Cathedra Bitcoin Inc. — Management Reports 2020

Jun 2, 2020

KARSTEN ENERGY CORP.

(the “Company”)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF THE COMPANY’S FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2020

Date and Subject of this Discussion and Analysis

This discussion and analysis, made as of June 1, 2020, is integral to, and should be read in conjunction with, the Company’s unaudited condensed interim financial statements the three months ended March 31, 2020 and, audited financial statements for the year ended December 31, 2019. These financial statements, and additional information relating to the Company, are available for viewing at www.sedar.com.

Nature of Business and Overall Performance

Karsten Energy Corp. (the “Company”) was incorporated under the Business Corporations Act (British Columbia) on November 28, 2012 and was classified as a Capital Pool Company as defined in the TSX Venture Exchange (“Exchange”) Policy 2.4. On November 18, 2014, the company completed its qualifying transaction and was listed on the Exchange as a tier 2 mining issuer. The Company subsequently failed to meet the minimum listing requirements of the Exchange and the listing of its common shares was transferred to the NEX Board on January 31, 2017.

The Company’s registered and records office address is 6th Floor, 905 West Pender Street, Vancouver, BC, Canada, V6C 1L6.

Results of Operations

The Company incurred a loss of $13,348 (2019- $15,755) for the three months ended March 31, 2020 which included administrative expenses of $3,668 (2019 - $2,214), professional fees of $7,440 (2019$9,082), and transfer and filing fees of $2,240 (2019- $4,459). Expenses have remained similar to the three months ended March 31, 2019 as there have been no new activities.

Summary of Quarterly Results

The Company’s results for the last eight quarters as follows:

	March 31	December 31,	September 30,	June 30,
	2020	2019	2019	2019
Net loss for the period	$ 13,348	$ (20,043)	$ (28,342)	$ (26,869)
Loss pershare	$ (0.00)	$ (0.00)	$ (0.00)	$ (0.00)

Karsten Energy Corp. Management’s Discussion and Analysis March 31, 2020

	March 31	December 31,	June 30,	March 31
	2019	2018	2018	2018
Net loss for the period	$ (15,755)	$ (1,535)	$ (1,923)	$ (3,021)
Loss pershare	$ (0.00)	$ (0.00)	$ (0.00)	$ (0.00)

Financial Condition, Liquidity and Capital Resources

The Company had cash of $82,481 at March 31, 2020. The Company had no long-term liabilities and accounts payable and accrued liabilities of $12,893 due within year. The Company will likely require additional capital in the future to identify, valuate, and acquire an interest in assets or a business. There is no assurance that the Company will secure such capital on terms acceptable to the Company or on any terms.

Off Balance Sheet Arrangements

There are no off-balance sheet arrangements to which the Company is committed.

Transactions with Related Parties

Key Management Compensation

Key management personnel include the Company’s executive officers and Board of Directors. The aggregate amount of key management compensation was as follows:

		2020		2019
Administrative	$	3.150	$	2.100

At March 31, 2020 the Company had accounts payable due to its CFO of $3,150 in connection to fees (2019 - $Nil)

Use of judgments and estimates

The preparation of financial statements requires management to make estimates that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period.

Critical Risk Factors

There is no assurance the Company will secure an agreement to acquire an asset or new line of business in the future and even if it is successful in making such an agreement there is no assurance the Company will secure additional financing to operate any such asset or business.

Karsten Energy Corp. Management’s Discussion and Analysis March 31, 2020

Financial Risk Management

The Company is exposed to minimal financial instrument related risks. The Board of Directors approves and monitors the risk management processes, inclusive of documented investment policies, counterparty limits, and controlling and reporting structures. The type of risk exposure and the way in which such exposure is managed is provided as follows:

Credit risk

Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Company’s primary exposure to credit risk is on its cash held in bank accounts. The Company’s cash is deposited in bank accounts held with a major bank in Canada. As most of the Company’s cash is held by a 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.

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.

Interest rate risk

The Company is not currently exposed to significant interest rate risk.

Capital Management

The Company’s objective when managing capital is to safeguard the Company’s ability to continue as a going concern such that it can provide returns for shareholders and benefits for other stakeholders. The Company considers the items included in shareholders’ equity as capital. The Company manages the capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust its capital structure, the Company may issue new shares, sell assets to settle liabilities or return capital to its shareholders. The Company is not exposed to externally imposed capital requirements.

The financial assets included in the statement of financial position at March 31, 2020 is cash of $82,481 (December 31, 2019 – $98,277). Financial liabilities included in the statement of financial position as at March 31, 2020 is accounts payable of $12,893 (December 31, 2019 - $15,341).

Karsten Energy Corp. Management’s Discussion and Analysis March 31, 2020

Classification of financial instruments

Fair value

The fair value of the Company’s financial assets and liabilities approximates the carrying amount.

Financial instruments measured at fair value are classified into one of three levels in the fair value hierarchy according to the relative reliability of the inputs used to estimate the fair values. The three levels of the fair value hierarchy are:

• Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities.

• Level 2 – Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly; and

• Level 3 – Inputs that are not based on observable market data.

