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As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 8/12/22 Edge Data Solutions, Inc. 10-Q 6/30/22 53:3.9M M2 Compliance LLC/FA |
Document/Exhibit Description Pages Size
1: 10-Q Quarterly Report HTML 690K
2: EX-31.1 Certification -- §302 - SOA'02 HTML 20K
3: EX-31.2 Certification -- §302 - SOA'02 HTML 20K
4: EX-32.1 Certification -- §906 - SOA'02 HTML 16K
5: EX-32.2 Certification -- §906 - SOA'02 HTML 17K
11: R1 Cover HTML 67K
12: R2 Balance Sheets (Unaudited) HTML 145K
13: R3 Balance Sheets (Unaudited) (Parenthetical) HTML 39K
14: R4 Statements of Operations (Unaudited) HTML 106K
15: R5 Statements of Cash Flows (Unaudited) HTML 104K
16: R6 Statement of Stockholders' Deficiency (Unaudited) HTML 64K
17: R7 Organization and Nature of Operations HTML 21K
18: R8 Summary of Significant Accounting Policies HTML 91K
19: R9 Going Concern HTML 21K
20: R10 Stockholders? Equity/(Deficiency) HTML 76K
21: R11 Related Party Transactions HTML 29K
22: R12 Convertible Notes HTML 30K
23: R13 Concentrations, Commitments and Contingencies HTML 29K
24: R14 Finance Lease HTML 34K
25: R15 Significant Agreements HTML 28K
26: R16 Construction in Progress - Data Centers HTML 22K
27: R17 Recent Accounting Pronouncements HTML 29K
28: R18 Subsequent Events HTML 22K
29: R19 Summary of Significant Accounting Policies HTML 136K
(Policies)
30: R20 Summary of Significant Accounting Policies HTML 34K
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31: R21 Stockholders? Equity/(Deficiency) (Tables) HTML 43K
32: R22 Finance Lease (Tables) HTML 28K
33: R23 Schedule of Accrued Liabilities (Details) HTML 33K
34: R24 Schedule of Net Income (Loss) Per Share (Details) HTML 31K
35: R25 Summary of Significant Accounting Policies HTML 66K
(Details Narrative)
36: R26 Going Concern (Details Narrative) HTML 22K
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38: R28 Schedule of Options Activity (Details) HTML 39K
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44: R34 Schedule of Maturities of Lease Liability HTML 22K
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46: R36 Significant Agreements (Details Narrative) HTML 47K
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
| i ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended i June 30, i 2022 /
| i ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period __________ to __________
Commission File Number: i 000-56419
(Exact name of registrant as specified in its charter)
| i delaware | i 46-3892319 | |
(State or other jurisdiction of incorporation or Organization) |
(IRS Employer Identification No.) | |
| i 3550 Lenox Road NE, i 21st Floor, i Atlanta, i GA | i 30326 | |
| (Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol(s) | Name of each exchange on which registered | ||
| None | None | None |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. i Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). i Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| i Non-accelerated filer | ☒ | Smaller reporting company | i ☒ |
| Emerging growth company | i ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Yes ☐ i No ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ i No ☒
As of August 12, 2022, there were outstanding 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
C:
EDGE DATA SOLUTIONS, INC.
FORM 10-Q for the Quarter Ended June 30, 2022
INDEX
| Page | ||
| PART I - FINANCIAL INFORMATION | ||
| Cautionary Note About Forward Looking Statements | ||
| Item 1. | Financial Statements | 4 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 22 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 26 |
| Item 4. | Controls and Procedures | 26 |
| PART II - OTHER INFORMATION | ||
| Item 1. | Legal Proceedings | 27 |
| Item 2. | Unregistered Sale of Equity Securities and Use of Proceeds | 27 |
| Item 3. | Defaults Upon Senior Securities | 27 |
| Item 4. | Mine Safety Disclosures | 27 |
| Item 5. | Other Information | 27 |
| Item 6. | Exhibits | 27 |
| Signatures | 28 | |
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| C: 2 |
CAUTIONARY NOTE ABOUT FORWARD-LOOKING INFORMATION
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements contained in this Quarterly Report on Form 10-Q other than statements of historical fact, including statements regarding our future results of operations and financial position, business strategy and plans, and objectives for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements by the following words: “may,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “approximately,” “estimate,” “predict,” “project,” “potential,” “continue,” “ongoing,” or the negative of these terms or other words of similar meaning in connection with a discussion of future events or future operating or financial performance, although the absence of these words does not necessarily mean that a statement is not forward-looking. Forward-looking statements are based upon our current assumptions, expectations and beliefs concerning future developments and their potential effect on our business. Forward-looking statements are subject to known and unknown risks, uncertainties and other factors which may cause actual events or our actual results, performance or achievements to be materially different from the future events, results, performance or achievements expressed or implied by any forward-looking statements. There can be no assurance that future events, results, performance or achievements will be in accordance with our expectations or that the effect of future events, results, performance or achievements will be those anticipated by us.
Factors and risks that may cause or contribute to actual events, results, performance or achievements differing from these forward-looking statements include, but are not limited to, for example:
| ● | regulatory limitations on our products and services; | |
| ● | our ability to complete and integrate announced acquisitions; | |
| ● | general industry and economic conditions; | |
| ● | our ability to access adequate capital upon terms and conditions that are acceptable to us; | |
| ● | volatility in credit and market conditions; | |
| ● | other risks and uncertainties related to the cryptocurrency markets and our business strategy. |
We operate in very competitive and rapidly changing markets. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
Stockholders and potential investors should not place undue reliance on these forward-looking statements. Although we believe that our plans, intentions and expectations reflected in or suggested by the forward-looking statements in this Quarterly Report on Form 10-Q are reasonable, we cannot assure stockholders and potential investors that these plans, intentions or expectations will be achieved.
These forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors. Many of those factors are outside of our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. Considering these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. You are cautioned not to place undue reliance on these forward-looking statements. All subsequent written and oral forward-looking statements concerning other matters addressed in this Quarterly Report on Form 10-Q and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this Quarterly Report on Form 10-Q.
All forward-looking statements speak only as of the date of this this Quarterly Report on Form 10-Q. Except to the extent required by law, we undertake no obligation to update or revise any forward-looking statements, whether because of new information, future events, a change in events, conditions, circumstances or assumptions underlying such statements, or otherwise.
C:
| 3 |
PART I - FINANCIAL INFORMATION
Edge Data Solutions, Inc.
A Delaware Corporation
Financial Statements
As of June 30, 2022 (Unaudited) and for the Three and Six Months Then Ended (Unaudited)
C:
| 4 |
Edge Data Solutions, Inc.
TABLE OF CONTENTS
| Page | |
| Condensed Financial Statements as of June 30, 2022 (Unaudited) and December 31, 2021 (Unaudited), and for the Three and Six months Ended June 30, 2022 (Unaudited): | |
| Balance Sheets (Unaudited) | 6 |
| Statements of Operations – for the Three and Six months ended June 30, 2022 (Unaudited) | 7 |
| Statements of Cash Flows – For the Six months ended June 30, 2022 (Unaudited) | 8 |
| Statement of Stockholders’ Deficiency – for the Three and Six months ended June 30, 2021 (Unaudited) | 9 |
| Statement of Stockholders’ Equity/(Deficiency) – for the Three and Six months ended June 30, 2022 (Unaudited) | 10 |
| Notes to Financial Statements (Unaudited) | 11 |
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| 5 |
EDGE DATA SOLUTIONS, INC.
| As of | ||||||||
| June 30, 2022 | December 31, 2021 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | i 858,721 | $ | i 831,209 | ||||
| Accounts receivable | i 15,523 | i 2,781 | ||||||
| Deposits | i 151,329 | i 2,161,683 | ||||||
| Inventory | i 68,159 | i 11,530 | ||||||
| Crypto assets held | i 3,940 | i 3,940 | ||||||
| Other current assets | i 6,021 | i 6,021 | ||||||
| Prepaid expense | i 42,914 | i 13,806 | ||||||
| Total Current Assets | i 1,146,607 | i 3,030,970 | ||||||
| Non-Current Assets: | ||||||||
| Right of use asset - finance lease | i 9,724 | i 16,206 | ||||||
| Intangible assets, net | i 40,000 | - | ||||||
| Property and equipment, net | i 42,713 | i 40,248 | ||||||
| Construction in progress – data centers | i 90,741 | - | ||||||
| Security deposit | i 7,753 | i 7,753 | ||||||
| Total Non-Current Assets | i 190,931 | i 64,207 | ||||||
| TOTAL ASSETS | $ | i 1,337,538 | $ | i 3,095,177 | ||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIENCY | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | i 493,246 | $ | i 186,523 | ||||
| Accrued liabilities | i 277,126 | i 451,944 | ||||||
| Customer deposits | i 258,699 | i 3,197,990 | ||||||
| Deferred revenue | i 9,478 | i 9,478 | ||||||
| Convertible notes payable, short-term | i 100,000 | i 749,500 | ||||||
| Advances from related parties | - | i 11,968 | ||||||
| Lease liability - finance, current portion | i 9,883 | i 17,389 | ||||||
| Total Current Liabilities | i 1,148,432 | i 4,624,792 | ||||||
| Non-Current Liabilities: | ||||||||
| Lease liability - finance, non-current portion | - | i 2,543 | ||||||
| Total Non-Current Liabilities | - | i 2,543 | ||||||
| Total Liabilities | i 1,148,432 | i 4,627,335 | ||||||
| Commitments and Contingencies (Note 7) | - | - | ||||||
| Stockholders’ Deficiency: | ||||||||
| Class A super majority voting preferred stock, $ par value; shares authorized, issued and outstanding with liquidation preference of $ i i 26,317 / as of each, June 30,2022 and December 31, 2021. | i 7,000 | i 7,000 | ||||||
| Class C convertible preferred non-voting stock, $ par value, shares authorized, issued and outstanding with liquidation preference of $ i i 3,500 / as of each, June 30, 2022 and December 31, 2021. | i 7,000 | i 7,000 | ||||||
| Preferred stock, value | ||||||||
| Common stock, $ par value; shares authorized, and issued and outstanding as of June 30, 2022 and December 31, 2021, respectively. | i 1,113 | i 916 | ||||||
| Additional paid-in capital | i 1,472,150 | i 792,635 | ||||||
| Accumulated deficit | ( i 1,298,157 | ) | ( i 2,339,709 | ) | ||||
| Total Stockholders’ Equity/(Deficiency) | i 189,106 | ( i 1,532,158 | ) | |||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY/(DEFICIENCY) | $ | i 1,337,538 | $ | i 3,095,177 | ||||
See accompanying notes, which are an integral part of these financial statements.
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| 6 |
EDGE DATA SOLUTIONS, INC.
| For the Three Months Ended June 30, | For the Six Months Ended | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
| Revenues: | ||||||||||||||||
| Data center infrastructure and equipment sales, net | $ | i 2,657,832 | $ | i 763,371 | $ | i 9,202,242 | $ | i 797,440 | ||||||||
| Data center services, net | i 6,225 | - | i 54,845 | - | ||||||||||||
| Computing revenues, net | - | i 12,709 | - | i 29,483 | ||||||||||||
| Total Revenue | i 2,664,057 | i 776,080 | i 9,257,087 | i 826,923 | ||||||||||||
| Cost of data center infrastructure and equipment sales | ( i 1,943,739 | ) | ( i 641,174 | ) | ( i 6,408,321 | ) | ( i 660,458 | ) | ||||||||
| Cost of data center services | ( i 4,980 | ) | - | ( i 38,864 | ) | - | ||||||||||
| Cost of computing revenues | - | ( i 18,917 | ) | - | ( i 36,567 | ) | ||||||||||
| Total Cost of Revenue | ( i 1,948,719 | ) | ( i 660,091 | ) | ( i 6,447,185 | ) | ( i 697,025 | ) | ||||||||
| Gross Profit | i 715,338 | i 115,989 | i 2,809,902 | i 129,898 | ||||||||||||
| Operating Expenses: | ||||||||||||||||
| Sales and marketing | i 253,172 | i 11,856 | i 292,529 | i 14,476 | ||||||||||||
| General and administrative | i 369,223 | i 82,674 | i 554,707 | i 127,754 | ||||||||||||
| Compensation - related party | i 206,250 | i 76,795 | i 838,001 | i 117,500 | ||||||||||||
| Stock-based compensation expense | i 41,052 | - | i 41,052 | i 19,000 | ||||||||||||
| Depreciation expense | i 7,776 | i 7,088 | i 15,012 | i 14,066 | ||||||||||||
| Total Operating Expenses | i 877,473 | i 178,413 | i 1,741,301 | i 292,796 | ||||||||||||
| (Loss)/Income from operations | ( i 162,135 | ) | ( i 62,424 | ) | i 1,068,601 | ( i 162,898 | ) | |||||||||
| Other Income/(Expense): | ||||||||||||||||
| Interest expense | ( i 4,128 | ) | ( i 23,260 | ) | ( i 25,073 | ) | ( i 50,345 | ) | ||||||||
| Cryptocurrency mining income | - | i 5,320 | - | i 10,067 | ||||||||||||
| (Loss)/Gain on disposal of cryptocurrency | ( i 1,976 | ) | i 537 | ( i 1,976 | ) | i 478 | ||||||||||
| Total Other Income/(Expense) | ( i 6,104 | ) | ( i 17,403 | ) | ( i 27,049 | ) | ( i 39,800 | ) | ||||||||
| Net Income/(Loss) | $ | ( i 168,239 | ) | $ | ( i 79,827 | ) | $ | i 1,041,552 | $ | ( i 202,698 | ) | |||||
| Deemed dividend - Class C Preferred Stock (See Note 4) | ( i 3,781,868 | ) | - | ( i 3,781,868 | ) | - | ||||||||||
| Net (Loss) attributable to common stockholders | $ | ( i 3,950,107 | ) | $ | ( i 79,827 | ) | $ | ( i 2,740,316 | ) | $ | ( i 202,698 | ) | ||||
| Net (Loss) per Common Share | ||||||||||||||||
| Basic and diluted (Loss) per share attributable to common stockholders | $ | ( i 0.36 | ) | $ | ( i 0.01 | ) | $ | ( i 0.26 | ) | $ | ( i 0.02 | ) | ||||
| Basic and diluted weighted average number of common shares outstanding | i 11,104,162 | i 8,421,079 | i 10,449,520 | i 8,407,267 | ||||||||||||
See accompanying notes, which are an integral part of these financial statements.
