FWAV

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

For the quarterly period ended September 30, 2022

OR

For the transition period from ________________ to ________________

Commission file number 000-55647

EDGEMODE, INC.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (707) 687-9093

Securities registered pursuant to Section 12(b) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  ☒     No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  ☒     No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ☐     No  ☒

There were 390,437,459 shares of the registrant’s common stock outstanding as of November 14, 2022. 

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

Edgemode, Inc. (Formerly Fourth Wave Energy, Inc.)

Consolidated Balance Sheets

(Unaudited)

The accompanying notes are an integral part of these unaudited financial statements.

Edgemode, Inc. (Formerly Fourth Wave Energy, Inc.)

Consolidated Statements of Operations

(Unaudited)

The accompanying notes are an integral part of these unaudited financial statements.

Edgemode (Formerly Fourth Wave Energy, Inc.)

Consolidated Statements of Changes in Stockholders’ Deficit

For the three and nine months ended September 30, 2022 and 2021

(Unaudited)

The accompanying notes are an integral part of these unaudited financial statements.

Edgemode, Inc. (Formerly Fourth Wave Energy, Inc.)

Consolidated Statements of Cash Flows

(Unaudited)

The accompanying notes are an integral part of these unaudited financial statements.

EdgeMode, Inc. (Formerly Fourth Wave Energy, Inc.)

Notes to the Consolidated Financial Statements

September 30, 2022

(Unaudited)

Note 1.      Basis of Presentation

The accompanying unaudited interim financial statements of EdgeMode, Inc. (formerly known as Fourth Wave Energy, Inc.) (“we”, “our”, or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission (“SEC”), and should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s Annual Report filed with the SEC on Form 10-K and the annual financial statements of Edgemode filed with the SEC on Form 8-K. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for our interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements that would substantially duplicate the disclosure contained in the audited financial statements for fiscal 2021, as reported in the Form 10-K and Form 8-K of the Company, have been omitted.

On March 20, 2020, shareholders owning a majority of the Company's outstanding shares of common stock amended the Company's Articles of Incorporation to change the name of the Company from Pierre Corp. to Fourth Wave Energy, Inc.

In connection with the acquisition of FWI in March 2020, the Company entered into consulting agreements with certain founders of FWI. The consulting agreements require the Company to collectively pay $379,850 in consulting fees during the terms of the consulting agreements. In March 2021 the Company agreed to sell the FWI technologies and its business plan to GeoSolar Technologies, Inc. a Colorado corporation (“GST”) in exchange for 10,000,000 shares of GST common stock (the “GST Shares”), such GST Shares distributable to the Company’s shareholders. As a part of this transaction, the consultants agreed to release the Company from any liability for any consulting fees owed to them by the Company and return a portion of the Company’s common stock held by such consultants. During the year ended December 31, 2021, 4,700,000 shares of the Company's common stock were returned to the Company and cancelled. The technology granted to GST was carried on our balance sheet at zero value and the shares received were also recorded at no value. FWI was voluntarily dissolved on December 8, 2021. The ex-dividend date, record date and distribution date for the registered distribution of the GST Shares to the Company's shareholders, subject to FINRA clearance, is the following:

Ex-Dividend Date: 12/06/2021

Record Date: 12/07/2021

Distribution Date: 12/14/2021

Effective January 31, 2022 (the “Effective Time”), the Company, FWAV Acquisition Corp., a Wyoming corporation and wholly owned subsidiary of the Company (the “Acquisition Subsidiary”) and EdgeMode, a Wyoming corporation (“EdgeMode Wyoming”) closed an Agreement and Plan of Merger and Reorganization dated December 2, 2021 (the “Merger Agreement”). In accordance with the Merger Agreement, Acquisition Subsidiary merged with and into EdgeMode Wyoming (the “Merger” or “Transaction”), with EdgeMode remaining as the surviving entity after the Merger and becoming a wholly owned subsidiary of the Company. In the Merger, the shares of common stock, no par value per share, of EdgeMode Wyoming issued and outstanding immediately prior to the Effective Time, represent 80% of the Company’s outstanding common stock on a fully diluted basis (or 313,950,672 shares of common stock). Furthermore, pursuant to the terms of the Merger the Company’s sole shareholder of the Company’s preferred stock converted such shares into 1,000 shares of common stock.

