NOTES
TO FINANCIAL STATEMENTS
As
of March 31, 2022 (Unaudited) and for the Three 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
next-generation immersion-cooled high-performance computing to where it is needed most.
EPP
offers efficient next-generation 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, 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 March 31, 2022, and December
31, 2021, the Company’s cash balances exceeded federal insurance limits by $1,267,613
and $581,209,
respectively.
EDGE
DATA SOLUTIONS, INC.
NOTES
TO FINANCIAL STATEMENTS
As
of March 31, 2022 (Unaudited) and for the Three Months Then Ended (Unaudited)
Right
of Use Assets and Lease Liabilities
In
February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The standard requires lessees to recognize almost all leases on the
balance sheet as a Right-of-Use (“ROU”) asset and a lease liability and requires leases to be classified as either an operating
or a finance type lease. The standard excludes leases of intangible assets or inventory. The standard became effective for the Company
beginning January 1, 2019. Since the Company had no leases in place prior to or during 2019, the Company has adopted ASC 842 prospectively
and has applied it to its first lease agreement in 2020.
Under
ASC 842, the Company determines if an arrangement is a lease at inception. ROU assets and liabilities are recognized at commencement
date based on the present value of remaining lease payments over the lease term. For this purpose, the Company considers only payments
that are fixed and determinable at the time of commencement. As most of the Company’s leases do not provide an implicit rate, the
Company estimated the incremental borrowing rate in determining the present value of lease payments. The ROU asset also includes any
lease payments made prior to commencement and is recorded net of any lease incentives received. The Company’ lease terms may include
options to extend or terminate the lease when it is reasonably certain that the Company will exercise such options.
Inventory
The
Company values inventory at its original cost, adjusted to approximate the lower of actual cost or estimated net realizable value using
assumptions about future demand and market conditions. In determining excess or obsolescence reserves for its products, the Company considers
assumptions such as changes in business and economic conditions, other-than-temporary decreases in demand for its products, and changes
in technology or customer requirements. In determining the lower of cost or net realizable value reserves, the Company considers assumptions
such as recent historical sales activity and selling prices, as well as estimates of future selling prices. The Company fully reserves
for inventories and non-cancellable purchase orders for inventory deemed obsolete. The Company performs periodic reviews of inventory
items to identify excess inventories on hand by comparing on-hand balances and non-cancellable purchase orders to anticipated usage using
recent historical activity as well as anticipated or forecasted demand. If estimates of customer demand diminish further or market conditions
become less favorable than those projected by the Company, additional inventory carrying value adjustments may be required.
As
of March 31, 2022 and December 31, 2021, the Company’s had $68,159
and $11,530
of inventory and had outstanding deposits of
$1,216,941
and $2,161,683
with vendors for the purchase of equipment for
resale to customers, all respectively. As of March 31, 2022 and December 31, 2021, respectively, these deposits consisted of:
|
● |
$36,900
and $34,000 of equipment in transit and not yet delivered |
|
● |
$1,180,041
and $2,127,683
of equipment in production and not yet shipped
or delivered to customers |
As
of March 31, 2022 and December 31, 2021, remaining costs of in-production equipment not yet shipped totaled $1,531,320 and $3,951,547,
respectively. Terms with the Company’s vendors
call for full payment prior to shipment when equipment is ready for delivery.
Property
and Equipment
Property
and equipment are stated at cost net of accumulated depreciation and amortization, and accumulated impairment, if any. Depreciation and
amortization of property and equipment is provided using the straight-line method over estimated useful lives, which are all currently
estimated at three years.
As
of March 31, 2022 and December 31, 2021, the Company’s property and equipment consisted of $102,762 and $84,133 of computing equipment,
net of $52,273 and $16,641 of accumulated depreciation, all respectively. Depreciation expense for three months ended March 31, 2022
and 2021 was $7,236 and $6,978, respectively.
