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, 2024. The following discussion and analysis compares our consolidated results of operations for the three months ended March 31, 2025 (the “2025 Quarter”) with those for the three months ended March 31, 2024 (the “2024 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, 2024 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 Edgemode was incorporated under the laws of the State of Nevada in 2011. Our subsidiary, Edgemode Wyoming, was incorporated in the State of Wyoming in March 2020. Between 2021 and 2023, we attempted to become a key figure in Bitcoin mining but lacked the necessary funding to finance the purchase of Bitcoin mining hardware and hosting contracts. As a result, since late 2023 and throughout 2024, our business activities primarily consisted of identifying and evaluating suitable acquisition transaction candidates, which led to transition from cryptocurrency mining to digital infrastructure colocation services and HPC hosting. Effective April 7, 2025, Edgemode, SAPL, and ACL closed on the Share Exchange dated April 7, 2025. In accordance with the Share Exchange, SAPL agreed to transfer 100% of SAPL’s outstanding capital stock to Edgemode in exchange for 1,260,246,354 shares of Edgemode common stock, par value $0.001 per share, which represented approximately 55% of the Company’s outstanding common stock at the Effective Time. The Company accounted for the acquisition as an asset acquisition under ASC 805 as SAPL did not meet the definition of a business as it did not contain a full set of integrated inputs and outputs at the time of closing. Following the closing of the Share Exchange, Edgemode, through SAPL, its wholly owned subsidiary, is now designing, building, and operating digital infrastructure for HPC with the goal of becoming a leading provider of digital colocation services. SAPL is an entity organized in 2022 under the laws of England and Wales. SAPL will change its name to EdgeMode Europe Limited. The acquisition of SAPL has positioned us to enter the rapidly evolving HPC hosting market in an efficient and effective manner. The acquisition has enabled us to plan to leverage SAPL’s existing infrastructure and expertise to meet the growing demand for data center facilities for third-party customers focused on cloud computing as well as machine learning and artificial intelligence. The acquisition of SAPL will enable us to become a premier provider and operator of dedicated, purpose-built data center facilities for our third-party customers. We believe that opportunities for growth exist in various applications of our data centers, which is another factor as to why we decided to begin offering digital infrastructure colocation services to third parties engaged in HPC. Our goal is to utilize the assets we have acquired via the purchase of SAPL for HPC hosting operations, which will provide consistent dollar-based revenue and which represent substantially less risk than our historical digital asset self-mining operations. Our intent is to focus our business on development and marketing efforts to build data centers and expand our foundational HPC hosting customer base. 17 Business Strategy Our business strategy is to generate revenue and achieve profitability by building large-scale data center infrastructure configured for specialized computers performing specific, high-value applications such as cloud computing, machine learning, and artificial intelligence and maximizing the use of assets acquired in the SAPL acquisition. We intend to strategically develop and to work to make operational the infrastructure necessary to support our contractual commitments to our HPC customers and to support expected customer growth and additional demand by leveraging our data center expertise and capabilities. We intend to seek additional opportunities and to engage additional customers in the HPC hosting market to expand our business using our knowledge, expertise, and existing and future infrastructure where favorable market opportunities exist. Our strategy is focused on hyperscale cloud-based providers and enterprises, including potential customers that we believe have significant data center infrastructure needs that have not yet been outsourced or will require additional data center space and power to support their growth and their increasing reliance on technology infrastructure in their operations. We believe our capabilities for serving the needs of large hyperscale providers and enterprises will continue to enable us to capitalize on the growing demand for outsourced data center facilities in our markets and in new markets where our customers are located or plan to be located in the future. Our business strategy requires immediate funding of approximately $2,000,000 to enable us to commence our new operations and repay debt, as well as additional significant financing to develop and expand our new operations. There are no assurances that we will raise sufficient capital to execute our business plan or satisfy our liabilities. See the “Risk Factors” in our Form 10-K for the fiscal year ended December 31, 2024 and Form 8-K Current Report dated April 8, 2025. Products and Services High-Performance Computing Hosting HPC is a technology that uses clusters of powerful processors that work in parallel to process massive data sets and solve complex problems at extremely high speeds. The proliferation of data, as well as data-intensive and AI enabled applications and use cases, is driving demand for the computing power of HPC. Traditionally, HPC has involved an on-premises infrastructure, investing in supercomputers or computer clusters. Our HPC hosting revenue will be generated by licensing colocation data center