Edgemode, Inc.: Form 10-Q for the period ended Sep 30, 2023

The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements, and the notes thereto, and other financial information appearing elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. The following discussion and analysis compares our consolidated results of operations for the three months ended September 30, 2022 (the “2022 Quarter”) with those for the three months ended September 30, 2023 (the “2023 Quarter”). Additionally, the nine months ending September 30, 2023 and the nine months ending September 30, 2022 are referred to as the “2023 Period” and “2022 Period” respectively.

Cautionary Note Regarding Forward-Looking Statements

This report contains “forward-looking statements”. These statements include, among other things, statements regarding expanding our business and our liquidity as well as other statements regarding our future operations, financial condition and prospects, and business strategies. Forward-looking statements generally can be identified by words such as "anticipates," "believes," "estimates," "expects," "intends," "plans," "predicts," "projects," "will be," "will continue," "will likely result," and similar expressions. These forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties, which could cause our actual results to differ materially and adversely from those reflected in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, our ability to raise capital to buy crypto mining machines we have commitments to purchase, regulatory issues which affect our business model, and those discussed under the caption "Risk Factors" in our Form 10-K for the year ended December 31, 2022 and those discussed in other documents we file with the SEC. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

Business Overview

We are an early-stage cryptocurrency mining company. We have entered into agreements with third party hosting firms and Bitcoin mining facilities for the sole purpose of mining Bitcoin. We require financing to operate the mining of Bitcoin. We ceased Ethereum mining operations in September 2022 when Ethereum switched its consensus protocol to proof of stake. Our mining platform will be operating with the primary intent of accumulating Bitcoin.

We require significant financing to commence Bitcoin mining. During late 2022 and early 2023 we have focused on securing a debt facility. We cannot provide any assurances we will receive any capital under a debt facility. Any debt financing will be used to finance the purchase of BTC mining hardware and hosting contracts which, subject to financing. We have suspended our operations subject to receiving additional funding. There are no assurances we will receive adequate financing. Our management has also begun exploring possible opportunities for the Company involving mergers, acquisitions or other business combination transactions in an effort to diversify our business. We are not currently a party to any agreement or understandings with any third parties, and there are no assurances even if our management locates an opportunity which it believes will be in the best interests of our shareholders that we will ever consummate such a transaction. Accordingly, investors should not place undue reliance on these efforts.

Critical Accounting Policies and Estimates

We discuss the material accounting policies that are critical in making the estimates and judgments in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, under the caption “Management’s Discussion and Analysis—Critical Accounting Policies and Estimates”. There has been no material change in critical accounting policies or estimates during the period covered by this report.

Recent Accounting Pronouncements

For information on recent accounting pronouncements and impacts, see Note 1 to the unaudited condensed consolidated financial statements.

Three Months Ended September 30, 2023 Compared to the Three Months Ended September 30, 2022

Results of operations

We had no revenues for the 2023 Quarter compared to $1,805 for the 2022 Quarter. The reason for the decrease was that we ceased Ethereum mining operations in September 2022 when Ethereum switched its consensus protocol to proof of stake.

We had no cost of revenues for the 2023 Quarter compared to $6,204 for the 2022 Quarter. The reason for the decrease was that we ceased Ethereum mining operations in September 2022 when Ethereum switched its consensus protocol to proof of stake.

Our operating expenses for the 2023 Quarter was $647,078 compared to $1,191,003, for the 2022 Quarter, a decrease of 46%. In the 2023 Quarter, the Company incurred stock-based compensation expense of $0 compared to $318,000 for the 2022 Quarter. The stock based compensation for the 2022 Quarter was related to the issuance of 4,000,000 share of common stock for services.

Our other expense for the 2023 Quarter was $20,323 compared to other income of $13,187 for the 2022 Quarter.

Nine Months Ended September 30, 2023 Compared to the Nine Months Ended September 30, 2022

Results of operations

We had no revenues for the 2023 period compared to $438,042 for the 2022 Period. The reason for the decrease was that we ceased Ethereum mining operations in September 2022 when Ethereum switched its consensus protocol to proof of stake.

We had no cost of revenues for the 2023 Period compared to $812,882 for the 2022 Period. The reason for the decrease was that we ceased Ethereum mining operations in September 2022 when Ethereum switched its consensus protocol to proof of stake.

Our operating expenses for the 2023 Period was $2,777,448 compared to $28,185,888, for the 2022 Period, a decrease of 90%. In the 2023 period, the Company incurred stock-based compensation expense of $1,236,487 compared to $24,582,181 for the 2022 Period. The stock based compensation for the 2023 Period related to the difference in fair value on the amendment to outstanding options while the 2022 Period was related to vesting of the fair value of stock options and the issuance of 4,000,000 shares.

Our other income for the 2023 Period was $394,676 compared to other expense of $66,640 for the 2022 Period. In the 2023 period we received $500,000 related to a refund on an equipment purchase order that was impaired during a previous period.

