UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ________________ to ________________
Commission file number
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of | (I.R.S. Employer |
| incorporation or organization) | Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area
code:
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.
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).
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.
| Large accelerated filer ☐ | Accelerated filer ☐ | |
| Smaller reporting company | ||
| Emerging growth company |
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 ☐
There were shares of the registrant’s common stock outstanding as of August 14, 2023.
TABLE OF CONTENTS
| Page |
Unless the context otherwise indicates, when used in this report, the terms the “Company,” “Edgemode”, “we,” “us, “our” and similar terms refer to Edgemode, Inc. and our wholly owned subsidiary, EdgeMode, a Wyoming corporation. Our corporate website is www.edgemode.io. There we make available copies of Edgemode documents, news releases and our filings with the U.S. Securities and Exchange Commission including financial statements.
Unless specifically set forth to the contrary, the information that appears on our website is not part of this report.
| 2 |
PART I – FINANCIAL INFORMATION
| ITEM 1. | FINANCIAL STATEMENTS |
Edgemode, Inc.
Consolidated Balance Sheet
(Unaudited)
| June 30, 2023 | December 31, 2022 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Prepaid expenses and other current assets | ||||||||
| Prepaid hosting services | ||||||||
| Deferred offering costs | ||||||||
| Total current assets | ||||||||
| Intangible assets - cryptocurrencies | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Accrued payroll | ||||||||
| Accrued dividends | ||||||||
| Equipment notes payable | ||||||||
| Convertible notes payable | ||||||||
| Notes payable | ||||||||
| Series B preferred shares liability, net | ||||||||
| Total current liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Stockholders' deficit: | ||||||||
| Preferred shares, $ par value, shares authorized June 30, 2023 and December 31, 2022; issued and outstanding | ||||||||
| Common shares, $ par value, shares authorized June 30, 2023 and December 31, 2022; and shares issued and outstanding, June 30, 2023 and December 31, 2022 | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Stockholders’ deficit | ( | ) | ( | ) | ||||
| Total liabilities and stockholders’ deficit | $ | $ | ||||||
See accompanying notes to the unaudited consolidated financial statements.
| 3 |
Edgemode, Inc.
Consolidated Statements of Operations
(unaudited)
| For the three months ended | For the six months ended | |||||||||||||||
| June 30, 2023 | June 30, 2022 | June 30, 2023 | June 30, 2022 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Cost of revenue | ||||||||||||||||
| Gross margin | ( | ) | ( | ) | ||||||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Loss on cryptocurrencies | ||||||||||||||||
| Loss on sale of equipment and impairment | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other expense: | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Penalty on redemption of Preferred B shares | ( | ) | ||||||||||||||
| Other expense | ( | ) | ||||||||||||||
| Refund of equipment deposit | ||||||||||||||||
| Loss on settlement | ( | ) | ||||||||||||||
| Total other income (expense), net | ( | ) | ( | ) | ||||||||||||
| Income (loss) before provision for income taxes | ( | ) | ( | ) | ( | ) | ||||||||||
| Provision for income taxes | ||||||||||||||||
| Net loss | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Loss per common share - basic | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Loss per common share - diluted | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Weighted average shares outstanding – basic | ||||||||||||||||
| Weighted average shares outstanding - diluted | ||||||||||||||||
See accompanying notes to the unaudited consolidated financial statements.
| 4 |
Edgemode, Inc.
Consolidated Statements of Stockholders’ Equity (Deficit)
For the six months ended June 30, 2023 and 2022
(Unaudited)
| Mezzanine Equity | Total | |||||||||||||||||||||||||||
| Preferred | Common | Additional | Stockholders’ | |||||||||||||||||||||||||
| Preferred | Stock | Common | Stock | Paid-In | Accumulated | Equity/ | ||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | (deficit) | ||||||||||||||||||||||
| Balance December 31, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Common shares issued for settlement of claims | – | |||||||||||||||||||||||||||
| Stock-based compensation | – | – | ||||||||||||||||||||||||||
| Net loss | – | – | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance March 31, 2023 | ( | ) | ( | ) | ||||||||||||||||||||||||
| Net income | – | – | ||||||||||||||||||||||||||
| Balance June 30, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Balance December 31, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Conversion of preferred shares into common | ( | ) | ( | ) | ||||||||||||||||||||||||
| Common shares issued in exchange for cash | – | |||||||||||||||||||||||||||
| Common shares issued in exchange for cryptocurrency | – | |||||||||||||||||||||||||||
| Recapitalization of reverse merger | – | |||||||||||||||||||||||||||
| Stock-based compensation | – | – | ||||||||||||||||||||||||||
| Net Loss | – | – | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance March 31, 2022 | ( | ) | ||||||||||||||||||||||||||
| Recapitalization of reverse merger | – | |||||||||||||||||||||||||||
| Stock-based compensation | – | – | ||||||||||||||||||||||||||
| Net Loss | – | – | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance June 30, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
See accompanying notes to the unaudited consolidated financial statements.
