Edge Data Solutions, Inc. - Quarter Report: 2022 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended September 30, 2022

For the transition period __________ to __________

Commission File Number: 000-56419

EDGE DATA SOLUTIONS, INC.

(Exact name of registrant as specified in its charter)

(833) 682-2428

(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:

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 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). 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.

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 ☐ No ☒

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 November 14, 2022, there were outstanding 11,658,832 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, 2022

INDEX

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:

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.

PART I - FINANCIAL INFORMATION

Item 1 - Financial Statements

Edge Data Solutions, Inc.

A Delaware Corporation

Financial Statements

As of September 30, 2022 (Unaudited) and for the Three and Nine months Then Ended (Unaudited)

Edge Data Solutions, Inc.

TABLE OF CONTENTS

EDGE DATA SOLUTIONS, INC.

BALANCE SHEETS

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

EDGE DATA SOLUTIONS, INC.

STATEMENTS OF OPERATIONS

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

EDGE DATA SOLUTIONS, INC.

STATEMENTS OF CASH FLOWS

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

EDGE DATA SOLUTIONS, 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.

STATEMENT OF STOCKHOLDERS’ EQUITY/(DEFICIENCY)

As of and for the three and nine months ended September 30, 2022 (Unaudited)

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

EDGE DATA SOLUTIONS, INC.

NOTES TO FINANCIAL STATEMENTS

As of September 30, 2022 (Unaudited) and for the Three and Nine months Then Ended (Unaudited)

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.

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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.

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, 2022, and December 31, 2021, the Company’s cash balances exceeded federal insurance limits by $0 and $581,209, respectively.

EDGE DATA SOLUTIONS, INC.

NOTES TO FINANCIAL STATEMENTS

As of September 30, 2022 (Unaudited) and for the Three and Nine 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.

Deposits

From time to time, the Company makes payments to vendors, resulting in classification as deposits on the company’s balance sheets until the vendors have delivered the goods and services. As of September 30, 2022 and December 31, 2022, the company’s deposits with vendors totaled $347,528 and $2,161,683 and consisted of the following:

 SCHEDULE OF DEPOSITS

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, 2022 and December 31, 2021, the Company had $27,050 and $11,530 of inventory and had outstanding deposits of $240,125 and $2,161,683 with vendors for the purchase of equipment for resale to customers, all respectively. As of September 30, 2022 and December 31, 2021, respectively, these deposits consisted of:

As of September 30, 2022 and December 31, 2021, total remaining costs of equipment not yet shipped and services yet to be provided totaled $225,893 and $3,951,547, respectively. These costs are included in the Deposits item on the Company’s balance sheets. Terms with the Company’s vendors call for full payment prior to shipment when equipment is ready for shipment.

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.

In September 2022, the facility holding the Company’s server equipment flooded, resulting in the impairment of $85,285 of server equipment. The Company recorded a net loss of $21,321 on impairment during the three months ended September 30, 2022. Additionally, the Company repurposed $9,199 of equipment for research and development purposes during the quarter.

As of September 30, 2022 and December 31, 2021, the Company’s property and equipment consisted of $8,278 and $84,133 of computing equipment, net of $1,610 and $37,872 of accumulated depreciation, all respectively. Depreciation expense for three and nine months ended September 30, 2022 and 2021 was $5,523 and $20,535 and $7,165 and $21,231, respectively.

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 associated 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 nine months ended September 30, 2022, the Company capitalized $56,600 of web development costs pertaining to a new website. In August 2022, the Company terminated its relationship with the original website developers, resulting in loss of the in-progress website. Accordingly, the Company expensed $40,000 of capitalized costs to sales and marketing expenses during the three and nine months ended September 30, 2022. The remaining $16,600 of capitalized website costs as of September 30, 2022 consisted of payments to a new website developer for a new in-progress website. The website was not yet fully in service as of September 30, 2022, and the Company therefore recognized no amortization expense for the three and nine months ended September 30, 2022.

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, 2022, the Company determined that its long-lived assets have not been impaired.

Accounts Payable and Accrued Liabilities

Accounts payable consisted of $26,424 and $74,434 of liabilities incurred by the issuer prior to the merger as of September 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.

