Edgemode, Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 September 30, 2022 (the “2022 Quarter”) with those for the three months ended September 30, 2021 (the “2021 Quarter”). Additionally, the nine months ending September 30, 2022 and nine months ending September 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 first half of 2023, subject to financing. Due to the imminent change of Ethereum (ETH) from Proof of Work (POW) to Proof of stake (POS), the Company is in negotiations to terminate 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 SEPTEMBER 30, 2022 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2021 Our revenues for the 2022 Quarter were $1,805 compared to $605,945 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 and returned equipment related to Etherium mining. As we have terminated our rental agreements as referenced above, we do not anticipate power outages in the future materially effecting our operations. 17 Our cost of revenues for the 2022 Quarter were $6,204 compared to $456,163 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 were $1,162,200 compared to $2,790,197 for the 2021 Quarter. In the 2022 Quarter, the Company incurred stock-based compensation expense of $318,000 compared to $2,511,421 for the 2021 Quarter. Our other expenses for the 2022 Quarter were $15,616 compared to $21,221 for the 2021 Quarter. The reason for the decrease was increased loss on cryptocurrencies due to increased transactions and changes in market prices, offset by a decrease in interest expense from the termination of the loans. RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2021 Our revenues for the 2022 Period was $438,042 compared to $1,145,466 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 $812,882 compared to $935,273 for the 2021 Period. 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 Period was $27,999,172 compared to $3,095,141 for the 2021 Period. In the 2022 Period, the Company incurred stock-based compensation expense of $24,582,181 compared to $2,518,171 for the 2021 Period. In addition, the Company began operations in March of 2021 for initial operations versus having a full nine months of operations for the 2022 Period. Our other expenses for the 2022 Period was $253,356 compared to $181,917 for the 2021 Period. The reason for the increase was increased loss on cryptocurrencies due to increased transactions and changes in market prices, offset by a decrease in interest expense from the termination of the loans. LIQUIDITY AND CAPITAL RESOURCES As of November 14, 2022, the Company had approximately $20,000 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 returned the equipment to the vendor to settle the outstanding liabilities, which is still being negotiated with the vendor. 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. 18 Summary of cash flows September 30, 2022 September 30, 2021 Net cash (used) in operating activities $ (2,060,941 ) $ (737,980 ) Net cash provided by investing activities $ 942,534 $ 45,672 Net cash provided by financing activities $ 1,097,963 $ 2,109,415 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 $2,060,941 primarily resulted from its net loss of $28,627,368, offset by stock-based compensation of $24,582,181, impairment of equipment of $748,269 and loss on cryptocurrency transactions of $186,716. During the 2021 Period, cash used in operating activities of $737,980 primarily resulted from its net loss of $3,066,865 offset by stock-based compensation of $2,518,171 and loss on cryptocurrency transactions of $20,708. Investing Activities 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, offset by the purchase of equipment of $370,976. Cash provided by investing activities in the 2021 Period of $45,672 resulted from proceeds of $734,873 from the sale of cryptocurrency assets, offset by the purchase of equipment of $697,201. Financing Activities 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, $380,000 in proceeds from the issuance of notes payable, and $201,250 of proceeds from the issuance of Series B preferred shares, offset by payments on equipment notes payable of $208,152. In the 2021 Period, cash provided by financing activities of $2,109,415 consisted of $1,807,574 in net proceeds from the sale of common shares, $334,980 in net proceeds from the sale of preferred shares, and $830,000 in proceeds from notes payable, offset by payments on equipment notes payable of $861,564. 19 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable.