Vertical Exploration Inc. — Interim / Quarterly Report 2021

Jul 14, 2021

VERTICAL EXPLORATION INC.

CONDENSED INTERIM FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MAY 31, 2021

(Expressed in Canadian Dollars)

(Unaudited – Prepared by Management)

NOTICE OF NO AUDITOR REVIEW OF CONDENSED INTERIM FINANCIAL STATEMENTS

Under National Instrument 51-102, Part 4, subsection 4.3(3)(a), if an auditor has not performed a review of the condensed interim financial statements, they must be accompanied by a notice indicating that the financial statements have not been reviewed by an auditor.

The accompanying condensed interim financial statements of the Company have been prepared by and are the responsibility of the Company’s management.

The Company’s independent auditor has not performed a review of these financial statements in accordance with standards established by the Chartered Professional Accountants of Canada for a review of condensed interim financial statements by an entity’s auditor.

VERTICAL EXPLORATION INC. CONDENSED INTERIM STATEMENTS OF FINANCIAL POSITION

(Expressed in Canadian dollars)

(Unaudited – Prepared by Management)

	May 31, 2021 February 28, 2021
ASSETS Current Cash Commodity tax recoverable Prepaid Exploration and evaluation assets(Note 3)	$ 140,889 $ 85,918 9,483 4,803 3,466 4,767
	153,838 95,488 2,169,320 2,138,753
	$ 2,323,158 $ 2,234,241
LIABILITIES Current Accounts payable and accrued liabilities (Note 4 and 6) SHAREHOLDERS’ EQUITY Share capital(Note 5) Subscriptions received in advance(Note 5) Share-based payment reserve(Note 5) Deficit	$ 331,064 $ 334,683
	8,543,108 8,370,372 15,000 7,500 1,667,130 1,679,974 (8,233,144)(8,158,288)
	1,992,094 1,899,558
	$ 2,323,158 $ 2,234,241

Nature of Operations and Going Concern (Note 1) Commitment (Note 10) Subsequent events (Note 11)

Approved on Behalf of the Board of Directors:

“Peter Swistak” “John Sutherland” Director Director

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

VERTICAL EXPLORATION INC. CONDENSED INTERIM STATEMENTS OF LOSS AND COMPREHENSIVE LOSS

(Expressed in Canadian dollars)

(Unaudited – Prepared by Management)

	For the three months ended May 31, 2021 2020
Expenses Bank charges and interest Consulting fees Filing fees Flow-through liability recovery (Note 10) Management fees (Note 6) Office and miscellaneous Professional fees (Note 6) Rent Transfer agent fees Loss and Comprehensive Loss For the Period Loss Per Share, Basic and Diluted Weighted Average Common Shares Outstanding	$ 19 $ 18 9,000 13,000 3,829 7,167 - (3,553) 30,000 30,000 4,500 4,500 18,168 11,012 4,500 4,500 4,840 1,021
	$ (74,856) $ (67,665)
	$ (0.00)$ (0.00)
	87,089,666 64,409,423

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

VERTICAL EXPLORATION INC. CONDENSED INTEIRM STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Expressed in Canadian dollars)

(Unaudited – Prepared by Management)

	Share Capital Shares Amount Subscriptions Received in Advance Share Based Payment Reserve Deficit Shareholders’ Equity
Balance at February 28, 2020 Subscription received Loss for the period	64,409,423 $ 7,633,865 $ 10,000 $ 1,655,226 $ (7,876,536) $ 1,422,555 - - 3,000 - - 3,000 - - - - (67,665) (67,665)
Balance at May 31, 2020 Private placement Share issuance costs - cash Share issuance costs - warrants Exercise of options Exercise of warrants Exercise of broker warrants Share-based payments Subscriptions received in advance Lossforthe period	64,409,423 7,633,865 13,000 1,655,226 (7,944,201) 1,357,890 - 18,999,929 664,998 (10,000) - - 654,998 - (8,026) - - - (8,026) - (9,800) - 9,800 - - 625,000 44,629 - (13,379) - 31,250 700,000 35,000 - - - 35,000 104,650 9,706 - (4,473) - 5,233 - - - 32,800 - 32,800 - - 4,500 - - 4,500 - - - - (214,087) (214,087)
Balance at February 28, 2021 Exercise of options Exercise of warrants Subscriptions received in advance Lossforthe period	84,839,002 8,370,372 7,500 1,679,974 (8,158,288) 1,899,558 600,000 42,844 - (12,844) - 30,000 2,597,857 129,892 (7,500) - - 122,392 - - 15,000 - - 15,000 - - - (74,856) (74,856)
Balance at May 31, 2021	88,036,859 $ 8,543,108 $ 15,000 $ 1,667,130 $(8,233,144) $ **1,992,094 **

