Attached files

file filename
EX-32.2 - Edge Data Solutions, Inc.ex32-2.htm
EX-32.1 - Edge Data Solutions, Inc.ex32-1.htm
EX-31.2 - Edge Data Solutions, Inc.ex31-2.htm
EX-31.1 - Edge Data Solutions, Inc.ex31-1.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark one)

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2020

 

OR

 

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period __________ to __________

 

Commission File Number: 333-198435

 

EDGE DATA SOLUTIONS, INC.

(Exact name of registrant as specified in its charter)

 

DELAWARE   46-3892319

(State or Other Jurisdiction

of Incorporation or Organization)

 

(IRS Employer

Identification Number)

 

3550 Lenox Road NE. 21st Floor Atlanta GA 30326

(Address and telephone number of principal executive offices)

 

Mr. Delray Wannemacher, CEO, (833) 682-2428

3550 Lenox Road NE. 21st Floor Atlanta GA 30326

(Name, address and telephone number of agent for service)

 

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 [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes [X] No [  ]

 

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

 

Large accelerated filer [  ] Accelerated filer [  ]
Non-accelerated filer [  ] (Do not check if a smaller reporting company) Smaller reporting company [X]
    Emerging growth company [X]

 

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

 

As of November 16, 2020, there were outstanding 8,321,079 shares of our common stock, par value $0.0001 per share, 7,000,000 shares of the Company’s Class A Super Voting preferred stock, par value $0.001 per share, and 7,000,000 shares of the Company’s Class C preferred stock, par value $0.001 per share

 

 

 

 
 

 

EDGE DATA SOLUTIONS, INC.

 

FORM 10-Q for the Quarter Ended September 30, 2020

 

INDEX

 

    Page
PART I - FINANCIAL INFORMATION  
     
Item 1. Financial Statements 3
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 19
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 22
     
Item 4. Controls and Procedures 23
     
PART II - OTHER INFORMATION  
     
Item 1. Legal Proceedings 23
     
Item 2. Unregistered Sale of Equity Securities and Use of Proceeds 23
     
Item 3. Defaults Upon Senior Securities 25
     
Item 4. Mine Safety Disclosures 25
     
Item 5. Other Information 25
     
Item 6. Exhibits 25
     
Signatures   26

 

2
 

 

PART I - FINANCIAL INFORMATION

 

Item 1 - Financial Statements

 

Edge Data Solutions, Inc. (Formerly Southeastern Holdings, Inc.)

A Delaware Corporation

 

Financial Statements

 

As of September 30, 2020 (Unaudited) and for the Three and nine Months Then Ended (Unaudited)

 

3
 

 

Edge Data Solutions, Inc. (Formerly Southeastern Holdings, Inc.)

 

TABLE OF CONTENTS

 

    Page
Condensed Financial Statements as of September 30, 2020 (Unaudited) and December 31, 2019 and for the Three and nine Months Ended September 30, 2020 (Unaudited):    
Balance Sheets (Unaudited)   5
Statements of Operations (Unaudited)   6
Statements of Cash Flows (Unaudited)   7
Statement of Stockholders’ Deficiency – for the Three and nine months ended September 30, 2019 (Unaudited)   8
Statement of Stockholders’ Deficiency – for the Three and nine months ended September 30, 2020 (Unaudited)   9
Notes to Financial Statements (Unaudited)   10

 

4
 

 

EDGE DATA SOLUTIONS, INC. (Formerly Southeastern Holdings, Inc.)

BALANCE SHEETS

 

   As of 
   September 30, 2020   December 31, 2019 
   (Unaudited)     
ASSETS          
Current Assets:          
Cash and cash equivalents  $63,549   $14,453 
Accounts receivable   3,193    - 
Other current assets   2,516    - 
Prepaid expense   8,452    - 
Total Current Assets   77,710    14,453 
           
Non-Current Assets:          
Right of use asset - finance lease   32,412    - 
Deferred offering costs   13,500    - 
Property and equipment, net   118,593    - 
Security deposit   7,753    - 
Total Non-Current Assets   172,258    - 
           
TOTAL ASSETS  $249,968   $14,453 
           
LIABILITIES AND STOCKHOLDERS’ DEFICIENCY          
Current Liabilities:          
Accounts payable  $138,861   $163,360 
Accrued expenses   29,241    10,980 
Deferred revenue   1,035    - 
Convertible notes payable, short-term   610,000    200,000 
Advances from related parties   45,131    88,429 
Lease liability - finance, current portion   15,315    - 
Accrued compensation - related party   -    41,000 
Total Current Liabilities   839,583    503,769 
           
Non-Current Liabilities:          
Lease liability - finance, non-current portion   20,005    - 
Total Non-Current Liabilities   20,005    - 
           
Total Liabilities   859,588    503,769 
           
Commitments and Contingencies (Note 10)   -    - 
           
Stockholders’ Deficiency:          
Class A super majority voting preferred stock, $0.001 par value; 10,000,000 shares authorized, 7,000,000 issued and outstanding with liquidation preference of $26,317 as of each, September 30, 2020 and December 31, 2019.   7,000    7,000 
Class C convertible preferred non-voting stock, $0.001 par value, 10,000,000 shares authorized, 7,000,000 issued and outstanding with liquidation preference of $3,500 as of each, September 30, 2020 and December 31, 2019.   7,000    7,000 
Common stock, $0.0001 par value; 150,000,000 shares authorized, 8,321,079 and 5,651,217 issued and outstanding as of September 30, 2020 and December 31, 2019, respectively.   832    565 
Additional paid-in capital   633,499    55,817 
Accumulated deficit   (1,257,951)   (559,698)
Total Stockholders’ Deficiency   (609,620)   (489,316)
           
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIENCY  $249,968   $14,453 

 

See accompanying notes, which are an integral part of these financial statements.

 

5
 

 

EDGE DATA SOLUTIONS, INC. (Formerly Southeastern Holdings, Inc.)

STATEMENTS OF OPERATIONS

 

   Three Months Ended   Nine Months Ended 
   September 30,
2020
   September 30,
2019
   September 30,
2020
   September 30,
2019
 
   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited) 
                 
Revenues:                    
Revenue, net  $14,317   $-   $20,624   $- 
Total Revenue   14,317    -    20,624    - 
                     
Cost of revenue   -    -    -    - 
Total Cost of Revenue   -    -    -    - 
                     
Gross Margin   14,317    -    20,624    - 
                     
Operating Expenses:                    
Sales and marketing   974    15    899    13,385 
General and administrative   51,369    65,051    184,432    142,072 
Compensation - related party   20,000    -    95,000    - 
Stock-based compensation expense   218,500    -    381,900    - 
Depreciation expense   6,303    -    10,513    - 
Total Operating Expenses   297,146    65,066    672,744    155,457 
                     
Income from operations   (282,829)   (65,066)   (652,120)   (155,457)
                     
Other Income/(Expense):                    
Interest expense   (17,955)   (6,359)   (42,064)   (10,853)
Loss on termination of prospective acquisition   -    -    (23,000)   - 
Gain on debt forgiveness   -    -    12,250    - 
Gain on disposal of equipment   4,965    -    4,965    - 
Cryptocurrency mining income   716    -    716    - 
Small business grant income   -    -    1,000    - 
Total Other Income/(Expense)   (12,274)   (6,359)   (46,133)   (10,853)
                     
Net Loss  $(295,103)  $(71,425)  $(698,253)  $(166,310)
                     
Net Loss per share (basic and diluted)  $(0.04)  $(0.01)  $(0.10)  $(0.03)
                     
Weighted average number of common shares outstanding   8,118,362    5,559,642    6,923,362    5,270,594 

 

See accompanying notes, which are an integral part of these financial statements.

 

6
 

 

EDGE DATA SOLUTIONS, INC. (Formerly Southeastern Holdings, Inc.)

STATEMENTS OF CASH FLOWS

 

   Nine Months Ended 
   September 30, 2020   September 30, 2019 
   (Unaudited)   (Unaudited) 
         
Cash Flows from Operating Activities          
Net Loss  $(698,253)  $(166,310)
Adjustments to reconcile net loss to net cash (used in) operating activities:          
Depreciation   10,513    - 
Gain on disposal of equipment   (4,965)     
Stock-based compensation   381,900    122 
Loss on prospective acquisition   23,000    - 
Changes in operating assets and liabilities:          
Change in accounts receivable   (3,193)   - 
Change in other current assets   (2,516)   - 
Change in prepaid expenses   (8,452)   - 
Change in security deposits   (7,753)   - 
Change in accounts payable   8,501    84,293 
Change in accrued compensation - related party   (41,000)   (47,500)
Change in accrued expenses   18,261    5,165 
Change in deferred revenue   1,035    - 
Change in accrued interest related to note conversions   6,966    - 
Net Cash (Used in) Operating Activities   (315,956)   (124,230)
           
Cash Flows from Investing Activities          
Purchase of property and equipment   (128,228)   - 
Proceeds from disposal of property and equipment   10,170    - 
Deposits on prospective acquisition   (23,000)   - 
Net Cash (Used in) Investing Activities   (141,058)   - 
           
Cash Flows from Financing Activities          
Proceeds from issuance of short-term convertible debt   510,000    100,000 
Related party advances   168,191    18,426 
Repayment of related party advances   (211,489)   - 
Deferred offering costs   (13,500)   - 
Change in finance lease assets and liabilities   2,908    - 
Sale of equity units   50,000    - 
Net Cash Provided by Financing Activities   506,110    118,426 
           
Net Change In Cash   49,096    (5,804)
           
Cash at Beginning of Period   14,453    6,293 
Cash at End of Period  $63,549   $489 
           
Supplemental Disclosure of Cash Flow Information:          
Convertible debt principal and accrued interest converted to equity units  $106,966   $- 
Issuance of common stock for equipment purchases  $6,083   $- 
           
Supplemental Disclosure of Non-Cash Financing Activities:          
Forgiveness of related party debt  $

33,000

   $- 

 

See accompanying notes, which are an integral part of these financial statements.

 

7
 

 

EDGE DATA SOLUTIONS, INC. (Formerly Southeastern Holdings, Inc.)

STATEMENT OF STOCKHOLDERS’ DEFICIENCY

As of and for the nine months ended September 30, 2019 (Unaudited)

 

   Common Stock   Class A Preferred   Class C
Convertible
Preferred
  

Additional

Paid-in

   Accumulated   Stockholders’ 
   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Deficit   Deficiency 
                                     
Balance, December 31, 2018   4,386,217   $438    7,000,000   $26,317    7,000,000   $3,500   $40,000   $(257,948)  $(187,693)
Issuance of common stock for compensation   1,215,000    122                        -         122 
Reclassification allocating preferred stock value between par value and additional paid-in capital                  (19,317)        3,500    15,817         - 
Net loss                                      (166,310)   (166,310)
Balance, September 30, 2019   5,601,217   $560    7,000,000   $7,000    7,000,000   $7,000   $55,817   $(424,258)  $(353,881)

 

See accompanying notes, which are an integral part of these financial statements.

 

8
 

 

EDGE DATA SOLUTIONS, INC. (Formerly Southeastern Holdings, Inc.)

STATEMENT OF STOCKHOLDERS’ DEFICIENCY

As of and for the nine months ended September 30, 2020 (Unaudited)

 

   Common Stock   Class A Preferred   Class C
Convertible
Preferred
  

Additional

Paid-in

    Accumulated    Stockholders’ 
   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Deficit   Deficiency 
                                     
Balance, December 31, 2019   5,651,217    565    7,000,000    7,000    7,000,000    7,000    55,817    (559,698)   (489,316)
                                              
Debt conversions into equity units   427,862    43                        106,923         106,966 
Subscriptions to equity units   200,000    20                        49,980         50,000 
Common shares issued as compensation   2,010,000    201                        381,699         381,900 
Related party debt forgiveness                                 33,000         33,000 
Issuance of common stock for equipment   32,000    3                        6,080         6,083 
Net loss                                      (698,253)   (698,253)
Balance, September 30, 2020   8,321,079   $832    7,000,000   $7,000    7,000,000   $7,000   $633,499   $(1,257,951)  $(609,620)

 

See accompanying notes, which are an integral part of these financial statements.

 

9
 

 

EDGE DATA SOLUTIONS, INC. (Formerly Southeastern Holdings, Inc.)

NOTES TO FINANCIAL STATEMENTS

As of September 30, 2020 (Unaudited) and for the Three and nine Months Then Ended (Unaudited)

 

NOTE 1: ORGANIZATION AND NATURE OF OPERATIONS

 

EDGE DATA SOLUTIONS, INC. (the “Company”), formerly Blockchain Holdings Capital Ventures, Inc. (formerly Southeastern Holdings, Inc., formerly Safe Lane Systems, Inc.) was incorporated in the State of Colorado on September 10, 2013. Safe Lane Systems, Inc. redomiciled to become a Delaware holding corporation in September of 2016. On September 22, 2016, Safe Lane Systems, Inc. formed two wholly owned subsidiaries, SLS Industrial, Inc and Southeastern Holdings, Inc. (both Delaware corporations) and on September 30, 2016 completed a merger and reorganization in which Southeastern Holdings, Inc. (now Edge Data Solutions, Inc.) became the holding company. On December 1, 2016, the Company spun off its wholly owned subsidiary, SLS Industrial, Inc., along with its assets and liabilities, leaving Southeastern Holdings, Inc. as the only surviving entity.

 

On August 23, 2018, the Company entered into a Bill of Sale and Assignment and Assumption Agreement with Blockchain Holdings, LLC (“Blockchain”), pursuant to which the Company purchased all of the assets of Blockchain which are used in the business of sourcing of blockchain mining equipment from various suppliers for their customers and also providing management of the equipment hosted, mining pools and tech work on such equipment. The Company issued 300,000,000 (equivalent to 3,000,000 after the reverse split) shares of its common stock, par value $.0001 to the members of Blockchain in exchange for the assets of Blockchain.

 

On August 30, 2018, the Company changed its name to Blockchain Holdings Capital Ventures, Inc.

 

On January 13, 2020, the Company changed its name to Edge Data Solutions, Inc.

 

Business Description

 

Edge Data Solutions, Inc. (EDSI) is poised to be an industry-leading edge datacenter and cloud infrastructure provider. EDSI’s proprietary Edge Performance Platform (EPP) allows us to deploy next-generation edge datacenters where they are needed most. EDSI’s datacenters provide next-generation immersion cooling technology that improves performance, reduces energy costs and latency. Key industries we serve more computing power are fintech, cloud gaming, telecom 5G, 3D/video/AI rendering, video streaming, remote desktop, IoT, autonomous vehicles. Centralized infrastructure facilities servicing multiple geographical areas encounter many issues with data latency, congestion and weak network connections. To address this, data processing is moving closer to the customer. EDSI offers green, low-cost, secure colocation and private data hosting to meet this demand for Edge datacenters. EDSI plans to deploy to strategic locations based on demand for Tier 2 and Tier 3 cities outside the major metropolitans to underserved markets, supporting both edge customers and areas of projected growth. With the rise and proliferation of this technology adoption we plan to solidify our footprint by securing multiple locations across the US, while generating revenue from our operations. The modular design and ability to add additional datacenters as needed, preserves up front capital allowing for rapid deployment and scalability as business demand increases.

 

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America (GAAP). The Company maintains the calendar year as its basis of reporting.

 

Use of Estimates

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Cash Equivalents and Concentration of Cash Balance

 

The Company considers all highly liquid securities with an original maturity of less than three months to be cash equivalents. The Company’s cash and cash equivalents in bank deposit accounts, at times, may exceed federally insured limits. As of September 30, 2020, and December 31, 2019, the Company’s cash balances did not exceed federally insured limits.

