Quarterly Report for Quarter Ending June 30, 2025 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward Looking Statements

The statements contained in the following MD&A and elsewhere throughout this Quarterly Report on Form 10-Q, including any documents incorporated by reference, that are not historical facts, including statements about our beliefs and expectations, are "forward-looking statements" within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements preceded by, followed by or that include the words "may," "could," "would," "should," "believe," "expect," "anticipate," "plan," "estimate," "target," "project," "intend" and similar words or expressions. In addition, any statements that refer to expectations, projections, or other characterizations of future events or circumstances are forward-looking statements.

These forward-looking statements, which reflect our management's beliefs, objectives, and expectations as of the date hereof, are based on the best judgement of our management. All forward-looking statements speak only as of the date on which they are made. Such forward-looking statements are subject to certain risks, uncertainties and assumptions relating to factors that could cause actual results to differ materially from those anticipated in such statements, including, without limitation, the following: economic, social and political conditions, global economic downturns resulting from extraordinary events such as the COVID-19 pandemic and other securities industry risks; interest rate risks; liquidity risks; credit risk with clients and counterparties; risk of liability for errors in clearing functions; systemic risk; systems failures, delays and capacity constraints; network security risks; competition; reliance on external service providers; new laws and regulations affecting our business; net capital requirements; extensive regulation, regulatory uncertainties and legal matters; failure to maintain relationships with employees, customers, business partners or governmental entities; the inability to achieve synergies or to implement integration plans and other consequences associated with risks and uncertainties detailed in our filings with the SEC, including our most recent filings on Forms 10-K and 10-Q.

We caution that the foregoing list of factors is not exclusive, and new factors may emerge, or changes to the foregoing factors may occur, that could impact our business. We undertake no obligation to publicly update or revise these statements, whether as a result of new information, future events or otherwise, except to the extent required by the federal securities laws.

This discussion should be read in conjunction with our financial statements on our 2024 Form 10-K, and our financial statements and the notes thereto contained elsewhere in this Quarterly Report on Form 10-Q.

Introduction to Interim Consolidated Financial Statements.

The interim consolidated financial statements included herein have been prepared by BluSky AI Inc. ("BluSky AI" or the "Company") without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the "Commission"). Certain information and footnote disclosure normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP") have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. These interim consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in this filing.

In the opinion of management, all adjustments have been made consisting of normal recurring adjustments and consolidating entries, necessary to present fairly the consolidated financial position of the Company and subsidiaries as of June 30, 2025, the results of its consolidated statements of operations and comprehensive loss for the three and six month periods ended June 30, 2025 and 2024, and its consolidated cash flows for the six-month periods ended June 30, 2025 and 2024. The results of consolidated operations for the interim periods are not necessarily indicative of the results for the full year.

The preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.

3

Overview and Plan of Operation

Overview

BluSky AI Inc., is a pioneering company in AI-driven data center solutions, combining innovation with regulatory compliance and sustainability. The Company is a modular data center provider focused on high-performance computing infrastructure, strategic site selection, and operational risk management and specializing in artificial intelligence (AI) and as a Neocloud Provider. The company is dedicated to delivering state-of-the-art infrastructure and solutions tailored to meet the demands of modern AI applications and computational workloads. The Company operates with a focus on innovation, scalability, and environmental sustainability.

Previously known as Inception Mining Inc., the company underwent a significant transformation and rebranding in March 2025 to align with its new strategic direction. This change reflects BluSky AI Inc.'s commitment to advancing technology and providing unparalleled services in the data center industry. The Company is headquartered in Salt Lake City, Utah, BluSky AI Inc.

Historically, we have operated within the mining industry, serving as a consultant to mining companies and as an operator of a mine engaged in the production of precious metals. On January 12, 2023, the Company entered into an agreement through which the Company divested its ownership interest in the Clavo Rico mine, resulting in the transfer of operations to Mother Lode Mining and full control of the Clavo Rico mine asset.

