The following discussion should be read in conjunction with our audited
financial statements and notes thereto included herein. In connection with, and
because we desire to take advantage of, the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995, we caution readers regarding
certain forward looking statements in the following discussion and elsewhere in
this report and in any other statement made by, or on our behalf, whether or not
in future filings with the Securities and Exchange Commission. Forward-looking
statements are statements not based on historical information and which relate
to future operations, strategies, financial results or other developments.
Forward looking statements are necessarily based upon estimates and assumptions
that are inherently subject to significant business, economic and competitive
uncertainties and contingencies, many of which are beyond our control and many
of which, with respect to future business decisions, are subject to change.
These uncertainties and contingencies can affect actual results and could cause
actual results to differ materially from those expressed in any forward looking
statements made by, or on our behalf. We disclaim any obligation to update
forward-looking statements.
12
The independent registered public accounting firm's report on the Company's
consolidated financial statements as of December 31, 2020 and 2019, and for the
years ended December 31, 2020 and 2019, includes a "going concern" explanatory
paragraph, that describes substantial doubt about the Company's ability to
continue as a going concern.
General
EDGE DATA SOLUTIONS, INC. (the "Company"), formerly Blockchain Holdings Capital
Ventures, Inc. (formerly Southeastern Holdings, Inc., formerly Safe Lane
Systems, Inc.) was incorporated in the State of Colorado on September 10, 2013.
Safe Lane Systems, Inc. redomiciled to become a Delaware holding corporation in
September of 2016. On September 22, 2016, Safe Lane Systems, Inc. formed two
wholly owned subsidiaries, SLS Industrial, Inc and Southeastern Holdings, Inc.
(both Delaware corporations) and on September 30, 2016 completed a merger and
reorganization in which Southeastern Holdings, Inc. (now Edge Data Solutions,
Inc.) became the holding company. On December 1, 2016, the Company spun off its
wholly owned subsidiary, SLS Industrial, Inc., along with its assets and
liabilities, leaving Southeastern Holdings, Inc. as the only surviving entity.
On August 23, 2018, the Company entered into a Bill of Sale and Assignment and
Assumption Agreement with Blockchain Holdings, LLC ("Blockchain"), pursuant to
which the Company purchased all of the assets of Blockchain which are used in
the business of sourcing of blockchain mining equipment from various suppliers
for their customers and also providing management of the equipment hosted,
mining pools and tech work on such equipment. The Company issued 300,000,000
(equivalent to 3,000,000 after the reverse split) shares of its common stock,
par value $.0001 to the members of Blockchain in exchange for the assets of
Blockchain.
On August 30, 2018 the Company changed its name to Blockchain Holdings Capital
Ventures, Inc.
On January 13, 2020, the Company changed its name to Edge Data Solutions, Inc.
Edge Data Solutions, Inc. (EDSI) 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 December 31, 2020, we had $80,368 in 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 Mr. Wannamaker,
and President and Director, Daniel Wong. There is no guarantee that this cash
infusion will continue to be made.
PLAN OF OPERATIONS
During 2020, we generated limited revenues from customers' usage of our data
center resources. We generated a net loss and have negative capital and no
intangible assets. We are illiquid and need cash infusions from investors or
shareholders to provide capital, or loans from any sources, none of which have
been committed nor assured.
We are currently seeking to grow our customer base and to increase our current
customers' reliance on and usage of our resources. Further, we are seeking to
expand into the sale and resale of modular data centers and related equipment.
While our efforts have generated limited revenue and gross margins, there can be
no assurances that these efforts will be successful or produce sufficient income
or cash inflows from operations. As a result, we are dependent upon capital from
investors to finance our operations and continue as a going concern.
13
Our goals for the next year are as follows:
Future Milestones
? Plan on raising capital to fully execute on the business plan
? Plan on up-listing to OTCQB
? Plan on filing an S-1 to register stock and build a market
APPLICATION OF FUNDS (1)
Item Amount (1)
Compensation of officers $ 210,000
Legal and professional fees 50,000
Audit fees 25,000
Other general and administrative costs 135,000
Total $ 420,000
(1) These items are variable and no commitment has been obtained from any
source.
The Company may change any or all of the budget categories in the execution of
its business model. None of the line items are to be considered fixed or
unchangeable. The Company may need substantial additional capital to support its
budget.
OFF BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements. Our Budget for operations in
next year is as follows:
Item Amount (1)
Compensation of officers $ 210,000
Legal and professional fees 50,000
Audit fees 25,000
Other general and administrative costs 135,000
Total $ 420,000
(1) These items are variable and no commitment has been obtained from any
source.
We will need substantial additional capital to support our future operations. We
have no revenues and have no committed source for any funds as of the date
hereof. No representation is made that any funds will be available when needed.
In the event funds cannot be raised when needed, we may not be able to carry out
our business plan, may never achieve sales or royalty income, and could fail in
business as a result of these uncertainties. If our initial prospect appears
uneconomical after evaluation we will seek other prospects it the area to
acquire or farm into.
We may also consider a private placement or public offering of our common stock,
if the market conditions allow at the time. No price, schedule or terms for such
an offering has been determined at this time. We expect to expend funds on a
quarterly basis, as follows:
Period Amount
Q1 2021 (cash on hand 12/31/2020) $ 80,368
Q2 2021 105,000
Q3 2021 105,000
Q4 2021 105,000
Total Cash Burn $ 395,368
14
Results of Operations for the Years Ended December 31, 2020 and 2019
During the years ended December 31, 2020 and 2019, the Company generated
revenues of $34,670 and $0 and incurred associated costs of $24,092 and $0, for
gross margins of $10,578 and $0, all respectively, representing increases of
$34,670 (100%), $24,092 (100%) and $10,578 (100%), all respectively, due to
generation of revenue in 2020. While the Company generated revenue in 2020, the
customer base is heavily concentrated, volume is limited, and there can be no
guarantee of future revenue growth.
During the years ended December 31, 2020 and 2019, the Company incurred $1,059
and $13,401, respectively, of sales and marketing expenses and $221,942 and
$197,554, respectively, of general and administrative costs, including
consulting fees, professional services fees and other administrative costs.
Sales and marketing costs decreased by $12,342, or 92%, due to the focus on
developing the Company's data center and use of relationships to acquire initial
customers. General and administrative costs increased by $24,388, or 12%, as a
result of new costs associated with operations.
During the years ended December 31, 2020 and 2019, the Company incurred
depreciation expense of $17,519 and $0, respectively, with the increase being a
result of new equipment being acquired and placed in service during 2020.
During 2020 and 2019, the Company recognized $381,900 and $127 of stock-based
compensation expense, respectively, from the issuance of its common shares to
consultants and advisors. The Company also paid compensation of $90,000 to the
CEO and $84,040 to the President in 2020, as compared to $27,000 and $44,000,
respectively in 2019, for increases of $63,000 and $40,040, respectively.
During the year ended December 31, 2020, the Company recognized $66,135 of
interest expense, as compared to $19,668 for the year ended December 31, 2019.
The increase of $46,467 or 236%, is primarily attributable to the accrual of
interest on significant new convertible debt issuances in late 2019 and
throughout 2020 and also includes interest incurred by related parties who paid
expenses on behalf of the Company.
Aside from interest expense, during the years ended December 31, 2020 and 2019,
the Company recognized net other income of $2,306 and $0, respectively, for an
increase of $2,306 or 100%. The change was a result of $23,000 of acquisition
deposits written off after termination of a prospective acquisition, $12,250 of
debt forgiveness from a vendor, and a $1,000 grant from the United States Small
Business Administration, $4,847 of cryptocurrency mining income, gains of $1,018
on disposal of crypto assets, and a gain of $4,965 from the sale of certain
equipment from its data center in September 2020.