 

10
 

 

EDGE DATA SOLUTIONS, INC. (Formerly Southeastern Holdings, Inc.)

NOTES TO FINANCIAL STATEMENTS

As of September 30, 2020 (Unaudited) and for the Three Months Then Ended (Unaudited)

 

Right of Use Assets and Lease Liabilities

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The standard requires lessees to recognize almost all leases on the balance sheet as a Right-of-Use (“ROU”) asset and a lease liability and requires leases to be classified as either an operating or a finance type lease. The standard excludes leases of intangible assets or inventory. The standard became effective for the Company beginning January 1, 2019. Since the Company had no leases in place prior to or during 2019, the Company has adopted ASC 842 prospectively and has applied it to its first lease agreement in 2020.

 

Under ASC 842, the Company determines if an arrangement is a lease at inception. ROU assets and liabilities are recognized at commencement date based on the present value of remaining lease payments over the lease term. For this purpose, the Company considers only payments that are fixed and determinable at the time of commencement. As most of the Company’s leases do not provide an implicit rate, the Company estimated the incremental borrowing rate in determining the present value of lease payments. The ROU asset also includes any lease payments made prior to commencement and is recorded net of any lease incentives received. The Company’ lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such options.

 

Property and Equipment

 

Property and equipment are stated at cost net of accumulated depreciation and amortization, and accumulated impairment, if any. Depreciation and amortization of property and equipment is provided using the straight-line method over estimated useful lives, which are all currently estimated at three years.

 

As of September 30, 2020, the Company’s property and equipment consisted of $46,122 of datacenter containers not yet placed in service, $68,759 of datacenter equipment and $13,347 of capitalized labor associated with readying the equipment for service, net of $9,635 of accumulated depreciation. Depreciation expense for the three and nine months ended September 30, 2020 was $6,303 and $10,513, respectively.

 

Long-Lived Assets

 

The Company evaluates the recoverability of its long-lived assets whenever events or changes in circumstances have indicated that an asset may not be recoverable. Long-lived assets are grouped with other assets at the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. If the sum of the projected undiscounted cash flows is less than the carrying value of the assets, the assets are written down to the estimated fair value. As of September 30, 2020, the Company determined that its long-lived assets have not been impaired.

 

Accounts Payable and Accrued Liabilities

 

Accounts payable consisted of $74,434 of liabilities incurred by the issuer prior to the merger as of each September 30, 2020 and 2019. The remaining accounts payable of $64,427 and $88,926 as of September 30, 2020 and December 31, 2019, respectively, consisted of amounts due for professional services and various other general and administrative expenses incurred after the acquisition.

 

As of December 31, 2019, accrued expenses consisted of $1,811 of state and local taxes payable, $1,903 of accrued interest due to a vendor and $7,266 of accrued interest on convertible debt. As of September 30, 2020, accrued expenses consisted of $1,811 of state and local taxes payable and $27,430 of accrued interest on convertible debt.

 

As of December 31, 2019, accrued liabilities included $41,000 of accrued consulting fees payable to entities owned by the CEO and President ($22,000 and $19,000, respectively). During the nine months ended September 30, 2020, the Company paid out the $41,000 of accrued compensation, for $0 of accrued related party compensation as of September 30, 2020.

 

Deferred Offering Costs

 

The Company accumulates costs incurred directly in connection with its unclosed securities offering, as announced on October 13, 2020, as deferred offering costs. In the event the offering is successful, the Company will record all related costs as an offset to additional paid-in capital. In the even the Company terminates the offering or management deems the offering will not likely be successful, the Company will charge these costs to expense in the period in which such a determination is made. During the three months ended September 30, 2020, the Company incurred $13,500 of costs related to this offering, resulting in total deferred offering costs of $13,500 as of September 30, 2020.

 

11
 

 

EDGE DATA SOLUTIONS, INC. (Formerly Southeastern Holdings, Inc.)

NOTES TO FINANCIAL STATEMENTS

As of September 30, 2020 (Unaudited) and for the Three Months Then Ended (Unaudited)

 

Fair Value of Financial Instruments

 

Financial Accounting Standards Board (“FASB”) guidance specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy are as follows:

 

Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 1 primarily consists of financial instruments whose value is based on quoted market prices such as exchange-traded instruments and listed equities.

 

Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly (e.g., quoted prices of similar assets or liabilities inactive markets, or quoted prices for identical or similar assets or liabilities in markets that are not active).

 

Level 3 - Unobservable inputs for the asset or liability. Financial instruments are considered Level 3 when their fair values are determined using pricing models, discounted cash flows or similar techniques and at least one significant model assumption or input is unobservable.

 

The carrying amounts reported in the balance sheets approximate their fair value.

 

Revenue Recognition

 

The Company recognizes revenue under ASC 606, using the following five-step model, which requires that the Company: (1) identify a contract with the customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to performance obligations and (5) recognize revenue as performance obligations are satisfied. The Company’s current and anticipated revenue streams consist of:

 

  1. GPU as a Service– The Company owns and operates high performance servers to provide hardware acceleration for rendering farms to process 3D and video rendering and gaming. In addition, these multi-purpose servers produce revenue from mining when the servers are not processing other jobs to ensure zero idle time and have the ability to run AI and HPC processing as well.

 

During the quarter ended September 30, 2020, the Company recognized $14,317 of revenue from its customers’ usage of datacenter credits. The Company further recognized a deferred revenue liability of $1,035 for prepaid usage credits not yet used by its customers as of September 30, 2020. While the Company generated limited revenue in the second and third quarters of 2020, there can be no assurances that service lines will generate satisfactory revenue or continue to generate revenue.

 

Cryptocurrency Transactions

 

In August 2020, the Company began mining Ethereum with its unutilized datacenter capacity. The Company records cryptocurrency generated, net of fees and valuation adjustments, as other income and classifies the cryptocurrency as other current assets in its balance sheets. The Company assesses the carrying value of the cryptocurrency held by the Company at each reporting date and charges valuation adjustments to other income. The carrying value of Ethereum held by the Company was $716 and $0 as of September 30, 2020 and December 31, 2019, respectively. During the three and nine months ended September 30, 2020, the Company recognized $716 of net other income from mining operations.

 

Stock-Based Compensation

 

The Company accounts for share-based payments pursuant to ASC 718, “Stock Compensation” and, accordingly, the Company records compensation expense for share-based awards based upon an assessment of the grant date fair value for stock options and restricted stock awards using the Black-Scholes option pricing model.

 

Stock compensation expense for stock options is recognized over the vesting period of the award or expensed immediately when stock or options are awarded for previous or current service without further recourse.

 

On February 18, 2020, the Company issued 50,000 shares of common stock to an advisor and recorded $9,500 of stock-based compensation expense.

 

On May 6, 2020, the Company agreed to issue 60,000 shares of common stock to a consultant for services rendered, resulting in stock-based compensation expense of $11,400.

 

On June 19, 2020, the Board of Directors approved the issuance of 750,000 fully vested common shares to its board members and officers as compensation for services rendered, consisting of 250,000 shares to Delray Wannemacher, CEO and Director, 250,000 shares to Daniel Wong, President and Director, and 250,000 shares to Austin Bosarge, Director. In connection with this issuance, the Board further approved the issuance of 375,000 common shares on July 1, 2021 and 375,000 common shares on July 1, 2022. Each of these future issuances will result in the issuance of 125,000 common shares to each director and officer. The Company recorded stock-based compensation expense of $142,500 upon approving issuance of the first 750,000 shares.

 

On July 7, 2020, the Company issued a total of 1,000,000 common shares, consisting of 500,000 to Delray Wannemacher, CEO and Director, and 500,000 to Daniel Wong, President and Director, as compensation for services rendered, resulting in stock compensation expense of $190,000.

 

On September 15, 2020, the Company granted 50,000 common shares to a consultant in exchange for services rendered, resulting in $9,500 of stock compensation expense. Under the advisory agreement, the Company will issue an additional 50,000 common shares to the advisor over the next two years.

 

On September 16, 2020, the Company granted 100,000 common shares to an advisor in exchange for services rendered, resulting in $19,000 of stock compensation expense. Under the advisory agreement, the Company will issue an additional 100,000 common shares to the advisor over the next two years.

 

12
 

 

EDGE DATA SOLUTIONS, INC. (Formerly Southeastern Holdings, Inc.)

NOTES TO FINANCIAL STATEMENTS

As of September 30, 2020 (Unaudited) and for the Three Months Then Ended (Unaudited)

 

Income Taxes

 

The Company is subject to taxation in various jurisdictions and may be subject to examination by various authorities.

 

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets, including tax loss and credit carryforwards, and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred income tax expense represents the change during the period in the deferred tax assets and deferred tax liabilities. The components of the deferred tax assets and liabilities are individually classified as current and non-current based on their characteristics. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

 

The Company recognizes the amount of taxes payable or refundable for the current year and recognizes deferred tax liabilities and assets for the expected future tax consequences of events and transactions that have been recognized in the Company’s financial statements or tax returns.

 

NOTE 3: GOING CONCERN

 

As shown in the accompanying financial statements as of September 30, 2020, the Company had $63,549 of cash and $77,710 of current assets, as compared to total current liabilities of $839,583, has incurred substantial operating losses, and had an accumulated deficit of $1,257,951. Furthermore, the Company’s revenue history has been limited and unstable, and there can be no assurances of future revenues.

 

Given these factors, the Company is dependent on financing from outside parties, and management intends to pursue outside capital through debt and equity vehicles. There is no assurance that these efforts will materialize or be successful or sufficient to fund operations and meet obligations as they come due.

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, however, the above conditions raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments to reflect the possible future effect on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should the Company be unable to continue as a going concern.

 

NOTE 4: STOCKHOLDERS’ DEFICIENCY

 

The Company has designated ten million (10,000,000) shares of its preferred stock, par value $0.001 as Class A Preferred Super Majority Voting Stock (“Class A”). The Class A shares have the right to vote upon matters submitted to the holders of common stock, par value $0.0001 of the Company. Class A shares have a vote equal to the number of shares of common stock of the Company which would give the holders of the Class A shares a vote equal to sixty percent (60%) of the common stock. This vote shall be exercised pro-rata by the holders of the Class A. The Company shall have the right to redeem, in its sole and absolute discretion, at any time one (1) year after the date of issuance of such Class A shares, all or any portion of the shares of Class A at a price of one cent ($0.01) per share. On October 4, 2018, the Company issued a total of 7,000,000 Class A shares to its CEO and President (formerly COO) as stock-based compensation for services rendered.

 

The Company has not currently authorized a Class B designation of Preferred Stock.

 

13
 

 

EDGE DATA SOLUTIONS, INC. (Formerly Southeastern Holdings, Inc.)

NOTES TO FINANCIAL STATEMENTS

As of September 30, 2020 (Unaudited) and for the Three Months Then Ended (Unaudited)

 

The Company has designated ten million (10,000,000) shares of its preferred stock, par value $0.001 as Class C Convertible Preferred Non-Voting Stock (“Class C”). Each share of Class C shall be convertible into five (5) shares of common stock. The holders of Class C shall be entitled to receive the same dividend as the holders of the common stock and such dividend shall be paid pro rata per share on a fully converted basis. The holders of Class C shall have piggyback registration rights. The Company shall have the right to redeem, in its sole and absolute discretion, at any time after five (5) years, all or any portion of the shares of Class C at a price of five dollars ($5.00) per share. The Class C shares shall be considered to have a junior liquidation preference to Class A shares and a senior dividend preference to Class A shares. On October 4, 2018, the Company issued a total of 7,000,000 Class C shares to its CEO and President (formerly COO) as stock-based compensation for services rendered. Subsequently, in April 2019, the Company filed an amended and restated certificate of designation, which restricts the CEO and President from converting the 7,000,000 shares into common stock for 36 months from the issuance date.

 

On January 20, 2020, the Company purchased datacenter equipment components for 32,000 shares of common stock and capitalized $6,083 based on the estimated value of surrounding equity transactions.

 

In January 2020, the Company issued 627,862 equity units at $0.25 to two individuals in exchange for conversion of $100,000 of convertible notes and $6,966 of accrued interest and an additional $50,000 of cash. Each equity unit consists of one three-year warrant to purchase two shares of the Company’s common stock for $0.50 each, and one share of the Company’s common stock. The Company may call the warrants in the event its common stock trades for $1.00 or more per share for ten out of fifteen consecutive trading days. In connection with these transactions, the Company assigned $119,665 of value to the common stock and $37,301 to the warrants using the Black-Scholes model with the following inputs:

 

Risk-free interest rate     1.44%-1.51 %
Expected life of warrants     3 years  
Annualized volatility     60 %
Dividend rate     0 %

 

The following table sets forth the Company’s warrant activity through September 30, 2020:

 

   Warrants   Shares
Under
Warrant
   Term  Exercise
Price
   Remaining
Life
 
Balance, December 31, 2019   -    -                 
                        
Warrants issued with equity units   627,862    1,255,724   3 years   $0.50     
Balance, March 31, 2020   627,862    1,255,724              
                        
No new issuances                       
Balance, September 30, 2020   627,862    1,255,724              

 

As further discussed in Note 2, the Company issued 1,150,000 common shares and 1,910,000 common shares to management, board members and consultants for services rendered, resulting in stock-based compensation expense of $218,500 and $381,900 for the three and nine months ended September 30, 2020, all respectively.

 

As of September 30, 2020, the Company was authorized to issue 150,000,000 shares of common stock. All common stock shares have full dividend and voting rights. However, it is not anticipated that the Company will be declaring dividends in the foreseeable future.

 

As of September 30, 2020, the Company had 8,321,079 common shares outstanding.

 

As of September 30, 2020, 7,000,000 shares of Class A Preferred Stock and 7,000,000 shares of Class C Preferred Stock were issued and outstanding.

 

NOTE 5: RELATED PARTY TRANSACTIONS

 

During the nine months ended September 30, 2020, the Company paid out previously accrued consulting fees payable to the CEO and President of $22,000 and $19,000, respectively, paid $40,000 and $35,000 of current compensation, and paid $6,600 and $3,909 in health insurance premiums for the CEO and COO, respectively. The Company does not currently have consulting or employment agreements with these individuals, and as a result, these fees may fluctuate from time to time. While the Company believes these individuals were appropriately classified as contractors and has accordingly neither paid nor accrued payroll taxes, these payments may result in future tax liabilities should the Internal Revenue Service deem these individuals to be employees. As of September 30, 2020, the Company owed $0 of outstanding compensation to the CEO and COO.

 

During the nine months ended September 30, 2020, the Company’s CEO and President paid expenses on behalf of the Company totaling $106,387 and $61,804, and the Company repaid $120,652 and $90,838 of related party advances, respectively. As of September 30, 2020, the Company was indebted to the CEO for $44,975 and to the President for $156, respectively, for expenses paid on behalf of the company.

 

In June 2020, Austin Bosarge joined the Company’s Board of Directors. In connection with his appointment to the Board of Directors, he forgave $33,000 of outstanding fees due to his company for previous professional services rendered, resulting in a deemed contribution of $33,000 for the nine months ended September 30, 2020.

 

14
 

 

EDGE DATA SOLUTIONS, INC. (Formerly Southeastern Holdings, Inc.)