Current Operations

BluSky AI Operations

Since March 1, 2025, the Company has focused its operations on artificial intelligence compute infrastructure and participating in the dynamic and expanding AI industry. The Company has plans to grow its AI operations organically within the Company. BluSky AI was established by drawing on extensive industry expertise, insights from outside experts, and a careful evaluation of current conditions in the data center markets. The innovative concept is built around a modular design that leverages existing power infrastructure. BluSky AI plans to develop multiple data center sites across various U.S. jurisdictions, with artificial intelligence (AI) focus, specifically targeting facilities with the ability to develop power capacity or utilize existing power capacities. This strategy enables a faster time to market, scalable deployment, and a cost-effective approach that meets the evolving needs of the data center market.

BluSky AI is revolutionizing the artificial intelligence compute landscape by addressing the immediate global supply shortage with a cutting-edge, turnkey solution. Our strategy centers on rapidly deployable, plug-and-play, modular compute centers on powered land assets-sites that already possess permitted energy infrastructure. This approach not only accelerates time to market but also itends to positions BluSky AI as a premier AI compute infrastructure provider dedicated to meeting the surging demand for advanced AI services.

4

Results of Operations

Three months ended June 30, 2025 compared to the three months ended June 30, 2024

We had a net loss of $1,556,920 for the three-month period ended June 30, 2025, and a net loss of $502,529 for the three-month period ended June 30, 2024. This change in our results over the two periods is primarily the result of an increase in consulting expense, the change in the derivative liabilities, the increase in the loss on extinguishment of debt and offset by a decrease in interest expense. The following table summarizes key items of comparison and their related increase (decrease) for the three-month periods ended June 30, 2025 and 2024:

		Three Months Ended								Increase/
		June 30, 2025				June 30, 2024				(Decrease)
General and Administrative		$	1,541,189			$	136,438			$	1,404,751
Depreciation and Amortization Expenses			-				181				(181	)
Total Operating Expenses			1,541,189				136,619				1,404,570
Loss from Operations			(1,541,189	)			(136,619	)			(1,404,570	)
Change in Derivative Liabilities			-				65,294				65,294
Initial Derivative Expense			-				(136,466	)			136,466
Interest Expense			(15,731	)			(294,738	)			279,007
Loss from Operations Before Taxes			(1,556,920	)			(502,529	)			(1,054,391	)
Provision for Income Taxes			-				-				-
Net Loss		$	(1,556,920	)		$	(502,529	)		$	(1,054,391	)

General and administrative expenses increased for the three-month period ended June 30, 2025 because of an increase in consulting, legal and investor relations expenses, compared to the three-month period ended June 30, 2024.

Changes in derivative liabilities was due to the elimination of the derivative liabilities in the current year that was reported under the gain on extinguishment of debt in the first three months of the 2025 fiscal year.

Interest expense decreased for the three-month period ended June 30, 2025 because the interest expense related to settled notes was lower and the decrease of amortization of existing debt discounts.

Six months ended June 30, 2025 compared to the Six months ended June 30, 2024

We had net loss of $1,381,531 for the six-month period ended June 30, 2025, and a net loss of $759,509 for the six-month period ended June 30, 2024. This change in our results over the two periods is primarily the result of an increase in consulting expense and the elimination of derivative liabilities during the current period. The following table summarizes key items of comparison and their related increase (decrease) for the three-month periods ended June 30, 2025 and 2024:

		Six Months Ended								Increase/
		June 30, 2025				June 30, 2024				(Decrease)
General and Administrative		$	1,687,294			$	260,175			$	1,427,119
Depreciation and Amortization Expenses			-				362				(362	)
Total Operating Expenses			1,687,294				260,537				1,426,757
Loss from Operations			(1,687,294	)			(260,537	)			(1,426,757	)
Other Income (expense)			96				-				96
Change in Derivative Liabilities			-				49,036				49,036
Initial Derivative Expense			-				(193,582	)			193,582
Gain on Extinguishment of Debt			338,673				-				338,673
Interest Expense			(33,006	)			(354,426	)			321,420
Loss from Operations Before Taxes			(1,381,531	)			(759,509	)			(622,022	)
Provision for Income Taxes			-				-				-
Net Loss		$	(1,381,531	)		$	(759,509	)		$	(622,022	)

General and administrative expenses increased for the six-month period ended June 30, 2025 because of higher consulting and investor relations expenses, compared to the six-month period ended June 30, 2024.