| 5 |
Edgemode, Inc.
Consolidated Statements of Cash Flows
(unaudited)
| For the six months ended | ||||||||
| June 30, 2023 | June 30, 2022 | |||||||
| Operating Activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | ||||||||
| Loss on sale of equipment and impairment | ||||||||
| Amortization of discounts | ||||||||
| Penalty on redemption of Preferred B shares | ||||||||
| Loss on settlement | ||||||||
| Stock-based compensation | ||||||||
| Cryptocurrency used for officer compensation | ||||||||
| Loss on cryptocurrency transactions | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Prepaid expenses and other current assets – related parties | ( | ) | ||||||
| Cryptocurrencies - mining | ( | ) | ||||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| Accrued payroll | ( | ) | ||||||
| Net cash provided by (used in) operating activities | ( | ) | ||||||
| Investing Activities: | ||||||||
| Cash acquired in acquisition | ||||||||
| Purchase of equipment | ( | ) | ||||||
| Proceeds from sale of equipment | ||||||||
| Proceeds from sale of cryptocurrencies | ||||||||
| Net cash provided by investing activities | ||||||||
| Financing Activities: | ||||||||
| Proceeds from issuance of common shares, net of offering costs | ||||||||
| Proceeds from subscription receivables | ||||||||
| Payments on preferred B shares | ( | ) | ||||||
| Payments on equipment notes payable | ( | ) | ||||||
| Proceeds from convertible notes payable | ||||||||
| Payments on convertible notes payable | ( | ) | ||||||
| Proceeds from notes payable | ||||||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| Net change in cash | ( | ) | ||||||
| Cash - beginning of period | ||||||||
| Cash - end of period | $ | $ | ||||||
| Supplemental Disclosures: | ||||||||
| Interest paid | $ | $ | ||||||
| Income taxes paid | $ | $ | ||||||
| Supplemental Disclosures of Noncash Financing Information: | ||||||||
| Convertible notes issued in exchange for cryptocurrency | $ | $ | ||||||
| Note payable issued in exchange for cryptocurrency | $ | $ | ||||||
| Cryptocurrency used to pay accounts payable | $ | $ | ||||||
| Shares issued for cryptocurrency assets | $ | $ | ||||||
| Conversion of preferred shares into common shares | $ | $ | ||||||
See accompanying notes to the unaudited consolidated financial statements.
| 6 |
Edgemode, Inc.
Notes to the Consolidated Financial Statements
June 30, 2023
(Unaudited)
Note 1. Basis of Presentation
The accompanying unaudited interim financial statements of Edgemode, Inc. (“we”, “our”, “Edgemode” 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. 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 2022, as reported in the Form 10-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.
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”) closed on the previously disclosed 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 (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 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 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 shares of
the Company’s common stock, vesting in 90 days, at an exercise price of $ per share. The consulting agreement may be terminated
by the Company without cause after three months. In addition, Mr. Isaacs received a $
Simultaneously with the Merger, approximately $
The merger was accounted for as a reverse merger, whereby EdgeMode 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 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.
| 7 |
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 Edgemode, Inc., the accounts of its 100% owned subsidiaries, EdgeMode and Edgemode Mine Co UK Limited. 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):
| · | Level 1 – Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. | |
| · | Level 2 – Observable inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data by correlation or other means. | |
| · | Level 3 – Prices or valuation techniques requiring inputs that are both significant to the fair value measurement and unobservable. |
The Company has no assets or liabilities valued using level 1, level 2, or level 3 inputs as of June 30, 2023.
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.
| 8 |
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 quoted price of the related cryptocurrency at the time 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.
