Zentek Ltd. — Interim / Quarterly Report 2021

Aug 27, 2021

POTENT VENTURES INC.

INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the nine-month period ended June 30, 2021

(Expressed in United States Dollars)

NOTICE TO READER

The unaudited consolidated interim financial statements of Potent Ventures Inc. (the “Company”) have not been reviewed by the auditors of the Company. This notice is being provided in accordance with Section 4.3 (3) (a) of National Instrument 51-102 - Continuous Disclosure Obligations.

POTENT VENTURES INC.

INTERIM CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(Expressed in United States Dollars)

POTENT VENTURES INC. INTERIM CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Expressed in United States Dollars)
AS AT	Note	June 30, 2021	September 30, 2020
ASSETS
Current Cash Inventory and deposits for inventory Receivables Loans receivable Prepaid expenses and deposits	4 6	$ 916,141 126,607 - 113,136 5,097	$ 638,982 53,232 6,469 230,129 5,428
Non-Current Property and equipment Right of use asset	7 7	1,160,981 - 38,988	934,240 148,066 57,863
Total assets		$1,199,969	$1,140,169
LIABILITIES AND EQUITY Current Accounts payable and accrued liabilities		$ 38,198	$ 6,010
Lease liability	7	13,485	18,982
Non-Current Lease liability	7	51,683 30,342	24,992 42,709
Total Liabilities Equity		82,025	67,701
Share capital	10	45,245,525	44,072,332
Reserves	10	7,860,795	7,278,107
Deficit		(51,883,127)	(50,172,722)
Total equity attributable to shareholders of the Company		1,223,193	1,177,717
Non-controllinginterest		(105,249)	(105,249)
Total equity		1,117,944	1,072,468
Total liabilities and equity		$1,199,969	$1,140,169

Nature and continuance of operations (Note 1)

Approved on behalf of the Board of Directors and authorized for issuance on August 27, 2021:

“Signed” “Signed” Charlie Lamb, Director Brian Keane, Director

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

3

POTENT VENTURES INC.

INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (UNAUDITED) (Expressed in United States Dollars)

==> picture [505 x 450] intentionally omitted <==

----- Start of picture text -----

Three month ended Nine month ended
June 30 June 30 June 30 June 30,
Note 2021 2020 2021 2020
Revenue $ 1,529 $ 64,728 $ 46,672 $ 94,508
Cost of goods sold 1,300 41,786 35,157 62,940
Gross margin 229 22,942 11,515 31,568
Expenses
General and administrative 14 $ 230,524 $ 541,902 898,083 1,247,942
Professional fees 29,723 35,877 150,628 288,723
Share-based compensation 10 294,667 - 501,071 361,751
Northern Lights Organics milestone payment 8 - - - 26,341
Depreciation 7 6,483 (278) 18,875 3,339
Total expenses 561,397 577,501 1,568,657 1,928,096
Loss before other items (561,168) (554,559) (1,557,142) (1,896,528)
Impairment - loan receivable 6 94 (200,000) (44,906) (293,863)
Impairment - assets held for sale 9 (1,290) 61,304 (85,011) (271,552)
Gain on settlement of debt - - - 113,334
Interest and other (19,208) (18,297) (23,346) (10,797)
Loss from continuing operations (581,572) (711,552) (1,710,405) (2,359,406)
Net loss from discontinued operations 9 - (182,509) - (204,007)
Net loss for the period (581,572) (894,061) (1,710,405) (2,563,413)
Other comprehensive loss
Translation adjustment 55,009 (27,683) 67,755 (87,302)
Comprehensive loss for the period $ (526,563) $ (921,744) $ (1,642,650) $ (2,650,715)
Comprehensive loss attributable to:
Net loss - shareholders of the Company (581,572) (894,061) (1,710,405) (2,543,926)
Net loss - non-controlling interest - - - (19,487)
Translation adjustment 55,009 (27,683) 67,755 (87,302)
$ (526,563) $ (921,744) $ (1,642,650) $ (2,650,715)
Loss per share
Basic and diluted - continuing operations $ (0.01) $ (0.02) $ (0.03) $ (0.07)
Basic and diluted - discontinued operations $ - $ (0.00) $ - $ (0.01)
Total $ (0.01) $ (0.02) $ (0.03) $ (0.07)
Weighted average number of common shares
Basic and diluted 80,497,036 43,516,706 61,762,821 35,382,973
----- End of picture text -----

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

4

POTENT VENTURES INC.

INTERIM CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED) (Expressed in United States Dollars)

