Graycliff Exploration Limited — Management Reports 2020

Aug 14, 2020

GRAYCLIFF EXPLORATION LIMITED

(Formerly 1093683 B.C. Ltd.)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF THE COMPANY’S FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020

FORM 51-102F1

The following Management Discussion & Analysis (“MD&A”) is intended to assist in the understanding of the trends and significant changes in the financial condition and results of operations of Graycliff Exploration Limited (formerly 1093683 B.C. Ltd.) (hereinafter “Graycliff” or the “Company”) for the interim period ended June 30, 2020. The MD&A should be read in conjunction with the unaudited condensed interim financial statements for the period ended June 30, 2020 and audited financial statements and MD&A for the year ended December 31, 2019. The MD&A has been prepared effective August 13, 2020.

SCOPE OF ANALYSIS

The following is a discussion and analysis of Graycliff Exploration Limited. The Company reports its financial results in Canadian dollars and in accordance with IAS 34 – Interim Financial Reporting as issued by the International Accounting Standards Board. All reported interim financial information includes the financial results of Monterey and its subsidiaries.

FORWARD LOOKING STATEMENTS

The information set forth in this MD&A contains statements concerning future results, future performance, intentions, objectives, plans and expectations that are, or may be deemed to be, forward-looking statements. These statements concerning possible or assumed future results of operations of the Company are preceded by, followed by or include the words ‘believes,’ ‘expects,’ ‘anticipates,’ ‘estimates,’ ‘intends,’ ‘plans,’ ‘forecasts,’ or similar expressions. Forward-looking statements are not guarantees of future performance. These forward-looking statements are based on current expectations that involve numerous risks and uncertainties, including, but not limited to, those identified in the Risks Factors section. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate. These factors should be considered carefully, and readers should not place undue reliance on forward-looking statements. The Company may not provide updates or revise any forward-looking statements, except those otherwise required under paragraph 5.8(2) of NI 51-102, whether written or oral that may be made by or on the Company's behalf.

TRENDS

Other than as disclosed in this MD&A, the Company is not aware of any trends, uncertainties, demands, commitments or events which are reasonably likely to have a material effect upon its revenues, income from continuing operations, profitability, liquidity or capital resources, or that would cause reported financial information not necessarily to be indicative of future operating results or financial condition.

GENERAL BUSINESS AND DEVELOPMENT

The Company is incorporated under the laws of British Columbia, Canada and is engaged in the acquisition, exploration, development and extraction of natural resources, specifically precious metals. Its head office is located at 777 Hornby Street, Suite 600, Vancouver, BC, V6Z 1S4, Canada.

The Company was incorporated on October 19, 2016 as a wholly-owned subsidiary of Monterey Minerals Inc. (“Monterey”). On August 1, 2018, Monterey completed a plan of arrangement whereby it issued 1,010,549 common shares of the Company to Monterey shareholders (the “spinout”) for $NIL consideration.

As part of its “going public” process, Graycliff filed its prospectus with the British Columbia Securities Commission and received a receipt therefor on July 10, 2020. The Company is now working with the Canadian Securities

Exchange (“CSE”) to meet minimum listing requirements, allowing the Company’s shares to trade on the CSE.

LIQUIDITY AND CAPITAL RESOURCES

As at June 30, 2020, the Company had a cash balance of $223,168 compared to a cash balance of $425,782 at December 31, 2019. The Company had working capital $319,745 at June 30, 2020 (December 31, 2019 - working capital of $439,270).

The continuation of the Company as a going-concern is dependent on its ability to raise additional capital or debt financing, including on reasonable terms, in order to meet business objectives towards achieving profitable business operations.

SHARE CAPITAL AND OUTSTANDING SHARE DATA

Common Shares

Authorized – Unlimited Common shares without par value; and

Issued and Outstanding as at June 30, 2020: 15,354,882 (December 31, 2019: 15,354,882)

On August 1, 2018, Monterey completed a plan of arrangement whereby it issued 1,010,549 common shares of the Company to Monterey shareholders for $NIL consideration.

Also on August 1, 2018, the Company issued 11,114,451 common shares to various shareholders as part of a Letter of Intent (“LOI”) to execute an acquisition and public listing transaction. An additional 1,000,000 common shares were issued on May 6, 2019. The LOI was assigned a $NIL value by management. This proposed transaction was never completed, and the associated common shares were cancelled: 7,614,451 on May 6, 2019 and the remaining 4,500,000 on October 7, 2019.

On October 1, 2019, the Company closed a non-brokered private placement totaling $50,667 priced at $0.02 per common share, resulting in the issuance of 2,533,333 common shares. As part of this closing, 633,333 common shares were issued for cash proceeds of $12,667 and 1,900,000 common shares were issued to settle $38,000 of trade debt.

On October 24, 2019, the Company closed a non-brokered private placement totaling $162,000 priced at $0.02 per common share, resulting in the issuance of 8,100,000 common shares In connection with this financing, 300,000 common shares were issued to settle trade debt of $6,000.

On November 8, 2019, the Company issued 322,500 common shares at $0.10 per share for proceeds of $32,250.

On November 28, 2019, the Company issued 388,500 common shares at $0.10 per share for proceeds of $38,850.

On December 17, 2019, the Company issued 3,000,000 common shares at $0.15 per share for proceeds of $450,000.

During the period from June to December 2019 the Company cancelled 15,598,951 common shares for no consideration.

On December 4, 2019, the Company issued a total of 800,000 stock options directors, officers, employees and consultants. These options have a five-year life, and an exercise price of $0.15 and vest when the Company’s shares begin trading on a public stock exchange. The $55,200 value of these options was calculated using the Black-Scholes option pricing model under the following weighted average assumptions: share price – $0.10; risk free rate of return – 1.40% expected volatility – 100%; expected life – 5 years; expected dividend yield – 0%. The Company will recognize stock-based compensation when the vest.

2

RESULTS OF OPERATIONS

SELECTED QUARTERLY INFORMATION

During the three and six months ended June 30, 2020, the Company incurred a net loss of $26,686 and $119,525, respectively (three and six months ended June 30, 2019 – losses of $10,010 and $10,610, respectively). In 2019, the Company incurred transfer agent and filing costs of $1,610 and $9,000 for corporate advisory fees, all except $600 of transfer agent and filing costs being incurred in the second quarter. The insignificant expenses in 2019 are reflective of the Company still being inactive. In 2020 expenses increased with the Company starting the process of being active and seeking to get its shares listed on the Canadian Securities Exchange. For the three and six months ended June 30, 2020, the Company incurred professional and consulting costs of $4,415 and $34,937, respectively, management fees of $18,750 and $45,000, respectively, and corporate advisory expenses of $NIL and $10,205, respectively transfer agent and filing costs of $600 and 18,608, respectively, and various other general administrative costs of $2,853 and $11,842, respectively.

SUMMARY OF FINANCIAL RESULTS FOR EIGHT MOST RECENTLY COMPLETED QUARTERS

The following table summarizes the financial results of operations for the eight most recent fiscal quarters:

	June 30, 2020	Mar. 31, 2020	Dec. 31, 2019	Sep. 30, 2019
	$	$	$	$
Expenses	(27,618)	(93,519)	(124,766)	(152,346)
Net loss	(26,686)	(92,839)	(124,766)	(152,346)
Loss per share - basic & diluted	(0.00)	(0.01)	(0.01)	(0.03)
	June 30, 2019	Mar. 31, 2019	Dec. 31, 2018	Sep. 30, 2018
	$	$	$	$
Expenses	(10,010)	(600)	(4,332)	(2,443)
Net loss	(10,010)	(600)	(4,332)	(2,443)
Loss per share - basic & diluted	(0.01)	(0.00)	(0.00)	(0.00)

RELATED PARTY TRANSACTIONS

Related parties include the Board of Directors, close family members, other key management individuals and enterprises that are controlled by these individuals as well as certain persons performing similar functions.

Related party transactions conducted in the normal course of operations are measured at the fair value and approved by the Board of Directors in strict adherence to conflict of interest law and regulations.

The Company incurred the following charges with directors and/or officers of the Company and/or companies controlled by them:

	Three Months Ended	Three Months Ended	Six Months Ended	Six Months Ended
	June 30,		June	30,
	2020	2019	2020	2019
	$	$	$	$
Consulting – President and CEO	7,500	---	15,000	---
Consulting – CFO	5,250	---	10,500	---
Consulting – Venex Capital (controlled by a
former director)	---	3,000	10,250	12,000

3

As at June 30, 2020, included in accounts payable and accrued liabilities is $NIL (December 31, 2019 - $1,081) due to the Company’s President and CEO

On January 15, 2020, the Company advanced $50,000 to Venex Capital (“Venex”), a Company controlled by one of Graycliff’s former directors, in the form of an unsecured demand loan bearing interest at 5% per annum. On February 13, 2020, the Company advanced a further $25,000 to Venex in the form of an unsecured demand loan bearing interest at 5% per annum. On June 30, 2020, Venex repaid $25,000 of the initial $50,000 demand loan, resulting in a balance of $50,000 plus accrued interest of $1,612 included in Advances Receivable at quarter-end. On July 13, 2020, July 21, 2020 and July 29, 2020, Venex repaid a further $7,500, $22,500 and $20,000, respectively, of the demand loan receivable leaving only accrued interest of $1,774 outstanding.

CRITICAL JUDGMENTS AND ACCOUNTING ESTIMATES

Measurement Uncertainty

The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of the accounting policies to financial information presented. Actual results may differ from the estimates, assumptions and judgments made. Estimates and underlying assumptions are reviewed on an ongoing basis. Changes made to estimates are reflected in the period the changes are made.

The key sources of estimation uncertainty that have a significant risk of causing material adjustment to the amounts recognized in the financial statements are:

Taxes

Provisions for taxes are made using the best estimate of the amount expected to be paid based on a qualitative assessment of all relevant factors. The Company reviews the adequacy of these provisions at the end of the reporting period. However, it is possible that at some future date an additional liability could result from audits by taxing authorities. Where the final outcome of these tax-related matters is different from the amounts that were initially recorded, such differences will affect the tax provisions in the period in which such determination is made.

Significant accounting judgments

The critical judgments that the Company’s management has made in the process of applying the Company’s accounting policies, apart from those involving estimations that have the most significant effect on the amounts recognized in the Company’s financial statements, are related to the functional currency assessment, related parties, the provision for reclamation and obligation, when and if deferred taxes are recoverable and the assumption that the Company will continue as a going concern.

The Company made a determination that its functional currency and that of its subsidiaries is the Canadian dollar. Management considered all of the relevant factors in making this determination.

FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

Set out below is a comparison, by category, of the carrying amounts and fair values of all of the Company’s financial instruments that are carried in the financial statements and how the fair value of financial instruments is measured.

Fair values

Fair value represents the price at which a financial instrument could be exchanged in an orderly market, in an arm's length transaction between knowledgeable and willing parties who are under no compulsion to act.

The Company classifies the fair value of the financial instruments according to the following hierarchy based on the amount of observable inputs used to value the instrument.

The following table provides an analysis of the financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable:

• Level 1 fair value measurements are those derived from quoted prices (unadjusted) in the active

4

market for identical assets or liabilities.

• Level 2 fair value measurements are those derived from inputs other than quoted prices that are observable for the asset or liability, either directly (i.e. prices) or indirectly (derived from prices).

• Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

As at June 30, 2020 and December 31, 2019, the Company did not have any financial instruments measured at fair value.

measured at fair value.
Categories of Financial Instruments	June 30, 2020	December 31, 2019
Financial Assets—other receivables
Cash	$223,168	$ 425,782
Amounts receivable	11,117	3,743
Advances receivable	51,612	---
Financial Liabilities—other financial liabilities
Accounts payable and other liabilities	6,567	32,784

The fair values of all the Company's financial instruments approximate the carrying value due to the shortterm nature of the financial instruments. The Company's activities expose it to a variety of financial risks: credit risk, liquidity risk and market risk (currency fluctuations, interest rates and commodity prices). The Company's overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Company's financial performance.

Credit Risk

Credit risk is the risk of a financial loss to the Company if a customer is unable to meet its contractual obligations and arises principally from the Company's accounts receivable. The Company’s cash is held with Canadian chartered banks.

Liquidity Risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they come due. The Company has established a standard of ensuring that it has enough resources available to withstand any downturn in the industry. As the Company’s industry is very capital intensive, the majority of its spending is related to its capital programs. The Company prepares periodic capital expenditure budgets, which are regularly monitored and updated as considered necessary. Further, the Company utilizes authorizations for expenditures on both operated and non-operated projects to further manage capital expenditures. The Company's goal is to prudently spend its capital while maintaining its credit reputation amongst its suppliers.

Market Risk

Market risk is the risk that changes in interest rates, foreign exchange rates and commodity and equity prices will affect the Company's net earnings or the value of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable limits, while maximizing returns.

Interest rate risk

The Company has cash balances and no interest-bearing debt. The Company's current policy is to invest excess cash in certificates of deposit issued by a Canadian chartered bank with which it keeps its bank accounts. The Company periodically monitors the investments it makes and is satisfied with the creditworthiness of the Canadian chartered bank.

Commodity and equity risk

The Company is exposed to price risk with respect to commodity and equity prices. Commodity price risk is the potential adverse impact on earnings and economic value due to commodity price movements and

5

volatilities. Equity price risk is the potential adverse impact on the Company's comprehensive earnings due to movements in individual equity prices or general movements in the level of the stock market. The Company closely monitors commodity prices to determine the appropriate course of action to be taken by the Company. Commodity price risk could adversely affect the Company. In particular, the Company's future profitability and viability of development depend upon the world market price of certain precious and base metals. Precious and base metals have fluctuated widely in recent years. There is no assurance that, even if commercial quantities of precious and base metals are produced in the future, a profitable market will exist for them.

CAPITAL MANAGEMENT

The Company's objective when managing capital is to safeguard its ability to continue as a going concern, so that it can continue to provide returns to shareholders and benefits for other stakeholders. The Company manages its capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying natural resource properties. The Company's objective is met by retaining adequate equity to guard against the possibility that cash flows from assets will not be sufficient to meet future cash flow requirements. The Company considers its capital structure to include cash and working capital. In order to maintain or adjust the capital structure, the Company may from time to time issue shares and adjust its capital spending to manage current and projected debt levels. To assess capital and operating efficiency and financial strength, the Company continually monitors its net cash and working capital.

OFF-BALANCE SHEET ARRANGEMENTS

The Company has no off-balance sheet arrangements.

MANAGEMENT’S RESPONSIBILITY

Management is responsible for all information contained in this report. The June 30, 2020 financial statements have been prepared in accordance with IFRS and include amounts based on management’s informed judgments and estimates.

RISKS AND UNCERTAINTIES

An investment in the securities of the Company is highly speculative and involves numerous and significant risks. Only investors whose financial resources are sufficient to enable them to assume such risks and who have no need for immediate liquidity in their investment should undertake such investment. Prospective investors should carefully consider the risk and uncertainties that have affected, and which in the future are reasonably expected to affect, the Company and its financial position.

FORWARD-LOOKING STATEMENTS

Certain statements contained in this discussion, including information as to future activities, events and financial or operating performance of the Company and its projects, constitute forward-looking statements. Such forward-looking statements involve known and unknown risks and uncertainties that could cause actual events or results to, differ materially from estimated or anticipated activities, events or results implied or expressed in such forward-looking statements. Forward-looking statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable by the Company, are inherently subject to significant business, economic, competitive, political and social uncertainties and contingencies.

Generally, forward-looking information can be identified by the use of forward-looking terminology such as “plans”, “expects” or “does not expect”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate”, “believes”, or variations of such words and phrases. Forward-looking information may also be identified in statements where certain actions, events or results “may”, “could", "would”, “might” or “will be taken”, “occur” or “be achieved”.

Forward-looking information is based on the reasonable assumptions, estimates, analysis and opinions of management made in light of its experience and its perception of trends, current conditions and expected developments, as well as other factors that management believes to be relevant and reasonable in the circumstances at the date that such statements are made.

Many factors could cause actual activities and events and the Company’s actual results to differ materially from those expressed or implied in any forward-looking statements made by, or on behalf of, the Company.

6

These include metal prices, exploitation and exploration successes, continued availability of capital and financing and general economic, market or business conditions.

These forward-looking statements are made as of the date hereof and the Company disclaims any intent or obligation to update publicly any forward-looking statements, whether as a result of new information, future events or results or otherwise. Investors are cautioned that forward-looking statements are not guarantees of future performance and accordingly investors are cautioned not to put undue reliance on forward-looking statements due to the inherent uncertainly therein.

7