US Critical Metals Corp. — Management Reports 2021

Feb 19, 2021

Holly Street Capital Ltd. MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE PERIOD ENDED DECEMBER 31, 2020

Background

This management's discussion and analysis ("MD&A") of the operations, results, and financial position of Holly Street Capital Ltd. (the "Company") for the period ended December 31, 2020, should be read in conjunction with the Company's interim financial statements for the period ended December 31, 2020 and the notes to those financial statements, and the audited September 30, 2020 financial statements.

The effective date of this report is February 18, 2021.

These financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB"), and interpretations of the IFRS Interpretations Committee ("IFRIC") issued and outstanding as at December 31, 2020. Except as otherwise disclosed, all dollar figures included therein and in the following MD&A are quoted in Canadian dollars. Additional information relevant to the Company's activities can be found on SEDAR at www.sedar.com.

Company Overview

The Company was incorporated under the Business Corporations Act (British Columbia) on July 31, 2019. The Company is classified as a Capital Pool Company as defined in the TSX Venture Exchange (the "Exchange" or "TSX-V") Policy 2.4. The principal business of the Company is the identification and evaluation of a Qualifying Transaction ("QT") and once identified, to negotiate an acquisition or participation in a business subject to receipt of shareholder approval, if required, and acceptance by regulatory authorities.

On December 17, 2019, the Company completed its Initial Public Offering ("IPO") on the Exchange raising gross proceeds of $250,000 through the issuance of 2,500,000 common shares at $0.10 per share. The Company's common shares were approved for listing on the Exchange and commenced trading effective December 19, 2019 under the symbol "HSC.P".

The head office, principal address and registered office of the Company are located at Suite 1500 - 1055 West Georgia St, P.O. Box 11117, Vancouver, B.C., V6E 4N7.

The Company's continuing operations are dependent upon its ability to identify, evaluate and negotiate an acquisition of an interest in assets or businesses which qualifies as a QT within twenty-four months of listing on the TSX-V. Such an acquisition or investment will be subject to regulatory approval and may or may not require additional financing. There is no assurance that the Company will be able to complete a QT within twenty-four months of being listed or that it will be able to secure the necessary financing to complete a QT. If the Company does not meet these requirements, the TSX-V may suspend from trading or delist the shares of the Company.

Completion of Initial Public Offering

The Company completed its IPO of 2,500,000 common shares at $0.10 per share for gross proceeds of $250,000 pursuant to a Prospectus dated November 29, 2019 filed with the British Columbia, Alberta and Ontario Securities Commissions. Pursuant to the IPO, the Company paid a cash commission of $25,000, paid corporate finance fee of $20,500, incurred an additional $16,978 in share issuance costs, and granted 250,000 agent options.

Overall Performance and Qualifying Transaction

The Company was incorporated on July 31, 2019. The Company does not have any operations to the date of this document and, until it completes a QT, will not conduct any business other than the identification and evaluation of businesses and assets for potential acquisition. Accordingly, the Company does not generate any revenue, nor does it pay any dividends.

As at December 31, 2020, the Company had a deficit of $162,797. The Company's potential acquisition of a QT and recurring operating losses and working capital needs may require that it obtain additional capital to continue its operation. Such outside capital may include the sale of additional common shares. During the period ended December 31, 2020, the Company's cash balance decreased to $323,457 from $353,022. The decrease is due primarily to the payment of historical trade payables and regular monthly overhead costs.

On June 2, 2020, the Company and Wolf Acquisition Corp. ("WOLF.P") entered into a binding letter of intent ("LOI") with Jasper Interactive Studios Inc. in respect of a proposed business combination. The LOI was terminated on July 15, 2020 by the Company and WOLF.P to focus on identifying another transaction which would constitute a Qualifying Transaction in accordance with Policy 2.4 – Capital Pool Companies of the Exchange.

On September 10, 2020, the Company entered in a binding LOI with Southern Sky Resources Corp. ("Southern Sky") in respect of a proposed business combination which would constitute a QT (the "Proposed Transaction"). Southern Sky is a private company existing under the laws of Ontario and is based in Toronto, Ontario.

Southern Sky's material assets consist of an option to acquire a 75% interest in a mineral exploration project located in western Colombia pursuant to an option agreement dated June 12, 2020 with a private Colombian company, and a 100% interest in an exploration property located in the Cuyuni Mining District, Guyana.

The LOI contemplates that the Company and Southern Sky will negotiate and enter into a definitive agreement in respect of the Proposed Transaction (the "Definitive Agreement"), pursuant to which it is anticipated that the Company will acquire all of the issued and outstanding Southern Sky Shares in exchange for the Company's postconsolidated common shares (the "Holly Shares"), resulting in a reverse takeover of Holly by Southern Sky.

