DMG Blockchain Solutions Inc. — Interim / Quarterly Report 2021

Mar 2, 2021

DMG BLOCKCHAIN SOLUTIONS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS FOR THE QUARTER ENDED (All amounts expressed in Canadian dollars, unless otherwise stated)

This management’s discussion and analysis (“MD&A”) of the operating results and financial position of DMG Blockchain Solutions Inc. (the “Company" or “DMG”) is for the three months ended December 31, 2020. The MD&A provides a detailed account and analysis of the Company’s financial and operating performance for the year. The Company’s functional and reporting currency is the Canadian dollar. This MD&A should be read in conjunction with the Company’s Consolidated Interim Condensed Financial Statements dated March 1, 2021 which contains the condensed interim consolidated financial statements for the Company’s December 31, 2020 and other corporate filings available at www.sedar.com (“SEDAR”). Management is responsible for the financial statements referred to in this MD&A and provides officers disclosure certifications filed on SEDAR. The Audit Committee reviews the financial statements and MD&A and recommends approval to the Company’s Board of Directors.

This MD&A contains certain statements that may constitute “forward‐looking statements.” Statements about the Company’s plans and intentions, other potential transactions, further development of technologies, acquisition of customers, product development, events, courses of action, and the potential of the Company’s technology and operations, among others, are all forwardlooking information. Forward-looking statements consist of statements that are not purely historical, including any statements regarding beliefs, plans, expectations or intentions regarding the future. Such information can generally be identified by the use of forwarding looking wording such as “may”, “expect”, “estimate”, “anticipate”, “intend”, “believe” and “continue” or the negative thereof or similar variations. The reader is cautioned that assumptions used in the preparation of any forwardlooking information may prove to be incorrect. Events or circumstances may cause actual results to differ materially from those predicted, as a result of numerous known and unknown risks, uncertainties, and other factors, many of which are beyond the control of the Company, including but not limited to, business, economic and capital market conditions; the ability to manage operating expenses, which may adversely affect the Company’s financial condition; the ability to remain competitive as other better financed competitors develop and release competitive products; regulatory uncertainties; access to equipment; market conditions and the demand and pricing for products; the demand and pricing of bitcoins; security threats, including a loss/theft of DMG’s bitcoins; DMG’s relationships with its customers, distributors and business partners; the inability to add more power to DMG’s facilities; DMG’s ability to successfully define, design and release new products in a timely manner that meet customers’ needs; the ability to attract, retain and motivate qualified personnel; competition in the industry; the impact of technology changes on the products and industry; failure to develop new and innovative products; the ability to successfully maintain and enforce our intellectual property rights and defend third-party claims of infringement of their intellectual property rights; the impact of intellectual property litigation that could materially and adversely affect the business; the ability to manage working capital; and the dependence on key personnel. DMG may not actually achieve its plans, projections, or expectations. Such statements and information are based on numerous assumptions regarding present and future business strategies and the environment in which the Company will operate in the future, including the demand for its products, the ability to successfully develop software, that there will be no regulation or law that will prevent the Company from operating its business, anticipated costs, the ability to achieve goals and

DMG Blockchain Solutions Inc.

Management's Discussion and Analysis of Financial Condition and Results of Operations For the Quarter Ended December 31, 2020

the price of bitcoin. Given these risks, uncertainties and assumptions, you should not place undue reliance on these forward-looking statements. Factors that could cause the actual results to differ materially from those in forward-looking statements include, failure to obtain regulatory approval, the continued availability of capital and financing, equipment failures, lack of supply of equipment, power and infrastructure, failure to obtain any permits required to operate the business, the impact of technology changes on the industry, decrease in the price of Bitcoin and other cryptocurrencies, competition, security threats including stolen bitcoins from DMG or its customers, consumer sentiment towards DMG’s products, services and blockchain technology generally, failure to develop new and innovative products, litigation, increase in operating costs, increase in equipment and labor costs, failure of counterparties to perform their contractual obligations, government regulations, loss of key employees and consultants, and general economic, market or business conditions. Forwardlooking statements contained in this MD&A are expressly qualified by this cautionary statement. The reader is cautioned not to place undue reliance on any forward-looking information. The forwardlooking statements contained in this MD&A are made as of the date hereof. Except as required by law, the Company disclaims any intention and assumes no obligation to update or revise any forwardlooking statements, whether as a result of new information, future events or otherwise. Additionally, the Company undertakes no obligation to comment on the expectations of, or statements made by, third parties in respect of the matters discussed above.