==> picture [505 x 283] intentionally omitted <==

----- Start of picture text -----

Translation
Number of adjustment Non-controlling
common shares Share Capital Reserves reserve interest Deficit Total equity
Balance, September 30, 2019 35,284,418 $ 44,723,002 $ 7,096,507 $ (182,040) $ (48,931) $ (48,681,062) $ 2,907,476
Common shares issued for cash 7,091,200 831,661 - - - - 831,661
Common shares issued for settlement of debt 3,187,522 369,499 - - - - 369,499
Common shares issued upon exercise of warrants 36,000 17,030 - - - - 17,030
Shares issued under NLO agreement 80,000 26,341 - - - - 26,341
Shares issuance costs - cash - (60,887) - - - - (60,887)
Finders' warrants - (52,913) 52,913 - - - -
Share-based compensation - - 361,751 - - - 361,751
Translation adjustment - - - (87,302) - - (87,302)
Net loss for the period - - - - (19,487) (2,543,926) (2,563,413)
Balance, June 30, 2020 45,679,140 $ 45,853,733 $ 7,511,171 $ (269,342) $ (68,418) $ (51,224,988) $ 1,802,156
Balance, September 30, 2020 45,039,684 $ 44,072,332 $ 7,479,220 $ (201,113) $ (105,249) $ (50,172,722) $ 1,072,468
Common shares issued for cash 35,272,004 1,188,455 - - - - 1,188,455
Common shares issued upon exercise of options 1,000,000 27,015 - - - - 27,015
Common shares issued upon exercise of warrants 254,400 11,802 - - - - 11,802
Shares issuance costs - cash - (40,217) - - - - (40,217)
Finders' warrants - (13,862) 13,862 - - - -
Share-based compensation - - 501,071 - - - 501,071
Translation adjustment - - - 67,755 - - 67,755
Net loss for the period - - - - - (1,710,405) (1,710,405)
Balance, June 30, 2021 81,566,088 $ 45,245,525 $ 7,994,153 $ (133,358) $ (105,249) $ (51,883,127) $ 1,117,944
----- End of picture text -----

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

5

POTENT VENTURES INC.

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Expressed in United States Dollars)

==> picture [504 x 498] intentionally omitted <==

----- Start of picture text -----

Nine Months Ended
June 30, June 30,
2021 2020
Operating activities
Net loss for the period $ (1,710,405) $ (2,563,413)
Adjusted for:
Depreciation 18,875 24,837
Share-based compensation 501,071 361,751
Gain on debt settlement - 113,334
Northern Lights Organics milestone payment - 26,341
Impairment of loan receivable 45,000 293,863
Impairment of equipment 85,011 271,552
Changes in non-cash working capital:
Receivables 6,469 (19,989)
Prepaid expenses 331 (5,510)
Accounts payable and accrued liabilities 40,046 59,907
Inventory and inventory deposits (73,375) (46,004)
Cash flows from operating activities (1,086,977) (1,483,331)
Investing activities
Property and equipment 70,803 (229,923)
Disposition of available for sale assets - 282,766
Loans receivable - repaid 55,000 584,015
Loans receivable - (129,288)
Cash flows from investing activities 125,803 507,570
Financing activities
Common shares issued for cash 1,188,455 831,661
Share issue costs (40,217) (60,887)
Common shares issued upon exercise of options and warrants 38,817 17,030
-
Lease repayments (17,864)
Cash flows from financing activities 1,169,191 787,804
Effect of exchange rate changes on cash 69,142 (186,709)
Decrease in cash 277,159 (374,666)
Cash, beginning of period 638,982 822,945
Cash, end of period $ 916,141 $ 448,279
Supplemental cash flow information
Shares issued under NLO agreement $ - $ 26,341
Fair value of finders' warrants $ 13,862 $ 52,913
----- End of picture text -----

No cash was paid for interest or income taxes for the periods presented.

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

6

POTENT VENTURES INC. NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) June 30, 2021 (Expressed in United States Dollars unless otherwise noted)

1. NATURE AND CONTINUANCE OF OPERATIONS

Potent Ventures Inc. (the “Company”, Formerly Weekend Unlimited Industries Inc.) was incorporated pursuant to the provisions of the British Columbia Business Corporations Act on September 21, 2017. The Company’s registered and records office address is 1066 West Hastings Street, Vancouver BC V6E 3X1.

The Company is a provider of branded packaging and CBD products in the regulated cannabis industry. The Company’s focus is on building and facilitating the growth of a diversified portfolio of branded consumer products.

These interim consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) 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. The financial statements do not include adjustments to amounts and classifications of assets and liabilities that might be necessary should the Company be unable to continue operations. The Company’s ability to continue as a going concern is dependent upon its ability in the future to achieve profitable operations and, obtain the necessary financing to meet its near-term obligations such that it can repay its liabilities when they become due. The inability to achieve these objectives may cast significant doubt about the Company’s ability to continue as a going concern.

The Company is subject to regulation under the federal and provincial laws of Canada and certain civic and state laws in the United States of America. Almost half of the states in the United States have enacted legislation to regulate the sale and use of medical cannabis without limits on tetrahydrocannabinol (“THC”), while other states have regulated the sale and use of medical cannabis with strict limits on the levels of THC. Notwithstanding the permissive regulatory environment of adult-use recreational and medical cannabis at the state level, cannabis continues to be categorized as a controlled substance under the Controlled Substances Act (the “CSA”) in the United States and as such, cannabis-related practices or activities, including without limitation, the manufacture, importation, possession, use or distribution of cannabis are illegal under United States federal law. Strict compliance with state laws with respect to cannabis will neither absolve the Company of liability under United States federal law, nor provide a defense to any federal proceeding which may be brought against the Company. Any such proceedings brought against the Company may adversely affect the Company’s operations and financial performance.

On March 11, 2020, the World Health Organization categorized COVID-19 as a pandemic. The potential economic effects within the Company’s environment and in the global markets, possible disruption in supply chains, and measures being introduced at various levels of government to curtail the spread of the virus (such as travel restrictions, closures of non-essential municipal and private operations, imposition of quarantines and social distancing) could have a material impact on the Company’s operations. The extent of the impact of this outbreak and related containment measures on the Company’s operations cannot be reliably estimated.