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| 7 |
EDGE DATA SOLUTIONS, INC.
| 2022 | 2021 | |||||||
| For the Six Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Cash Flows from Operating Activities | ||||||||
| Net Income/(Loss) | $ | i 1,041,552 | $ | ( i 202,698 | ) | |||
| Adjustments to reconcile net loss to net cash provided by/(used in) operating activities: | ||||||||
| Depreciation | i 15,012 | i 14,066 | ||||||
| Stock-based compensation | i 41,052 | i 19,000 | ||||||
| Impairment of data center construction in progress | i 36,401 | - | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Change in accounts receivable | ( i 12,742 | ) | i 162 | |||||
| Change in deposits | i 2,010,354 | i 46,122 | ||||||
| Change in crypto assets held | - | i 200 | ||||||
| Change in inventory | ( i 56,629 | ) | - | |||||
| Change in finance lease assets and liabilities | i 4,185 | i 8,178 | ||||||
| Change in other current assets | - | ( i 1,353 | ) | |||||
| Change in prepaid expenses | ( i 29,108 | ) | i 2,579 | |||||
| Change in accounts payable | i 306,723 | i 48,325 | ||||||
| Change in accrued compensation - related party | - | ( i 35,000 | ) | |||||
| Change in accrued liabilities | ( i 174,818 | ) | i 38,407 | |||||
| Change in customer deposits | ( i 2,939,291 | ) | i 56,533 | |||||
| Change in deferred revenue | - | i 5,943 | ||||||
| Change in accrued interest related to note conversions | i 89,160 | - | ||||||
| Net Cash Provided by/(Used in) Operating Activities | i 331,851 | i 464 | ||||||
| Cash Flows from Investing Activities | ||||||||
| Purchase of property and equipment | ( i 17,477 | ) | ( i 1,152 | ) | ||||
| Web development costs | ( i 40,000 | ) | - | |||||
| Construction in progress – data centers | ( i 127,142 | ) | - | |||||
| Net Cash (Used in) Investing Activities | ( i 184,619 | ) | ( i 1,152 | ) | ||||
| Cash Flows from Financing Activities | ||||||||
| Repayment of convertible note principal | ( i 100,000 | ) | - | |||||
| Related party advances | i 100,194 | i 38,957 | ||||||
| Repayment of related party advances | ( i 112,162 | ) | ( i 90,364 | ) | ||||
| Payments on finance lease | ( i 7,752 | ) | ( i 7,752 | ) | ||||
| Net Cash (Used in)/Provided by Financing Activities | ( i 119,720 | ) | ( i 59,159 | ) | ||||
| Net Change in Cash | i 27,512 | ( i 59,847 | ) | |||||
| Cash at Beginning of Period | i 831,209 | i 80,368 | ||||||
| Cash at End of Period | $ | i 858,721 | $ | i 20,521 | ||||
| Supplemental Disclosure of Cash Flow Information: | ||||||||
| Convertible debt principal and accrued interest converted to equity units | $ | i 638,660 | $ | - | ||||
| Supplemental Disclosure of Non-Cash Financing Activities: | ||||||||
| Forgiveness of related party debt | $ | - | $ | - | ||||
See accompanying notes, which are an integral part of these financial statements.
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| 8 |
EDGE DATA SOLUTIONS, INC.
STATEMENT OF STOCKHOLDERS’ DEFICIENCY
As of and for the three and six months ended June 30, 2021 (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, March 31, 2021 | i 8,421,079 | $ | i 842 | i 7,000,000 | $ | i 7,000 | i 7,000,000 | $ | i 7,000 | $ | i 652,489 | $ | ( i 1,533,505 | ) | $ | ( i 866,174 | ) | |||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | ( i 79,827 | ) | ( i 79,827 | ) | |||||||||||||||||||||||||
| Balance, June 30, 2021 (unaudited) | i 8,421,079 | $ | i 842 | i 7,000,000 | $ | i 7,000 | i 7,000,000 | $ | i 7,000 | $ | i 652,489 | $ | ( i 1,613,332 | ) | $ | ( i 946,001 | ) | |||||||||||||||||||
| Balance, December 31, 2020 | i 8,321,079 | $ | i 832 | i 7,000,000 | $ | i 7,000 | i 7,000,000 | $ | i 7,000 | $ | i 633,499 | $ | ( i 1,410,634 | ) | $ | ( i 762,303 | ) | |||||||||||||||||||
| Common shares issued as compensation | i 100,000 | i 10 | i 18,990 | i 19,000 | ||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | ( i 202,698 | ) | ( i 202,698 | ) | |||||||||||||||||||||||||
| Balance, June 30, 2021 (unaudited) | i 8,421,079 | $ | i 842 | i 7,000,000 | $ | i 7,000 | i 7,000,000 | $ | i 7,000 | $ | i 652,489 | $ | ( i 1,613,332 | ) | $ | ( i 946,001 | ) | |||||||||||||||||||
See accompanying notes, which are an integral part of these financial statements.
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| 9 |
EDGE DATA SOLUTIONS, INC.
STATEMENT OF STOCKHOLDERS’ EQUITY/(DEFICIENCY)
As of and for the three and six months ended June 30, 2022 (Unaudited)
| Common Stock | Class A Preferred | Class C Convertible Preferred | Additional | Stockholders’ | ||||||||||||||||||||||||||||||||
| Paid-in | Accumulated |
Equity/ | ||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | (Deficiency) | ||||||||||||||||||||||||||||
| Balance, March 31, 2022 | i 10,983,832 | $ | i 1,098 | i 7,000,000 | $ | i 7,000 | i 7,000,000 | $ | i 7,000 | $ | i 1,431,113 | $ | ( i 1,129,918 | ) | $ | i 316,293 | ||||||||||||||||||||
| Stock-based compensation expense | i 150,000 | i 15 | i 41,037 | i 41,052 | ||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | ( i 168,239 | ) | ( i 168,239 | ) | |||||||||||||||||||||||||
| Balance, June 30, 2022 (unaudited) | i 11,133,832 | $ | i 1,113 | i 7,000,000 | $ | i 7,000 | i 7,000,000 | $ | i 7,000 | $ | i 1,472,150 | $ | ( i 1,298,157 | ) | $ | i 189,106 | ||||||||||||||||||||
| Balance, December 31, 2021 | i 9,159,079 | $ | i 916 | i 7,000,000 | $ | i 7,000 | i 7,000,000 | $ | i 7,000 | $ | i 792,635 | $ | ( i 2,339,709 | ) | $ | ( i 1,532,158 | ) | |||||||||||||||||||
| Debt conversions into equity units | i 1,824,753 | i 182 | i 638,478 | i 638,660 | ||||||||||||||||||||||||||||||||
| Stock-based compensation expense | i 150,000 | i 15 | i 41,037 | i 41,052 | ||||||||||||||||||||||||||||||||
| Net income | - | - | - | - | - | - | - | i 1,041,552 | i 1,041,552 | |||||||||||||||||||||||||||
| Net income (loss) | i 1,041,552 | i 1,041,552 | ||||||||||||||||||||||||||||||||||
| Balance, June 30, 2022 (unaudited) | i 11,133,832 | $ | i 1,113 | i 7,000,000 | $ | i 7,000 | i 7,000,000 | $ | i 7,000 | $ | i 1,472,150 | $ | ( i 1,298,157 | ) | $ | i 189,106 | ||||||||||||||||||||
See accompanying notes, which are an integral part of these financial statements.
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EDGE DATA SOLUTIONS, INC.