Prior to the closing of the Proposed Transaction, Holly will consolidate its outstanding Holly Shares on the basis of one (1) new Holly Share for each two (2) old Holly Shares (the "Consolidation"), such that, prior to closing of the Proposed Transaction, Holly will have approximately 3,755,000 Holly Shares issued and outstanding. It is intended that Holly Shares will be issued to holders of Southern Sky Shares on the basis of one (1) post-Consolidation Holly Share for every one (1) Southern Sky Share, resulting in the issuance of an aggregate 20,500,000 post-Consolidation Holly Shares to the shareholders of Southern Sky.

On February 5, 2020, the Company entered into the Definitive Agreement with Southern Sky.

Selected Annual Financial Information

	For the yearendedSeptember 30,2020	July 31, 2019(date ofincorporation)toSeptember 30,2019
		$
Total assets	353,022	97,029
Total non-current liabilities	-	-
Total expenses(1)	140,671	15,874
Less interest income	-	-
Loss and comprehensive loss	(140,671)	(15,874)
Basic & diluted loss per share	(0.06)	-
Weighted average number of common shares
outstanding	2,312,623	-

(1) Total expenses include professional fees.

SELECTED QUARTERLY RESULTS

The following table contains selected financial information for prior quarters:

Quarters Ended:	December 31,2020	September 30,2020	June 30,2020	March 31,2020
	$	$	$	$
Total expenses(1)	6,252	36,130	7,131	10,761
Less interest income	-	-	-	-
Loss and comprehensive loss	(6,252)	(36,130)	(7,131)	(10,761)
Basic & diluted loss per share	(0.00)	(0.02)	(0.00)	(0.00)

	From July 31,2019 (date ofincorporation) to
Quarters Ended:	December 31,2019	September 30,2019
	$	$
Total expenses(1)	86,649	15,874
Less interest income	-	-
Loss and comprehensive loss	(86,649)	(15,874)
Basic & diluted loss per share	(0.05)	(0.00)

(1) Total expenses include professional fees, stock based compensation, regulatory fees and bank charges.

During the three months ended December 31, 2020, the Company had a net loss of $6,252 compared to a net loss of $86,649 in the comparable period. During the previous period, the Company completed an IPO and incurred related professional fees which did not occur in the current period. In addition, the Company incurred non-recurring expenses in the comparable period including share-based compensation expense, and regulatory fees related to the listing of the Company on the Exchange as a Capital Pool Company.

Additional Disclosure for Venture Issuers without Significant Revenue

Additional financial information is available in the Company's audited financial statements for the year period ended September 30, 2020. These statements are available on SEDAR at www.sedar.com.

The following addresses the specific disclosure requirements for venture issues without significant revenues:

• (a) Capitalized or expensed exploration and development costs Not applicable
• (b) Expensed research and development costs Not applicable
• (c) Deferred development costs Not applicable
• (d) General administrative expenses the financial information is presented in the Statement of Loss and Comprehensive Loss in the financial statements.
• (e) Any material costs, whether capitalized, deferred or expensed, not referred to in (a) through (d) None.

Profits

At this time, the Company is not anticipating profit or revenue from operations. The Company will report an annual deficit and quarterly deficit and will rely on its ability to obtain equity financing to fund its search for a QT. For information concerning the business of the Company, please see "Company Overview".

Liquidity

As at December 31, 2020, the Company had cash of $323,457.

As at December 31, 2020, the Company had a working capital of $315,225 which is defined as current assets less current liabilities. This is expected to be adequate to maintain the Company's current levels of activity for the foreseeable future, pending completion of the Proposed Transaction.

Capital Resources

On August 19, 2020, the Company completed a non-brokered private placement through the issuance of 3,010,000 common shares at a price of $0.05 per share for gross proceeds of $150,500.

On December 17, 2019, the Company completed its IPO of 2,500,000 common shares at $0.10 per share for gross proceeds of $250,000.

In accordance with Policy 2.4 of the Exchange, the proceeds raised from the sale of securities may only be used to identify and evaluate assets or businesses, and obtain shareholder approval for a QT, with the exception that up to the lesser of 30% of the gross proceeds realized by the Company in respect of the sale of its securities, or $30,000, may be used for purposes other than such identification and evaluation of businesses or assets. These restrictions apply until completion of a QT by the Company as defined under Policy 2.4 of the Exchange.

There is no assurance that the Company will be able to identify a suitable business, asset or property as its Qualifying Transaction. Furthermore, even if a QT is identified, there can be no assurance that the Company will be able to complete the transaction.

If the Company identifies a QT, it may be necessary for the Company to seek additional financing. Capital markets may not always be receptive to offerings of new equity from treasury or debt, whether by way of private placements or public offerings, under terms that would be acceptable for the Company.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements.

Transactions between Related Parties

Key management personnel are the persons having authority and responsibility for planning, directing and controlling the activities of the Company either directly or indirectly, including entities controlled by such persons. The key management personnel include the Company's executive management team and the Board of Directors.

During the period ended December 31, 2020, the Company recognized $NIL (2020 - $40,000) in share-based compensation.

Proposed Transaction

Please refer to "Overall Performance and Qualifying Transaction" above for details relating to the Proposed Transaction with Southern Sky.

Critical Accounting Estimates and Judgments

The preparation of the financial statements in conformity with IFRS requires management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Estimates are reviewed on an ongoing basis and are based on historical experience and other facts and circumstances. Revisions to estimates and the resulting effects on the carrying amounts of the Company's assets and liabilities are accounted for prospectively. Management believes the estimates and assumptions used in these financial statements are reasonable; however, actual results could differ from those estimates and could impact future results of the Company's financial statements.

The Company's significant accounting judgments and estimates applied in its financial statements are as follows:

Judgments

The evaluation of the Company's ability to continue as a going concern

Estimations

The measurement of deferred income tax assets and liabilities; and

The inputs used in accounting for share-based compensation expense and for agents' options recorded in share capital and reserves.

Changes in Accounting Policies

Effective October 1, 2019, the Company adopted IFRS 16, Leases. The IASB issued IFRS 16, Leases, in January 2016, which replaces the current guidance in IAS 17. Under IAS 17, lessees were required to make a distinction between a finance lease and an operating lease. IFRS 16 requires lessees to recognize a lease liability reflecting future lease payments and a "right-of-use asset" for virtually all lease contracts. The IASB has included an optional exemption for certain short-term leases and leases of low-value assets. The adoption of the new standard did not have a material impact on the financial statements.

A detailed summary of all of the Company's significant accounting policies is included in Note 2 of the Company's audited financial statements for the year ended September 30, 2020.

Financial Instruments

A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

Classification

The Company classifies its financial instruments in the following categories: at fair value through profit and loss ("FVTPL"), at fair value through other comprehensive income (loss) ("FVOCI"), or at amortized cost. The Company determines the classification of financial assets at initial recognition. The classification depends on the Company's business model for managing the financial assets and the contractual terms of the cash flows. For assets measured at fair value, gains and losses are either recorded in profit or loss or OCI. Financial liabilities are measured at amortized cost, unless they are required to be measured at FVTPL (such as instruments held for trading or derivatives) or the Company has opted to measure them at FVTPL.

A financial liability is classified as at FVTPL if it is classified as held-for-trading or is designated as such on initial recognition. Directly attributable transaction costs are recognized in profit or loss as incurred. The fair value changes to financial liabilities at FVTPL are presented as follows: the amount of change in the fair value that is attributable to changes in the credit risk of the liability is presented in OCI; and the remaining amount of the change in the fair value is presented in profit or loss. The Company does not designate any financial liabilities at FVTPL.

Other non-derivative financial liabilities, are initially measured at fair value less any directly attributable transaction costs. Subsequent to initial recognition, these liabilities are measured at amortized cost using the effective interest method.

Measurement

At initial recognition, the Company measures a financial asset at its fair value plus, in the case of a financial asset not at FVTPL, transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at FVTPL are expensed in profit or loss. Financial assets are considered in their entirety when determining whether their cash flows are solely payment of principal and interest.

Subsequent measurement of financial assets depends on their classification. There are three measurement categories under which the Company classifies its debt instruments:

• Amortized cost: Assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest are measured at amortized cost. A gain or loss on a debt investment that is subsequently measured at amortized cost is recognized in profit or loss when the asset is derecognized or impaired. Interest income from these financial assets is included as finance income using the effective interest rate method.
• FVOCI: Assets that are held for collection of contractual cash flows and for selling the financial assets, where the assets' cash flows represent solely payments of principal and interest, are measured at FVOCI. Movements in the carrying amount are taken through OCI, except for the recognition of impairment gains and losses, interest revenue, and foreign exchange gains and losses which are recognized in profit or loss. When the financial asset is derecognized, the cumulative gain or loss previously recognized in OCI is reclassified from equity to profit or loss and recognized in other gains (losses). Interest income from these financial assets is included as finance income using the effective interest rate method.
• FVTPL: Assets that do not meet the criteria for amortized cost or FVOCI are measured at FVTPL. A gain or loss on an investment that is subsequently measured at FVTPL is recognized in profit or loss and presented net as revenue in the Statement of Loss and Comprehensive Loss in the period in which it arises.