As of September 30, 2022 and December 31, 2021, accrued liabilities consisted of the following:

 SCHEDULE OF ACCRUED LIABILITIES

EDGE DATA SOLUTIONS, INC.

NOTES TO FINANCIAL STATEMENTS

As of September 30, 2022 (Unaudited) and for the Three and Nine 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 in 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 revenue activities consist of:

During the three and nine months ended September 30, 2022 and 2021, the Company recognized $0 and $0 and $0 and $29,483 of revenue from its customers’ usage of computing credits, with associated costs of $0 and $5,378 and $0 and $9,506, all respectively. The Company further recognized a deferred revenue liability of $9,478 and $9,478, respectively for prepaid usage credits not yet used by its customers as of September 30, 2022 and December 31, 2021, respectively.

As of September 30, 2022 and December 31, 2021, the Company recognized $540,028 and $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 $240,125 and $2,161,683 for product to be delivered, all respectively.

EDGE DATA SOLUTIONS, INC.

NOTES TO FINANCIAL STATEMENTS

As of September 30, 2022 (Unaudited) and for the Three and Nine months Then Ended (Unaudited)

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 expenses in the consolidated statements of operations. The Company assigns costs to transactions on a first-in, first-out basis.

As of September 30, 2022 and December 31, 2021, the carrying value of crypto assets held by the Company was $3,940 and $3,940, respectively. During the three months ended September 30, 2022, the Company recognized a loss of $1,976 related to the collection and immediate liquidation of cryptocurrency as payment for a customer order.

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. The Company generated no cryptocurrency income and did not record an impairment loss during the three and nine months ended September 30, 2022.

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.

Net (Loss) per Common Share

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 nine months ended September 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 nine months ended September 30, 2022:

SCHEDULE OF NET INCOME (LOSS) PER SHARE 

EDGE DATA SOLUTIONS, INC.

NOTES TO FINANCIAL STATEMENTS

As of September 30, 2022 (Unaudited) and for the Three and Nine 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, 2022, the Company had $67,592 of cash, has incurred substantial historical operating losses, and had an accumulated deficit of $731,590. 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.

NOTE 4: STOCKHOLDERS’ EQUITY/(DEFICIENCY)

Class A Preferred Super Majority Voting Stock

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.

As of September 30, 2022, 7,000,000 shares of Class A Preferred Stock were issued and outstanding.

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

EDGE DATA SOLUTIONS, INC.

NOTES TO FINANCIAL STATEMENTS

As of September 30, 2022 (Unaudited) and for the Three and Nine months Then Ended (Unaudited)

Class C Preferred Non-Voting Stock

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”). 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 ($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 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 September 30, 2022, 7,000,000 shares of Class C Preferred Stock were issued and outstanding.

Common Stock

The Company is 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.

In April 2022, the Company agreed to issue 50,000 fully vested common shares to an employee and 100,000 fully vested common shares to an advisor for services rendered.

In July 2022, the Company issued 375,000 fully vested common shares, or 125,000 shares each, to its board members as compensation for services rendered. Furthermore, the Company issued 100,000 common shares to an advisory group for services rendered and 50,000 common shares to a newly appointed board member.

As of September 30, 2022, the Company had 11,658,832 common shares outstanding.

Warrants

The following table sets forth the Company’s warrant activity through September 30, 2022:

 SCHEDULE OF WARRANTS ACTIVITY

On February 28, 2022, convertible noteholders converted $638,660, consisting of $549,500 of outstanding principal and $89,160 of accrued interest, into 1,824,751 equity units, 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 $456,188, based on a recent private transaction at $0.25 per share, to the common stock and the remaining value of $182,472 to the warrants, using the following Black-Scholes inputs:

Stock Options

The Company has reserved 446,054 shares for its options pool.

In April 2022, the Company agreed to issue 200,000 options to an employee for services rendered. The options expire in 10 years, have a strike price of $1.00, and vest ratably over 24 months, beginning in May 2022.

On July 18, 2022, the Board appointed a new director, who received 200,000 options to purchase common stock at a strike price of $1.00 per share. The options have a rolling expiration of three years from each date of vesting, and 100,000 options vest on June 30, 2023 and the remaining 100,000 options vest on June 30, 2024.

Using the following inputs, the Company estimated the aggregate value of the grants to be $55,999 based on the following inputs:

The following tables set forth the Company’s options activity through September 30, 2022 and options attributes as of September 30, 2022:

 SCHEDULE OF OPTIONS ACTIVITY

NOTE 5: RELATED PARTY TRANSACTIONS

During the three and nine months ended September 30, 2022, the Company recognized compensation expense totaling $96,250 and $478,750 to its CEO, $77,500 and $460,501 to its President, $34,500 and $101,000 to Synergia CPA, LLC and $3,000 and $9,000 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. The Company further paid $10,000 of compensation to a board member during the three and nine months ended September 30, 2022.

During the nine months ended September 30, 2022, the Company’s CEO, President and CFO paid expenses on behalf of the Company totaling $67,264, $41,075 and $15,404, and the Company repaid $70,422, $31,085 and $16,700 of related party advances, including previous amounts advanced to the company, all respectively. Of amounts repaid, $1,296 pertained to accounts payable due to Synergia Technology Services, LLC. As of September 30, 2022, the Company was indebted to the CEO for $0, the President for $18,800 and the CFO for $0, all respectively, for expenses paid on behalf of the company. As of September 30, 2022, the Company did not owe accrued compensation to the CEO, President and CFO.

EDGE DATA SOLUTIONS, INC.

NOTES TO FINANCIAL STATEMENTS

As of September 30, 2022 (Unaudited) and for the Three and Nine months Then Ended (Unaudited)

NOTE 6: CONVERTIBLE NOTES

On February 15, 2022, the Company repaid the entire outstanding balance of $118,725 on a convertible note, consisting of $100,000 original principal and $18,725 of accrued interest.

On February 28, 2022, convertible debtholders converted a total of $638,660, consisting of $549,500 of amended principal and $89,160 of accrued interest, into 1,824,751 equity units at a rate of $0.35 per unit. 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 September 30, 2022 and December 31, 2021, the Company owed $100,000 and $749,500 in outstanding principal on convertible notes, respectively. The Company is currently in default on the $100,000 note, but it is working with the noteholder to resolve the default.

During the three and nine months ended September 30, 2022, the Company recognized $3,781 and $11,219 of interest expense on convertible debt, respectively. As of September 30, 2022 and December 31, 2021, outstanding accrued interest on convertible debt totaled $39,084 and $149,389, respectively.

NOTE 7: CONCENTRATIONS, COMMITMENTS AND CONTINGENCIES

During the three months ended September 30, 2022, the following customer concentrations existed in the Company’s data center solutions revenues:

During the three months ended September 30, 2022, the following vendors represented significant concentrations in the Company’s costs of data center solutions provided to customers:

The loss of or disruption to the Company’s relationships with these customers or vendors may be detrimental to the Company’s operations.

On July 27, 2022, the Company terminated its relationship with Midas Green Technologies, LLC, 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 September 30, 2022.

EDGE DATA SOLUTIONS, INC.

NOTES TO FINANCIAL STATEMENTS

As of September 30, 2022 (Unaudited) and for the Three and Nine months Then Ended (Unaudited)

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 three months ended September 30, 2022, the Company paid a total of $3,876, including $3,485 of principal and $391 of interest, to the lessor and recognized $3,241 of lease expense for the three months ended September 30, 2022.

As of September 30, 2022, 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

EDGE DATA SOLUTIONS, INC.

NOTES TO FINANCIAL STATEMENTS

As of September 30, 2022 (Unaudited) and for the Three and Nine months Then Ended (Unaudited)

NOTE 9: SIGNIFICANT AGREEMENTS

On December 2, 2021, the Company entered into an agreement with a customer, under which EDGE agreed to supply data center equipment and related components, along with optional project management services.

The total sale price of $9,074,100 and applicable sales taxes was receivable on the following schedule:

In March 2022, the total amount of the contract was reduced by $86,347 as a result of a change order, for a new total sale price of $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 $5,000 for each day in the event deliveries are ten or more days late and penalties of $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 claimed penalties, if any, will not exceed the $627,245 current outstanding balance due from the customer.

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 $8,360,508. 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 $8,360,508 collected.

On July 20, 2022, the Company entered into a business development agreement with a business development firm (“Firm”), under which Firm will receive a monthly retainer of $5,000 until the agreement terminates on December 31, 2022, with an option to renew for additional twelve month periods. The agreement calls for a 3% referral fee on any revenue Firm brings to EDGE, with the $5,000 retainers applied against referral fees. The referral fees from any clients Firm refers to EDGE continue until five years after the agreement terminates.

NOTE 10: CONSTRUCTION IN PROGRESS – DATA CENTERS

During the nine 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:

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 September 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 September 30, 2022 and wrote off the $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 September 30, 2022, in-progress construction on data centers totaled $90,741.

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 October 12, 2022, the Company’s president advanced the Company $40,000 to help fund operations. This advance bears no interest and is due on demand.

Effective November 2, 2022, the Company entered into a referral fee agreement with a green energy consultancy (“referrer”), under which the referrer will receive a 2% referral fee on net revenues from referrals initially introduced to EDGE that result in an executed sale within twelve months of the introduction. Referral fees are due within 30 days of the Company’s receipt of cash from any such referrals. The agreement is in effect for one year.

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

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:

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.

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 $731,590. 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 September 30, 2022, we had $67,592 of cash on hand. Currently, cash required to sustain core operations each month is approximately $250,000, 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 September 30, 2022 and 2021:

During the three months ended September 30, 2022, the Company generated revenues of $87,245 from operations, compared to $144,733 for the three months ended September 30, 2021, a decrease of $57,488 or 40%. This change is primarily a result of timing of 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 September 30, 2022, costs of net revenues were $76,358, compared $110,516 for the three months ended September 30, 2021, for a decrease of $34,158, or 31% 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 $10,887 and $34,217, a decrease of $23,331 or 68%, for the three months ended September 30, 2022 and 2021, respectively.

For the three months ended September 30, 2022, selling, general and administrative expenses were $678,728, as compared to $80,547 during the three months ended September 30, 2021, an increase of $598,181, or 743%. The increase in these expenses was attributable to increased costs to support significantly increased operations and sales and marketing efforts in 2022.

The Company recognized stock-based compensation expense of $137,100 for the three months ended September 30, 2022, as compared to $121,980 for the three months ended September 30, 2021, for an increase of $15,120, or 12%. 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 September 30, 2022. The Company also recognized losses of $21,323 on its computing equipment during the three months ended September 30, 2022, as compared to $0 for the three months ended September 30, 2021, as a result of flooding at a facility.

During the three months ended September 30, 2022, the Company recognized $5,523 of depreciation expense, as compared to $7,165, for a decrease of $1,642 or 23%, during the three months ended September 30, 2021, as a result of the loss of computing equipment due to flooding at a facility.

During the three months ended September 30, 2022, $4,759 of interest expense, as compared to $22,921 for the three months ended September 30, 2021. The decrease of $18,162, or 79%, 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 much of 2022.

The Company recognized an impairment loss on computing equipment of $21,323 during the three months ended September 30, 2022, as compared to $0 for the three months ended September 30, 2021, as a result of flooding in a facility. Furthermore, the Company generated cryptocurrency mining income of $0 and $1,234, respectively and realized losses on the sale of cryptocurrency of $0 and $3,285 during the three months ended September 30, 2022 and 2021, respectively. The changes were a result of the Company not being engaged in cryptocurrency-related activities during Q3 2022.

As a result of the changes in operating expenses and other expenses, the Company generated a net loss of $1,057,796 for the three months ended September 30, 2022, as compared to a net loss of $288,282 for the three months ended September 30, 2021, a change of $769,514, or 267%.

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, 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, 2022 and 2021:

During the nine months ended September 30, 2022, the Company generated revenues of $9,344,332 from operations, compared to $971,656 for the nine months ended September 30, 2021, an increase of $8,372,676 or 862%. This increase is driven by deliveries on sales of data center solutions. The Company believes it will generate future revenue from its current efforts and future product lines, but there can be no assurances that such efforts will be sufficient or successful.

