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 filed with the SEC on
Form 8-K. The following discussion and analysis compares our consolidated
results of operations for the three months ended March 31, 2022 (the "2022
Quarter") with those for the three months ended March 31, 2021 (the "2021
Quarter"). Additionally, the twelve months ending December 31, 2022 are
referred to as "Fiscal 2022."
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. 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 mining
Bitcoin in the second half of 2022.
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 MARCH 31, 2022 COMPARED TO THE
THREE MONTHS ENDED MARCH 31, 2021
Our revenues for the 2022 Quarter was $271,119 compared to $68,376 for the 2021
Quarter. The reason for the increase was the Company began operations in March
of 2021 for one month of initial operations versus having a full quarter of
operations for the 2022 quarter.
Our cost of revenues for the 2022 Quarter was $423,770 compared to $77,481 for
the 2021 Quarter. The reason for the increase was the Company began operations
in March of 2021 for one month of initial operations versus having a full
quarter of operations for the 2022 quarter.
Our operating expenses for the 2022 Quarter was $23,345,463 compared to $86,002
for the 2021 Quarter. The reason for the increase was the company began
operations in March of 2021 for one month of initial operations versus having a
full quarter of operations for the 2022 Quarter. In the 2022 Quarter, the
Company incurred stock-based compensation expense of $22,385,917 compared to
$6,750 for the 2021 Quarter.
Our other expenses for the 2022 Quarter was $128,377 compared to $12,631 for the
2021 Quarter. The reason for the increase was an increase in interest expense
from additional loans as well as an increased loss on cryptocurrencies due to
increased transactions and changes in market prices.
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LIQUIDITY AND CAPITAL RESOURCES
As of May 16, 2022, the Company had approximately $150,000 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 which it hopes to
complete by the end of the second quarter ending June 30, 2022. We can provide
no assurances that any such financings will be successful, nor will they be on
terms that we can agree on.
The Company has signed $300 million in hardware purchase orders. Completion on
the $400 million debt facility is required in order to make payment on these
purchase orders. We can provide no assurance to investors that we will have
access to such a large amount of capital and if so that it will be available on
terms that we would accept. In such event, the Company may incur significant
and/or shareholders will suffer large dilution.
If we fail to raise sufficient additional funds when needed or do not have
sufficient cash flows from mining, we may be required to scale back our plan of
operations.
The Company has approximately $2.3 million of debt for equipment that the
Company is currently mining of which approximately $1.4 million is due in 2022
and $850,000 is due in 2023. 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
March 31, 2022 March 31, 2021
Net cash (used) in operating activities $ (1,109,921 ) $ (58,787 )
Net cash (used) in investing activities $ 399,140 $ (286,136 )
Net cash provided by financing activities $ 822,865 $ 601,475
During the 2022 Quarter and 2021 Quarter, our sources and uses of cash were as
follows:
Operating Activities
During the 2022 Quarter, cash used in operating activities of $1,109,921
primarily resulted from its net loss of $23,626,491, offset by stock-based
compensation of $22,385,917 and loss on cryptocurrency transactions of $124,529.
During the 2021 Quarter, cash used in operating activities of $58,787 primarily
resulted from its net loss of $107,738 offset by stock-based compensation of
$6,750 and loss on cryptocurrency transactions of $20,708.
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Investing Activities
Cash provided by investing activities in the 2022 Quarter of $399,140 resulted
from the $743,513 cash acquired from the reverse merger acquisition and the
proceeds of $26,603 from sale of cryptocurrency assets, offset by the purchase
of equipment of $370,976.
Cash used in investing activities in the 2021 Quarter of $286,136 resulted from
proceeds of $26,603 from the sale of cryptocurrency assets, offset by the
purchase of equipment of $334,305
Financing Activities
In the 2022 Quarter, cash used in financing activities of $822,865 consisted of
$663,864 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 $220,999.
In the 2021 Quarter, cash used in financing activities of $601,475 consisted of
$266,495 in net proceeds from the sale of common shares, $334,980 in net
proceeds from the sale of preferred shares, offset by payments on equipment
notes payable of $214,361.
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