Additional information relating to the Company can be located on SEDAR at www.sedar.com

This MD&A is current as at March 1, 2021.

DESCRIPTION OF THE BUSINESS

The Company strives to be a vertically integrated blockchain and cryptocurrency company that manages, operates, and develops end-to-end digital solutions to monetize the blockchain ecosystem. DMG is focused on three main business activities: data centre operations, data analytics and forensics and developing enterprise blockchains.

Data Centre Operations

DMG’s flagship data centre operation is its Christina Lake Data Center. This location offers both hosted services, commonly referred to as Mining as a Service (“MaaS”), which allows DMG to host 3rd party servers as well as mine its own cryptocurrencies by self-managing its equipment. DMG will continue its strategy to blend self-mining with hosted mining for third-party clients. This model allows the Company to earn consistent revenues from hosting, and at the same time benefit from surges in BTC value from self-mining. DMG continues to optimize and expand its self-mining efforts with a goal to become one of the largest North American bitcoin mining companies by compute power. DMG will continue to acquire mining hardware, subject to cost and profitability constraints, to ensure that the fleet includes the most efficient hardware available at all times and to avoid the need to replace the entire fleet simultaneously in the future. DMG also will continue to develop partnerships in blended hosted self-mining models that will allow DMG to participate in the profit of Cryptocurrency mining beyond hosting.

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DMG Blockchain Solutions Inc. Management's Discussion and Analysis of Financial Condition and Results of Operations For the Quarter Ended December 31, 2020

Data Analytics and Forensics

DMG’s data analytics and technical support operations leverage the company's industry expertise to provide crypto specific services to mainly audit, accountancy, legal and law enforcement organizations around the world. DMG’s Data Analytics and Forensics are generally split into two business lines, the first is crypto specific consulting where DMG generally works on legal cases and audits of companies exposed to crypto through their operations and the second are software platforms and licensing agreements.

The crypto specific consulting that DMG focuses on leverages its deep understanding of crypto currencies and applies this mainly to legal questions, accounting standards and audit and assurance reporting requirements. Almost all projects involve DMG’s software platforms such as Blockseer’s Explorer or Walletscore.

DMG’s data analytics and forensics software platforms strategy is centered on becoming a vertically integrated cryptocurrency company. DMG’s main software platforms to date are the Blockseer Pool, Mine Manager, Blockseer Explorer, and Walletscore. All of these products are used by DMG as well as licensed to 3rd parties for commercial usage where applicable. Additional software platforms to augment DMG’s vertical integration strategy are under development.

Developing Enterprise Blockchains

The Company is also building a blockchain platform called Project Wazabi, to manage supply chains for regulated products. On October 4, 2018, the Company entered into an agreement with IBM to assist in building Wazabi, a blockchain based cognitive platform to manage the regulated products supply chain. Wazabi does not replace any existing systems, but instead aims to pull and aggregate data from each system along the supply chain. Every time product changes custody such as from Licensed Producer to testing lab, to various distribution and retail end users, Wazabi logs these events on the blockchain. This allows for complete real time visibility on where every batch of Wazabi tracked cannabis is in the supply chain, enabling immediate and immutable traceability in the event of recall, automation of regulatory reporting, and in time, product forecasting for producers, retailers and regulators.

The blockchain core of Wazabi is built as well as 44 APIs that enable Wazabi to connect to and pull relevant data from the various systems along the supply chain including seed to sale, ERP, POS, and Logistics systems. On top of the Wazabi blockchain, various applications can be built such as for traceability, automated regulatory reporting, retail and wholesale marketplaces, etc. The Company is ready to begin beta testing the traceability application of the platform. As we continue to build the platform and incur additional costs, the Company is exploring ways for other parties to assist in both funding the project and securing the beta testing partners, as well as potentially entering into a business combination or a joint venture transaction with other parties.

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DMG Blockchain Solutions Inc. Management's Discussion and Analysis of Financial Condition and Results of Operations For the Quarter Ended December 31, 2020

COVID-19

The outbreak of the coronavirus, also known as "COVID-19", has spread across the globe and is impacting worldwide economic activity. Conditions surrounding the coronavirus continue to rapidly evolve and government authorities have implemented emergency measures to mitigate the spread of the virus. The outbreak and the related mitigation measures may have an adverse impact on global economic conditions as well as on the Company’s business activities. The extent to which the coronavirus may impact the Company’s business activities will depend on future developments, such as the ultimate geographic spread of the disease, the duration of the outbreak, travel restrictions, business disruptions, and the effectiveness of actions taken in Canada and other countries to contain and treat the disease. These events are highly uncertain and as such, the Company cannot determine their financial impact at this time.