As of June 30, 2022 (Unaudited) and for the Three and Six months Then Ended (Unaudited)
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NOTE 1: ORGANIZATION AND NATURE OF OPERATIONS
Edge Data Solutions, Inc. (the “Company,” “EDGE”), a Delaware Corporation, believes it is poised to be an industry-leading edge data center, cryptocurrency mining and cloud infrastructure provider. EDGE’s unique Edge Performance Platform (EPP) brings sustainable immersion-cooled high-performance computing to where it is needed most.
EPP offers efficient immersion-cooled computing power for a variety of applications, including sustainable cryptocurrency mining, edge computing. Long-term, opting for EPP significantly reduces investment, and certain edge computing applications require less up-front investment.
Industries that EDGE believes will benefit from low-latency technology with a lower carbon footprint include cryptocurrency mining, public and private cloud providers, edge cloud providers, data centers, high-performance computing providers, virtual desktop infrastructure providers, telecom, cybersecurity and disaster recovery providers, streaming providers, artificial intelligence innovators, colleges, hospitals, governments, and enterprise blockchain infrastructure providers.
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NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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Management’s Representation of Interim Financial Statements
The accompanying unaudited consolidated financial statements have been prepared by the Company without audit pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) have been condensed or omitted as allowed by such rules and regulations, and management believes that the disclosures are adequate to make the information presented not misleading. These unaudited consolidated financial statements include all of the adjustments, which in the opinion of management are necessary to a fair presentation of the Company’s financial position and results of operations. All such adjustments are of a normal and recurring nature. Interim results are not necessarily indicative of results for a full year. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of December 31, 2021 and 2020, as presented in the Company’s 2021 Annual Report on Form 10-K, as filed on April 1, 2022 with the SEC.
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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.
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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.
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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 June 30, 2022, and December 31, 2021, the Company’s cash balances exceeded federal insurance limits by $ i 608,721 and $ i 581,209, respectively.
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| 11 |
EDGE DATA SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
As of June 30, 2022 (Unaudited) and for the Three and Six Months Then Ended (Unaudited)
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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.
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The Company values inventory at its original cost, adjusted to approximate the lower of actual cost or estimated net realizable value using assumptions about future demand and market conditions. In determining excess or obsolescence reserves for its products, the Company considers assumptions such as changes in business and economic conditions, other-than-temporary decreases in demand for its products, and changes in technology or customer requirements. In determining the lower of cost or net realizable value reserves, the Company considers assumptions such as recent historical sales activity and selling prices, as well as estimates of future selling prices. The Company fully reserves for inventories and non-cancellable purchase orders for inventory deemed obsolete. The Company performs periodic reviews of inventory items to identify excess inventories on hand by comparing on-hand balances and non-cancellable purchase orders to anticipated usage using recent historical activity as well as anticipated or forecasted demand. If estimates of customer demand diminish further or market conditions become less favorable than those projected by the Company, additional inventory carrying value adjustments may be required.
As of June 30, 2022 and December 31, 2021, the Company had $ i 68,159 and $ i 11,530 of inventory and had outstanding deposits of $ i 151,329 and $ i 2,161,683 with vendors for the purchase of equipment for resale to customers, all respectively. As of June 30, 2022 and December 31, 2021, respectively, these deposits consisted of:
| ● | $ i 0 and $ i 34,000 of equipment in transit and not yet delivered | |
| ● | $ i 43,926 and $ i 2,127,683 of equipment in production and not yet shipped or delivered to customers |
As of June 30, 2022 and December 31, 2021, remaining costs of in-production equipment not yet shipped totaled $ i 173,756 and $ i 3,951,547, respectively. Terms with the Company’s vendors call for full payment prior to shipment when equipment is ready for delivery.
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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 June 30, 2022 and December 31, 2021, the Company’s property and equipment consisted of $ i 102,762 and $ i 84,133 of computing equipment, net of $ i 60,049 and $ i 16,641 of accumulated depreciation, all respectively. Depreciation expense for three and six months ended June 30, 2022 and 2021 was $ i 7,776 and $ i 7,088 and $ i 15,012 and $ i 14,066, respectively.
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Intangible Assets – Website Development Costs
The Company accounts for its website development costs in accordance with FASB Accounting Standards Codification ASC 350-40, Intangibles-Goodwill and Other, Internal-Use Software, and ASC 350-50, Intangibles-Goodwill and Other, Website Development Costs. During the infrastructure development stage of its website, the Company capitalizes development and other costs associating with preparing the website for use. When the website or an individual module of the website is ready for its internal use, amortization will begin on a straight-line basis over its estimated useful life. The Company estimates that the website’s estimated useful life will be approximately three years, after taking into account the effects of obsolescence, technology, competition and other economic factors.
During the six months ended June 30, 2022, the Company capitalized $ i 40,000 of web development costs pertaining to a new website. The website was not yet in service as of June 30, 2022, and the Company therefore recognized no amortization expense for the three and six months ended June 30, 2022.
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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 June 30, 2022, the Company determined that its long-lived assets have not been impaired.
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Accounts Payable and Accrued Liabilities
Accounts payable consisted of $ i 26,424 and $ i 74,434 of liabilities incurred by the issuer prior to the merger as of June 30, 2022 and December 31, 2021, respectively. The remaining accounts payable consisted of amounts due to vendors for delivered product, professional services and various other general and administrative expenses incurred after the acquisition.
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As of June 30, 2022 and December 31, 2021, accrued liabilities consisted of the following:
SCHEDULE OF ACCRUED LIABILITIES
| As of | ||||||||
| June 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| (Unaudited) | ||||||||
| State and local tax liabilities | $ | i 98,092 | $ | i 201,559 | ||||
| Accrued interest | i 35,303 | i 119,889 | ||||||
| Payroll liabilities | i 114,139 | i 117,976 | ||||||
| Reserve for Sales Returns | - | - | ||||||
| Accrued expenses | - | i 6,967 | ||||||
| Accrued commissions | i 29,592 | i 5,553 | ||||||
| Total accrued liabilities | $ | i 277,126 | $ | i 451,944 | ||||
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EDGE DATA SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
As of June 30, 2022 (Unaudited) and for the Three and Six Months Then Ended (Unaudited)
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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.
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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 revenue activities consist of:
| 1. | Data center infrastructure and equipment sales – The Company resells immersion-cooled data center products, equipment and project management services. Performance obligations include: | ||
| ● | Delivery of physical products | ||
| ● | Provision of any agreed-upon project management and other services | ||
| ● | Conclusion of defined period for any support services | ||
| 2. | Computing – During the interim period ended June 30, 2021, the Company operated high performance servers to provide hardware acceleration for rendering farms to process 3D video rendering and other high-performance computing tasks. The Company’s performance obligation with respect to computing revenue is the provision of specified computing services to the client. The Company did not generate revenue from cloud computing services during the three or six months ended June 30, 2022. | ||
During the three and six months ended June 30, 2022 and 2021, the Company recognized $ i 0 and $ i 12,709 and $ i 0 and $ i 29,483 of revenue from its customers’ usage of computing credits, with associated costs of $ i 0 and $ i 18,917 and $ i 0 and $ i 36,567, all respectively. The Company further recognized a deferred revenue liability of $ i 9,478 and $ i 9,478, respectively for prepaid usage credits not yet used by its customers as of June 30, 2022 and December 31, 2021, respectively.
As of June 30, 2022 and December 31, 2021, the Company recognized $ i 258,699 and $ i 3,197,990, in deposits representing cash paid by customers for data center infrastructure products to be delivered in subsequent periods and had corresponding deposits with vendors of $ i 151,329 and $ i 2,161,683 for product to be delivered, all respectively.