Stock-Based Compensation
The Company accounts for equity instruments issued to employees in accordance with the provisions of ASC 718 Stock Compensation (ASC 718) and Equity-Based Payments to Non-employees pursuant to ASC 2018-07 (ASC 2018-07). All transactions in which the consideration provided in exchange for the purchase of goods or services consists of the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. The measurement date of the fair value of the equity instrument issued is the earlier of the date on which the counterparty’s performance is complete or the date at which a commitment for performance by the counterparty to earn the equity instruments is reached because of sufficiently large disincentives for nonperformance.
The Company accounts for equity-based transactions with non-employees under the provisions of ASC Topic No. 505-50, “Equity-Based Payments to Non-Employees” (“Topic No. 505-50”). Topic No. 505-50 establishes that equity-based payment transactions with non-employees shall be measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable.
Deferred Offering Costs
The Company has capitalized qualified direct costs
related to its efforts to raise capital through a sale of its common stock in a private offering. Deferred offering costs will be deferred
until the completion of the private offering, at which time they will be reclassified to additional paid-in capital as a reduction of
the offering proceeds. If the Company terminates the planned offering or there is a significant delay, all of the deferred offering costs
will be immediately written off to operating expenses. As of June 30, 2023, $
| 9 |
Long-Lived Assets – Cryptocurrencies
We account for our cryptocurrencies, intangible assets and long-term license agreement in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Subtopic 350-30, General Intangibles Other Than Goodwill, and ASC Subtopic 360-10-05, Accounting for the Impairment or Disposal of Long-Lived Assets. ASC Subtopic 350-30 requires assets to be measured based on the fair value of the consideration given or the fair value of the assets (or net assets) acquired, whichever is more clearly evident and, thus, more reliably measurable. Our cryptocurrencies are deemed to have an indefinite useful life; therefore amounts are not amortized, but rather are assessed for impairment as further discussed in our impairment policy. Under ASC Subtopic 350-30 any intangible asset with a useful life is required to be amortized over that life and the useful life is to be evaluated every reporting period to determine whether events or circumstances warrant a revision to the remaining period of amortization. If the estimate of useful life is changed the remaining carrying amount of the intangible asset is amortized prospectively over the revised remaining useful life. Costs of internally developing, maintaining, or restoring intangible assets are recognized as an expense when incurred.
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 have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which assumes that the Company will be able to meet its obligations and continue its operations for its next fiscal year. Realization values may be substantially different from carrying values as shown and these financial statements do not give effect to adjustments that would be necessary to the carrying values and classification of assets and liabilities should the Company be unable to continue as a going concern. At June 30, 2023, the Company had not yet achieved profitable operations and expects to incur further losses in the development of its business, all of which raise substantial doubt about the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon its ability to generate future profitable operations and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. Management has no formal plan in place to address this concern but considers that the Company will be able to obtain additional funds by equity financing and/or related party advances, however there is no assurance of additional funding being available.
NOTE 4 – Related Party Transactions
The Company’s former CEO, Mr. Isaacs, agreed
to provide services to the Company in a consultancy capacity at a fee of $11,500 per month and was issued a stock option grant to purchase
up to shares of the Company’s common stock, vesting in 90 days, at an exercise price of $ per share. The consulting
agreement may be terminated by the Company without cause after three months. During the six months ended June 30, 2023, the Company and
Mr. Isaacs, entered into a settlement and release agreement whereby Mr. Isaacs agreed to a reduction in the compensation to a total of
$, subject to the Company making payments on or before May 14, 2023 and June 14, 2023. During the six months ended, June 30, 2023,
the Company made total payments in the aggregate of $
On January 25, 2023, the Company amended stock option grants dated January 31, 2022 to each of Charlie Faulkner and Simon Wajcenberg, the Chief Executive Officer and Chief Financial Officer of the Company, respectively. The amendment reduces the exercise price of the options from $ per share to $ per share.
| 10 |
On March 3, 2023, the board of directors of the Company granted to each of Charlie Faulkner and Simon Wajcenberg, the Chief Executive Officer and Chief Financial Officer of the Company, respectively, options to purchase up to shares of the Company’s common stock at an exercise price of $ per share, exercisable for five years (the “Stock Options”). The Stock Options shall each be a non-qualified option and shall become vested and exercisable upon the Company closing on the purchase of at least $ million of crypto mining equipment.
On March 3, 2023, the Company amended stock option grants dated September 12, 2022 to each of Charlie Faulkner and Simon Wajcenberg, the Chief Executive Officer and Chief Financial Officer of the Company, respectively. The amendment provides for the vesting to be only upon the closing of the purchase of at least $ million of crypto mining equipment, rather than conditioned on an uplisting. its shares on the NASDAQ Global Market, New York Stock Exchange, or another equivalent market.
As of June 30, 2023 the Company owed the executive
officers of the Company $
NOTE 5 – 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 December 31, 2022, the Company had prepaid a total of $
NOTE 6 – Equity
Preferred shares
We are authorized to issue 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.
Series B
On July 19, 2022, the Company designated
shares of its original authorized shares of Preferred Stock as Series B Preferred Stock (“Series B”) with a $
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 an
| 11 |
During the year ended December 31, 2022, the Company
entered into purchase agreements for the sale of shares of Series B Convertible Preferred Stock with 1800 Diagonal Lending, LLC,
with $
On January 25, 2023, the Company redeemed the Preferred
B shares and paid to the holder a total of $
Common shares
The Company has authorized shares of common stock, par value of $, and as of June 30, 2023 has issued shares of common stock. All of the common shares have the same voting rights and liquidation preferences.
On March 30, 2023, the Company entered into a settlement
agreement with a previous note holder for settlement of outstanding claims of a note payable that had been paid in full previously. Per
the terms of the settlement agreement, the Company issued shares of common stock, and as a result the Company recorded a loss
on settlement of $
Stock Options
During the six months ended June 30, 2023, the Company granted to each of Charlie Faulkner and Simon Wajcenberg, the Chief Executive Officer and Chief Financial Officer of the Company, respectively, options to purchase up to shares of the Company’s common stock at an exercise price of $ per share, exercisable for five years (the “Stock Options”). The Stock Options shall each be a non-qualified option and shall become vested and exercisable upon the Company closing on the purchase of at least $ million of crypto mining equipment. The Company used the black-scholes option pricing model to value the options and determined a fair value of $. As of June 30, 2023, the Company had not met the contingent vesting requirements, and as such no amounts have been expensed related to these options.
On January 25, 2023, the Company amended stock option grants dated January 31, 2022 to each of Charlie Faulkner and Simon Wajcenberg, the Chief Executive Officer and Chief Financial Officer of the Company, respectively. The amendment reduces the exercise price of the options from $ per share to $ per share. As a result of the amendment, the Company recorded an additional $ of stock-based compensation expense based on the incremental fair value resulting from the change in exercise price.
On March 3, 2023, the Company amended stock option grants dated September 12, 2022 to each of Charlie Faulkner and Simon Wajcenberg, the Chief Executive Officer and Chief Financial Officer of the Company, respectively. The amendment provides for the vesting to be only upon the closing of the purchase of at least $ million of crypto mining equipment, rather than conditioned on an uplisting. its shares on the NASDAQ Global Market, New York Stock Exchange, or another equivalent market. No additional expense incurred as a result of the amendment as it was determined there was no change to any of the inputs in the black-scholes option pricing model.
As of June 30, 2023, the Company has $
| 12 |
The following table summarizes the stock option activity for the six months ended June 30, 2023:
| Options | Weighted-Average Exercise Price Per Share | |||||||
| Outstanding, December 31, 2022 | $ | |||||||
| Granted | ||||||||
| Exercised | – | |||||||
| Forfeited | – | |||||||
| Expired | – | |||||||
| Outstanding, June 30, 2023 | $ | |||||||
As of June 30, 2023, the Company had stock options that were exercisable and 137,473 that are in dispute. The weighted average remaining life of all outstanding stock options was years as of June 30, 2023. 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 June 30, 2023, the intrinsic value for the options vested and outstanding was $ and $, respectively.
Stock Warrants
The following table summarizes the stock warrant activity for the six months ended June 30, 2022:
| Warrants | Weighted-Average Exercise Price Per Share | |||||||
| Outstanding, December 31, 2022 | $ | |||||||
| Granted | – | |||||||
| Exercised | – | |||||||
| Forfeited | – | |||||||
| Expired | – | |||||||
| Outstanding, June 30, 2023 | $ | |||||||
NOTE 7 – Notes Payable and Convertible Notes Payable
Notes Payable
Pursuant to the merger agreement, the Company acquired
outstanding note payables in the amount of $
| 13 |
In April 2023, the Company utilized an existing marginal
lending facility with SFOX, a digital assets broker. The marginal lending facility allows the Company to borrow funds up to a maximum
aggregate amount of $
As of June 30, 2023 the loan balances and accrued
interest are $
Equipment Notes Payable
In 2021, the Company entered into multiple financing
agreements whereby the company agreed to purchase assets related to its crypto mining operations. The financing agreements required a
down payments in the aggregate of $
On July 11, 2022, the Company terminated its agreements
with the vendor for the financed equipment described above. As of June 30, 2023, and through the date of this filing, no agreement or
communication from the vendor has been received confirming the terms of the termination, and therefore the Company has maintained these
balances in equipment notes payable on the Company's balance sheet. The balance of the loans as of June 30, 2023 is $
| Year | Principal Amount | |||
| 2023 | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Remaining | ||||
| Total | $ | |||
Convertible notes payable
April 20, 2023 Promissory Notes
On April 11, 2023, the Company
entered into a Securities Purchase Agreement effective April 20, 2023 with 1800 Diagonal Lending LLC, an accredited investor, pursuant
to which the Company sold the investor an unsecured promissory note in the principal amount of $
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In addition, on April 11,
2023, the Company entered into an additional Securities Purchase Agreement effective April 20, 2023 with the above investor, pursuant
to which the Company sold the investor an unsecured promissory note in the principal amount of $
April 25, 2023 Promissory Notes
On April 25, 2023, the Company entered into a Securities
Purchase Agreement (the “Promissory Note Purchase Agreement”) with an accredited investor, pursuant to which the Company sold
the investor an unsecured promissory note in the principal amount of $
In addition, on April 26, 2023, the Company entered
into a Promissory Note Purchase Agreement with another investor, pursuant to which the Company sold the investor an unsecured convertible
promissory note in the principal amount of $
The investor may in their option, at any time following
the 180-day anniversary from the issuance date, as defined in the Promissory Notes, convert all or any part of the outstanding and unpaid
amount of the Promissory Notes into fully paid and non-assessable shares of Common Stock. If the Promissory Notes are not repaid on or
prior to the maturity date, the conversion price will be $
NOTE 8 – 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 six months ended June 30, 2023:
| Cryptocurrency at December 31, 2022 | $ | |||
| Additions of cryptocurrencies from convertible notes | ||||
| Additions of cryptocurrencies from note payable | ||||
| Proceeds from sale of cryptocurrencies | ( | ) | ||
| Cryptocurrency used for payment of accounts payable | ( | ) | ||
| Loss on cryptocurrency | ( | ) | ||
| Cryptocurrency at June 30, 2023 | $ | |||
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NOTE 9 – 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
NOTE 10 – Subsequent Events
On August 4, 2023, the Company entered into a Securities Purchase Agreement with 1800 Diagonal Lending LLC, an accredited investor, pursuant to which the Company sold the investor an unsecured original issuance discount promissory note in the principal amount of $71,450 (the “August Promissory Note”). The Company received net proceeds of $60,000 in consideration of issuance of the August Promissory Note. The August Promissory Note shall incur a one-time interest charge of 13%, which is added to the principal balance, have a maturity date of May 24, 2024, and require monthly payments of $8,971 beginning on September 15, 2023. The August Promissory Note is convertible into common shares of the Company at any time following an event of default at a rate of 71% of the lowest trading price of the Company’s common stock during the twenty prior trading days.
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| 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, 2022. The following discussion and analysis compares our consolidated results of operations for the three months ended June 30, 2022 (the “2022 Quarter”) with those for the three months ended June 30, 2023 (the “2023 Quarter”). Additionally, the six months ending June 30, 2023 and the six months ending June 30, 2022 are referred to as the “2023 Period” and “2022 Period” respectively.
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, 2022 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. We have entered into agreements with third party hosting firms and Bitcoin mining facilities for the sole purpose of mining Bitcoin. We require financing to operate the mining of Bitcoin. We ceased Ethereum mining operations in September 2022 when Ethereum switched its consensus protocol to proof of stake. Our mining platform will be operating with the primary intent of accumulating Bitcoin.
We require significant financing to maintain our operations and commence Bitcoin mining. During late 2022 and early 2023 we have focused on securing a debt facility. We cannot provide any assurances we will receive any capital under a debt facility. Any debt financing will be used to finance the purchase of BTC mining hardware and hosting contracts which, subject to financing, we anticipate will commence between October 2023 and December 2023.
We believe we have a purchase order in place to acquire significant high quality additional machines contingent on our ability to raise the funds to acquire such machines. Subject to receipt of financing, we have secured hosting contracts in Canada and Egypt for over 540MW of hosting capacity, which will provide us the power supply to operate the 20 Exahash of hardware we have contracted to purchase.
There are no assurances we will receive adequate financing.
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, 2022, 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.
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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, 2023 Compared to the Three Months Ended June 30, 2022
Results of operations
We had no revenues for the 2023 Quarter compared to $165,118 for the 2022 Quarter. The reason for the decrease was that we ceased Ethereum mining operations in September 2022 when Ethereum switched its consensus protocol to proof of stake.
We had no cost of revenues for the 2023 Quarter compared to $382,908 for the 2022 Quarter. The reason for the decrease was that we ceased Ethereum mining operations in September 2022 when Ethereum switched its consensus protocol to proof of stake.
Our operating expenses for the 2023 Quarter was $422,247 compared to $3,565,885, for the 2022 Quarter, a decrease of 88%. In the 2023 Quarter, the Company incurred stock-based compensation expense of $0 compared to $1,878,264 for the 2022 Quarter. The stock based compensation for the 2022 Quarter was related to vesting of the fair value of stock options.
Our other income for the 2023 Quarter was $484,887 compared to other expense of $34,987 for the 2022 Quarter. In the 2023 quarter we received $500,000 related to a refund on an equipment purchase order that was impaired during a previous period.
Six Months Ended June 30, 2023 Compared to the Six Months Ended June 30, 2022
Results of operations
We had no revenues for the 2023 period compared to $436,237 for the 2022 Period. The reason for the decrease was that we ceased Ethereum mining operations in September 2022 when Ethereum switched its consensus protocol to proof of stake.
We had no cost of revenues for the 2023 Period compared to $806,678 for the 2022 Period. The reason for the decrease was that we ceased Ethereum mining operations in September 2022 when Ethereum switched its consensus protocol to proof of stake.
Our operating expenses for the 2023 Period was $2,130,375 compared to $26,994,885, for the 2022 Period, a decrease of 92%. In the 2023 period, the Company incurred stock-based compensation expense of $1,236,487 compared to $24,264,181 for the 2022 Period. The stock based compensation for the 2023 Period related to the difference in fair value on the amendment to outstanding options while the 2022 Period was related to vesting of the fair value of stock options.
Our other income for the 2023 Period was $414,999 compared to other expense of $79,827 for the 2022 Period. In the 2023 quarter we received $500,000 related to a refund on an equipment purchase order that was impaired during a previous period.
We expect that our operating expenses will increase as we continue to develop our new mining operations and we devote additional resources toward our new technologies and business opportunities, promoting that growth, most notably reflected in anticipated increases in general overhead, salaries for personnel and technical resources, as well as increased costs associated with our SEC reporting obligations. However, as set forth elsewhere in this report, our ability to continue 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 unknown, we are unable to quantify at this time the expected increases in operating expenses in future periods.
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Liquidity and Capital Resources
As of June 30, 2023 and August 14, 2023, the Company had approximately $297,000 and $170,000 of cash, respectively. Our liquidity was primarily derived from debt and equity investments from accredited investors and also from selling the crypto that we mined through September 2022. See “Subsequent Events” below. To grow the business and help fund operations for the next 12 months, the Company is seeking to raise $75 million in debt facility. Because we have been in the process of seeking to complete a debt facility for over 12 months, we can provide no assurances that any such debt financings will be successful.
If we fail to close on a debt facility or raise sufficient additional funds from other sources, we will be required to significantly scale back our plan of operations.
As of August 14, 2023, we have a total of $1,544,876 of debt outstanding that is due within 12 months.
The Company has terminated the agreements for approximately $1.6 million of debt for equipment that the Company was using for mining and returned the equipment to the vendor to settle the outstanding liabilities. The Company is making no further payments against the potential balance. No confirmation has been received from 2CRSI and as such the balance remains outstanding on the Company’s balance sheet in the accompanying financial statements. 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.
Subsequent Events
On August 4, 2023, the Company entered into a securities purchase agreement with 1800 Diagonal Lending, LLC, an accredited investor, pursuant to which the Company sold the investor an unsecured original issue discount promissory note in the principal amount of $71,450 (the “August Promissory Note”). The Company received net proceeds of $60,000 in consideration of issuance of the August Promissory Note. The August Promissory Note bears interest at a rate of 13% and has a maturity date of May 15, 2024. The August Promissory Note is convertible into common shares of the Company at any time following an event of default. The conversion price shall be 71% of the lowest trading price of the Company’s common stock during the 20 trading days prior to the conversion date. The outstanding principal and accrued interest shall be paid in nine monthly payments of $8,971. The August Promissory Note provides for standard and customary events of default such as failing to timely make payments under the August Promissory Note when due, the failure of the Company to timely comply with the Securities Exchange Act of 1934 reporting requirements and the failure to maintain a listing on the OTC Markets. The August Promissory Note also contains customary covenants. At no time may the August Promissory Note be converted into shares of the Company’s common stock if such conversion would result in the investor, or its affiliates owning an aggregate of more than 4.99% of the then outstanding shares of the Company’s common stock.
Summary of cash flows
| June 30, 2023 | June 30, 2022 | |||||||
| Net cash provided by (used in) operating activities | $ | 400,994 | $ | (1,824,305 | ) | |||
| Net cash provided by investing activities | $ | 20,000 | $ | 943,423 | ||||
| Net cash provided by (used in) financing activities | $ | (124,051 | ) | $ | 860,712 | |||
During the 2023 Period and 2022 Period, our sources and uses of cash were as follows:
Operating Activities
During the 2023 Period, cash provided by operating activities of $400,994 primarily resulted from the refund of prepaid hosting services, offset by the net loss of $1,728,966 and stock-based compensation of $1,236,487.
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During the 2022 Period, cash used in operating activities of $1,824,305 primarily resulted from its net loss of $27,445,153, offset by stock-based compensation of $24,264,181 and loss on cryptocurrency transactions of $157,913.
Investing Activities
Cash provided by investing activities in the 2023 Period of $20,000 resulted from the sale of cryptocurrency assets.
Cash provided by investing activities in the 2022 Period of $943,423 resulted from the $743,513 cash acquired from the reverse merger acquisition and the proceeds of $510,886 from sale of cryptocurrency assets, offset by the purchase of equipment of $370,976.
Financing Activities
In the 2023 Period, cash used in financing activities of $124,051 consisted of the repayment of Series B preferred shares, offset by proceeds from convertible notes payable of $160,000.
In the 2022 Period, cash provided by financing activities of $860,712 consisted of $688,864 in net proceeds from the issuance of common shares, $380,000 in proceeds from the issuance of notes payable, offset by payments on equipment notes payable of $208,152.
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Not applicable.
| ITEM 4. | CONTROLS AND PROCEDURES |
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 result from limited segregation of duties and limited multiple levels of review in the financial close process, along with a lack of well-established policies and procedures to identify, approve, and report related party transactions.
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.
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PART II – OTHER INFORMATION
| ITEM 1. | LEGAL PROCEEDINGS |
From time to time, the Company may become a party to legal actions or proceedings in the ordinary course of its business. At June 30, 2023, 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.
| ITEM 1A. | RISK FACTORS |
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, 2022 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, 2022.
| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
There were no unregistered sales of the Company’s equity securities during the 2023 Quarter that were not previously disclosed in a Current Report on Form 8-K or prior report.
| ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
None.
| ITEM 4. | MINE SAFETY DISCLOSURES |
Not Applicable.
| ITEM 5. | OTHER INFORMATION |
None.
| ITEM 6. | EXHIBITS |
The exhibits listed in the accompanying “Index to Exhibits” are filed or incorporated by reference as part of this Form 10-Q.
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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: August 14, 2023
| EDGEMODE, INC. | |
|
By: /s/ Charlie Faulkner Charlie Faulkner Chief Executive Officer (Principal Executive Officer)
By: /s/Simon Wajcenberg Simon Wajcenberg Chief Financial Officer (Principal Financial and Accounting Officer) |
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EXHIBIT INDEX
+ Exhibits and/or Schedules have been omitted. The Company hereby agrees to furnish to the Staff of the Securities and Exchange Commission upon request any omitted information. 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.
* Indicates management contract or compensatory plan.
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