The Company transitioned its Vancouver office to working from home in mid-March, and, after some initial adjustments, has seen no interruption to its workflow. The Company's Christina Lake mining operation remains open and is staffed as regularly as it was pre-COVID-19. However, there are only two employees working at any one time inside a 27,000 square foot facility, in a remote area mostly unaffected by the virus. The Company continues to monitor daily COVID-19 government updates and will continue to alter its practices as necessary with guidance from the British Columbia's Provincial Health Officer.

DMG credits the success of its Work from Home initiative to the capabilities of its Mine Management software.

Bitcoin Market Trends

Bitcoin continued to drive upward on the trend set in the fourth quarter ending September 30, 2020 with a new all time high being established in late November 2020. Fueled by continued support from large name investors. Late October Bank of Canada moved its digital currency project out of the ‘experimental’ phase and is pushing G7 nations to coordinate on digital currencies. A US survey done by Grayscale found that over 50% of American investors are interested in Bitcoin, providing an insight into retail demand. Continued increase in price has led to rapid increase of profitability in mining, so much so that older previously unprofitable hardware is now online and profitable again. The first quarter of the fiscal year is proving to be a substantial foundation for continued Bitcoin growth throughout 2021.

Over the quarter ending December 31, 2020, Bitcoin price grew over 165% to $28,856.59 USD with an average price over the period of $16,655.10. With this surge in price, network hashrate also saw an increase of nearly 30% (28.9%), with a steady rise following dips in late October early November. Despite this significant rise in price, and modest increase in hashrate, network difficulty for the same period decreased by 3.7%. The decrease in difficulty and increased BTC price, along with a 164.8% increase in average fee per transaction has driven mining profitability up a fair amount over the quarter. These data values only look at the Q1 ending in December 31, 2020 and are not representative of the current all-time highs that have been set following the quarter. The value that has come into the sector in the subsequent quarter has been significant and all-time highs as compared to Q1 growth.

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DMG Blockchain Solutions Inc. Management's Discussion and Analysis of Financial Condition and Results of Operations For the Quarter Ended December 31, 2020

Future changes in the Bitcoin network-wide mining difficulty rate or Bitcoin hashrate may materially affect the future performance of DMG’s production of Bitcoin, and future operational results could also be materially affected by the price of Bitcoin and an increase in hashrate mining difficulty.

QUARTERLY HIGHLIGHTS

• On October 29, 2020, the Company announced the launch of a new North America-based Bitcoin mining pool in beta from its USA subsidiary, Datient, also known as Blockseer:

• Blockseer’s new Bitcoin mining pool will be North America’s first bitcoin mining pool that will not only meet, but exceed the US Government’s Office of Foreign Assets Control (OFAC) compliance for BTC addresses, as well as providing the utmost level of transparency, auditability and corporate governance.

• Blockseer’s pool may further decentralize the bitcoin blockchain, readjusting the balance of hash rate to North America, where more Bitcoin nodes operate

• Blockseer’s pool integrates DMG’s existing proprietary crypto forensics data, including Walletscore, to ensure that transaction blocks are OFAC compliant, as well as other risk factors that Walletscore tracks and manages

• Blockseer’s pool is integrated into DMG’s core technology platform, bringing all of DMG’s mine manager features into the pool, and providing an integrated User Experience for our customers.

• On December 18, 2020, the Company closed a private placement for gross proceeds of $1,000,405. The Company intends to use the net proceeds for general working capital purposes.

OVERALL PERFORMANCE

The Company’s revenue decreased from the same quarter in the prior period by $537,778, however net loss decreased by $256,734. The Company focused on cost efficiencies in the last fiscal year and these are reflected in the results for the three months ended December 31, 2020.

RESULTS OF OPERATIONS

Three Months Ended December 31, 2020

Revenue for the three months ended December 31, 2020 was $1,928,923, a decrease of $537,778 as compared to the three months ended December 31, 2019. Digital currency mining decreased by $159,883 and mining equipment hosting decreased by $250,235. The Company did not realize any income from its Texas operation in the current period (2019 - $101,820). The Company did not realize any revenue from the sale of mining equipment in the normal course of operations (2019 - $42,235).

