Condensed Interim Consolidated Financial Statements of

Kaizen Discovery Inc.

For the three and nine months ended September 30, 2023 and 2022 (Unaudited)

Kaizen Discovery Inc.

Condensed Interim Consolidated Financial Statements

Table of contents

Condensed interim consolidated statements of financial position

1

Condensed interim consolidated statements of loss and comprehensive loss

2

Condensed interim consolidated statements of changes in shareholders' equity

3

Condensed interim consolidated statements of cash flows

4

Notes to the condensed interim consolidated financial statements

5-12

Kaizen Discovery Inc.

Condensed Interim Consolidated Statements of Financial Position

(Unaudited)

(Stated in thousands of Canadian dollars)

September 30,

December 31,

Notes

2023

2022

Assets

Current assets

Cash

$

329

$

867

Short-term financial assets

6

139

Receivables

13

15

Prepaid expenses and deposits

12

291

282

Total current assets

639

1,303

Non-current assets

Other assets

44

44

Property, plant and equipment

52

63

Mineral properties

3

3,412

3,419

Total assets

$

4,147

$

4,829

Liabilities

Current liabilities

Accounts payable and accrued liabilities

12

$

229

$

207

Provision

57

57

Promissory note

4

1,539

-

Total current liabilities

1,825

264

Non-current liabilities

Non-current provision

5

-

467

Total liabilities

$

1,825

$

731

Shareholders' equity

Share capital

6

$

62,980

$

62,916

Share-based payment reserve

10

4,887

4,696

Other reserves

452

452

Share purchase warrants

6

1,291

1,291

Accumulated other comprehensive loss

(519)

(519)

Accumulated deficit

(66,769)

(64,738)

Total shareholders' equity

$

2,322

$

4,098

Total liabilities and shareholders' equity

$

4,147

$

4,829

Description of business and going concern (Note 1)

Approved and authorized for issue on behalf of the Board on November 2, 2023:

/s/ Terry Krepiakevich

Terry Krepiakevich, Director

See accompanying notes to the condensed interim consolidated financial statements.

Page | 1

Kaizen Discovery Inc.

Condensed Interim Consolidated Statements of Loss and Comprehensive Loss

(Unaudited)

(Stated in thousands of Canadian dollars, except for share and per share amounts)

Three months ended

Nine months ended

2023

September 30,

2023

September 30,

Notes

2022

2022

Operating expenses

Exploration expenses

8

$

(312)

$

(510)

$

(1,359)

$

(3,451)

Administrative expenses

9

(364)

(283)

(1,588)

(1,437)

Loss from operations

(676)

(793)

(2,947)

(4,888)

Other income (expenses)

Interest income

4

12

17

36

Gain (loss) on foreign exchange

-

10

(18)

(57)

Interest expense

(37)

(8)

(39)

(21)

Depreciation expense

(4)

(3)

(11)

(9)

Other (expense) income

5, 7

-

(8)

967

564

Loss before income taxes

(713)

(790)

(2,031)

(4,375)

Income taxes

-

-

-

-

Net loss for the period

$

(713)

$

(790)

$

(2,031)

$

(4,375)

Other comprehensive income (loss)

Items that will not be reclassified subsequently to loss:

Change in fair value of marketable securities

-

(1)

-

4

Items that may be reclassified subsequently to loss:

Currency translation adjustment

77

217

-

263

Total other comprehensive income for the period

$

77

$

216

$

-

$

267

Total comprehensive loss for the period

$

(636)

$

(574)

$

(2,031)

$

(4,108)

Loss per share (basic and diluted)

$

(0.01)

$

(0.01)

$

(0.03)

$

(0.07)

Weighted average number of basic and diluted shares outstanding

65,942,992

65,828,426

65,927,465

65,828,426

See accompanying notes to the condensed interim consolidated financial statements.

Page | 2

Kaizen Discovery Inc.

