Transcontinental Gold Corp. — Audit Report / Information 2020

Apr 30, 2021

TRANSCONTINENTAL GOLD CORP.

FINANCIAL STATEMENTS (Expressed in Canadian Dollars)

DECEMBER 31, 2020

Tel: 604 688 5421 BDO Canada LLP Fax: 604 688 5132 1100 - Royal Centre vancouver@bdo.ca 1055 West Georgia Street www.bdo.ca Vancouver, BC V6E 3P3 Canada

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Independent Auditor’s Report

To the Shareholders of Transcontinental Gold Corp.

Opinion

We have audited the financial statements of Transcontinental Gold Corp. (the Company), which comprise the statement of financial position as at December 31, 2020 and the statement of loss and comprehensive loss, changes in shareholders’ equity (deficit) and cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2020 and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRS).

Basis for Opinion

We conducted our audit 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 Financial Statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the 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 financial statements, which indicates that the Company incurred a net loss of $114,765 during the year ended December 31, 2020 and, as of that date, the Company’s cumulative loss is $601,824. 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 Matter

The financial statements of Transcontinental Gold Corp. for the year ended December 31, 2019, were audited by another auditor who expressed an unmodified opinion on those statements on April 24, 2020.

Other Information

Management is responsible for the other information. The other information comprises the information included in the Management’s Discussion and Analysis for the year ended December 31, 2020.

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

In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

We obtained the Management’s Discussion and Analysis for the year ended December 31, 2020 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 in this auditor’s report. We have nothing to report in this regard.

BDO Canada LLP, a Canadian limited liability partnership, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms.

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

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

In preparing the 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 Financial Statements

Our objectives are to obtain reasonable assurance about whether the 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 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 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 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 financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

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

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 Mark Zastre.

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Chartered Professional Accountants

Vancouver, British Columbia April 29, 2021.

TRANSCONTINENTAL GOLD CORP.

STATEMENTS OF FINANCIAL POSITION

(Expressed in Canadian dollars) AS AT DECEMBER 31,

	2020	2019
ASSETS Current Cash Prepaid expense and deposit	$ 45,732 23,305 $ 69,037	$ 139,230 - $ 139,230

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current Accounts payable and accrued liabilities Shareholders’ equity (deficit) Share capital (Note 5) Reserves (Note 5) Deficit	$ 108,495 492,614 69,752 (601,824) (39,458) $ 69,037	$ 63,923 492,614 69,752 (487,059) 75,307 $ 139,230
Nature of operations(Note 1) Going concern(Note 2) Proposed qualifying transaction(Note 10)

Approved and authorized by the Board on April 30, 2021:

On behalf of the Board:

“Wenhong Jin” Director Wenhong Jin	“Yingting Guo” Director Yingting Guo

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

TRANSCONTINENTAL GOLD CORP.

STATEMENTS OF LOSS AND COMPREHENSIVE LOSS

(Expressed in Canadian dollars)

	Year ended December 31, 2020	Year ended December 31, 2019
EXPENSES Accounting and auditing Office and miscellaneous Professional fees Registration and filing Sponsorship fee (Note 10) Transfer agent Loss and comprehensive loss for the year	$ 43,944 6,833 46,743 9,770 - 7,475 $ (114,765)	$ 28,522 1,420 50,000 30,007 97,892 4,749 $ (212,590)
Basic and diluted loss per common share	$ (0.03)	$ (0.05)
Weighted average number of common shares outstanding – basic and diluted (Note 3)	3,980,000	3,980,000

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

TRANSCONTINENTAL GOLD CORP.

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT)

(Expressed in Canadian dollars)

	Number of Shares	Share Capital	Reserves	Deficit	Total
Balance, December 31, 2018 Loss for the year Balance, December 31, 2019 Loss for the year Balance,December 31,2020	7,080,000 - 7,080,000 - 7,080,000	$ 492,614 - 492,614 - 492,614	$ 69,752 - 69,752 - 69,752	$ (274,469) (212,590) (487,059) (114,765) (601,824)	$ 287,897 (212,590)
					75,307 (114,765)
					(39,458)

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

TRANSCONTINENTAL GOLD CORP. STATEMENTS OF CASH FLOWS

(Expressed in Canadian dollars)

	Year ended December 31, 2020	Year ended December 31, 2019
CASH FLOWS FROM OPERATING ACTIVITIES Loss for the year Changes in non-cash working capital items: Increase in prepaid expenses Increase in accounts payable and accrued liabilities Net cash used in operating activities Change in cash for the year Cash, beginning of year Cash, end of year	$ (114,765) (23,305) 44,572 (93,498) (93,498) 139,230 $ 45,732	$ (212,590) - 55,368 (157,222) (157,222) 296,452
		$ 139,230

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

TRANSCONTINENTAL GOLD CORP. NOTES TO THE FINANCIAL STATEMENTS (Expressed in Canadian dollars) DECEMBER 31, 2020

1. NATURE OF OPERATIONS

Transcontinental Gold Corp. (the “Company”) was incorporated under the Business Corporations Act (British Columbia) on July 25, 2016 and is classified as a Capital Pool Company as defined in the TSX Venture Exchange (“TSX-V”) Policy 2.4. The principal business of the Company is the identification and evaluation of assets or a business and, once identified or evaluated, to negotiate an acquisition or participation in a business subject to receipt of shareholder approval and acceptance by regulatory authorities. On January 8, 2018, The Company entered a letter of intent (“LOI”) to complete its qualifying transaction (Note 10).

The Company’s head office and principal address is Suite 890 – 580 Hornby Street, Vancouver, British Columbia, Canada and its registered office is located at Suite 405-1328 West Pender Street, Vancouver, British Columbia, Canada.

2. BASIS OF PREPARATION

Statement of Compliance

These financial statements are prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and Interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”).

The policies applied in these financial statements are based on IFRS issued and effective as of December 31, 2020. The Board of Directors approved the financial statements for issue on April 30, 2021.

Basis of Measurement

These financial statements have been prepared on a historical costs basis except for financial instruments classified as financial instruments at fair value through profit or loss, which are stated at their fair value. In addition, these financial statements have been prepared using the accrual basis of accounting except for cash flow information. These financial statements are presented in Canadian dollars, which is also the Company’s functional currency.

The preparation of these financial statements requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported expenses during the period. Actual results could differ from these estimates.

Going Concern

The Company’s continuing operations as intended are dependent upon its ability to identify, evaluate and negotiate an acquisition of, a participation in or an interest in properties, assets or businesses. Such an acquisition will be subject to regulatory approval and may be subject to shareholder approval. The Company incurred a loss of $114,765 for the year ended December 31, 2020 and as of that date the Company’s accumulated deficit was $601,824. In order to continue as a going concern and meet its corporate objectives, the Company will require additional financing through debt or equity issuances or other available means. There is no assurance that the Company will be able to obtain adequate financing in the future or that such financing will be on terms advantageous to the Company. These material uncertainties may cast significant doubt on the Company’s ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.

In March 2020, the World Health Organization declared coronavirus COVID-19 a global pandemic. This contagious disease outbreak, which has continued to spread, and any related adverse public health developments, has adversely affected workforces, economies, and financial markets globally, potentially leading to an economic downturn. It is not possible for the Company to predict the duration or magnitude of the adverse results of the outbreak and its effects on the Company’s business or ability to raise funds.

TRANSCONTINENTAL GOLD CORP. NOTES TO THE FINANCIAL STATEMENTS (Expressed in Canadian dollars) DECEMBER 31, 2020

3. SIGNIFICANT ACCOUNTING POLICIES

Financial instruments

The Company classifies it financial assets in the following categories: at fair value through profit or loss ("FVTPL"), at fair value through other comprehensive income ("FVTOCI") or at amortized cost. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition.

Financial assets at FVTPL

Financial assets carried at FVTPL are initially recorded at fair value and transaction costs are expensed in the statement of loss and comprehensive loss. Realized and unrealized gains and losses arising from changes in the fair value of the financial asset held at FVTPL are included in the statement of loss and comprehensive loss in the period in which they arise. The Company’s financial assets which are measured in FVTPL are comprised of cash.

Financial assets at FVTOCI

Investments in equity instruments at FVTOCI are initially recognized at fair value plus transaction costs. Subsequently they are measured at fair value, with gains and losses arising from changes in fair value recognized in other comprehensive income. There is no subsequent reclassification of fair value gains and losses to profit or loss following the derecognition of the investment.