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DMG Blockchain Solutions Inc.

Management's Discussion and Analysis of Financial Condition and Results of Operations For the Quarter Ended December 31, 2020

Operating and maintenance costs for the three months ended December 31, 2020 was $1,504,655 as compared to $1,910,844 for the three months ended December 31, 2019. The Company’s utilities costs decreased from $1,603,326 to $1,391,632 is consistent with the decrease in hosting fees. The Company’s operations in Texas did not continue in fiscal 2021, as a result contractor fees, and wages decreased by $194,494 as compared to the prior quarter.

General and administrative costs for three months ended December 31, 2020 was $534,990. These consisted mostly of Consulting, Wages and Professional Fees. This compares to $714,442 during the quarter ended December 31, 2019. The salaries and wages decreased by $150,726, the Company did not incur any costs related to its Texas entity in the three months ended December 31, 2020.

Research for three months ended December 31, 2020 was $40,771, compared to $159,591 from the same quarter in 2019.

Three Months Ended December 31, 2019

Revenue for the three months ended December 31, 2019 was $2,466,701 consisting mostly of revenue from the mining of Bitcoins, hosting services, and consulting services. Revenue increase by $430,130 as compared to December 31, 2018. The Company had non-recurring revenue of $172,591 related to an agreement with Bitmain for hosting services in Texas. The Company also had $683,331 in bitcoin mining as compared to $Nil in December of 2018.

Operating and maintenance costs for three months ended December 31, 2019 was $1,910,844 consisting mostly of utility bills, contractors’ fees and wages with relation to the data center improvements and construction. Utilities increased by $746,421 as compared to December 31, 2018, due to the cost of utilities related to hosting miners.

General and administrative costs for three months ended December 31, 2019 was $714,442. These consisted mostly of consulting, wages and professional fees. This compares to $654,071 during the quarter ended December 31, 2018. Increases in wages represents the largest portion of this increase, as the company has been moving away from using contractors and instead using full-time employees.

Research and development costs for three months ended December 31, 2019 was $159,591, compared to $819,478 from the same quarter in 2018. This decrease is due to lower wages, as many projects were moved out of the research stages and into the operational stages.

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DMG Blockchain Solutions Inc.

Management's Discussion and Analysis of Financial Condition and Results of Operations For the Quarter Ended December 31, 2020

Selected Quarterly Information for the most recent completed Quarters:

	December 31,	September 30,	June 30, 2020	March 31, 2020
	Q1	Q4	Q3	Q2
Revenue	1,928,923	2,091,148	1,363,233	1,482,418
Net income (loss)	(693,391)	(325,433)	(691,780)	(860,474)
Comprehensive income (loss)	(20,897)	82,794	(532,071)	(1,132,090)
Basic and diluted loss per	(0.01)	(0.00)	(0.01)	(0.01)
~~h~~	December 31,	September 30,	June 30, 2019	March 31, 2019
	2019 Q1	2019 Q4	Q3	Q2
Revenue	2,466,701	2,690,425	3,339,251	2,036,517
Net loss	(950,125)	(1,659,887)	(2,496,535)	(2,097,642)
Comprehensive loss	(949,078)	(1,667,012)	(2,552,705)	(1,987,332)
Basic and diluted loss per	(0.01)	(0.02)	(0.03)	(0.02)
~~h~~

• Revenue decreased by $162,225 for the three months ended December 31, 2020 compared to the three months ended September 30, 2020. Net loss increased from the prior quarter by $367,958 as a result of the decreased revenue and offset by gains in the prior quarter on recovery of bad debts and on the sale of bitcoins.

• Revenue increased by $727,915 for the three months ended September 30, 2020 from the prior quarter. Net loss decreased by $366,347 as compared to the period ended June 30, 2020. The Company subleased its office space in September 2020, decreasing general and administrative expenses. The Company also recognized a recovery of bad debt of $210,601.

• Revenue was relatively consistent for the three months ended June 30, 2020 with the prior period. Net loss decreased by $168,694 as compared to March 31, 2020. The Company focused on decreasing expenses, including wage and office expenses.