NOTES TO FINANCIAL STATEMENTS

As of September 30, 2020 (Unaudited) and for the Three Months Then Ended (Unaudited)

 

NOTE 6: CONVERTIBLE NOTES

 

As discussed in Note 4, in January, two individuals converted a total of $100,000 of outstanding principal and $6,966 of accrued interest into 427,862 equity units, each consisting of one common share and a three-year warrant to purchase two shares of common stock at $0.50 per share, in connection with additional subscriptions totaling $50,000 to purchase 200,000 of these equity units.

 

In February 2020, the Company issued two short-term convertible notes for total proceeds of $110,000. These notes mature one year from execution and accrue interest at a rate of 10% per annum. Conversion terms call for conversion of principal and accrued interest at 70% of the stock price upon closing any offering resulting in aggregate financing of at least $1,000,000.

 

In April 2020, the Company issued three short-term convertible notes for total proceeds of $150,000. These notes mature one year from execution and accrue interest at rates ranging from 10-12% per annum. Conversion terms call for conversion of principal and accrued interest at 70% of the stock price upon closing any offering resulting in aggregate financing of at least $1,000,000.

 

In June 2020, the Company issued another short-term convertible note for total proceeds of $50,000. This note matures one year from execution and accrues interest at 10% per annum. Conversion terms call for conversion of principal and accrued interest at 70% of the stock price upon closing any offering resulting in aggregate financing of at least $1,000,000.

 

In July 2020, the Company issued a short-term convertible note for total proceeds of $25,000. This note matures one year from execution and accrues interest at 10% per annum. Conversion terms call for conversion of principal and accrued interest at 85% of the stock price upon closing any offering resulting in aggregate financing of at least $1,000,000.

 

In August 2020, the Company issued a short-term convertible note for total proceeds of $100,000. This note matures one year from execution and accrues interest at 10% per annum. Conversion terms call for conversion of principal and accrued interest at 85% of the stock price upon closing any offering resulting in aggregate financing of at least $1,000,000.

 

In August 2020, the Company issued two short-term convertible notes totaling $75,000. The notes mature one year from execution and accrue interest at 10% per annum. Conversion terms call for conversion of principal and accrued interest at the lesser of (i) 70% of the stock price or (ii) $0.50 per share, upon closing any offering resulting in aggregate financing of at least $1,000,000.

 

The Company evaluated the convertible notes in light of ASC 470 and determined that a beneficial conversion feature exists. However, given the contingent nature of the holder’s option and the lack of a market for the Company’s stock, the Company concluded that such a feature is not currently ascertainable and allocated the full principal amount to the convertible note liability.

 

During the three and nine months ended September 30, 2020 and 2019, the Company recognized $13,902 and $27,130 and $2,520 and $3,897 of interest expense on convertible debt, all respectively. As of September 30, 2020 and 2019, accrued interest on convertible debt was $27,430 and $3,897, net of converted interest of $6,966 and $0 during the periods then ended, respectively.

 

NOTE 7: SIGNIFICANT AGREEMENTS

 

On March 11, 2019, the Company entered into a Master Services Agreement with SG Building Blocks, Inc. (“SG”), under which SG will provide certain systems, and perform the various design, engineering, fabrication, delivery and installation servics pertaining to those systems. The Company has not yet realized any financial impacts from this agreement.

 

On January 29, 2020, the Company entered into a master service agreement with Charter Trading Corporation (“Charter”), a Texas company, under which Charter will provide Ballistics materials for hardened Edge Datacenters, for use by military contractors.

 

On June 24, 2020, the Company entered into a reseller agreement with Midas Green Technologies, LLC, a Texas-based technology company under which it can purchase and resell datacenter-related equipment. The Company has not yet realized any financial impacts.

 

On August 31, 2020, the Company engaged CIM Securities, LLC (“CIM”) as a financial advisor and its exclusive lead placement agent for the securities offering announced on October 13, 2020. The agreement calls for cash advisory fees of $15,000 and the reimbursement of expenses and up to $5,000 in legal fees. In addition to the engagement fees and expenses, the agreement sets forth contingent fees, based on successful closing of various transaction types:

 

  Equity, Mezzanine or Structured Debt Transactions – CIM will receive a cash placement fee of 7.0% of the gross proceeds of securities subscriptions, with an additional fee of 2.0% of the gross proceeds from investors sourced through other FINRA member broker dealers, with total cash fees not to exceed 9.0% of the gross proceeds. In the event the Company sources its own investors, it will pay CIM a total cash placement fee of 2.0% of the gross proceeds. In addition to cash, CIM is entitled to cashless exercise warrants for the purchase of 7.0% (2.0% for investments sourced by Company) of the number of total shares of stock, funding amount, and/or warrants at the same exercise price as paid for the common equity, mezzanine or structured debt stock in equity. The warrants would have a five-year term, be dated for seven years after the transaction closes, non-callable, non-cancelable, assignable and have immediate piggy-back registration rights, cashless exercise provisions and customary anti-dilution provisions.
  Senior Debt Transaction – CIM will receive a 3% cash fee.
  Mergers and Acquisition – CIM will receive a fee of 5% of the total aggregate consideration.
  Business Development – CIM will receive 5% of the total gross value of any contracts in which CIM is involved or makes a direct or indirect introduction.

 

On November 2, 2020, the Company entered into a reseller agreement with Lambda Labs, Inc., a provider of GPU-driven computing equipment and cloud services. The Company has not yet realized any financial impacts from this agreement.

 

NOTE 8: FINANCE LEASE

 

On March 27, 2020, the Company entered into a 36-month lease for datacenter equipment. Terms of the lease call for 36 monthly payments of $1,292, with the first payment due at inception, together with a $7,753 security deposit, $3,140 of sales tax and a $500 origination fee, for a total of $12,685 due up front. The Company paid the $12,685 on March 27, 2020.

 

The Company evaluated the lease in light of ASC 842 and determined that it was a long-term finance lease, since (a) the lease term is for the major part of the remaining economic life of the underlying asset and (b) the present value of the sum of lease payments equals or substantially exceeds the fair value of the underlying asset. At lease inception, the Company recognized a right of use asset for $38,895, prepaid tax of $3,140 and a lease liability of $38,895. The Company will ratably amortize the right of use asset and prepaid tax to lease expense over the lease’s life. Based on the present value, term and payment schedule, the Company determined the lease’s implicit rate to be 12.55% and will record interest expense accordingly over the life of the lease.

 

During the nine months ended September 30, 2020, the Company paid a total of $5,842, including $3,575 of principal and $2,267 of interest, to the lessor and recognized $3,241 and $6,483 of lease expense for the three and nine months ended September 30, 2020.

 

15
 

 

EDGE DATA SOLUTIONS, INC. (Formerly Southeastern Holdings, Inc.)

NOTES TO FINANCIAL STATEMENTS

As of September 30, 2020 (Unaudited) and for the Three Months Then Ended (Unaudited)

 

As of September 30, 2020, lease-related assets and liabilities consisted of:

 

Assets    
Prepaid expense  $2,617 
Right of use asset - finance lease   32,412 
Security deposit   7,753 
Total lease-related assets  $42,782 
      
Liabilities     
Lease liability - finance, current portion  $15,315 
Lease liability - finance, non-current portion   20,005 
Total lease-related liabilities  $35,320 

 

Future maturities of the lease liability are as follows:

 

2020  $6,091 
2021   12,500 
2022   14,186 
2023   2,543 
Total future maturities  $

35,320

 

 

NOTE 9: ACQUISITION DEPOSITS

 

During the nine months ended September 30, 2020, the Company issued $25,000 of payments in anticipation of an acquisition of the assets of Blockchain Resources Corp. On June 26, 2020, the parties terminated the agreement. In connection with these payments, a contractor received $2,000 for services directly pertaining to the buildout of the Company’s datacenter equipment. As a result, the Company capitalized the $2,000 and wrote off the remaining $23,000 as unrecoverable losses.

 

NOTE 10: CONCENTRATIONS, COMMITMENTS AND CONTINGENCIES

 

During the three months ended September 30, 2020, one customer comprised 84% of revenue and one customer comprised 15% of revenue, and the loss of these customers would be detrimental to the Company’s recently formed revenue stream. Management has determined that no other significant concentrations, commitments, or contingencies existed as of September 30, 2020.