7

POTENT VENTURES INC. NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) June 30, 2021 (Expressed in United States Dollars unless otherwise noted)

2. BASIS OF PRESENTATION

Statement of compliance

These interim consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) in accordance with International Accounting Standards 34, “Interim Financial Reporting” (“IAS 34”) as issued by the International Accounting Standards Board (“IASB”), and interpretations of the IFRS Interpretations Committee (“IFRIC”).

Basis of measurement

These interim consolidated financial statements have been prepared on a historical cost basis, except for financial instruments classified as financial instruments at fair value through profit or loss, which are stated at fair value. In addition, these interim consolidated financial statements have been prepared using the accrual basis of accounting except for cash flow information.

Presentation and functional currency

Theses interim consolidated financial statements of the Company are presented in United States dollars and are prepared in accordance with the same accounting policies, critical estimates and methods described in the Company’s annual consolidated financial statements, except for the adoption of new accounting standards identified in Note 3 & 4. Given that certain information and disclosures, which are included in the annual audited consolidated financial statements, have been condensed or excluded in accordance with IAS 34, these financial statements should be read in conjunction with our annual audited consolidated financial statements as at and for the year ended September 30, 2020, including the accompanying notes thereto.

Consolidation

These interim consolidated financial statements include the accounts of the Company and its subsidiaries, which are controlled by the Company. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity and be exposed to the variable returns from its activities. The list below sets out the principal subsidiaries of the Company. These subsidiaries engage in intercompany transactions, all of which are eliminated upon the preparation of these interim consolidated financial statements:

==> picture [468 x 63] intentionally omitted <==

----- Start of picture text -----

Country of Percentage Functional
Name of subsidiary Abbreviation Incorporation Ownership Currency Principal Activity
Weekend Unlimited Holdings Inc. Weekend Holdings USA 100% CAD Holding Company
Weekend Unlimited Washington, LLC Weekend Washington USA 100% CAD Branding services
Wknd Shop, LLC (Formerly S&K Industries LLC) Wknd Shop USA 100% CAD Hemp products
Elevation Growers Ltd. (Formerly Cannabis Brands Inc.) EG CAN 100% CAD Holding Company
Northern Lights Organics Inc. NLO CAN 70% CAD Hemp Cultivation
----- End of picture text -----

8

POTENT VENTURES INC. NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) June 30, 2021 (Expressed in United States Dollars unless otherwise noted)

3. USE OF ESTIMATES, ASSUMPTIONS, AND JUDGEMENTS

The preparation of financial statements in conformity with IFRS requires the use of judgments and/or estimates that affect the amounts reported and disclosed in the interim consolidated financial statements and related notes. These judgments and estimates are based on management’s best knowledge of the relevant facts and circumstances, having given regard to previous experience, but actual results may differ materially from the amounts included in the financial statements. The critical estimates and judgments applied in the preparation of the unaudited interim consolidated financial statements for the nine-month period ended June 30, 2021 are consistent with those applied and disclosed in Note 3 & 4 to the Company's audited consolidated financial statements for the year ended September 30, 2020.

4. SIGNIFICANT ACCOUNTING POLICIES

Inventory

Inventories of finished goods and packing materials are valued initially at cost and subsequently at the lower of cost and net realizable value. Inventory consists of infused products, accessories, and product packaging. Net realizable value is determined as the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. Cost is determined using the weighted average cost basis. Products for resale and supplies and consumables are valued at the lower of cost and net realizable value. The Company reviews inventory for obsolete and slow-moving goods and any such inventory is written-down to net realizable value. During the period the Company expensed $35,157 of inventory to cost of goods sold (June 30, 2020 - $62,940).

Revenue

The Company’s accounting policy for revenue recognition under IFRS 15 is as follows:

To determine the amount and timing of revenue to be recognized, the Company follows a 5-step process:

1. Identifying the contract with a customer

2. Identifying the performance obligations

3. Determining the transaction price

4. Allocating the transaction price to the performance obligations

5. Recognizing revenue when/as performance obligation(s) are satisfied.

Revenue from the direct sale of branded products and branded packaging for a fixed price is recognized when the Company transfers control of the good to the customer upon delivery.

9

POTENT VENTURES INC. NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) June 30, 2021 (Expressed in United States Dollars unless otherwise noted)

4. SIGNIFICANT ACCOUNTING POLICIES (Continued)

Leases

To identify a lease, the Company (1) considers whether an explicit or implicit asset is specified in the contract and (2) determines whether the Company obtains substantially all the economic benefits from the use of the underlying asset by assessing numerous factors, including but not limited to substitution rights and the right to determine how and for what purpose the asset is used.

When assessing the lease term, management considers all facts and circumstances that create an economic incentive to exercise an extension option or to not exercise a termination option. This judgment is based on factors such as contract rates compared to market rates, economic reasons, significance of leasehold improvements, termination and relocation costs, installation of specialized assets, residual value guarantees, and any sublease term.

The Company has elected not to recognize right-of-use assets and lease liabilities for low-value assets or short-term leases with a term of 12 months or less. These lease payments are recognized in operating expenses over the lease term.

The lease liability is initially measured at the present value of the lease payments that are not paid. The Company elected to not separate non-lease components from lease components and to account for the non-lease and lease components as a single lease component. Lease payments generally include fixed payments less any lease incentives receivable. The lease liability is discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s incremental borrowing rate. The Company estimates the incremental borrowing rate based on the lease term, collateral assumptions, and the economic environment in which the lease is denominated. The lease liability is subsequently measured at amortized cost using the effective interest method. The lease liability is remeasured when the expected lease payments change as a result of new assessments of contractual options and residual value guarantees.

The right-of-use asset is recognized at the present value of the liability at the commencement date of the lease less any incentives received from the lessor. Added to the right-of-use asset are initial direct costs, payments made before the commencement date, and estimated restoration costs. The right-of-use asset is subsequently depreciated on a straight-line basis from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability. Upon adoption of IFRS 16 the Company recorded a right of use asset of $81,531 and a lease liability of a corresponding amount. The right of use asset was measured at the present value of the remaining lease payments, discounted using the Company’s weighted average incremental borrowing rate of 15%.

5. RECENT ACCOUNTING PRONOUNCEMENTS

Recent accounting policies

The Company has not yet adopted certain standards, interpretations to existing standards and amendments which have been issued but have an effective date later than July 1, 2020. Many of these updates are not currently relevant to the Company and are therefore not discussed herein.

10

POTENT VENTURES INC. NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) June 30, 2021 (Expressed in United States Dollars unless otherwise noted)

6. LOANS RECEIVABLE

A summary of the Company’s loans receivable is as follows:

					Northern
	World High	Orchard	Ruby Mae's	MDFD	Lights Supply
	Life Plc	Bloom LLC	LLC	Holdings LLC	Inc.	Total
Balance, September 30, 2019	-	500,000	-	-	490,815	990,815
Loans granted	105,129	-	25,000	100,000	-	230,129
Loans repaid	-	(278,565)	-	-	(384,015)	(662,580)
Impairment	-	(221,435)	-	-	(93,863)	(315,298)
Foreign exchange variance	-	-	-	-	(12,937)	(12,937)
Balance, September 30, 2020	$ 105,129	$ -	$ 25,000	$ 100,000	$ - $	230,129
Impairment	-	-	-	(45,000)	-	(45,000)
Loans repaid		-	(25,000)	(55,000)	-	(80,000)
Foreign exchange variance	8,007	-	-	-	-	8,007
Balance, June 30, 2021	$ 113,136	$ -	$ -	$ -	$ - $	113,136

Love Hemp Group Plc

In February 2020, the Company advanced Love Hemp Group Plc (“LHG”) an unsecured demand loan of $111,509 (CAD $140,000) bearing interest of 5%. The loan matured November 1, 2020. LHG was considered a related party due to common directors of each Company. On November 1, 2020 the Company amended the maturity date to May 1, 2021. Subsequent to period end the Company settled the loan balance in exchange for 3,000,000 Ordinary shares of LHG. LHG is no longer considered a related party as both Charlie Lamb and Robert Payment have now resigned from LHG.

Orchard Bloom LLC

During the year ended September 30, 2018 the Company advanced funds totaling $500,000 to a Washington State Cannabis Cultivator and Processor, an unrelated third party. The advanced funds are unsecured, accrue interest at 5% and have a maturity date of October 2023. In October 2018 the Company formalized the advance by entering a promissory note for a principal sum of up to $600,000.

The principal balance shall accrue interest at an annual rate of 5% per year. The note is to be repaid in the form of sixty equal monthly payments commencing from the date funds are released from escrow. In the event of late payment, the borrower shall have 30 days to cure any late payment after which time interest of 15% per annum will accrue until such late payments are cured and all accrued interest has been paid. The Company received an immediate payment of $278,565 upon entering a settlement agreement with the lender and impaired the remaining loan balance of $221,435.

Ruby Mae’s LLC

During the year ended September 30, 2019, the Company received a non-interest bearing secured note in the amount of $25,000 from Ruby Mae’s LLC. The maturity date of the note was February 28, 2020. The maturity date was extended to March 30, 2021. During the period ended June 30, 2021 the balance owing was recovered in full.

11

POTENT VENTURES INC. NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) June 30, 2021 (Expressed in United States Dollars unless otherwise noted)

6. LOANS RECEIVABLE (Continued)

MDFD Holdings LLC

In relation to the sale of equipment and inventory at the Company’s former facility in Wenatchee Washington the Company received a promissory note of $100,000 (Note 13). Under the note monthly payments to the Company are to commence January 3, 2021 of $6,666 per month until the balance is repaid. The note bears interest of 5%. During the period ended June 30, 2021 the Company accepted $55,000 as final payment of the outstanding balance.

Northern Lights Supply Inc.

In November 2018, the Company entered into a secured 6% loan facility for up to CAD $1,200,000, of which the Company has initially advanced CAD $500,000. The borrower is an Alberta based cannabis retailer. During the year ended September 30, 2019 the Company advanced an additional CAD $250,000.

During the period ended December 31, 2019 the Company entered an amending agreement with Northern Lights Supply Inc. for early repayment of its loan, whereby the parties agreed to reduce the loan balance to CAD $650,000, following interest payments received of $33,750, and amended the repayment terms as follows:

• a payment of CAD $ 275,000 upon execution of the amending agreement

• 6 semi-annual payments of CAD $50,000 over three years

• One final payment of CAD $75,000

• Elimination of the conversion option

The Company recognized an impairment charge of $75,510 in relation to the reduced loan balance as at September 30, 2019.

During the year ended September 30, 2020 the Company agreed to accept a final CAD $200,000 immediately as full settlement of the outstanding balance. Accordingly, the Company recorded an impairment of $93,863.

12

POTENT VENTURES INC. NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) June 30, 2021 (Expressed in United States Dollars unless otherwise noted)

7. PROPERTY AND EQUIPMENT

PROPERTY AND EQUIPMENT
		Land		Building		Equipment	Total
Cost
Balance September 30, 2019	$		-	$ -	$	212,638 $	212,638
Additions		456,439		-		20,806	477,245
Transfer to assets held for sale			-	-		(183,928)	(183,928)
Impairment		(309,573)		-		(48,191)	(357,764)
Foreign exchange		1,200		-		(1,325)	(125)
Balance September 30, 2020	$	148,066		$ -	$	- $	148,066
Transfer to assets held for sale		(148,066)		-		-	(148,066)
Balance,June 30,2021	$	-		$-	$	- $	-
Accumulated depreciation
Balance September 30, 2019	$		-	$ -	$	45,234 $	45,234
Additions			-	-		3,339	3,339
Transfer to assets held for sale			-	-		(38,917)	(38,917)
Foreign exchange			-	-		(9,656)	(9,656)
Balance September 30,2020	$		-	$-	$	-$	-
Balance,June 30,2021	$		-	$-	$	-$	-
Net book value
September 30,2020	$	148,066		$-	$	-$	148,066
June 30, 2021	$		-	$ -	$	- $	-

Equipment transferred to assets held for sale was impaired by $85,011 (Note 9).

13

POTENT VENTURES INC. NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) June 30, 2021 (Expressed in United States Dollars unless otherwise noted)

7. PROPERTY AND EQUIPMENT (Continued)

A continuity of the right of use asset and lease liability is as follows:

==> picture [473 x 250] intentionally omitted <==

----- Start of picture text -----

Right of use asset recognized on adoption of IFRS 16 $ 81,531
Depreciation of right of use asset (23,668)
Balance - September 30, 2020 $ 57,863
Depreciation of right of use asset (18,875)
Balance - June 30, 2021 $ 38,988
Lease liability recognized on adoption of IFRS 16 $ 81,531
Lease payments (29,911)
Interest 10,071
Balance - September 30, 2020 $ 61,691
Lease payments (23,854)
Interest 5,990
Balance - June 30, 2021 $ 43,827
Current portion $ 13,485
Long term 30,342
Total $ 43,827
----- End of picture text -----

The Company recorded interest expense of $4,138 in relation to the lease liability during the year. The lease expires in February 2023. The monthly rent expense is $4,685. The effective date of the lease was February 1, 2018.

14

POTENT VENTURES INC. NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) June 30, 2021 (Expressed in United States Dollars unless otherwise noted)

8. ACQUISITION OF NORTHERN LIGHTS ORGANICS INC.

During the year ended September 30, 2018, the Company signed an agreement to purchase all of the shares of Northern Lights Organics Ltd. (“NLO”) and was granted an option to acquire an organic farm in northern BC. As consideration for the shares of NLO the Company agreed to:

• Fund an ACMPR application;

• Upon closing, pay CAD $25,000 in cash and issue 20,000 common shares of the Company. The shares were issued during the period ended December 31, 2018 and had a fair value of $144,951 (Note 17);

• Upon receipt of a license to cultivate and sell hemp and/or cannabis, issue common shares with a value equal to CAD $1,000,000;

• Upon harvest of the first outdoor hemp and/or cannabis crop, pay CAD $25,000 in cash; and

• Upon completion of an expansion facility of at least 100,000 square feet, issue common shares with a value equal to CAD $500,000.

If exercised, the option price to acquire the agricultural property was as follows:

• CAD $1,150,000 if exercised during the period ending February 2019

• CAD $1,250,000 if exercised during the period ending February 2020

• CAD $1,350,000 if exercised during the period ending February 2021

During the year ended September 30, 2018 the Company notified NLO that it would not pursue the purchase option in its current form.

During the year ended September 30, 2019 the Company entered a new share purchase agreement with NLO which replaced and superseded any prior agreements between the parties. The terms of the new share purchase agreement are as follows:

• Divested 30% of the equity ownership to one of the original vendors

• Advanced CAD $150,000 to NLO on closing of the modified share purchase agreement to be used towards development of the project

• Agreed to fund an additional CAD $150,000 in July 2019 upon achievement of certain milestones

• Agreed to fund an additional CAD $340,000 in February 2020 upon achievement of certain milestones

• Issue 40,000 common shares upon the achievement of certain milestones

• Issue CAD $1,000,000 in common shares upon the achievement of certain milestones

• Agreed to purchase a 50% interest in the organic farm for CAD $600,000 (Paid).

As at September 30, 2019 $226,530 had been paid with the remaining amount paid during the year ended September 30, 2020 and recorded as land (Note 7). As at September 30, 2020 the Company determined that it was appropriate to impair the value of the land to the assessed value of $148,066 as this was the most probable recoverable amount given the decline in prices of hemp biomass.

During the year ended September 30, 2020 the Company issued 20,000 common shares with a fair value of $26,341 in relation to the transaction to acquire a 70% interest in Northern Lights Organics Ltd.

15

POTENT VENTURES INC. NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) June 30, 2021 (Expressed in United States Dollars unless otherwise noted)

9. DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE

The following table summarizes the results from discontinued operations for the six-month period ended June 30, 2021:

==> picture [406 x 133] intentionally omitted <==

----- Start of picture text -----

Wknd Shop LLC Norther Lights Total
Revenue $ 234,835 $ - $ 234,835
Cost of good sold 230,480 - 230,480
Gross margin 4,355 - 4,355
Expenses
General and administrative $ 143,404 $ 14,364 $ 157,768
Professional fees - 29,096 29,096
Depreciation - 21,498 21,498
Loss from discontinued operations $ (139,049) $ (64,958) $ (204,007)
----- End of picture text -----

During the year ended September 30, 2020 the Company classified Wknd Shop LLC and NLO as discontinued operations as management determined these business lines would no longer be pursued. Accordingly, $139,049 and $64,958 of related losses during the nine month period ended June 30, 2020 have been reclassified to losses from discontinued operations.

During the period ended December 31, 2020 the Company reached an agreement to sell its land in Northern British Columbia for $70,803 (CAD $90,000). In relation to the sale, the Company recorded an impairment of $85,011 on the book value of the land.

10. SHARE CAPITAL AND RESERVES

Authorized

Unlimited common shares with no par value and unlimited preferred shares with no par value. As of June 30, 2021, there were 81,566,088 common shares outstanding (September 30, 2020 – 45,039,684)

Issued and Outstanding – Common Shares Fiscal 2021:

On February 22, 2021 , the Company closed a non-brokered private placement of 35,272,004 units at a price of CAD $0.0425 per unit, raising gross proceeds of $1,188,455 (CAD $1,499,060). Each unit consists of one common share and one share purchase warrant entitling the holder to purchase an additional common share for CAD $0.0575 for a period of 2 years from the issue date.

In connection with the closing of the private placement, the Company paid finder's fees of $40,217 in cash and issued 1,193,600 finder's warrants. The finder's warrants hold the same terms of the warrants issued as part of the Units. The grant date fair value of the broker warrants was $13,862, using the Black-Scholes option Pricing Model with the following assumptions: expected life – 2 years, expected volatility – 80%, dividend yield - $0, and risk-free rate – 0.23%.

16

POTENT VENTURES INC. NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) June 30, 2021 (Expressed in United States Dollars unless otherwise noted)

10. SHARE CAPITAL AND RESERVES (Continued)

Issued and Outstanding – Common Shares Fiscal 2020:

During the year ended September 30, 2020 the Company issued common shares as follows:

• a) Issued 80,000 common shares upon the achievement of certain milestones under the Northern Lights Organics share purchase agreement with a fair value of $26,341.

• b) Issued 36,000 common share upon the exercise of warrants at a price of CAD $0.625 each for proceeds of $17,030 (CAD - $22,500).

• c) Cancelled 1,339,448 common shares in relation to the return of shares from certain vendors. In relation to the cancellation, the Company recorded a charge to deficit of $1,287,113.

• d) The Company completed a non-brokered private placement of $831,661 (CAD $1,108,001) by the issuance of 7,091,200 units at CAD $0.1562. Each unit consists of one common share and one common share purchase warrant entitling the holder to subscribe for one additional share at a price of CAD $0.2125 for a period of 2 years, subject to the Company’s right to accelerate the expiry date upon 30 days’ notice if its shares trade at CAD $0.4375 or more for a period of 10 days. In connection with the issuance of the units the Company issued 517,400 broker warrants on the same terms as the unit offering and incurred cash finder’s fees of $60,887. The Company recorded share issue costs of $52,913 with respect to the broker warrants granted as finders’ fees. The fair value of these broker warrants was CAD $0.1125 per warrant and was estimated using the BlackScholes option pricing model.

• e) Issued 317,005 common shares to settle outstanding debts with a fair value of $37,263. In relation to the issuance, the Company recorded a gain on settlement of debt of $113,334.

• f) Issued 2,950,516 common shares for services with a fair value of $335,041.

• g) Issued 260,000 common shares for services with a fair value of $24,917.

• h) Issued 980,000 common shares to members of management for services with a fair value of $82,423.

• i) Cancelled 620,008 common shares in relation to the return of shares from certain vendors of R&D Pharma Corp. In relation to the cancellation, the Company recorded a charge to deficit of $604,433

17

POTENT VENTURES INC. NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) June 30, 2021 (Expressed in United States Dollars unless otherwise noted)

10. SHARE CAPITAL AND RESERVES (Continued)

Warrants

A summary of warrant activity is as follows:

==> picture [342 x 175] intentionally omitted <==

----- Start of picture text -----

Weighted
Number of Average Exercise
Warrants Price ($CAD)
Balance at September 30, 2019 16,599,456 2.1125
Granted 9,472,504 1.0325
Expired (3,563,872) 1.5350
Exercised (36,000) 0.6250
Balance at September 30, 2020 22,472,088 1.7500
Granted 36,465,604 0.0575
Expired (11,337,908) 1.6087
Exercised (254,400) 0.0575
Balance at June 30, 2021 47,345,384 0.1712
----- End of picture text -----

The following table summarizes warrants outstanding as of June 30, 2021:

==> picture [423 x 106] intentionally omitted <==

----- Start of picture text -----

Weighted
Number of Weighted Average Average
Expiry date Warrants Exercise Price ($CAD) Remaining Years
July 9, 2021 3,525,580 $1.2500 0.02
February 11, 2022 7,090,128 $0.2125 0.62
March 10, 2022 518,472 $0.2125 0.69
February 22, 2023 36,211,204 $0.0575 1.65
47,345,384 1.36
----- End of picture text -----*

*Expired unexercised subsequent to period end.