For the nine months ended September 30, 2022, costs of net revenues were $6,527,752, compared to $793,394 for the nine months ended September 30, 2021, for an increase of $5,734,358, or 723%. 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 $2,816,580 and $178,262, an increase of $2,638,318 or 1,480%, for the nine months ended September 30, 2022 and 2021, respectively.

For the nine months ended September 30, 2022, selling, general and administrative expenses were $1,521,755, as compared to $237,648 during the nine months ended September 30, 2021, an increase of $1,284,107, or 540%. The increase in these expenses was attributable to increased costs to support significantly increased operations and marketing efforts in 2022.

The Company recognized stock-based compensation expense of $178,152 for the nine months ended September 30, 2022, as compared to $140,980 for the nine months ended September 30, 2021, for an increase of $37,172, or 26%. This increase resulted from new issuances of stock and options in connection with the Company’s hiring efforts during 2022.

During the nine months ended September 30, 2022, the Company recognized $20,535 of depreciation expense, as compared to $21,231, for a decrease of $696 or 3%, during the nine months ended September 30, 2021, with the decrease attributable to the loss of computing equipment due to flooding at a facility. The Company also recognized losses of $21,323 on its computing equipment during the nine months ended September 30, 2022, as compared to $0 for the nine months ended September 30, 2021, as a result of flooding at a facility.

During the nine months ended September 30, 2022, the Company recognized $29,832 of interest expense, as compared to $73,266 for the nine months ended September 30, 2021. The decrease of $43,434, or 59%, 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 for much of 2022.

The Company also generated cryptocurrency mining income of $0 and $12,025 and losses of $1,976 and $2,807 on the sale of cryptocurrency during the nine months ended September 30, 2022 and 2021, as a result of limited cryptocurrency-related activities in 2022, as compared to 2021.

As a result of the changes in operating expenses and other expenses, the Company generated a net loss of $16,244 for the nine months ended September 30, 2022, as compared to a net loss of $490,980 for the nine months ended September 30, 2021, a change of $474,736, or 97%.

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, 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, 2022 decreased by $763,617 to $67,592, as compared to a balance of $831,209, as of December 31, 2021. The increase in cash for the nine months ended September 30, 2022 was attributable to net cash used in operating activities of $506,800, $152,020 of net cash used in investing activities, and net cash used in financing activities of $104,797.

As of September 30, 2022, the Company had deficit in working capital of $859,834, compared to a deficit in working capital of $1,593,822 at December 31, 2021, representing a decrease in working capital of $733,988, which was largely attributable to less sales closed and less collection activities in Q2 and Q3 2022.

Net cash used in operating activities of $506,800 during the nine months ended September 30, 2022, as compared to net cash of $131,184 provided by operating activities for the nine months ended September 30, 2021, was primarily attributable to changes in current assets and liabilities in 2022, as compared to 2021.

Net cash used in investing activities of $152,020 for the nine months ended September 30,2022, as compared to $1,152 of cash used by investing activities for the nine months ended September 30, 2021, was attributable primarily to 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 $104,797 during the nine months ended September 30, 2022, as compared to net cash used in financing activities of $63,139 during the nine months ended September 30, 2021, was primarily a result of the repayment of a convertible note.

As reported in the accompanying consolidated financial statements, for the nine months ended September 30, 2022 and 2021, the Company generated net losses of $16,244 and $490,980, 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 composed 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.

Financial Condition

The Company’s total assets as of September 30, 2022 and December 31, 2021 were $626,864 and $3,095,177, respectively, representing a decrease of $2,468,313, or 80%. Total liabilities as of September 30, 2022 and December 31, 2021 were $1,358,454 and $4,627,335, respectively, for a decrease of $3,268,881, or 71%. 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 nine months ended September 30, 2022.

As a result of these activities, the Company’s cash position decreased from $831,209 to $67,592 during the nine months ended September 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 September 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 September 30, 2022 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.

None.

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.