Changes in derivative liabilities was because of the elimination of the derivative liabilities in the current year that was reported under the gain on extinguishment of debt.

Interest expense decreased in 2025 because of the interest expense related to settled notes was lower and the decrease of amortization of existing debt discounts.

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Liquidity and Capital Resources

Our balance sheet as of June 30, 2025 reflects assets of $32,802. We had cash in the amount of $889 and working capital deficit in the amount of $3,385,281 as of June 30, 2025. Thus, we do not have sufficient working capital to enable us to carry out our stated plan of operation for the next twelve months.

Working Capital

		June 30, 2025				December 31, 2024
Current assets		$	32,271			$	-
Current liabilities			3,417,552				3,346,850
Working capital deficit		$	(3,385,281	)		$	(3,346,850	)

We anticipate generating losses and, therefore, may be unable to continue operations in the future, if we don't acquire additional capital and issue debt or equity or enter into a strategic arrangement with a third party.

Going Concern Consideration

As reflected in the accompanying unaudited condensed consolidated financial statements, the Company and has an accumulated deficit of $31,244,895. In addition, there is a working capital deficit of $3,385,281 as of June 30, 2025. This raises substantial doubt about its ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company's ability to raise additional capital and implement its business plan. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

		Six Months Ended
		June 30, 2025				June 30, 2024
Net Cash Used in Operating Activities		$	(101,017	)		$	(59,141	)
Net Cash Provided by (Used in) Investing Activities			-				-
Net Cash Provided by Financing Activities			101,906				59,141
Net Increase (Decrease) in Cash		$	889			$	-

Operating Activities

Net cash flow used in operating activities during the six months ended June 30, 2025 was $101,017, an increase of $41,876 from the $59,141 net cash used during the six months ended June 30, 2024. This increase in the cash used in operating activities was primarily due to the increase in net loss for 2025 that used more cash from operations for the period.

Investing Activities

Investing activities during the six months ended June 30, 2025 provided $0, a decrease of $0 from the $0 provided by investing activities during the six months ended June 30, 2024.

Financing Activities

Financing activities during the six months ended June 30, 2025 provided cash of $101,906, an increase of $42,765 from the $59,141 provided by financing activities during the six months ended June 30, 2024. During the six months ended June 30, 2025, the Company received $110,406 in proceeds from notes payable - related parties. The Company made $8,500 in payments on notes payable - related parties.

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Critical Accounting Policies

Our financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles used in the United States. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management's application of accounting policies. We believe that understanding the basis and nature of the estimates and assumptions involved with the following aspects of our financial statements is critical to an understanding of our financials.

Costs of acquiring mining properties and any exploration and development costs are expensed as incurred unless proven and probable reserves exist, and the property is a commercially mineable property. Mine development costs incurred either to develop new gold and silver deposits, expand the capacity of operating mines, or to develop mine areas substantially in advance of current production are capitalized. Costs incurred to maintain current production or to maintain assets on a standby basis are charged to operations. Costs of abandoned projects are charged to operations upon abandonment. The Company evaluates, at least quarterly, the carrying value of capitalized mining costs and related property, plant and equipment costs, if any, to determine if these costs are in excess of their net realizable value and if a permanent impairment needs to be recorded. The periodic evaluation of carrying value of capitalized costs and any related property, plant and equipment costs are based upon expected future cash flows and/or estimated salvage value.

The Company capitalizes costs for mining properties by individual property and defers such costs for later amortization only if the prospects for economic productions are reasonably certain. Capitalized costs are expensed in the period when the determination has been made that economic production does not appear reasonably certain.

Recent Accounting Pronouncements

For recent accounting pronouncements, please refer to the notes to financial statements in Part I, Item 1 of this Quarterly Report.

Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company's financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.