Joseph Isaacs, the Company’s sole officer and director resigned as an executive officer and director. Pursuant to the terms of the Merger Mr. Isaacs will provide services to the Company in a consultancy capacity at a fee of $11,500 per month and has been issued a stock option grant to purchase up to 19,987,095 shares of the Company’s common stock, vesting in 90 days, at an exercise price of $0.40 per share. The consulting agreement may be terminated by the Company without cause after three months. In addition, Mr. Isaacs received a $250,000 cash bonus and the Company entered into a contract with a company owed by Joe Isaacs to perform services for total value of $240,000. Charlie Faulkner and Simon Wajcenberg, the principals of EdgeMode Wyoming, were appointed as directors and executive officers.

Simultaneously with the Merger, approximately $4,574,132 of principal and interest of outstanding notes previously issued by the Company automatically converted into an aggregate of 18,296,528 shares of the Company’s common stock issued to 31 former noteholders. In addition, the Company has repaid approximately $988,000 of principal amount of notes. At the Effective Time the Company has nominal liabilities, excluding the debt and liabilities of EdgeMode Wyoming.

The merger was accounted for as a reverse merger, whereby EdgeMode Wyoming was considered the accounting acquirer and became our wholly-owned subsidiary. In accordance with the accounting treatment for a “reverse merger”, the Company’s historical financial statements prior to the reverse merger has been replaced with the historical financial statements of EdgeMode Wyoming prior to the reverse merger. The financial statements after completion of the reverse merger include the assets, liabilities, and results of operations of the combined company from and after the closing date of the reverse merger, with only certain aspects of pre-consummation stockholders’ equity remaining in the consolidated financial statements.

On June 3, 2022, the Company changed its name from Fourth Wave Energy Inc. to Edgemode, Inc.

NOTE 2 – Summary of significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make certain estimates and assumptions that affect the amounts reported in the financial statements and footnotes thereto. Actual results could materially differ from these estimates. It is reasonably possible that changes in estimates will occur in the near term.

Principals of consolidation

The accompanying consolidated financial statements include the accounts of Fourth Wave Energy, Inc. and the accounts of its 100% owned subsidiary, EdgeMode. All intercompany transactions and balances have been eliminated in consolidation.

Fair Value Measurements

Generally accepted accounting principles define fair value as the price that would be received to sell an asset or be paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price) and such principles also establish a fair value hierarchy that prioritizes the inputs used to measure fair value using the following definitions (from highest to lowest priority):

The Company has no assets or liabilities valued using level 1, level 2, or level 3 inputs as of September 30, 2022.

Revenue Recognition

We recognize revenue in accordance with ASC 606, Revenue from Contracts with Customers. This standard provides a single comprehensive model to be used in the accounting for revenue arising from contracts with customers and supersedes current revenue recognition guidance, including industry-specific guidance. The standard’s stated core principle is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this core principle, ASC 606 includes provisions within a five-step model that includes identifying the contract with a customer, identifying the performance obligations in the contract, determining the transaction price, allocating the transaction price to the performance obligations, and recognizing revenue when, or as, an entity satisfies a performance obligation.

 The Company has entered into digital asset mining pools by executing contracts, as amended from time to time, with the mining pool operators to provide computing power to the mining pool. The contracts are terminable at any time by either party and the Company’s enforceable right to compensation only begins when the Company provides computing power to the mining pool operator. In exchange for providing computing power, the Company is entitled to a fractional share of the fixed cryptocurrency award the mining pool operator receives (less digital asset transaction fees to the mining pool operator which are recorded as a component of cost of revenues), for successfully adding a block to the blockchain. The terms of the agreement provides that neither party can dispute settlement terms after thirty-five days following settlement. The Company’s fractional share is based on the proportion of computing power the Company contributed to the mining pool operator to the total computing power contributed by all mining pool participants in solving the current algorithm.

Providing computing power in digital asset transaction verification services is an output of the Company’s ordinary activities. The provision of providing such computing power is the only performance obligation in the Company’s contracts with mining pool operators. The transaction consideration the Company receives, if any, is noncash consideration, which the Company measures at fair value on the date received, which is not materially different than the fair value at contract inception or the time the Company has earned the award from the pools. The consideration is all variable. Because it is not probable that a significant reversal of cumulative revenue will not occur, the consideration is constrained until the mining pool operator successfully places a block (by being the first to solve an algorithm) and the Company receives confirmation of the consideration it will receive, at which time revenue is recognized. There is no significant financing component in these transactions.

Fair value of the cryptocurrency award received is determined using the closing price of the related cryptocurrency on the day of receipt. There is currently no specific definitive guidance under GAAP or alternative accounting framework for the accounting for cryptocurrencies recognized as revenue or held, and management has exercised significant judgment in determining the appropriate accounting treatment. In the event authoritative guidance is enacted by the FASB, the Company may be required to change its policies, which could have an effect on the Company’s consolidated financial position and results from operations.

Reclassification of Comparative Period Presentation

The Company is reclassifying its financial statements for the nine-month period ended September 30, 2021. These financial statements represent a reclassification of certain prior year account classifications and footnotes.

Recent Accounting Pronouncements

The Company does not believe that any recently issued effective pronouncements, or pronouncements issued but not yet effective, if adopted, would have a material effect on the accompanying financial statements.

NOTE 3 - Going Concern

These financial statements are prepared on a going concern basis. The Company began operations in 2020 and incurred a cumulative loss since inception. The Company’s ability to continue is dependent upon management’s plan to raise additional funds and achieve profitable operations. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary if the Company is not able to continue as a going concern.

NOTE 4 – Reverse Merger Transaction

Pursuant to the terms of the Merger Agreement, and in exchange for all 100% of the issued and outstanding shares of EdgeMode Wyoming, the shareholders of EdgeMode received an aggregate of 313,950,672 shares of common stock, par value $.001 per share, of the Company.

Prior to the Merger, EdgeMode Wyoming was authorized to issue 300,000 shares of preferred stock with no par value per share, of which 261,438 were designated as Series Seed Preferred Stock (“Series Seed Preferred”). Immediately prior to the Merger, the holders of the Series Seed Preferred stock converted the shares into 261,438 shares of EdgeMode Wyoming common stock.

As a result of the Reverse Merger, the Company has acquired the following assets and liabilities which were recorded at the pre-combination carrying basis. The assets acquired and liabilities assumed are as follows:

NOTE 5 – Related Party Transactions

Pursuant to the terms of the Merger Mr. Isaacs will provide services to the Company in a consultancy capacity at a fee of $11,500 per month and has been issued a stock option grant to purchase up to 19,987,095 shares of the Company’s common stock, vesting in 90 days, at an exercise price of $0.40 per share. The consulting agreement may be terminated by the Company without cause after three months. In addition, Mr. Isaacs received a $250,000 cash bonus and the Company entered into a contract with a company owed by Joe Isaacs to perform services for total value of $240,000, which was paid in advance. As of September 30, 2022, $7,500 amount of services are left to be performed.

During the nine months ended September 30, 2022, the Company granted options to the officers and a consultant of the Company to purchase up to 65,920,895 shares of the Company’s stock, vesting immediately, at an exercise price of $0.40 per share.

During the nine months ended September 30, 2022, the Company granted options to the officers of the Company to purchase up to 153,239,206 shares of the Company’s stock, which vest upon the Company listing its shares on the NASDAQ Global Market, New York Stock Exchange, or another equivalent market, at an exercise price of $0.10 per share.

As of September 30, 2022 the Company owed the executive officers of the Company $331,125 in accrued payroll for services performed.

NOTE 6 - Prepaid Hosting Services

Prepaid hosting services are amounts paid to secure the use of data hosting services at a future date or continuously over one or more future periods. When the prepaid hosting services are eventually consumed, they are charged to expense. As of September 30, 2022 the company has prepaid a total of $1,586,297 which the company expects to begin using during the first quarter of 2023 which has been delayed from original expectations due to delays in obtaining the equipment to be hosted.

NOTE 7 – Fixed Assets

Fixed assets are stated at cost and depreciated using the straight-line method over their estimated useful lives. When retired or otherwise disposed, the carrying value and accumulated depreciation of the fixed asset is removed from its respective accounts and the net difference less any amount realized from disposition, is reflected in earnings. Expenditures for maintenance and repairs which do not extend the useful lives of the related assets are expensed as incurred.

As of September 30, 2022 and 2021 fixed assets were made up of the following:

Total depreciation expense for the nine months ended September 30, 2022 and 2021, was $630,670 and $522,282 respectively.

As of September 30, 2022 the Company had $1,610,139 of equipment that is not yet in service. During the nine months ended September 30, 2022, the Company terminated all future purchase orders related to Ethereum mining equipment and related hosting services, as the Company will focus on Bitcoin mining, and returned equipment not yet placed in service and investing in new Bitcoin mining equipment. The remaining equipment not placed in service is expected to be delivered and placed in service during the second quarter of 2023.

During the nine months ended September 30, 2022 the Company recorded an impairment to cryptomining equipment in the amount of $748,269 as a result of the Company determining the future cash flows were less than the remaining payments on the equipment notes. Of the total impairment, $131,232 relates to assets the company disposed of due to the switch away from Etherium mining, $357,036 was related to mining equipment purchased with the Equipment Notes Payable discussed below in Note 9. The company is currently in negotiations with the manufacturer of the equipment to settle the remainder of the notes by returning the equipment, and offsetting the down payments of the future equipment against the remaining outstanding payable balances. As such the company has impaired the value of the assets down to the salvage value, which was determined to be the remaining principle payments owed. The remaining $260,000 of impairment was related to the equipment acquired in 2020. A portion of this equipment was sold for $60,000 during the nine months ended September 30, 2022.

NOTE 8 – Equity

The Company has authorized 950,000,000 shares of common stock, par value of $0.001, and as of September 30, 2022 has issued 390,437,459 shares of common stock. All of the common shares have the same voting rights and liquidation preferences.

Preferred shares

Series A

We are authorized to issue 4,999,000 shares of preferred stock. Shares of preferred stock may be issued from time to time in one or more series as may be determined by our Board. The voting powers and preferences, the relative rights of each such series and the qualifications, limitations and restrictions of each series will be established by the Board. Our directors may issue preferred stock with multiple votes per share and dividend rights which would have priority over any dividends paid with respect to the holders of our common stock. In connection with the Transaction, the only outstanding preferred stock was converted into common stock. As of the date of this report, there are no outstanding shares of preferred stock.

On March 26, 2020, the Company designated 1,000 shares of its original 5,000,000 authorized shares of Preferred Stock as Series A Preferred Stock (“Series A”) with a $0.001 par value. Each Series A Preferred share entitles the holder to vote on all matters submitted to a vote of the Company’s shareholders or with respect to actions that may be taken by written consent. The 1,000 shares of Series A shares have the voting power of 250% of the outstanding common shares at the time of any vote. The holders of the Series A shares are entitled to receive, when, as and if declared by the Board of Directors out of funds legally available, annual dividends payable in cash on the 31st day of December in each year, commencing on December 31, 2020 at the rate of $0.10 per share per year. As part of the recapitalization, the 1,000 shares were converted into common shares.

On March 30, 2022 the Company reduced its authorized preferred shares from 5,000,000 to 4,999,000 shares and removed the 1,000 shares of Series A from the designation.

Series B

On July 19, 2022, the Company designated 1,000,000 shares of its original 5,000,000 authorized shares of Preferred Stock as Series B Preferred Stock (“Series B”) with a $0.001 par value and a stated value of $1.00 per share. The Series B Convertible Preferred Stock ranks senior to the common stock with respect to dividends and right of liquidation and has no voting rights. The Series B Convertible Preferred Stock has a 10% cumulative annual dividend. In the event of default, the dividend rate increases to 22%. The Company may not, with consent of a majority of the holders of Series B Convertible Preferred Stock, alter or changes the rights of the Series B Convertible Preferred Stock, amend the articles of incorporation, create any other class of stock ranking senior to the Series B Convertible Preferred Stock, increase the authorized shares of Series B Convertible Preferred Stock, or liquidate or dissolve the Company. Beginning 180 days from issuance, the Series B Convertible Preferred Stock may be converted into common stock at a price based on 65% of the average of the two lowest trading prices during the 15 days prior to conversion. The Company may redeem the Series B Convertible Preferred Stock during the first 180 days from issuance, subject to early redemption penalties of up to 25%. The Series B Convertible Preferred Stock must be redeemed by the Company 12 months following issuance if not previously redeemed or converted. Based on the terms of the Series B Convertible Preferred Stock, the Company determined that the preferred stock is mandatorily redeemable and will be accounted for as a liability under ASC 480.

During the nine months ended September 30, 2022, the Company entered into purchase agreements for the sale of 212,500 shares of Series B Convertible Preferred Stock with 1800 Diagonal Lending, LLC, with $11,250 of proceeds being kept by the lender for legal fees, resulting in cash proceeds of $201,250. As of September 30, 2022, the Company owes $1,905 in accrued dividends, reflected as interest expense, and the carrying value of the Series B Preferred stock was $202,390, net of unamortized discount of $10,110.

Common shares

On March 30, 2022 the Company increased its authorized common shares from 500,000,000 to 950,000,000.

During the nine months ended September 30, 2022, the Company issued 1,696,394 common shares for cash and cryptocurrency proceeds of $616,015. In connection with the stock purchases, the company issued warrants to purchase 1,230,000 shares of common stock with an exercise price of $0.50, which expire five years from the date of grant.

During the nine months ended September 30, 2022, the Company amortized $44,875 of stock compensation expense related to shares issued for services pursuant to a consulting agreement entered into during 2021. As of September 30, 2022, $0 of unrecognized expense remains to be amortized.

During the nine months ended September 30, 2022, the Company issued 4,000,000 common shares as compensation to a third party for advisory services with a fair value of $318,000 which was expensed in the current period.

On September 19, 2022, the Company entered into a Common Stock Purchase Agreement (the “Purchase Agreement”) with Alumni Capital LP, a Delaware limited partnership (“Alumni Capital”), pursuant to which the Company agreed to sell, and Alumni Capital agreed to purchase, upon request of the Company in one or more transactions, a number of shares of the Company’s common stock, par value $0.01 per share (the “Common Stock”) providing aggregate gross proceeds to the Company of up to $15,000,000 (the “Maximum”). The Purchase Agreement expires upon the earlier of the aggregate gross proceeds from the sale of shares meeting the Maximum or December 31, 2023.

Among other limitations, unless otherwise agreed upon by Alumni Capital, each sale of shares will be limited to 50,000 shares and further limited to no more than the number of shares that would result in the beneficial ownership by Alumni Capital and its affiliates, at any single point in time, of more than 9.99% of the then-outstanding shares of Common Stock. Alumni Capital will purchase the shares of Common Stock under the Agreement at a discount 20% of the lowest traded price of the Common Stock in the five business days preceding the Company delivering notice of the required purchase of shares to Alumni Capital.

In exchange for Alumni Capital entering into the Purchase Agreement, the Company issued 2,521,008 shares of Common Stock to Alumni Capital upon execution of the Purchase Agreement (the “Initial Commitment Shares”). Alumni Capital represented to the Company, among other things, that it was an “accredited investor” (as such term is defined in Rule 501(a) of Regulation D under the Securities Act of 1933, as amended (the “Securities Act”)). The Company shares of Common Stock, including the Commitment Shares, are being offered and sold under the Purchase Agreement in reliance upon an exemption from the registration requirements of the Securities Act afforded by Section 4(a)(2) of the Securities Act and Rule 506(b) of Regulation D promulgated thereunder. The securities sold may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.

The Purchase Agreement provides that the Company will file a registration statement under the Securities Act covering the resale of the shares issued to Alumni Capital. Alumni Capital’s obligation to purchase shares of Common Stock under the Purchase Agreement is conditioned upon, among other things, the registration statement having been declared effective by the Securities and Exchange Commission.

As of November 14, 2022, no shares have been sold or issued to Alumni Capital pursuant to the Purchase Agreement other than the 2,521,008 Commitment Shares. The Commitment shares were valued $0.105 per share for total value of $264,706 which has been recorded as deferred offering costs which will be offset against the future proceeds.

Stock Options

During the nine months ended September 30, 2022, the Company issued a stock option grant to purchase up to 85,907,990 shares of the Company’s common stock, vesting immediately and in 90 days, at an exercise price of $0.40 per share. The expected term was estimated using the simplified method for employee stock options since the Company does not have adequate historical exercise data to estimate the expected term.

During the nine months ended September 30, 2022, the Company issued a stock option grant to purchase up to 153,239,206 shares of the Company’s common stock, which vest upon the Company listing its shares on the NASDAQ Global Market, New York Stock Exchange, or another equivalent market, at an exercise price of $0.10 per share. The expected term was estimated using the simplified method for employee stock options since the Company does not have adequate historical exercise data to estimate the expected term.

The Company used the black-scholes option pricing model to value the options and expensed $24,219,306 during the nine months ended September 30, 2022. As of September 30, 2022, the Company has $17,715,672 of value remaining to be expensed based upon completions of milestones, of which $16,865,676 is contingently subject to expense recognition based on the timing of when the Company is able to up-list the shares as described above as this does not meet the definition of probable under ASC 450, and $0 of remaining amortization to expensed pursuant to the vesting terms.

The following table summarizes the stock option activity for the nine months ended September 30, 2022:

As of September 30, 2022, the Company had 85,907,990 stock options that were exercisable and 137,473 that are in dispute. The weighted average remaining life of all outstanding stock options was 4.73 years as of September 30, 2022. Aggregate intrinsic value is calculated as the difference between the exercise price of the underlying stock option and the fair value of the Company’s common stock for stock options that were in-the-money at period end. As of September 30, 2022, the intrinsic value for the options vested and outstanding was $0 and $8,248, respectively.

Stock Warrants

The following table summarizes the stock warrant activity for the nine months ended September 30, 2022:

NOTE 9 - Notes Payable

Notes Payable

Pursuant to the merger agreement, the Company acquire outstanding note payables in the amount of $35,000. These loans were advanced as due on demand and no communication has been received from the original lenders.

Simultaneously with the Merger, approximately $4,574,132 of principal and interest of outstanding notes previously issued by the Company automatically converted into an aggregate of 18,296,528 shares of the Company’s common stock issued to 31 former noteholders. The conversion and issuance of shares of the Company’s common stock is presented as part of the recapitalization on the equity statement

Equipment Notes Payable

In February 2021, the Company entered into a financing agreement whereby the company agreed to purchase assets related to its crypto mining operations. The financing agreement required a down payment of $199,800 and 24 equal monthly payments of $32,760. The Company used a 15% discount rate to determine the net present value of the loan value of $871,519. The balance of the loan as September 30, 2022 is $336,266. The Company is currently in negotiations with the lender to terminate the remainder of the agreement and return the equipment

In May 2021, the Company entered into a financing agreement whereby the Company agreed to purchase assets related to its crypto mining operations. The financing agreement required a down payment of $299,808, the first month payment of $79,056 and 23 equal monthly payments of $39,528. The Company used a 15% discount rate to determine the net present value of the loan value of $1,148,237. The balance of the loan as of September 30, 2022 is $507,663. The Company is currently in negotiations with the lender to terminate the remainder of the agreement and return the equipment

In July 2021, the Company entered into a financing agreement whereby the company agreed to purchase assets related to its crypto mining operations. The financing agreement required a down payment of $100,800 and 24 equal monthly payments of $15,660. The Company used a 15% discount rate to determine the net present value of the loan value of $421,835. The balance of the loan as of September 30, 2022 is $240,117. The Company is currently in negotiations with the lender to terminate the remainder of the agreement and return the equipment

The following table presents the future maturities and principal payments of all notes payable listed above for the next five years and thereafter are as follows:

NOTE 10 – Cryptocurrency Assets

The Company began cryptocurrency mining activities during the year ended December 31, 2021. In addition to mining activities, the Company conducts other business activities using its cryptocurrency assets as compensation. The below table represents the cryptocurrency activities during the nine months ended September 30, 2022:

NOTE 11 – Commitments and Contingencies

Legal Contingencies

On February 8, 2022, the Company was notified of a potential lawsuit related to the termination of our Advisory Panel Membership agreement with Taylor Black Wealth, Ltd. (“Taylor”). The Company engaged Taylor for assistance with capital raises and was to be partially compensated with stock options, subject to vesting. Taylor claims that the Company terminated the agreement unlawfully and therefore are still entitled to the remaining unvested options which the Company believes to be cancelled. The total number of stock options being contested is 137,473.

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.

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.

Summary of cash flows

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.

Not applicable.

Evaluation of Disclosure Controls and Procedures. We are required to maintain “disclosure controls and procedures” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”). Based on their evaluation as of the end of the period covered by this report, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures were not effective to ensure that the information relating to our company, required to be disclosed in our Securities and Exchange Commission (“SEC”) reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure as a result of material weaknesses in our internal control over financial reporting for the following reasons:

We will continue to monitor our internal control over financial reporting on an ongoing basis and are committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow. We do not, however, expect that the material weaknesses in our disclosure controls will be remediated until such time as we have added additional personnel, including additional accounting and administrative staff, allowing improved internal control over financial reporting.

Changes in Internal Control Over Financial Reporting. There were no changes in our internal control over financial reporting as defined in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

From time to time, the Company may become a party to legal actions or proceedings in the ordinary course of its business. At September 30, 2022, there were no such actions or proceedings, either individually or in the aggregate, that, if decided adversely to the Company’s interests, the Company believes would be material to its operation or cash flow.

While we attempt to identify, manage, and mitigate risks and uncertainties associated with our business to the extent practical under the circumstances, some level of risk and uncertainty will always be present. Our “Risk Factors” in the Form 10-K for the fiscal year ended December 31, 2021 describes some of the risks and uncertainties associated with our business, which we strongly encourage you to review. These risks and uncertainties have the potential to materially affect our business, financial condition, results of operations, cash flows, projected results, and future prospects. There have been no material changes in our risk factors from those disclosed in the Form 10-K for the fiscal year ended December 31, 2021.

There were no unregistered sales of the Company’s equity securities during the 2022 Quarter that were not previously disclosed in a Current Report on Form 8-K.

None.

Not Applicable.

None.

The exhibits listed in the accompanying “Index to Exhibits” are filed or incorporated by reference as part of this Form 10-Q.

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.

Dated:  November 14, 2022

EXHIBIT INDEX

+     Certain schedules, appendices and exhibits to this agreement have been omitted in accordance with Item 601 of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished supplementally to the Securities and Exchange Commission staff upon request.

Copies of this filing (including the financial statements) and any of the exhibits referred to above will be furnished at no cost to our shareholders who make a written request to EdgeMode, Inc.; 110 E. Broward Blvd., Suite 1700, Ft. Lauderdale, FL 33301; Attention: Corporate Secretary.

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