Long-Lived
Assets
The
Company evaluates the recoverability of its long-lived assets whenever events or changes in circumstances have indicated that an asset
may not be recoverable. Long-lived assets are grouped with other assets at the lowest level for which identifiable cash flows are largely
independent of the cash flows of other groups of assets and liabilities. If the sum of the projected undiscounted cash flows is less
than the carrying value of the assets, the assets are written down to the estimated fair value. As of March 31, 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 March 31, 2022 and December
31, 2021, respectively. The remaining accounts payable of $99,325 and $44,174 as of March 31, 2022 and December 31, 2021, respectively,
consisted of amounts due for professional services and various other general and administrative expenses incurred after the acquisition.
As
of March 31, 2022 and December 31, 2021, accrued liabilities consisted of the following:
SCHEDULE
OF ACCRUED LIABILITIES
| |
2022 | | |
2021 | |
| |
As
of | |
| |
March
31, | | |
December
31, | |
| |
2022 | | |
2021 | |
| |
(Unaudited) | | |
| |
State
and local tax liabilities | |
$ | 254,113 | | |
$ | 201,559 | |
Accrued
interest | |
| 31,563 | | |
| 119,889 | |
Payroll
liabilities | |
| 108,621 | | |
| 117,976 | |
Reserve
for Sales Returns | |
| 54,643 | | |
| - | |
Accrued
expenses | |
| - | | |
| 6,967 | |
Accrued
commissions | |
| 29,974 | | |
| 5,553 | |
| |
| | | |
| | |
Total
accrued liabilities | |
$ | 478,914 | | |
$ | 451,944 | |
EDGE
DATA SOLUTIONS, INC.
NOTES
TO FINANCIAL STATEMENTS
As
of March 31, 2022 (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
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:
|
1. |
Data
center infrastructure and equipment sales – The Company resells immersion-cooled data center products, equipment and project
management services. Performance obligations include: |
|
|
|
|
|
● |
Delivery
of physical products |
|
|
● |
Provision
of any agreed-upon project management and other services |
|
|
● |
Conclusion
of defined period for any support services |
|
|
|
|
|
2. |
Computing
– During the interim period ended March 31, 2021, the Company operated high performance servers to provide hardware
acceleration for rendering farms to process 3D 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. The Company’s performance obligation with respect to computing revenue is the provision of specified computing services
to the client. The Company did not generate revenue from cloud computing services during the three months ended March 31,
2022. |
During
the three months ended March 31, 2022 and 2021, the Company recognized $0 and $16,774 of revenue from its customers’ usage of computing
credits, with associated costs of $0 and $17,650, 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 March 31, 2022 and December 31, 2021, respectively.
As
of March 31, 2022 and December 31, 2021, the Company recognized $2,015,554
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 $1,216,941
and $2,161,683
for product to be delivered, all respectively.
Crypto
Assets Held
The
crypto assets held by the Company, with no qualifying fair value hedge, are accounted for as intangible assets with indefinite useful
lives and are initially measured at cost. Crypto assets accounted for as intangible assets are not amortized, but assessed for impairment
annually, or more frequently, when events or changes in circumstances occur indicating that it is more likely than not that the indefinite-lived
asset is impaired. Impairment exists when the carrying amount exceeds its fair value, which is measured using the quoted price of the
crypto asset at the time its fair value is being measured. Impairment expense is reflected in other operating expense in the consolidated
statements of operations. The Company assigns costs to transactions on a first-in, first-out basis.
As
of March 31, 2022 and December 31, 2021, the carrying value of crypto assets held by the Company was $3,940 and $3,940, respectively.
Cryptocurrency
Income
The
Company records cryptocurrency generated, net of fees and valuation adjustments, as other income and classifies the cryptocurrency as
crypto assets held at cost in its balance sheets. When the company sells its cryptocurrencies, it recognizes a gain or loss for the difference
between original cost and the selling price, net of fees. The Company generated no cryptocurrency income and did not record an impairment
loss during the three months ended March 31, 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
Income (Loss) per Share
The
Company’s potentially dilutive securities, common stock warrants, have been included in the computation of diluted net income per
share for the six-month period ended June 30, 2021. Net income per share for the six-month period ended June 30, 2021 was calculated
by dividing the net income by the weighted-average number of common shares outstanding for the period determined using the treasury-stock
method and the if-converted method.