Condensed Interim Consolidated Statements of Shareholders' Equity

(Unaudited)

(Stated in thousands of Canadian dollars, except for share amounts)

Share-based

Share

Accumulated

Number of

Share

Other

other

Accumulated

payment

purchase

comprehensive

Total

Notes

shares

capital

reserve

reserves

warrants

(loss) income

deficit

Balance at January 1, 2022

65,828,426

$

62,916

$

4,103

$

452

$

1,291

$

(744)

$

(60,167)

$

7,851

Net loss for the period

-

-

-

-

-

-

(4,375)

(4,375)

Other comprehensive income

-

-

-

-

-

267

-

267

Share-based payments

-

-

522

-

-

-

-

522

Balance at September 30, 2022

65,828,426

$

62,916

$

4,625

$

452

$

1,291

$

(477)

$

(64,542)

$

4,265

Balance at January 1, 2023

65,828,426

$

62,916

$

4,696

$

452

$

1,291

$

(519)

$

(64,738)

$

4,098

Net loss for the period

-

-

-

-

-

-

(2,031)

(2,031)

Settlement of restricted share units

10

114,566

64

(67)

-

-

-

-

(3)

Share-based payments

-

-

258

-

-

-

-

258

Balance at September 30, 2023

65,942,992

$

62,980

$

4,887

$

452

$

1,291

$

(519)

$

(66,769)

$

2,322

See accompanying notes to the condensed interim consolidated financial statements.

Page | 3

Kaizen Discovery Inc.

Condensed Interim Consolidated Statements of Cash Flows

(Unaudited)

(Stated in thousands of Canadian dollars)

Nine months ended September 30,

Notes

2023

2022

Operating activities

Net loss for the period

$

(2,031)

$

(4,375)

Adjustments for non-cash items:

Share-based payments

258

522

Loss on unrealized foreign exchange

9

2

Interest expense

39

21

Interest income

(17)

(36)

Other income

5, 7

(467)

(564)

Depreciation

11

9

Interest received

17

36

Changes in non-cash items:

Receivables

2

24

Prepaid expenses and deposits

(9)

74

Accounts payable and accrued liabilities

22

(119)

Short-term financial assets

131

(96)

Cash used in operating activities

$

(2,035)

$

(4,502)

Investing activities

Acquisition of property, plant and equipment

$

-

$

(13)

Proceeds from sale of marketable securities

-

22

Cash from investing activities

$

-

$

9

Financing activities

Settlement of restricted share units

$

(3)

$

-

Proceeds from promissory note

4

1,500

-

Cash from financing activities

$

1,497

$

-

Effect of foreign exchange rate changes on cash

$

-

$

20

Decrease in cash

$

(538)

$

(4,473)

Cash, beginning of period

867

5,911

Cash, end of period

$

329

$

1,438

See accompanying notes to the condensed interim consolidated financial statements.

Page | 4

Kaizen Discovery Inc.

Notes to the condensed interim consolidated financial statements

(Unaudited)

(Stated in Canadian dollars unless otherwise noted; tabular amounts in thousands)

1. Description of business and going concern

  1. Kaizen Discovery Inc. (the "Company") is a publicly listed company incorporated under the laws of British Columbia, Canada. The Company's shares are listed on the TSX Venture Exchange under the symbol KZD and its head office and registered office are both located at Suite 606 - 999 Canada Place, Vancouver, British Columbia, Canada, V6C 3E1.
    At September 30, 2023, Ivanhoe Electric (BVI) Inc. ("Ivanhoe Electric (BVI)"), the Company's majority shareholder, held 82.54% (December 31, 2022 - 82.68%) of the Company's issued and outstanding common shares. Ivanhoe Electric (BVI) is a wholly owned subsidiary of Ivanhoe Electric Inc. ("Ivanhoe Electric"), a publicly listed company.
    The Company, together with its subsidiaries, is a mineral exploration group focused on projects located in Peru and Canada.
  2. These condensed interim consolidated financial statements have been prepared on a going concern basis, which presumes the realization of assets and satisfaction of liabilities in the normal course of business.

For the three and nine months ended September 30, 2023, the Company incurred a net loss of $713,000 and $2.03 million, respectively (September 30, 2022 - $790,000 and $4.38 million). At September 30, 2023, the Company had consolidated cash of $329,000 (December 31, 2022 - $867,000).

