale of smelter minerals]. In 2011, the Company paid USD $100,000 ($135,650) to the prior owner in consideration for the prior owner agreeing to reduce the additional amount to be paid to USD $2,325,000 ($3,153,862). In 2014, the Company paid USD $30,000 ($40,695) to the prior owner in consideration for the prior owner agreeing to reduce the additional amount to be paid to USD $2,285,000 ($2,985,000).

On September 7, 2019, the Company and the royalty holder agreed to reduce the royalty to 0.5% of sales to a maximum of USD $1,160,000 ($1,515,644). The Company has the right to purchase the royalty for USD $685,000 ($895,014) any time prior to September 7, 2021. The Company agreed to pay USD $235,000 ($307,049) to amend the agreement, of which USD $25,000 ($32,665) was paid in September 2019 and the balance was paid on January 2, 2020.

During 2014, the Company determined there were indicators of impairment due to commodity prices and therefore tested the property for impairment. The Company determined that a write-down of the property wasrequired. Annually since 2014, as a result of no significant improvements in commodity prices, uncertainty related to the status of the property, and no significant advancement of property exploration and evaluation, the Company has determined that insufficient indicators exist to contemplate the reversal of impairment in accordance with the Company's policies. As a result, the Company impairs any property costs incurred.

The process of determining impairment and reversals of impairment related to exploration and evaluation properties is highly subjective. This process requires the exercise of significant judgement by management given the limitations related to information that can be used to value mineral properties at such an early stage of exploration and evaluation. Other considerations by management include the ability of the Company to fund projects, the current and past ability of the Company to advance the project, commodity prices, and the jurisdiction of the underlying property. As at September 30, 2020 and December 31, 2019, the Company has determined that the carrying value of its property interest is fully impaired.

In order to maintain the Company's mineral concessions and titles in good standing, the Company is required to maintain a prescribed minimum of annual exploration expenditure and pay fees semi-annually to the Secretaria de Economia in Mexico. Failure to make the annual concession payments or incur the minimum annual exploration expenditures, to the satisfaction of the Mexican authorities, or a determination that the expenditures incurred are not qualifying expenditures, may result in the cancellation or forfeiture of the mineral concessions. Management believes that all payments made are appropriate and current.

A provision with respect to other costsrelated to the Santo Domingo project of $19,485 [December 31, 2019 - $19,485] is recorded as a provision in the condensed interim consolidated statements of financial position. On May 1, 2020, the paid the settlement amount.

[Expressed in Canadian dollars unless otherwise noted]

For the nine months ended September 30, 2020 and 2019

In November 2017, the Company signed a new agreement with the owners of the surface rights on the Santo Domingo property. The Company paid USD $4,177 ($5,583) for 2017, USD $4,595 ($6,141) for 2018 and paid the USD $5,055 ($6,064) due November 2019, subsequent to the end of the 2019 fiscal year. The remaining payments are due as follows:

November 3, 2020 – USD $5,560 ($7,430) November 3, 2021 – USD $6,116 ($8,173) November 3, 2022 – USD $6,728 ($8,990)

Oil and Gas Interests

The Company holds a 3.75% interest in six oil and gas producing properties in Alberta. The properties are currently operated by Gain Energy Inc. The Company's proportionate share of the revenue from these properties, net of operating expenses, is received from the operator on a monthly basis.

7. PROVISION

The Company has provided $19,485 [2019 - $19,485] for other costs related to the Santo Domingo project. The provision is for a 2008 employment dispute in Mexico that was being heard in the courts in Victoria B.C. The Company settled the labour dispute with a payment of USD $15,000 ($19,485) on May 1, 2020.

The continuity of the provision is as follows:

	2020	2019
	$	$
Opening balance, January 1, 2019	19,485	895,000
Foreign exchange (gain) loss	—	(37,660)
Write-off of contingency settlement	—	(837,855)
Payment	(19,485)	—
Closing balance, September 30, 2020 and December 31, 2019	—	19,485

8. RELATED PARTY TRANSACTIONS

The Company incurred the following related party transactions:

• During the 2019 fiscal year, the Company converted $436,750 of fees owing to and advances from directors and officers for 2,911,664 common shares. See note 9.
• During the 2019 fiscal year, the Company received $2,000,000 from one investor. The investor holds 36.2% of the outstanding shares of the Company and is considered a new control person.
• Subsequent to the end of the period, the control person acquired an additional 1,303,313 common shares of the Company through the exercise of warrants.

