UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x(Mark one)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 19341933
For the quarterly period ended December 31, 2012FOR THE QUARTERLY PERIOD ENDED September 30, 2022
OR
o☐ TRANSITION REPORT PURSUANT TOUNDER SECTION 13 OR 15(d)15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period fromFOR THE TRANSITION PERIOD FROM __________ toTO __________.
Commission File Number: 333-174581Number 000-56448
SOLLENSYS CORP.Sollensys Corp
(Exact name of registrant as specified in its charter)
| Nevada | 80-0651816 | |
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(State or other jurisdiction of |
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1470 Treeland Blvd. SE
Palm Bay, Florida32909
(Address of principal executive offices) (Zip Code)
(866)-438-7657
(Registrant’s telephone number, including area code (949) 642-7816code)
HEALTH DIRECTORY, INC.2475 Palm Bay Road NE, Suite 120
6312 Seven Corners Center, # 303, Falls Church, VA. 22044Palm Bay, Florida32905
(Former Name or Former Addressname, former address and former fiscal year, if Changed Since Last Report)changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| N/A | N/A | N/A |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] ☒ No [ ]☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yes ☒ No ☐
Yes [ ] No [X]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
| Accelerated filer |
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Non-accelerated filer |
| Smaller reporting company |
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| Emerging growth company | ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] ☐ No [X] ☒
As of February 5, 2013, there were 500,075,386November 21, 2022, the registrant had shares of Common Stock, par value $0.0001 per share,common stock issued and outstanding.
SOLLENSYS CORP.
QUARTERLY REPORT ON FORM 10-Q
DECEMBER 31, 2012
TABLE OF CONTENTS
i
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
SOLLENSYS CORP.
Consolidated Balance Sheets
(unaudited)
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 5,288 | $ | 592,534 | ||||
| Accounts receivable | 286,297 | 1,717 | ||||||
| Other receivables | 27,102 | - | ||||||
| Inventory | 78,000 | 78,000 | ||||||
| Prepaid expenses | - | 60,749 | ||||||
| Total current assets | 396,687 | 733,000 | ||||||
| Property, plant and equipment, net | 2,884,449 | 2,944,830 | ||||||
| Right of use assets | 437,691 | - | ||||||
| Other assets | 17,994 | 17,994 | ||||||
| Goodwill, net | - | 200,199 | ||||||
| Intangible assets, net | - | 194,638 | ||||||
| Total assets | $ | 3,736,821 | $ | 4,090,661 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 321,334 | $ | 66,268 | ||||
| Accrued expenses | 213,537 | 195,589 | ||||||
| Deferred revenue | 637,016 | 437,731 | ||||||
| Lease liability current portion | 83,496 | - | ||||||
| Related party loans | 1,396,075 | - | ||||||
| Notes payable-short term | 3,226,179 | 2,505,553 | ||||||
| Total current liabilities | 5,877,637 | 3,205,141 | ||||||
| Notes payable - long term | 14,426 | 19,137 | ||||||
| Lease liabilities - long term | 399,509 | - | ||||||
| Deferred revenue - long term | 184,286 | 205,714 | ||||||
| Total liabilities | 6,475,856 | 3,429,992 | ||||||
| Commitments and contingencies | - | - | ||||||
| Stockholders’ Equity (Deficit): | ||||||||
| Preferred stock, Series A, $ par value, shares authorized, shares issued and outstanding as of September 30, 2022 and December 31, 2021 | - | - | ||||||
| Common stock, $par value, shares authorized; and shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively | 101,201 | 100,716 | ||||||
| Additional paid-in capital | 21,528,711 | 8,527,616 | ||||||
| Accumulated deficit | (24,368,948 | ) | (7,967,663 | ) | ||||
| Total stockholders’ equity (deficit) | (2,739,035 | ) | 660,669 | |||||
| Total liabilities and equity | $ | 3,736,821 | $ | 4,090,661 | ||||
Note: Amounts may not foot due to rounding.
The accompanying notes are an integral part of the unaudited consolidated financial statements.
SOLLENSYS CORP.
Consolidated Statements of Operations
(unaudited)
| Three months ended | Three months ended | Nine months ended | Nine months ended | |||||||||||||
| September 30, | September 30, | September 30, | September 30, | |||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenue | $ | 102,353 | $ | 35,714 | $ | 890,576 | $ | 145,357 | ||||||||
| Cost of sales | 190,048 | 104,608 | 999,093 | 167,352 | ||||||||||||
| Gross margin | (87,695 | ) | (68,894 | ) | (108,516 | ) | (21,995 | ) | ||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative expense | 878,110 | 1,058,574 | 3,767,097 | 2,505,120 | ||||||||||||
| Goodwill and intangible asset impairment charge | 344,787 | - | 344,787 | - | ||||||||||||
| Total operating expenses | 1,222,896 | 1,058,574 | 4,111,884 | 2,505,120 | ||||||||||||
| Loss from operations | (1,310,591 | ) | (1,127,468 | ) | (4,220,400 | ) | (2,527,115 | ) | ||||||||
| Other income (expense) | ||||||||||||||||
| Other income | 5,533 | 2,167 | 11,893 | 3,675 | ||||||||||||
| Interest expense | (56,595 | ) | (20,871 | ) | (148,316 | ) | (30,767 | ) | ||||||||
| Total other income (expense) | (51,062 | ) | (18,704 | ) | (136,424 | ) | (27,092 | ) | ||||||||
| Loss from continuing operations before income taxes | (1,361,654 | ) | (1,146,172 | ) | (4,356,824 | ) | (2,554,207 | ) | ||||||||
| Provision (benefit) for income taxes | - | - | - | - | ||||||||||||
| Loss from continuing operations | (1,361,654 | ) | (1,146,172 | ) | (4,356,824 | ) | (2,554,207 | ) | ||||||||
| Loss from discontinued operations | (14,866,180 | ) | - | (11,998,500 | ) | - | ||||||||||
| Net loss | $ | (16,227,834 | ) | $ | (1,146,172 | ) | $ | (16,355,324 | ) | $ | (2,554,207 | ) | ||||
| Basic and diluted loss per common share: | ||||||||||||||||
| Loss from continuing operations | $ | (0.02 | ) | $ | (0.01 | ) | $ | (0.05 | ) | $ | (0.03 | ) | ||||
| Loss from discontinued operations | $ | (0.14 | ) | - | $ | (0.11 | ) | $ | - | |||||||
| Basic and diluted loss per share | $ | (0.16 | ) | $ | (0.01 | ) | $ | (0.16 | ) | $ | (0.03 | ) | ||||
| Weighted-average number of common shares outstanding: | �� | |||||||||||||||
| Basic and diluted | 103,486,411 | 99,802,328 | 102,962,945 | 99,554,582 | ||||||||||||
Note: Amounts may not foot due to rounding.
The accompanying notes are an integral part of the unaudited consolidated financial statements.
2
SOLLENSYS CORP.
Statements of Changes in Stockholders’ Equity (Deficit)
(unaudited)
| Preferred Stock | Additional | Total Stockholders’ | ||||||||||||||||||||||||||
| Series A | Common stock | Paid-in | Accumulated | Equity | ||||||||||||||||||||||||
| Shares | Value | Shares | Value | Capital | (Deficit) | (Deficit) | ||||||||||||||||||||||
| Balance, December 31, 2020 | - | - | 99,354,547 | 99,355 | 3,390,213 | (3,442,078 | ) | 47,490 | ||||||||||||||||||||
| Private placement of common shares | - | 36,572 | 37 | 111,464 | 111,501 | |||||||||||||||||||||||
| Net loss | (524,472 | ) | (524,472 | ) | ||||||||||||||||||||||||
| Balance, March 31, 2021 | - | $ | - | 99,391,119 | $ | 99,392 | $ | 3,501,677 | $ | (3,966,550 | ) | $ | (365,481 | ) | ||||||||||||||
| Stock based compensation | - | 44,365 | 44 | 234,316 | 234,360 | |||||||||||||||||||||||
| Private placement of common shares | 199,893 | 200 | 750,876 | 751,076 | ||||||||||||||||||||||||
| Net loss | (883,563 | ) | (883,563 | ) | ||||||||||||||||||||||||
| Balance, June 30, 2021 | - | $ | - | 99,635,377 | $ | 99,636 | $ | 4,486,869 | $ | (4,850,113 | ) | $ | (263,608 | ) | ||||||||||||||
| Stock based compensation | - | 12,000 | 12 | 65,988 | 66,000 | |||||||||||||||||||||||
| Private placement of common shares | 355,115 | 355 | 1,178,047 | 1,178,402 | ||||||||||||||||||||||||
| Net loss | (1,146,172 | ) | (1,146,172 | ) | ||||||||||||||||||||||||
| Balance, September 30, 2021 | - | $ | - | 100,002,492 | $ | 100,003 | $ | 5,730,904 | $ | (5,996,285 | ) | $ | (165,377 | ) | ||||||||||||||
| Preferred Stock | Additional | Total Stockholders’ | ||||||||||||||||||||||||||
| Series A | Common stock | Paid-in | Accumulated | Equity | ||||||||||||||||||||||||
| Shares | Value | Shares | Value | Capital | (Deficit) | (Deficit) | ||||||||||||||||||||||
| Balance, December 31, 2021 | - | $ | - | 100,715,736 | $ | 100,716 | $ | 8,527,616 | $ | (7,967,663 | ) | $ | 660,669 | |||||||||||||||
| Impact of the adoption of ASC 842 | (45,961 | ) | (45,961 | ) | ||||||||||||||||||||||||
| Private placement of common shares | - | 158,750 | 159 | 509,842 | 510,001 | |||||||||||||||||||||||
| Net loss | (1,359,050 | ) | (1,359,050 | ) | ||||||||||||||||||||||||
| Stock based compensation | 50,849 | 50,849 | ||||||||||||||||||||||||||
| Balance, March 31, 2022 | - | $ | - | 100,874,486 | $ | 100,875 | $ | 9,088,307 | $ | (9,372,673 | ) | $ | (183,492 | ) | ||||||||||||||
| Issuance of common stock to purchase Celerit | - | 4,000,000 | 4,000 | 12,796,500 | 12,800,500 | |||||||||||||||||||||||
| Net profit | 1,231,563 | 1,231,563 | ||||||||||||||||||||||||||
| Stock based compensation | 73,336 | 73 | 140,967 | 141,040 | ||||||||||||||||||||||||
| Balance, June 30, 2022 | - | $ | - | 104,947,822 | $ | 104,948 | $ | 22,025,773 | $ | (8,141,112 | ) | $ | 13,989,609 | |||||||||||||||
| Return of common stock for Celerit rescission | (4,000,000 | ) | (4,000 | ) | (808,000 | ) | (812,000 | ) | ||||||||||||||||||||
| Net loss | - | (16,227,834 | ) | (16,227,834 | ) | |||||||||||||||||||||||
| Stock based compensation | 253,336 | 253 | 310,938 | 311,191 | ||||||||||||||||||||||||
| Balance, September 30, 2022 | - | $ | - | 101,201,158 | $ | 101,201 | $ | 21,528,711 | $ | (24,368,948 | ) | $ | (2,739,035 | ) | ||||||||||||||
Note: Amounts may not foot due to rounding.
The accompanying notes are an integral part of the unaudited consolidated financial statements.
3
SOLLENSYS CORP.
Consolidated Statements of Cash Flows
(unaudited)
| Nine months | Nine months | |||||||
| ended | ended | |||||||
| September 30, | September 30, | |||||||
| 2022 | 2021 | |||||||
| Cash flows from operating activities of continuing operations | ||||||||
| Net loss | $ | (16,355,324 | ) | $ | (2,554,207 | ) | ||
| Net loss from discontinued operations | (11,998,500 | ) | - | |||||
| Net loss from continuing operations | (4,356,824 | ) | (2,554,207 | ) | ||||
| Adjustments to reconcile net loss to net cash | ||||||||
| Stock-based compensation | 503,080 | 300,360 | ||||||
| Impairment of goodwill and intangible assets | 344,787 | - | ||||||
| Depreciation and amortization | 143,376 | 7,592 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (71,297 | ) | - | |||||
| Other receivables | (27,102 | ) | - | |||||
| ROU leases | (647 | ) | - | |||||
| Prepaid expenses | 60,749 | (96,969 | ) | |||||
| Inventory | - | (24,000 | ) | |||||
| Accounts payable | 255,066 | 116,093 | ||||||
| Accrued expenses | 17,948 | 261,787 | ||||||
| Deferred revenues | 177,856 | 347,858 | ||||||
| Net cash (used in) operating activities - continuing operations | (2,953,008 | ) | (1,641,486 | ) | ||||
| Net cash provided by operating activities - discontinued operations | 2,480,826 | - | ||||||
| Net cash (used in) operating activities | (472,182 | ) | (1,641,486 | ) | ||||
| Cash flows from investing activities | ||||||||
| Purchase of land, buildings and improvements | - | (167,246 | ) | |||||
| Proceeds from the disposal of fixed assets | 2,700 | - | ||||||
| Purchase of furniture and equipment | (21,169 | ) | (241,445 | ) | ||||
| Net cash (used in) investing activities-continuing operations | (18,469 | ) | (408,691 | ) | ||||
| Net cash (used in) investing activities-discontinued operations | (2,347,992 | ) | - | |||||
| Net cash (used in) investing activities | (2,366,461 | ) | (408,691 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from notes payable | 777,760 | 25,980 | ||||||
| Payments on notes payable | (61,845 | ) | - | |||||
| Proceeds from related party loans | 1,416,075 | - | ||||||
| Payments on related party notes | (20,000 | ) | - | |||||
| Debt issuance costs | (18,510 | ) | - | |||||
| Proceeds from the sale of common stock | 510,001 | 2,040,979 | ||||||
| Net cash provided by financing activities-continuing operations | 2,603,481 | 2,066,959 | ||||||
| Net cash (used in) financing activities-discontinued operations | (352,084 | ) | - | |||||
| Net cash provided by financing activities | 2,251,397 | 2,066,959 | ||||||
| Net increase (decrease) in cash and cash equivalents | (587,246 | ) | 16,782 | |||||
| Cash and cash equivalents at beginning of period | 592,534 | 129,624 | ||||||
| Cash and cash equivalents at end of period | $ | 5,288 | $ | 146,406 | ||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for interest | $ | 100,979 | $ | 30,767 | ||||
Note: Amounts may not foot due to rounding.