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

VERTICAL EXPLORATION INC. CONDENSED INTERIM STATEMENTS OF CASH FLOWS (Expressed in Canadian dollars)

(Unaudited – Prepared by Management)

	For the three months ended May 31, 2021 2020
Cash Flows Provided By (Used In): Operating Activities Loss for the period Items not involving cash: Flow-through premium recovery Net change in non-cash working capital items: Commodity tax recoverable Prepaid expenses Accounts payable and accrued liabilities Investing Activities Exploration and evaluation assets expenditures Financing Activities Exercise of options Exercise of warrants Subscriptions received Change in cash during the period Cash, beginning of period Cash, end of period	$ (74,856) $ (67,665) - (3,553) (4,680) (3,047) 1,301 4,767 (3,619) 66,374
	(81,854) (3,124)
	(30,567) 3,000
	(30,567) 3,000
	30,000 - 122,392 - 15,000 3,000
	167,392 3,000
	54,971 (124) 85,918 3,397
	$ 140,889 $ 3,273

Supplemental disclosure with respect to cash flows (Note 8)

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

VERTICAL EXPLORATION INC. NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MAY 31, 2021

(Expressed in Canadian dollars)

(Unaudited – Prepared by Management)

1. NATURE OF OPERATIONS AND GOING CONCERN

Vertical Exploration was incorporated under the Business Corporations Act (British Columbia) and is listed on the TSX Venture Exchange (“TSX-V”). The Company’s corporate office is located at Suite 1240 – 789 West Pender Street, Vancouver, BC, V6C 1H2, Canada. The Company is a TSX-V junior mining company with exploration and evaluation assets in Canada.

These condensed interim financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) applicable to the preparation of condensed interim financial statements, with the assumption that the Company will be able to realize its assets and discharge its liabilities in the normal course of business rather than through a process of forced liquidation for the foreseeable future. The operations of the Company were primarily funded by the issue of share capital and loans. The continued operations of the Company are dependent on its ability to develop a sufficient financing plan, receive continued financial support from related parties, complete sufficient public equity financing, or generate profitable operations in the future. These condensed interim financial statements do not include any adjustments to the amounts and classification of assets and liabilities that might be necessary should the company be unable to continue in business.

The Company is in the business of exploring for minerals that by its nature involves a high degree of risk. There can be no assurance that current exploration programs will result in profitable mining operations. The recoverability of the carrying value of the exploration and evaluation assets and the Company’s continued existence is dependent upon the preservation of its interest in the underlying properties, the discovery of economically recoverable reserves, the achievement of profitable operations, the ability of the Company to obtain financing or, alternatively, upon the Company’s ability to dispose of its interest on an advantageous basis. Additionally, the Company estimates that it will need additional capital to operate for the upcoming year. These material uncertainties may cast significant doubt on the Company’s ability to continue as a going concern.

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.

		May 31,	February 28,
		2021	2021
Working capital deficiency	$	(177,226)$	(239,195)
Deficit	$	(8,233,144) $	(8,158,288)

VERTICAL EXPLORATION INC. NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MAY 31, 2021

(Expressed in Canadian dollars)

(Unaudited – Prepared by Management)

2. SUMMARY OF ACCOUNTING POLICIES

Basis of presentation

The condensed interim financial statements have been prepared on a historical cost basis, except for certain financial instruments that have been measured at fair value. The financial statements are presented in Canadian dollars which is the functional currency of the Company.

