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, 2025. The following discussion and analysis compares our consolidated results of operations for three months ended June 30, 2026 (the “2026 Quarter”) with those for the three months ended June 30, 2025 (the “2025 Quarter”) and our consolidated results of operations for the six months ended June 30, 2026 (the “2026 Period”) with those for the six months ended June 30, 2025 (the “2025 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, 2025 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, Inc. 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 and 2025, our business activities primarily consisted of identifying and evaluating suitable acquisition transaction candidates, which led to our now-planned strategic transition from cryptocurrency mining to artificial intelligence (“AI”) data center and energy infrastructure development. On October 15, 2025, the Company and Blackberry AIF (“BAIF”) entered into a memorandum of understanding (the “MOU”) for the purposes of organizing DC Estate Solutions Cayman Limited, a Cayman Island entity (“DC Estate Solutions”) which was organized by the Company on October 23, 2025. On November 6, 2025, DC Estate Solutions and BAIF entered into a share purchase agreement (the “SPV SPA”). DC Estate Solutions was initially owned and controlled 75% by the Company and 25% by BAIF. The principal of BAIF is Jose Mora. DC Estate Solutions has acquired five property leases, which were previously assigned to and held by BAIF, consisting of 100 hectares of land each located in the Spain cities of Malpica, Caceres, Vianos, Cordoba and Torrecampo (the “Spain Leases”). The Spain Leases are held by wholly owned subsidiaries of DC Estate Solutions. The Spain Leases are for an average term of 35 years at an initial total average cost of $96,000 per month for all sites. As a condition of each lease, the payments are subject to meeting certain milestones, such as obtaining favorable urban compatibility reports and connection points. Under the terms of the Spain Leases, the Company will pay approximately $15,000 to the owners of the Cordoba site in 2026. No further payments are expected in 2026. The Company and BAIF intend to use the Spain Leases to develop and operate HPC data center sites. The Company paid BAIF $250,000 upon execution of the MOU and an additional $250,000 on the closing of the SPV SPA. The Company intends to develop the sites as gas powered fully autonomous energy islands for Tier 3 level uptime AI data centers. The total capacity to be developed across the five sites is anticipated to be up to 1.8 Gigawatts. We believe that since the sites will be autonomous energy islands, no grid connection is required and there will be no material reliance on grid infrastructure, thereby, subject to financing, reducing time to power for our data center clients to 18 months. The total capacity of the sites is planned to be 360 MW per site. An application to connect to the local gas pipeline for gas supply has already been made and approval has been received. The Company is negotiating a power purchase agreement with an energy company to develop a 360MW gas Solid Oxide Fuel Cell facility to convert gas fuel into electricity. The Company will need to secure fibre connections, environmental permits and all necessary contractor permits. The sites will then be classed at Ready to Build (“RTB”) as the Company intends to sell the sites on a RTB basis. We estimate the Company will require $5 million of working capital to achieve full RTB status on all five sites. Additional capital is required to develop the sites and the further development of the data centers to RTB will require substantial capital. There are no assurances that 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 data centers ultimately developed and sold or become operational. 25 The Company’s goal is to utilize the assets we have acquired via the purchase of BAIF sites to develop AI data center and energy infrastructure, 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 AI data center customer base. Effective January 22, 2026, the Company entered into a Joint Venture Agreement (the “JVA”) by and among the Company, BAIF and DC Estate Solutions, which (i) amends and restates the MOU and (ii) supplements the SPV SPA. Pursuant to the SPV SPA, DC Estate Solutions acquired the equity interests of five special purpose vehicles (the “SPVs”): (i) DC Estate Córdoba SL 300MW, (ii) DC Estate Cáceres SL 300 MW, (iii) DC Estate Vianos SL 300 MW, (iv) DC Estate Malpica SL 300 MW and (v) DC Estate Torrecampo SL 300 MW. As a result of the acquisition of the SPVs, DC Estate Solutions also acquired the Spain Leases. Pursuant to the JVA, DC Estate Solutions shall be owned and controlled 50.1% by the Company and 49.9% by BAIF. The purpose of the JVA is to manage and coordinate the development of high-performance computing data center (the “Data Centers”) sites on the properties governed by the Spain Leases. Substantially, all material decisions of the JVA and Joint Venture Company shall require the unanimous consent of the Company and BAIF. Under the JVA, the Company agreed to fund DC Estate Solutions with $3,500,000 USD as follows: (i) $250,000 USD, which was previously paid upon the execution of the MOU, (ii) $250,000 USD, which was previously paid upon execution of the SPV SPA, (iii) $375,000 USD paid on the effectiveness of a notarial public deed in Spain in connection with the transfer of the SPVs to the JVA on the Effective Date, and (iv) $2,625,000 USD payable in monthly installments of $125,000 USD commencing on March 1, 2026. The funds shall be distributed by DC Estate Solutions to BAIF. The Company also agreed to grant to BAIF, or its assignee, a non-qualified option to purchase up to 250,000,000 shares of the Company’s common stock (the “First Mora Option”) at an exercise price of $0.02 per share. The First Mora Option is fully vested and exercisable upon the grant date and terminates on the earlier of (i) five years following the date of the First Mora Option or (ii) the termination of the JVA. Additionally, pursuant