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





General

History of Edge Data Solutions, Inc., a Delaware Corporation

EDGE DATA SOLUTIONS, INC. was incorporated in the State of Delaware on September 22, 2016 and commenced its current operations after its reverse acquisition on August 23, 2018. Extended discussion of EDGE's corporate history, including predecessor entities and affiliates, is incorporated by reference in the Company's Form 10-K filed on April 1, 2022.





Business Description

Edge Data Solutions, Inc., a Delaware Corporation, believes it is poised to be an industry-leading edge data center, cryptocurrency mining and cloud infrastructure provider. EDGE's unique Edge Performance Platform (EPP) brings sustainable immersion-cooled high-performance computing to where it is needed most.

Compared to air-cooled solutions, EDGE's EPP offers reduced carbon footprint and increased ROI through:





  ? Energy Efficiency - Environmentally friendly, lower PuE, lower operating costs
  ? Scalability - Easy, rapid and flexible deployment
  ? High-density - More computing power in a much smaller footprint
  ? Reduced CapEx - Longer equipment life, efficient structure
  ? Boosted Computing Power - Highly conducive environment for optimization
    without stressing equipment

EPP serves efficient immersion-cooled computing power for a variety of applications, including sustainable cryptocurrency mining, edge computing. Long-term, opting for EPP significantly reduces investment, and certain edge computing applications require less up-front investment.

Industries that will benefit from low-latency technology with a lower carbon footprint include cryptocurrency mining, public and private cloud providers, edge cloud providers, data centers, high-performance computing providers, virtual desktop infrastructure providers, telecom, cybersecurity and disaster recovery providers, streaming providers, artificial intelligence innovators, colleges, hospitals, governments, and enterprise blockchain infrastructure providers.





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Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. However, certain conditions raise substantial doubt about the Company's ability to do so. The Company has incurred substantial operating losses in its history and has an accumulated deficit of $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.





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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.





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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.





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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.

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