Edgemode, Inc. 10-K

Item 1. Business. Prior to the closing of the Transaction, FWAV was a shell company with nominal assets and liabilities. EdgeMode is an early-stage cryptocurrency mining. Although we have historically mined Ethereum, we are now focused on expanding our operations by mining Bitcoin. We provide investors with direct exposure to cryptocurrencies, without the technical complexity or constraints of purchasing the underlying cryptocurrency. Investors avoid the need to create online wallets, wire money offshore, and safely store their cryptocurrency. We operate through our partnerships with third party hosting firms, Bitcoin mining facilities for the sole purpose of mining Bitcoin and Ethereum. Our facilities and mining platform are operating with the primary intent of accumulating Bitcoin, although to date we have focused on Ethereum, which we may sell for fiat currency from time to time depending on market conditions and management’s determination of our cash flow needs. We are in the research and development stage of exploring treasury management alternatives to increase earnings of the cryptocurrency we mine and hold. In that regard, we may continue to hold as well as sell Ethereum in order to fund the purchase of Bitcoin miners and other mining equipment, to pay operational expenses such as hosting company fees and for working capital and other general corporate purposes. Other than Ethereum, we have no holdings of, and have no current plans to hold, any other types of digital assets other than Bitcoin. Digital Asset Mining Historically, we have mined Ethereum. Moving forward, we plan to mine Bitcoin, and may choose to mine other cryptocurrencies, by acquiring miners to solve complex cryptographic algorithms to support the Bitcoin blockchain (in a process known as “solving a block”). In return for solving a block, we have received Ethereum, and when we receive our Bitcoin miners, a Bitcoin. We intend to only mine cryptocurrencies that are not securities. Our policy is to consult counsel prior to attempting to mine any cryptocurrency other than Bitcoin, in order to avoid inadvertently dealing in a cryptocurrency which may be deemed a security. We anticipate that, should we consider mining a cryptocurrency other than Bitcoin we will seek the advice of securities counsel, and the process will include research, review and analysis of the current federal securities laws and regulations regarding digital assets, including judicial interpretations and administrative guidance. However, the processes employed for determining whether particular digital assets are securities within the meaning of U.S. federal securities laws are risk based assessments and are not a legal standard or binding on the SEC or other regulators. See the risk factor titled “If we undertake to mine digital assets other than Bitcoin and Ethereum, such digital assets may be deemed to be securities by regulators, notwithstanding any assessment by us and/or our advisors to the contrary” on page 16. We recognize that whether a digital asset is a security is a complex legal issue. For that reason, we have no plan in the foreseeable future to mine anything other than Bitcoin and to a lesser extent Ethereum. With respect to holding and selling the cryptocurrency we mine, our policy is to hold what we mine until management determines that market conditions and circumstances deem selling cryptocurrency to be advisable in the furtherance of our capital needs and objectives. This may include, among other factors, a determination that the cryptocurrency is overvalued at a particular price at a given time, that fiat currency is required to fund our operations, or that an excessive quantity of the specific cryptocurrency has accumulated in our digital wallet resulting in a potential security risk. We hold the cryptocurrency we mine in a digital wallet using a BlockFi account, and do not have any agreements with third parties to manage or exchange the cryptocurrency we mine and store. Miners measure their capability in terms of processing power, which is known as in the industry as “hashing” power. Hashing power is measured in terms of the number of hashing algorithms solved (or “hashes”) per second, which is the miner’s “hash rate.” Generally speaking, miners with greater hashing power and in turn a higher hash rate relative to other miners attempting to solve a block have a higher chance of solving the block and receiving a cryptocurrency award. However, although newer generations of miners advertise improved energy efficiency, increasing hash rate generally requires greater electric power, which increases the cost of solving a block and, therefore, the relative cost of mining a cryptocurrency. As additional miners competed for the limited supply of blocks, individuals found that they were working for months without finding a block and receiving any reward for their mining efforts. To address this variance, miners started organizing into pools to share mining rewards more evenly on a pro rata basis based on total hashing capacity contributed to the mining pool. As of the date of this report, we do not participate in any pools but may do so when management believes it’s in the Company’s best interests. 1 Our Mining Equipment Hardware Quantity Hardware Manufacturer Location AMD W5700 108 AMD Rouses Point NY State NVidia 3070 24 NVidia Rouses Point NY State AMD Vega 64 288 AMD Rouses Point NY State Nvidia 3070 72 Nvidia Rouses Point NY State RTX 5000 540 Nvidia Rouses Point NY State AMD Vega 64 576 AMD Rouses Point NY State AMD Vega 56 144 AMD Rouses Point NY State There is an outstanding debt of $1,555,726 on the miners which we intend to fully pay by year end 2023. We are currently utilizing 0.5MW of power and hosting supply at the Rouses Point facility. We have signed a purchase order for a further 1,152 GPU servers for Ethereum mining to be installed and hosted at Rouses Point in April 2022. There is an outstanding debt of $1M on this hardware which we intend to fully pay by March 2023. This hardware will utilize a further 0.25MW of hosting supply at Rouses Point. We have signed a purchase order with Katena Computing for the supply of 10 Exahash of Bitcoin Mining hardware. We will receive the first delivery on