Edge Data Solutions, Inc. - Quarter Report: 2021 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

For the quarterly period ended September 30, 2021

OR

For the transition period __________ to __________

Commission File Number: 333-198435

EDGE DATA SOLUTIONS, INC.

(Exact name of registrant as specified in its charter)

3550 Lenox Road NE. 21st Floor Atlanta GA 30326

(Address and telephone number of principal executive offices)

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

3550 Lenox Road NE. 21st Floor Atlanta GA 30326

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

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

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

As of December 2, 2021, there were outstanding 9,063,079 shares of our common stock, par value $0.0001 per share, 7,000,000 shares of the Company’s Class A Super Voting preferred stock, par value $0.001 per share, and 7,000,000 shares of the Company’s Class C preferred stock, par value $0.001 per share

EDGE DATA SOLUTIONS, INC.

FORM 10-Q for the Quarter Ended September 30, 2021

INDEX

PART I - FINANCIAL INFORMATION

Item 1 - Financial Statements

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

A Delaware Corporation

Financial Statements

As of September 30, 2021 (Unaudited) and for the Three months and Nine months Then Ended (Unaudited)

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

TABLE OF CONTENTS

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

BALANCE SHEETS

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

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

STATEMENTS OF OPERATIONS

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

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

STATEMENTS OF CASH FLOWS

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

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

STATEMENT OF STOCKHOLDERS’ DEFICIENCY

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

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

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

STATEMENT OF STOCKHOLDERS’ DEFICIENCY

As of and for the three and nine months ended September 30, 2021 (Unaudited)

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

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

NOTES TO FINANCIAL STATEMENTS

As of September 30, 2021 (Unaudited) and for the Three and Nine months Then Ended (Unaudited)

NOTE 1: ORGANIZATION AND NATURE OF OPERATIONS

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

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

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

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

Business description

Edge Data Solutions, Inc. (EDSI) is poised to be an industry-leading edge 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 serve more computing power are fintech, cloud gaming, telecom 5G, 3D/video/AI rendering, video streaming, remote desktop, IoT, autonomous vehicles. Centralized infrastructure facilities servicing multiple geographical areas encounter many issues with data latency, congestion and weak network connections. To address this, data processing is moving closer to the customer. EDSI offers green, low-cost, secure colocation and private data hosting to meet this demand for Edge 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.

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

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

Use of Estimates

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

Cash Equivalents and Concentration of Cash Balance

The Company considers all highly liquid securities with an original maturity of less than three months to be cash equivalents. The Company’s cash and cash equivalents in bank deposit accounts, at times, may exceed federally insured limits. As of September 30, 2021, and December 31, 2020, the Company’s cash balances did not exceed federally insured limits.

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

NOTES TO FINANCIAL STATEMENTS

As of September 30, 2021 (Unaudited) and for the Three Months Then Ended (Unaudited)

Right of Use Assets and Lease Liabilities

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

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

Inventory

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 September 30, 2021, the Company’s had $11,530 of inventory and had outstanding deposits of $57,083 with vendors for the purchase of equipment for resale to customers.

Property and Equipment

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

As of September 30, 2021, the Company’s property and equipment consisted of $71,938 of data center equipment and $13,347 of capitalized labor associated with readying the equipment for service, net of $37,872 of accumulated depreciation. Depreciation expense for the three and nine months ended September 30, 2021 was $7,165 and $21,231, respectively, compared to $6,303 and $10,513 for the three and nine months ended September 30, 2020, all respectively.

Long-Lived Assets

The Company evaluates the recoverability of its long-lived assets whenever events or changes in circumstances have indicated that an asset may not be recoverable. Long-lived assets are grouped with other assets at the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. If the sum of the projected undiscounted cash flows is less than the carrying value of the assets, the assets are written down to the estimated fair value. As of September 30, 2021, the Company determined that its long-lived assets have not been impaired.

Accounts Payable and Accrued Liabilities

Accounts payable consisted of $74,434 of liabilities incurred by the issuer prior to the merger as of each September 30, 2021 and 2020. The remaining accounts payable of $108,556 and $44,174 as of September 30, 2021 and December 31, 2020, respectively, consisted of amounts due for professional services and various other general and administrative expenses incurred after the acquisition.