As a result, the Company incurred net operating losses of $850,936 and $301,750
for years ended December 31, 2020 and 2019, respectively, for an increase of
$549,186, or 182%, to net losses. This change was primarily a result of
increased stock-based compensation and increases in executive compensation.
Liquidity and Capital Resources
During 2019, the Company sold 266,667 shares (equivalent to 2,667 post-split) of
common stock to its former CEO for proceeds of $40,000.
In May 2019, the Company issued $100,000 of convertible debt to two individuals.
The debt bears annual interest of 10% and was scheduled to mature in May 2020.
In January 2020, the noteholders agreed to convert $100,000 of principal and
$6,966 of accrued interest into 427,862 equity units, each consisting of one
share of the Company's common stock and a three-year warrant to purchase two
shares at $0.50 per share. These conversions occurred in connection with two
subscriptions totaling $50,000, or $25,000 each, from the same noteholders in
January 2020, in which the noteholders received 200,000 additional units similar
to those previously described. The total number of units issued in connection
with the conversions and subscriptions was 627,862.
In November 2019, the Company issued a convertible note to an individual for
proceeds of $100,000. The note bears 10% interest per annum, matures in November
2020 and is convertible at a 30% discount in the event of an equity financing
exceeding $1,000,000.
15
In January 2020, the Company issued 627,862 equity units, each consisting of
three-year warrant to purchase two shares of the Company's common stock for
$0.50 each and one share of the Company's common stock, to two individuals in
exchange for conversion of $100,000 of convertible notes and $6,966 of accrued
interest and an additional $50,000 of cash.
In February 2020, the Company issued two one-year convertible notes for total
proceeds of $110,000, each bearing interest at 10% annually and calling for
conversion at a 30% discount in the event of a financing event exceeding
$1,000,000.
In April 2020, the Company issued three one-year convertible notes for total
proceeds of $150,000, bearing interest at rates ranging from 10-12% per annum
and calling for conversion at a 30% discount in the event of a financing event
exceeding $1,000,000.
In June 2020, the Company issued a one-year convertible note for total proceeds
of $50,000, bearing interest at 12% per annum and calling for conversion at a
30% discount in the event of a financing event exceeding $1,000,000.
In July 2020, the Company issued a one-year convertible note for total proceeds
of $25,000, bearing interest at 10% per annum and calling for conversion at a
30% discount in the event of a financing event exceeding $1,000,000.
In August 2020, the Company issued three one-year convertible notes for total
proceeds of $175,000, each bearing interest at 10% per annum and calling for
conversion at a 30% discount in the event of a financing event exceeding
$1,000,000.
In December 2020, the Company issued five one-year convertible notes for total
proceeds of $110,000, each bearing interest at 15% per annum and calling for
conversion at a 30% discount in the event of a financing event exceeding
$1,000,000.
During the twelve months ending December 31, 2021, the Company estimates it will
need approximately $420,000 to pursue business opportunities. The Company
currently generates limited revenues from its edge computing offerings, but the
industry has many competitors, and is seeking to expand into the data center
hardware business. There can be no assurances that the Company will be
successful in its efforts to generate new revenue or grow its existing revenue
streams. Furthermore, while the Company has generated income from the use of
idle resources to mine cryptocurrency, the availability and cost of using
resources for such purposes and the volatile cryptocurrency markets may impede
the Company's ability to generate additional cash inflows. Other than the
foregoing, the Company does not know of any trends, events or uncertainties that
have had, or are reasonably expected to have, a material impact on sales,
revenues or income from continuing operations, or liquidity and capital
resources.
16
Short Term
On a short-term basis, we anticipate continued generation of edge computing
revenues and the use of idle capacity to mine cryptocurrency. Based on prior
history, we anticipate that short-term revenues and other cryptocurrency-related
income will be insufficient to satisfy current and future liabilities as we
continue to pursue expansion of our current customer base and expand into the
hardware business.
No commitments to provide additional funds have been made by our management or
other stockholders. Accordingly, there can be no assurance that any additional
funds will be available to us to allow it to cover our expenses as they may be
incurred.
Capital Resources
Our capital resources currently consist of cash, advances from and expenses paid
on the Company's behalf by the CEO and President, convertible debt financing,
and the sale of equity units.
Need for Additional Financing
We do not have sufficient capital to meet our cash needs. Nor do we have
sufficient capital to meet our short-term trade and debt obligations. We plan to
seek loans or equity placements to cover such cash needs. Once full business
operations commence, our needs for additional financing will likely face
substantial increases.
Within the next twelve months we will need to secure an additional $5,000,000 in
financing to fully implement our plan of operations. After the twelve-month
period we do not see a need to raise additional capital unless we identify other
assets to purchase.
No commitments have been made to provide additional funding by our management or
other stockholders. Accordingly, there can be no assurance that any additional
funds will be available to us to allow it to cover our expenses as they may be
incurred.
Critical Accounting Policies
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of
three months or less as cash equivalents.
17
Impairment of Long-life Assets
In accordance with ASC Topic 360, the Company reviews its long-lived assets,
including property, plant and equipment, for impairment whenever events or
changes in circumstances indicate that the carrying amounts of the assets may
not be fully recoverable. If the total of the expected undiscounted future net
cash flows is less than the carrying amount of the asset, a loss is recognized
for the difference between the fair value and carrying amount of the asset.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Income Tax
The Company accounts for income taxes under ASC 740, "Income Taxes." Under ASC
740, deferred taxes are provided on a liability method whereby deferred tax
assets are recognized for deductible temporary differences and operating loss
carry-forwards and deferred tax liabilities are recognized for taxable temporary
differences. Temporary differences are the differences between the reported
amounts of assets and liabilities and their tax bases. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of management, it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. Deferred tax assets and liabilities are adjusted for the effects of
changes in tax laws and rates on the date of enactment.
Fiscal year
The Company employs a fiscal year ending December 31.
Net Income (Loss) per share
The net income (loss) per share is computed by dividing the net income (loss) by
the weighted average number of shares of common outstanding. Warrants, stock
warrants, and common stock issuable upon the conversion of the Company's
preferred stock (if any), are not included in the computation if the effect
would be anti-dilutive and would increase the earnings or decrease loss per
share.
Financial Instruments
The carrying value of the Company's financial instruments, including cash and
cash equivalents, as reported in the accompanying balance sheet, are stated at
fair value.
Stock-Based Compensation
The Company adopted the provisions of and accounts for stock-based compensation
using an estimate of value in accordance with the fair value method. Under the
fair value recognition provisions of this statement, stock-based compensation
cost is measured at the grant date based on the fair value of the award and is
recognized as expense on a straight-line basis over the requisite service
period, which generally is the vesting period. The Company elected the
modified-prospective method, under which prior periods are not revised for
comparative purposes. The valuation method applies to new grants and to grants
that were outstanding as of the effective date and are subsequently modified.
Fair Value of Financial Instruments
The carrying amount of accounts payable is considered to be representative of
respective fair values because of the short-term nature of these financial
instruments.
Revenue Recognition
The Company recognizes revenue under ASC 606, using the following five-step
model, which requires that the Company: (1) identify a contract with the
customer, (2) identify the performance obligations in the contract, (3)
determine the transaction price, (4) allocate the transaction price to
performance obligations and (5) recognize revenue as performance obligations are
satisfied. The Company's current and anticipated revenue streams consist of:
1. GPU as a Service- The Company owns and operates high performance servers to
provide hardware acceleration for rendering farms to process 3D and video
rendering and gaming. In addition, these multi-purpose servers produce
revenue from mining when the servers are not processing other jobs to ensure
zero idle time and have the ability to run AI and HPC processing as well.
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