• Revenue decreased by $984,283 for the three months ended March 31, 2020 from the prior quarter. The reason for the decrease relates mainly to the loss of a mining client, lower revenue from the mining of digital currency, as well as the loss of revenue from ending the relationship with Bitmain as it pertained to their Texas operations. Despite the revenue loss, the company’s net loss decreased from the prior quarter by only $89,651.

• Revenue decreased by $223,724 for the three months ended December 31, 2019 from the prior quarter. The decrease relates mainly to mining equipment hosting and set-up services as the Company focused efforts on the set-up of operations in Texas. The Company’s net loss decreased by $709,762 as compared to the prior quarter, the decrease relates mainly to a decrease in research costs associated with the Company’s IBM Canada Ltd. Agreement.

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DMG Blockchain Solutions Inc.

Management's Discussion and Analysis of Financial Condition and Results of Operations For the Quarter Ended December 31, 2020

• Revenue decreased by $648,826 for the three months ended September 30, 2019 from the prior quarter. The decrease relates mainly to mining equipment hosting and set-up services. Net loss decreased by $836,648 mainly due to decreases in research costs related to the IBM Canada Ltd agreement.

• Revenue increased by $1,302,734 for three months ended June 30, 2019 as compared to the prior quarter. Increases are attributable to increases in digital currency mining of $649,552 as the Company ramped up its mining efforts. The Company also increased revenue by $619,661 relating to increases forensic and consulting revenue. Net loss increased from the prior quarter by $398,893.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2020, the Company had working capital deficiency of $527,278 (September 30, 2020: $2,307,706). The decrease in working capital deficiency relates to an increase from financing proceeds and sales of digital currency.

The Company’s ability to continue its operations and to realize assets at their carrying values is dependent upon its ability to generate profits and positive cash flows from operations in order to cover its operating costs. These factors indicate the existence of a material uncertainty that may cast significant doubt about the Company’s ability to continue as a going concern. The Company’s strategy to mitigate these risks and uncertainties is to execute a business plan aimed at operational efficiencies, revenue growth, managing operating expenses and working capital requirements. Failure to implement the Company’s business plan could have a material adverse effect on the Company’s financial condition and/or financial performance. Accordingly, there are material risks and uncertainties that cast significant doubt about the Company’s ability to continue as a going concern.

SHARE CAPITAL ACTIVITY

Share capital activity for the three months ended December 31, 2020

On December 18, 2020, the Company closed a brokered private placement for 5,884,735 units for gross proceeds of $1,000,405. Each unit consists of one common share and one warrant. Each warrant is exercisable at $0.22 until December 18, 2022. These warrants have a relative fair value of $476,331 determined using the Black Scholes model with the following inputs: i) exercise price: $0.22; ii) share price: $0.69; iii) term: 2.00 year; iv) volatility: 194%; v) discount rate: 0.24%.

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DMG Blockchain Solutions Inc.

Management's Discussion and Analysis of Financial Condition and Results of Operations For the Quarter Ended December 31, 2020

In connection with the financing, the Company incurred finders' fees of $59,215 and issued 347,738 brokers’ warrants. Each warrant is exercised into one common share at $0.22 until December 18, 2022. These warrants have a relative fair value of $218,081 determined using the Black Scholes model with the following inputs: i) exercise price: $0.22; ii) share price: $0.69; iii) term: 2.00 year; iv) volatility: 194%; v) discount rate: 0.24%.

During the three months ended December 31, 2020, the Company issued 1,682,500 common shares in connection with the exercise of stock options for proceeds of $501,875. As a result, $416,338 has been reclassified from share-based payment reserve to share capital.

During the three months ended December 31, 2020, the Company issued a total of 442,447 common shares upon conversion of a total of 442,447 of DMG-US, Inc. Class B common shares pursuant to the vesting terms of the conversion criteria in the 2018 acquisition of Datient. This conversion reduced the non-controlling interest from 19% to 14% such that the Company has an 86% residual interest in Datient as at December 31, 2020.

Share capital activity for the three months ended December 31, 2019

On October 8, 2019, the Company issued a total of 30,388 common shares upon conversion of a total of 30,388 of DMG-US, Inc. Class B common shares pursuant to the vesting terms of the conversion criteria in the 2018 acquisition of Datient. This conversion reduced the non-controlling interest from 70% to 38% such that the Company had a 62% residual interest in Datient as at December 31, 2019.

OUTSTANDING SHARE DATA

As at the date of this document, the Company had 112,345,522 common shares issued and outstanding, 7,158,691 stock options issued and outstanding, and 7,713,973 share purchase warrants issued and outstanding.