 

NOTE 11: SMALL BUSINESS ADMINISTRATION GRANT

 

During the nine months ended September 30, 2020, the Company applied for a United States Small Business Administration loan under the March 27, 2020 Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. In connection with this application, the Company received a one-time grant of $1,000 and recognized it as other income.

 

16
 

 

EDGE DATA SOLUTIONS, INC. (Formerly Southeastern Holdings, Inc.)

NOTES TO FINANCIAL STATEMENTS

As of September 30, 2020 (Unaudited) and for the Three Months Then Ended (Unaudited)

 

NOTE 12: DEBT FORGIVENESS

 

On May 5, 2020, a vendor forgave $12,250 of outstanding balances due from the Company pertaining to professional services previously provided, resulting in a $12,250 gain for the nine months ended September 30, 2020.

 

NOTE 13: DISPOSAL OF EQUIPMENT

 

In September 2020, the Company sold datacenter equipment for $10,170 and having an original cost of $6,083, resulting in a gain of $4,965 for the three and nine months ended September 30, 2020.

 

NOTE 14: RECENT ACCOUNTING PRONOUNCEMENTS

 

In February 2016, the FASB issued ASU 2016-02, “Leases” (Topic 842). This ASU requires a lessee to recognize a right-of-use asset and a lease liability under most operating leases in its balance sheet. The ASU is effective for annual and interim periods beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company has adopted this accounting policy on January 1, 2019 and applied the standard to its current capital lease.

 

Management does not believe that any other recently issued, but not yet effective, accounting standards could have a material effect on the accompanying financial statements. As new accounting pronouncements are issued, we will adopt those that are applicable under the circumstances.

 

NOTE 15: SUBSEQUENT EVENTS

 

On October 13, 2020, the Company announced a securities offering of Series B Preferred Stock at $1.00 per share, with maximum gross proceeds of $3 million. The class of stock is convertible into common stock and has a 1x liquidation and distribution preference. Proceeds from this offering are also subject to certain placement fees arising from the agreement with the Company’s placement agent, as further discussed in Note 7.

 

On November 2, 2020, the Company entered into a reseller agreement with Lambda Labs, Inc., a provider of GPU-driven computing equipment and cloud services. The Company has not yet realized any financial impacts from this agreement.

 

Management has evaluated significant subsequent events through the date these financial statements were available to be issued and has identified no other significant events requiring disclosure.

 

17
 

 

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

 

This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties and are based on the beliefs and assumptions of management and information currently available to management. The use of words such as “believes”, “expects”, “anticipates”, “intends”, “plans”, “estimates”, “should”, “likely” or similar expressions, indicates a forward-looking statement. In connection with, and because we desire to take advantage of, the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, we caution readers regarding certain forward looking statements in the following discussion and elsewhere in this report and in any other statement made by, or on our behalf, whether or not in future filings with the Securities and Exchange Commission. Forward-looking statements are statements not based on historical information and which relate to future operations, strategies, financial results or other developments. Forward looking statements are necessarily based upon estimates and assumptions that are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control and many of which, with respect to future business decisions, are subject to change. These uncertainties and contingencies can affect actual results and could cause actual results to differ materially from those expressed in any forward-looking statements made by, or on our behalf. We disclaim any obligation to update forward-looking statements.

 

The identification in this report of factors that may affect our future performance and the accuracy of forward-looking statements is meant to be illustrative and by no means exhaustive. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty.

 

18
 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following discussion should be read in conjunction with our unaudited financial statements and notes thereto included herein.

 

General

 

EDGE DATA SOLUTIONS, INC. (the “Company”), formerly Blockchain Holdings Capital Ventures, Inc. (formerly Southeastern Holdings, Inc., formerly Safe Lane Systems, Inc.) was incorporated in the State of Colorado on September 10, 2013. Safe Lane Systems, Inc. redomiciled to become a Delaware holding corporation in September of 2016. On September 22, 2016, Safe Lane Systems, Inc. formed two wholly owned subsidiaries, SLS Industrial, Inc and Southeastern Holdings, Inc. (both Delaware corporations) and on September 30, 2016 completed a merger and reorganization in which Southeastern Holdings, Inc. (now Edge Data Solutions, Inc.) became the holding company. On December 1, 2016, the Company spun off its wholly owned subsidiary, SLS Industrial, Inc., along with its assets and liabilities, leaving Southeastern Holdings, Inc. as the only surviving entity.

 

On August 23, 2018, the Company entered into a Bill of Sale and Assignment and Assumption Agreement with Blockchain Holdings, LLC (“Blockchain”), pursuant to which the Company purchased all of the assets of Blockchain which are used in the business of sourcing of blockchain mining equipment from various suppliers for their customers and also providing management of the equipment hosted, mining pools and tech work on such equipment. The Company issued 300,000,000 (equivalent to 3,000,000 after the reverse split) shares of its common stock, par value $.0001 to the members of Blockchain in exchange for the assets of Blockchain.

 

On August 30, 2018 the Company changed its name to Blockchain Holdings Capital Ventures, Inc.

 

On January 13, 2020, the Company changed its name to Edge Data Solutions, Inc.

 

Edge Data Solutions, Inc. (EDSI) is poised to be an industry-leading edge datacenter and cloud infrastructure provider. EDSI’s proprietary Edge Performance Platform (EPP) allows us to deploy next-generation edge datacenters where they are needed most. EDSI’s datacenters provide next-generation immersion cooling technology that improves performance, reduces energy costs and latency. Key industries we serve more computing power are fintech, cloud gaming, telecom 5G, 3D/video/AI rendering, video streaming, remote desktop, IoT, autonomous vehicles. Centralized infrastructure facilities servicing multiple geographical areas encounter many issues with data latency, congestion and weak network connections. To address this, data processing is moving closer to the customer. EDSI offers green, low-cost, secure colocation and private data hosting to meet this demand for Edge datacenters. EDSI plans to deploy to strategic locations based on demand for Tier 2 and Tier 3 cities outside the major metropolitans to underserved markets, supporting both edge customers and areas of projected growth. With the rise and proliferation of this technology adoption we plan to solidify our footprint by securing multiple locations across the US, while generating revenue from our operations. The modular design and ability to add additional datacenters as needed, preserves up front capital allowing for rapid deployment and scalability as business demand increases.

 

19
 

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. However, the above conditions raise substantial doubt about the Company’s ability to do so. New business opportunities may never emerge, and we may not be able to sufficiently fund the pursuit of new business opportunities should they arise.

 

As of September 30, 2020, we had approximately $63,549 of cash on hand. Our current monthly cash burn rate is approximately $35,000, and it is expected that burn rate will continue and is expected to continue at $35,000 until significant additional capital is raised and our marketing plan is executed. Our trade creditors may call debts at any time, and our cash reserves would not be sufficient to satisfy all balances. We are currently dependent on minimal expenses to be covered by a loan or other cash infusion from the Company’s CEO and Director Delray Wannamaker, and President and Director, Daniel Wong. There is no guarantee that this cash infusion will continue to be made.

 

Operating results for the three months ended September 30, 2020 and 2019:

 

For the three months ended September 30, 2020, the Company generated revenues of $14,317 from operations, compared to $0 for the three months ended September 30, 2019, an increase of $14,317 or 100%. This increase is a result of customers purchasing datacenter credits for use of the Company’s computing equipment. The Company anticipates future revenue from its current efforts, but there can be no assurances that such efforts will be successful.

 

For the three months ended September 30, 2020, costs of net revenues were $0, compared to $0 for the three months ended September 30, 2019.

 

As a result of the changes in revenues and cost of net revenues discussed above, the Company’s gross margin was $14,317 and $0 for the three months ended September 30, 2020 and 2019, respectively. While direct costs have not yet been identified for the revenue-producing period, management anticipates direct costs associated with revenue will become apparent and may adjust future estimates accordingly.