Basic
net loss per 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 months ended March 31, 2021, the potentially dilutive securities 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 income per share
computation for the three months ended March 31, 2022:
SCHEDULE OF NET INCOME (LOSS) PER SHARE
| |
Net
Income | | |
Weighted
Average Common Shares | | |
Per
Share | |
| |
(Numerator) | | |
(Denominator | | |
Amount | |
| |
| | |
| | |
| |
Three
Months Ended March 31, 2022 (Unaudited) | |
| | | |
| | | |
| | |
Basic
Income Per Share | |
| | | |
| | | |
| | |
Income
available to common stockholders | |
$ | 1,209,791 | | |
| 9,787,605 | | |
$ | 0.12 | |
Diluted
Income Per Share | |
| | | |
| | | |
| | |
Assumed
conversion of Class C preferred shares | |
| | | |
| 7,000,000 | | |
| | |
Income
available to common stockholders (diluted) | |
$ | 1,209,791 | | |
| 16,787,605 | | |
$ | 0.07 | |
EDGE
DATA SOLUTIONS, INC.
NOTES
TO FINANCIAL STATEMENTS
As
of March 31, 2022 (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, 2022, the Company had $1,517,613
of cash, has incurred substantial operating losses,
and had an accumulated deficit of $1,129,918.
Furthermore, the Company’s revenue history
is limited, 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’ DEFICIENCY
The
Company has designated ten million (10,000,000) shares of its preferred stock, par value $0.001 as Class A Preferred Super Majority Voting
Stock (“Class A”). The Class A shares have the right to vote upon matters submitted to the holders of common stock, par value
$0.0001 of the Company. Class A shares have a vote equal to the number of shares of common stock of the Company which would give the
holders of the Class A shares a vote equal to sixty percent (60%) of the common stock. This vote shall be exercised pro-rata by the holders
of the Class A. The Company shall have the right to redeem, in its sole and absolute discretion, at any time one (1) year after the date
of issuance of such Class A shares, all or any portion of the shares of Class A at a price of one cent ($0.01) per share. On October
4, 2018, the Company issued a total of 7,000,000 Class A shares to its CEO and President (formerly COO) as stock-based compensation for
services rendered.
The
Company has not currently authorized a Class B designation of Preferred Stock.
EDGE
DATA SOLUTIONS, INC.
NOTES
TO FINANCIAL STATEMENTS
As
of March 31, 2022 (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”). As amended and filed with the State of Delaware on December 17, 2020, each share of Class C shall be 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’s Board 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.
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.
The
following table sets forth the Company’s warrant activity through March 31, 2022:
SCHEDULE
OF WARRANTS ACTIVITY
| |
Warrants | | |
Shares
Under Warrant | | |
Term | | |
Exercise
Price | | |
Remaining
Life | |
Balance,
December 31, 2021 | |
| 627,862 | | |
| 1,255,724 | | |
| |
| |
| | | |
| |
|
| |
| | | |
| | | |
| |
| |
| | | |
| |
|
Class
B Warrants Issued as part of equity units from debt conversions – February 28, 2022 | |
| 1,824,751 | | |
| 1,824,751 | | |
| 3
years |
| |
$ | 1.00 | | |
| 35
months |
|
| |
| | | |
| | | |
| |
| |
| | | |
| |
|
Balance,
March 31, 2022 (Unaudited) | |
| 2,452,613 | | |
| 3,080,475 | | |
| |
| |
| | | |
| |
|
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:
|
● |
Time
to Maturity: 3 years |
|
● |
Risk-Free
Rate: 1.68% |
|
● |
Volatility:
103% |
As
of March 31, 2022, 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, 2022, the Company had 10,983,832 common shares outstanding.
As
of March 31, 2022, 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, 2022, the Company recognized compensation expense totaling $286,250
and $305,501
to its CEO and President, respectively, and $36,500
to Synergia CPA, LLC and $3,500 to Synergia
Technology Services, LLC, both entities fully owned and controlled by the CFO, for contract CFO and other finance and IT services
furnished to Edge.