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| 14 |
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The crypto assets held by the Company, with no qualifying fair value hedge, are accounted for as intangible assets with indefinite useful lives and are initially measured at cost. Crypto assets accounted for as intangible assets are not amortized, but assessed for impairment annually, or more frequently, when events or changes in circumstances occur indicating that it is more likely than not that the indefinite-lived asset is impaired. Impairment exists when the carrying amount exceeds its fair value, which is measured using the quoted price of the crypto asset at the time its fair value is being measured. Impairment expense is reflected in other operating expense in the consolidated statements of operations. The Company assigns costs to transactions on a first-in, first-out basis.
As of June 30, 2022 and December 31, 2021, the carrying value of crypto assets held by the Company was $ i 3,940 and $ i 3,940, respectively. During the three months ended June 30, 2022, the Company recognized a loss of $ i 1,976 related to the collection and immediate liquidation of cryptocurrency as payment for a customer order.
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The Company records cryptocurrency generated, net of fees and valuation adjustments, as other income and classifies the cryptocurrency as crypto assets held at cost in its balance sheets. When the company sells its cryptocurrencies, it recognizes a gain or loss for the difference between original cost and the selling price, net of fees. The Company generated no cryptocurrency income and did not record an impairment loss during the three and six months ended June 30, 2022.
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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.
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Basic net loss per common share is calculated by dividing the net loss attributable to common stockholders by the weighted average number of common shares outstanding for the period, without consideration for common stock equivalents.
For the three and six months ended June 30, 2022, certain potentially dilutive securities and derivatives were excluded from the computation of diluted loss per share as the effect would be to reduce the net loss per common share. Therefore, the weighted-average common stock outstanding used to calculate both basic and diluted net loss per share is the same for these loss periods. The following table sets forth the net loss per common share computation for the three and six months ended June 30, 2022:
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| Weighted Average | ||||||||||||
| Net Income | Common Shares | Per Share | ||||||||||
| (Numerator) | (Denominator) | Amount | ||||||||||
| Three Months Ended June 30, 2022 (Unaudited) | ||||||||||||
| Basic and Diluted (Loss) Per Common Share | ||||||||||||
| (Loss) available to common stockholders | $ | ( i 3,950,107 | ) | i 11,104,162 | $ | ( i 0.36 | ) | |||||
| Six Months Ended June 30, 2022 (Unaudited) | ||||||||||||
| Basic and Diluted (Loss) Per Common Share | ||||||||||||
| (Loss) available to common stockholders | $ | ( i 2,740,316 | ) | i 10,449,520 | $ | ( i 0.26 | ) | |||||
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| 15 |
EDGE DATA SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
As of June 30, 2022 (Unaudited) and for the Three and Six Months Then Ended (Unaudited)
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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.
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As shown in the accompanying financial statements as of June 30, 2022, the Company had $ i 858,721 of cash, has incurred substantial historical operating losses, and had an accumulated deficit of $ i 1,298,157. Furthermore, the Company’s revenue history is limited, the Company is currently not on a trajectory to meet originally anticipated revenues for 2022, and there can be no assurances of future revenues or sufficient profits to fund operations.
Given these factors, the Company may require 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.
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NOTE 4: STOCKHOLDERS’ EQUITY/(DEFICIENCY)
Class A Preferred Super Majority Voting Stock
The Company has designated ten million () shares of its preferred stock, par value $ 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 $ of the Company. i 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. i 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 Class A shares to its CEO and President (formerly COO) as stock-based compensation for services rendered.
As of June 30, 2022, shares of Class A Preferred Stock were issued and outstanding.
The Company has not currently authorized a Class B designation of Preferred Stock.
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| 16 |
EDGE DATA SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
As of June 30, 2022 (Unaudited) and for the Three and Six Months Then Ended (Unaudited)
Class C Preferred Non-Voting Stock
The Company has designated ten million () shares of its preferred stock, par value $ as Class C Convertible Preferred Non-Voting Stock (“Class C”). As amended and filed with the State of Delaware on December 17, 2020, each share of Class C would have been convertible into one (1) share of common stock. In mid-2021, the State of Delaware rejected the December 17, 2020 amendment, as filed. On April 13, 2022, the Company elected to not adjust or re-file the amendment, resulting in the Class C Preferred shares retaining the original conversion rate of five (5) common shares per Class C share. Although the change was never deemed effective by the State of Delaware, the Company previously accrued the change on the filing date for US GAAP accounting purposes and has deemed the subsequent termination of efforts as a separate transaction solely for US GAAP accounting purposes. Therefore, for accounting purposes, the Company presented the change as a deemed dividend of $3,781,868, based on the price of recent private transactions of the Company’s common stock and adjusted for dilutive effects.
The holders of Class C shall be entitled to receive the same dividend as the holders of the common stock and such dividend shall be paid pro rata per share on a fully converted basis. The holders of Class C shall have piggyback registration rights. The Company shall have the right to redeem, in its sole and absolute discretion, at any time after five (5) years, all or any portion of the shares of Class C at a price of five dollars ($) 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 Class C shares to its CEO and President (formerly COO) as stock-based compensation for services rendered. i Subsequently, in April 2019, the Company filed an amended and restated certificate of designation, which restricted the CEO and President from converting the 7,000,000 shares into common stock for 36 months from the issuance date. After October 2021, this restriction expired, and the CEO and President are free to convert these shares.
As of June 30, 2022, shares of Class C Preferred Stock were issued and outstanding.
Common Stock
The Company is authorized to issue 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.
In April 2022, the Company agreed to issue fully vested common shares to an employee and fully vested common shares to an advisor for services rendered.
As of June 30, 2022, the Company had common shares outstanding.
Warrants
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The following table sets forth the Company’s warrant activity through June 30, 2022:
| Warrants | Shares Under Warrant | Term | Exercise Price | Remaining Life | ||||||||||||||
| Balance, December 31, 2021 | i 627,862 | i 1,255,724 | ||||||||||||||||
| Class B Warrants Issued as part of equity units from debt conversions – February 28, 2022 | i 1,824,751 | i 1,824,751 | i 3 years | $ | i 1.00 | months | ||||||||||||
| Balance, June 30, 2022 (Unaudited) | i 2,452,613 | i 3,080,475 | ||||||||||||||||
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| 17 |
On February 28, 2022, convertible noteholders converted $ i 638,660, consisting of $ i 549,500 of outstanding principal and $ i 89,160 of accrued interest, into equity units, i each consisting of (1) one share of the Company’s common stock and (1) Class B Warrant to purchase one share of common stock for $1.00 up to three years from the issuance date. The Company assigned a value of $, based on a recent private transaction at $ per share, to the common stock and the remaining value of $ i i 182,472 / to the warrants, using the following Black-Scholes inputs:
| ● | Time to Maturity: years | |
| ● | Risk-Free Rate: % | |
| ● | Volatility: % |
Stock Options
The Company has reserved shares for its options pool.