Financial assets at amortized cost

Financial assets at amortized cost are initially recognized at fair value and subsequently carried at amortized cost less any impairment. They are classified as current assets or non-current assets based on their maturity date.

Financial assets are derecognized when they mature or are sold, and substantially all the risks and rewards of ownership have been transferred. Gains and losses on derecognition of financial assets classified as FVTPL or amortized cost are recognized in the statement of loss and comprehensive loss. Gains or losses on financial assets classified as FVTOCI remain within accumulated other comprehensive income, until the financial asset is derecognized or reclassified, in which the gains or losses will be recognized in the statement of loss and comprehensive loss.

Financial liabilities

Financial liabilities comprise the Company’s accounts payable and accrued liabilities. Financial liabilities are initially recognized on the date they are originated and are derecognized when the contractual obligations are discharged or cancelled or expire. Accounts payable and accrued liabilities are recognized initially at fair value and subsequent are measured at amortized cost using the effective interest method, when materially different from the initial amount. Impairment of financial assets at amortized cost

TRANSCONTINENTAL GOLD CORP. NOTES TO THE FINANCIAL STATEMENTS (Expressed in Canadian dollars) DECEMBER 31, 2020

3. SIGNIFICANT ACCOUNTING POLICIES (cont’d…)

Impairment of financial assets

An ‘expected credit loss’ (ECL) model applies to financial assets measured at amortized cost, contract assets and debt investments at FVOCI, but not to investments in equity instruments. The ECL model requires a loss allowance to be recognized based on expected credit losses. The estimated present value of future cash flows associated with the asset is determined and an impairment loss is recognized for the difference between this amount and the carrying amount as follows: the carrying amount of the asset is reduced to estimated present value of the future cash flows associated with the asset, discounted at the financial asset’s original effective interest rate, either directly or through the use of an allowance account and the resulting loss is recognized in profit or loss for the period. In a subsequent period, if the amount of the impairment loss related to financial assets measured at amortized cost decreases, the previously recognized impairment loss is reversed through the statement of loss and comprehensive loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized.

Income taxes

The Company uses the asset and liability method of accounting for income taxes, whereby deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using substantively enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets also result from unused loss carry forwards, resource related pools and other deductions. A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences to the extent that it is probable that future taxable profits will be available against which they can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.

Share-based payments

The Company accounts for stock options granted to directors, officers and employees at the fair value of the options granted. Accordingly, the fair value of the options at the date of the grant is determined using the Black-Scholes option pricing model and share-based compensation is accrued and charged to operations, with an offsetting credit to share based payment reserve, over the vesting periods. Stock options granted to non-employees are measured at the fair value of goods or services rendered or at the fair value of the instruments issued, if it is determined that the fair value of the goods or services received cannot be reliably measured. The number of shares and options expected to vest is reviewed and adjusted at the end of each reporting period such that the amount recognized for services received as consideration for the equity instruments granted shall be based on the number of equity instruments that eventually vest.

If and when the stock options are exercised, the applicable amounts of share-based payments reserve are transferred to share capital.

The expected price volatility is based on the historic volatility (based on the remaining life of the options), adjusted for any expected changes to future volatility due to publicly available information.

TRANSCONTINENTAL GOLD CORP. NOTES TO THE FINANCIAL STATEMENTS (Expressed in Canadian dollars) DECEMBER 31, 2020

3. SIGNIFICANT ACCOUNTING POLICIES (cont’d…)

Loss per share

Basic earnings (loss) per share is computed by dividing net earnings (loss) available to common shareholders by the weighted average number of shares outstanding during the reporting period. Diluted earnings (loss) per share is computed similar to basic earnings (loss) per share except that the weighted average shares outstanding are increased to include additional shares for the assumed exercise of stock options and warrants, if dilutive. The number of additional shares is calculated by assuming that outstanding stock options and warrants were exercised and that proceeds from such exercises were used to acquire common stock at the average market price during the reporting periods.

As of December 31, 2020, 3,100,000 (2019 – 3,100,000) of the 7,080,000 (2019 - 7,080,000) shares outstanding are contingently cancellable and excluded from the calculation of the weighted average number of common shares outstanding.

Related party transactions

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. A related party may be an individual or a corporate entity. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties.