The accompanying notes are an integral part of the unaudited consolidated financial statements.
4
CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION
SOLLENSYS CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
Sollensys Corp (“Sollensys” or the “Company”) was formerly a development stage company, incorporated in Nevada on September 29, 2010, under the name Health Directory, Inc.
Eagle Lake Laboratories, Inc (“Eagle Lake”) is a Florida-based science, technology, and engineering solutions corporation offering products that ensure their clients’ data integrity through the collection, storage, and transmission. The Company expects to generate revenue with Eagle’s innovative flagship product, the Blockchain Archive Server™ that can be utilized to protect client data from ransomware. Blockchain technology is a leading-edge tool for data security, providing an added layer of security against data loss due to malware.
Abstract Media
On October 15, 2021, the Company entered into a Membership Interest Exchange Agreement (the “Agreement”), dated as of October 15, 2021, by and among (i) the Company; (ii) Abstract Media, LLC (“Abstract Media”), (iii) each of the members of Abstract Media (collectively, the “Abstract Media Members”); and (iv) Andrew Baker as the representative of the Abstract Media Members (the “Members’ Representative”). The Acquisition closed on December 6, 2021.
Abstract Media is a Texas limited liability company formed in October 2011, with the goal of improving user engagement using visualization tools. The Company has evolved into an interactive media and software development company to optimize effective corporate learning, operational workflow and communication using technology in the augmented reality or virtual reality space. Abstract Media conducts its operations from its office location in Houston, Texas.
On November 4, 2022 the Company entered into a Membership Interest Purchase Agreement with TechEdge Services, a Texas corporation, to sell 100% of its ownership interest in Abstract Media. See Note 12. “Subsequent Events”
Celerit Merger and Rescission
On April 7, 2022, the Company completed a Merger Agreement (“Merger Agreement”) by and among (i) the Company; (ii) S-CC Merger Sub, Inc., a wholly owned subsidiary of the Company (“S-CC Merger Sub”); (iii) S-Solutions Merger Sub, Inc., a wholly owned subsidiary of the Company (“S-Solutions Merger Sub”); (iv) Celerit Corporation (“Celerit”); (v) Celerit Solutions Corporation (“Celerit Solutions”); and (vi) Terry Rothwell (collectively, (i)-(v), the “Merger Parties”).
On August 22, 2022 the Company entered into Recission Agreement with the Merger Parties. As a result of the Recission Agreement Celerit and Celerit Solutions became discontinued operations. See Note 6. “Discontinued Operations”
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”). The Company uses the same accounting policies in preparing quarterly and annual financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“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 consolidated financial statements include all of the adjustments, which in the opinion of management are necessary to a fair presentation of financial position and results of operations. All such adjustments are of a normal and recurring nature. Tables included in notes may not sum due to rounding.
5
SOLLENSYS CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Basis of Presentation
In the opinion of Sollensys, the accompanying unaudited consolidated financial statements contain all adjustments and reclassifications, which are of a normal recurring nature, necessary to present fairly its financial position as of September 30, 2022, the results of its operations for the three months and nine months ended September 30, 2022 and 2021 and its cash flows for the nine months ended September 30, 2022 and 2021. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of and for the year ended December 31, 2021 and the notes thereto included in the Form 10-K for such period. The results of operations for the three and nine months ended September 30, 2022 and 2021 are not necessarily indicative of the results to be expected for the full fiscal year.
The consolidated financial statements of Sollensys include all of its wholly-owned subsidiaries. The operations of the Company’s former Celerit division has been presented as discontinued operations for all periods presented. See Note 6 - “Discontinued Operations” for further information. Unless otherwise noted, amounts and disclosures throughout these Notes to Consolidated Financial Statements relate solely to continuing operations and exclude all discontinued operations. All intercompany accounts and transactions have been eliminated in the consolidated financial statements.
NOTE 2 – GOING CONCERN
Going Concern
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business for the twelve months following the date of these consolidated financial statements are available. The Company has incurred significant operating losses since its inception. As of September 30, 2022, the Company had a working capital deficit of $5,480,950 and an accumulated deficit of $24,368,948.
The Company expects to generate operating cash flows that will be sufficient to fund presently anticipated operations although there can be no assurance. This Quarterly Reportraises substantial doubt about the Company’s ability to continue as a going concern. Therefore, the Company will need to raise additional funds and is currently exploring alternative sources of financing to supplement expected cash flow. Historically, the Company has raised capital through private placements, as an interim measure to finance working capital needs and may continue to raise additional capital through the sale of common stock or other securities and obtaining some short-term loans. The Company will be required to continue to do so until its revenues support its operations.
The Company may attempt to raise capital in the near future through the sale of equity or debt financing; however, there can be assurances the Company will be successful in doing so. There can be no assurance that such additional financing will be available to the Company on Form 10-Q (this “Report”) contains “forward-looking statements”. Forward-lookingacceptable terms or at all.
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements discuss mattersin conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amount of expenses during the reporting period. The most significant estimates relate to right of use assets and liabilities, and contingencies. The Company bases its estimates on historical experience, known or expected trends, and various other assumptions that are believed to be reasonable given the quality of information available as of the date of these consolidated financial statements. The results of these assumptions provide the basis for making estimates about the carrying amounts of assets and liabilities that are not historical facts. Because they discussreadily apparent from other sources. Actual results could differ from these estimates.
6
SOLLENSYS CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Business Combinations
Under the acquisition method of accounting, we allocate the fair value of the total consideration transferred to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values on the date of acquisition. The fair values assigned, defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants, are based on estimates and assumptions determined by management. These valuations require us to make significant estimates and assumptions, especially with respect to intangible assets. We record the excess consideration over the aggregate fair value of tangible and intangible assets, net of liabilities assumed, as goodwill.
If the initial accounting for a business combination is incomplete by the end of a reporting period that falls within the measurement period, we report provisional amounts in our consolidated financial statements. During the measurement period, we adjust the provisional amounts recognized at the acquisition date to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date and we record those adjustments to our consolidated financial statements.
Goodwill and Intangible Assets
Goodwill represents the future economic benefit arising from other assets acquired that could not be individually identified and separately recognized. The goodwill arising from the Company’s acquisition is attributable to the value of the potential expanded market opportunity with new customers. Intangible assets have either an identifiable or indefinite useful life. Intangible assets with identifiable useful lives are amortized on a straight-line basis over their economic or legal life, whichever is shorter. The Company’s amortizable intangible assets consist primarily of customer relationships. The useful life of these customer relationships is estimated to be three years.