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DMG Blockchain Solutions Inc.

Management's Discussion and Analysis of Financial Condition and Results of Operations For the Quarter Ended December 31, 2020 FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

(a) Fair values of financial instruments measured at fair value on a recurring basis.

					Quoted prices in	Significant	Significant	Total
					active markets for	other	unobservable
					identical	observable	inputs
					instruments	inputs
							Level 3
					Level 1	Level 2
December	31,	2020
Cash			(i)	$	7,157,759	- $	- $	7,157,759
September	30,	2020
Cash			(i)	$	1,073,838 $	- $	- $	1,073,838

The Company has determined the estimated fair value of its financial instruments, if any, based on appropriate valuation methodologies; however, considerable judgment is required to develop these estimates. The fair values of the Company’s financial instruments, if any, are not materially different from their carrying values.

Financial instruments that are measured subsequent to initial recognition at fair value are grouped in levels 1 to 3 of the fair value hierarchy based on the degree to which inputs used in measuring fair value is observable:

Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 – 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 – inputs for the asset or liability that are not based on observable market data (unobservable inputs).

b) Management of Industry and Financial Risk

The Company’s financial instruments are exposed to certain financial risks, which include the following:

Credit Risk

Credit risk is the risk of loss due to the counterparty's inability to meet its obligations. The Company has exposure to credit risk through its cash and cash equivalents, amounts receivable and due from related parties. The Company manages credit risk, in respect of cash and short-term investments, by maintaining the majority of cash at highly rated financial institutions.

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DMG Blockchain Solutions Inc.

Management's Discussion and Analysis of Financial Condition and Results of Operations For the Quarter Ended December 31, 2020

The Company is exposed to a significant concentration of credit risk with respect to its trade accounts receivable balance because of its dependence on three major customers. The Company decreased its exposure to concentration of credit by increasing the number of customers. The Company records an allowance against its trade receivables when there is uncertainty over collection of this amount. All balances due are expected to be settled partially or in full when due (typically within 60 days of submission) and because of the nature of the counterparties.

The Company’s maximum exposure to credit risk at the end of any period is equal to the carrying amount of these financial assets as recorded in the consolidated statement of financial position. At December 31, 2020, no amounts were held as collateral.

Liquidity Risk

Liquidity risk is the risk that the Company will encounter difficulties in meeting obligations when they become due. The Company ensures that there is sufficient capital in order to meet short-term operating requirements, after taking into account the Company’s holdings of cash. The Company’s cash is held in corporate bank accounts available on demand.

Market Risk

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: currency risk, interest rate risk and price risk. These are discussed further below.

Interest Rate Risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is not exposed to significant interest rate risk relating to its loans payable and accounts payable. The interest rate on the loans payable is fixed, and the accounts payable are not subject to any interest. A 10% change in the interest rate would not a result in a material impact on the Company’s operations.

Foreign Currency Risk

Currency risk relates to the risk that the fair values or future cash flows of the Company’s financial instruments will fluctuate because of changes in foreign exchange rates. In addition, the Company mines Bitcoin which have a market value stated in US dollars. Exchange rate fluctuations affect the costs that the Company incurs in its operations. The Company’s presentation currency is the Canadian dollar and major purchases are transacted in US dollars. As the Company operates in an international environment, some of the Company’s financial instruments and transactions are denominated in currencies other than the entity’s functional currency. The fluctuation in foreign currencies in relation to the Canadian dollar will consequently impact the profitability of the Company and may also affect the value of the Company’s assets and liabilities and the amount of shareholders’ equity. At December 31, 2020, the Company held net financial liabilities of $702,944 denominated in US dollars (US$551,761). A 10% change in the foreign exchange rate would result in a change in the net loss for the period of approximately $70,000.

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DMG Blockchain Solutions Inc. Management's Discussion and Analysis of Financial Condition and Results of Operations For the Quarter Ended December 31, 2020

Price Risk

Price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in market prices, other than those arising from interest rate risk or foreign currency risk. The Company is not exposed to any significant price risks with respect to its financial instruments.