 

For the three months ended September 30, 2020, selling, general and administrative expenses were $51,369, compared to $65,051 during the three months ended September 30, 2019, a decrease of $13,682, or 21%. The decrease in these expenses are attributable to decreased legal, accounting and other professional fees and no advertising and marketing spend during the 2020 period.

 

The Company recognized stock-based compensation expense of $218,500 for the three months ended September 30, 2020, as compared to $0 for the three months ended September 30, 2019, for an increase of $218,500, or 100%. This increase was attributable to issuances to management and the board and several consultants and advisors for support of operations in 2020.

 

During the three months ended September 30, 2020, the Company recognized $6,303 of depreciation expense, as compared to $0, for an increase of $6,303 or 100%, during the three months ended September 30, 2019, as a result of added equipment during 2020.

 

During the three months ended September 30, 2020, the Company recognized $17,955 of interest expense, as compared to $6,359 for the three months ended September 30, 2019. The increase of $11,596, or 182%, is primarily attributable to the accrual of interest on significant new convertible debt issuances in late 2019 and early 2020.

 

The Company also recognized a gain of $4,965 from the sale of certain equipment from its datacenter in September 2020 and generated total cryptocurrency mining income of $716 in August and September 2020.

 

As a result of the changes in operating expenses and other expenses, the Company incurred a net loss of $295,103 for the three months ended September 30, 2020, compared to a net loss of $71,425 for the three months ended September 30, 2019, a change of $223,678, or 313%.

 

The future trends of all expenses are expected to be primarily driven by the Company’s ability to execute its business plans. Furthermore, the Company’s ability to continue to fund operating expenses will depend on its ability to raise capital, continue to generate revenue and experience revenue growth. There can be no assurance that the Company will be successful in doing so.

 

20
 

 

Operating results for the nine months ended September 30, 2020 and 2019:

 

For the nine months ended September 30, 2020, the Company generated revenues of $20,624 from operations, compared to $0 for the nine months ended September 30, 2019, an increase of $20,624 or 100%. This increase is a result of customers purchasing datacenter credits for use of the Company’s computing equipment. The Company anticipates future revenue from its current efforts, but there can be no assurances that such efforts will be successful.

 

For the nine months ended September 30, 2020, costs of net revenues were $0, compared to $0 for the nine months ended September 30, 2019.

 

As a result of the changes in revenues and cost of net revenues discussed above, the Company’s gross margin was $20,624 and $0 for the nine months ended September 30, 2020 and 2019, respectively. While direct costs have not yet been identified for the revenue-producing period, management anticipates direct costs associated with revenue will become apparent and may adjust future estimates accordingly.

 

For the nine months ended September 30, 2020, selling, general and administrative expenses were $185,331, compared to $155,457 during the nine months ended September 30, 2019, an increase of $29,874, or 19%. The increase in these expenses are attributable to increased legal, accounting and other professional fees incurred and limited advertising and marketing spend during 2020.

 

The Company recognized stock-based compensation expense of $381,900 for the nine months ended September 30, 2020, as compared to $0 for the nine months ended September 30, 2019, for an increase of $381,900, or 100%. This increase was attributable to issuances to management and the board and several consultants and advisors for support of operations in 2020.

 

During the nine months ended September 30, 2020, the Company recognized $10,513 of depreciation expense, as compared to $0, for an increase of $10,513 or 100%, during the nine months ended September 30, 2019, as a result of added equipment during 2020.

 

During the nine months ended September 30, 2020, the Company recognized $42,064 of interest expense, as compared to $10,853 for the nine months ended September 30, 2019. The increase of $31,211 or 288%, is primarily attributable to the accrual of interest on significant new convertible debt issuances in late 2019 and early 2020 and also includes interest incurred by related parties who paid expenses on behalf of the Company.

 

Aside from interest expense, during the nine months ended September 30, 2020 and 2019, the Company recognized net other expense of $4,069 and $0, respectively, for an increase of $4,069 or 100%. The change was a result of $23,000 of acquisition deposits written off after termination of a prospective acquisition, $12,250 of debt forgiveness from a vendor, and a $1,000 grant from the United States Small Business Administration, $716 of cryptocurrency mining income, and a gain of $4,965 from the sale of certain equipment from its datacenter in September 2020.

 

As a result of the changes in operating expenses and other expense, the Company incurred a net loss of $698,253 for the nine months ended September 30, 2020, compared to a net loss of $166,310 for the nine months ended September 30, 2019, a change of $531,943, or 320%.

 

The future trends of all expenses are expected to be primarily driven by the Company’s ability to execute its business plans. Furthermore, the Company’s ability to continue to fund operating expenses will depend on its ability to raise capital, continue to generate revenue and experience revenue growth. There can be no assurance that the Company will be successful in its efforts to do so.

 

Liquidity and Capital Resources

 

The Company’s cash position at September 30, 2020 increased by $49,096 to $63,549, as compared to a balance of $14,453, as of December 31, 2019. The increase in cash for the nine months ended September 30, 2020 was attributable to net cash used in operating activities of $315,956, $141,058 of net cash used in investing activities, and net cash provided by financing activities of $506,110 driven by new convertible debt financing.

 

As of September 30, 2020, the Company had a deficit in working capital of $761,873, compared to a deficit in working capital of $489,316 at December 31, 2019, representing a decrease in working capital of $272,557, largely attributable to the use of cash in operations, amortization of prepaid expenses, the write-off of acquisition deposits, finance lease-related liabilities, deferred revenue and additional short-term convertible debt.

 

21
 

 

Net cash used in operating activities of $315,956 during the nine months ended September 30, 2020, as compared to net cash of $124,230 used in operating activities for the nine months ended September 30, 2019, was primarily attributable to a significant net loss, which was offset by stock-based compensation, write-off of acquisition deposits and decreases in accounts payable and increased by payment of accrued liabilities.

 

Net cash used by investing activities was $141,058 for the nine months ended September 30, 2020 increased by $141,058 from $0 of cash used by investing activities for the nine months ended September 30, 2019. This is attributable to the Company acquiring datacenter equipment and advancing funds pertaining to a prospective acquisition.

 

Net cash provided by financing activities of $506,110 during the nine months ended September 30, 2020 increased by $387,684, as compared to $118,426 during the nine months ended September 30, 2019. The difference was a result of changes in finance lease assets and liabilities, net repayments of related party advances, and the issuance of convertible debt and subscriptions to equity units.

 

As reported in the accompanying consolidated financial statements, for the nine months ended September 30, 2020 and 2019, the Company incurred net losses of $698,253 and $166,310, respectively. The Company produced limited revenues during the nine months ended September 30, 2020 and no revenue during the nine months ended September 30, 2019. The Company’s ability to continue as a going concern is dependent upon its ability to generate revenue, reach consistent profitability and raise additional capital. To date, the Company has raised funds from related party advances, convertible debt, subscriptions to equity units, and the sale of common stock to its former CEO. It intends to finance its future operating activities and its near-term working capital needs largely from proceeds from the securities offering announced on October 13, 2020. The sale of equity and entry into other future financing arrangements may result in dilution to stockholders and those securities may have rights senior to those of common shares. If the Company raises additional funds through the issuance of convertible notes or other debt financing, these activities or other debt could contain covenants that would restrict the Company’s operations. Any other third-party funding arrangements could require the Company to relinquish valuable rights. The Company will require additional capital beyond its currently anticipated needs. Additional capital, if available, may not be available on reasonable terms or at all.

 

While the Company has generated revenues, it has not generated substantial revenues or profits from its current operations. The Company expects to continue to incur operating losses as it incurs professional fees and other expenses related to implementing its business plan. The future trends of all expenses are expected to be primarily driven by the Company’s ability to execute its business plans and continue to generate revenue. Furthermore, the Company’s ability to continue to fund operating expenses will depend on its ability to raise capital and generate sufficient revenues. There can be no assurance that the Company will be successful in doing so.

