Item 2. Management’s Discussion and Analysis
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 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 September 30, 2025 (the “2025 Quarter”) with those for the three months ended September
30, 2024 (the “2024 Quarter”) and our consolidated results of operations for the nine months ended September 30, 2025 (the
“2025 Period”) with those for the nine months ended September 30, 2024 (the “2024 Period”).
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.
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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.
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 $5,000,000
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.
Gas Powered Tier 3 AI Data center development
See “Note 11 Subsequent Events” to
the financial statements included in this report for a description of memorandum of understanding dated October 15, 2025 between the Company
and BAIF for the purposes of organizing the SPV and the SPV SPA and for a discussion of the Company’s plan of operations for the
SPA and the Spain Leases. There are no assurances the Company will receive sufficient capital or will receive capital on reasonable terms.
In addition, there are no assurances the application and permits will be received or that agreements will be completed or the datacenters
ultimately developed and sold or become operational.
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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.
Recent Accounting Pronouncements
For information on recent accounting pronouncements
and impacts, see Note 1 to the unaudited consolidated financial statements.
Three Months Ended September 30, 2025 Compared
to the Three Months Ended September 30, 2024
Results of operations
Our operating expenses for the 2025 Quarter was $734,255
compared to $380,738, for the 2024 Quarter, an increase of 93%. In the 2025 Quarter, the Company incurred stock-based compensation expense
of $166,500 compared to $0 for the 2024 Quarter. The stock-based compensation for the 2025 Quarter was related to shares issued to a consultant
for services performed.
Our other income for the 2025 Quarter was $11,071,528
compared to other expense of $1,017,534 for the 2024 Quarter. Other expense in the 2025 quarter was comprised of $5,869,219 in interest
expense, comprised of $5,665,276 of day one charges related to the derivative liabilities offset by the $16,940,747 for the gain on the
change in fair value of derivative liabilities. Other expense in the 2024 quarter was comprised of $13,493 in interest expense and $1,279,091
for the loss on the change in fair value of derivative liabilities offset by income of $275,000 on the refund of an equipment deposit.
Nine Months Ended September 30, 2025 Compared to
the Nine Months Ended September 30, 2024
Results of operations
Our operating expenses for the 2025 Period was $26,111,804
compared to $1,102,756, for the 2024 Period, an increase of 2,278%. In the 2025 Period, the Company incurred stock-based compensation
expense of $24,439,637 compared to $0 for the 2024 Period. The stock-based compensation for the 2025 Quarter was related to the amendment
of options to the officers of the Company and issuance of shares to an outside consultant.
Our other income for the 2025 Period was $11,749,715
compared to other expense of $1,062,198 for the 2024 Period. Other income in the 2025 Period was comprised of $5,900,783 in interest expense
comprised of $5,665,276 of day one charges related to the derivative liabilities, $17,798,551 for the gain on the change in fair value
of derivative liabilities and $148,053 on the loss on settlement of debt. Other expense in the 2024 period was comprised of $56,045 in
interest expense and $1,431,143 for the loss on the change in fair value of derivative liabilities offset by income of $425,000 on the
refund of an equipment deposit.
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Liquidity and Capital Resources
As of November 14, 2025, the Company had approximately
$650,000 of cash on hand. Historically, our liquidity was primarily derived from debt and equity investments from accredited investors.
During the nine months ended September 30, 2025, we received an initial payment of approximately $303,000 for colocation services to
be provided by the Company. In addition, through the date of this filing in 2025 we have sold 45,177,578 shares of restricted common
stock to accredited investors in consideration of $500,000. On April 7, 2025, we executed the Share Exchange with SAPL. On 15 th
October 2025 we entered into a binding MOU with BAIF to acquire 5 properties in Spain and, now, we are seeking to raise at least $5,000,000
to commence our HPC hosting operations and develop our gas powered AI data centers and generate revenue. We require significant funding
to develop our HPC operations. We have received cash proceeds $1,096,000 from the issuance of convertible notes payable during 2025.
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
September 30, 2025
September 30, 2024
Net cash provided by (used in) operating activities
$ (352,479 )
$ 22,740
Net cash provided by (used in) investing activities
$ (490,916 )
$ (4,600 )
Net cash provided by (used in) financing activities
$ 1,143,720
$ (13,275 )
During the 2025 Quarter and the 2024 Quarter, our
sources and uses of cash were as follows:
Operating Activities
During the 2025 period, cash used in operating activities
of $352,479 primarily resulted from the Prepaid AI hosting services (customer deposits), offset by the net loss of $14,362,089 and stock-based
compensation of $24,439,637, and change in the fair value of derivative liabilities of $17,798,551 and day one interest charge of $5,665,276.
During the 2024 Period, cash provided by operating
activities of $22,740 primarily resulted from the refund of prepaid hosting services, offset by the net loss of $2,164,954, change in
fair value of derivative liabilities of $1,431,143, increases in accounts payable and accrued expenses of $68,492 and increases in accrued
payroll of $653,338.
Investing Activities
During the 2025 Period, the Company paid $47,916 of
cash for assets in the construction of the HPC facility, $183,000 in connection with the acquisition of SAPL, and advanced $260,000 of
cash for working capital needs in connection with the business acquisition of BAIF for purposes of financing the construction of the HPC
facility.
Cash used in investing activities in the 2024 Period
of $4,600 resulted from the purchase of cryptocurrency assets.
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Financing Activities
During the 2025 Period, the Company received $300,000
in cash proceeds in connection with the sale of shares of common stock of the Company and $852,000 in cash proceeds from convertible notes
payable offset by net repayments of related party advances of $8,280.
In the 2024 Period, cash used in financing activities
of $13,275 consisted of $30,000 for the repayment of convertible notes payable, offset by proceeds from related party advances of $16,725.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.