Edgemode, Inc. - Quarter Report: 2022 June (Form 10-Q)

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

For the quarterly period ended June 30, 2022

OR

For the transition period from ________________ to ________________

Commission file number 000-55647

EDGEMODE, INC.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (707) 687-9093

Securities registered pursuant to Section 12(b) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒     No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒     No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐     No ☒

There were 383,930,340 shares of the registrant’s common stock outstanding as of August 19, 2022.

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

Edgemode, Inc. (Formerly Fourth Wave Energy, Inc.)

Consolidated Balance Sheets

(Unaudited)

The accompanying notes are an integral part of these unaudited financial statements.

Edgemode, Inc. (Formerly Fourth Wave Energy, Inc.)

Statements of Operations

(Unaudited)

The accompanying notes are an integral part of these unaudited financial statements.

Fourth Wave Energy, Inc.

Statements of Changes in Stockholders’ Deficit

For the three and six months ended June 30, 2022 and 2021

(Unaudited)

The accompanying notes are an integral part of these unaudited financial statements.

Edgemode, Inc. (Formerly Fourth Wave Energy, Inc.)

Consolidated Statements of Cash Flows

(Unaudited)

The accompanying notes are an integral part of these unaudited financial statements.

EdgeMode, Inc.

Notes to the Consolidated Financial Statements

June 30, 2022

(Unaudited)

NOTE 1 – Basis of Presentation

The accompanying unaudited interim financial statements of EdgeMode, Inc. (formerly known as Fourth Wave Energy, Inc.) (“we”, “our”, or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission (“SEC”), and should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s Annual Report filed with the SEC on Form 10-K and the annual financial statements of EdgeMode filed with the SEC on Form 8-K. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for our interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements that would substantially duplicate the disclosure contained in the audited financial statements for fiscal 2021, as reported in the Form 10-K and Form 8-K of the Company, have been omitted.

On March 20, 2020, shareholders owning a majority of the Company's outstanding shares of common stock amended the Company's Articles of Incorporation to change the name of the Company from Pierre Corp. to Fourth Wave Energy, Inc.

In connection with the acquisition of FWI in March 2020, the Company entered into consulting agreements with certain founders of FWI. The consulting agreements require the Company to collectively pay $379,850 in consulting fees during the terms of the consulting agreements. In March 2021 the Company agreed to sell the FWI technologies and its business plan to GeoSolar Technologies, Inc. a Colorado corporation (“GST”) in exchange for 10,000,000 shares of GST common stock (the “GST Shares”), such GST Shares distributable to the Company’s shareholders. As a part of this transaction, the consultants agreed to release the Company from any liability for any consulting fees owed to them by the Company and return a portion of the Company’s common stock held by such consultants. During the year ended December 31, 2021, 4,700,000 shares of the Company's common stock were returned to the Company and cancelled. The technology granted to GST was carried on our balance sheet at zero value and the shares received were also recorded at no value. FWI was voluntarily dissolved on December 8, 2021. The ex-dividend date, record date and distribution date for the registered distribution of the GST Shares to the Company's shareholders, subject to FINRA clearance, is the following:

Ex-Dividend Date: 12/06/2021

Record Date: 12/07/2021

Distribution Date: 12/14/2021

Effective January 31, 2022 (the “Effective Time”), the Company, FWAV Acquisition Corp., a Wyoming corporation and wholly owned subsidiary of the Company (the “Acquisition Subsidiary”) and EdgeMode, a Wyoming corporation (“EdgeMode Wyoming”) closed an Agreement and Plan of Merger and Reorganization dated December 2, 2021 (the “Merger Agreement”). In accordance with the Merger Agreement, Acquisition Subsidiary merged with and into EdgeMode Wyoming (the “Merger” or “Transaction”), with EdgeMode remaining as the surviving entity after the Merger and becoming a wholly owned subsidiary of the Company. In the Merger, the shares of common stock, no par value per share, of EdgeMode Wyoming issued and outstanding immediately prior to the Effective Time, represent 80% of the Company’s outstanding common stock on a fully diluted basis (or 313,950,672 shares of common stock). Furthermore, pursuant to the terms of the Merger the Company’s sole shareholder of the Company’s preferred stock converted such shares into 1,000 shares of common stock.

Joseph Isaacs, the Company’s sole officer and director resigned as an executive officer and director. Pursuant to the terms of the Merger Mr. Isaacs will provide services to the Company in a consultancy capacity at a fee of $11,500 per month and has been issued a stock option grant to purchase up to 19,987,095 shares of the Company’s common stock, vesting in 90 days, at an exercise price of $0.40 per share. The consulting agreement may be terminated by the Company without cause after three months. In addition, Mr. Isaacs received a $250,000 cash bonus and the Company entered into a contract with a company owed by Joe Isaacs to perform services for total value of $240,000. Charlie Faulkner and Simon Wajcenberg, the principals of EdgeMode Wyoming, were appointed as directors and executive officers.

Simultaneously with the Merger, approximately $4,574,132 of principal and interest of outstanding notes previously issued by the Company automatically converted into an aggregate of 18,296,528 shares of the Company’s common stock issued to 31 former noteholders. In addition, the Company has repaid approximately $988,000 of principal amount of notes. At the Effective Time the Company has nominal liabilities, excluding the debt and liabilities of EdgeMode Wyoming.

The merger was accounted for as a reverse merger, whereby EdgeMode Wyoming was considered the accounting acquirer and became our wholly-owned subsidiary. In accordance with the accounting treatment for a “reverse merger”, the Company’s historical financial statements prior to the reverse merger has been replaced with the historical financial statements of EdgeMode Wyoming prior to the reverse merger. The financial statements after completion of the reverse merger include the assets, liabilities, and results of operations of the combined company from and after the closing date of the reverse merger, with only certain aspects of pre-consummation stockholders’ equity remaining in the consolidated financial statements.

On June 3, 2022 the Company changed its name from Fourth Wave Energy Inc. to Edgemode, Inc.

NOTE 2 – Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make certain estimates and assumptions that affect the amounts reported in the financial statements and footnotes thereto. Actual results could materially differ from these estimates. It is reasonably possible that changes in estimates will occur in the near term.

Principals of Consolidation

The accompanying consolidated financial statements include the accounts of Fourth Wave Energy, Inc. and the accounts of its 100% owned subsidiary, EdgeMode. All intercompany transactions and balances have been eliminated in consolidation.

Fair Value Measurements

Generally accepted accounting principles define fair value as the price that would be received to sell an asset or be paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price) and such principles also establish a fair value hierarchy that prioritizes the inputs used to measure fair value using the following definitions (from highest to lowest priority):

The Company has no assets or liabilities valued using level 1, level 2, or level 3 inputs as of June 30, 2022.

Revenue Recognition

We recognize revenue in accordance with ASC 606, Revenue from Contracts with Customers. This standard provides a single comprehensive model to be used in the accounting for revenue arising from contracts with customers and supersedes current revenue recognition guidance, including industry-specific guidance. The standard’s stated core principle is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this core principle, ASC 606 includes provisions within a five-step model that includes identifying the contract with a customer, identifying the performance obligations in the contract, determining the transaction price, allocating the transaction price to the performance obligations, and recognizing revenue when, or as, an entity satisfies a performance obligation.

The Company has entered into digital asset mining pools by executing contracts, as amended from time to time, with the mining pool operators to provide computing power to the mining pool. The contracts are terminable at any time by either party and the Company’s enforceable right to compensation only begins when the Company provides computing power to the mining pool operator. In exchange for providing computing power, the Company is entitled to a fractional share of the fixed cryptocurrency award the mining pool operator receives (less digital asset transaction fees to the mining pool operator which are recorded as a component of cost of revenues), for successfully adding a block to the blockchain. The terms of the agreement provides that neither party can dispute settlement terms after thirty-five days following settlement. The Company’s fractional share is based on the proportion of computing power the Company contributed to the mining pool operator to the total computing power contributed by all mining pool participants in solving the current algorithm.

Providing computing power in digital asset transaction verification services is an output of the Company’s ordinary activities. The provision of providing such computing power is the only performance obligation in the Company’s contracts with mining pool operators. The transaction consideration the Company receives, if any, is noncash consideration, which the Company measures at fair value on the date received, which is not materially different than the fair value at contract inception or the time the Company has earned the award from the pools. The consideration is all variable. Because it is not probable that a significant reversal of cumulative revenue will not occur, the consideration is constrained until the mining pool operator successfully places a block (by being the first to solve an algorithm) and the Company receives confirmation of the consideration it will receive, at which time revenue is recognized. There is no significant financing component in these transactions.

Fair value of the cryptocurrency award received is determined using the closing price of the related cryptocurrency on the day of receipt. There is currently no specific definitive guidance under GAAP or alternative accounting framework for the accounting for cryptocurrencies recognized as revenue or held, and management has exercised significant judgment in determining the appropriate accounting treatment. In the event authoritative guidance is enacted by the FASB, the Company may be required to change its policies, which could have an effect on the Company’s consolidated financial position and results from operations.

Recent Accounting Pronouncements

The Company does not believe that any recently issued effective pronouncements, or pronouncements issued but not yet effective, if adopted, would have a material effect on the accompanying financial statements.

NOTE 3 – Going Concern

These financial statements are prepared on a going concern basis. The Company began operations in 2020 and incurred a cumulative loss since inception. The Company’s ability to continue is dependent upon management’s plan to raise additional funds and achieve profitable operations. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary if the Company is not able to continue as a going concern.

NOTE 4 – Reverse Merger Transaction

Pursuant to the terms of the Merger Agreement, and in exchange for all 100% of the issued and outstanding shares of EdgeMode Wyoming, the shareholders of EdgeMode received an aggregate of 313,950,672 shares of common stock, par value $.001 per share, of the Company.

Prior to the Merger, EdgeMode Wyoming was authorized to issue 300,000 shares of preferred stock with no par value per share, of which 261,438 were designated as Series Seed Preferred Stock (“Series Seed Preferred”). Immediately prior to the Merger, the holders of the Series Seed Preferred stock converted the shares into 261,438 shares of EdgeMode Wyoming common stock.

As a result of the Reverse Merger, the Company has acquired the following assets and liabilities which were recorded at the pre-combination carrying basis. The assets acquired and liabilities assumed are as follows: 

NOTE 5 – Related Party Transactions

Pursuant to the terms of the Merger Mr. Isaacs will provide services to the Company in a consultancy capacity at a fee of $11,500 per month and has been issued a stock option grant to purchase up to 19,987,095 shares of the Company’s common stock, vesting in 90 days, at an exercise price of $0.40 per share. The consulting agreement may be terminated by the Company without cause after three months. In addition, Mr. Isaacs received a $250,000 cash bonus and the Company entered into a contract with a company owed by Joe Isaacs to perform services for total value of $240,000, which was paid in advance. As of June 30, 2022, $135,000 amount of services are left to be performed.

During the six months ended June 30, 2022, the Company granted options to the officers and a consultant of the Company to purchase up to 65,920,895 shares of the Company’s stock, vesting immediately, at an exercise price of $0.40 per share.

As of June 30, 2022 the Company owed the executive officers of the Company $134,513 in accrued payroll for services performed.

NOTE 6 – Prepaid Hosting Services

Prepaid hosting services are amounts paid to secure the use of data hosting services at a future date or continuously over one or more future periods. When the prepaid hosting services are eventually consumed, they are charged to expense. As of June 30, 2022 the company has prepaid a total of $1,586,297 which the company expects to begin using during the third quarter of 2022.

NOTE 7 – Fixed Assets

Fixed assets are stated at cost and depreciated using the straight-line method over their estimated useful lives. When retired or otherwise disposed, the carrying value and accumulated depreciation of the fixed asset is removed from its respective accounts and the net difference less any amount realized from disposition, is reflected in earnings. Expenditures for maintenance and repairs which do not extend the useful lives of the related assets are expensed as incurred.

As of June 30, 2022 and 2021 fixed assets were made up of the following: 

Total depreciation expense for the six months ended June 30, 2022 and 2021, was $627,770 and $226,410 respectively.

As of June 30, 2022 the Company had $1,610,139 of equipment that is not yet in service. Subsequent to June 30, 2022, the Company terminated all future purchase orders related to Ethereum mining equipment and related hosting services, as the Company will focus on Bitcoin mining, and returned equipment not yet placed in service and investing in new Bitcoin mining equipment.

During the six months ended June 30, 2022 the Company recorded an impairment cryptomining equipment in the amount of $617,036 as a result of the Company determining the future cash flows were less than the carrying value of the assets. Of the total impairment $357,036 was related to mining equipment purchased with the Equipment Notes Payable discussed below in Note 9. The company is currently in negotiations with the manufacturer of the equipment to settle the remainder of the notes by returning the equipment, and offsetting the down payments of the future equipment against the remaining outstanding payable balances. As such the company has impaired the value of the assets down to the salvage value, which was determined to be the remaining principal payments owed. The remaining $260,000 of impairment was related to the equipment acquired in 2020. A portion of this equipment was sold for $60,000 during the six months ended June 30, 2022.

NOTE 8 – Equity

The Company has authorized 950,000,000 shares of common stock, par value of $0.001, and as of June 30, 2022 has issued 383,858,340 shares of common stock. All of the common shares have the same voting rights and liquidation preferences.

Preferred Shares

We are authorized to issue 4,999,000 shares of preferred stock. Shares of preferred stock may be issued from time to time in one or more series as may be determined by our Board. The voting powers and preferences, the relative rights of each such series and the qualifications, limitations and restrictions of each series will be established by the Board. Our directors may issue preferred stock with multiple votes per share and dividend rights which would have priority over any dividends paid with respect to the holders of our common stock. In connection with the Transaction, the only outstanding preferred stock was converted into common stock. As of the date of this report, there are no outstanding shares of preferred stock.

On March 26, 2020, the Company designated 1,000 shares of its original 5,000,000 authorized shares of Preferred Stock as Series A Preferred Stock (“Series A”) with a $0.001 par value. Each Series A Preferred share entitles the holder to vote on all matters submitted to a vote of the Company’s shareholders or with respect to actions that may be taken by written consent. The 1,000 shares of Series A shares have the voting power of 250% of the outstanding common shares at the time of any vote. The holders of the Series A shares are entitled to receive, when, as and if declared by the Board of Directors out of funds legally available, annual dividends payable in cash on the 31st day of December in each year, commencing on December 31, 2020 at the rate of $0.10 per share per year. As part of the recapitalization, the 1,000 shares were converted into common shares.

On March 30, 2022, the Company reduced its authorized preferred shares from 5,000,000 to 4,999,000 shares and removed the 1,000 shares of Series A from the designation.

Common Shares

On March 30, 2022 the Company increased its authorized common shares from 500,000,000 to 950,000,000.

During the six months ended June 30, 2022, the Company issued 1,624,394 common shares for cash and cryptocurrency proceeds of $580,014. In connection with the stock purchases, the company issued warrants to purchase 1,230,000 shares of common stock with an exercise price of $0.50, which expire five years from the date of grant.

During the six months ended June 30, 2022, the Company amortized $44,875 of stock compensation expense related to shares issued for services pursuant to a consulting agreement entered into during 2021. As of June 30, 2022, $0 of unrecognized expense remains to be amortized.

Stock Options

During the six months ended June 30, 2022, the Company issued a stock option grant to purchase up to 85,907,990 shares of the Company’s common stock, vesting immediately and in 90 days, at an exercise price of $0.40 per share. The expected term was estimated using the simplified method for employee stock options since the Company does not have adequate historical exercise data to estimate the expected term. The Company used the black-scholes option pricing model to value the options and expensed $24,219,306 during the six months ended June 30, 2022. As of June 30, 2022, the Company has $849,996 of value remaining to be expensed based upon completions of milestones and $0 of remaining amortization to expensed pursuant to the vesting terms.

The following table summarizes the stock option activity for the six months ended June 30, 2022: 

As of June 30, 2022, the Company had 85,907,990 stock options that were exercisable and 137,473 that are in dispute. The weighted average remaining life of all outstanding stock options was 4.58 years as of June 30, 2022. Aggregate intrinsic value is calculated as the difference between the exercise price of the underlying stock option and the fair value of the Company’s common stock for stock options that were in-the-money at period end. As of June 30, 2022, the intrinsic value for the options vested and outstanding was $0 and $12,373, respectively.

Stock Warrants

The following table summarizes the stock warrant activity for the six months ended June 30, 2022:  

NOTE 9 – Notes Payable

Notes Payable

Pursuant to the merger agreement, the Company acquire outstanding note payables in the amount of $35,000. These loans were advanced as due on demand and no communication has been received from the original lenders.

Simultaneously with the Merger, approximately $4,574,132 of principal and interest of outstanding notes previously issued by the Company automatically converted into an aggregate of 18,296,528 shares of the Company’s common stock issued to 31 former noteholders. The conversion and issuance of shares of the Company’s common stock is presented as part of the recapitalization on the equity statement

Equipment Notes Payable

In February 2021, the Company entered into a financing agreement whereby the company agreed to purchase assets related to its crypto mining operations. The financing agreement required a down payment of $199,800 and 24 equal monthly payments of $32,760. The Company used a 15% discount rate to determine the net present value of the loan value of $871,519. The balance of the loan as June 30, 2022 is $336,266. The Company is currently in negotiations with the lender to terminate the remainder of the agreement and return the equipment

In May 2021, the Company entered into a financing agreement whereby the Company agreed to purchase assets related to its crypto mining operations. The financing agreement required a down payment of $299,808, the first month payment of $79,056 and 23 equal monthly payments of $39,528. The Company used a 15% discount rate to determine the net present value of the loan value of $1,148,237. The balance of the loan as of June 30, 2022 is $507,663. The Company is currently in negotiations with the lender to terminate the remainder of the agreement and return the equipment

In July 2021, the Company entered into a financing agreement whereby the company agreed to purchase assets related to its crypto mining operations. The financing agreement required a down payment of $100,800 and 24 equal monthly payments of $15,660. The Company used a 15% discount rate to determine the net present value of the loan value of $421,835. The balance of the loan as of June 30, 2022 is $240,117. The Company is currently in negotiations with the lender to terminate the remainder of the agreement and return the equipment

The following table presents the future maturities and principal payments of all notes payable listed above for the next five years and thereafter are as follows: 

NOTE 10 – Cryptocurrency Assets

The Company began cryptocurrency mining activities during the year ended December 31, 2021. In addition to mining activities, the Company conducts other business activities using its cryptocurrency assets as compensation. The below table represents the cryptocurrency activities during the six months ended June 30, 2022: 

NOTE 11 – Commitments and Contingencies

Legal Contingencies

On February 8, 2022, the Company was notified of a potential lawsuit related to the termination of our Advisory Panel Membership agreement with Taylor Black Wealth, Ltd. (“Taylor”). The Company engaged Taylor for assistance with capital raises and was to be partially compensated with stock options, subject to vesting. Taylor claims that the Company terminated the agreement unlawfully and therefore are still entitled to the remaining unvested options which the Company believes to be cancelled. The total number of stock options being contested is 137,473.

