Grafton Resources Inc. — Management Reports 2023

Apr 18, 2023

Prisma Exploration Inc. (formerly Prisma Capital Inc.)

Management’s Discussion and Analysis

For the Years Ended December 31, 2022 and 2021

General

This management discussion and analysis should be read in conjunction with the audited financial statements and related notes thereto of Prisma Exploration Inc. (formerly Prisma Capital Inc.) (the “Company”) for the years ended December 31, 2022 and 2021 (the “Financial Statements”), which have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by International Accounting Standards Board. All amounts in the financial statements and this discussion and analysis are presented in Canadian dollars, unless otherwise indicated. This Management Discussion and Analysis (“MD&A”) is dated April 13, 2023 and discloses specified information up to that date.

Management is responsible for the preparation and integrity of the financial statements, including the maintenance of appropriate information systems, procedures and internal controls. Management is also responsible for ensuring that information disclosed externally, including the financial statements and Management Discussion and Analysis (“MD&A”), is complete and reliable.

This discussion contains forward-looking statements that involve risks and uncertainties. Such information, although considered to be reasonable by the Company’s management at the time of preparation, may prove to be inaccurate and actual results may differ materially from those anticipated in the statements made. Additional information on the Company is available for viewing on SEDAR at www.sedar.com.

Description of Business

The Company is a public company listed at the Canadian Securities Exchange. The Company commenced trading under the symbol “PCC” as at market open on January 17, 2022 and is focused on the acquisition, exploration, and development of mineral properties.

On February 11, 2022, the Company changed its name to Prisma Exploration Inc.

Exploration and Evaluation Assets

McGillivray Property

On October 5, 2020, the Company entered into a definitive agreement to acquire 100% undivided interest in twenty (20) mineral claims comprising the property called “McGillivray” located near Lytton, in the Kamloops Mining Division of British Columbia.

In consideration for the 100% undivided interest in the property, the Company shall pay the aggregate sum of $212,500 which includes the deposit of $7,500, as paid at the time of signing of the agreement, issue to the optionor a total of 900,000 shares and complete a minimum expenditure, as per the below schedule:

Date	Shares			Cash Payment			Expenditures
On signing	100,000	(issued)	$	7,500	(paid)	$	55,000	(met)
1st anniversary	100,000	(issued)		10,000	(paid)		-
2nd anniversary	100,000	(issued)		15,000	(paid)		50,000	(waived)
3rd anniversary	200,000			30,000			-
4th anniversary	200,000			50,000			50,000
5th anniversary	200,000			100,000			-
Total	900,000		$	212,500		$	155,000

Further, under the McGillivray option agreement, the Company and the optionor have also agreed upon a net smelter return royalty (the “NSR”), pursuant to the terms and consideration of which the optionor shall receive the 2% NSR from the Company. The Company can repurchase the 1.5% NSR upon payment to the optionor of $1,000,000. On the commencement of commercial production, the NSR shall be increased to 3%.

During the year ended December 31, 2021, pursuant to the 1st anniversary obligation laid out in the option agreement, the Company made a cash payment of $10,000 as per the agreement and recognized an obligation to issue 100,000 shares of the Company at a fair value of $10,000. The company fulfilled the obligation on February 9, 2022.

During the year ended December 31, 2022, pursuant to the 2nd anniversary obligation laid out in the option agreement, the Company has accrued $15,000 for the cash portion and recognized an obligation to issue 100,000 shares of the Company at a fair value of $13,500. The company fulfilled the obligations on April 11, 2023.