As of December 31, 2020, accrued liabilities consisted of $1,811 of state and local taxes payable, $1,903 of accrued interest due to a vendor and $45,548 of accrued interest on convertible debt. As of September 30, 2021, accrued liabilities consisted of $104,244 of accrued interest on convertible debt and $35,188 for state and local taxes.

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

NOTES TO FINANCIAL STATEMENTS

As of September 30, 2021 (Unaudited) and for the Three Months Then Ended (Unaudited)

Fair Value of Financial Instruments

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

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

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

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

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

Revenue Recognition

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

During the three and nine months ended September 30, 2021, the Company recognized $0 and $29,483 of revenue from its customers’ usage of data center credits, respectively. The Company further recognized a deferred revenue liability of $9,478 for prepaid usage credits not yet used by its customers as of September 30, 2021. While the Company plans to continue to generate revenue, there can be no assurances that service lines will generate satisfactory revenue or continue to generate revenue.

Net hardware sales during the three and nine months ended September 30, 2021 totaled $144,743 and $942,173 and had associated costs of goods sold of $105,138 and $783,888, all respectively.

The Company recognizes prepayments for equipment not yet delivered at the end of a given period as a customer deposit liability. As of September 30, 2021, outstanding customer deposit liabilities totaled $391,555.

Crypto Assets Held

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 September 30, 2021 and December 31, 2020, the carrying value of crypto assets held by the Company was $187 and $1,197, respectively.

Cryptocurrency Income

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. During the three and nine months ended September 30, 2021, the Company recognized $1,234and $12,025 of cryptocurrency mining income and losses of $3,285 and $2,807 on the sale of cryptocurrency, all respectively.

Stock-Based Compensation

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

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

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

NOTES TO FINANCIAL STATEMENTS

As of September 30, 2021 (Unaudited) and for the Three Months Then Ended (Unaudited)

Income Taxes

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

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

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

NOTE 3: GOING CONCERN

As shown in the accompanying financial statements as of September 30, 2021, the Company had $147,261 of cash and $279,747 of current assets, as compared to total current liabilities of $1,460,404, has incurred substantial operating losses, and had an accumulated deficit of $1,901,614. Furthermore, the Company’s revenue history has been limited and unstable, and there can be no assurances of future revenues.

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

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

NOTE 4: STOCKHOLDERS’ DEFICIENCY

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

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

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

NOTES TO FINANCIAL STATEMENTS

As of September 30, 2021 (Unaudited) and for the Three Months Then Ended (Unaudited)

The Company has designated ten million (10,000,000) shares of its preferred stock, par value $0.001 as Class C Convertible Preferred Non-Voting Stock (“Class C”). Each share of Class C shall be convertible into one (1) shares of common stock. The holders of Class C shall be entitled to receive the same dividend as the holders of the common stock and such dividend shall be paid pro rata per share on a fully converted basis. The holders of Class C shall have piggyback registration rights. The Company shall have the right to redeem, in its sole and absolute discretion, at any time after five (5) years, all or any portion of the shares of Class C at a price of five dollars ($5.00) per share. The Class C shares shall be considered to have a junior liquidation preference to Class A shares and a senior dividend preference to Class A shares. On October 4, 2018, the Company issued a total of 7,000,000 Class C shares to its CEO and President (formerly COO) as stock-based compensation for services rendered. Subsequently, in April 2019, the Company filed an amended and restated certificate of designation, which restricts the CEO and President from converting the 7,000,000 shares into common stock for 36 months from the issuance date.

The following table sets forth the Company’s warrant activity through September 30, 2021:

 SCHEDULE OF WARRANT ACTIVITY

Pursuant to a service agreement entered on January 25, 2021, the Company issued 100,000 common shares to OHGODACOMPANY, LLC in exchange for advisory services rendered, resulting in $19,000 of stock-based compensation expense.