 

Financial Condition

 

The Company’s total assets as of September 30, 2020 and December 31, 2019 were $249,968 and $14,453, respectively, representing an increase of $235,515, or 1,630%. Total liabilities as of September 30, 2020 and December 31, 2019 were $859,588 and $503,769, respectively, for an increase of $355,819, or 71%. The significant change in the Company’s financial condition is attributable to convertible debt issued, the sale of equity units, commencement of a finance lease arrangement, cash burn from operations and increases in accounts payable and repayment of accrued expenses. As a result of these transactions, the Company’s cash position increased from $14,453 to $63,549 during the three and nine months ended September 30, 2020.

 

Off-Balance Sheet Arrangements

 

We have made no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

Not required for smaller reporting companies.

 

22
 

 

Item 4. Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

An evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and President, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report on Form 10-Q. Disclosure controls and procedures are procedures designed with the objective of ensuring that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, such as this Form 10-Q, is recorded, processed, summarized and reported, within the time period specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and is communicated to our management, including our Chief Executive Officer and Chief Financial Officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Based on that evaluation, our management concluded that, as of September 30, 2020, our disclosure controls and procedures were not effective.

 

Changes in Internal Control Over Financial Reporting

 

There were no changes in our internal control over financial reporting during the quarter ended September 30, 2020 that materially affected or are reasonably likely to materially affect our internal control over financial reporting.

 

PART II

 

Item 1. Legal Proceedings.

 

The Company is not a party to any legal proceeding that it believes will have a material adverse effect upon its business or financial position.

 

Item 1A. Risk Factors.

 

Not required for smaller reporting companies.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

During the period from January 1, 2020 through September 30, 2020, the Company issued the following unregistered securities.

 

On January 23, 2020, the Company entered into a Subscription Agreement and Conversion of Convertible Note with FNFC Profit Sharing Plan and Trust (“FNFC”) to issue 206,986 equity units, each consisting of one share of the Company’s common stock and one three-year warrant to purchase two shares of common stock for $0.50. In exchange for the equity units, FNFC converted $25,000 of outstanding principal, $1,747 of accrued interest and invested an additional $25,000.

 

On January 27, 2020, the Company entered into a Subscription Agreement and Conversion of Convertible Note with JMA Enterprises (“JMA”) to issue 420,876 equity units, each consisting of one share of the Company’s common stock and one three-year warrant to purchase two shares of common stock for $0.50. In exchange for the equity units, FNFC converted $75,000 of outstanding principal, $5,219 of accrued interest and invested an additional $25,000.

 

On February 15, 2019, the Company agreed to issue 125,000 shares of common stock to Fisher Herman Construction, LLC in exchange for execution of a 24-month service contract with the Company. The agreement calls for 375,000 future shares to be issued over the term of the contract, so long as the contract is in full force and effect, consisting of (i) 50,000 shares every 90 days and (ii) 75,000 shares due upon completion of the contract. On February 15, 2020, the Company issued 50,000 shares of common stock under this agreement. The Company generated no proceeds from this transaction.

 

23
 

 

On February 19, 2020, the Company entered into a convertible note with Charles Horak for proceeds of $100,000. The note matures in one year, bears interest at 10% per annum and is convertible at a 30% discount in the event of a financing event of at least $1,000,000. On April 22, 2020, the Company received $50,000 of additional funds from Charles Horak under similar terms.

 

On February 27, 2020, the Company entered into a convertible note with Anthony Givogue for proceeds of $10,000. The note matures in one year, bears interest at 10% per annum and is convertible at a 30% discount in the event of a financing event of at least $1,000,000.

 

On April 9, 2020, the Company entered into a one-year convertible promissory note with Chuck Ruhmann for proceeds of $50,000. The note bears 10% interest per annum and is convertible at a 30% discount in the event of a $1,000,000 or greater financing.

 

On April 22, 2020, the Company entered into a convertible promissory note with Zoran Stojkov for proceeds of $50,000. The note matures in one year, bears 12% interest per annum and is convertible at a 30% discount in the event of a $1,000,000 or greater financing.

 

On April 22, 2020, the Company entered into a convertible promissory note with Charles Horak for proceeds of $50,000. The note matures in one year, bears 12% interest per annum and is convertible at a 30% discount in the event of a $1,000,000 or greater financing.

 

On May 6, 2020, the Company agreed to issue 60,000 shares of common stock to Paul Manos in exchange for professional services rendered.

 

On June 5, 2020, the Company entered into a one-year convertible promissory note with Chuck Ruhmann for proceeds of $50,000. The note bears 12% interest per annum and is convertible at a 30% discount in the event of a $1,000,000 or greater financing.

 

On June 19, 2020, the Company’s Board of Directors approved the issuance of 250,000 common shares to Delray Wannemacher, Chief Executive Officer and Director, as compensation for services rendered.

 

On June 19, 2020, the Company’s Board of Directors approved the issuance of 250,000 common shares to Daniel Wong President and Director, as compensation for services rendered.

 

On June 19, 2020, the Company’s Board of Directors approved the issuance of 250,000 common shares to Austin Bosarge, Director, as compensation for services rendered.

 

On July 7, 2020, the Company’s Board of Directors approved the issuance of 500,000 common shares to Delray Wannemacher, Chief Executive Officer and Director, as compensation for services rendered.

 

On July 7, 2020, the Company’s Board of Directors approved the issuance of 500,000 common shares to Daniel Wong President and Director, as compensation for services rendered.

 

On July 19, 2020, the Company entered into a convertible promissory note with Zoran Stojkov for proceeds of $25,000. The note matures in one year, bears 10% interest per annum and is convertible at a 15% discount in the event of a $1,000,000 or greater financing.

 

On August 7, 2020, the Company entered into a convertible promissory note with Intecon, LLC for proceeds of $100,000. The note matures in one year, bears 10% interest per annum and is convertible at a 15% discount in the event of a $1,000,000 or greater financing.

 

On August 28, 2020, the Company entered into a convertible promissory note with Dave Ellicott for proceeds of $50,000. The note matures in one year, bears 10% interest per annum and is convertible at the lesser of (i) a 30% discount of (ii) $0.50 per share, in the event of a $1,000,000 or greater financing.

 

On August 31, 2020, the Company entered into a convertible promissory note with Charles Horak for proceeds of $25,000. The note matures in one year, bears 10% interest per annum and is convertible at the lesser of (i) a 30% discount of (ii) $0.50 per share, in the event of a $1,000,000 or greater financing.

 

On September 15, 2020, the Company issued 50,000 common shares to Levi Volk as compensation for services rendered.

 

On September 16, 2020, the Company approved the issuance of 100,000 common shares to Joshua Holmes as compensation for services rendered and subsequently issued the shares on November 2, 2020.

 

The sales described in the preceding paragraphs were made in private placement transactions, pursuant to the exemption provided by Section 4(2) of the Securities Act and Rule 506 of Regulation D promulgated under the Securities Act (“Regulation D”), as a sale to “accredited investors,” as defined in Rule 501(a) of the Regulation D. The issuances did not involve any public offering; no general solicitation or general advertising was used in connection with the offering. The Company intends to use the proceeds from these transactions to fund its operations.

 

24
 

 

Item 3. Defaults Upon Senior Securities.

 

There have been no defaults upon senior securities.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information.

 

None.

 

Item 6. Exhibits

 

a. Exhibits

 

31.1   Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
31.2   Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
32.1   Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
32.2   Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

25
 

 

SIGNATURES

 

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

 

  Edge Data Solutions, Inc.
     
Date: November 16, 2020 By: /s/ Delray Wannemacher
    Delray Wannemacher, CEO
   
Date: November 16, 2020 By: /s/ Daniel Wong
    Daniel Wong, President and
    Acting Principal Financial Officer

 

26