The following is a description of the Company’s exploration and evaluation asset and the related expenditures incurred for the years ended December 31, 2022 and 2021:

ncurred for the years ended December 31, 2022 and 2021:
	December 31, 2022		December 31, 2021
Property acquisition costs
Balance, beginning	$	30,000	$	10,000
Additions		28,500		20,000
Balance, ending	$	58,500	$	30,000
Exploration and evaluation costs
Balance, beginning	$	59,998	$	62,760
Costs incurred during the year:
Assaying		20,299		(212)
Consulting		20,213		(887)
Maintenance		-		(290)
Geological		-		(1,265)
Travel and accommodation		4,149		(108)
Balance,ending		104,659		59,998
Total	$	163,159	$	89,998

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Results of Operations

Results of Operations
	Three months	Three months
	ended	ended	Year ended	Year ended
	December 31,	December 31,	December 31,	December 31,
	2022	2021	2022	2021
Expenses
Office and administration	$ 15	$ 18	$ 107	$ 74
Investor Relations	-	-	415	-
Management fees	50,000	-	50,000	-
Filing and regulatory	2,362	15,411	24,071	23,067
Professional and consulting fees	6,526	12,574	38,758	37,944
Transfer agent fees	2,586	-	9,200	157
Fair value adjustment on obligation
to issue shares	4,000	-	4,000	-
Loss and comprehensive loss	$ 65,489	$ 28,003	$ 122,551	$ 61,242

Three Months Ended December 31, 2022 and 2021

Loss and Expenses

The net loss for the three months ended December 31, 2022 was $65,489 compared to a net loss of $28,003 for the three months ended December 31, 2020, representing an increase in loss of $37,486.

Material variances over the comparable period are discussed below:

• Filing and regulatory fees for the three months ended December 31, 2022 was $2,362 compared to $15,411 for the three months ended December 31, 2021. The decrease in the current year was due to fees incurred in connection to the non-offering preliminary prospectus in the previous year. There was no such event during the current comparative period.

• Professional and consulting fees for the three months ended December 31, 2022 was $6,526 compared to $12,574 for the three months ended December 31, 2021. The decrease in the current year was because additional due diligence services required in connection to the non-offering preliminary prospectus in the previous year.

• Management fees for the three months ended December 31, 2022 was $50,000 as compared to $Nil for the three months ended December 31, 2021. The increase was due to management fee being paid out in the current year.

• Fair value adjustment for the three months ended December 31, 2022 was $4,000 as compared to $Nil for the three months ended December 31, 2021. The increase was due to a revaluation of FV of shares to be issued as part of the obligation.

Years Ended December 31, 2022 and 2021

Loss and Expenses

The net loss for the year ended December 31, 2022 was $122,551 compared to a net loss of $61,242 for the year ended December 31, 2021, representing an increase in loss of $61,309.

Material variance over the comparable period is discussed below:

• Management fees for the year ended December 31, 2022 was $50,000 as compared to $Nil for the year ended December 31, 2021. The increase was due to management fee being paid out in the current year.

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• Transfer agent fees for the year ended December 31, 2022 was $9,200 compared to $157 for the year ended December 31, 2021. The increase in the current year was due to the initial set-up of transfer agent services and fees rendered in connection with the Company’s name change.

• Fair value adjustment for the year ended December 31, 2022 was $4,000 as compared to $Nil for the year ended December 31, 2021. The increase was due to a revaluation of FV of shares to be issued as part of the obligation.

Selected Annual Information

	December 31, 2022	December 31, 2022	December 31, 2021	December 31, 2021	December 31, 2020	December 31, 2020
Loss and comprehensive loss	$	126,551	$	(61,242)	$	(7,886)
Loss per share – basic and diluted		(0.02)		(0.01)		(0.01)
Total assets		268,258		333,902		128,874
Workingcapital		32,922		222,634		51,114

Selected Quarterly Information

The following selected financial data has been prepared in accordance with IFRS and all dollar amounts are in Canadian dollars.

Canadian dollars.
Quarter Ended	Loss for theperiod	Loss per share (Basic & Diluted)	Total Assets	Interest Income
December 31,2022	$65,489	0.01	$268,258	$Nil
September 30,2022	$8,629	0.00	$274,634	$Nil
June 30,2022	$21,787	0.00	$290,897	$Nil
March 31,2022	$30,646	0.00	$306,726	$Nil
December 31,2021	$28,003	0.00	$333,902	$Nil
September 30,2021	$7,840	0.00	$268,258	$Nil
June 30,2021	$12,818	0.00	$359,852	$Nil
March 31,2021	$12,581	0.00	$116,250	$Nil

Financial Condition, Liquidity and Capital Resources

The Company had a working capital of $32,922 as at December 31, 2022 compared to a working capital of $222,634 as at December 31, 2021. The Company does not currently have an active business generating positive cash flows. The Company is reliant on equity financing or shareholder loans to provide the necessary cash to acquire or participate in an active business. There can be no assurance that equity financings will be available to the Company in the future that will be obtained on terms satisfactory to the Company.