The following is an analysis of the Company’s financial assets measured at fair value as at March 31, 2020

	As atMarch31,2020
	Level 1Level 2Level3
Cash	$ 82,481$-$-

The carrying value of accounts payable approximates fair value due to the short-term nature of these instruments.

The Company’s accounting policy for financial instruments is as follows:

Classification

The Company determines the classification of its financial instruments at initial recognition. Upon initial recognition, a financial asset is classified as measured at: amortized cost, fair value through profit and loss (“FVTPL”), or fair value through other comprehensive income (loss) (“FVOCI”). The classification of financial assets is generally based on the business model in which a financial asset is managed and its contractual cash flow characteristics. A financial liability is classified as measured at amortized cost or FVTPL.

A financial asset is measured at amortized cost if it meets both of the following conditions and is not designated as FVTPL:

• it is held within a business model whose objective is to hold assets to collect contractual cash flows; and

• its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

Karsten Energy Corp. Management’s Discussion and Analysis March 31, 2020

A debt investment is measured at FVOCI if it meets both of the following conditions and is not designated as FVTPL:

• it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and

• its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

An equity investment that is held for trading is measured at FVTPL. For other equity investments that are not held for trading, the Company may irrevocably elect to designate them as FVOCI. This election is made on an investment-by-investment basis.

All financial assets not classified as measured at amortized cost or FVOCI as described above are measured at FVTPL. This includes all derivative financial assets. On initial recognition, the Company may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortized cost or at FVOCI as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.

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 elected to measure them at FVTPL.

The Company completed an assessment of its financial assets and liabilities as at December 31, 2019. The adoption of IFRS 9 has no quantitative impact on the Company’s financial instruments as at March 31, 2020 and 2019.

The following table shows the classification of the Company’s financial assets under IFRS 9:

	Original classification	New classification
Asset or Liability	IAS 39	IFRS 9
Cash and cash equivalents	FVTPL	FVTPL
Receivables	Loans and receivables	Amortized cost
Investments	FVTPL	FVTPL
Promissory notes	Loans and receivables	Amortized cost
Trade payables and accrued liabilities	Other liabilities	Amortized cost

Measurement

Initial measurement

On initial recognition, all financial assets and financial liabilities are measured at fair value adjusted for directly attributable transaction costs except for financial assets and liabilities classified as FVTPL, in which case the transaction costs are expensed as incurred.

Subsequent measurement

The following accounting policies apply to the subsequent measurement of financial instruments:

Karsten Energy Corp. Management’s Discussion and Analysis March 31, 2020

Financial assets at FVTPL

These assets are subsequently measured at fair value. Net gains and losses, including any interest or dividend income, are recognized in profit or loss.

Financial assets at amortized cost

These assets are subsequently measured at amortized cost using the effective interest method. The amortized cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment are recognized in profit or loss. Any gain or loss on derecognition is recognized in profit or loss.

Equity investments at FVOCI

These assets are subsequently measured at fair value. Dividends are recognized as income in profit or loss unless the dividend clearly represents a recovery of part of the cost of the investment. Other net gains and losses are recognized in OCI and are never reclassified to profit or loss.

Debt investments at FVOCI

These assets are subsequently measured at fair value. Interest income is calculated using the effective interest rate method, foreign exchange gains and losses and impairment are recognized in profit or loss. Other net gains and losses are recognized in OCI. On derecognition, gains and losses accumulated in OCI are reclassified to profit or loss.

Impairment of financial instruments

The Company assesses at each reporting date whether there is objective evidence that a financial asset or a group of financial assets is impaired.

For financial assets measured at amortized cost, and debt investments at FVOCI, the Company applies the expected credit loss impairment model. On adoption of the expected credit loss model there was no material adjustment in 2020.

New standards, amendments and interpretations adopted in the current year

Certain new standards, interpretations, amendments and improvements to existing standards were issued by the IASB or IFRIC that are mandatory for accounting periods beginning on or after January 1, 2019. Updates which are not applicable or are not consequential to the Company have been excluded thereof. The following have been adopted by the Company.

• IFRS 16 – Leases: New standard to establish principles for recognition, measurement, presentation and disclosure of leases with an impact on lessee accounting, effective for annual periods beginning on or after January 1, 2019. There is no impact on the adoption of IFRS 16 as the Company has no lease payments.

• IFRIC 23 – Uncertainty over Income Tax Treatment: New standard to clarify the accounting for uncertainties in income taxes. The interpretation provides guidance and clarifies the application of the recognition and measurement criteria in IAS 12 “Income Taxes” when there

Karsten Energy Corp. Management’s Discussion and Analysis March 31, 2020

is uncertainty over income tax treatments. The interpretation is effective for annual periods beginning on January 1, 2019. There is no impact on the adoption of IFRIC 23.

Additional Information

As at March 31, 2020 and the date of this report, the Company had 11,200,000 common shares issued and outstanding.

As at March 31, 2020 and the date of this report, the Company had Nil warrants.

Securities Issued during the period

During the three months ended March 31, 2020, the Company issued no securities.

Directors and Officers

The directors and officers of the Company are: Kay Jessel Director, President & CEO Ron Segev Director Lennox Ong Director Jennie Choboter Secretary & CFO

The contact person for the Company is: Kay Jessel, Telephone: 604-362-5255