In addition, these condensed interim financial statements have been prepared using the accrual basis of accounting except for cash flow information.

The policies applied in the financial statements are presented below and are based on IFRS’ issued and outstanding as of July 14, 2021; the date the Board of Directors approved the condensed interim financial statements.

Estimates and judgments

Significant assumptions about the future and other sources of estimation uncertainty that management has made at the end of the reporting year, that could result in a material adjustment of 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:

• i) The carrying value and the recoverability of exploration and evaluation assets, which are included in the statements of financial position.

• ii) The inputs in the Black-Scholes option pricing model to value stock options and compensatory warrants.

Critical judgments exercised in applying accounting policies that have the most significant effect on the amounts recognized in the financial statements are as follows:

• i) Economic recoverability and probability of future benefits of exploration and evaluation costs

Management has determined that exploration, evaluation and related costs incurred which were capitalized may have future economic benefits and may be economically recoverable. Management uses several criteria in its assessments of economic recoverability and probability of future economic benefits including, geologic and other technical information, history of conversion of mineral deposits with similar characteristics to its own properties to proven and probable mineral reserves, scoping and feasibility studies, accessible facilities and existing permits.

Information about assumptions and estimation uncertainties that have a significant risk of resulting in material adjustments are as follows:

i) Black-Scholes Option Pricing Model

The Company uses the Black-Scholes Option Pricing Model for valuation of share-based compensation and finder’s warrants. Option pricing models require the input of subjective assumptions including expected price volatility, interest rates, and forfeiture rate. Changes in the input assumptions can materially affect the fair value estimate and the Company’s earnings and equity settled benefits.

VERTICAL EXPLORATION INC. NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MAY 31, 2021

(Expressed in Canadian dollars)

(Unaudited – Prepared by Management)

2. SUMMARY OF ACCOUNTING POLICIES (Continued)

Financial instruments

(i) Financial assets

All financial assets are measured at fair value on initial recognition. Measurement in subsequent periods depends on the financial assets’ classification, as described below:

Fair value through profit or loss (“FVTPL”): Financial instruments designated at FVTPL are initially recognized and subsequently measured at fair value with changes in those fair values charged immediately to profit or loss. Financial instruments under this classification include cash.

Amortized cost: Financial instruments designated at amortized cost are initially recognized at fair value, net of directly attributable transaction costs, and are subsequently measured at amortized cost using the effective interest method.

Fair value through other comprehensive income (“FVOCI”): Financial instruments designated at FVOCI are initially recognized at fair value, net of directly attributable transaction costs, and are subsequently measured at fair value with changes in fair value recognized in other comprehensive income, net of tax.

(ii) Financial liabilities

All financial liabilities are initially recorded at fair value and designated upon inception as FVTPL or amortized cost. Financial liabilities classified as amortized cost are initially recognized at fair value less directly attributable transaction costs. The Company’s accounts payable and accrued liabilities, are classified as amortized cost. The Company does not currently have any FVTPL financial liabilities.

(iii) Impairment of financial assets

There is a three-stage expected credit loss model for calculating impairment for financial assets. An entity is required to recognize expected credit losses when financial instruments are initially recognized and to update the amount of expected credit losses recognized at each reporting date to reflect changes in the credit risk of the financial instruments.

Impairment losses on financial assets carried at amortized cost are reversed in subsequent periods, if the amount of the loss decreases and the decrease can be objectively related to an event occurring after the impairment was recognized.

Foreign exchange

The functional currency is the currency of the primary economic environment in which the entity operates. The functional currency for the Company is the Canadian dollar.

Transactions in currencies other than the Canadian dollar are recorded at exchange rates prevailing on the dates of the transactions. At the end of each reporting period, the monetary assets and liabilities of the Company that are denominated in foreign currencies are translated at the rate of exchange at the statement of financial position date while non-monetary assets and liabilities are translated at historical rates. Revenues and expenses are translated at the exchange rates approximating those in effect on the date of the transactions. Exchange gains and losses arising on translation are reflected in profit or loss for the period.

VERTICAL EXPLORATION INC. NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MAY 31, 2021

(Expressed in Canadian dollars)

(Unaudited – Prepared by Management)

2. SUMMARY OF ACCOUNTING POLICIES (Continued)

Loss per share

The Company presents basic loss per share for its common shares, calculated by dividing the loss attributable to common shareholders of the Company by the weighted average number of common shares outstanding during the year. Diluted loss per share does not adjust the loss attributable to common shareholders or the weighted average number of common shares outstanding when the effect is anti-dilutive.

Exploration and evaluation assets

Upon acquiring the legal right to explore a property, costs related to the acquisition, exploration and evaluation of exploration and evaluation assets are capitalized by property. If commercially profitable ore reserves are developed, capitalized costs of the related exploration and evaluation assets are reclassified as mining assets and amortized using the unit of production method. If, after management review, it is determined that capitalized acquisition, exploration and development costs are not recoverable over the estimated economic life of the exploration and evaluation assets, or the exploration and evaluation assets are abandoned, or management deems there to be an impairment in value, the exploration and evaluation assets is written down to its net realizable value.

Any option payments received by the Company from third parties or tax credits refunded to the Company are credited to the capitalized cost of the exploration and evaluation assets. If payments received exceed the capitalized cost of the exploration and evaluation assets, the excess is recognized in profit or loss in the year received. The amounts shown for exploration and evaluation assets do not necessarily represent present or future values. Their recoverability is dependent upon the discovery of economically recoverable reserves, the ability of the Company to obtain the necessary financing to complete the development, and future profitable production or proceeds from the disposition thereof.

Impairment

At the end of each reporting period, the Company’s assets are reviewed to determine whether there is any indication that those assets may be impaired. If 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. Fair value is determined as the amount that would be obtained from the sale of the asset in an arm’s length transaction between knowledgeable and willing parties. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. 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 the profit or loss for the year. 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, but to an amount that does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognized immediately in profit or loss.

VERTICAL EXPLORATION INC. NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MAY 31, 2021

(Expressed in Canadian dollars)

(Unaudited – Prepared by Management)

2. SUMMARY OF ACCOUNTING POLICIES (Continued)

Decommissioning and restoration provision

The Company recognizes liabilities for statutory, contractual, constructive or legal obligations associated with the retirement of exploration and evaluation assets and equipment, when those obligations result from the acquisition, construction, development or normal operation of the assets. The net present value of future rehabilitation cost estimates arising from the decommissioning of plant and other site preparation work is capitalized to mining assets along with a corresponding increase in the rehabilitation provision in the year incurred. Discount rates using a pre-tax rate that reflect the time value of money are used to calculate the net present value. The rehabilitation asset is depreciated on the same basis as mining assets.

The Company’s estimates of reclamation costs could change as a result of changes in regulatory requirements, discount rates and assumptions regarding the amount and timing of the future expenditures. These changes are recorded directly to mining assets with a corresponding entry to the provision. The Company’s estimates are reviewed annually for changes in regulatory requirements, discount rates, effects of inflation and changes in estimates. Changes in the net present value, excluding changes in the Company’s estimates of reclamation costs, are charged to profit or loss for the year.

The Company does not have any decommissioning or restoration obligations for the periods presented.

Valuation of equity units issued in private placements

The Company uses the residual value method with respect to the measurement of shares and warrants issued as private placement units. The residual value method first allocates value to the most easily measured component based on fair value and then the residual value, if any, to the less easily measurable component.

The fair value of the common shares issued in a private placement was determined to be the more easily measurable component and were valued at their fair value. The balance, if any, was allocated to the attached warrants. Any value attributed to the warrants is recorded as share-based payment reserve.

Share-based compensation

The Company grants stock options to acquire common shares of the Company to directors, officers, employees and consultants. An individual is classified as an employee when the individual is an employee for legal or tax purposes, or provides services similar to those performed by an employee.

The fair value of stock options and compensatory warrants are measured on the date of grant, using the Black-Scholes option pricing model, and is recognized over the vesting period. Consideration paid for the shares on the exercise of stock options is credited to share capital.

In situations where equity instruments are issued to non-employees and some or all of the goods or services received by the entity as consideration cannot be specifically identified, they are measured at fair value of the share-based payment. Otherwise, share-based payments are measured at the fair value of goods or services received.

VERTICAL EXPLORATION INC. NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MAY 31, 2021

(Expressed in Canadian dollars)

(Unaudited – Prepared by Management)

2. SUMMARY OF ACCOUNTING POLICIES (Continued)

Share issue costs

Costs directly identifiable with the raising of capital will be charged against the related share capital. Costs related to shares not yet issued are recorded as deferred financing costs. These costs will be deferred until the issuance of the shares to which the costs relate, at which time the costs will be charged against the related share capital or charged to operations if the shares are not issued.

Flow-through shares

Canadian Income Tax legislation permits an enterprise to issue securities referred to as flow-through shares, whereby the investor can claim the tax deductions arising from the renunciation of the related resource expenditures. The Company accounts for flow-through shares whereby any premium paid for the flow through shares in excess of the market value of the shares without flow-through features at the time of issue is credited to flow-through premium liability and included in profit or loss at the same time the qualifying expenditures are made.

Income taxes

Income tax is recognized in profit or loss except to the extent that it relates to items recognized directly in equity, in which case it is recognized in equity. Current tax expense is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at year end, adjusted for amendments to tax payable with regards to previous years.

Deferred tax is recorded by providing for temporary differences, between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: goodwill not deductible for tax purposes; the initial recognition of assets or liabilities that affect neither accounting or taxable loss; and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realization or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the statement of financial position date.

A deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be available against which the asset can be utilized.

Additional income taxes that arise from the distribution of dividends are recognized at the same time as the liability to pay the related dividend. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off 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.

VERTICAL EXPLORATION INC. NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MAY 31, 2021

(Expressed in Canadian dollars)

(Unaudited – Prepared by Management)

3. EXPLORATION AND EVALUATION ASSETS

Title to exploration and evaluation assets properties involves certain inherent risks due to the difficulties of determining the validity of certain claims. The Company has investigated title to its exploration and evaluation assets and, to the best of its knowledge, title to its exploration and evaluation assets are in good standing.

Acquisition costs, beginning of period Acquisition costs, end of period Exploration costs, beginning period Geo-consulting Exploration costs, end of period Total, end of period	Period Ended May 31, 2021
	St. Onge Wollastonite Deposit Total
	$ 960,000 $ 960,000
	$ 960,000 $ 960,000
	$ 1,178,753 $ 1,178,753 30,567 30,567
	$ 1,209,320 $ 1,209,320
	$ 2,169,320 $ 2,169,320

VERTICAL EXPLORATION INC. NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MAY 31, 2021

(Expressed in Canadian dollars)

(Unaudited – Prepared by Management)

3. EXPLORATION AND EVALUATION ASSETS (Continued)

Acquisition costs, beginning of year Cash paid Shares issued Acquisition costs, end of year Exploration costs, beginning year Drilling Field expense Geo-consulting Meals and lodging Exploration costs, end of year Total, end ofyear	Year Ended February 28, 2021
	St. Onge Wollastonite Deposit Total
	$ 860,000 $ 860,000 100,000 100,000 - -
	$ 960,000 $ 960,000
	$ 1,031,544 $ 1,031,544 46,505 46,505 18,675 18,675 68,832 68,832 13,197 13,197
	$ 1,178,753 $ 1,178,753
	$ 2,138,753 $ 2,138,753

St. Onge Wollastonite Deposit

During the year ended February 28, 2018, the Company entered into an option agreement to acquire the St. Onge Wollastonite Deposit, located in the St-Onge township, in the Saguenay – Lac St. Jean region of Quebec. To earn 100% interest, the Company must incur the following:

• i) Cash payments

• a) $ 50,000 was paid;

• b) $100,000 on or before October 4, 2018 (paid);

• c) $100,000 on or before July 10, 2020 (paid);

• d) $500,000 on or before October 4, 2020 (below).