During
the three months ended March 31, 2022, the Company’s CEO, President and CFO paid expenses on behalf of the Company totaling $20,634,
$11,007
and $12,921,
and the Company repaid $20,778,
$17,162
and $14,217
of related party advances, including previous
amounts advanced to the company, all respectively. Of amounts repaid, $1,297 pertained to accounts payable due to Synergia Technology
Services, LLC. As of March 31, 2022, the Company was indebted to the CEO for $3,014,
the President for $2,655
and the CFO for $0,
all respectively, for expenses paid on behalf of the company.
EDGE
DATA SOLUTIONS, INC.
NOTES
TO FINANCIAL STATEMENTS
As
of March 31, 2022 (Unaudited) and for the Three 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 March 31, 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 months ended March 31, 2022, the Company recognized $19,872 of interest expense on convertible debt. As of March 31, 2022 and
December 31, 2021, outstanding accrued interest on convertible debt totaled $31,563 and $149,389, respectively.
NOTE
7: CONCENTRATIONS, COMMITMENTS AND CONTINGENCIES
During
the three months ended March 31, 2022, one customer comprised 92%
of data center solutions revenues:
Two
vendors also comprised 91%
of the Company’s data center equipment and
infrastructure purchases:
|
● |
Vendor
A: 66% |
|
● |
Vendor
B: 25% |
The
loss of or disruption to the Company’s relationships with these customers or vendors may be detrimental to the Company’s
operations. Management has determined that no other significant concentrations, commitments, or contingencies existed as of March 31,
2022.
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 March 31, 2022, the Company paid a total of $3,876, including $3,385 of principal and $491 of interest, to the
lessor and recognized $3,241 of lease expense for the three months ended March 31, 2022.
EDGE
DATA SOLUTIONS, INC.
NOTES
TO FINANCIAL STATEMENTS
As
of March 31, 2022 (Unaudited) and for the Three Months Then Ended (Unaudited)
As
of March 31, 2022, lease-related assets and liabilities consisted of:
SCHEDULE
OF LEASE RELATED ASSETS AND LIABILITIES
Assets | |
| | |
Prepaid
expense | |
$ | 1,047 | |
Right
of use asset - finance lease | |
| 12,965 | |
Security
deposit | |
| 7,753 | |
Total
lease-related assets | |
$ | 21,765 | |
| |
| | |
Liabilities | |
| | |
Lease
liability - finance, current portion | |
$ | 13,371 | |
Lease
liability - finance, non-current portion | |
| - | |
Total
lease-related liabilities | |
$ | 13,371 | |
Future
maturities of the lease liability are as follows:
SCHEDULE
OF MATURITIES OF LEASE LIABILITY
| |
| | |
2022
(Q2-Q4) | |
$ | 10,828 | |
2023 | |
| 2,543 | |
Total
future maturities | |
$ | 13,371 | |
EDGE
DATA SOLUTIONS, INC.
NOTES
TO FINANCIAL STATEMENTS
As
of March 31, 2022 (Unaudited) and for the Three Months Then Ended (Unaudited)
NOTE
9: SIGNIFICANT AGREEMENTS
On
December 2, 2021, the Company entered into an agreement with a customer, under which Edge will 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:
|
● |
$2,990,564 due upon execution. |
|
● |
$2,840,564
plus applicable sales tax, due 30 days from execution. |
|
● |
$3,787,418 due prior to final shipment of the equipment. |
In
March 2022, the total amount of the contract was reduced by $86,347 as a result of a change order.
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. Due to the totality of circumstances behind the delays, management believes that Edge will not
realize any penalties. However, in the event the Company does incur penalties, management estimates the Company’s exposure to such
penalties could range from $290,000 to $360,000, as of the date of this filing.
Under
this agreement, Edge 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, Edge 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,
and the Company currently estimates that delivery
of the equipment will conclude in May 2022.
NOTE
10: INVESTMENTS IN PROSPECTIVE JOINT VENTURES
From
January through March 2022, the Company made total payments of $101,428 for data center related equipment and labor and installation
costs for data center construction in progress for the following two sites:
| ● | Site
A (Colorado Springs, Colorado) - $72,741 |
| ● | Site
B (Carlsbad, California) - $28,687 |
Terms
of the ventures have not yet been formalized, but management anticipates that assets from the ventures will be rolled into legal entities,
with Edge holding approximately 50% in ownership interests and participate at approximately 50% of profits and losses from the resulting
entities. The parties have informally agreed to contribute 50% of the costs toward bringing the sites live. Edge anticipates that these
sites will be used for new product rollouts and research and development.