18

POTENT VENTURES INC. NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) June 30, 2021 (Expressed in United States Dollars unless otherwise noted)

10. SHARE CAPITAL AND RESERVES (Continued)

Stock options

The Company has adopted a stock option plan (the "Plan") for its directors, officers, employees and consultants to acquire common shares of the Company at a price determined by the fair market value of the shares at the date immediately preceding the date on which the option is granted. The aggregate number of stock options granted shall not exceed 10% of the issued and outstanding common shares of the Company at the time of shareholder approval of the plan, with no one individual being granted more than 5% of the issued and outstanding common shares. In addition, the exercise price of stock options granted under the plan shall not be lower than the exercise price permitted by the CSE, and all stock options granted under the plan will have a maximum term of seven years.

A summary of stock option activity is as follows:

==> picture [342 x 148] intentionally omitted <==

----- Start of picture text -----

Weighted
Number of Average Exercise
Options Price ($CAD)
Balance at September 30, 2019 2,138,000 1.7875
Cancelled (2,138,000) 1.7875
Granted 3,944,000 0.1563
Balance at September 30, 2020 3,944,000 0.1563
Cancelled (2,152,000) 0.1563
Granted 15,400,000 0.0642
Balance at June 30, 2021 17,192,000 0.0738
----- End of picture text -----

The following table summarizes stock options outstanding and exercisable as of June 30, 2021:

			Weighted	Weighted
	Number of	Number of	Average Exercise	Average
Expiry date	Options	Exercisable Options	Price($CAD)	Remaining Years
March 25, 2025	1,792,000	1,792,000	$0.1563	3.74
March 9, 2026	5,800,000	5,800,000	$0.0713	4.69
June 29,2021	9,600,000	9,600,000	$0.0600	5.00
	17,192,000	7,592,000

Share-based compensation expense recognized during the period of $501,071 (2020 - $361,751) related to options granted and vested during the period. The Option Pricing Model used the following weighted average assumptions:

==> picture [439 x 100] intentionally omitted <==

----- Start of picture text -----

June 30, June 30,
2021 2020
Risk-free interest rate 0.50% 1.50%
Expected life of options 5 4.25
Expected forfeitures 0% 10%
Annualized volatility 80% 80%
Dividend rate 0% 0%
Weighted average fair value per option ($CAD) $0.04 $0.02
----- End of picture text -----

Expected annualized volatility was determined using the historic volatility of established comparable publicly traded cannabis companies.

19

POTENT VENTURES INC. NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) June 30, 2021 (Expressed in United States Dollars unless otherwise noted)

10. SHARE CAPITAL AND RESERVES (Continued)

The following is a summary of the changes in reserves:

Reserves

==> picture [470 x 50] intentionally omitted <==

----- Start of picture text -----

Exchangable
Stock options preferred shares Warrants Total
Balance, September 30, 2019 $ 1,703,371 $ 572,795 $ 4,820,341 $ 7,096,507
----- End of picture text -----

Balance, September 30, 2019	$ 1,703,371 $ 572,795 $ 4,820,341 $ 7,096,507
Finders’ warrants	- - 52,913 52,913
Transfer	- (572,795) 572,795 -
Share-basedpayments	329,800 - - 329,800
Balance, September 30, 2020	$ 2,033,171 $ - $ 5,446,049 $ 7,479,220
Finders’ warrants	- - 13,862 13,862
Share-basedpayments	501,071 - - 501,071
Balance, June 30, 2021	$2,033,171$-$5,459,911$7,994,153

11. RELATED PARTY TRANSACTIONS

Key management personnel

Key management personnel include those persons having authority and responsibility for planning, directing and controlling the activities of the Company as a whole. The Company has determined that key management personnel consist of executive and non-executive members of the Company’s Board of Directors and corporate officers and/or companies controlled by those individuals.

During the nine-month periods ended June 30, 2021, and 2020 the Company entered the following key management transactions:

==> picture [473 x 147] intentionally omitted <==

----- Start of picture text -----

June 30, June 30,
Key Management Remuneration: 2021 2020
Charlie Lamb - CEO, Director $ 125,106 10,412
Robert Payment - CFO, Director 102,099 15,618
Brian Keane - Director 37,500 22,500
-
Michael Young - Former Director 26,900
-
Chris Backus - Former CEO, Director 117,030
-
Michael Hopkinson - Former CFO 2,975
David Parchomchuk - Former Director - 18,593
Kevin Ernst - Former Director - 7,500
Total $ 291,605 $ 194,628
----- End of picture text -----

Share-based compensation of $134,653 (nine months ended June 31, 2020 - $361,751) was related to directors, officers, and a former officer.

Other related party transactions include:

• In February 2020, the Company advanced Love Hemp Group Plc (“LHG”) an unsecured demand loan of $113,136 (CAD $140,000) bearing interest of 5%. LHG was considered a related party due to a common director of each Company (Note 6).

20

POTENT VENTURES INC. NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) June 30, 2021 (Expressed in United States Dollars unless otherwise noted)

12. FINANCIAL INSTRUMENTS

Fair value

Financial instruments measured at fair value are classified into one of three levels in the fair value hierarchy according to the relative reliability of the inputs used to estimate the fair values. 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 carried at fair value using a level 1 fair value measurement. The recorded values of receivables, loans receivable, and accounts payable and accrued liabilities approximate their fair values due to their short-term maturity.

Financial risk management

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 loss associated with a counterparty’s inability to fulfill its payment obligations. The Company’s credit risk is primarily attributable to cash and loans receivables. Cash is held with reputable Canadian and United States financial institutions, from which management believes the risk of loss is remote. Receivables consists of amounts due from the Government of Canada in which management believes the credit risk to be minimal. The Company does not have significant credit risk with respect to customers. The Company’s remaining loans are considered to have a low risk of default. The Company’s maximum credit risk exposure is equivalent to the carrying value of these instruments.

Interest rate risk

The Company is exposed to interest rate risk to the extent that the cash maintained at the financial institutions is subject to a floating rate of interest. The interest rate risk on cash is not considered significant.

Liquidity risk

The Company's approach to managing liquidity risk is to ensure that it will have sufficient liquidity to meet liabilities when due. As at June 30, 2021 the Company’s financial liabilities consist of accounts payable and accrued liabilities, which have contractual maturities within one year. The Company manages liquidity risk by reviewing its capital requirements on an ongoing basis.

Foreign currency risk

Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign currency rates. As at June 30, 2021, the Company had cash, loans receivable, accounts payable and accrued liabilities, denominated in Canadian dollars (“CAD”). A 10% fluctuation in the foreign exchange rate between the USD and Canadian dollar would have a $80,000 impact on profit or loss for the year. The Company does not undertake currency hedging activities to mitigate its foreign currency risk.

21

POTENT VENTURES INC. NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) June 30, 2021 (Expressed in United States Dollars unless otherwise noted)

13. CAPITAL MANAGEMENT

The Company defines capital as equity. The Company manages its capital structure and makes adjustments in order to have the funds available to support its operating activities.

The Company’s objective when managing capital is to safeguard the Company’s ability to continue as a going concern and to pursue the development of its business. The Company manages its capital structure and adjusts it in light of changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust its capital structure, the Company may issue new equity instruments, new debt, or acquire and/or dispose of assets. As discussed in Note 1, the Company’s ability to continue as a going concern is uncertain and dependent upon the continued financial support of its shareholders, future profitable operations, the lack of adverse political developments in the United States with respect to cannabis legislation and securing additional financing. Management reviews its capital management approach on an ongoing basis. There were no changes in the Company’s approach to capital management during the years presented. The Company is not subject to externally imposed capital requirement.

14. GENERAL AND ADMINISTRATIVE EXPENSE

For the nine-month period ended:

==> picture [473 x 121] intentionally omitted <==

----- Start of picture text -----

June 30, June 30,
General and administrative 2021 2020
Advertising, marketing, and brand development $ 2,799 $ 174,814
Investor relations 23,660 50,836
Office expenses and general administration 151,964 291,102
Management fees 291,605 194,628
Consulting 420,712 496,812
Travel and entertainment 7,343 39,750
Total $ 898,083 $ 1,247,942
----- End of picture text -----

For the three-month period ended:

==> picture [473 x 120] intentionally omitted <==

----- Start of picture text -----

June 30, June 30,
General and administrative 2021 2020
Advertising, marketing, and brand development $ 961 $ 20,458
Investor relations 10,843 -
Office expenses and general administration 68,221 170,159
Management fees 76,867 46,795
Consulting 73,617 303,782
Travel and entertainment 15 708
Total $ 230,524 $ 541,902
----- End of picture text -----

22

POTENT VENTURES INC. NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) June 30, 2021 (Expressed in United States Dollars unless otherwise noted)

15. SEGMENTED INFORMATION

The Company operates in two segments, referred to as Business to Business (“B2B”) and its administrative costs center, (“Corporate”). B2B is focused on the provision of services to cultivators, and processors in Washington State and Oklahoma. The corporate head office is located in Canada. Segmented info as at and for the nine-month period ended June 30, 2021 is as follows:

==> picture [406 x 239] intentionally omitted <==

----- Start of picture text -----

B2B Corporate
(USA) (Canada) Total
Revenue $ 46,672 $ 46,672
Cost of goods sold 35,157 - 35,157
Gross margin 11,515 - 11,515
Expenses
General and administrative $ 80,135 $ 817,948 $ 898,083
Share based payments - 501,071 501,071
Professional fees 10,504 140,124 150,628
Depreciation - 18,875 18,875
Total expenses 90,639 1,478,018 1,568,657
Net Loss before other items $ (79,124) $ (1,478,018) $ (1,557,142)
Property and equipment $ - $ - $ -
Total assets $ 126,607 $ 1,073,362 $ 1,199,969
Total liabilities $ 4,992 $ 77,033 $ 82,025
----- End of picture text -----

In the prior year the Company operated in four segments, referred to as Business to Business (“B2B”), Hemp Products, Hemp Cultivation, as well as its administrative costs center, (“Corporate”). B2B is focused on the provision of services to cultivators, and processors in Washington State, Hemp products is focused on the manufacture and distribution of hemp infused products, Hemp Cultivation is focused on developing agricultural opportunities in the Hemp industry. The corporate head office is located in Canada. Hemp Cultivation operations are located in Canada while the operations of B2B and Hemp Products are located in the United States. During the year ended September 30, 2020 Hemp Products and Hemp Cultivation were classified as discontinued operations (Note 9).

23