• ii) Share issuances

• a) 6,000,000 common shares were issued and valued at $540,000;

• b) 2,000,000 common shares on or before October 4, 2019 (issued and valued at $130,000).

• iii) Exploration expenditures

• a) incur $300,000 on or before October 4, 2018 (incurred);

• b) incur $500,000 on or before October 4, 2019 (incurred);

• c) incur $1,200,000 on or before October 4, 2020 (below).

VERTICAL EXPLORATION INC. NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MAY 31, 2021

(Expressed in Canadian dollars) (Unaudited – Prepared by Management)

3. EXPLORATION AND EVALUATION ASSETS (Continued)

St. Onge Wollastonite Deposit (Continued)

The Company continues to negotiated a definite extension to the option agreement.

The Company will also grant a 2% Net Smelter Return Royalty (“NSR”), of which 1% can be purchased by the Company for $1,000,000. Additionally, a $5 per tonne royalty on the first million tonnes of raw material shipped from the property without processing will be granted.

During the year ended February 29, 2020, the Company acquired additional claims in consideration of 1,000,000 common shares (issued and valued at $40,000).

4. ACCOUNTS PAYABLE

The Company`s accounts payable and accrued liabilities consist of:

	May 31, 2021 February 28, 2021
Trade payables Accrued liabilities	$ 234,264 $ 249,683 96,800 85,000
	$ 331,064 $ 334,683

5. SHARE CAPITAL, STOCK OPTIONS AND WARRANTS

Authorized share capital – an unlimited number of common shares without par value

SHARES ISSUED DURING THE PERIOD ENDED MAY 31, 2021

During the period ended May 31, 2021, the Company:

• i) issued 2,597,857 common shares pursuant to the exercise of warrants for gross proceeds of $129,892.

• ii) issued 600,000 common shares pursuant to the exercise of options for gross proceeds of $30,000, and accordingly the Company reallocated $12,844 from share-based payment reserve to share capital.

VERTICAL EXPLORATION INC. NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MAY 31, 2021

(Expressed in Canadian dollars)

(Unaudited – Prepared by Management)

5. SHARE CAPITAL, STOCK OPTIONS AND WARRANTS (Continued)

SHARES ISSUED DURING THE YEAR ENDED FEBRUARY 28, 2021

During the year ended February 28, 2021, the Company:

• i) closed a non-brokered private placement of 18,999,929 units at a price of $0.035 per unit for proceeds of $664,998, of which $10,000 was received in fiscal 2020. Each unit is comprised of one common share and one warrant of the Company. Each whole warrant entitles the holder to purchase one share at an exercise price of $0.05 until June 17, 2022. In connection with the private placement, the Company paid $8,026 in cash and issued 229,300 finder’s warrants (valued at $9,800). Each finder’s warrant entitles the finder to purchase one common share in the Company at an exercise price of $0.05 until June 17, 2021.

• ii) issued 804,650 common shares pursuant to exercise of warrants for gross proceeds of $40,233, and accordingly the Company reallocated $4,473 from share-based payment reserve to share capital.

• iii) issued 625,000 common shares pursuant to exercise of options for gross proceeds of $31,250, and accordingly the Company reallocated $13,379 of share-based payment reserve to share capital.

• iv) received subscriptions in advance of $7,500 pursuant to the options exercised subsequent to the year ended February 28, 2021.

STOCK OPTIONS

The Company adopted an equity settled stock option plan. The Company follows the policies of the TSX-V under which it would be authorized to grant options to executive officers and directors, employees and consultants enabling them to acquire up to 10% of the issued and outstanding common stock of the Company.

Under the policies, the exercise price of each option equals the market price or a discounted price of the Company’s stock as calculated on the date of grant. The options can be granted for a maximum term of five years. Vesting terms are determined by the Board of Directors at the time of grant.

During the year ended February 28, 2021, the Company granted 550,000 stock options, exercisable at a price of $0.10 per option until February 16, 2022 resulting in share-based compensation of $32,800, calculated using the Black-Scholes pricing model.