to the JVA, DC Estate Solutions’ equity interests in the SPVs are subject to the Company making minimum aggregate cash payments and contributions to DC Estate Solutions (including amount payable under the SPV SPA) in the amount of $8,750,000 USD, which shall be distributed to BAIF (the “BAIF Funding”). If the Company fails to make such payments, BAIF may foreclose on the pro rata amount of equity interests in the SPVs. In the event of any sale or lease of a Data Center, profits of DC Estate Solutions shall be shared equally by and between the Company and BAIF. In the event DC Estate Solutions develops the Data Centers and sells such Data Centers, BAIF will be entitled to a bonus as defined under the JVA. Further, effective January 27, 2026, the Company, BAIF and DC Estate Solutions entered into an addendum to the JVA (the “Addendum”) to account for the development of additional Data Centers in (i) Villasequilla, Spain 600 MW, (ii) Tomelloso, Spain 450 MW (collectively, with the above-mentioned Spain Leases, the “Spain Leases”) and (iii) Tocumen, Panama 1000 MW (the “Panama Lease”). The Villasequilla and Tomelloso data centers shall each be owned by Spanish special purpose vehicles, DC Villasequilla SL and DC Tomelloso SL, respectively, and shall subsequently be assigned to DC Estate Solutions. The Tocumen data center shall be owned by a Panamanian special purpose vehicle, DC Tocumen SA, which shall subsequently be assigned to DC Estate Solutions. The Company, in addition to the already agreed upon $125,000 USD monthly payments, agreed to fund the development of the additional Data Centers by paying a minimum of $2,400,000 USD payable in monthly installments of $100,000 USD to DC Estate Solutions commencing on May 1, 2026 for a minimum of 24 months, thereby increasing the minimum BAIF Funding amount to a total of $11,150,000 USD. The funds shall be distributed by DC Estate Solutions to BAIF. The Company also agreed to grant to BAIF, or its assignee, an additional stock option to acquire 150,000,000 shares of the Company’s common stock (the “Second Mora Option”) at an exercise price of $0.02 per share. The Second Mora Option is fully vested and exercisable as of the grant date and terminates on the earlier of (i) five years following the date of the Second Mora Option or (ii) the termination of the JVA. On March 23, 2026, the Company, BAIF and DC Estate Solutions entered into a second addendum (the “Second Addendum”) to the JVA. Pursuant to the Second Addendum, the parties agreed to: (1) increase the capacity of the Spain-based data centers to 4,350 MW and (2) exchange the stock options to purchase an aggregate of 400,000,000 shares of common stock of the Company issued to BAIF or its assignees issued under the JVA for 400,000,000 shares of the Company’s restricted common stock to BAIF or its assignees with such shares being fully paid and non-assessable on the date of execution of the Second Addendum. 26 Effective April 7, 2025 (the “Effective Time” or “Closing Date”), the Company and Synthesis Analytics Production Ltd. (“SAPL”) and Adler Capital Limited (“ACL”) closed on a Share Exchange Agreement dated April 7, 2025 (the “Share Exchange”) and an employment agreement between the Company and Dr. Niclas Adler (the “Employment Agreement”). 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, began designing, building, and operating digital infrastructure for HPC with the goal of becoming a leading provider of digital colocation services. The acquisition of SAPL enabled the Company to begin 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. In or around May 2025, the Company discovered that Synthesis Analytics Production Ltd. and ACL breached material representations and warranties under the Share Exchange. The Employment Agreement was terminated on or about September 1, 2025, upon Dr. Adler’s resignation. Pursuant to a letter dated December 8, 2025 and a complaint filed by the Company in the United States District Court for the Southern District of Florida, the Company intends to seek rescission of the Share Exchange and rescind the shares of Company common stock issued to ACL pursuant to the Share Exchange and the Company has sent notice to Dr. Adler for the termination of the option to purchase common stock issued to Dr. Adler under the Employment Agreement and the termination of such agreement for “cause” as defined under the agreement. Among other material breaches, without limitation, the Company has discovered that the real property and material assets of SAPL were encumbered at the time of the closing of the Share Exchange and remain encumbered and subject to liens. On June 3, 2026, the Company entered into a non-binding term sheet with Ibersun Generacion, S.L. (“Ibersun”) pursuant to which the Company was to acquire 51% of the equity interests in Ibersun. The Company subsequently terminated the term sheet. Business Strategy Our business focus 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 a recent 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. We have not yet generated any revenues to date and require significant financing to develop our business. 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. 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, 2025 and Form 8-K Current Report dated April 13, 2026. 27 Products and Services AI Data Center Infrastructure Development 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 AI Data Center Infrastructure revenue will be generated by licensing colocation data center space and related services to a licensee at the Data Centers in Spain and Panama. Clients may choose to acquire our sites at RTB or contract with us to build the data center on our site to their specification and enter into a license agreement. 