NOTES
TO FINANCIAL STATEMENTS
As
of March 31, 2020 (Unaudited) and for the Three Months Then Ended (Unaudited)
NOTE
1: ORGANIZATION AND NATURE OF OPERATIONS
EDGE
DATA SOLUTIONS, INC. (the “Company”), formerly Blockchain Holdings Capital Ventures, Inc. (formerly Southeastern Holdings,
Inc., formerly Safe Lane Systems, Inc.) was incorporated in the State of Colorado on September 10, 2013. Safe Lane Systems, Inc.
redomiciled to become a Delaware holding corporation in September of 2016. On September 22, 2016, Safe Lane Systems, Inc. formed
two wholly owned subsidiaries, SLS Industrial, Inc and Southeastern Holdings, Inc. (both Delaware corporations) and on September
30, 2016 completed a merger and reorganization in which Southeastern Holdings, Inc. (now Edge Data Solutions, Inc.) became the
holding company. On December 1, 2016, the Company spun off its wholly owned subsidiary, SLS Industrial, Inc., along with its assets
and liabilities, leaving Southeastern Holdings, Inc. as the only surviving entity.
On
August 23, 2018, the Company entered into a Bill of Sale and Assignment and Assumption Agreement with Blockchain Holdings, LLC
(“Blockchain”), pursuant to which the Company purchased all of the assets of Blockchain which are used in the business
of sourcing of blockchain mining equipment from various suppliers for their customers and also providing management of the equipment
hosted, mining pools and tech work on such equipment. The Company issued 300,000,000 (equivalent to 3,000,000 after the reverse
split) shares of its common stock, par value $.0001 to the members of Blockchain in exchange for the assets of Blockchain.
On
August 30, 2018 the Company changed its name to Blockchain Holdings Capital Ventures, Inc.
On
January 13, 2020, the Company changed its name to Edge Data Solutions, Inc.
Business
description
Edge
Data Solutions, Inc. (EDSI) is poised to be an industry leading decentralized edge datacenter and cloud infrastructure
company with several strategic advantages in the market. Our infrastructure supports streaming, network congestion, rendering,
gaming, visualization and 3D, AI Rendering, cloud computing, disaster recovery, and enterprise blockchain protocols. 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. Edge Data Solutions offers green, low-cost, secure
colocation and private data hosting to meet this demand for edge datacenters. Other technologies and sectors that are driving
the movement range from telecom, 5G, remote work force, retail, architecture, building and construction, design and engineering,
media and entertainment, healthcare and life sciences, academia, financial services, smart cities and self-driving cars. EDSI’s
datacenters will be strategically placed in locations to support both edge customers and areas of projected growth.
The modular design and ability to add additional datacenters in a specific location as needed preserves up front capital,
allowing for rapid deployment and scalability as business demand increases.
NOTE
2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America
(GAAP). The Company maintains the calendar year as its basis of reporting.
Use
of Estimates
The
preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those
estimates.
Cash
Equivalents and Concentration of Cash Balance
The
Company considers all highly liquid securities with an original maturity of less than three months to be cash equivalents. The
Company’s cash and cash equivalents in bank deposit accounts, at times, may exceed federally insured limits. As of March
31, 2020 and December 31, 2019, the Company’s cash balances did not exceed federally insured limits.
EDGE
DATA SOLUTIONS, INC. (Formerly Southeastern Holdings, Inc.)
NOTES
TO FINANCIAL STATEMENTS
As
of March 31, 2020 (Unaudited) and for the Three Months Then Ended (Unaudited)
Right
of Use Assets and Lease Liabilities
In
February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The standard requires lessees to recognize almost all
leases on the balance sheet as a Right-of-Use (“ROU”) asset and a lease liability and requires leases to be classified
as either an operating or a finance type lease. The standard excludes leases of intangible assets or inventory. The standard became
effective for the Company beginning January 1, 2019. Since the Company had no leases in place prior to or during 2019, the Company
has adopted ASC 842 prospectively and has applied it to its first lease agreement in 2020.
Under
ASC 842, the Company determines if an arrangement is a lease at inception. ROU assets and liabilities are recognized at commencement
date based on the present value of remaining lease payments over the lease term. For this purpose, the Company considers only
payments that are fixed and determinable at the time of commencement. As most of the Company’s leases do not provide an
implicit rate, the Company estimated the incremental borrowing rate in determining the present value of lease payments. The ROU
asset also includes any lease payments made prior to commencement and is recorded net of any lease incentives received. The Company’
lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise
such options.
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 range
from three to seven years.
As
of March 31, 2020, the Company’s property and equipment consisted of $29,540 of datacenter equipment, net of $81 of accumulated
depreciation. Depreciation expense for the three months ended March 31, 2020 was $81.
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 March
31, 2020, the Company determined that its long-lived assets have not been impaired.
Accounts
Payable and Accrued Liabilities
Accounts
payable consisted of $74,434 of liabilities incurred by the issuer prior to the merger as of each March 31, 2020 and 2019. The
remaining accounts payable of $102,568 and $88,926 as of March 31, 2020 and December 31, 2019, respectively, consisted of amounts
due for professional services and various other general and administrative expenses incurred after the acquisition.
As
of December 31, 2019, accrued expenses consisted of $1,811 of state and local taxes payable, $1,903 of accrued interest due to
a vendor and $7,266 of accrued interest on convertible debt. As of March 31, 2020, accrued expenses consisted of $1,811 of state
and local taxes payable, $2,374 of accrued interest due to a vendor and $4,665 of accrued interest on convertible debt.
As
of December 31, 2019, accrued liabilities included $41,000 of accrued consulting fees payable to entities owned by the CEO ($22,000
and $19,000, respectively). During the quarter ended March 31, 2020, the Company paid out the $41,000 of accrued compensation,
for accrued related party compensation payable of $0 as of March 31, 2020.
EDGE
DATA SOLUTIONS, INC. (Formerly Southeastern Holdings, Inc.)
NOTES
TO FINANCIAL STATEMENTS
As
of March 31, 2020 (Unaudited) and for the Three Months Then Ended (Unaudited)
Fair
Value of Financial Instruments
Financial
Accounting Standards Board (“FASB”) guidance specifies a hierarchy of valuation techniques based on whether the inputs
to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent
sources, while unobservable inputs reflect market assumptions. The hierarchy gives the highest priority to unadjusted quoted prices
in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level
3 measurement). The three levels of the fair value hierarchy are as follows:
Level
1 - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to
access at the measurement date. Level 1 primarily consists of financial instruments whose value is based on quoted market prices
such as exchange-traded instruments and listed equities.
Level
2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or
indirectly (e.g., quoted prices of similar assets or liabilities inactive markets, or quoted prices for identical or similar assets
or liabilities in markets that are not active).
Level
3 - Unobservable inputs for the asset or liability. Financial instruments are considered Level 3 when their fair values are determined
using pricing models, discounted cash flows or similar techniques and at least one significant model assumption or input is unobservable.
The
carrying amounts reported in the balance sheets approximate their fair value.
Revenue
Recognition
The
Company recognizes revenue under ASC 606, using the following five-step model, which requires that the Company: (1) identify a
contract with the customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4)
allocate the transaction price to performance obligations and (5) recognize revenue as performance obligations are satisfied.
The Company’s current and anticipated revenue streams consist of:
|
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. 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.
|
During
the quarter ended March 31, 2020, the Company recognized no revenue. While the Company generated limited revenue in the second
quarter of 2020, there can be no assurances that service lines will generate satisfactory revenue or continue to generate revenue.
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.
On
February 18, 2020, the Company issued 50,000 shares of common stock to an advisor and recorded $9,500 of stock-based compensation
expense.
Subsequently,
on May 6, 2020, the Company agreed to issue 60,000 shares of common stock to a consultant for services rendered.
EDGE
DATA SOLUTIONS, INC. (Formerly Southeastern Holdings, Inc.)
NOTES
TO FINANCIAL STATEMENTS
As
of March 31, 2020 (Unaudited) and for the Three Months Then Ended (Unaudited)
Income
Taxes
The
Company is subject to taxation in various jurisdictions and may be subject to examination by various authorities.
Deferred
tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets, including tax loss and
credit carryforwards, and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of
a change in tax rates is recognized in income in the period that includes the enactment date. Deferred income tax expense represents
the change during the period in the deferred tax assets and deferred tax liabilities. The components of the deferred tax assets
and liabilities are individually classified as current and non-current based on their characteristics. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the
deferred tax assets will not be realized.
The
Company recognizes the amount of taxes payable or refundable for the current year and recognizes deferred tax liabilities and
assets for the expected future tax consequences of events and transactions that have been recognized in the Company’s financial
statements or tax returns.
NOTE
3: GOING CONCERN
As
shown in the accompanying financial statements as of March 31, 2020, the Company had $479 of cash and $30,475 of current assets,
as compared to total current liabilities of $492,909, has incurred substantial operating losses, and had an accumulated deficit
of $655,417. Furthermore, the Company’s revenue history has been limited and unstable, and there can be no assurances of
future revenues.
Given
these factors, the Company is dependent on financing from outside parties, and management intends to pursue outside capital through
debt and equity vehicles. There is no assurance that these efforts will materialize or be successful or sufficient to fund operations
and meet obligations as they come due.
The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern, however, the
above conditions raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements
do not include any adjustments to reflect the possible future effect on the recoverability and classification of assets or the
amounts and classifications of liabilities that may result should the Company be unable to continue as a going concern.
NOTE
4: STOCKHOLDERS’ DEFICIENCY
The
Company has designated ten million (10,000,000) shares of its preferred stock, par value $0.001 as Class A Preferred Super Majority
Voting Stock (“Class A”). The Class A shares have the right to vote upon matters submitted to the holders of common
stock, par value $0.0001 of the Company. Class A shares have a vote equal to the number of shares of common stock of the Company
which would give the holders of the Class A shares a vote equal to sixty percent (60%) of the common stock. This vote shall be
exercised pro-rata by the holders of the Class A. The Company shall have the right to redeem, in its sole and absolute discretion,
at any time one (1) year after the date of issuance of such Class A shares, all or any portion of the shares of Class A at a price
of one cent ($0.01) per share. On October 4, 2018, the Company issued a total of 7,000,000 Class A shares to its CEO and COO as
stock-based compensation for services rendered.
The
Company has not currently authorized a Class B designation of Preferred Stock.
EDGE
DATA SOLUTIONS, INC. (Formerly Southeastern Holdings, Inc.)
NOTES
TO FINANCIAL STATEMENTS
As
of March 31, 2020 (Unaudited) and for the Three Months Then Ended (Unaudited)
The
Company has designated ten million (10,000,000) shares of its preferred stock, par value $0.001 as Class C Convertible Preferred
Non-Voting Stock (“Class C”). Each share of Class C shall be convertible into five (5) shares of common stock. The
holders of Class C shall be entitled to receive the same dividend as the holders of the common stock and such dividend shall be
paid pro rata per share on a fully converted basis. The holders of Class C shall have piggyback registration rights. The Company
shall have the right to redeem, in its sole and absolute discretion, at any time after five (5) years, all or any portion of the
shares of Class C at a price of five dollars ($5.00) per share. The Class C shares shall be considered to have a junior liquidation
preference to Class A shares and a senior dividend preference to Class A shares. On October 4, 2018, the Company issued a total
of 7,000,000 Class C shares to its CEO and COO as stock-based compensation for services rendered. Subsequently, in April 2019,
the Company filed an amended and restated certificate of designation, which restricts the CEO and COO from converting the 7,000,000
shares into common stock for 36 months from the issuance date.
On
January 20, 2020, the Company purchased datacenter equipment components for 32,000 shares of common stock and capitalized $6,083
based on the estimated value of surrounding equity transactions.
In
January 2020, the Company issued 627,862 equity units at $0.25 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. Each equity unit consists of one 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. The
Company may call the warrants in the event its common stock trades for $1.00 or more per share for ten out of fifteen consecutive
trading days. In connection with these transactions, the Company assigned $119,665 of value to the common stock and $37,301 to
the warrants using the Black-Scholes model with the following inputs:
Risk-free interest rate
|
|
|
1.44%-1.51
|
%
|
Expected life of warrants
|
|
|
3 years
|
|
Annualized volatility
|
|
|
60
|
%
|
Dividend rate
|
|
|
0
|
%
|
On
February 18, 2020, the Company issued 50,000 fully-vested shares of common stock to an advisor and recognized $9,500 of stock-based
compensation expense associated with the grant.
As
of March 31, 2020, the Company was authorized to issue 150,000,000 shares of common stock. All common stock shares have full dividend
and voting rights. However, it is not anticipated that the Company will be declaring dividends in the foreseeable future.
As
of March 31, 2020, the Company had 6,361,079 common shares outstanding.
As
of March 31, 2020, 7,000,000 shares of Class A Preferred Stock and 7,000,000 shares of Class C Preferred Stock were issued and
outstanding.
NOTE
5: RELATED PARTY TRANSACTIONS
During
the three months ended March 31, 2020, the Company paid out previously accrued consulting fees payable to the CEO and COO of $22,000
and $19,000, respectively, and paid $6,600 and $1,955 in health insurance premiums for the CEO and COO, respectively. The Company
does not currently have consulting or employment agreements with these individuals, and as a result, these fees may fluctuate
from time to time. While the Company believes these individuals were appropriately classified as contractors and has accordingly
neither paid nor accrued payroll taxes, these payments may result in future tax liabilities should the Internal Revenue Service
deem these individuals to be employees. As of March 31, 2020, the Company owed $0 of outstanding compensation to the CEO and COO.
During
the three months ended March 31, 2020, the Company’s CEO and COO paid expenses on behalf of the Company totaling $47,804
and $30,311, and the Company repaid $54,749 and $25,000 of related party advances, respectively. As of March 31, 2020, the Company
was indebted to the CEO for $52,295 and to the COO for $34,501, respectively, for expenses paid on behalf of the company.
EDGE
DATA SOLUTIONS, INC. (Formerly Southeastern Holdings, Inc.)
NOTES
TO FINANCIAL STATEMENTS
As
of March 31, 2020 (Unaudited) and for the Three Months Then Ended (Unaudited)
NOTE
6: CONVERTIBLE NOTES
As
discussed in Note 4, in January, two individuals converted a total of $100,000 of outstanding principal and $6,966 of accrued
interest into 427,862 equity units, each consisting of one common share and a three-year warrant to purchase two shares of common
stock at $0.50 per share, in connection with additional subscriptions totaling $50,000 to purchase 200,000 of these equity units.
In
February 2020, the Company issued two short-term convertible notes for total proceeds of $110,000. These notes mature one year
from execution and accrue interest at a rate of 10% per annum. Conversion terms call for conversion of principal and accrued interest
at 70% of the stock price upon closing any offering resulting in aggregate financing of at least $1,000,000.
The
Company evaluated the convertible notes in light of ASC 470 and determined that a beneficial conversion feature exists. However,
given the contingent nature of the holder’s option and the lack of a market for the Company’s stock, the Company concluded
that such a feature is not currently ascertainable and allocated the full principal amount to the convertible note liability.
During
the three months ended March 31, 2020, the Company recognized $4,310 of interest expense on convertible debt, net of $6,966 converted
interest, for outstanding accrued interest of $4,666 as of March 31, 2020.
NOTE
7: SIGNIFICANT AGREEMENTS
On
January 29, 2020, the Company entered into a master service agreement with Charter Trading Corporation (“Charter”),
a Texas company, under which Charter will provide materials and various engineering and design services in connection with the
Company’s development of planned datacenters. The Company has not yet realized any financial impacts pertaining to this
agreement.
Effective
March 1, 2020, the Company entered into a consulting agreement with a capital formation consultant, with the intent that the consultant
will make introductions to potential capital sources. The consulting agreement calls for a monthly cash fee of $10,000 for the
first six months and 100,000 shares of restricted common stock upon the earlier of (a) closing of $500,000 of debt or equity financing
or (b) the second agreement renewal. Upon the earlier of (a) a $2,500,000 debt or equity financing or (b) the second agreement
renewal, the consultant’s base compensation will increase to $15,000 per month. In the event the Company achieves at least
$2,500,000 of debt or equity funding, the consultant will receive 250,000 fully vested warrants to purchase shares of the Company’s
common shares at $0.25 each for the next three years. The Company may, at the option of the Board, issue additional equity as
an annual performance bonus.
NOTE
8: FINANCE LEASE
On
March 27, 2020, the Company entered into a 36-month lease for datacenter 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.
EDGE
DATA SOLUTIONS, INC. (Formerly Southeastern Holdings, Inc.)
NOTES
TO FINANCIAL STATEMENTS
As
of March 31, 2020 (Unaudited) and for the Three Months Then Ended (Unaudited)
As
of March 31, 2020, lease-related assets and liabilities included:
Assets
|
|
|
|
|
Prepaid expense
|
|
$
|
3,140
|
|
Right of use asset - finance lease
|
|
|
38,895
|
|
Security deposit
|
|
|
7,753
|
|
Total lease-related assets
|
|
$
|
49,788
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Lease liabiltity - finance, current portion
|
|
$
|
11,363
|
|
Lease liabiltity - finance, non-current portion
|
|
|
26,240
|
|
Total lease-related liabilities
|
|
$
|
37,603
|
|
Future
maturities of the lease liability are as follows:
2020
|
|
$
|
8,374
|
|
2021
|
|
|
12,500
|
|
2022
|
|
|
14,186
|
|
2023
|
|
|
2,543
|
|
Total future maturities
|
|
$
|
37,603
|
|
NOTE
9: ACQUISITION DEPOSITS
During
the three months ended March 31, 2020, the Company issued $13,500 of payments in connection with a prospective acquisition of
the assets of Blockchain Resources Corp. While the transaction has not yet closed, the Company anticipates issuing significant
equity and is still negotiating terms of the agreement as of the date of this filing. As such, the Company recorded the $13,500
as acquisition deposits as of March 31, 2020.
NOTE
10: CONCENTRATIONS, COMMITMENTS AND CONTINGENCIES
As
of and for the three months ended March 31, 2020, the Company determined that there were no significant concentrations, commitments
and contingencies.
NOTE
11: RECENT ACCOUNTING PRONOUNCEMENTS
In
February 2016, the FASB issued ASU 2016-02, “Leases” (Topic 842). This ASU requires a lessee to recognize a right-of-use
asset and a lease liability under most operating leases in its balance sheet. The ASU is effective for annual and interim periods
beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company
has adopted this accounting policy on January 1, 2019 and applied the standard to its current capital lease.
Management
does not believe that any other 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
April 9, 2020, the Company entered into a one-year convertible promissory note for $50,000. The note bears 10% interest per annum
and is convertible at a 30% discount in the event of a $1,000,000 or greater financing.
On
April 22, 2020, the Company entered into two convertible promissory notes, each for $50,000 and maturing in one year. These notes
bear 12% interest per annum and are convertible at a 30% discount in the event of a $1,000,000 or greater financing.
On
May 6, 2020, the Company agreed to issue 60,000 shares of common stock to a consultant in exchange for services rendered.
CAUTIONARY
STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This
report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of
1995. These statements are subject to risks and uncertainties and are based on the beliefs and assumptions of management and information
currently available to management. The use of words such as “believes”, “expects”, “anticipates”,
“intends”, “plans”, “estimates”, “should”, “likely” or similar expressions,
indicates a forward-looking statement. In connection with, and because we desire to take advantage of, the “safe harbor”
provisions of the Private Securities Litigation Reform Act of 1995, we caution readers regarding certain forward looking statements
in the following discussion and elsewhere in this report and in any other statement made by, or on our behalf, whether or not
in future filings with the Securities and Exchange Commission. Forward-looking statements are statements not based on historical
information and which relate to future operations, strategies, financial results or other developments. Forward looking statements
are necessarily based upon estimates and assumptions that are inherently subject to significant business, economic and competitive
uncertainties and contingencies, many of which are beyond our control and many of which, with respect to future business decisions,
are subject to change. These uncertainties and contingencies can affect actual results and could cause actual results to differ
materially from those expressed in any forward-looking statements made by, or on our behalf. We disclaim any obligation to update
forward-looking statements.
The
identification in this report of factors that may affect our future performance and the accuracy of forward-looking statements
is meant to be illustrative and by no means exhaustive. All forward-looking statements should be evaluated with the understanding
of their inherent uncertainty.