During the year ended February 29, 2020, the Company granted 2,775,000 stock options, exercisable at a price of $0.05 per option until January 17, 2022 resulting in share-based compensation of $59,400, calculated using the Black-Scholes pricing model.

VERTICAL EXPLORATION INC. NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MAY 31, 2021

(Expressed in Canadian dollars)

(Unaudited – Prepared by Management)

5. SHARE CAPITAL, STOCK OPTIONS AND WARRANTS (Continued)

STOCK OPTIONS (Continued)

Stock option transactions are summarized as follows:

	Number of Stock Options Weighted Average Exercise Price
Balance at February 29, 2020 Granted Exercised Expired Balance at February 28, 2021 Exercised Balance at May 31, 2021	5,225,000 $0.07 550,000 0.10 (625,000) 0.05 (2,450,000) 0.10 2,700,000 $0.06 (600,000) 0.05 2,100,000 $0.04

As of May 31, 2021, the following stock options were outstanding:

Expiry date	Number of Options Exercise price Number of options exercisable
January 17, 2022 February 16, 2022 Total	1,550,000 $0.05 1,550,000 550,000 $0.10 550,000
	2,100,000 2,100,000

The following weighted average assumptions were used for the Black-Scholes valuation of stock options granted during :

	Period ended	Year ended
	May 31,	February 28,
	2021	2021
Risk-free interest rate	-	0.20%
Expected life of options	-	1.00 years
Expected annualized volatility	-	166.79%
Expected dividend rate	-	-

VERTICAL EXPLORATION INC. NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MAY 31, 2021

(Expressed in Canadian dollars)

(Unaudited – Prepared by Management)

5. SHARE CAPITAL, STOCK OPTIONS AND WARRANTS (Continued)

WARRANTS

Warrant transactions are summarized as follows:

	Number of Warrants Weighted Average Exercise Price
Balance at February 29, 2020 Exercised Expired Granted Balance at February 28, 2021 Exercised Balance at May 31, 2021	22,485,907 $ 0.11 (804,650) 0.05 (22,485,907) 0.11 19,229,229 0.05 18,424,579 $ 0.05 (2,597,857) 0.05 15,826,722 $0.05

As at May 31, 2021, the following warrants were outstanding:

Expiry	Number of	Exercise	Number of warrants
date	warrants	price	exercisable
June 17, 2021*	124,650	$0.05	124,650
June 17, 2022**	15,702,072	$0.05	15,702,072
Total Outstanding	15,826,722		15,826,722

*30,000 subsequently exercised

*94,650 subsequently expired

**100,000 subsequently exercised

The following weighted average assumptions were used for the Black-Scholes valuation of broker’s warrants granted during :

	Period ended	Year ended
	May 31,	February 28,
	2021	2021
Risk-free interest rate	-	0.26%
Expected life of options	-	1.00 year
Expected annualized volatility	-	201.96%
Expected dividend rate	-	-

VERTICAL EXPLORATION INC. NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MAY 31, 2021

(Expressed in Canadian dollars)

(Unaudited – Prepared by Management)

6. RELATED PARTY TRANSACTIONS

The Company’s related parties and key management consist of executive officers, directors, companies owned by executive officers, companies owned by directors, and companies owned by spouses of directors.

The Company incurred the following expenses in connection with key management, including companies owned by key management and directors.

	For the three months ended	For the three months ended	For the three months ended	For the three months ended
		May 31,
Key Management		2021		2020
Management fees
Paid or accrued to an officer of the Company	$	30,000	$	30,000
Accounting fees
Paid or accrued to an officer of the Company	$	2,200	$	-

Included in accounts payable and accrued liabilities at May 31, 2021 is $181,784 (February 28, 2021 - $157,949) owed to an officer of the Company.

VERTICAL EXPLORATION INC. NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MAY 31, 2021

(Expressed in Canadian dollars)

(Unaudited – Prepared by Management)

7. RISK MANAGEMENT, FINANCIAL INSTRUMENTS AND CAPITAL MANAGEMENT

Fair value

Financial instruments that are measured at fair value using inputs, which are classified within a hierarchy that prioritizes their significance. The three levels of the fair value hierarchy are:

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

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

Cash is measured using level 1 of the fair value hierarchy.

