Valencia Capital Inc. — Management Reports 2021

Oct 27, 2021

VALENCIA CAPITAL INC.

MANAGEMENT DISCUSSION AND ANALYSIS FOR THE YEARS ENDED JUNE 30, 2021 AND 2020

VALENCIA CAPITAL INC. Management Discussion & Analysis For the years ended June 30, 2021 and 2020

1. Date

This Management’s Discussion and Analysis (“MD&A”) of Valencia Capital Inc. (“Valencia” or the “Company”) has been prepared by management as of October 25, 2021 and should be read in conjunction with the financial statements and related notes thereto of the Company for the years ended June 30, 2021 and 2020, which were prepared in accordance with International Accounting Standards using accounting policies consistent with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and International Financial Reporting Interpretations Committee (“IFRIC”).

This MD&A contains forward-looking information which reflects management's expectations regarding the Company’s growth, results of operation, performance and business prospects and opportunities. The use of words such as “anticipate”, “continue”, “estimate", "expect”, “may”, “will”, “project”, “should”, believe”, outlook”, “forecast” and similar expressions are intended to identify forward-looking statements.

Forward-looking statements in this MD&A include, but not limited to, the Company’s expectation of future activities and results, of its working capital needs and its ability to identify, evaluate and pursue suitable business opportunity. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results of events to differ materially from those anticipated in these forward- looking statements. Readers should not put undue reliance on forward-looking information.

The Company undertakes no obligation to publicly update or review the forward-looking statements whether as a result of new information, future events or otherwise.

Historical results of operations and trends that may be inferred from the following discussions and analysis may not necessarily indicate future results from operations.

2. Overall Performance

The Company was incorporated pursuant to the provisions of the Business Corporations Act (British Columbia) on June 19, 2019, under the name Valencia Capital Inc.

The Company completed its initial public offering (“IPO”) on August 13, 2020 and is a Capital Pool Company pursuant to the policies of the TSX Venture Exchange (the “Exchange”). The Company is in the development stage and its principal business will be the identification and evaluation of assets or businesses with a view to completing a Qualifying Transaction, as defined by the policies of the Exchange. Such a transaction will be subject to shareholder and regulatory approval.

On December 7, 2020, the Company entered into a letter of intent and, on July 7, 2021, an amalgamation agreement (the “TB Amalgamation Agreement), with Terra Balacanica Resources Corp. (formerly 1250598 B.C. Ltd.) (“Terra Balacanica”), a privately held mineral exploration company incorporated under the Business Corporations Act (British Columbia) with a principal property in Bosnia and Herzegovina, known as the Viogor-Zanik Project. Subject to certain conditions and Exchange approval, the transaction would have resulted in the reverse takeover of the Company by Terra Balacanica and constituted Valencia’s qualifying transaction. In August 2021, the Company terminated the TB Amalgamation Agreement.

Valencia continues to evaluate alternative acquisition opportunities with a view to completing its qualifying transaction.

VALENCIA CAPITAL INC. Management Discussion & Analysis For the years ended June 30, 2021 and 2020

3. Selected Annual Information

	June 30, 2021 June 30, 2020 June 30, 2019	June 30, 2021 June 30, 2020 June 30, 2019	June 30, 2021 June 30, 2020 June 30, 2019
Net loss	$ (200,211) $	(59,601) $	(418)
Loss per share	(0.02)	(0.02)	–
Total assets	762,759	73,628	129,996

4. Results of Operations

Years ended June 30, 2021 and 2020

During the year ended June 30, 2021, the Company reported a net loss of $200,211, or $0.02 per share as compared to a net loss of $59,601, or $0.02 per share, during the year ended June 30, 2020, an increase in net loss of $140,610.

The increase in net loss during the year was primarily a result of an increase in share-based compensation of $100,083 as a result of issuing incentive stock options along with additional professional fees of $26,672 incurred in connection with the IPO and proposed transaction with Terra Balacanica.

There were no significant changes in general operating costs in comparison to the prior fiscal year except for an increase in transfer agent fees relating to the Company’s AGM. The Company did not hold an AGM in fiscal 2019.

Three months ended June 30, 2021 and 2020

During the three months ended June 30, 2021, the Company reported a net loss of $84,106, or $0.00 per share as compared to a net loss of $27,015, or $0.01 per share, during the year ended June 30, 2020, an increase in net loss of $27,091.

The increase in net loss was primarily due to non-cash costs incurred as a result of issuing incentive stock options to certain officers and directors of the Company, along with legal expenses incurred in connection with the proposed qualifying transaction with Terra Balacanica. All other costs did not have significant changes.

5. Summary of Quarterly Results

The following is a summary of financial information concerning the Company for each of the eight last reported quarters.

Quarter ended		Loss	Loss per share	Loss per share
June 30, 2021	$	(84,105)	$	(0.01)
March 31, 2021		(8,637)		–
December 31, 2020		(21,143)		–
September 30, 2020		(86,326)		(0.01)
June 30, 2020		(27,015)		(0.01)
March 31, 2020		(20,179)		(0.01)
December 31, 2019		(4,305)		–
September 30, 2019		(8,102)		–

VALENCIA CAPITAL INC. Management Discussion & Analysis For the years ended June 30, 2021 and 2020

During the quarter ended June 30, 2021, the Company incurred legal fees of $24,892 in connection with the proposed transaction with Terra Balacanica, along with non-cash share-based compensation of $49,305 as a result of issuing incentive stock options to certain directors and officers.

During the quarters ended March 31, June 30, September 30, and December 31, 2020, and March 31, 2021 and June 30, 2021, the Company incurred ongoing professional, transfer agent and filing fees along with similar fees relating to its prospectus filing and reporting issuer obligations. The net loss for the quarter ended September 30, 2020 included share-based compensation of $50,778 for stock options granted to directors and officers of the Company.

6. Liquidity and Capital Resources

The Company reported a cash position of $726,551 at June 30, 2021, compared to cash of $48,431 at June 30, 2020. The Company reported working capital $734,622 at June 30, 2021 compared to a working capital position of $67,481 at June 30, 2020, representing an increase in working capital of $667,141 as a result of financing activities.

On August 13, 2020, the Company completed its IPO and issued 8,833,900 common shares at $0.10 per share for gross proceeds of $883,390.

PI Financial Corp. acted as lead agent for the IPO (the “Agent”). The Company incurred issuance costs of $116,121 to the Agent and issued 883,390 Agent’s warrants exercisable at of $0.10 per common share for a period of two years from the date that the common shares of Valencia began trading on the Exchange.

On August 14, 2020, the Company granted 605,000 incentive stock options to its officers and directors exercisable at a price of $0.10 per common share expiring on August 14, 2025.

On May 6, 2021, the Company granted an additional 533,390 incentive stock options to certain of its officers and directors exercisable at a price of $0.10 per common share expiring on May 5, 2026.

Cash expenditures during the year were related to legal expenses incurred in connection with the IPO, the proposed transaction with Terra Balacanica and to the Company’s general and administrative costs.

Current assets excluding cash as at June 30, 2021 consisted of an advance receivable of $31,500 (2019 - $nil) and prepaid insurance fees of $4,708 (2019 - $23,905).

Current liabilities as at June 30, 2021 consisted of trade payables and accrued liabilities of $22,137 (2020 - $6,147) and amounts due to related parties of $6,000 (2020 - $nil).

The continuing operations of the Company are dependent upon its ability to evaluate and complete a qualifying transaction. To date, the Company has not generated any revenues, has incurred losses since its inception and, at June 30, 2021, had an accumulated deficit of $260,230 (2020 - $60,019).

Operating activities

For the year ended June 30, 2021, the Company’s operating activities used cash of $89,149 (2020 - $79,065).

VALENCIA CAPITAL INC. Management Discussion & Analysis For the years ended June 30, 2021 and 2020

Financing activities

For the year ended June 30, 2021, the Company received $767,269 net cash (2020 - $2,500) from the issuance of shares during the period.