Subject to receiving funding, we expect that our operating expenses will increase as we attempt to develop our new mining operations and we devote additional resources toward new business opportunities. However, as set forth elsewhere in this report, our ability to develop our business and achieve our operational goals is dependent upon our ability to raise significant additional working capital. As the availability of this capital is unlikely and we are unable to quantify at this time the expected increases in operating expenses in future periods.

Liquidity and Capital Resources

As of September 30, 2023 and November 08, 2023, the Company had approximately $7,600 and $350 of cash, respectively. Our liquidity was primarily derived from debt and equity investments from accredited investors and also from selling the crypto that we mined through September 2022. To recommence our operations and fund operations for the next 12 months, the Company is seeking to raise $75 million in debt facility. We currently have no available sources for capital and we can provide no assurances that any debt financings will be available in the future.

We have suspended our operations. If we fail to close on a debt facility or raise sufficient additional funds from other sources, we will be required to abandon our plan of operations.

As of November 08, 2023, we have a total of $1,616,690 of debt outstanding that is due within 12 months. See “Subsequent Events” below.

The Company has terminated the agreements for approximately $1.6 million of debt for equipment that the Company was using for mining and returned the equipment to the vendor to settle the outstanding liabilities. The Company is making no further payments against the potential balance. No confirmation has been received from 2CRSI and as such the balance remains outstanding on the Company’s balance sheet in the accompanying financial statements

Subsequent Events

As disclosed above under Note 10 to the financial statements included in this report, on October 20, 2023 the Company received notice from the holder of the April Promissory Note, Convertible Note and August Promissory Note (collectively, the “1800 Notes”) that such notes were in default. The holder has made demand for the immediate payment of the 1800 Notes of a sum representing 150% of the remaining outstanding principal balances of the 1800 Notes in the aggregate of $250,008.99, together with accrued interest and default interest as provided for in the 1800 Notes. We do not have the ability to satisfy any of the amounts due under the 1800 Notes.

Summary of cash flows

During the 2023 Period and 2022 Period, our sources and uses of cash were as follows:

Operating Activities

During the 2023 Period, cash provided by operating activities of $51,683 primarily resulted from the refund of prepaid hosting services, offset by the net loss of $2,382,772 and stock-based compensation of $1,236,487.

During the 2022 Period, cash used in operating activities of $2,060,941 primarily resulted from its net loss of $28,627,368, offset by stock-based compensation of $24,582,181 and loss on cryptocurrency transactions of $186,716.

Investing Activities

Cash provided by investing activities in the 2023 Period of $31,999 resulted from the sale of cryptocurrency assets.

Cash provided by investing activities in the 2022 Period of $942,534 resulted from the $743,513 cash acquired from the reverse merger acquisition and the proceeds of $509,997 from sale of cryptocurrency assets and proceeds of $60,000 from the sale of equipment, offset by the purchase of equipment of $370,976.

Financing Activities

In the 2023 Period, cash used in financing activities of $76,109 consisted of the repayment of Series B preferred shares of $270,549 and payments on convertible notes of $41,560, offset by proceeds from convertible notes payable of $220,000 and proceeds from related party advances of $16,000.

In the 2022 Period, cash provided by financing activities of $1,097,963 consisted of $724,865 in net proceeds from the issuance of common shares, $201,250 in net proceeds from the sale of Series B preferred shares and $380,000 in proceeds from the issuance of notes payable, offset by payments on equipment notes payable of $208,152.

Evaluation of Disclosure Controls and Procedures. We are required to maintain “disclosure controls and procedures” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”). Based on their evaluation as of the end of the period covered by this report, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures were not effective to ensure that the information relating to our company, required to be disclosed in our Securities and Exchange Commission (“SEC”) reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure as a result of material weaknesses in our internal control over financial reporting result from limited segregation of duties and limited multiple levels of review in the financial close process, along with a lack of well-established policies and procedures to identify, approve, and report related party transactions.

We will continue to monitor our internal control over financial reporting on an ongoing basis and are committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow. We do not, however, expect that the material weaknesses in our disclosure controls will be remediated until such time as we have added additional personnel, including additional accounting and administrative staff, allowing improved internal control over financial reporting.

Changes in Internal Control Over Financial Reporting. There were no changes in our internal control over financial reporting as defined in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

While we attempt to identify, manage, and mitigate risks and uncertainties associated with our business to the extent practical under the circumstances, some level of risk and uncertainty will always be present. Our “Risk Factors” in the Form 10-K for the fiscal year ended December 31, 2022 describes some of the risks and uncertainties associated with our business, which we strongly encourage you to review. These risks and uncertainties have the potential to materially affect our business, financial condition, results of operations, cash flows, projected results, and future prospects. There have been no material changes in our risk factors from those disclosed in the Form 10-K for the fiscal year ended December 31, 2022.