In June 2020, the Board authorized the issuance of 125,000 common shares each to the CEO (Delray Wannemacher), President (Daniel Wong) and a Director (Austin Bosarge) on July 1, 2021 and July 1, 2022 for services rendered. Accordingly, the Company accrued totals of 375,000 common shares and stock-based compensation expense of $71,250 to these individuals during the three months ended September 30, 2020.

Pursuant to consulting and advisory agreements, the Company accrued 217,000 common shares due to consultants and 50,000 common shares to an advisor for services rendered in September 2021, resulting in compensation expense of $41,230 and $9,500, respectively.

As of September 30, 2021, the Company was authorized to issue 150,000,000 shares of common stock. All common stock shares have full dividend and voting rights. However, it is not anticipated that the Company will be declaring dividends in the foreseeable future.

As of September 30, 2021, the Company had 9,063,079 common shares outstanding.

As of September 30, 2021, 7,000,000 shares of Class A Preferred Stock and 7,000,000 shares of Class C Preferred Stock were issued and outstanding.

NOTE 5: RELATED PARTY TRANSACTIONS

During the nine months ended September 30, 2021, the Company paid out previously accrued consulting fees payable to the CEO and President of $5,000 and $30,000, respectively, and paid $120,335 and $85,000 of current compensation to the CEO and President, respectively. The Company does not currently have consulting or employment agreements with these individuals, and as a result, these fees may fluctuate from time to time. While the Company believes these individuals were appropriately classified as contractors and has accordingly neither paid nor accrued payroll taxes, these payments may result in future tax liabilities should the Internal Revenue Service deem these individuals to be employees. As of September 30, 2021, the Company owed $0 of outstanding compensation to the CEO and COO.

During the nine months ended September 30, 2021, the Company’s CEO and President paid expenses on behalf of the Company totaling $55,534 and $4,648, and the Company repaid $107,044 and $4,648 of related party advances, all respectively. As of September 30, 2021, the Company was indebted to the CEO for $0 and to the President for $0, respectively, for expenses paid on behalf of the company.

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

NOTES TO FINANCIAL STATEMENTS

As of September 30, 2021 (Unaudited) and for the Three Months Then Ended (Unaudited)

NOTE 6: CONVERTIBLE NOTES

As of September 30, 2021 and December 31, 2020, the Company owed $720,000 and $720,000 on outstanding convertible notes, respectively.

On February 3, 2021, the Company extended its convertible note for $100,000 with Clearvoyance Ventures. The original note matured on November 26, 2020 and bore interest at 10%. According to the amended terms, the note will mature on February 3, 2022 and accrue interest at 15%. The note continues to have a conversion feature, under which principal and accrued interest would convert at 70% of the stock price upon closing any offering resulting in aggregate financing of at least $1,000,000.

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

During the three and nine months ended September 30, 2021, the Company recognized $20,289 and $60,209 of interest expense on convertible debt. As of September 30, 2021 and December 31, 2020, outstanding accrued interest on convertible debt totaled $104,244 and $43,738, respectively.

NOTE 7: SIGNIFICANT AGREEMENTS

On March 17, 2021, the Company entered into a joint marketing agreement with RoviSys Building Technologies, LLC (“RoviSys”), under which it will comarket its mobile and immersion-cooled data center solutions and other related services. The agreement grants a license to RoviSys to market the Company’s products.

NOTE 8: FINANCE LEASE

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

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

During the nine months ended September 30, 2021, the Company paid a total of $11,629, including $6,055 of principal and $2,405 of interest, to the lessor and recognized $3,241 of lease expense for the three months ended September 30, 2021.

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

NOTES TO FINANCIAL STATEMENTS

As of September 30, 2021 (Unaudited) and for the Three Months Then Ended (Unaudited)

As of September 30, 2021, lease-related assets and liabilities consisted of:

 SCHEDULE OF LEASE RELATED ASSETS AND LIABILITIES

Future maturities of the lease liability are as follows:

 SCHEDULE OF MATURITIES OF LEASE LIABILITY

NOTE 9: CUSTOMER DEPOSIT LIABILITY

As discussed in Note 2, during the three months ended September 30, 2021, the Company collected $391,555 for orders of its data center hardware solutions that were not yet fulfilled as of September 30, 2021. Accordingly, the Company recognized a deposit liability of $391,555 as of September 30, 2021 and will release the liability to revenue during the period in which the orders are delivered.