Given that they will mature shortly, the fair value of accounts payable and accrued liabilities approximate their carrying value.

Financial Risk

The primary goals of the Company’s financial risk management are to ensure that the outcomes of activities involving elements of risk are consistent with the Company’s objectives and risk tolerance, and to maintain an appropriate risk/reward balance while protecting the Company’s net assets from events that have the potential to materially impair its financial strength. Balancing risk and reward is achieved through aligning risk appetite with business strategy, diversifying risk, pricing appropriately for risk, mitigating risks through preventive controls and transferring risk to third parties.

The Company’s exposure to potential loss from financial instruments is primarily due to credit risk, liquidity risk and various market risks, including interest rate.

Interest Rate Risk

Fluctuations in interest rates have only an impact on the return that the cash generates as interest income. Unfavorable changes in the applicable interest rate may result in a decrease of interest income.

The Company has limited exposure to financial risk arising from fluctuations in interest rates earned on short-term investments given their short-term nature. As a result fluctuations in market interest rates during the current year would not have any significant impact on the Company’s financial results.

Liquidity Risk

Liquidity risk is the risk that an entity will encounter difficulty in raising funds to meet cash flow commitments. Liquidity needs are monitored in various time bands, including 30-day, 180-day and 360day lookout periods. The Company’s ability to meet its commitments for exploration programs, and meet all of its general and administrative costs on a continuous basis is dependent on the continued support of the financial markets. In particular, the Company may have to issue additional common shares. The Company is exposed to liquidity risk.

VERTICAL EXPLORATION INC. NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MAY 31, 2021

(Expressed in Canadian dollars)

(Unaudited – Prepared by Management)

7. RISK MANAGEMENT, FINANCIAL INSTRUMENTS AND CAPITAL MANAGEMENT (Continued)

Credit Risk

Credit risk is the risk that one party to a financial instrument fails to discharge an obligation and causes financial loss to another party. All of the cash is held with one financial institution. Consequently, the Company is exposed to concentration of credit risks of that institution. However, the credit risk is limited, based on the high quality external credit rating of that institution.

Capital Management

The Company considers the items included in shareholders equity as capital. The Company’s objective in managing capital is to ensure sufficient liquidity to pursue its exploration activities and may raise additional capital through the equity markets as additional capital is required. The Company is not subject to any externally imposed capital requirements and does not presently utilize any quantitative measures to monitor its capital. There was no change in the Company’s capital management strategy during the period ended May 31, 2021.

8. SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS

	For	the three months ended	the three months ended	the three months ended
		May	31,
		2021		2020
Accrued exploration and evaluation asset costs in accounts
payable	$	-	$	143,607
Fair value of options exercised	$	12,844	$	-
Reallocation of subscriptions for warrant exercised	$	7,500	$	-

9. SEGMENTED INFORMATION

The Company operates in one reportable segment being the acquisition, exploration and evaluation of mineral properties in Canada.

VERTICAL EXPLORATION INC. NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MAY 31, 2021 (Expressed in Canadian dollars)

(Unaudited – Prepared by Management)

10. COMMITMENT

In connection with the issuance of flow-through common shares (Note 5), the Company has a commitment to incur qualifying flow-through expenditures. As at May 31, 2021, the Company has a remaining flow-through commitment of $Nil (February 28, 2021 - $Nil).

Initial recognition of deferred premium on flow-through shares Settlement of flow-through shares liability through incurring expenditures Balance at February 29, 2020 Settlement of flow-through shares liability through incurring expenditures Balance at February 28, 2021 and May 31, 2021	$ 69,045 (60,963)
	8,082 (8,082)
	$ -

11. SUBSEQUENT EVENTS

Subsequent to May 31, 2021, the Company:

• i) issued 30,000 common shares pursuant to the exercise of warrants for gross proceeds of $1,500.

• ii) issued 100,000 common shares pursuant to exercise of warrants for gross proceeds of $5,000.