The following discussion should be read in conjunction with our audited
financial statements and notes thereto included herein. 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.
10
The independent registered public accounting firm's report on the Company's
consolidated financial statements as of December 31, 2021 and 2020, and for the
years ended December 31, 2021 and 2020, includes a "going concern" explanatory
paragraph, that describes substantial doubt about the Company's ability to
continue as a going concern.
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) believes it is poised to be an industry-leading
edge data center and cloud infrastructure provider. EDSI's proprietary Edge
Performance Platform (EPP) allows us to deploy next-generation edge data centers
where they are needed most. EDSI's data centers provide next-generation
immersion Cooling technology that improves performance, reduces energy costs and
latency. Key industries we believe we can serve more computing power to include
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 data centers. 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 data centers as needed, preserves
up front capital allowing for rapid deployment and scalability as business
demand increases.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. However, certain 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 December 31, 2021, we had $831,209 in cash on hand. Our current monthly
cash requirement for basic operations is approximately $175,000, and the Company
anticipates it will require significant additional sales or capital to fully
execute our business plan. We are currently dependent on the successful
generation of sufficiently profitable sales and on necessary capital to continue
to operate. While we have generated sales, there can be no guarantee that we
will continue to generate sales, generate sufficient cash or raise sufficient
capital to continue to fund operations.
PLAN OF OPERATIONS
During 2021, we commenced sales of our Edge Performance Platform, including data
center infrastructure, equipment and services, and have continued to generate
these sales. There can be no assurances that these sales will continue or that
customers will execute upon their commitments to purchase our solutions. EDSI's
business is young and may also be adversely affected by issues with product,
supply chain challenges, operational issues, and competition.
We are currently seeking to grow our customer base and to increase our current
customers' reliance on and usage of our resources. Further, we are seeking to
expand into the sale and resale of modular data centers and related
infrastructure and equipment. While our efforts have generated limited revenue
and gross profit, there can be no assurances that these efforts will be
successful or produce sufficient income or cash inflows from operations. As a
result, we are dependent upon additional sales that generate sufficient profit
and may require additional capital from investors to finance our operations and
continue as a going concern.
11
Our goals for the next year are as follows:
? Significantly grow sales through our current partnerships and customer
relationships
? Enhance the profitability of current data center sales
? Develop new products and services
? Establish strategic revenue-generating partnerships
APPLICATION OF FUNDS (1)
The following represents our estimated use of cash for operations over the next
year to fully implement our business plan in addition to our current operations.
Item Amount (1)
Go-to-market sales, marketing, branding, events $ 1,128,000
General, administrative, and public company costs 1,374,000
Research, product and software development 406,000
Solutions delivery staffing and other costs 216,000
Capital investment in joint ventures and testing facilities 276,000
Total
$ 3,400,000
We expect to expend funds from operations and capital on a quarterly basis, as
follows:
Period Amount (1)
Q1 2022 $ 1,541,000
Q2 2022 809,000
Q3 2022 525,000
Q4 2022 525,000
Total Cash Required $ 3,400,000
(1) All budget-related items listed are estimates that may change at the
discretion of management, depending on business needs and priorities and
available capital.
The Company may change any or all of the budget categories in the execution of
its business model. None of the line items are to be considered fixed or
unchangeable. The Company may need substantial additional revenues and/or
capital to fully implement its business plan and support its budget.
OFF BALANCE SHEET ARRANGEMENTS
In 2021, management entered informal agreements to co-fund 50% of the capital
expenditures, including equipment, leasehold improvements and other similar
costs, for immersion-cooled data center test sites with one of its customers. As
of December 31, 2021, the Company had not yet expended its portion of the cash
and thus excluded its share of costs from the investments section of the balance
sheet. In February 2022, the Company remitted $54,575, representing 50% of
$109,950 in leasehold improvements, electrical and mechanical costs, to the
entity that controls the property.
Management has not identified any other material off balance sheet arrangements.