Provisions

Provisions are recognized when the Company has a present obligation (legal or constructive) that has arisen as a result of a past event and it is probable that a future outflow of resources will be required to settle the obligations, provided that a reliable estimate can be made of the amount of the obligation. Provisions for environmental restoration, legal claims, onerous leases and other onerous commitments are recognized at the best estimates of the expenditures required to settle the Company’s liability.

Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risk specific to the obligation. An amount equivalent to the discounted provision is capitalized within tangible fixed assets and is depreciated over the useful lives of the related assets. The increase in the provision due to passage of time is recognized as interest expense.

Accounting Standards issued but not yet applied

A number of new standards, amendments to standards and interpretations are not yet effective as of December 31, 2020 and have not been applied in preparing these financial statements.

Effective for annual periods beginning on or after January 1, 2023:

Amendments to IAS 1 Presentation of Financial Statements, clarify how to classify debt and other liabilities as current or non-current. The amendments help to determine whether, in the statement of financial position, debt and other liabilities with an uncertain settlement date should be classified as current (due or potentially due to be settled within one year) or non-current. The amendments also include clarifying the classification requirements for debt an entity might settle by converting it into equity.

The Company has not early adopted this revised standard and this standard is not expected to have a material effect on the financial statements.

TRANSCONTINENTAL GOLD CORP. NOTES TO THE FINANCIAL STATEMENTS (Expressed in Canadian dollars) DECEMBER 31, 2020

4. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES

The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of expenses during the reporting period. Actual outcomes could differ from these estimates. The financial statements include estimates which, by their nature, are uncertain. The impacts of such estimates are pervasive throughout the 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 and the revision affects both current and future periods.

Significant assumptions about the future and other sources of estimation uncertainty that management has made at the statement 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 inputs in calculating the share-based compensation with the Black-Scholes option price model.

5. SHARE CAPITAL

• (a) The authorized share capital of the Company consists of an unlimited number of common shares without par value.

• (b) Issued and outstanding:

As at December 31, 2020, the Company has 7,080,000 common shares (December 31, 2019 – 7,080,000) outstanding, 3,100,000 shares (December 31, 2019 – 3,100,000) of which are held in escrow and contingently cancellable.

These contingently cancellable common shares will be held in escrow and will be released pro-rata to the shareholders as to 10% of the escrowed shares upon issuance of notice of final acceptance of a Qualifying Transaction by the TSXV, and as to the remainder in six equal tranches of 15% every six months thereafter for a period of 36 months. These escrowed shares may not be transferred, assigned, or otherwise dealt with without the consent of the regulatory authorities. If the Company does not receive final acceptance of a Qualifying Transaction and is delisted, the shares may be cancelled, and the proceeds returned to the shareholders.

There were no share issuances during the years ended December 31, 2020 and 2019.

Warrants

On September 26, 2017, the Company completed its initial Public Offering (“IPO”) and issued 3,000,000 common shares at a price of $0.10 per share for total proceeds of $300,000. Effective September 28, 2017, the date that the Company’s common shares were listed for trading on the TSX-V, the Company issued Agents’ warrants to acquire 300,000 common shares at $0.10 per share exercisable up until September 28, 2019. The warrants were valued at $18,386 using Black-Scholes Model. The Company used the following assumptions when valuing the warrants: expected volatility of 125%, risk free interest rate of 1%, life of 2 years, dividend yield of 0% and forfeiture rate of 0% . In 2019, these warrants expired unexercised.

Stock options

The Company adopted an incentive stock option plan (the “Option Plan”) which provides that the Board of Directors of the Company may from time to time, in its discretion, and in accordance with TSX-V requirements, grant to directors, officers, employees and technical consultants to the Company, non-transferable options to purchase common shares, provided that the number of common shares reserved for issuance will not exceed 10% of the issued and outstanding common shares. Such options will be exercisable for a period of up to 10 years from the date of grant. Vesting terms will be determined at the time of grant by the Board of Directors.

TRANSCONTINENTAL GOLD CORP. NOTES TO THE FINANCIAL STATEMENTS (Expressed in Canadian dollars) DECEMBER 31, 2020

5. SHARE CAPITAL (cont’d…)

Stock options

On September 28, 2017, 608,000 stock options were granted to the directors and officers of the Company with an exercise price of $0.10 per common share exercisable for a period up to September 28, 2027. The options were valued at $51,365 using Black-Scholes Model. The Company used the following assumptions when valuing the warrants: expected volatility of 125%, risk free interest rate of 1.78%, life of 5 years, dividend yield of 0%.

