Taal Distributed Information Technologies : MD&A Q2

TAAL Distributed Information Technologies Inc.

MANAGEMENT'S DISCUSSION & ANALYSIS

For the three and six months ended June 30, 2022

Date of Report: August 11, 2022

The following management's discussion and analysis ("MD&A") for TAAL Distributed Information Technologies Inc. ("TAAL" or the "Company") should be read together with the accompanying unaudited condensed interim consolidated financial statements and the notes thereto for the three and six-month periods ended June 30, 2022 and 2021 (the "Unaudited Financial Statements"), which are prepared in accordance with International Financial Reporting Standards ("IFRS"). All amounts are stated in Canadian dollars unless otherwise indicated.

In this MD&A, unless the context requires otherwise, all references to "we", "us" "our", "TAAL", and the "Company" refer to TAAL Distributed Information Technologies Inc., including its subsidiaries, and all references to "Management" refer to the executive officers of the Company.

Caution Regarding Forward Looking Statements

This MD&A includes certain statements that may be deemed forward-looking statements and information, as defined in applicable securities laws (collectively referred to herein as "forward-lookingstatements") and relate to Management's expectations about the Company's future performance or to future events. Such forward-looking information includes statements that express, or involve discussions as to, expectations, beliefs, plans, objectives, assumptions or future events or performance (often, but not always, through the use of words or phrases such as "anticipates", "believes", "budget", "could", "estimates", "expects", "forecasts", "goals", "intends", "may", "might", "objective", "outlook", "plans", "projects", "schedule", "should", "will" and "would") which are not historical facts. More specifically, forward-looking information in this MD&A includes, but is not limited to, information contained in statements with respect to: the effects of the COVID- 19 pandemic; the development of advanced blockchain transactional systems and the Bitcoin Satoshi Vision ("BSV" or "BitcoinSV") blockchain platform; the relocation of certain of TAAL's Blockchain Computing Units (as defined in Appendix A), the expected timing for delivery and coming online of newly purchased Blockchain Computing Units, TAAL's expectations with respect to the future of Transaction Processing (as defined in Appendix A); and TAAL's strategic vision and related objectives.

The forward-looking statements and information included in this MD&A are based on certain key expectations and assumptions made by the Company and although the Company believes that such expectations and assumptions are reasonable, undue reliance should not be placed on the forward-looking statements and information because the Company can give no assurance that they will prove to be correct. Since forward-looking statements and information address future events and conditions, by their very nature they involve inherent risks and uncertainties. In addition to the various factors and assumptions set forth in this MD&A, the material factors and assumptions used to develop the forward-looking statements include, but are not limited to, assumptions about: the ability of the Company to successfully implement and execute its business plans, including entering into and maintaining successful strategic partnerships; historical and future prices of Digital Assets (as defined in Appendix A); the Company's ability to adequately manage the changing legal and regulatory landscape with respect to Digital Assets and the blockchain industry; the acceptance and widespread adoption of blockchain, specifically the BSV blockchain, and the Company's products and services; and general economic and financial market conditions.

Actual results could differ materially from those currently anticipated due to a number of factors and risks. Factors that could cause actual results to differ materially from those in forward-looking statements include factors discussed in this MD&A, including under the heading "Risks & Uncertainties" in this MD&A, under the headings "Caution Regarding Forward Looking Statements" and "Risk Factors" in the Company's most recent Annual Information Form (the "Annual Information Form") available on SEDAR at www.sedar.com. To the extent any forward-looking statements in this MD&A constitute future-oriented financial information or financial outlook, within the meaning of applicable securities laws, such information is being provided to

TAAL Distributed Information Technologies Inc.

Management's Discussion and Analysis

For the three and six months ended June 30, 2022

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demonstrate the potential of the Company and readers are cautioned that this information may not be appropriate for any other purpose. Unless otherwise noted, any forward-looking statement speaks only as of the date of this MD&A, and, except as required by applicable law, the Company does not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events other than as required by applicable laws. The Company undertakes no obligation to update or revise these forward-looking statements to reflect new information, future events or circumstances other than as required by applicable laws.