At present, the Company's cash is measured as FVTPL and its accounts payable and accrued liabilities are measured at amortized cost.

The Company's cash is considered to be Level 1 within the fair value hierarchy (as discussed below).

• Level 1– fair values based on unadjusted quoted prices in active markets for identical assets or liabilities;
• Level 2 fair values based on inputs that are observable for the asset or liability, either directly or indirectly; and
• Level 3 fair values based on inputs for the asset or liability that are not based on observable market data.

The risk exposure arising from these financial instruments is summarized as follows:

(a) Credit risk

Credit risk is the risk that one party to a financial instrument will cause a loss for the other party by failing to discharge an obligation. As the Company's cash is held in one bank, there is a concentration of credit risk. This risk is managed by using a major bank that is a high credit quality financial institution as determined by rating agencies. As of December 31, 2020, the Company's exposure to credit risk is minimal.

(b) Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its obligations as they fall due. The Company's approach to managing liquidity risk is to ensure that it will have sufficient liquidity to meet liabilities when due. The Company's ability to continue to meet its liabilities when due, beyond the current cash balance, is dependent on future support of shareholders through public or private equity offerings. There is no assurance of continued access to significant equity funding.

(c) Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Company's income or value of its holdings or financial instruments. The Company's activities have only been transacted in Canadian dollars since incorporation; in addition, the Company carries no interest-bearing debt. As such, the Company has minimal market risks facing it at present.

Disclosure of Outstanding Share Data

The Company is authorized to issue an unlimited number of common shares without par value.

As at the date of this MD&A, the Company had 7,510,000 common shares, 250,000 agent's options, 450,000 stock options and no warrants outstanding.

New accounting standards and interpretations

There were no new standards effective December 31, 2020 that had any impact on these financial statements or are expected to have a material effect in the future.

Risks and Uncertainties

The Company's financial performance is likely to be subject to the following risks:

• 1. The Company has no commercial operations, and has no assets other than cash. The Company has no history of earnings, and will not generate earnings or pay dividends until at least after the completion of the Qualifying Transaction, if ever.
• 1. Until completion of the Qualifying Transaction, the Company is not permitted to carry on any business other than the identification and evaluation of potential Qualifying Transactions.
• 1. The Company only has limited funds with which to identify and evaluate potential Qualifying Transactions and there can be no assurance that the Company will be able to identify or complete a suitable Qualifying Transaction.
• 1. If the Company fails to identify a business or assets that warrant acquisition or participation within the time limits set under the policies of the Exchange, the Exchange may de-list the Company's shares from trading.

1. If a Qualifying Transaction is completed, there can be no assurance that an active and liquid market for the Company's common shares will develop and investors may find it difficult to resell the common shares.

Disclosure Controls and Procedures

Disclosure controls and procedures are intended to provide reasonable assurance that information required to be disclosed is recorded, processed, summarized, and reported within the time periods specified by securities regulations and that the information required to be disclosed is accumulated and communicated to management. Internal controls over financial reporting are intended to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. As the Company is a venture issuer, management does not make any representations in this regard, and the Company has inherent limitations in this regard that may result in additional risks relating to its filings and reporting.

Forward-Looking Statements

This MD&A contains forward-looking statements, including those relating to the Proposed Transaction, the adequacy of the Company's working capital balance, and anticipated future expenses. All statements, other than statements of historical fact, constitute "forward-looking statements" and include any information that addresses activities, events or developments that the Company believes, expects or anticipates will or may occur in the future, including the Company's strategy, plans or future financial or operating performance and other statements that express management's expectations or estimates of future performance.

Forward-looking statements are generally identifiable by the use of the words "may", "will", "should", "continue", "expect", "anticipate", "estimate", "believe", "intend", "plan" or "project" or the negative of these words or other variations on these words or comparable terminology. All such forward-looking information and statements are based on certain assumptions and analyses made by the Company's management in relation to the Proposed Transaction, among other things, and are made in light of their experience and perception of historical trends, current conditions and expected future developments, as well as other factors management believes are appropriate in the circumstances. These statements, however, are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of the Company to be materially different from those expressed, implied by or projected in the forward-looking information or statements. Important factors that could cause actual results to differ from these forward-looking statements are discussed in Risks and Uncertainties.

There can be no assurance that any forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, the reader should not place any undue reliance on forward-looking information or statements. Except as required by applicable securities laws, the Company does not intend to revise or update these forward-looking statements after the date of this document or to revise them to reflect the occurrence of future unanticipated events.