NOTE 12 – Subsequent Events

Subsequent to June 30, 2022, the Company terminated all future purchase orders related to Ethereum mining equipment and related hosting services, as the Company will focus on Bitcoin mining. In addition, the Company has signed approximately $66M in purchase orders for additional Bitcoin mining equipment that it expects to be delivered in the second half of the year.

Effective July 1, 2022, the Company terminated the agreements with the lender for the cryptomining equipment.

On July 14, 2022, the Company sold 72,000 common shares for cash proceeds of $36,000.

On July 20, 2022, the Company entered into a Series B Preferred Stock Purchase Agreement (the “Purchase Agreement”) dated July 18, 2022 with 1800 Diagonal Lending LLC, a Virginia limited liability company pursuant to which the Company issued and sold 78,750 shares of Series B Preferred Stock for a purchase price of $78,750. The proceeds from the sale of the Series B Preferred Stock shall be used for working capital. In addition, the Company paid $3,750 to the Investor and its counsel for legal and due diligence fees.

Pursuant to the Purchase Agreement, the Investor may convert all or a portion of the outstanding Series B Preferred Stock into shares of the Company’s Common Stock beginning on the date which is 180 days after the issuance date of the Series B Preferred Stock into Common Stock; provided, however, that the Investor may not convert the Series B Preferred Stock to the extent that such conversion would result in beneficial ownership by the Investor and its affiliates of more than 4.99% of the Company’s issued and outstanding Common Stock.

The Company will have the right, at the Company’s sole option, provided that an event of default has not occurred, to redeem all or any portion of the shares of Series B Preferred Stock, exercisable on not more than 3 Trading Days prior written notice to the holders of the Series B Preferred Stock, in full. If the Company redeems the shares of Series B Preferred Stock within 90 days of its issuance, the Company must pay all of the principal at a cash redemption premium of 120%; if such prepayment is made between the 91st day and the 180th day after the issuance of the Series B Preferred Stock, then such redemption premium is 125%. After the 180th day following the issuance date, there shall be no further right of optional redemption. On the date which is the earlier of: (i) twelve (12) months following the issuance date; or (ii) at the option of the Investor, upon the occurrence of an Event of Default as defined under the Certificate of Designation (the “Mandatory Redemption Date”), the Company shall redeem all of the shares of Series B Preferred Stock of the Investor (which have not been previously redeemed or converted). With five (5) days of the Mandatory Redemption Date, the Company shall make payment to the Investor of an amount in cash equal to the total number of shares of Series B Preferred Stock held by such Investor multiplied by the then current Stated Value as adjusted pursuant to the terms hereof (including but not limited to the addition of any accrued unpaid dividends and any default adjustments. An Event of Default includes the Company’s failure to pay a mandatory redemption amount, comply with its SEC reporting obligations and any bankruptcy or liquidation.

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, 2021 and the annual financial statements of EdgeMode, a Wyoming corporation and our wholly owned subsidiary, filed with the SEC on Form 8-K. The following discussion and analysis compares our consolidated results of operations for the three months ended June 30, 2022 (the “2022 Quarter”) with those for the three months ended June 30, 2021 (the “2021 Quarter”).  Additionally, the six months ending June 30, 2022 and six months ending June 30, 2021 are referred to as the “2022 Period” and “2021 Period”) respectively.

Cautionary Note Regarding Forward-Looking Statements

This report contains “forward-looking statements”, as such term is used within the meaning of the Private Securities Litigation Reform Act of 1995. 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 the machines we have commitments to purchase and those discussed under the caption "Risk Factors" in our Form 10-K for the year ended December 31, 2021 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. Although Edgemode, our new wholly-owned subsidiary, has historically mined Ethereum, we are now focused on expanding the operations by mining Bitcoin which we anticipate to begin in the second half of 2022. Due to the imminent change of Ethereum (ETH) from Proof of Work (POW) to Proof of stake (POS), the Company has terminated all rental agreements and future purchase orders related to Ethereum mining operations.

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, 2021, 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.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2022 COMPARED TO THE THREE MONTHS ENDED JUNE 30, 2021

Our revenues for the 2022 Quarter was $165,118 compared to $500,692 for the 2021 Quarter. The reason for the decrease was the decline in the price of Ethereum during the 2022 Quarter compared to prices during the 2021 Quarter. Also the Company experienced power outages at our data center in Rouses Point. As we have terminated our rental agreements as referenced above, we do not anticipate power outages in the future materially effecting our operations.

Our cost of revenues for the 2022 Quarter was $382,908 compared to $401,629 for the 2021 Quarter. The reason for the decrease was a decrease in hosting fees incurred as a result of the power outages and lower revenues.

Our operating expenses for the 2022 Quarter was $2,874,473 compared to $218,942 for the 2021 Quarter. In the 2022 Quarter, the Company incurred stock-based compensation expense of $1,878,264 compared to $0 for the 2021 Quarter. In addition, the company began initial operations in 2021 versus having full operations during 2022.

Our other expenses for the 2022 Quarter was $109,363 compared to $148,065 for the 2021 Quarter. The reason for the decrease was a decrease in interest expense from additional loans as well as a decreased loss on cryptocurrencies due to decreased transactions and changes in market prices.

RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2022 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2021

Our revenues for the 2022 Period was $436,237 compared to $569,068 for the 2021 Period. The reason for the decrease was the decline in the price of Ethereum during the 2022 Period compared to prices during the 2021 Period, in addition to the power outages at our data center in disclosed above.

Our cost of revenues for the 2022 Period was $806,678 compared to $479,110 for the 2021 Period. The primary reason for the increase was the Company began operations in March of 2021 versus having a full six months of operations for the 2022 Year.

Our operating expenses for the 2022 Period was $26,836,972 compared to $304,944 for the 2021 Period. In the 2022 Period, the Company incurred stock-based compensation expense of $24,264,181 compared to $6,750 for the 2021 Period. In addition, the Company began operations in March of 2021 for initial operations versus having a full six months of operations for the 2022 Period.

Our other expenses for the 2022 Period was $237,740 compared to $160,696 for the 2021 Period. The reason for the increase was an increase in interest expense from additional loans as well as an increased loss on cryptocurrencies due to increased transactions and changes in market prices.

LIQUIDITY AND CAPITAL RESOURCES

As of August 22, 2022, the Company had approximately $7,000 of cash. Our liquidity is primarily derived from selling the crypto that we mine, and debt and equity investments from accredited investors. To grow the business and help fund operations for the next 12 months, the Company is seeking to raise $60 million in equity capital through private placements. The Company has signed a non-binding term sheet for a $400 million debt facility. We can provide no assurances that any such financings will be completed or successful, nor will they be on terms that we can agree on.

The Company has signed $66 million in hardware purchase orders. Assuming we close on the $400 million debt facility, the debt facility will be used in order to make payments on these purchase orders. There are no assurances the purchase will be completed.

If we fail to raise sufficient additional funds, we will be required to suspend or cease our operations.

The Company has terminated the agreements for approximately $2.2 million of debt for equipment that the Company was using for mining and is negotiating the return of the equipment to the vendor to settle the outstanding liabilities. Additionally, we have a significant amount funds committed to the purchase of new Bitcoin miners. We can provide no assurance that we will have the ability to meet these payment requirements or that we will be successful raising capital to meet our working capital requirements.

Summary of Cash Flows

During the 2022 Period and 2021 Period, our sources and uses of cash were as follows:

Operating Activities

During the 2022 Period, cash used in operating activities of $1,824,306 primarily resulted from its net loss of $27,445,153, offset by stock-based compensation of $24,264,181, impairment of equipment of $617,036 and loss on cryptocurrency transactions of $157,913.

During the 2021 Period, cash used in operating activities of $394,376 primarily resulted from its net loss of $375,682 offset by stock-based compensation of $6,750 and loss on cryptocurrency transactions of $96,343.

Investing Activities

Cash provided by investing activities in the 2022 Period of $943,423 resulted from the $743,513 cash acquired from the reverse merger acquisition and the proceeds of $510,886 from sale of cryptocurrency assets, offset by the purchase of equipment of $370,976.

Cash used in investing activities in the 2021 Period of $705,579 resulted from proceeds of $304,284 from the sale of cryptocurrency assets, offset by the purchase of equipment of $1,009,863.

Financing Activities

In the 2022 Period, cash provided by financing activities of $860,712 consisted of $688,864 in net proceeds from the issuance of common shares, $380,000 in proceeds from the issuance of notes payable, offset by payments on equipment notes payable of $208,152.

In the 2021 Period, cash provided by financing activities of $1,080,397 consisted of $1,311,163 in net proceeds from the sale of common shares, $334,980 in net proceeds from the sale of preferred shares, offset by payments on equipment notes payable of $645,746.

Not applicable.

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 for the following reasons:

These material weaknesses resulted in our management failing to give effect to options granted during the three months ended March 31, 2022, to purchase an aggregate of 65,920,895 shares of our common stock issued to our executive officers and a consultant in our Quarterly Report on Form 10-Q for the period ended March 31, 2022 (the “First Quarter Report”) which was determined by the Company’s Chief Executive Officer and Chief Financial Officer in connection with the preparation of this report, resulting in an approximately $17.8M understatement in operating expenses and in common stock and additional paid-in capital for the period ended March 31, 2022. As such the Company restated its unaudited financial statements as of and for the three months ended March 31, 2022 which were included in an amendment to the First Quarter Report. 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.

PART II – OTHER INFORMATION

From time to time, the Company may become a party to legal actions or proceedings in the ordinary course of its business. At June 30, 2022, there were no such actions or proceedings, either individually or in the aggregate, that, if decided adversely to the Company’s interests, the Company believes would be material to its operation or cash flow.

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, 2021 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, 2021.

In addition to no unregistered sales of the Company’s equity securities during the 2022 Quarter that were previously disclosed in a Current Report on Form 8-K, the Company completed the unregistered sales disclosed below.

On May 17, 2022 the Company sold 50,000 shares of restricted common stock to an accredited investor at a purchase price of $0.50 per share for gross proceeds of $25,000 under an exemption from registration provided by Section 4(a)(2) of the Securities Act. The Company did not pay any fees or commissions. The proceeds shall be used for working capital.

On July 14, 2022, the Company sold 72,000 shares of restricted common stock at a purchase price of $0.50 per share to an accredited investor for gross proceeds of $36,000. The shares were issued pursuant to the exemption from registration provided by Section 4(a)(2) of the Securities Act. The Company did not pay any fees or commissions. The proceeds shall be used for working capital.

None.

Not Applicable.

None.

The exhibits listed in the accompanying “Index to Exhibits” are filed or incorporated by reference as part of this Form 10-Q.

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.

Dated:  August 22, 2022

EXHIBIT INDEX

+ Certain schedules, appendices and exhibits to this agreement have been omitted in accordance with Item 601 of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished supplementally to the Securities and Exchange Commission staff upon request.

Copies of this filing (including the financial statements) and any of the exhibits referred to above will be furnished at no cost to our shareholders who make a written request to EdgeMode, Inc.; 110 E. Broward Blvd., Suite 1700, Ft. Lauderdale, FL 33301; Attention: Corporate Secretary.