The Company currently has no source of ongoing operating cash flow and has no assurance that additional funding will be available to it for additional exploration programs at its properties, or to enable the Company to fulfill its obligations under any applicable agreements. The Company's ability to continue as a going concern is dependent on its ability to obtain additional sources of financing to successfully explore and evaluate its mineral properties and, ultimately, to achieve profitable operations. Significant reliance is placed on Ivanhoe Electric (BVI) and Ivanhoe Electric for providing ongoing financing to the Company. Failure of Ivanhoe Electric (BVI) or Ivanhoe Electric to provide or participate in financing, or the inability of Ivanhoe Electric

(BVI) or Ivanhoe Electric to provide or participate in financing, would likely result in difficulty for the Company to attract separate third party investment. The ability to raise additional financing for future activities may be impaired, or such financing may not be available on favourable terms, due to conditions beyond the Company's control, such as uncertainty in the capital markets, depressed commodity prices or country risk factors. As such, there is a material uncertainty that may cast significant doubt regarding the Company's ability to continue as a going concern.

These condensed interim consolidated financial statements do not reflect adjustments to the carrying values and classification of assets and liabilities that might be necessary should the Company be unable to continue as a going concern, and such adjustments could be material.

2. Material accounting policies

  1. Basis of presentation
    These condensed interim consolidated financial statements have been prepared in accordance with IAS 34, Interim Financial Reporting. These condensed interim consolidated financial statements do not include all of the information and footnotes required by International Financial Reporting Standards, as issued by the International Accounting Standards Board ("IFRS") for full annual financial statements and should be read in conjunction with the annual consolidated financial statements for the year ended December 31, 2022, which have been prepared in accordance with IFRS.
    The accounting policies used in the preparation of these condensed interim consolidated financial statements are the same as those applied in the Company's most recent consolidated

Page | 5

Kaizen Discovery Inc.

Notes to the condensed interim consolidated financial statements

(Unaudited)

(Stated in Canadian dollars unless otherwise noted; tabular amounts in thousands)

annual financial statements for the year ended December 31, 2022 and reflect all the adjustments necessary for fair presentation in accordance with IFRS for the interim periods presented.

These condensed interim consolidated financial statements have been prepared on the historical cost basis except for certain financial instruments, which are measured at fair value.

These condensed interim consolidated financial statements are expressed in Canadian dollars.

    1. Adoption of new and revised accounting standards and interpretations
      The Company does not expect new amendments to IFRS effective for the nine months ended September 30, 2023 to have a material effect on the Company's annual consolidated financial statements. Several new accounting standards and amendments to standards and interpretations, have been issued but are not yet effective for the nine months ended September 30, 2023. These new standards and amendments to standards, which were not early adopted, are not considered by management to likely have a material impact on the Company's condensed interim consolidated financial statements.
    2. Critical accounting estimates and judgments
      The preparation of the condensed interim consolidated financial statements in conformity with IAS 34 requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
      The Company's critical accounting judgments and estimates remain substantially unchanged from those disclosed in the consolidated financial statements for the year ended December 31, 2022.
    3. Segments
      The Company has one operating segment, a mineral exploration group focused on projects located in Peru and Canada.
  2. Mineral properties
    Mineral properties comprise the $3.41 million (December 31, 2022 - $3.42 million, December 31, 2021 - $3.18 million) carrying amount of the Pinaya Copper-Gold Project (the "Pinaya Project" or "Pinaya"). The changes in the carrying amounts are due to currency translation adjustments.
  3. Promissory note
    On June 26, 2023, the Company announced the arrangement of a $2.0 million short-term loan from Ivanhoe Electric. The loan has been provided in the form of a grid promissory note ("Promissory Note") with an interest rate of 12% per annum, with interest accruing daily and all interest compounding only at maturity. The interest rate will increase to 14% per annum if the Company does not repay the amount owing upon the maturity date, which is the earlier of December 31, 2023 or two business days following the Company's receipt of gross proceeds of not less than $5.0 million from an equity offering. The Company drew down $1.0 million in June 2023 and $500,000 in August 2023.
    At September 30, 2023, the carrying value of the Promissory Note was approximately $1.54 million (December 31, 2022 - $Nil).
    Interest expense of approximately $37,000 and $39,000 was accrued on the Promissory Note for the three and nine months ended September 30, 2023 (September 30, 2022 - $Nil and $Nil).