Given
the prospective ownership interest and degree of control, management believes these joint ventures fall under the scope of ASC 323 and
should be accounted for as equity method investments. As a result, Edge has accounted for amounts invested at cost and will adjust the
investments for distributions and any impairment in future periods and account for Edge’s share of any profits and losses in the
Statement of Operations.
During
the three months ended March 31, 2022, neither of the ventures recorded profits or losses and there were no distributions, as the sites
were not yet in service. Furthermore, management concluded that the investments were not impaired as of March 31, 2022. As of March 31,
2022, these investments totaled $101,428.
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
April 4, 2022, in connection with an employment agreement, the Company agreed to issue 50,000 fully vested common shares and 200,000
options to purchase common stock at $1.00 per share, vesting ratably over 24 months.
On
April 5, 2022, the Company entered into an agreement with NewStar Media, LLC (“NewStar”) under which NewStar will provide
public relations services to the Company. Under the agreement, the Company paid a one-time conference management fee of $17,500
and will pay a monthly retainer of $12,500,
with the first and last month’s retainer due on April 8, 2022. On May 12, 2022, the Company further engaged NewStar to perform
website-related work for $60,000, with three payments of $20,000 each due based on project milestones over the 45-day duration of the
project.
On
April 21, 2022, the Company entered into a consulting agreement with Greengate Consulting, LLC (“Greengate”) under which
Greengate will provide management, engineering, real estate and other services relevant to Edge’s business for a retainer
of $16,000
per month. In connection with this agreement,
the Company also appointed Ismael Fernandez, Greengate’s owner, as Chairman of the Company’s Advisory Board for additional
compensation of $2,500
per month and the issuance of 100,000
fully vested shares of Edge’s common stock.
On
May 13, 2022, the Company entered into a Letter of Intent with SouthStar Financial, LLC (“SouthStar”) to provide purchase
order financing. Upon closing, the financing arrangement will provide a total advance line of $2,500,000, under the following terms:
| ● | Accounts
receivable financing: Up to 80% of accounts receivable may be financed at a rate of 1.65%
for first 25-day period, 0.95% for every 15-day period thereafter; |
| ● | Purchase
order financing: Fee of 2.25% for every 15-day period an invoice is financed; |
| ● | Collateral:
SouthStar will have a first security interest in all of the Company’s accounts receivable
and a blanket interest in the other assets of the Company for amounts financed; |
| ● | Other
fees: 0.25% is applied to the face amount of each advance as credit insurance; |
| ● | Financial
Covenants: The Company is required to submit monthly financial statements and other pertinent
financial information ten (10) days after the close of the prior month. |
Management
has evaluated significant subsequent events through the date these financial statements were available to be issued and has identified
no other significant events requiring further disclosure.
CAUTIONARY
STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This
report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.
These statements are subject to risks and uncertainties and are based on the beliefs and assumptions of management and information currently
available to management. The use of words such as “believes”, “expects”, “anticipates”, “intends”,
“plans”, “estimates”, “should”, “likely” or similar expressions, indicates a forward-looking
statement. In connection with, and because we desire to take advantage of, the “safe harbor” provisions of the Private Securities
Litigation Reform Act of 1995, we caution readers regarding certain forward looking statements in the following discussion and elsewhere
in this report and in any other statement made by, or on our behalf, whether or not in future filings with the Securities and Exchange
Commission. Forward-looking statements are statements not based on historical information and which relate to future operations, strategies,
financial results or other developments. Forward looking statements are necessarily based upon estimates and assumptions that are inherently
subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control and many
of which, with respect to future business decisions, are subject to change. These uncertainties and contingencies can affect actual results
and could cause actual results to differ materially from those expressed in any forward-looking statements made by, or on our behalf.
We disclaim any obligation to update forward-looking statements.
The
identification in this report of factors that may affect our future performance and the accuracy of forward-looking statements is meant
to be illustrative and by no means exhaustive. All forward-looking statements should be evaluated with the understanding of their inherent
uncertainty.