space and related services to a licensee at our Marviken data center. These licensing agreements and orders include lease components, non-lease components (such as power delivery, physical security, maintenance and other billable expenses), as well as non-component elements such as taxes. Under these contracts, customers pay fixed payments (based on electric capacity) and variable payments on a recurring basis. HPC colocation leases may include all or portions of a data center, where customers may also lease office space to support their colocation operations where revenue is primarily based on power usage as well as square footage. On January 21, 2025, the Company entered into the Master Services Agreement with Cudo, a cloud computing company. Under this agreement, the Company will provide Tier 3 data center hosting infrastructure and colocation services to Cudo. The Master Services Agreement supports a 1 MW capacity during a 5 year term at our Marviken data center and is accompanied by a strict service level agreement to ensure 99% up time which can be terminated early by either party if certain conditions are met. The colocation space is designated for SingularityNet’s 1st modular datacenter container from Ecoblox. The Company will also provide optional smart hands engineering support at an hourly rate of $130 per hour, with a 50% premium for evening and weekend services. In consideration of the services, the Company shall receive electricity fees passed through at a variable base cost multiplied be estimated usage plus an admin charge capped at 5%. The minimum fee increase of 3% is waived for the first 3 years and the annual CPI increase is capped at 2% for the first three years and 5% for the final two years. The monthly rental payable is $75,887. On February 18, 2025, an initial payment of $303,549 was made to the Company consisting of a $227,661 deposit, which is refundable at the end of the term of the Master Services Agreement, and the first month’s rental payment of $75,887. The initial payment was primarily used to buildout the data center, including installing electrical and other infrastructure in order to support Cudo’s hardware through the advance of $183,000 to SAPL. The Master Services Agreement term commenced on April 8, 2025 when Cudo’s hardware was delivered to our data center. 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, 2024, 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. 18 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, 2025 Compared to the Three Months Ended March 31, 2024 Results of operations Our operating expenses for the three months ended March 31, 2025 (the “2025 Quarter”) was $22,115,041 compared to $336,599, for the three months ended March 31, 2024 (the “2024 Quarter”), an increase of 6,470%. In the 2025 Quarter, the Company incurred stock-based compensation expense of $21,679,711 compared to $0 for the 2024 Quarter. The stock-based compensation for the 2025 Quarter was related to the amendment of options to the officers of the Company. Our other income for the 2025 Quarter was $1,243,060 compared to other expense of $114,605 for the 2024 Quarter. Other income in the 2025 quarter was comprised of $11,187 in interest expense and $1,254,247 for the gain on the change in fair value of derivative liabilities. Other expense for 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. Liquidity and Capital Resources As of May 15, 2025, the Company had approximately $35,000 of cash on hand. Historically, our liquidity was primarily derived from debt and equity investments from accredited investors. During the three months ended March 31, 2025, we received an initial payment of approximately $303,000 for colocation services to be provided by the Company. In addition, in April 2025 we sold 38,510,911 shares of restricted common stock to an accredited investor in consideration of $300,000. On April 7, 2025, we executed the Share Exchange with SAPL and, now, we are seeking to raise at least $2,000,000 to commence our HPC hosting operations and generate revenue. We require significant funding to develop our HPC operations. Subject to receiving funding, we expect that our operating expenses will increase as we attempt to develop our new HPC operations and we will 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, at this time, we are unable to quantify the expected increases in operating expenses in future periods. Summary of cash flows March 31, 2025 March 31, 2024 Net cash provided by (used in) operating activities $ 74,858 $ (298 ) Net cash used in investing activities $ (183,000 ) $ – Net cash provided by (used in) financing activities $ 290,100 $ – During the 2025 Quarter and the 2024 Quarter, our sources and uses of cash were as follows: Operating Activities During the 2025 Quarter, cash provided by operating activities of $74,858 primarily resulted from the Prepaid AI hosting services (customer deposits), offset by the net loss of $20,872,081 and stock-based compensation of $21,679,711, and change in the fair value of derivative liabilities of $1,254,247. 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. Investing Activities During the 2025 Quarter, the Company advanced $183,000 of cash for working capital needs in connection with the business acquisition of SAPL for purposes of financing the construction of the HPC facility. The Company had no investing activities during the 2024 Quarter. 19 Financing Activities During the 2025 Quarter, the Company received $300,000 in cash proceeds in connection with the sale of shares of common stock of the Company, offset by repayments of related party advances of $9,900. The Company had no financing activities during the 2024 Quarter. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable.