CALETHOS, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

The following discussion should be read in conjunction with our financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the financial statements and related notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2021.

This discussion contains certain forward-looking statements that involve risks
and uncertainties. Our actual results and the timing of certain events could
differ materially from those discussed in these forward-looking statements as a
result of certain factors, including, but not limited to, those set forth herein
and elsewhere in this Quarterly Report and in our other filings with the
Securities and Exchange Commission. See "Cautionary Note Regarding Forward
Looking Statements."

Plan of Operations

As of the filing of this Report, it is our plan to continue our focus on
building a large-scale, clean-energy powered, containerized, immersion-cooled
data center operation that will provide wholesale colocation services to
high-density computing, enterprise customers. While it was originally part of
our strategy to build such a facility for our own utilization with the bitcoin
mining systems that we planned to manufacture and use for our own bitcoin mining
operations, going forward, our operating plan is to focus only on developing and
building clean-energy powered, containerized, immersion-cooled data centers for
enterprise customers. To this end, we are currently negotiating the acquisition
of up to 1,000 acres of land in Southern California on which we plan to
initially build a 100-megawatt (MW) clean-energy powered, containerized,
immersion-cooled data center. Our strategy is to have the data center operations
powered by a direct off-grid connection to 100% clean-energy sources and a
substation for connectivity to the local utility's electrical grid for back-up
and to use for transmitting any excess electricity to other potential
clean-energy customers.

Once our negotiations for land and power purchase agreements are completed, we
intend to complete a land use plan and environmental impact report that will be
submitted to authorities for approval and for permits to start construction. We
expect, based on all related factors, that a submittable plan, which will
include civil engineering, data center and infrastructure design, a construction
schedule, and preliminary environmental reports, will take approximately six
months to complete. Once submitted to the appropriate governmental departments
and agencies for approval, it is expected that it could take another 12 months
or more before we receive the required permits for construction, and that the
construction could take another 6 months or more to complete depending on supply
chain issues at the time for data center, electrical and communication
connectivity components of the data center build.

As we move through the development process to build a clean-energy powered, containerized, immersion-cooled data center, we will continue to refine and finalize the courses of action needed to implement our business plan and operations. As a result, management has not fully determined our actual short-term or long-term capital requirements, which management expects to be substantial.

It is anticipated that we will incur significant expenses in the implementation
of our business plan as described herein, and that we will require substantial
financing to complete the development of a submittable land use plan and the
construction of the planned data center operations. A failure to obtain this
necessary capital when required on acceptable terms, or at all, could force us
to delay, limit, reduce or terminate our development plans, any
commercialization efforts and any other operations. We may not be able to secure
financing on favorable terms, or at all, to meet our future capital needs. In
addition, even if we are able to obtain sufficient funding to commence our
business operations, we may need to pursue additional financing in the future to
make expenditures and/or investments to support the growth of our business. In
addition, we may require additional capital to pursue our business objectives
and respond to new competitive pressures, pay extraordinary expenses or fund our
growth, including through acquisitions. Additional funding, however, may not be
available when required on terms that are acceptable to us, or at all. If we are
unable to obtain adequate financing or financing on terms satisfactory to us
when it is required, our ability to commence and grow our proposed business
operations, to support our business and to respond to business challenges could
be significantly limited.

We currently have only limited capital with which to pay these anticipated expenses. To fund our business plan going forward, we intend to raise funds from investors by issuing common stock, preferred stock and/or debt securities.

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Results of Operations

The table summarizes the results of operations for the three and six months
ended June 30:

                                     For the Three Months Ended          For the Six Months Ended
                                              June 30,                           June 30,
                                        2022               2021             2022             2021

Revenues                           $             -      $        -     $            -     $        -
Operating expenses
Professional fees                          177,000          72,000            422,000        131,000
Stock based compensation                 3,206,000         561,000          6,376,000        575,000
General and administrative
expenses                                    31,000           3,000             35,000          5,000
Impairment loss                            154,000               -            154,000              -
Total operating expenses                 3,568,000         636,000          6,987,000        711,000
Loss from operations                    (3,568,000 )      (636,000 )      (6, 987,000 )     (711,000 )

Other expenses
Financing costs                           (606,000 )       (22,000 )       (1,113,000 )      (39,000 )
Total other expenses                      (606,000 )       (22,000 )       (1,113,000 )      (39,000 )

Loss before provision for income
taxes                                   (4,174,000 )      (658,000 )       (8,100,000 )     (750,000 )
Provision for income taxes                       -               -                  -              -
Net loss                           $    (4,174,000 )    $ (658,000 )   $   (8,100,000 )   $ (750,000 )



Revenues

The Company had no revenues for the six months ended June 30, 2022 and 2021.

Expenses

Operating expenses for the six months ended June 30, 2022 were $6,987,000compared to $711,000 for the six months ended June 30, 2021. The increase of
$6,276,000 or 883% pertains primarily to (1) the accretion of stock-based compensation related to the restricted stock awards issued by two consultants totaling to $6,376,000 in relation to their services (2) and accretion of
$90,000 for settling a legal case.

Liquidity and Capital Resources

The Company's financial position as of June 30, 2022 and December 31, 2021 were
as follows:

Working Deficit

                        June 30,        December 31,
                          2022              2021
                      (Unaudited)
Current assets        $  2,404,000     $    3,054,000
Current liabilities      4,669,000          3,632,000
Working deficit       $ (2,265,000 )   $     (578,000 )



At June 30, 2022, the Company had cash of approximately $2,401,000 and prepaid
expenses of approximately $3,000. Working deficit increased by approximately
$1,687,000 from December 31, 2021 to June 30, 2022.

Cash Flows

                                                        For the Six Months Ended
                                                                June 30,
                                                           2022             2021
Net cash used in operating activities                 $     (513,000 )   $ (143,000 )
Net cash used in investing activities                       (107,000 )     

Net cash provided by (used in) financing activities (25,000 ) 151,000 Effect of exchange rate changes

                               (1,000 )      

Increase (decrease) in Cash during the Period               (646,000 )     
  8,000
Cash, Beginning of Period                                  3,047,000              -
Cash, End of Period                                   $    2,401,000     $    8,000



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Cash flows used in operating activities

Net cash used in operating activities increased by $370,000 or 259% during the
six months ended June 30, 2022 as compared to the six months ended June 30, 2021
due to (1) stock based compensation expense, (2) amortization of convertible
promissory note discounts and, (3) impairment loss.


Cash flows used in investing activity

Net cash used in investing activity increased by $107,000 or 100% during the six
months ended June 30, 2022 as compared to the six months ended June 30, 2021 due
to payments for design and development work for the Company's ASIC chip which
was discontinued subsequent to June 30, 2022.

Cash flows used in financing activities

The Company had net cash used in financing activities during the six months
ended June 30, 2022 due to $25,000 repayment of notes payable. Conversely, it
had net cash provided by financing activities during the six months ended June
30, 2021 mainly due to proceeds from convertible promissory notes and notes
payable amounting to $50,000 and $99,000, respectively.

Capital Requirements

The Company estimates that it will require up to $2 million of its current cash
for expenses and operating costs to complete the development of a comprehensive
plan for its planned clean-energy powered, containerized, immersion-cooled data
center operation. Once the plans are approved for construction by the requisite
authorities, the Company estimates the initial phase of its planned data center
operation will cost approximately $52 million to build.

Past the plan development phase, the Company will need to raise capital in order
to build its planned operations and achieve its growth targets, which the
company plans to raise from investors by issuing common stock, preferred stock
and/or debt securities. However, there can be no assurance that such financings
will be available in sufficient amounts and on acceptable terms when it's
needed. The precise amount and timing of the funding needs cannot be determined
accurately at this time, and will depend on a number of factors, including but
not limited to the condition of the capital market, investor interest in our
business plan, demand for the Company's services by enterprise customers, the
timing of approvals from authorities to start construction, the management of
working capital, and reasonable payment terms and conditions for purchase of
goods and services we will need to build our data center operation.

Critical Accounting Policies

The preparation of condensed consolidated financial statements in conformity
with United States generally accepted accounting principles requires management
to make estimates and assumptions that affect the amounts reported in the
condensed consolidated financial statements and accompanying disclosures of our
company. Although these estimates are based on management's knowledge of current
events and actions that our company may undertake in the future, actual results
may differ from such estimates.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiary from the formation date. All material intercompany
transactions and balances have been eliminated in consolidation.

Foreign Currency Translation

The financial statements of our foreign subsidiary, for which the functional
currency is the local currency, are translated into U.S. dollars using the
exchange rate at the consolidated balance sheet date for assets and liabilities
and a weighted-average exchange rate during the year for revenue, expenses,
gains and losses. Translation adjustments are recorded as other comprehensive
income (loss) within shareholders' equity (deficit). Gains or losses from
foreign currency transactions are recognized in the consolidated statements
of
operations.

Debt and Debt Discounts
In accordance with ASC 470-20, Debt with Conversion and Other Options, the
Company first allocates the cash proceeds of the notes between the notes and the
warrants on a relative fair value basis, secondly, proceeds are then allocated
to the conversion feature.

The Company accounts for debt discounts originating in connection with
conversion features that remain embedded in the related notes in accordance with
ASC 470-20. These costs are classified on the consolidated balance sheet as a
direct deduction from the debt liability. The Company amortizes these costs over
the term of its debt agreements as financing cost in the consolidated statement
of operations.

Stock-Based Compensation
We account for our stock-based compensation under ASC 718, "Compensation - Stock
Compensation" using the fair value based method. Under this method, compensation
cost is measured at the grant date based on the value of the award and is
recognized over the service period, which is usually the vesting period. This
guidance establishes standards for the accounting for transactions in which an
entity exchanges it equity instruments for goods or services. It also addresses
transactions in which an entity incurs liabilities in exchange for goods or
services that are based on the fair value of the entity's equity instruments or
that may be settled by the issuance of those equity instruments.

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We use the fair value method for equity instruments granted to non-employees and
use the BSM model for measuring the fair value of options. The stock based fair
value compensation is determined as of the date of the grant (measurement date)
and is recognized over the vesting periods.

Recent Accounting Pronouncements

The Company's management reviewed all recently issued accounting standard
updates ("ASU's") not yet adopted by the Company and does not believe the future
adoptions of any such ASU's may be expected to cause a material impact on the
Company's condensed consolidated financial condition or the results of its
operations.

Off-Balance Sheet Arrangements

As of June 30, 2022we did not have any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation SK.

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