The Company has not entered into any off-balance sheet arrangements.

Related Party Transactions

Balances

As at December 31, 2022 and 2021, the Company had no amount due to the related parties. During the year ended December 31, 2022, the Company paid $50,000 as management fees to Brent Hahn a director and chief executive officer of the Company. The company did not have any transactions with related party during the year ended December 31, 2021.

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Financial Instruments and Risk Management

Fair Values

The fair values of cash and accounts payable and accrued liabilities approximate their carrying values because of the short-term nature of these instruments.

Financial Risk Management

The Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk management framework. The Company considers the fluctuations of financial markets and seeks to minimize potential adverse effects on financial performance.

Financial Instrument Risk Exposure

The Company is exposed in varying degrees to a variety of financial instrument related risks. The Board approves and monitors the risk management process.

Credit Risk

Credit risk is the risk of a financial loss to the Company if a counterparty to a financial instrument fails to meet its contractual obligation. The Company is not exposed to credit risk.

Liquidity Risk

Liquidity risk is the risk that the Company will not be able to meet its obligations as they become due. The Company’s ability to continue as a going concern is dependent on management’s ability to raise required funding through future equity issuances. The Company manages its liquidity risk by forecasting cash flows from operations and anticipating any investing and financing activities. Management and the Board of Directors are actively involved in the review, planning and approval of significant expenditures and commitments.

Market Risk

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

Interest Rate Risk

Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Financial assets and liabilities with variable interest rates expose the Company to cashflow interest rate risk. The Company maintains a bank account with cash balance, but it does not believe it is currently subject to any significant interest rate risk. The Company has no interest-bearing debt.

Foreign Currency Risk

The Company is not exposed to foreign currency risk on fluctuations in exchange rates.

Price Risk

The Company is exposed to price risk with respect to equity prices. Equity price risk is defined as the potential adverse impact on the Company’s earnings due to movements in individual equity prices or general movements in the level of the stock market. The Company closely monitors individual equity movements, and the stock market to determine the appropriate course of action to be taken by the Company.

COVID-19

Since March 2020, the outbreak of the novel strain of coronavirus, specifically identified as “COVID- 19”, has resulted in governments worldwide enacting emergency measures to combat the spread of the virus. These measures, which include the implementation of travel bans, self-imposed quarantine periods and social distancing, have caused material disruption to businesses globally resulting in an economic slowdown. Global equity markets have experienced significant volatility and weakness. Governments and central banks have reacted with significant monetary and fiscal interventions designed to stabilize economic conditions. The duration and impact of the COVID19 outbreak is unknown at this time, as is the efficacy of the government and central bank interventions. It is not possible to reliably estimate the length and severity of these developments and the impact on the financial results and condition of the Company and its operations in future periods.

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Additional Share Information

At December 31, 2022, the Company had 7,060,901 issued and fully paid common shares.

At the date of this report, the Company had 7,160,901 issued and fully paid common shares.

At December 31, 2022 and at the date of this report, the Company had 2,500,000 warrants outstanding.

At December 31, 2022 and at the date of this report, the Company had not issued any options and no options were outstanding.

Contingencies

The Company is not aware of any contingencies or pending legal proceedings as of as at the date of this report.

Disclaimer

The information provided in this document is not intended to be a comprehensive review of all matters concerning the Company. It should be read in conjunction with all other disclosure documents provided by the Company, which can be accessed at www.sedar.com. No securities commission or regulatory authority has reviewed the accuracy or adequacy of the information presented herein.

Cautionary Statement on Forward Looking Information

Certain statements contained in this document constitute “forward-looking statements.” Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance, or achievements of the Company to be materially different from any future results, performance, or achievements expressly stated or implied by such forward-looking statements.

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