Goodwill is not amortized, but is subject to annual impairment testing unless circumstances dictate more frequent assessments. The Company performs an annual impairment assessment for goodwill during the fourth quarter of each year and more frequently whenever events or changes in circumstances indicate that the fair value of the asset may be less than the carrying amount. Goodwill impairment testing compares the fair value of the reporting unit to its carrying amount. The fair value of the reporting unit is determined by considering both the income approach and market approaches. The fair values calculated under the income approach and market approaches are weighted based on circumstances surrounding the reporting unit. Under the income approach, the Company determines fair value based on estimated future cash flows of the reporting unit, which are discounted to the present value using discount factors that consider the timing and risk of cash flows. For the discount rate, the Company relies on the capital asset pricing model approach, which includes an assessment of the risk-free interest rate, the rate of return from publicly traded stocks, the Company’s risk relative to the overall market, the Company’s size and industry and other Company specific risks. Other significant assumptions used in the income approach include the terminal value, growth rates, future capital expenditures and changes in future working capital requirements. The market approaches use key multiples from guideline businesses that are comparable and are traded on a public market. If the fair value of the reporting unit is greater than its carrying amount, there is no impairment. If the reporting unit’s carrying amount exceeds its fair value, then an impairment loss is recognized in an amount equal to the excess.
On November 4, 2022 the Company entered into a Membership Interest Purchase Agreement with TechEdge Services, a Texas corporation, to sell all of its ownership interest in Abstract Media. See Note 12. “Subsequent Events.” After assessing the impact of the terms of the Membership Interest Purchase Agreement on its financial statements, the Company determined that the carrying value of Abstract Media as of September 30, 2022 exceeded its fair value. As a result, the Company recorded an impairment charge of $344,787 on its Consolidated Statement of Operations for the three months ended September 30, 2022.
Fair Value Measurements
The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820 “Fair Value Measurements and Disclosures” (“ASC 820”) defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable.
Level 3 - Unobservable inputs that are supported by little or no market activity, therefore requiring an entity to develop its own assumptions about the assumptions that market participants would use in pricing.
Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management. We use the market approach to measure fair value for its Level 1 financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The respective carrying value of certain balance sheet financial instruments approximates its fair value. These financial instruments include cash and cash equivalents, trade receivables, related party payables, accounts payable, accrued liabilities and short-term borrowings. Fair values were estimated to approximate carrying values for these financial instruments since they are short term in nature, and they are receivable or payable on demand.
The estimated fair value of assets and liabilities acquired in business combinations and reporting units and long-lived assets used in the related asset impairment tests utilize inputs classified as Level 3 in the fair value hierarchy.
7
SOLLENSYS CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Revenue Recognition
Revenues are accounted for in accordance with the FASB’s Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606 or ASC 606).
The amount of revenue recognized reflects the consideration which the Company expects to be entitled to receive in exchange for the products and/or services. To achieve this principle, the Company applies the following five steps:
| 1. | Identify the 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 in the contract, and |
| 5. | Recognize revenue when or as the Company satisfies a performance obligation. |
The Company derives revenue from numerous sources. One of the Company’s products is the Blockchain Archive Server—a turn-key, off-the-shelf, blockchain solution that works with virtually any hardware and software combinations currently used in commerce, without the need to replace or eliminate any part of the client’s data security that is being utilized.
The Company accounts for a contract with a customer when it has written approval, the contract is committed, the rights of the parties, including payment terms, are identified, the contract has commercial substance and consideration is probable of collection. Binding contracts or agreements with customers together with agreement to the Company’s terms and conditions are considered the contract with a customer. The Company considers collection of the contract to be probable at the onset of the arrangement.
The second product offering is called the “Regional Service Center” which is a single unit system of 32 Blockchain Archive Servers capable of servicing up to 2,580 individual small accounts, and is marketed to existing IT service providers with established accounts. The service is delivered over the Internet and is considered software as a service “SaaS”.
The Company recognizes revenue when the control of the Blockchain Archive Server is transferred to the Company’s customer, in an amount that reflects the consideration the Company expects to be entitled to in exchange for these products. Control is generally transferred when products are delivered. The Company’s revenue contracts generally represent a single performance obligation to sell its products to customers. For the SaaS software, which typically involves a significant customer deposit with services provided by the Company over a 60 month period, the Company recognizes revenue ratably as service is provided over the contract period.
Under the terms of the Company’s regional service center contracts, the Company requires a substantial deposit in advance of the support work required to be performed by the Company. All deposits that have not been deemed earned by the Company following the guidelines of the ASC 606 are considered to be contract liabilities and are classified as deferred revenue on the Company’s consolidated balance sheets. As of September 30, 2022, the current balance of deferred revenue was $637,016 and the long-term balance was $184,286 compared to $437,731 and $-0- respectively at December 31, 2021.
8
SOLLENSYS CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Disaggregation of revenues
Under the guidelines of ASC 606, the Company disaggregates its revenues from contracts with customers by service types, as the Company believes it best depicts how the nature, amount, timing and uncertainty of the revenue and cash flows are affected by economic factors. Management has determined that this level of disaggregation is beneficial to the users of the Company’s consolidated financial statements.
The Company’s disaggregation of revenues by type for the three and nine months ended September 30, 2022 and 2021 is as follows:
| Disaggregation of revenue | ||||||||||||||||
| Three months ended | Three months ended | Nine months ended | Nine months ended | |||||||||||||
| September 30, | September 30, | September 30, | September 30, | |||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenue from Blockchain Archive Servers and SaaS | $ | 40,520 | $ | 35,714 | $ | 569,384 | $ | 145,357 | ||||||||
| Revenue from augmented reality for corporate high tech training and integration of cybersecurity | 61,833 | - | 321,192 | - | ||||||||||||
| Total revenue | $ | 102,353 | $ | 35,714 | $ | 890,576 | $ | 145,357 | ||||||||
Net income (loss) per common share is computed by dividing net income (loss) by the weighted average common shares outstanding during the period as defined by ASC 260, “Earnings per Share.” Basic earnings per common share calculations are determined by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per common share calculations are determined by dividing net income (loss) by the weighted average number of common shares and dilutive common share equivalents outstanding. As of September 30, 2022 and December 31, 2021, there were instruments which would have a dilutive effect.
Recently Issued Accounting Pronouncements
Leases
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which establishes a new lease accounting model for lessees. The updated guidance requires an entity to recognize assets and liabilities arising from financing and operating leases, along with additional qualitative and quantitative disclosures. The amended guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, with early adoption permitted. In March 2019, the FASB issued ASU 2019-01, Codification Improvements, which clarifies certain aspects of the new lease standard. The FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases in July 2018. Also in 2018, the FASB issued ASU 2018-11, Leases (Topic 842) Targeted Improvements, which provides an optional transition method whereby the new lease standard is applied at the adoption date and recognized as an adjustment to retained earnings. The amendments have the same effective date and transition requirements as the new lease standard. On November 15, 2019, the FASB issued ASU 2019-10, which amends the effective dates for three major accounting standards. The ASU defers the effective dates for the credit losses, derivatives, and lease standards for certain companies. Since the Company is classified as a small reporting company and emerging growth company and has a calendar-year end, the Company was eligible for deferring the adoption of ASC 842 to January 1, 2022.
9
SOLLENSYS CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In the first quarter of fiscal 2022, the Company adopted ASU 2016-02 using the “Comparatives Under 840 Option” approach to transition. Under this method, financial information related to periods prior to adoption will be as originally reported under the previous standard – ASC 840, Leases. The effects of adopting the new standard (ASC 842, Leases) in fiscal 2022 were recognized as a cumulative-effect adjustment to accumulated deficit as of the beginning of the fiscal first quarter. We elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allows us to carry forward the historical lease classification as operating or capital leases. We also elected to combine lease and non-lease components and to exclude short-term leases from our consolidated balance sheets.
The most significant impact of adoption was the recognition of right of use operating lease assets and right of use operating lease liabilities of $437,691496,000 and $483,005541,000, respectively. The cumulative impact of these changes increased the accumulated deficit by approximately $46,000. We expect the impact of adoption to be immaterial to our consolidated statements of operations and consolidated statements of cash flows on an ongoing basis. As part of our adoption, we also modified our control procedures and processes, none of which materially affected our internal control over financial reporting. See Note 9 Leases, for additional information regarding our accounting policy for leases and additional disclosures.
Accounts receivable
The Company extends credit to its customers in the normal course of business. The Company performs ongoing credit evaluations and generally does not require collateral. The Company uses the allowance method to estimate for uncollectible receivables and maintains reserves, when necessary, for potential credit losses. An allowance for doubtful accounts, when necessary, is based upon a review of outstanding receivables, historical collection information, and existing economic conditions. Accounts receivable are ordinarily due 30 days after the issuance of an invoice. Accounts more than 120 days past due are considered delinquent and are written off after all collection attempts have been exhausted. As of September 30, 2022 and December 31, 2021, the balance of accounts receivable were $286,297 and $1,717, respectively. Management determined that an allowance for doubtful accounts was not necessary for either period.
NOTE 4 – NOTES PAYABLE AND RELATED PARTY LOANS
As of September 30, 2022 and December 31, 2021, the Company had the following notes payable, and related party loans outstanding:
| Schedule of notes payable related party outstanding | ||||||||
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Related party loans (a) | $ | 1,396,075 | $ | - | ||||
| Notes payable - short term (b) | $ | 3,226,179 | $ | 2,505,553 | ||||
| Notes payable - long term (c) | $ | 14,426 | $ | 19,137 | ||||
| (a) | Related party loans are comprised of the following: |
| (i) | As of September 30, 2022, David Beavers, a related party had loaned the Company on an unsecured basis, $166,803 at 6% with a maturity date of September 30, 2023, and Donald Beavers, the Company’s CEO had loaned the Company $15,372 on an interest free basis with a maturity of date of August 30, 2022. | |
| (ii) | The Company had one interest free demand loan, and four 6% loans from various related parties in the amount of $15,000, $468,900, $150,000, $350,000, and 230,000, respectively. These notes mature on March 31, 2023, September 30, 2023, April 10, 2023, May 4, 2023 and August 11, 2023, respectively. The $468,900, $150,000, $350,000 and $230,000 notes are unsecured. The $15,000 note is secured by a personal guarantee from the Company’s CEO. |
10
SOLLENSYS CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
| (b) | Notes payable - short term are comprised of the following: |
| (i) | The Company has a $2,500,000 mortgage note payable from the acquisition of a building in Palm Bay, Florida. The terms of the mortgage note payable called for monthly interest only payments of approximately $10,000 each through December 2021. Effective January 8, 2022, the mortgage note payable requires monthly mortgage payments of principal and interest of $16,250, at an interest rate of 4.75% per annum, with a maturity date of December 8, 2024 and a balloon principal payment due of approximately $2,270,000. The mortgage is secured by the underlying real estate all equipment and fixtures owned or subsequently acquired, and shares of the Company’s common stock pledged by the Company’s CEO, as well his personal guarantee for the full amount of the mortgage. Additionally, the mortgage note payable provides the lender a due on demand feature at the discretion of the lender. As a result, the Company has recorded the outstanding balance of the note payable as a current liability. At September 30, 2022 and December 31, 2021, the balance outstanding on the mortgage note payable is $2,442,681 and $2,500,000, respectively. |
| (ii) | The Company has a vehicle loan which requires monthly payments of principal and interest in the amount of $710. The loan matures August 2025, bears interest at 13.1%, and is secured by the specific vehicle. As of September 30, 2022 the short term portion of this note amounted to $5,738. | |
| (iii) | On September 20, 2022 the Company entered into a twelve percent (12%) $172,760 promissory note including $18,510 of Original Issue discount with 1800 Diagonal Lending LLC (“Diagonal) with a maturity date of September 30, 2023. Accrued interest, and outstanding principal shall be repaid in ten payments each in the amount of $19,349. In the event of a default, as defined in the note payable agreement, the loan is convertible at the discretion of the lender into common stock at 75% of the lowest ten day trading price prior to the conversion date multiplied by the amount outstanding. | |
| (iv) | As part of the Celerit recission the Company agreed to a promissory note payable to Celerit for $605,000 accruing interest at 7% and maturing on September 30, 2022. |
| (c) | The notes payable – long term balance of $14,426 is the long term portion of the vehicle loan noted above. |
At September 30, 2022, the aggregate maturities of notes payable for the next five years and thereafter are as follows:
| Schedule of maturities of notes payable | ||||
| Year 1 | $ | 4,622,254 | ||
| Year 2 | 7,494 | |||
| Year 3 | 6,932 | |||
| Year 4 | - | |||
| Total | $ | 4,636,680 |
11
SOLLENSYS CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 5 – BUSINESS ACQUISITIONS
ABSTRACT MEDIA
On October 15, 2021, the Company entered into a Membership Interest Exchange Agreement (the “Agreement”), dated as of October 15, 2021, by and among (i) the Company; (ii) Abstract Media, LLC (“Abstract Media”), (iii) each of the members of Abstract Media (collectively, the “Abstract Media Members”); and (iv) Andrew Baker as the representative of the Abstract Media Members (the “Members’ Representative”). The Acquisition closed on December 6, 2021.
Pursuant to the terms of the Agreement, the Company agreed to acquire from the Abstract Media Members all of the membership interests of Abstract Media held by the Abstract Media Members, representing 100% of the membership interests of Abstract Media, in exchange for the issuance by the Company to the Abstract Media Members of (i) shares of the Company’s common stock, plus (ii) $15,000 paid to the Abstract Media members, plus (iii) $15,000 to be paid solely to John Swain as additional consideration for Mr. Swain’s membership interests (the “Acquisition”).
Pursuant to the terms of the Agreement, on December 6, 2021, the Abstract Media Members assigned their respective membership interests in Abstract Media to the Company, and Abstract Media became a wholly owned subsidiary of the Company. In exchange therefor, on December 6, 2021, the Company issued to the Abstract Media Members an aggregate of shares of the Company’s common stock.
For the acquisition of Abstract Media, the following table summarizes the acquisition date fair value of the consideration paid, identifiable assets acquired and liabilities assumed:
Consideration paid
| Schedule of Business Acquisitions by Acquisition Contingent Consideration | ||||
| Cash and cash equivalents | $ | 30,000 | ||
| Common stock, 73,244 shares of the Company restricted common stock valued at $4.00 per share | 292,976 | |||
| Net liabilities assumed | 77,422 | |||
| Fair value of total consideration paid | $ | 400,398 |
Net assets acquired and liabilities assumed
| Schedule of assets acquired and liabilities assumed | ||||
| Cash and cash equivalents | $ | 21,080 | ||
| Accounts receivable | 39,345 | |||
| Other current assets | 19,758 | |||
| Fixed assets, net | 15,467 | |||
| Total assets | $ | 95,650 | ||
| Accounts payable | 69,724 | |||
| Accrued liabilities | 103,348 | |||
| Total liabilities | 173,072 | |||
| Net liabilities assumed | $ | 77,422 |
The Company allocated the fair value of the total consideration paid of $400,398 to goodwill of $200,199 and the same amount of $200,199 to intangible assets with a life of three years. The value of goodwill represented Abstract Media’s ability to generate profitable operations going forward. Management estimated the provisional fair values of the intangible assets and goodwill on December 31, 2021.
On November 4, 2022 the Company entered into a Membership Interest Purchase Agreement with TechEdge Services, a Texas corporation, to sell all of its ownership interest in Abstract Media. See Note 12. “Subsequent Events.” After assessing the impact of the terms of the Membership Interest Purchase Agreement on its financial statements, the Company determined that the goodwill and the unamortized value of intangible assets as of September 30, 2022 had been fully impaired. As a result the Company recorded an impairment charge of $344,787 on its Consolidated Statement of Operations for the three months ended September 30, 2022.
12
SOLLENSYS CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 6 – DISCOUNTINUED OPERATIONS
On April 7, 2022, the Company closed on a Merger Agreement (“Merger Agreement”) by and among (i) the Company; (ii) S-CC Merger Sub, Inc., a wholly owned subsidiary of the Company (“S-CC Merger Sub”); (iii) S-Solutions Merger Sub, Inc., a wholly owned subsidiary of the Company (“S-Solutions Merger Sub”); (iv) Celerit Corporation (“Celerit”); (v) Celerit Solutions Corporation (“Celerit Solutions”); and (vi) Terry Rothwell (collectively, (i)-(v), the “Merger Parties”).
Aggregate consideration for the Mergers consisted of (i) $2,695,000, subject to certain adjustments set forth in the Merger Agreement, as amended (the “Cash Consideration”), and (ii) shares of Sollensys common stock (the “Sollensys Shares”). The Cash Consideration was paid to Terry Rothwell via the issuance to Terry Rothwell at the closing of a promissory note of Sollensys (the “Rothwell Note”). Additional consideration of $10,000 was paid to Terry Rothwell. The Rothwell Note has a principal amount of $2,695,000, bears simple interest at a rate of 0.0001% to the maturity date, September 30, 2022, and, if not paid at maturity, the Rothwell Note accrued simple interest at 6% per year until paid. There was no penalty or premium for prepayment. In the event of a default, Sollensys agreed to pay Terry Rothwell’s reasonable legal fees and costs of collection.
For the acquisition of Celerit and Celerit Solutions, the following table summarizes the acquisition date fair value of consideration paid, identifiable assets acquired and liabilities assumed:
Consideration paid
| Schedule of Business Acquisitions by Acquisition Contingent Consideration | ||||
| Cash and cash equivalents | $ | 10,000 | ||
| Common stock, 4,000,000 shares of the Company restricted common stock valued at $3.20 per share | 12,800,500 | |||
| Issuance of promissory note | 2,695,000 | |||
| Fair value of total consideration paid | $ | 15,505,500 |
Net assets acquired and liabilities assumed
| Schedule of assets acquired and liabilities assumed | ||||
| Cash and cash equivalents | $ | 222,064 | ||
| Accounts receivable | 1,156,146 | |||
| Prepaid expenses | 319,895 | |||
| Other current assets | 276,913 | |||
| Property, plant and equipment | 481,817 | |||
| Intangible assets (provisional) | 2,736,378 | |||
| Goodwill | 10,945,515 | |||
| Total assets | $ | 16,138,728 | ||
| Accounts payable | 23,443 | |||
| Accrued expenses | 609,785 | |||
| Total liabilities assumed | 633,228 | |||
| Net purchase price | $ | 15,505,500 |
The Company allocated the fair value of the total consideration paid to goodwill of $10,945,515 and $2,736,378 to intangible assets with a life of three years. The value of goodwill represents Celerit and Celerit Solutions’ ability to generate profitable operations going forward. Management estimated the provisional fair values of the intangible assets and goodwill on September 30, 2022. The Company’s accounting for the acquisition of Celerit was based upon estimates of the allocation between goodwill and intangible assets
Subsequent to entry into the Merger Agreement, the parties determined that they would unwind the transactions as set forth in the Merger Agreement and in the other agreements entered into in connection therewith.
13
SOLLENSYS CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Rescission Agreement
On August 22, 2022, the Company entered into the Rescission, Termination and Release Agreement (the “Rescission Agreement”) by and among (i) the Company, (ii) SCARE Holdings LLC, a wholly-owned subsidiary of Sollensys, (“SCARE”); (iii) Celerit; (iv) Celerit Solutions; (v) Ms. Rothwell; (vi) Ron Harmon; and (vii) CRE. Pursuant to the terms of the Rescission Agreement, the parties agreed to unwind the transactions as set forth in the Merger Agreement and in the other agreements entered into in connection therewith, so as to place each of the parties to the Merger Agreement in the position that they were as of immediately prior to the closing of the transactions as set forth in and as contemplated by the Merger Agreement and the related agreements. As a result, on August 26, 2022, the following agreements were terminated, except as set forth in the Rescission Agreement: (i) the Rothwell Employment Agreement, (ii) the Harmon Employment Agreement, (iii) the Blockchain Archive Server Agreement, (iv) the Rothwell Note, (v) the Banking Agreement, and (vi) the Real Estate Purchase Agreement.
Pursuant to the terms of the Rescission Agreement, among other things, the parties agreed as follows:
| (i) | Sollensys agreed to transfer to Ms. Rothwell one share of Celerit common stock; |
| (ii) | Sollensys agreed to transfer to Ms. Rothwell one share of Celerit Solutions common stock; |
| (iii) | Ms. Rothwell agreed to transfer to Sollensys shares of Sollensys common stock; |
| (iv) | Ms. Rothwell agreed to resign from any and all positions with Sollensys, including as a member of Sollensys’ board of directors; |
| (v) | Donald Beavers agreed to resign as a director and officer of Celerit and Celerit Solutions; |
| (vi) | Anthony Nolte agreed to resign as a director and officer of Celerit and Celerit Solutions; and |
| (vii) | Sollensys agreed, in connection with its withdrawal from Celerit of an aggregate of $605,000 following the closing of the Merger Agreement, to issue to Celerit a promissory note in the principal amount of $605,000, accruing interest at the rate of 7% per annum and due on September 30, 2022 (the “Celerit Note”). |
As of the date of this Report the promissory note for $605,000 had not been paid.