In April 2022, the Company agreed to issue options to an employee for services rendered. The options expire in years, have a strike price of $, and vest ratably over 24 months, beginning in May 2022. Using the following inputs, the Company estimated the aggregate value of the grant to be $ i 14,211 based on the following inputs:
| ● | Time to Maturity: years | |
| ● | Risk-Free Rate: % | |
| ● | Volatility: % |
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| Outstanding, December 31, 2021 | - | |||
| Granted | - | |||
| Exercised | - | |||
| Forfeited | - | |||
| Outstanding, March 31, 2022 (unaudited) | - | |||
| Granted | i 200,000 | |||
| Exercised | - | |||
| Forfeited | - | |||
| Outstanding, June 30, 2022 (unaudited) | i 200,000 |
| As of | ||||
| June 30, 2022 | ||||
| (Unaudited) | ||||
| Weighted average contractual remaining term – options outstanding (years) | i 9.8 | |||
| Aggregate intrinsic value – options outstanding | $ | - | ||
| Options exercisable | i 16,667 | |||
| Aggregate intrinsic value – options exercisable | $ | - | ||
| Weighted average contractual remaining term – options exercisable | i 9.8 | |||
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NOTE 5: RELATED PARTY TRANSACTIONS
During the three and six months ended June 30, 2022, the Company recognized compensation expense totaling $ i 96,250 and $ i 382,500 to its CEO, $ i 77,500 and $ i 383,001 to its President, $ i 34,500 and $ i 66,500 to Synergia CPA, LLC and $ i 3,000 and $ i 6,000 to Synergia Technology Services, LLC, both entities fully owned and controlled by the CFO, for contract CFO and various accounting and IT services furnished to EDGE.
During the six months ended June 30, 2022, the Company’s CEO, President and CFO paid expenses on behalf of the Company totaling $63,546, $ i 22,275 and $13,077, and the Company repaid $66,704, $ i 31,085 and $ i 14,373 of related party advances, including previous amounts advanced to the company, all respectively. Of amounts repaid, $ i 1,297 pertained to accounts payable due to Synergia Technology Services, LLC. As of June 30, 2022, the Company was indebted to the CEO for $0, the President for $ i 0 and the CFO for $0, all respectively, for expenses paid on behalf of the company. As of June 30, 2022, the Company did not owe accrued compensation to the CEO, President and CFO.
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| 18 |
EDGE DATA SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
As of June 30, 2022 (Unaudited) and for the Three and Six Months Then Ended (Unaudited)
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On February 15, 2022, the Company repaid the entire outstanding balance of $ i 118,725 on a convertible note, consisting of $ i 100,000 original principal and $ i 18,725 of accrued interest.
On February 28, 2022, convertible debtholders converted a total of $ i 638,660, consisting of $ i 549,500 of amended principal and $ i 89,160 of accrued interest, into equity units at a rate of $ i 0.35 per unit. i Each unit consists of one (1) share of Common Stock and one (1) Class B Warrant. Holders of Class B Warrants are entitled to purchase one (1) share of Common Stock at a strike price of $1.00 within three years of the issuance date.
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.
As of June 30, 2022 and December 31, 2021, the Company owed $ i 100,000 and $ i 749,500 in outstanding principal on convertible notes, respectively. The Company is currently in default on the $ i 100,000 note, but it is working with the noteholder to resolve the default.
During the three and six months ended June 30, 2022, the Company recognized $ i 3,740 and $ i 23,740 of interest expense on convertible debt, respectively. As of June 30, 2022 and December 31, 2021, outstanding accrued interest on convertible debt totaled $ i 35,303 and $ i 149,389, respectively.
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NOTE 7: CONCENTRATIONS, COMMITMENTS AND CONTINGENCIES
During the three months ended June 30, 2022, the following customer concentrations existed in the Company’s data center solutions revenues:
| ● | Customer A: i 83% | |
| ● | Customer B: i 16% |
During the three months ended June 30, 2022, the following vendors represented significant concentrations in the Company’s costs of data center solutions provided to customers:
| ● | Vendor A: i 43% | |
| ● | Vendor B: i 38% | |
| ● | Vendor C: i 16% |
The loss of or disruption to the Company’s relationships with these customers or vendors may be detrimental to the Company’s operations.
As of the date of this filing, the Company has terminated its relationship with Midas Green Technologies, LLC (Vendor A on the preceding table), a major supplier of its immersion cooling tanks. While the Company has engaged a new manufacturer for its new tank line, unforeseen circumstances, such as materials availability, manufacturing issues or otherwise may hinder the Company’s ability to sell and deliver products to its customers, which may result in lost revenues and other losses. Furthermore, the Company may sustain legal costs in the event legal action arises from the termination.
Management has determined that no other significant concentrations, commitments, or contingencies existed as of June 30, 2022.
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EDGE DATA SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
As of June 30, 2022 (Unaudited) and for the Three and Six Months Then Ended (Unaudited)
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On March 27, 2020, the Company entered into a i 36-month lease for data center equipment. Terms of the lease call for i 36 monthly payments of $ i 1,292, with the first payment due at inception, together with a $ i 7,753 security deposit, $ i 3,140 of sales tax and a $ i 500 origination fee, for a total of $ i 12,685 due up front. The Company paid the $ i 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 $ i 38,895, prepaid tax of $ i 3,140 and a lease liability of $ i 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 i 12.55% and will record interest expense accordingly over the life of the lease.
During the three months ended June 30, 2022, the Company paid a total of $ i 3,876, including $ i 3,485 of principal and $ i 391 of interest, to the lessor and recognized $ i 3,241 of lease expense for the three months ended June 30, 2022.
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As of June 30, 2022, lease-related assets and liabilities consisted of:
SCHEDULE OF LEASE RELATED ASSETS AND LIABILITIES
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Future maturities of the lease liability are as follows:
SCHEDULE OF MATURITIES OF LEASE LIABILITY
| 2022 (Q2-Q4) | $ | i 7,340 | ||
| 2023 | i 2,543 | |||
| Total future maturities | $ | i 9,883 |
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EDGE DATA SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
As of June 30, 2022 (Unaudited) and for the Three and Six Months Then Ended (Unaudited)
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NOTE 9: SIGNIFICANT AGREEMENTS
On December 2, 2021, the Company entered into an agreement with a customer, under which EDGE will supply data center equipment and related components, along with optional project management services.
The total sale price of $ i 9,074,100 and applicable sales taxes was receivable on the following schedule:
| ● | $ i 2,990,564 due upon execution. | |
| ● | $ i 2,840,564 plus applicable sales tax, due 30 days from execution. | |
| ● | $ i 3,787,418 due prior to final shipment of the equipment. |
In March 2022, the total amount of the contract was reduced by $ i 86,347 as a result of a change order, for a new total sale price of $ i 8,987,753.
Delivery commitments under this agreement range from 3-19 weeks from the date of execution, and the agreement provides for penalties paid by Company of $ i 5,000 for each day in the event deliveries are ten or more days late and penalties of $ i 10,000 per day after fifteen days past the estimated delivery date. Certain portions of the equipment have been delivered beyond the original 19-week window due to unforeseen customer-imposed logistics and collections delays and the extensive replacement of faulty infrastructure resulting from a supplier’s shipments of faulty equipment. Management believes that the Company’s exposure to penalties will not exceed the $ i 627,245 current outstanding balance due from the customer. However, in the event the customer does seek to impose all penalties, management estimates the Company’s exposure to direct contract-related penalties would range from $ i 740,000 to $ i 810,000, while the customer may claim as much as $ i 1.3 million.
Under this agreement, the Company warrants that the failure rate for miners in the liquid immersion-cooling system will not materially exceed that of miners in an air-cooled system. In the event that the cause of miner failures within three years of the date of delivery is proximally linked to the liquid immersion cooling systems, the Company is liable to the Customer for liquidated damages equal to the purchase price less accumulated depreciation to date based on a five-year schedule. Management is currently evaluating estimates and any accounting impacts to future periods of this arrangement.
Through the date of this filing, the Company has collected $ i 8,360,508. i Management re-evaluated collectability under ASC 606, given the aforementioned significant facts and circumstances, and believes it is unlikely the Company will collect the $627,245 outstanding balance. Further, management believes this collectability issue is effectively a renegotiation of the purchase price. As such, the Company discontinued revenue recognition beyond the $ i 8,360,508 collected.
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NOTE 10: CONSTRUCTION IN PROGRESS – DATA CENTERS
During the six months ended 2022, the Company made total payments of $127,142 for data center related infrastructure, equipment and labor and installation costs for data center construction in progress for the following two sites:
| ● | Site A (Colorado Springs, Colorado) - $ i 90,741 | |
| ● | Site B (Carlsbad, California) - $ i 36,401 – Impaired, as set forth below. |
Since the assets are not yet ready for service and have not been placed in service, the Company has capitalized them and evaluates them for impairment at the end of each reporting period. The Company does not own the underlying real estate and is heavily dependent upon continued access to and permission to use such sites. Agreements between management and site ownership are currently informal and may change at any time, which could result in impairment of the Company’s assets at such sites.
Management evaluated the construction in progress for impairment as of June 30, 2022 and determined that the Company would unlikely be able to proceed with or continue to access Site B, given the circumstances discussed with the customer in Note 9. As a result, management deemed this construction in progress to be fully impaired as of June 30, 2022 and wrote off the $ i 36,401 of costs pertaining to Site B to cost of goods sold, as this build-out was linked directly to the sale connected in Note 9, and the customer retained the infrastructure and equipment.
As of June 30, 2022, in-progress construction on data centers totaled $ i 90,741.
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NOTE 11: RECENT ACCOUNTING PRONOUNCEMENTS
Management does not believe that any 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.
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In July 2022, the Company issued a total of common shares and options to purchase common stock to members of its Board of Directors as compensation for services rendered. Of the shares issued, were issued to the CEO who also serves as the Chairman, and were issued to the President who is also a Director.
In July 2022, the Company issued common shares to advisors for services rendered.
Management has evaluated significant subsequent events through the date these financial statements were issued and has identified no other significant events requiring further disclosure.
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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
History of Edge Data Solutions, Inc., a Delaware Corporation
EDGE DATA SOLUTIONS, INC. was incorporated in the State of Delaware on September 22, 2016 and commenced its current operations after its reverse acquisition on August 23, 2018. Extended discussion of EDGE’s corporate history, including predecessor entities and affiliates, is incorporated by reference in the Company’s Form 10-K filed on April 1, 2022.
Business Description
Edge Data Solutions, Inc., a Delaware Corporation, believes it is poised to be an industry-leading edge data center, cryptocurrency mining and cloud infrastructure provider. EDGE’s unique Edge Performance Platform (EPP) brings sustainable immersion-cooled high-performance computing to where it is needed most.
Compared to air-cooled solutions, EDGE’s EPP offers reduced carbon footprint and increased ROI through:
| ● | Energy Efficiency – Environmentally friendly, lower PuE, lower operating costs | |
| ● | Scalability – Easy, rapid and flexible deployment | |
| ● | High-density – More computing power in a much smaller footprint | |
| ● | Reduced CapEx – Longer equipment life, efficient structure | |
| ● | Boosted Computing Power – Highly conducive environment for optimization without stressing equipment |
EPP serves efficient immersion-cooled computing power for a variety of applications, including sustainable cryptocurrency mining, edge computing. Long-term, opting for EPP significantly reduces investment, and certain edge computing applications require less up-front investment.
Industries that will benefit from low-latency technology with a lower carbon footprint include cryptocurrency mining, public and private cloud providers, edge cloud providers, data centers, high-performance computing providers, virtual desktop infrastructure providers, telecom, cybersecurity and disaster recovery providers, streaming providers, artificial intelligence innovators, colleges, hospitals, governments, and enterprise blockchain infrastructure providers.
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Going Concern
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. The Company has incurred substantial operating losses in its history and has an accumulated deficit of $1,298,157. Furthermore, the Company’s revenue history is limited, the Company is currently not on a trajectory to meet originally anticipated revenues for 2022, and there can be no assurances of future revenues or sufficient profits to fund operations.
As of June 30, 2022, we had approximately $858,721 of cash on hand. Currently, cash required to sustain core operations each month is $225,000, excluding one-time expenses, and we anticipate that cash requirement will significantly increase over the next twelve months. We have few customers and are highly dependent on revenue growth and external capital to continue to execute on our business plan. Any lack of sufficiently profitable sales, changes in market conditions, or difficulty obtaining capital could be detrimental to operations and our efforts to execute on the business plan.
Operating results for the three months ended June 30, 2022 and 2021:
During the three months ended June 30, 2022, the Company generated revenues of $2,664,057 from operations, compared to $776,080 for the three months ended June 30, 2021, an increase of $1,887,977 or 243%. This increase is primarily a result of ongoing deliveries on sales of data center solutions. The Company anticipates future revenue from its current efforts, but there can be no assurances that such efforts will be sufficient or successful.
For the three months ended June 30, 2022, costs of net revenues were $1,948,719, compared to $660,091 for the three months ended June 30, 2021, for an increase of $1,288,628, or 195%. The change is a result of direct costs associated with the Company’s data center sales.
As a result of the changes in revenues and cost of net revenues discussed above, the Company’s gross profit was $715,338 and $115,989, an increase of $599,349 or 517%, for the three months ended June 30, 2022 and 2021, respectively.
For the three months ended June 30, 2022, selling, general and administrative expenses were $622,395, as compared to $94,530 during the three months ended June 30, 2021, an increase of $527,865, or 558%. The increase in these expenses was attributable to increased costs to support significantly increased operations.
The Company recognized stock-based compensation expense of $41,052 for the three months ended June 30, 2022, as compared to $0 for the three months ended June 30, 2021, for an increase of $41,052, or 100%. This increase resulted from the Company’s hiring efforts and entry into an advisory agreement resulting in stock-based compensation during the three months ended June 30, 2022.
During the three months ended June 30, 2022, the Company recognized $7,776 of depreciation expense, as compared to $7,088, for an increase of $688 or 10%, during the three months ended June 30, 2021, as a result of additional purchases of computing equipment.
During the three months ended June 30, 2022, the Company recognized $4,128 of interest expense, as compared to $23,260 for the three months ended June 30, 2021. The decrease of $19,132, or 82%, is a result of the repayment of $100,000 and conversion of $549,500 of convertible debt in February 2022, leaving $100,000 of convertible debt outstanding during Q2 2022.
The Company also generated cryptocurrency mining income of $0 and a loss of $1,976 on the sale of cryptocurrency during the three months ended June 30, 2022, as compared to $5,320 and a gain of $537, respectively during the three months ended June 30, 2021. The change was a result of the Company not mining cryptocurrency during the three months ended June 30, 2022 and collection and immediate liquidation of cryptocurrency for a customer payment in June 2022.
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As a result of the changes in operating expenses and other expenses, the Company generated a net loss of $168,239 for the three months ended June 30, 2022, as compared to a net loss of $79,827 for the three months ended June 30, 2021, a change of $88,412, or 111%.
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.