Stock options and agents’ warrants

			Balance,			Balance,		Balance,
		Exercise	December 31,			December 31,		December 31,
	ExpiryDate	price	2018	Granted	Expired	2019	Granted	2020
Agents’ warrants	September 28,
	2019	$0.10	300,000	-	(300,000)	-	-	-
Stock options	September 28,
	2027	$0.10	608,000	-	-	608,000	-	608,000
			908,000	-	(300,000)	608,000	-	608,000
Weighted average	exerciseprice		$0.10	-		$0.10	-	$0.10

All warrants and options outstanding as of December 31, 2020 and 2019 are vested and exercisable.

6. RELATED PARTY TRANSACTIONS

Details of the transactions between the Company and other related parties are disclosed below.

Trading transactions

The Company’s related parties consist of companies owned by executive officers or related through common directors.

There were no related party transactions during the years ended December 31, 2020 and 2019.

Related party liabilities

The Company does not have amounts owing to or from related parties as of December 31, 2020 or 2019.

7. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

As at December 31, 2020, the Company’s financial instruments comprise cash and accounts payable and accrued liabilities. The fair value of accounts payable and accrued liabilities approximates its carrying value due to its shortterm to maturity. Fair values of financial instruments are classified in a fair value hierarchy based on the inputs used to determine fair values. The levels of the fair value hierarchy are as follows:

• Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities; Level 2 – Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly; and

Level 3 – Inputs that are not based on observable market data.

As at December 31, 2020, the fair value of cash held by the Company was classified as Level 1 of the fair value hierarchy.

TRANSCONTINENTAL GOLD CORP. NOTES TO THE FINANCIAL STATEMENTS (Expressed in Canadian dollars) DECEMBER 31, 2020

7. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (cont’d…)

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

Credit risk

Credit risk is the risk of an unexpected loss if a customer or third party to a financial instrument fails to meet its contractual obligations. The Company’s credit risk is primarily attributable to its cash. The Company limits exposure to credit risk by maintaining its cash with large financial institutions. The Company does not have cash that is invested in asset backed commercial paper.

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 ensures there is sufficient capital in order to meet short-term business requirements, after taking into account cash flows from operations and the Company’s holdings of cash. The Company believes that further funding will be required to meet short-term and long-term requirements. As at December 31, 2020, the Company had a cash balance of $45,732, which is not enough to settle current liabilities of $108,495. All of the Company’s financial liabilities have contractual maturities of 30 days or are due on demand and subject to normal trade terms.

Market risk

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

i. Interest rate risk

Interest rate risk arises from changes in market rates of interest that could adversely affect the Company. The Company currently has no interest-bearing financial instruments other than cash, so its exposure to interest rate risk is insignificant.

ii. Foreign currency risk

Foreign currency risk arises from fluctuations in foreign currencies versus the Canadian dollar that could adversely affect reported balances and transactions denominated in those currencies. The Company currently has no assets or liabilities and has no revenue or expenses denominated in a foreign currency, so it is not exposed to foreign currency risk.

iii. Equity price risk

Equity price risk arises from market fluctuations in equity prices that could adversely affect the Company’s operations. The Company’s current exposure to equity price risk is limited to declines in the values and volumes including those of its own shares, which could impede its ability to raise additional funds when required.

8. CAPITAL MANAGEMENT

Capital is comprised of the Company’s shareholders’ equity and any debt that it may issue. The Company’s objectives when managing capital are to maintain financial strength and to protect its ability to meet its on-going liabilities, to continue as a going concern, to maintain creditworthiness and to maximize returns for shareholders over the long term. Protecting the ability to pay current and future liabilities includes maintaining capital above minimum regulatory levels, current financial strength rating requirements and internally determined capital guidelines and calculated risk management levels.

TRANSCONTINENTAL GOLD CORP. NOTES TO THE FINANCIAL STATEMENTS (Expressed in Canadian dollars) DECEMBER 31, 2020

8. CAPITAL MANAGEMENT (cont’d…)

The capital for expansion was mostly from proceeds from the issuance of common shares. The net proceeds raised will only be sufficient to identify and evaluate a limited number of assets and businesses for the purpose of identifying and completing a Qualifying Transaction. Additional funds may be required to finance the Company’s Qualifying Transaction.

The Company is not subject to any externally-imposed capital requirements.

9. INCOME TAXES

A reconciliation of income taxes at statutory rates with the reported taxes is as follows:

	December 31, 2020	December 31, 2019
Loss for theyear	$ (114,765)	$ (212,590)
Expected income tax recovery Change in statutory, foreign exchange rates and other Unrecognized benefits of non-capital losses Total income tax recovery	$ (34,000) - 34,000 $ -	$ (57,000) - 57,000 $ -

The significant components of the Company's deferred income tax assets are as follows:

	December 31, 2020	December 31, 2019
Deferred income tax assets Non-capital loss carry forwards Share issuance costs Valuation allowance Net deferred income tax assets	$ 173,100 - (173,100) $ -	$ 139,000 3,000 (142,000) $ -

The Company has available for deduction against future taxable income non-capital losses of approximately $641,000. These losses, if not utilized, will expire through to 2036 and 2040 respectively. Future tax benefits which may arise as a result of these non-capital losses have not been recognized in these financial statements and have been offset by a valuation allowance due to the uncertainty of their realization.

10. PROPOSED QUALIFYING TRANSACTION

On January 8, 2018, the Company entered into a letter of intent (“LOI”) with Marvel Dragon Holdings Limited (“Marvel Dragon”) to acquire all of the outstanding common shares of Marvel Dragon as its proposed Qualifying Transaction (the “Transaction”) to become a Tier 2 Mining Issuer on the TSX-V.

Marvel Dragon is an unrelated private corporation incorporated under the laws of Hong Kong. Pursuant to the terms of a Joint Venture Agreement dated April 25, 2017 between Marvel Dragon and Vatukoula Gold Mines Limited (“Vatukoula”), Marvel Dragon beneficially owns 55% of the issued and outstanding common shares of Goldbasin Mining (Fiji) Pte Limited (“Goldbasin”) and Vatukoula holds 45% of Goldbasin. Goldbasin holds a 100% interest in 3 mineral claims (the “Property”) located in Fiji.

TRANSCONTINENTAL GOLD CORP. NOTES TO THE FINANCIAL STATEMENTS (Expressed in Canadian dollars) DECEMBER 31, 2020

10. PROPOSED QUALIFYING TRANSACTION (cont’d…)

Per the terms of the LOI, the Company proposes to issue to the shareholders of Marvel Dragon 22,000,000 common shares in the capital of the Company and acquire all of Marvel Dragon’s share purchase warrants outstanding in exchange for 4,400,000 share purchase warrants of the Company exercisable at a price of $0.15 per warrant. Concurrently, Marvel Dragon will cancel all of its incentive share purchase options.

Concurrent with the closing of the Transaction, the Company proposes to complete a non-brokered offering to raise gross proceeds between $2,000,000 and $2,500,000.

On April 15, 2019, the Company entered into a Letter of Agreement for TSX-V Sponsorship (the “Letter of Agreement”) with Haywood Securities Inc. (the 'Sponsor" or “Haywood”) to assist the Company in the Transaction by acting as its sponsor pursuant to the Policies of the TSX-V.

Scope of Assignment: The Sponsor will conduct due diligence and a review of the Company and Marvel Dragon for the purposes of providing the TSX-V with a sponsorship letter on which the TSX-V will consider the Transaction.

Sponsorship:

Subject to being satisfied with the results of its due diligence procedures in accordance with TSX-V policies, Haywood will act as sponsor to the Company for the Transaction pursuant to the policies of the TSX-V.

Fees: The Company paid a Sponsorship Fee of $97,892 in cash to the Sponsor.

11. SUBSEQUENT EVENTS

In January 2021, the Company entered into unsecured loan agreements with certain lenders to secure a debt financing of $100,000, the loan will be for a period of 12 months and will bear interest at a rate of 10%. In addition, The Company has agreed to cause the resulting public issuer following the transaction with Marvel Dragon Holdings Limited to issue to the lenders up to 20% of then outstanding principal amount and any accrued interest thereon as of the date of the listing at the price effective on the date of the listing, subject to approval of the exchange.