NOTE 10: CONCENTRATIONS, COMMITMENTS AND CONTINGENCIES

During the three months ended September 30, 2021, one customer comprised 96% of delivered hardware sales, and the loss of this or another significant customer would be detrimental to the Company’s sales. Management has determined that no other significant concentrations, commitments, or contingencies existed as of September 30, 2021.

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

NOTES TO FINANCIAL STATEMENTS

As of September 30, 2021 (Unaudited) and for the Three Months Then Ended (Unaudited)

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.

NOTE 12: SUBSEQUENT EVENTS

On December 2, 2021, the Company issued 96,000 additional common shares to a consultancy group for services rendered.

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

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

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

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

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

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

General

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

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

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

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

Edge Data Solutions, Inc. (EDSI) is poised to be an industry-leading edge 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 serve more computing power are fintech, cloud gaming, telecom 5G, 3D/video/AI rendering, video streaming, remote desktop, IoT, autonomous vehicles. Centralized infrastructure facilities servicing multiple geographical areas encounter many issues with data latency, congestion and weak network connections. To address this, data processing is moving closer to the customer. EDSI offers green, low-cost, secure colocation and private data hosting to meet this demand for Edge 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, the above conditions raise substantial doubt about the Company’s ability to do so. New business opportunities may never emerge, and we may not be able to sufficiently fund the pursuit of new business opportunities should they arise.

As of September 30, 2021, we had approximately $147,261 of cash on hand. Our current monthly cash burn rate is approximately $35,000, and it is expected that burn rate will continue and is expected to continue at $35,000 until significant additional capital is raised and our marketing plan is executed. Our trade creditors may call debts at any time, and our cash reserves would not be sufficient to satisfy all balances. We are currently dependent on minimal expenses to be covered by a loan or other cash infusion from the Company’s CEO and Director Delray Wannamaker, and President and Director, Daniel Wong. There is no guarantee that this cash infusion will continue to be made.

Operating results for the three months ended September 30, 2021 and 2020:

During the three months ended September 30, 2021, the Company generated revenues of $144,733 from operations, compared to $14,317 for the three months ended September 30, 2020, an increase of $130,416 or 911%. This increase is a result of the sale of data center hardware solutions. The Company anticipates future revenue from its current efforts, but there can be no assurances that such efforts will be successful.

For the three months ended September 30, 2021, costs of net revenues were $110,516, compared to $0 for the three months ended September 30, 2020, for an increase of 100%. 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 margin was $34,217 and $14,317 for the three months ended September 30, 2021 and 2020, respectively.

For the three months ended September 30, 2021, selling, general and administrative expenses were $80,547, as compared to $52,343 during the three months ended September 30, 2020, an increase of $28,204, or 54%. The increase in these expenses was attributable to increased legal, accounting and other professional fees associated with operations.

The Company recognized stock-based compensation expense of $121,980 for the three months ended September 30, 2021, as compared to $218,500 for the three months ended September 30, 2020, for a decrease of $96,520, or 44%. This decrease resulted from lower stock-based compensation commitments, as the Company entered fewer consulting and advisory agreements in 2021, as compared to significant agreements to issue shares in 2020.

During the three months ended September 30, 2021, the Company recognized $7,165 of depreciation expense, as compared to $6,303, for an increase of $862 or 14%, during the three months ended September 30, 2020, as a result of added equipment during the later periods of 2020 and during 2021.

During the three months ended September 30, 2021, the Company recognized $22,921 of interest expense, as compared to $17,955 for the three months ended September 30, 2020. The increase of $4,966, or 28%, is primarily attributable to the accrual of interest on convertible debt issuances near the end of 2020 to fund operations.

The Company also generated cryptocurrency mining income of $1,234 and a loss of $3,285 on the sale of cryptocurrency during the three months ended September 30, 2021, as compared to $716 and $0, respectively during the three months ended September 30, 2020. The change was a result of the use of excess data center capacity after the Company built out its data centers during 2020 and cryptocurrency market fluctuations.