12
Results of Operations for the Years Ended December 31, 2021 and 2020
During the years ended December 31, 2021 and 2020, the Company generated total
net revenues of 1,566,617 and $34,670 and incurred associated costs of
$1,207,151 and $24,092, for gross profit of $359,466 and $10,578, all
respectively, representing increases of $1,531,947 (4,419%), $1,183,059 (4,911%)
and $348,888 (3,299%), all respectively, due to new sales of its Edge
Performance Platform solutions in 2021. While the Company generated revenue in
2021, the customer base is heavily concentrated, volume is limited, and there
can be no guarantee of future revenues or growth.
During the years ended December 31, 2021 and 2020, the Company incurred $64,072
and $1,059, respectively, of sales and marketing expenses and $587,947 and
$221,942, respectively, of general and administrative costs, including
consulting fees, professional services fees and other administrative costs.
Sales and marketing costs increased by $63,013, or 5,950%, as a result of
commissions paid. General and administrative costs increased by $366,005, or
165%, primarily due to executive bonuses.
During the years ended December 31, 2021 and 2020, the Company incurred
depreciation expense of $28,396 and $17,519, respectively, with the increase
being a result of ongoing depreciation on equipment purchased in prior periods.
During 2021 and 2020, the Company recognized $159,220 and $381,900 of
stock-based compensation expense, respectively, from the issuance of its common
shares to executives, consultants, and advisors. The Company also paid total
compensation of $359,145 to the CEO and $280,000 to its President in 2020, as
compared to $90,000 and $84,040, respectively in 2020, for increases of $269,145
and $195,960, respectively.
During the year ended December 31, 2021, the Company recognized $122,732 of
interest expense, as compared to $66,135 for the year ended December 31, 2020.
The increase of $56,597 or 86%, is primarily attributable to the accrual of
interest on significant new convertible debt issuances in 2020 and also includes
interest charges incurred by related parties who paid expenses on behalf of the
Company.
Aside from interest expense, during the years ended December 31, 2021 and 2020,
the Company recognized net other income of $12,971 and $1,081, respectively, for
an increase of $11,890 or 1,100%. The change was driven by cryptocurrency mining
and selling activities and impairment losses during 2021.
As a result, the Company incurred net operating losses of $929,075 and $850,936
for years ended December 31, 2021 and 2020, respectively, for an increase of
$78,139, or 9%, to net losses. This change was primarily a result of increased
stock-based compensation and increases in executive compensation, offset by new
sales.
13
Liquidity and Capital Resources
In January 2020, the Company issued 627,862 equity units, each consisting of
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, 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.
In February 2020, the Company issued two one-year convertible notes for total
proceeds of $110,000, each bearing interest at 10% annually and calling for
conversion at a 30% discount in the event of a financing event exceeding
$1,000,000.
In April 2020, the Company issued three one-year convertible notes for total
proceeds of $150,000, bearing interest at rates ranging from 10-12% per annum
and calling for conversion at a 30% discount in the event of a financing event
exceeding $1,000,000.
In June 2020, the Company issued a one-year convertible note for total proceeds
of $50,000, bearing interest at 12% per annum and calling for conversion at a
30% discount in the event of a financing event exceeding $1,000,000.
In July 2020, the Company issued a one-year convertible note for total proceeds
of $25,000, bearing interest at 10% per annum and calling for conversion at a
30% discount in the event of a financing event exceeding $1,000,000.
In August 2020, the Company issued three one-year convertible notes for total
proceeds of $175,000, each bearing interest at 10% per annum and calling for
conversion at a 30% discount in the event of a financing event exceeding
$1,000,000.
In December 2020, the Company issued five one-year convertible notes for total
proceeds of $110,000, each bearing interest at 15% per annum and calling for
conversion at a 30% discount in the event of a financing event exceeding
$1,000,000.
As discussed in Note 7 to the financial statements, the Company defaulted on
$749,500 of these notes, as amended. In February 2022, the Company cured the
default on $649,500 of convertible debt and associated accrued interest through
(a) repayment of a $100,000 note and (b) conversion of $549,500 of convertible
notes. As of the date of this filing, management is negotiating an extension on
the remaining $100,000 of convertible debt.