this order in September 2022 with 5 Exahash being delivered by December 2022 the balance of 3.5 Exahash in Q1 2023 and 3.5 Exahash in Q2 2023. This hardware will be hosted by Compute North at their facilities in North Carolina and Texas and will require a total 250 MW of hosting capacity. See the risk factors below. Hosting Agreements Our K10 Miners will be located in North Carolina and Texas and maintained by Compute North, LLC (“Compute North”) a well-known miner hosting company in North America. Under a Master Agreement, Compute North is providing the Company with colocation, managerial and other services at its data center facilities, including rack space, electrical power, ambient air cooling, internet connectivity and physical security for the Company’s miners. The initial hosting capacity with Compute North is 20 MW. The purchaser order with Compute North anticipates an additional 230 MW of hosting capacity available to the Company. The Master Agreement is terminable by Compute North for cause. The Company granted Compute North with a security interest in the miners and other equipment installed at the facility to secure the Company’s obligations under the master agreement. The Company is responsible for a minimum monthly service fee and other fees. See the Master Agreement with Compute North and Purchase Order attached as Exhibit 10.5 to this report. The terms of such agreements are incorporated herein by reference. We have a signed hosting agreement with Trinity Mining Technologies, LLC. This agreement provides for up to 300MW of hosting facilities in Texas beginning in October 2022. See the Master Agreement with Trinity Mining Technologies, LLC attached as Exhibit 10.6 to this report. The terms of such agreements are incorporated herein by reference. Our currently owned miners are primarily located in New York with 2CRSI. See above for MW utilized and total capacity available if required. The Company pays 2CRSI hosting fees of $0.08 per KWH plus a monthly hosting charge of $50 per MWH. See the 2CRSI orders attached as Exhibit 10.7 to this report. The terms of such orders are incorporated herein by reference. 2 Employees We have two full-time employees and no part-time employees. None of our employees are parties to any collective bargaining arrangement. We believe our relationships with our employees are good. Property Our corporate headquarters are located in Chicago, Illinois, consisting of approximately 1,000 square feet of office space under a monthly rental agreement. We believe that our existing facilities are suitable and adequate and that we have sufficient capacity to meet our current anticipated needs. Our Recent Corporate History Prior to the closing of the Transaction, Fourth Wave was a shell company with nominal assets and liabilities. EdgeMode was incorporated in the State of Wyoming in March 2020. Our office is located at 350 North Orleans Street, Suite 9000N, Chicago, IL 60654 and its website address is www.edgemode.io. We have not incorporated by reference into this report the information that can be accessed through our website and you should not consider such information to be part of this report. Regulation After a period of regulatory uncertainty, we believe that the Securities and Exchange Commission (“SEC”) will not claim that Bitcoin and Ethereum are securities and therefore will not be subject to their regulation. The SEC has been active in pursuing its regulation of other cryptocurrencies by filing lawsuits and, more recently, administratively against a cryptocurrency that tried to register under the Securities Exchange Act of 1934 (“Exchange Act”). Further, its new Chairman has given several speeches seeking regulatory authority over other cryptocurrencies. Whether Congress will enact new legislation in this area is uncertain. However, enhanced regulation may adversely affect our future mining and other cryptocurrency activities. Blockchain and Bitcoin are increasingly becoming subject to governmental regulation, both in the U.S. and internationally. State and local regulations also may apply to our activities and other activities in which we may participate in the future. Other governmental or semi-governmental regulatory bodies have shown an interest in regulating or investigating companies engaged in the blockchain or cryptocurrency business. For instance, the Cyber-Digital Task Force of the U.S. Department of Justice (the “DOJ”) published a report entitled “Cryptocurrency: An Enforcement Framework” in October 2020. This report provides a comprehensive overview of the possible threats and enforcement challenges the DOJ views as associated with the use and prevalence of cryptocurrency, as well as the regulatory and investigatory means the DOJ has at its disposal to deal with these possible threats and challenges. Presently, we do not believe any U.S. or state regulatory body has taken any action or position adverse to our main cryptocurrency, Bitcoin, with respect to its production, sale, and use as a medium of exchange; however, future changes to existing regulations or entirely new regulations may affect our business in ways it is not presently possible for us to predict with any reasonable degree of reliability. The recent action taken in China was the final step in that country’s evolving regulatory crackdown. As the regulatory and legal environment evolves, we may become subject to new laws, such as further regulation by the SEC and other agencies, which may affect our mining and other activities. For additional discussion regarding our belief about the potential risks existing and future regulation pose to our business, see our “ Risk Factors ” beginning on page 7. 3 Item 1A. Risk Factors. Not applicable to smaller reporting companies. However, our principal risk factors are described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Item 1B. Unresolved Staff Comments. None. Item 2. Properties. We maintain our corporate offices at 350 North Orleans Street, Suite 9000N, Chicago, IL 60654 under a virtual office lease. We lease these premises under a monthly rental agreement at a nominal cost. Item 3. Legal Proceedings. We are not a party to any pending or threatened litigation. Item 4. Mine Safety Disclosures Not applicable. 4 PART II