Readers are cautioned that any such forward-looking statements are not guarantees of future performance and actual results or developments may differ materially from those projected in the forward-looking statements.

NON-IFRS FINANCIAL MEASURES

This MD&A presents certain measures which do not have a standardized meaning prescribed under generally accepted accounting principles ("GAAP") in accordance with IFRS which may constitute "non-GAAP" financial measures as defined under applicable securities laws. These financial measures are used by management to supplement its analysis and evaluation of operating performance and are intended to assist readers in understanding the Company's performance. However, none of the non-GAAP measures should be construed as an alternative to financial measures calculated in accordance with GAAP. Furthermore, these non-GAAP measures may not be comparable to similar measures presented by other issuers and should not be construed as an alternative to financial measures determined in accordance with IFRS. Non-GAAP measures used in the MD&A include:

• "EBITDA" (Earnings before Interest, Taxes, Depreciation, and Amortization). EBITDA represents net income or loss excluding net finance income or expense, income tax or recovery, depreciation, and amortization; and,
• "Adjusted EBITDA" represents EBITDA adjusted to exclude share-based payments, fair value loss or gain (loss) on re-measurement of Digital Assets, gain (loss) on foreign exchange, and costs associated with one-time transactions.

See "Selected Unaudited Financial Information" for a reconciliation of EBITDA and Adjusted EBITDA to Net Income (Loss).

Defined Terms

See Appendix A for defined terms.

OVERVIEW

TAAL is a vertically integrated Blockchain Infrastructure and technology company. The Company is engaged in the ownership and management of scalable, clean-energy Blockchain Infrastructure upon which we strive to deliver blockchain-as-a-service solutions for Web 3.0 services and applications with global reach, enabling the next era of global data commerce and delivering real world utility.

TAAL's business model is designed to drive revenue through two distinct business units: blockchain operations in which Block Subsidy rewards make up most of the income and, secondly, through service fees generated from customer use of our Blockchain Infrastructure and related added value services. By granting access to the Company's integrated software services platform known as TAAL Console, clients can utilize a variety of proprietary software solutions and licenses that allow them to write, read, perform analytics, and eventually manage storage on the BitcoinSV blockchain network.

TAAL Distributed Information Technologies Inc.

Management's Discussion and Analysis

For the three and six months ended June 30, 2022

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For the Company to deliver on these initiatives, we require a blockchain network that supports limitless scalability and unbounded transactional volume. We believe that the public BSV network is superior to other blockchain networks as it is the fastest public ledger, with the capability to support over 50,000 transactions per second. It is also powered by bitcoin scripting, each transaction can be a smart contract, a cryptographically secure token or a non-fungible token ("NFT"). BitcoinSV technology is also more energy efficient than other blockchain technologies.

Operational Highlights:

• TAAL is able to deploy its blockchain cloud computing power across all three SHA-256 based blockchain networks - Bitcoin Core ("BTC"), BitcoinSV ("BSV"), and Bitcoin Cash ("BCH") - switching chains economically and dynamically to optimize yield. Thus, throughout the quarter, the Company applied part of its computing power on the BCH network to maximize profit. As a result, in Q2 the Company realized Block Rewards in excess of 58,000 coins on the BSV network and 8,400 coins on the BCH network.
• During the quarter TAAL reported that a material portion of the Company's owned and managed Blockchain Computing Equipment, totaling 480 Petahash/second ("PH/s"), is located with a clean- energy, enterprise scale service provider in Siberia, Russia. While these operations continue, subject to continuous risk assessments, throughout the quarter the Company executed network rebalancing initiatives to reduce its dependency on this facility, such as acquiring rented computing power, totaling 100 PH/s to supplement the Company's owned and managed Hashing power.
• For the quarter ended June 30, 2022, the Company's revenue as a result of its Digital Asset Hashing operations was $7.3 million. $2.5 million of this total revenue came from a cloud computing agreement where TAAL manages a third party's Blockchain Computing Units.
• The Company has taken delivery of additional Blockchain Computing Units, which once online will represent approximately 300 PH/s in output. As of June 30, 2022, the Company has paid for these additional units in the amount of $27.4 million. Subsequent to the quarter, in July of 2022, the Company secured hosting capacity for approximately 3,000 Blockchain Computing Units. These machines will be located at a site in Ohio, USA. These units are expected to arrive in North America and come online in early Q4 2022.
• On December 16, 2021, the Company acquired 100% of the outstanding shares of Chief Fuels Inc. which holds land and an industrial building located in New Brunswick, Canada with anticipated access to 50 megawatts of hydro-electric power having the potential to power 1.4 Exahash/second ("EH/s") of Hashing capacity. As at June 30, 2022, the Company had made $7.2 million in deposits to develop power access for the facility. During the second quarter the Company sold the shares of Chief Fuels Inc. to a strategic partner that has committed to developing the facility in preparation of TAAL entering into a long-term hosting agreement with the purchaser. A gain of $27.4 million was recorded in the second quarter for the sale of Chief Fuels Inc. The purchaser has agreed to invest up to US$20 million of capital expenditures to install and commission the heavy plant and infrastructure at the facility and is committed long-term to developing and operating the site as a blockchain cloud computing data center exclusively for TAAL. The deposits made by TAAL prior to the sale will be credited to TAAL during the term of the hosting arrangement.
• The Company sold for US$4 million, Blockchain Computing Units representing less than 100 PH/s of Hashing power to a former hosting provider of the Company during the second quarter. A gain of $3.7 million was recorded upon the sale of the units.
• In addition, subsequent to the quarter, the Company acquired approximately 1,000 Blockchain Computing Units in New Mexico, USA for US$3.8 million that commenced immediate blockchain cloud computing operations under a hosting agreement with the vendor representing 100 PH/s of Hashing power.

TAAL Distributed Information Technologies Inc.

Management's Discussion and Analysis

For the three and six months ended June 30, 2022

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• During the quarter WhatsonChain processed a total of 216 million requests, 161 million API requests and 15.8 million web site visits.
• Subsequent to the end of the quarter the Company paid down US$5 million of long-term debt.

Financial Highlights:

Three months ended June 30, 2022

• Gross revenue for the quarter was $7,253,924, up from $6,659,117 over the comparable quarter of the prior year which represents an increase of $594,807. The increase was due to Block Reward revenue generated from a significant ramp up of blockchain cloud computing operations in the latter half of 2021, with Company-owned machines being brought online and the addition of the third-party contracted Hashing power largely offset by lower prices for Digital Assets.
• Cost of revenue during the quarter was $7,072,121, up from $2,694,240 over the comparable quarter of the prior year which represents an increase of $4,377,881. The increase was due to more Blockchain Computing Units in operation at third-party hosting facilities and depreciation on the additional machines.
• The revaluation of Digital Assets resulted in an unrealized loss of $2,306,220 compared to $8,822,049 in the comparable period in the prior year, and a realized loss of $260,890 on the sale of Digital Assets compared to $138,177 in the second quarter of the prior year, due to the weaker performance of the Digital Asset market, resulting in a loss before operating expenses of $2,385,307 compared with a loss of $4,995,349 income in the comparable period of the prior year.
• Operating costs totaled $12,190,291 compared to $5,146,695 in the prior year. A significant portion of the $7,043,596 increase in costs is due to the increase of $5,490,360 in non-cashstock-based compensation expense which was primarily related to acquisition costs. Other increases included management fees, salaries and wages, professional fees, travel and entertainment, marketing and investor relations and a loss on foreign exchange compared to the prior year. The increase in costs was largely a result of the expansion in operations including the hiring of additional management and staff, primarily in Zug, Switzerland which hosts multiple skilled and technical professionals.
• During the quarter the Company sold Blockchain Computing Units operating in Alberta comprising of approximately 77 PH/s of Hashing capacity for US$4 million. The resulting gain on the disposal of the equipment was $3.7 million. Due to a lack of alternate hosting capacity and site-specific enhancements made to the equipment it was decided that the best option was to sell the equipment to the hosting provider.
• During the quarter the Company sold the shares of Chief Fuels Inc. ("Chief") to a strategic partner that has committed to developing the facility in preparation of TAAL entering into a long-term hosting agreement with the purchaser. A gain of $27.4 million was recorded for the sale of the subsidiary. As a result of the sale, the vesting of the Company shares paid in exchange for the initial acquisition of the shares of Chief was accelerated. This entailed recording a charge of $6.6 million in share-based payments expense for the quarter.
• Net income for the quarter was $16,271,541, compared with a net loss of $10,141,208 over the comparable quarter of the prior year which represents an increase in income of $26,412,749 due largely to gains on asset sales offset by value adjustments, operating costs for management fees, salaries and wages and share-based payments.