In addition, pursuant to the terms of the Rescission Agreement, the parties agreed to terminate:
| (i) | The Executive Employment Agreement, dated as of April 7, 2022, by and between Sollensys and Ms. Rothwell; |
| (ii) | The Executive Employment Agreement, dated as of April 7, 2022, by and between Sollensys and Mr. Harmon; |
| (iii) | The Rothwell Sollensys Blockchain Archive Server Distributive Data Center Agreement (2 Units); |
| (iv) | The Promissory Note issued by Sollensys to Ms. Rothwell on April 7, 2022; |
| (v) | The Banking and Credit Union Services Agreement, dated as of April 7, 2022; and |
| (vi) | The Real Estate Purchase Agreement, dated as of March 24, 2022. |
14
SOLLENSYS CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
As a result of the recission the Company recorded the following loss from discontinued operations :
| Schedule of loss from discontinued operations | ||||
| Assets transferred: | ||||
| Cash | $ | 2,560,058 | ||
| Accounts receivable | 942,862 | |||
| Other accounts receivable | 629,086 | |||
| Prepaids and other assets | 107,109 | |||
| Property and equipment, net | 449,520 | |||
| Goodwill | 10,945,115 | |||
| Intangibles | 2,394,238 | |||
| Total assets | 18,027,988 | |||
| Liabilities transferred: | ||||
| Accounts payable | (56,715 | ) | ||
| Accrued expenses | (166,579 | ) | ||
| Loans payable | (223,294 | ) | ||
| Net assets transferred | 17,804,694 | |||
| Consideration received, 4,000,000 shares returned to treasury | (812,000 | ) | ||
| Extinguishment of promissory note | (2,342,916 | ) | ||
| Loss from discontinued operation | $ | (14,649,778 | ) | |
The loss from discontinued operations is follows:
| Schedule of loss from discontinued operations | ||||||||||||
| Three months ended June 30, 2022 | Three months ended September 30, 2022 | Nine months ended | ||||||||||
| Revenue | $ | 5,945,395 | $ | 1,299,787 | $ | 7,245,182 | ||||||
| Operating Expenses | 3,077,715 | 1,516,189 | 4,593,904 | |||||||||
| Income Loss from Discontinued Operations | 2,867,680 | (216,402 | ) | 2,651,278 | ||||||||
Loss on Rescission(a) | - | (14,649,778 | ) | (14,649,778 | ) | |||||||
| Discontinued operations | $ | 2,867,680 | $ | (14,866,180 | ) | $ | (11,998,500 | ) | ||||
| Schedule of pro forma information | ||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenue | $ | 1,299,787 | $ | - | $ | 7,245,182 | $ | - | ||||||||
| Operating expenses | 1,516,189 | - | 4,593,904 | - | ||||||||||||
| Income (loss) from discontinued operations | (216,402 | ) | - | 2,651,278 | - | |||||||||||
| Loss on rescission (a) | (14,649,778 | ) | - | (14,649,778 | ) | - | ||||||||||
| Discontinued operations, net of tax | $ | (14,866,180 | ) | $ | - | $ | (11,998,500 | ) | $ | - | ||||||
| (a) | Other loss from discontinued operations is attributable to the loss incurred due to the rescission of the acquisition agreement |
NOTE 7 – GOODWILL AND INTANGIBLE ASSETS
As of September 30, 2022, the balance of goodwill and intangible assets was $-0- and $-0-, respectively. During the nine months ended September 30, 2022 and 2021, the Company recorded $50,050 and $-0- in amortization expense, respectively.
On November 4, 2022 the Company entered into a Membership Interest Purchase Agreement with TechEdge Services, a Texas corporation, to sell all of its ownership interest in Abstract Media. See Note 12. “Subsequent Events.” After assessing the impact of the terms of the Membership Interest Purchase Agreement on its financial statements, the Company determined that the goodwill and the unamortized value of intangible assets as of September 30, 2022 had been fully impaired. As a result the Company recorded an impairment charge of $344,787 on its Consolidated Statement of Operations for the three months ended September 30, 2022.
15
SOLLENSYS CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 8 – RELATED PARTY TRANSACTIONS
During the nine months ended September 30, 2022 ended September 30, 2022, the Company received a number of related party loans, See Note 4 – “Notes Payable And Related Party Loans” for a detail of these transactions.
During 2021, the Company entered into a contract with a member of management to provide blockchain service to them. For that service, the member of management paid a deposit of $90,000, which is currently reflected as deferred revenue at September 30, 2022 and December 31, 2021.
During 2022 and 2021, the Company issued common shares to various consultants in lieu of cash payment. The awards were valued at the market price on the date of grant. The shares were valued at $ and are amortized and vest ratably over the requisite period that the consultants provided service over. In some cases these shares vest immediately. During the nine months ended September 30, 2022, the Company expensed $. The remaining unamortized stock-based compensation amount of $ will be amortized to expense through April 2023. Of the shares issued, shares are currently vested and the remaining shares vest through December 2022.
NOTE 10 – LEASES
The majority of our lease obligations are real estate operating leases from which we conduct our business. For any lease with an initial term in excess of 12 months, the related lease assets and liabilities are recognized on the Consolidated Balance Sheets as either operating or finance leases at the inception of an agreement where it is determined that a lease exists. Leases with an initial term of 12 months or less are not recorded on our Consolidated Balance Sheets; we recognize lease expense for these leases on a straight-line basis over the lease term.
Leases with an initial term of 12 months or less, or that are on a month to month basis are not recorded on our Consolidated Balance Sheets; we recognize lease expense for these leases on a straight-line basis over the lease term.
Operating lease assets represent the right to use an underlying asset for the lease term, and operating lease liabilities represent the obligation to make lease payments arising from the lease. These assets and liabilities are recognized based on the present value of future payments over the lease term at commencement date. We use a collateralized incremental borrowing rate based on the information available at commencement date, including lease term, in determining the present value of future payments. Our lease terms generally do not include options to extend or terminate the lease unless it is reasonably certain that the option will be exercised. Fixed payments may contain predetermined fixed rent escalations. We recognize the related rent expense on a straight-line basis from the commencement date to the end of the lease term.