As a result of the changes in operating expenses and other expenses, the Company generated a net loss of $288,282 for the three months ended September 30, 2021, as compared to a net loss of $295,103 for the three months ended September 30, 2020, a change of $6,821, or 2%.

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 nine months ended September 30, 2021 and 2020:

During the nine months ended September 30, 2021, the Company generated revenues of $971,656 from operations, compared to $20,624 for the nine months ended September 30, 2020, an increase of $951,032 or 46,113%. This increase is a result of (i) customers purchasing and consuming data center credits for use of the Company’s computing equipment and (ii) the sale of data center hardware solutions. The Company anticipates future revenue from its current efforts, but there can be no assurances that such efforts will be successful.

For the nine months ended September 30, 2021, costs of net revenues were $793,394, compared to $0 for the nine months ended September 30, 2020, for an increase of 100%. The change is primarily a result of direct costs associated with the Company’s hardware sales.

As a result of the changes in revenues and cost of net revenues discussed above, the Company’s gross margin was $178,262 and $20,624 for the nine months ended September 30, 2021 and 2020, respectively.

For the nine months ended September 30, 2021, selling, general and administrative expenses were $237,648, compared to $185,331 during the nine months ended September 30, 2020, an increase of $52,317, or 29%. The increase in these expenses was attributable to increased legal, accounting and other professional fees associated with operations.

The Company recognized stock-based compensation expense of $140,980 for the nine months ended September 30, 2021, as compared to $381,900 for the nine months ended September 30, 2020, for a decrease of $240,920, or 63%. This decrease was attributable to timing of significant compensation issuances in 2020, as compared to fewer grants in 2021.

During the nine months ended September 30, 2021, the Company recognized $21,231 of depreciation expense, as compared to $10,513, for an increase of $9,282 or 89%, during the nine months ended September 30, 2020, as a result of added equipment during the later periods of 2020 and during 2021.

During the nine months ended September 30, 2021, the Company recognized $73,266 of interest expense, as compared to $42,064 for the nine months ended September 30, 2020. The increase of $31,202, or 74%, is primarily attributable to the accrual of interest on significant new convertible debt issuances to fund operations throughout 2020.

The Company also generated cryptocurrency mining income of $12,025 and a loss of $3,285 on the sale of cryptocurrency during the nine months ended September 30, 2021, as compared to $716 and $0, respectively during the nine months ended September 30, 2020. The change was a result of the use of excess data center capacity after the Company built out its data centers during 2020 and cryptocurrency market fluctuations.

As a result of the changes in operating expenses and other expenses, the Company incurred a net loss of $490,980 for the nine months ended September 30, 2021, compared to a net loss of $698,253 for the nine months ended September 30, 2020, a change of $207,273, or 30%.

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 September 30, 2021 increased by $66,893 to $147,261, as compared to a balance of $80,368, as of December 31, 2020. The decrease in cash for the nine months ended September 30, 2021 was attributable to net cash provided by operating activities of $119,056, $1,152 of net cash used in investing activities, and net cash used in financing activities of $51,011.

As of September 30, 2021, the Company had a deficit in working capital of $1,180,657, compared to a deficit in working capital of $849,989 at December 31, 2020, representing a decrease in working capital of $330,668, which was largely attributable to the use of cash in operations, amortization of prepaid expenses, customer deposits, finance lease-related liabilities, deferred revenue and short-term convertible debt.

Net cash provided by operating activities of $119,056 during the nine months ended September 30, 2021, as compared to net cash of $315,956 used in operating activities for the nine months ended September 30, 2020, was primarily attributable to a significant net loss, which was offset by customer deposits, stock-based compensation, write-off of acquisition deposits and increases in accounts payable and increased by payment of accrued liabilities.

Net cash used in investing activities was $1,152 for the nine months ended September 30, 2021 decreased by $139,906 from $141,058 of cash used by investing activities for the nine months ended September 30, 2020. This is attributable to the Company acquiring less data center equipment in 2021 and advancing funds pertaining to a prospective acquisition in the prior period.

Net cash used in financing activities was $51,011 during the nine months ended September 30, 2021, as compared to net cash provided by financing activities of $506,110 during the nine months ended September 30, 2020. The difference was a result of changes in finance lease assets and liabilities, net repayments of related party advances, and no new convertible debt issued in 2021.

As reported in the accompanying consolidated financial statements, for the nine months ended September 30, 2021 and 2020, the Company incurred net losses of $373,750 and $698,253, respectively. The Company produced revenues during the nine months ended September 30, 2021 and limited revenue during the nine months ended September 30, 2020. The Company’s ability to continue as a going concern is dependent upon its ability to generate revenue, reach consistent profitability and raise additional capital. To date, the Company has raised funds from related party advances, convertible debt, subscriptions to equity units, and the sale of common stock to its former CEO. It intends to finance its future operating activities and its near-term working capital needs through the sale of data center hardware solutions and future convertible debt financings or stock subscriptions. The sale of equity and entry into other future financing arrangements may result in dilution to stockholders and those securities may have rights senior to those of common shares. If the Company raises additional funds through the issuance of convertible notes or other debt financing, these activities or other debt could contain covenants that would restrict the Company’s operations. Any other third-party funding arrangements could require the Company to relinquish valuable rights. The Company will require additional capital beyond its currently anticipated needs. Additional capital, if available, may not be available on reasonable terms or at all.

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

Financial Condition

The Company’s total assets as of September 30, 2021 and December 31, 2020 were $354,361 and $241,831, respectively, representing an increase of $112,530, or 47%. Total liabilities as of September 30, 2021 and December 31, 2020 were $1,466,664 and $1,004,134, respectively, for an increase of $462,530, or 46%. The significant change in the Company’s financial condition is attributable to revenue generation, customer deposits on hardware, commencement of a finance lease arrangement, cash burn from operations and increases in accounts payable and repayment of accrued expenses.

As a result of these transactions, the Company’s cash position increased from $80,368 to $147,261 during the nine months ended September 30, 2021.

Off-Balance Sheet Arrangements

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not required for smaller reporting companies.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

An evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and President, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report on Form 10-Q. Disclosure controls and procedures are procedures designed with the objective of ensuring that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, such as this Form 10-Q, is recorded, processed, summarized and reported, within the time period specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and is communicated to our management, including our Chief Executive Officer and Chief Financial Officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Based on that evaluation, our management concluded that, as of September 30, 2021, our disclosure controls and procedures were not effective.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended September 30, 2021 that materially affected or are reasonably likely to materially affect our internal control over financial reporting.

PART II

Item 1. Legal Proceedings.

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

Item 1A. Risk Factors.

Not required for smaller reporting companies.

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

During the period from January 1, 2020 through September 30, 2021, the Company issued the following unregistered securities.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Pursuant to a service agreement entered on January 25, 2021, the Company issued 100,000 common shares to OHGODACOMPANY, LLC in exchange for advisory services rendered.

Pursuant to the board approval of share issuances to officers and directors in 2020, the Company issued 125,000 common shares to Delray Wannemacher, CEO, for services rendered.

Pursuant to the board approval of share issuances to officers and directors in 2020, the Company issued 125,000 common shares to Daniel Wong, President, for services rendered.

Pursuant to the board approval of share issuances to officers and directors in 2020, the Company issued 125,000 common shares to Austin Bosarge, Director, for services rendered.

Pursuant to an advisory agreement in effect in September 2020, the Company issued 50,000 common shares to Joshua Holmes as compensation for services rendered.

Pursuant to a service agreement entered on September 17, 2020, the Company issued 25,000 common shares to Levi Volk in exchange for services rendered.

Pursuant to a service agreement entered on April 23, 2021, the Company issued a total of 288,000 common shares to Avanzar Oak LLC d/b/a Forgeworks, 192,000 of which were accrued in the third quarter, and 96,000 of which were due in the fourth quarter of 2021.

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

Item 3. Defaults Upon Senior Securities.

There have been no defaults upon senior securities.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information.

None.

Item 6. Exhibits

a. Exhibits

SIGNATURES

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