TAAL Distributed Information Technologies Inc.

Management's Discussion and Analysis

For the three and six months ended June 30, 2022

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• Adjusted EBITDA for the three months ended June 30, 2022 was a loss of $4.2 million compared to earnings of $0.6 million for the same period in the prior year.

Six months ended June 30, 2022

• Gross revenue for the six months was $15,966,425, up from $7,623,105 over the prior year which represents an increase of $8,343,320. The increase was due to revenue generated from a significant ramp up of blockchain cloud computing operations in the latter half of 2021, with Company-owned machines being brought online and the addition of the third-party contracted Hashing power.
• Cost of revenue for the six months was $12,020,001, up from $3,317,950 over the prior year which represents an increase of $8,702,051. The increase was due to more machines in operation at third-party hosting facilities and depreciation on the additional machines.
• The revaluation of Digital Assets resulted in an unrealized loss of $2,299,460 compared to $5,895,610 in the prior year, and a realized loss of $3,279,767 on the sale of Digital Assets compared to a gain of $1,845,492 in the prior year, due to the weaker performance of the Digital Asset market, resulting in a loss before operating expenses of $1,632,803 compared with $255,037 of income in the prior year.
• Operating costs totaled $25,377,085 compared to $10,250,956 in the prior year. A significant portion of the increase of $15,126,129 in operating costs is attributable to non-cash, share based payment expense of $12,664,963 for certain executive board members and for the purchase of Chief. Other increases include management fees, salaries and wages compared to the prior year. The increase in costs was largely a result of the expansion in operations including the hiring of additional management and staff, as well as in connection with the office in Zug, Switzerland, partially offset by a reduction in the loss on foreign exchange compared to the previous year.
• Net income year-to-date is $3,595,178, compared with a net loss of $7,500,201 over the prior year which represents an increase in income of $11,095,379 due largely to the gains on asset sales partially offset value adjustments, operating costs for management fees, salaries and wages and share-based payments.
• Adjusted EBITDA for the six months ended June 30, 2022 was a loss of $5.1 million compared to a loss of $2.9 million for the same period in the prior year.
• Cash outflows used in operations were $4,651,875 for the six months compared with $1,306,562 in the comparable period of the prior year due to the increase in the loss from operations. Net cash inflows from investing activities were $8,780,810 largely due to the proceeds received on the sale of equipment and a subsidiary which was partially offset by instalment payments made for Blockchain Computing Units to be delivered in the second half of 2022, compared with a use of $10,407,145 in the comparable period of the prior year primarily due to deposits on hashing equipment and the purchase of equipment and leasehold improvements.
• Net cash outflows used in financing activities were $177,601 for the period due to payment of lease obligations. In the prior year cash flows from financing activities was $15,802,858 due to the net proceeds received from the common share issue and options exercise.