RELATED PARTY TRANSACTIONS

(a)Key management compensation and other related party transactions

Key management includes personnel having the authority and responsibility for planning, directing and controlling the Company and includes the directors and current executive officers. The value of transactions relating to key management and entities over which key management have control or significant influence were as follows:

		For thequarter ended	For thequarter ended
		December 31, 2020	December	31, 2019
Dan Reitzik, Chief Executive Officer, Director	$	60,053 $		96,626
Sheldon Bennett, Chief Operating Officer, Director		57,344		93,132
Adrian Glover, Chief Technology Officer, Director		34,702		-
Midland Management Ltd.1		3,219		17,100
Nick Seto, Director		2,529		2,169
Justin Rasketh, Director		9,679		16,169
Jenya Bennett, related to COO		94,768		32,217
Danny Yang, former Chief Technology Officer,		-		89,694
former Director
Total	$	262,294$		347,107

1Midland Management Ltd. is an entity controlled by Ryan Cheung, the Chief Financial Officer

(b) Related party balances

As at December 31, 2020, $534,084 (September 30, 2020 – $543,309) was owed to key management for outstanding salaries, wages and benefits, and consulting services.

The following table summaries amounts due to related parties:

		December 31, 2020		September 30, 2020
Dan Reitzik, Chief Executive Officer, Director	$	249,729	$	248,827
Sheldon Bennett, Chief Operating Officer,		269,711		291,818
Director
Adrian Glover, Chief Technology Officer,		3,524		1,538
Director
Midland Management Ltd.		3,150		-
Nick Seto, Director		2,300		-
Jenya Bennett, related to COO		5,670		4,127
Total	$	534,084	$	543,309

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DMG Blockchain Solutions Inc.

Management's Discussion and Analysis of Financial Condition and Results of Operations For the Quarter Ended December 31, 2020

Off-Balance Sheet Transactions

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

New accounting pronouncements

There are currently no new accounting pronouncements being considered by the Company.

PROPOSED TRANSACTIONS

On February 12, 2021 the Company filed a preliminary short form base shelf prospectus relating to a proposed issuance of securities, in the aggregate, of up to $100,000,000 in common shares, warrants, subscription receipts, units and debt securities. See Subsequent Event note in the December 31, 2020 consolidated financial statements.

RISKS AND UNCERTAINTIES

Digital Currency and Risk Management

Digital currencies are measured using fair value measurement. The rate is taken from xe.com.

Digital currency prices are affected by various forces including global supply and demand, interest rates, exchange rates, inflation or deflation and the global political and economic conditions. The profitability of the Company is directly related to the current and future market price of coins; in addition, the Company may not be able to liquidate its inventory of digital currency at its desired price if required. A decline in the market prices for coins could negatively impact the Company’s future operations. The Company has not hedged the conversion of any of its coin sales.

Digital currencies have a limited history and the fair value historically has been very volatile. Historical performance of digital currencies is not indicative of their future price performance. The Company’s digital currencies currently consist of Bitcoins.

Negative Operating Cash Flows

The Company is at an early stage of operations, and without the injection of further capital and the development of revenue streams from its business, the Company may continue to have negative operating cash flows until it can realize stable cash flows from operations.

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DMG Blockchain Solutions Inc.

Management's Discussion and Analysis of Financial Condition and Results of Operations For the Quarter Ended December 31, 2020

Reliance on Key Personnel and Advisors

The Company relies heavily on its officers. The loss of their services may have a material adverse effect on the business of the Company. There can be no assurance that one or all of the employees (if any) of, and contractors engaged by, the Company will continue in the employ of, or in a consulting capacity to, the Company or that they will not set up competing businesses or accept positions with competitors. There is no guarantee that certain employees (if any) of, and contractors to, the Company who have access to confidential information will not disclose the confidential information.

Market Risk for Securities

The Company is a reporting issuer whose common shares are listed for trading on a stock exchange. There can be no assurance that an active trading market for the Company’s common shares will be sustained in the future. The market price for the Company’s common shares could be subject to wide fluctuations. Factors such as commodity prices, government regulation, interest rates, share price movements of peer companies and competitors, as well as overall market movements, may have a significant impact on the market price of the Company’s securities. The stock market has from time to time experienced extreme price and volume fluctuations, which have often been unrelated to the operating performance of particular companies. Consequently, you may lose your entire investment.

Uninsured or Uninsurable Risk

The Company may become subject to liability for risks against which the Company cannot insure or against which the Company may elect not to insure due to the high cost of insurance premiums or other factors. The payment of any such liabilities would reduce the funds available for the Company’s usual business activities. Payment of liabilities for which the Company does not carry insurance may have a material adverse effect on the Company’s financial position and operations.