During the twelve months ending December 31, 2022, the Company estimates it will
need approximately $3,400,000 to continue to implement its business plan and
operations. The Company currently generates revenues from its data center
offerings. However, there can be no assurances that the Company will be
successful in its efforts to generate enough sufficiently profitable sales and
growth to continue current operations and to fully implement its business plan.
Other than the foregoing, the Company is not currently aware of any significant
trends, events or uncertainties that have had, or are reasonably expected to
have, a material impact on sales or income from continuing operations, or
liquidity and capital resources.
14
Short Term
On a short-term basis, we anticipate continued generation of data center
infrastructure and equipment revenues. Based on prior history, we anticipate
that short-term sales may be insufficient to satisfy current and future
liabilities as we continue to pursue expansion of our current customer base and
product and service offerings.
No commitments to provide additional funds have been made by our management or
other stockholders. Accordingly, there can be no assurance that any additional
funds will be available to us to allow it to cover our expenses as they may be
incurred, in the event that profits are insufficient to fund operations.
Capital Resources
Our capital resources currently consist of cash, convertible debt financing, and
the sale of equity subscriptions.
Need for Additional Financing
While we have sufficient capital to meet our near-term obligations, there can be
no assurances that we will generate sufficient revenues and profits to fund
operations. Our capital is currently insufficient to fully execute upon our
business plan. We plan to seek debt or equity financing to cover such cash
needs, which we anticipate will significantly increase to execute on the
business plan.
Within the next twelve months, we will need to generate profits of or raise an
additional $1 million in financing to continue operations. To fully execute upon
our business plan, we estimate that we will need approximately $10 million to
fully execute on our business plan.
No commitments have been made to provide additional funding by our management or
other stockholders. Accordingly, there can be no assurance that any additional
funds will be available to us to allow it to cover our expenses as they may be
incurred.
Critical Accounting Policies
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of
three months or less as cash equivalents.
15
Impairment of Long-life Assets
In accordance with ASC Topic 360, the Company reviews its long-lived assets,
including property, plant and equipment, for impairment whenever events or
changes in circumstances indicate that the carrying amounts of the assets may
not be fully recoverable. If the total of the expected undiscounted future net
cash flows is less than the carrying amount of the asset, a loss is recognized
for the difference between the fair value and carrying amount of the asset.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect reported amounts of assets and liabilities and disclosure 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.
Income Tax
The Company accounts for income taxes under ASC 740, "Income Taxes." Under ASC
740, deferred taxes are provided on a liability method whereby deferred tax
assets are recognized for deductible temporary differences and operating loss
carry-forwards and deferred tax liabilities are recognized for taxable temporary
differences. Temporary differences are the differences between the reported
amounts of assets and liabilities and their tax bases. 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. Deferred tax assets and liabilities are adjusted for the effects of
changes in tax laws and rates on the date of enactment.
Fiscal year
The Company employs a fiscal year ending December 31.
Net Income (Loss) per share
The net income (loss) per share is computed by dividing the net income (loss) by
the weighted average number of shares of common outstanding. Warrants, stock
warrants, and common stock issuable upon the conversion of the Company's
preferred stock (if any), are not included in the computation if the effect
would be anti-dilutive and would increase the earnings or decrease loss per
share.
Financial Instruments
The carrying value of the Company's financial instruments, including cash and
cash equivalents, as reported in the accompanying balance sheet, are stated at
fair value.
Stock-Based Compensation
The Company adopted the provisions of and accounts for stock-based compensation
using an estimate of value in accordance with the fair value method. Under the
fair value recognition provisions of this statement, stock-based compensation
cost is measured at the grant date based on the fair value of the award and is
recognized as expense on a straight-line basis over the requisite service
period, which generally is the vesting period. The Company elected the
modified-prospective method, under which prior periods are not revised for
comparative purposes. The valuation method applies to new grants and to grants
that were outstanding as of the effective date and are subsequently modified.
Fair Value of Financial Instruments
The carrying amount of accounts payable is considered to be representative of
respective fair values because of the short-term nature of these financial
instruments.
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. Data center infrastructure and equipment sales - The Company resells
immersion-cooled data center products, equipment and project management
services.
2. Computing - 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.© Edgar Online, source Glimpses
EDGE DATA SOLUTIONS, INC. 