[Expressed in Canadian dollars unless otherwise noted]

For the nine months ended September 30, 2020 and 2019

In accordance with IAS 24, key management personnel are those having authority and responsibility for planning, directing and controlling the activities of the Company directly or indirectly, including any directors (executive and non-executive) of the Company. The remuneration of directors and key management of the Company for the nine months ended September 30, 2020 and 2019 was as follows:

	2020	2019
Administrative and professional fees	$22,500	$22,500
Director fees	33,750	33,750
	$56,250	$56,250

9. SHAREHOLDERS' EQUITY (DEFICIT)

[a] Share capital

Authorized share capital consists of unlimited common shares with no par value. The continuity of share capital is as follows:

	Shares	Amount
	#	$
Balance, December 31, 2018 (i)	19,644,067	19,968,215
Shares issued for private placement (ii)	13,333,333	2,000,000
Share issuance costs (ii)	—	(166,043)
Issuance of warrants (ii)	—	(318,250)
Shares issued on conversion of debt (iii)	3,857,605	385,760
Balance, December 31, 2019	36,835,005	21,869,682
Shares issued for private placement (ii)	7,500,000	3,000,000
Share issuance costs (ii)	—	(219,250)
Issuance of warrants (ii)	—	(653,122)
Shares issued on exercise of warrants	1,303,313	(195,496)
Balance, December 31, 2019	45,913,318	24,179,613

• i. On August 28, 2019, the Company consolidated its issued and outstanding common shares on the basis of one post-consolidation share for every ten pre-consolidation shares. Current and comparative disclosure has been amended to reflect this share consolidation.
• ii. The Company issued, in two tranches, 13,333,333 units for gross proceeds of $2,000,000 to one investor. The first tranche on August 30, 2019 comprised 3,909,939 units and gross proceeds of $586,491. The second tranche on October 29, 2019 comprised 9,423,394 units and gross proceeds of $1,413,509. Each unit is comprised of 1 common share and 1/3 warrant. Each full warrant allows the holder to purchase one common share at a price of $0.15 for a period of 12 months. See note 8 and note 9(b).
• iii. The Company converted $578,641 of debt owing to directors, officers and consultants into 3,857,605 common shares with a value of $385,760 based on the market price of the company's shares at the time of settlement, recording a gain of $192,881 on the conversion. See note 8.
• iv. On July 30, 2020, the Company issued 7,500,000 units at $0.40 per unit for gross proceeds of $3,000,000. Each Unit consists of one common share and one-half common share purchase warrant. Each full warrant is

[Expressed in Canadian dollars unless otherwise noted]

For the nine months ended September 30, 2020 and 2019

exercisable to purchase one common share at a price of $0.60 until July 31, 2021. The shares were acquired by 2176423 Ontario Ltd., a control person of the Company. The control person now owns 20,833,333 Common shares and 8,194,444 Warrants representing 47% of the issued and outstanding shares of the Company on a non-diluted basis and approximately 55.3% on a partially diluted basis. The Company issued 525,000 broker warrants in conjunction with the financing. Each warrant is exercisable to purchase one common share at a price of $0.60 until July 31, 2022.

v. The Company issued 1,303,313 common shares for gross proceeds of $195,497 upon the exercise of warrants.

[b] Warrants

The continuity of share purchase warrants outstanding is as follows:

	Number	Value ($)
Balance, December 31, 2018	—	—
Issuance with first tranche of private placement (i)	1,303,313	81,812
Issuance of finder's warrants (ii)	933,333	72,308
Issuance with second tranche of private placement (iii)	3,141,131	197,420
Less issuance costs	—	(33,290)
Balance, December 31, 2019	5,377,777	318,250
Issuance with private placement	3,750,000	523,122
Issuance of finder's warrants	525,000	130,000
Exercise of warrants	(1,303,313)	(81,812)
Balance, September 30, 2020	8,349,464	889,560

• i. On August 30, 2019, the Company issued 1,303,313 warrants allowing the holder to purchase 1,303,313 common shares for $0.15 per share until August 30, 2020. The estimated fair value of the warrants of $81,812 was estimated using a Black-Scholes option pricing model with the following assumptions: share price at issuance of $0.13, a risk free interest rate of 1.41%, an expected life of 1 year, an exercise price of $0.15, a volatility based on comparable companies of 141% and expected dividend rate of nil.
• ii. On August 30, 2019, Company issued 933,333 warrants allowing the holder to purchase 933,333 common shares for $0.20 per share until August 30, 2021. The estimated fair value of the warrants of $72,308 was estimated using a Black-Scholes option pricing model with the following assumptions: share price at issuance of $0.13, a risk free interest rate of 1.35%, an expected life of 2 years, an exercise price of $0.20, a volatility based on comparable companies of 138% and expected dividend rate of nil.
• iii. On October 29, 2019, the Company issued 3,141,131 warrants allowing the holder to purchase 3,141,131 common shares for $0.15 per share until October 28, 2020. The estimated fair value of the warrants of $197,420 was estimated using a Black-Scholes option pricing model with the following assumptions: share price at issuance of $0.13, a risk free interest rate of 1.72%, an expected life of 1.0 year, an exercise price of $0.15, a volatility based on comparable companies of 141% and expected dividend rate of nil.

[Expressed in Canadian dollars unless otherwise noted]

For the nine months ended September 30, 2020 and 2019

As at September 30, 2020, the following warrants were outstanding:

Weighted
Average		Warrants	Warrants	Remaining
Exercise Price	Expiry Date	Outstanding	Exercisable	Life
$0.20	August 30, 2021	933,333	933,333	0.92 years
$0.15	October 28, 2020	3,141,131	3,141,131	0.08 years
$0.60	July 29, 2020	3,750,000	3,750,000	0.73 years
$0.60	July 29, 2021	525,000	525,000	1.73 years
$0.16		8,349,464	8,349,464	0.93 years

[c] Stock options

On September 12, 2019, the Company granted incentive stock options to consultants, directors and officers of the Company to purchase an aggregate of 630,000 common shares under the company's stock option plan. Each option is exercisable at a price of $0.18 per common share, expires three years from the date of grant and vests on the date of grant. Stock-based compensation expense of $81,000 was recognized for the grant of options. Of these options, 505,000 were granted to directors and officers. See note 8.