Conflicts of Interest Risk

Certain directors and officers of the Company are also directors and operators in other companies. Situations may arise in connection with potential acquisitions or opportunities where the other interests of these directors and officers’ conflict with or diverge from the Company’s interests. In accordance with the BC Business Corporation Act , directors who have a material interest in any person who is a party to a material contract or a proposed material contract are required, subject to certain exceptions, to disclose that interest and generally abstain from voting on any resolution to approve the contract. In addition, the directors and the officers are required to act honestly and in good faith with a view to the Company’s best interests. However, in conflict of interest situations, the Company’s directors and officers may owe the same duty to another company and will need to balance their competing interests with their duties to the Company.

Circumstances (including with respect to future corporate opportunities) may arise that may be resolved in a manner that is unfavorable to the Company. Consequently, there exists the possibility for such directors to be in a position of conflict. Any decision made by such directors involving the

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DMG Blockchain Solutions Inc.

Management's Discussion and Analysis of Financial Condition and Results of Operations For the Quarter Ended December 31, 2020

Company will be made in accordance with their duties and obligations to deal fairly and in good faith with the Company and such other companies. In addition, such directors will declare, and refrain from voting on any matter in which such directors may have a conflict of interest.

Key Personnel Risk

The Company’s success will depend on its directors and officers to develop its business, manage its operations, and attract any consultants as may be necessary to continue its business. The loss of any key person or the inability to find and retain new key persons could have a material adverse effect on the Company’s business. Competition for qualified officers, directors and other key personnel can be intense and no assurance can be provided that the Company will be able to attract or retain key personnel in the future, which may adversely impact the Company’s operations.

Global Economic Risk

Economic slowdown and downturn of global capital markets would make raising of capital through equity or debt financing more difficult. The Company will be dependent upon capital markets to raise additional financing in the future. The Company is subject to liquidity risks in meeting developmental and future operating cost requirements in instances where cash positions are unable to be maintained or appropriate financing is unavailable. These factors may impact the Company’s ability to raise equity or obtain loans and other credit facilities in the future and on terms favorable to the Company and its management. If uncertain market conditions persist, the Company’s ability to raise capital could be jeopardized resulting in an adverse impact on the Company’s operations and the price of the Company’s common shares.

Dividend Risk

The Company has not paid dividends in the past and does not anticipate paying dividends in the near future. The Company expects to retain its earnings to finance further growth and, when appropriate, retire debt.

Share Price Volatility Risk

In recent years, the securities markets in Canada have experienced a high level of price and volume volatility, and the market prices of securities of many companies, particularly cryptocurrency companies, like the Company, have experienced wide fluctuations that have not necessarily been related to the operating performance, underlying asset values or prospects of such companies. There can be no assurance that these price fluctuations and volatility will not continue to occur.

SUBSEQUENT EVENTS

On January 8, 2021, the Company amended the terms related to 1,350,000 and 75,000 stock options that were to be fully vested on January 31, 2021 and April 30, 2021 respectively, to be fully vested on January 7, 2021.

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DMG Blockchain Solutions Inc.

Management's Discussion and Analysis of Financial Condition and Results of Operations For the Quarter Ended December 31, 2020

On January 8, 2021, the Company closed the sale of 1,240 miners included in assets held for sale at December 31, 2020. The miners were sold for $4,393,749 (US $3,366,600) before sales taxes. At December 31, 2020, $4,625,260 (US$3,534,930) was received as a refundable deposit for this sale and included in deposits received.

During January 2021, the Company issued 2,330,000 common shares related to the exercise of stock options for proceeds of $836,750.

During January 2021, the Company issued a total of 1,419,117 common shares upon the conversion of 1,419,117 shares of DMG-US, Inc. Class B common shares representing the remaining outstanding shares. As a result, the Company obtained 100% ownership of DMG-US Inc.

On February 12, 2021 the Company filed a preliminary short form base shelf prospectus relating to the following securities (collectively referred to as the “Securities”) of the Company in one or more series or issuances, with a total offering price of such securities, in the aggregate, of up to $100,000,000 in common shares, warrants, subscription receipts, units and debt securities. The Securities may be offered separately or together, in amounts, at prices and on terms to be determined based on market conditions at the time of sale.

OTHER INFORMATION

Additional information on the Company is available on SEDAR at www.sedar.com.

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