Page | 6

Kaizen Discovery Inc.

Notes to the condensed interim consolidated financial statements

(Unaudited)

(Stated in Canadian dollars unless otherwise noted; tabular amounts in thousands)

  1. Non-currentprovision
    The non-current provision related to potential obligations associated with the Pinaya Project. The carrying value at September 30, 2023 is $Nil (December 31, 2022 - $467,000). Included in other income is a non-cash adjustment of $467,000 to reflect the derecognition of the provision.
  2. Share capital
  1. Common shares

The Company is authorized to issue an unlimited number of common shares with no par value. At September 30, 2023, the Company had 65,942,992 common shares issued and outstanding (December 31, 2022 - 65,828,426).

  1. Share purchase warrants

Share purchase warrants outstanding as at September 30, 2023 and December 31, 2022, were as follows:

September 30, 2023

December 31, 2022

Number of

Weighted

Weighted

Weighted

average

Number of

average

Weighted

Number

shares

exercise

average

shares

exercise

average

issuable upon

price

remaining

Number

issuable upon

price

remaining

Expiry Date

of

exercise of

($ per

contractual

of

exercise of

($ per

contractual

warrants

warrants

share)

life (years)

warrants

warrants

share)

life (years)

September 17, 2026

11,174

1,117

$

0.65

2.97

11,174

1,117

$

0.65

3.72

11,174

1,117

$

0.65

2.97

11,174

1,117

$

0.65

3.72

7. Other income

During the three and nine months ended September 30, 2023, Kaizen recognized $Nil and $500,000 respectively in other income for the recovery of costs related to legal proceedings with AM Gold and $Nil and $467,000 respectively for the derecognition of the non-current provision. During the three and nine months ended September 30, 2022, the Company recognized other income of $Nil and $564,000 respectively related to adjustments to the non-current provision (Note 5).

Page | 7

Kaizen Discovery Inc.

Notes to the condensed interim consolidated financial statements

(Unaudited)

(Stated in Canadian dollars unless otherwise noted; tabular amounts in thousands)

8. Exploration expenses

Exploration expenses are summarized as follows:

Three months ended September 30,

Nine months ended September 30,

2023

2022

2023

2022

Salaries and consultants

$

174

$

242

$

604

$

832

Drilling

-

-

-

69

Assay

3

18

7

79

Rental

9

25

28

220

Share-based payments

15

35

45

104

Fees and taxes

1

4

374

347

Geophysics

-

79

-

1,179

Camp

22

26

60

215

Travel

9

9

18

78

Professional fees

11

30

50

95

Environmental

29

3

78

14

Other

39

39

95

219

Total exploration expenses

$

312

$

510

$

1,359

$

3,451

The Company has recognized approximately $9,000 and $28,000 related to short-term leases within exploration expenses for the three and nine months ended September 30, 2023 (September 30, 2022 - $25,000 and $220,000).

Exploration expenses were allocated to the following projects:

Three months ended September 30,

Nine months ended September 30,

2023

2022

2023

2022

Pinaya

$

239

$

392

$

1,114

$

3,131

General project evaluation

58

83

200

216

Other

15

35

45

104

Total exploration expenses

$

312

$

510

$

1,359

$

3,451

9. Administrative expenses

Administrative expenses for the Company are summarized as follows:

Three months ended September 30,

Nine months ended September 30,

2023

2022

2023

2022

Salaries and benefits

$

122

$

115

$

668

$

363

Share-based payments

100

51

213

418

Professional fees

73

56

460

413

Office

28

31

89

96

Travel

-

-

33

-

Fees and taxes

11

(5)

25

30

Investor relations

4

1

6

15

Insurance

21

31

73

84

Other

5

3

21

18

Total administrative expenses

$

364

$

283

$

1,588

$

1,437

Page | 8

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Kaizen Discovery Inc. published this content on 03 November 2023 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 03 November 2023 11:45:53 UTC.