Edgemode, Inc.: Form 10-Q for the period ended Mar 31, 2024

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, 2023. The following discussion and analysis compares our consolidated results of operations for the three months ended March 31, 2024 (the “2024 Quarter”) with those for the three months ended March 31, 2023 (the “2023 Quarter”).

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, 2023 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

Since our incorporation, the Company has attempted to become involved in a number of business ventures, all of which, excluding Edgemode Wyoming, were unsuccessful and which have been abandoned. Edgemode Wyoming historically mined Ethereum from late 2020 until September 2022. Although Edgemode Wyoming historically mined Ethereum, due to the change of Ethereum (ETH) from Proof of Work (POW) to Proof of stake (POS), the Company terminated all rental agreements and future purchase orders related to Ethereum mining operations. We now intend to mine Bitcoin, subject to financing. However, we require significant financing to commence Bitcoin mining. Since late 2022 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 Bitcoin mining hardware and hosting contracts. We have suspended our daily 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.

As stated above, at present, the Company has no sources of revenue and has no specific business plan or purpose without significant financing. Therefore, the Company’s business plan is to also seek an acquisition or merger candidate (a “Business Combination”). As a result, the Company is considered a “blank check” or “shell” company. See the Risk Factors included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023. Management does not intend to undertake any efforts to cause a market to develop in the Company’s securities until such time as the Company has successfully implemented its business plan and/or closed on a suitable Business Combination.

Although we have been in discussions with potential partners or targets, we have not entered into any definitive agreements. The evaluation and selection of a business opportunity is a complex and uncertain process, and we have not yet identified a target operating business for acquisition. Business opportunities that we believe are in the best interests of the Company and its shareholders may be scarce, or we may be unable to attract the businesses we identify as viable for our objectives, including due to competitive forces in the marketplace beyond our control. There is no assurance that we will be able to locate compatible business opportunities for the Company.

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, 2023, 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 March 31, 2024 Compared to the Three Months Ended March 31, 2023

Results of operations

Our operating expenses for the three months ended March 31, 2024 (the “2024 Quarter”) was $336,599 compared to $1,705,525, for the three months ended March 31, 2023 (the “2023 Quarter”), a decrease of 80%. In the 2024 Quarter, the Company incurred stock-based compensation expense of $0 compared to $1,236,487 for the 2023 Quarter. The stock-based compensation for the 2023 Quarter was related to the amendment of options to the officers of the Company.

Our other expense for the 2024 Quarter was $114,605 compared to other expense of $72,486 for the 2023 Quarter. Other expense in the 2024 quarter was comprised of $24,420 in interest expense and $90,185 for the loss on the change in fair value of derivative liabilities. Other expense for the 2023 quarter was comprised of $7,274 in interest expense, $51,859 in a prepayment penalty on the redemption of our Series B Preferred shares, $9,975 from a loss on settlement and $3,378 in other expenses.

Liquidity and Capital Resources

As of March 31, 2024 and May 21, 2024, the Company had approximately $0 of cash on hand. 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 crypto 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 of capital and we can provide no assurances that any debt financings will be available in the future. Additionally, the Company is (i) in default under the 1800 Notes in the sum of 150% of the remaining outstanding principal balances of the 1800 Notes in the aggregate of approximately $235,000, plus accrued interest and default interest as defined under such notes, (ii) in default under two other notes in the aggregate principal amount of approximately $120,000 and (iii) owes a significant amount of money to its executive officers.

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.

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.

Summary of cash flows

During the 2024 Quarter and the 2023 Quarter, our sources and uses of cash were as follows:

Operating Activities

During the 2024 Quarter, cash used in operating activities of $298 primarily resulted from the net loss of $451,204 offset by change in fair value of derivative liabilities of $90,185, increases in accounts payable and accrued expenses of $60,221 and increases in accrued payroll of $300,500.

During the 2023 Quarter, cash provided by operating activities of $281,586 primarily resulted from the refund of prepaid hosting services, offset by the net loss of $1,788,011 and stock-based compensation of $1,236,487.

Investing Activities

The Company had no investing activities during the 2024 Quarter.

Cash provided by investing activities in the 2023 Quarter of $2,598 resulted from the sale of cryptocurrency assets.

Financing Activities

The Company had no financing activities during the 2024 Quarter.

In the 2023 Quarter, cash used in financing activities of $270,549 consisted of the redemption of our outstanding Series B preferred shares.

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, 2023 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, 2023.