Operating results for the six months ended June 30, 2022 and 2021:
During the six months ended June 30, 2022, the Company generated revenues of $9,257,087 from operations, compared to $826,923 for the six months ended June 30, 2021, an increase of $8,430,164 or 1,019%. This increase is driven by deliveries on sales of data center solutions. The Company anticipates future revenue from its current efforts, but there can be no assurances that such efforts will be sufficient or successful.
For the six months ended June 30, 2022, costs of net revenues were $6,447,185, compared to $697,025 for the six months ended June 30, 2021, for an increase of $5,750,160, or 825%. The change is a result of direct costs associated with the Company’s data center sales.
As a result of the changes in revenues and cost of net revenues discussed above, the Company’s gross profit was $2,809,902 and $129,898, an increase of $2,680,004 or 2,063%, for the six months ended June 30, 2022 and 2021, respectively.
For the six months ended June 30, 2022, selling, general and administrative expenses were $847,236, as compared to $142,230 during the six months ended June 30, 2021, an increase of $705,006, or 496%. The increase in these expenses was attributable to increased costs to support significantly increased operations.
The Company recognized stock-based compensation expense of $41,052 for the six months ended June 30, 2022, as compared to $19,000 for the six months ended June 30, 2021, for an increase of $22,052, or 116%. This increase resulted from the Company’s hiring efforts and entry into an advisory agreement resulting in stock-based compensation during the six months ended June 30, 2022.
During the six months ended June 30, 2022, the Company recognized $15,012 of depreciation expense, as compared to $14,066, for an increase of $946 or 7%, during the six months ended June 30, 2021, as a result of additional purchases of computing equipment.
During the six months ended June 30, 2022, the Company recognized $25,073 of interest expense, as compared to $50,345 for the six months ended June 30, 2021. The decrease of $25,272, or 50%, is a result of the repayment of $100,000 and conversion of $549,500 of convertible debt in February 2022.
The Company also generated cryptocurrency mining income of $0 and a loss of $1,976 on the sale of cryptocurrency during the six months ended June 30, 2022, as compared to $10,067 and a gain of $478, respectively during the six months ended June 30, 2021. The change was a result of the Company not mining cryptocurrency during the six months ended June 30, 2021 and collection and immediate liquidation of cryptocurrency for a customer payment in June 2022.
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As a result of the changes in operating expenses and other expenses, the Company generated net income of $1,041,552 for the six months ended June 30, 2022, as compared to a net loss of $202,698 for the six months ended June 30, 2021, a change of $1,244,250, or 614%.
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.
Liquidity and Capital Resources
The Company’s cash position at June 30, 2022 increased by $27,512 to $858,721, as compared to a balance of $831,209, as of December 31, 2021. The increase in cash for the six months ended June 30, 2022 was attributable to net cash provided by operating activities of $331,851, $184,619 of net cash used in investing activities, and net cash used in financing activities of $119,720.
As of June 30, 2022, the Company had deficit in working capital of $1,825, compared to a deficit in working capital of $1,593,822 at December 31, 2021, representing an increase in working capital of $1,591,997, which was largely attributable to sales-related cash inflows and repayments and conversions of outstanding short-term convertible notes.
Net cash provided by operating activities of $331,851 during the six months ended June 30, 2022, as compared to net cash of $464 provided by operating activities for the six months ended June 30, 2021, was primarily attributable to payments related to increased sales in 2022, as compared to 2021.
Net cash used in investing activities of $184,619 for the six months ended March 31,2022, as compared to $1,152 of cash used by investing activities for the six months ended June 30, 2021, was attributable to the Company acquiring less data center equipment in 2021 and payments made related to prospective joint ventures data center sites at which the Company plans to perform research and development and roll out cloud services.
Net cash used in financing activities was $119,720 during the six months ended June 30, 2022, as compared to net cash used in financing activities of $59,159 during the six months ended June 30, 2021, was primarily a result of the repayment of a convertible note.
As reported in the accompanying consolidated financial statements, for the six months ended June 30, 2022 and 2021, the Company generated net income of $1,041,552 and incurred a net loss of $202,698, respectively. The Company’s ability to continue as a going concern is dependent upon its ability to continue to generate sufficiently profitable revenue and its ability to raise capital in the event it does not generate revenue. It intends to finance its future operating activities and its near-term working capital needs through the sale of immersion-cooled data center solutions and through additional capital. 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, its revenues are currently comprised of few customers, and the loss of any significant customer could be detrimental to its ability to execute on its business plan. Furthermore, the Company has not met its projected revenue targets from 2022-to-date. The Company expects to continue to generate sufficiently profitable revenues, but there can be no assurance that it will be successful in these efforts. 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 generate sufficient revenues and raise any necessary capital. There can be no assurance that the Company will be successful in doing so.
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Financial Condition
The Company’s total assets as of June 30, 2022 and December 31, 2021 were $1,337,538 and $3,095,177, respectively, representing a decrease of $1,757,639, or 57%. Total liabilities as of June 30, 2022 and December 31, 2021 were $1,148,432 and $4,627,335, respectively, for a decrease of $3,478,903, or 75%. The significant change in the Company’s financial condition is attributable to the delivery of data center solutions and repayments and conversions of convertible debt during the six months ended June 30, 2022.
As a result of these transactions, the Company’s cash position increased from $831,209 to $858,721 during the six months ended June 30, 2022.
Off-Balance Sheet Arrangements
None.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not required for smaller reporting companies.
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 Chief Financial Officer, 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 June 30, 2022, 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 June 30, 2022 that materially affected or are reasonably likely to materially affect our internal control over financial reporting.
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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.
Not required for smaller reporting companies.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
There have been no defaults upon senior securities.
Item 4. Mine Safety Disclosures
Not applicable.
None.
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. | |
| 101.INS | Inline XBRL Instance Document | |
| 101.SCH | Inline XBRL Schema Document | |
| 101.CAL | Inline XBRL Calculation Linkbase Document | |
| 101.DEF | Inline XBRL Definition Linkbase Document | |
| 101.LAB | Inline XBRL Label Linkbase Document | |
| 101.PRE | Inline XBRL Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (Embedded within the Inline XBRL document) |
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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: August 12, 2022 | ||
| By: | /s/ Delray Wannemacher | |
| Delray Wannemacher, Chairman and CEO | ||
| (Chairman of the Board and Principal Executive Officer) | ||
| Dated: August 12, 2022 | ||
| By: | /s/ Paul Manos | |
| Paul Manos, Interim CFO | ||
| (Principal Financial and Accounting Officer) |
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| This ‘10-Q’ Filing | Date | Other Filings | ||
|---|---|---|---|---|
 | ||||
| 12/31/22 | ||||
| Filed on: | 8/12/22 | |||
| For Period end: | 6/30/22 | |||
| 4/13/22 | ||||
| 4/1/22 | 10-K, NT 10-K | |||
| 3/31/22 | 10-Q, NT 10-K | |||
| 2/28/22 | ||||
| 2/15/22 | ||||
| 12/31/21 | 10-K, 8-K, NT 10-K | |||
| 12/2/21 | 10-Q | |||
| 6/30/21 | 10-Q, NT 10-Q | |||
| 3/31/21 | 10-Q, NT 10-K, NT 10-Q | |||
| 12/31/20 | 10-K, NT 10-K | |||
| 12/17/20 | ||||
| 3/27/20 | ||||
| 1/1/19 | ||||
| 10/4/18 | 8-K | |||
| 8/23/18 | 8-K, 8-K/A | |||
| 9/22/16 | ||||
| List all Filings | ||||