On October 30, 2019, the Company extended the expiry date of 750,000 options from March 14, 2020 to December 31, 2021.

The estimated fair value of the options granted of $81,000 and the incremental change in estimated fair value of the options modified of $76,999 were estimated using a Black-Scholes option pricing model with the following assumptions:

	Options	Options
	Granted	Modified
Share price	$0.17	$0.23
Exercise price	$0.18	$0.50
Risk-free interest rate	1.54%	1.59%
Expected life in years	3 years	2.17 years
Expected volatility (based on comparable companies)	135%	138%
Expected dividend yield	0.0%	0.0%

The continuity of the options outstanding is as follows:

	2020			2019
				Weighted
		Weighted average		average
	Number	exercise price	Number	exercise price
	#	$	#	$
Outstanding, beginning of period	2,130,000	0.41	1,500,000	0.50
Granted	—	—	630,000	0.18
Outstanding, end of period	2,130,000	0.41	2,130,000	0.41
Exercisable, end of period	2,130,000	0.41	2,130,000	0.41

[Expressed in Canadian dollars unless otherwise noted]

For the nine months ended September 30, 2020 and 2019

As at September 30, 2020, the following options were outstanding:

Date of Issue	Weighted	Expiry Date	Stock Options	Stock	Remaining
	Average		Outstanding	Options	Life
	Exercise Price			Exercisable
December 31, 2015	$0.50	December 31, 2020	750,000	750,000	0.25 years
March 14, 2017	$0.50	December 31, 2021	750,000	750,000	1.25 years
September 12, 2019	$0.18	September 12, 2022	630,000	630,000	2.25 years
			2,130,000	2,130,000

The remaining weighted average contractual life of the options is 1.36 years.

[d] Shares to be issued

On August 28, 2019, officers, directors and consultants of the Company agreed to convert $578,641 of debt owing to them into 3,857,605 common shares of the Company with a value of $385,760 based on the quoted market price. See note 8. The Company recorded a gain of $192,881 on the conversion of debt. See note 8 and 9a(iii).

In September 2020, the Company received $97,500 for the exercise of options. The common shares for this exercise were issued subsequent to the end of the period.

10. CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

The net change in non-cash working capital balances related to operations consists of the following:

	2020	2019
	$	$
Accounts receivable	(42.092)	(67,820)
Prepaid expenses	(18,480)	(30,450)
Accounts payable and accrued liabilities	(270,172)	182,563
	(330,744)	84,293

11. INCOME TAXES

The provision for income taxes differs from the expense that would be obtained by applying Canadian statutory rates to loss before income taxes as a result of the following:

	2020	2019
	$	$
Loss before income taxes	(348,158)	(342,903)
Statutory tax rate	26.50%	26.50%
Expected income tax recovery	(92,262)	(90,655)
Change in benefit of tax assets not recognized	92,262	90,655
Total income tax expense (recovery)	—	—

[Expressed in Canadian dollars unless otherwise noted]

For the nine months ended September 30, 2020 and 2019

12. SEGMENTED INFORMATION

The Company operates in two segments: [1] mineral exploration and [2] oil and gas exploration and development. All required segment information is disclosed in the Company's condensed interim consolidated statements of income (loss) and comprehensive income (loss) and notes 6 and 7.

13. CONTINGENCIES

The Company's exploration and evaluation activities are subject to laws and regulations governing the protection of the environment. These laws and regulations are continually changing and generally becoming more restrictive. The Company believes its activities are materially in compliance with all applicable laws and regulations. The Company has made, and expects to make in the future, expenditures to comply with such laws and regulations.

Pursuant to an agreement with its geologist, the company has a commitment to provide notice prior to termination of the agreement with a value of $8,800.

14. SUBSEQUENT EVENTS

Settlement of Contingency

Subsequent to the end of the period, the Company issued 3,141,131 common shares upon the exercise of warrants for gross proceeds of $471,170 and completed the issue of 275,000 common shares for options exercised and previously recorded as shares to be issued.

Novel Coronavirus ("COVID-19")

The Company's operations could be significantly adversely affected by the effects of a widespread global outbreak of a contagious disease, including the recent outbreak of respiratory illness caused by COVID-19. The Company cannot accurately predict the impact COVID-19 will have on its operations and the ability of others to meet their obligations with the Company, including uncertainties relating to the ultimate geographic spread of the virus, the severity of the disease, the duration of the outbreak, and the length of travel and quarantine restrictions imposed by governments of affected countries. In addition, a significant outbreak of contagious diseases in the human population could result in a widespread health crisis that could adversely affect the economies and financial markets of many countries resulting in an economic downturn that could further affect the Company's operations and ability to finance its operations.