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 Ventures Ltd, a cloud computing company (“Cudo”). Under this agreement, the Company agreed to provide Tier 3 data center hosting infrastructure and colocation services to Cudo. The Master Services Agreement supported a 1 MW capacity during a five year term at our previously planned Marviken data center. On February 18, 2025, Cudo made an initial payment of $303,549 to the Company consisting of a $227,662 deposit, which was intended to be 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. However, as a result of the Company’s intention to rescind the SAPL Share Exchange, the Master Services Agreement was terminated and the Company is obligated to refund the deposit paid thereunder. 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, 2025, 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. Three Months Ended June 30, 2026 Compared to the Three Months Ended June 30, 2025 Results of operations Our operating expenses for the 2026 Quarter were $1,322,122 compared to $3,262,408, for the 2025 Quarter, a decrease of 61%. In the 2026 Quarter, the Company incurred stock-based compensation expense of $37,000 compared to $26,250 for the 2025 Quarter. The stock-based compensation for the 2026 Quarter was related to shares issued to our newly elected board member services performed. Our other expense for the 2026 Period was $1,983,014 compared to other expense of $564,873 for the 2025 Quarter. Other expenses in the 2026 Period were comprised primarily of $1,277,679 in interest expense and $705,807 for the loss on the change in fair value of derivative liabilities. Other expenses in the 2025 Period were comprised of $20,377 in interest expense, $396,443 for the loss on the change in fair value of derivative liabilities and $148,053 on the loss on settlement of debt. 28 Six Months Ended June 30, 2026 Compared to the Six Months Ended June 30, 2025 Results of operations Our operating expenses for the 2026 Period were $15,564,954 compared to $25,377,549, for the 2025 Period, a decrease of 39%. In the 2026 Period, the Company incurred stock-based compensation expense of $13,255,936 compared to $24,273,137 for the 2025 Period. The stock-based compensation for the 2026 period was related to common shares issued for acquisition related costs and shares issued to our director compared to the 2025 Period which 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 2026 Period was $6,540,751 compared to other income of $678,187 for the 2025 Period. Other income in the 2026 Period was comprised primarily of $2,479,112 in interest expense and $9,018,915 for the gain on the change in fair value of derivative liabilities. Other income in the 2025 Period was comprised of $31,564 in interest expense, $857,804 for the gain on the change in fair value of derivative liabilities and $148,053 on the loss on settlement of debt. Liquidity and Capital Resources As of August 14, 2026, the Company had approximately $25,000 of cash on hand. Historically, our liquidity was primarily derived from debt and equity investments from accredited investors. During the year ended December 31, 2025, we received an initial payment of approximately $303,000 for colocation services to be provided by the Company. In addition, during the year ended December 31, 2025, we 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 October 15, 2025, we entered into a binding memorandum of understanding with BAIF to acquire five properties in Spain and we are now 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. Furthermore, potential legal proceedings relating to SAPL and its affiliates may cause us to incur significant expenses or liability. Adverse outcomes in such proceedings or claims could result in significant liabilities which may materially affect our financial condition, results of operations, or cash flows. We have received cash proceeds of $1,327,000 from the issuance of convertible notes payable during 2025 and an additional $700,500 in 2026 through August 14, 2026. 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. On September 4, 2025, the Company also entered into a Securities Purchase Agreement (the “ELOC Agreement”) with an accredited investor purchaser. Pursuant to the ELOC Agreement, the Company agreed to sell, and the purchaser agreed to purchase up to $50,000,000 (the “Commitment Amount”) of the Company’s common stock, par value $0.001 per share (the “Purchase Shares”). We have received cash proceeds of $702,125 from the issuance of common shares during six months ended June 30, 2026. Summary of cash flows June 30, 2026 June 30, 2025 Net cash provided by (used in) operating activities $ (1,181,372 ) $ (43,487 ) Net cash used in investing activities $ (425,500 ) $ (230,915 ) Net cash provided by (used in) financing activities $ 1,375,215 $ 290,100 29 During the 2026 Quarter and the 2025 Quarter, our sources and uses of cash were as follows: Operating Activities During the 2026 Period, cash used in operating activities of $1,181,372 primarily resulted from the net loss of $9,024,203 offset by stock-based compensation of $13,255,936, amortization of debt discount of $752,794, interest expense from derivative liabilities, default provisions and true-up obligations of $1,647,450 and the gain on the change in the fair value of derivative liabilities of $9,018,915. During the 2025 Period, cash used in operating activities of $43,487 primarily resulted from the Prepaid AI hosting services (customer deposits), offset by the net loss of $24,699,362 and stock-based compensation of $24,273,137, and change in the fair value of derivative liabilities of $857,804. Investing Activities During the 2026 Period, the Company used $425,500 of cash for the development of the leased assets in the joint venture with DC Estate Solutions under the JVA. During the 2025 Period, the Company paid $47,915 of cash for assets in the construction of the HPC facility as well as $183,000 in connection with the acquisition of SAPL. Financing Activities During the 2026 Period, the Company received $852,135 in cash proceeds in connection with the sale of shares of common stock of the Company pursuant to the ELOC Agreement and private placements, and $700,500 in proceeds from convertible notes payable, offset by repayments of convertible notes of $177,420. 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, offset by repayments of related party advances of $9,900. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable.