10-Q/A: Edgemode Inc. Restates Financials for Q2 2024, Citing Errors in Prior Periods

Edgemode Inc. files an amended 10-Q report for the period ended June 30, 2024, including restated financials for prior periods due to errors in stock option accounting and related party transaction reporting.

Summary

• Edgemode, Inc. is filing a comprehensive Quarterly Report on Form 10-Q/A for the period ended June 30, 2024, which includes restatements of unaudited consolidated financial statements for the three and six months ended June 30, 2023, and the quarterly periods ended March 31, 2023, through June 30, 2023.
• The restatements are due to errors in the prior financial statements, specifically the omission of stock options granted to a consultant during the three months ended March 31, 2023.
• The company granted 5,000,000 options with a fair value of approximately $230,000, which were not reflected in the previously filed Form 10-Qs, leading to an understatement of operating expenses.
• The company's principal executive officer and principal financial officer have provided new certifications dated as of the filing date.
• Management concluded that the restatement is a result of a previously disclosed material weakness for the 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.
• As of August 9, 2024, there were 390,687,459 shares of the registrant's common stock outstanding.
• The company had cash of $376 as of June 30, 2024, compared to $298 as of December 31, 2023.
• The net loss for the six months ended June 30, 2024, was $766,682, compared to a net loss of $1,944,406 for the six months ended June 30, 2023.
• The company has suspended its operations until it receives adequate funding and is exploring opportunities for mergers, acquisitions, or other business combinations.
• The company is seeking to raise $75 million in debt facility to recommence crypto operations and fund operations for the next 12 months.

Sentiment

Score: 2

Explanation: The document indicates significant financial distress, internal control weaknesses, and a high degree of uncertainty regarding the company's future. The need for restatements and the suspension of operations contribute to a negative outlook.

Positives

• The company received an additional refund of $275,000 related to prior advances made for the purchase of equipment on July 5, 2024.
• Operating expenses decreased by 70% for the six months ended June 30, 2024, compared to the same period in 2023.
• The company is actively exploring opportunities for mergers, acquisitions, or other business combination transactions to diversify its business.

Negatives

• The company is restating its financial statements due to material errors in prior periods.
• The company identified material weaknesses in its internal controls over financial reporting.
• The company has a significant accumulated deficit of $39,661,591 as of June 30, 2024.
• The company has suspended its operations until it receives adequate funding.
• The company is in default under certain notes payable.
• The company owes a significant amount of money to its executive officers for accrued salary.

Risks

• The company's ability to continue as a going concern is dependent on its ability to generate future profitable operations and/or obtain necessary financing.
• The company is seeking to raise $75 million in debt facility, but there is no assurance that any debt financings will be available in the future.
• The company is in default under the 1800 Notes in the sum of 150% of the remaining outstanding principal balances of the 1800 Notes in the aggregate of approximately $226,000, plus accrued interest and default interest as defined under such notes.
• The company is in default under two other notes in the aggregate principal amount of approximately $120,000.
• The company's business plan is to also seek an acquisition or merger candidate, and there is no assurance that the company will be able to locate compatible business opportunities.
• The company has no sources of revenue and has no specific business plan or purpose without significant financing.

Future Outlook

The company is seeking to raise $75 million in debt facility to recommence crypto operations and fund operations for the next 12 months and is exploring opportunities for mergers, acquisitions, or other business combinations.

Management Comments

• Management concluded that the restatement is a result of our previously disclosed material weakness for the 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.

Industry Context

The company's shift from Ethereum mining to Bitcoin mining reflects the changing landscape of the cryptocurrency market and the impact of technological advancements on mining operations. The company's exploration of mergers and acquisitions suggests a broader trend of consolidation and diversification within the industry.

Comparison to Industry Standards

• It is difficult to compare Edgemode's results to industry standards due to its current state of suspended operations and reliance on potential debt financing.
• Many cryptocurrency mining companies are facing challenges due to market volatility and increasing energy costs.
• Companies like Marathon Digital Holdings and Riot Platforms are key players in the Bitcoin mining industry, but their financial performance and strategies may not be directly comparable to Edgemode's current situation.

Legal Proceedings

• 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.

Related Party Transactions

• As of June 30, 2024 the Company owed the executive officers of the Company $ 1,193,338 in accrued payroll for services performed.
• During the six months ended June 30, 2024, the executive officers of the Company advanced $ 16,725 to the Company for working capital needs.

Stakeholder Impact

• Shareholders face significant risk due to the company's financial distress and uncertainty.
• Employees are impacted by the suspension of operations and potential job losses.
• Creditors face the risk of non-payment due to the company's defaults under certain notes payable.

Next Steps

• The company needs to secure $75 million in debt facility to recommence crypto operations and fund operations for the next 12 months.
• The company needs to address the defaults under certain notes payable.
• The company needs to improve its internal controls over financial reporting.
• The company needs to explore opportunities for mergers, acquisitions, or other business combination transactions to diversify its business.

Key Dates

Keywords

restatement, financial statements, Edgemode, stock options, internal controls, going concern, debt facility, cryptocurrency, mining, default