Capital Management

The Company manages its capital to maintain its ability to continue as a going concern and to provide returns to shareholders and benefits to other stakeholders. The capital structure of the Company consists of cash and equity comprised of issued share capital.

The Company manages its capital structure and makes adjustments, when required, considering certain economic conditions. The Company, upon approval from its board of directors, will balance its overall capital structure through new share issues or by undertaking other activities as deemed appropriate under the specific circumstances.

The proceeds raised from the issuance of common shares may only be used to identify and evaluate assets or businesses for future investment, with the exception that no more than the lesser of 30% of the gross proceeds from the issuance of common shares may be used to cover prescribed costs of issuing the common shares or administrative and general expenses of the Company. These restrictions apply until completion of a qualifying transaction. The Company currently is not subject to other externally imposed capital requirements.

7. Off-Balance Sheet Arrangements

The Company does not utilize off-balance sheet arrangements.

8. Financial Instruments & Risk Management

Fair Values

Fair value measurements are classified using a fair value hierarchy that reflects the significance of inputs used in making the measurements. The fair value hierarchy has the following levels:

• Level 1 - valuation based on quoted prices (unadjusted) in active markets for identical assets or liabilities;

• Level 2 - valuation techniques based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices); and

• Level 3 - valuation techniques using inputs for the asset or liability that are not based on observable market data (unobservable inputs).

The fair values of financial instruments, which include cash, advance receivable, and accounts payable and accrued liabilities, approximate their carrying values due to the relatively short-term maturity of these instruments.

VALENCIA CAPITAL INC. Management Discussion & Analysis For the years ended June 30, 2021 and 2020

Credit Risk

Financial instruments that potentially subject the Company to a concentration of credit risk consist primarily of cash and advance receivable. The Company limits its exposure to credit loss by placing its cash with high credit quality financial institutions. Advance receivable is due from a related party which was repaid to the Company subsequent to year end. The carrying amount of financial assets represents the maximum credit exposure.

Foreign Exchange Risk and Interest Rate Risk

The Company is not exposed to any significant foreign exchange rate or interest rate risk.

Liquidity Risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company currently settles its financial obligations out of cash. The ability to do this relies on the Company raising equity financing in a timely manner and by maintaining adequate cash in excess of anticipated needs.

9. Transactions with Related Parties

As at June 30, 2021, the Company had an advance receivable of $31,500 (2020 - $nil) due from a company controlled by the former Chief Financial Officer of the Company. The Company has since received the full amount of the advance receivable.

During the year ended June 30, 2021, the Company incurred professional fees of $6,000 (2020 - $nil) to a company controlled by the Chief Financial Officer of the Company.

10. Fourth Quarter

See summary of quarterly results.

11. Proposed Transactions

None.

12. Accounting Standards Issued But Not Yet Effective

Accounting standards or amendments to existing accounting standards that have been issued but have future effective dates are either not applicable or are not expected to have a significant impact on the Company’s financial statements.

VALENCIA CAPITAL INC. Management Discussion & Analysis For the years ended June 30, 2021 and 2020

13. Additional Disclosure for Venture Issuers Without Significant Revenue

An analysis of material components of the Company’s general and administrative expenses is disclosed in the financial statements for the years ended June 30, 2021 and 2020 to which this MD&A relates.

14. Disclosure of Outstanding Share Data

Common Shares

As at October 25, 2021, the Company has authorized an unlimited number of common shares without par value and has 11,383,900 common shares issued and outstanding.

Incentive Stock Options

As at October 25, 2021, the Company has 1,138,390 shares reserved for issuance upon the exercise of officer and directors’ options.

Share Purchase Warrants

As at October 25, 2021, the Company has 883,390 share purchase warrants outstanding.

15. COVID-19

On March 11, 2020, the World Health Organization declared COVID-19 a global pandemic. The current outbreak of COVID-19 and any future emergence and spread of similar pathogens could have an adverse impact on global economic conditions, which may adversely impact the Company’s ability to find a suitable qualifying transaction and the operations of its service providers.

16. Additional Information

Additional disclosures pertaining to the Company’s material change reports, press releases and other information are available on the SEDAR website at www.sedar.com.