The weighted average remaining lease term is 3.52 years and the weighted average discount rate is 12%. Future lease payments under our non-cancellable leases as of September 30, 2022 were as follows:
| Schedule of lease payment | ||||
| Year 1 | $ | 190,515 | ||
| Year 2 | 161,153 | |||
| Year 3 | 160,599 | |||
| Year 4 | 68,216 | |||
| Total | 580,483 | |||
| Imputed interest | (97,478 | ) | ||
| Lease liability | $ | 483,005 |
16
SOLLENSYS CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 11 – STOCKHOLDERS’ EQUITY
Preferred Stock
On September 30, 2022, and December 31, 2021, there were 25,000,000 shares of preferred stock authorized, with -- shares issued and outstanding at both periods, respectively.
Common Stock
The Company has authorized shares of common stock, $par value per share. As of September 30, 2022 and December 31, 2021, respectively, there were and shares of common stock issued and outstanding.
During the nine months ended September 30, 2022, the Company:
| ● | Raised $510,001 from the sale of restricted common shares to investors |
| ● | Issued shares pursuant to the acquisition of Celerit and Celerit Solutions. These shares were valued at $3.20 per share. These shares were returned and retired due to the recission of the Celerit transaction on August 22, 2022. The shares were returned at a fair value of $0.20 per share |
| ● | Issued an aggregate of shares of common stock, valued at $538,842 pursuant to the 2021 Equity Incentive Plan to numerous consultants and service providers. |
During the year ended December 31, 2021, the Company:
| ● | Raised $4,603,979 from the sale of common shares to investors |
| ● | Issued shares valued at $292,976 in connection with the acquisition of Abstract Media |
| ● | Issued an aggregate of shares of common stock, valued at $310,048 pursuant to the Sollensys Corp 2021 Equity Incentive Plan to numerous consultants. |
NOTE 12 – SUBSEQUENT EVENTS
10% Convertible Promissory Note
On October 13, 2022, the Company issued a promissory note to AJB Capital Investments, LLC (“AJB”) an unrelated thirty party lender, in the principal amount of $600,000 (“AJB Note”). Pursuant to the terms of the AJB Note, the Company agreed to pay to AJB the principal amount of the AJB Note, together with guaranteed interest on the principal balance in the amount of 10% per calendar year. The AJB Note matures on April 13, 2023 (the “Maturity Date”); provided, however, that the Maturity Date may be extended at the Company’s sole discretion up to six months following the original Maturity Date. If the Maturity Date is extended, the interest rate will be 15% per annum for any period following the original Maturity Date, payable monthly. The AJB Note has an original issue discount of $60,000. Accordingly, the purchase price of the AJB Note was $540,000. Any amount of principal or interest on the AJB Note that is not paid when due will bear interest at the rate of the lesser of (i) 18%, and (ii) the maximum amount permitted under law from the due date thereof until the same is paid.
17
SOLLENSYS CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The AJB Note is convertible, subject to a 4.99% equity blocker, in the event of a default, as provided in the AJB Note, into common stock at a conversion price (the “Conversion Price”) equal to the Variable Weighted Average Price (“VWAP”) (i) during the previous 10 trading day period ending on the date of issuance of the AJB Note, or (ii) during the previous 10 trading day period ending on the conversion date, whichever is lower. If the common stock is not deliverable electronically by the Depository Trust Company (“DWAC”), an additional 10% discount will apply for all future conversions until DWAC delivery becomes available. If the common stock is “chilled” for deposit into the DTC system and only eligible for clearing deposit, an additional 15% discount will apply for all future conversions until such chill is lifted. Additionally, if the Company ceases to be a reporting company pursuant to the Exchange Act, or if the AJB Note cannot be converted into free trading shares after 181 days from the issue date (other than as a result of AJB’s status as an affiliate of the Company), an additional 15% discount will be attributed to the conversion price.
While the AJB Note is outstanding, each time any third party has the right to convert monies owed to that third party into common stock (or receive shares pursuant to a settlement or otherwise), at a discount to market greater than the Conversion Price in effect at that time (prior to all other applicable adjustments in the AJB Note), then AJB, in its sole discretion, may utilize such greater discount percentage (prior to all applicable adjustments in this AJB Note) until the AJB Note is no longer outstanding. While the AJB Note is outstanding, each time any third party has a look back period greater than the look back period in effect under the AJB Note at that time, then AJB, in its sole discretion, may utilize such greater number of look back days until the AJB Note is no longer outstanding.
Upon the occurrence of certain events of default specified in the AJB Note, including, but not limited to, a failure to honor a conversion request, failure to maintain the Company’s quotation, or the Company’s failure to comply with its obligations under Exchange Act, all amounts owed to AJB under the AJB Note, including default interest if any, shall then become due and payable. Further, if the Company fail to maintain its quotation, fails to comply with its obligations under the Exchange Act, or loses the “bid” price for its common stock for a period of five days after written notice thereof to the Company, after the nine-month anniversary of the AJB Note, then the principal amount of the AJB Note will increase by $15,000 and AJB will be entitled to use the lowest trading price during the delinquency period as a base price for the conversion and the Conversion Price will be redefined to mean 40% multiplied by the Conversion Price, subject to adjustment as provided in the AJB Note.
Common Stock Purchase Warrant
Pursuant to the terms of the Warrant, AJB may purchase up to shares of common stock at an exercise price per share of $0.15, subject to adjustment as set forth in the Warrant, for a period ending on October 13, 2027. Exercises are subject to a 4.99% equity blocker.
The Company also agreed to include the shares exercisable upon exercise of the Warrant in a registration statement filed by the Company with respect to a public offering of the Company’s securities. If no such registration statement is filed or if the Company fails to include such shares in the registration statement, then no later than the date that is 90 days after October 13, 2022, the Company will file a registration statement including all shares issuable upon exercise of the Warrant and will cause the registration statement to be declared effective within 180 days after October 13, 2022.
Security Agreement
In connection with entry into the SPA and issuance of the AJB Note, on October 13, 2022, the Company entered into a Security Agreement, dated as of October 13, 2022, by and between the Company and AJB (the “Security Agreement”). Pursuant to the terms of the Security Agreement, the Company agreed to grant to AJB an unconditional and continuing first priority security interest in all of the assets and property of the Company to secure the prompt payment, performance and discharge in full of all of the Company’s obligations under the AJB Note, the SPA and the other documents executed in connection with the SPA.
The Security Agreement contains customary representations, warranties, covenants and indemnification obligations of the Company.
18
SOLLENSYS CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Membership Purchase Agreement for the Sale of Abstract Media LLC
On November 4, 2022 the company sold 100% of its membership interest in Abstract Media, LLC to Tech Edge Services for $1,000. Additional terms are as follows:
(a) The Parties acknowledge and agree that Abstract Media is currently the lessee pursuant to a lease for the premises located at 33136 Magnolia Circle, Suite F, Magnolia, Texas 77354 (the “Lease”). Following the Closing, the Seller shall continue to pay the rent payable pursuant to the Lease for the months of November 2022 and December 2022. Buyer shall thereafter be responsible for rent payments in the Lease commencing on January 1, 2023.
(b) The Company shall pay, and shall be responsible for, all outstanding liabilities of Abstract Media related to any and all contracts of Abstract Media as of the Closing Date.
(c) Following the Closing and for a period of 24 months thereafter (the “Earn-Out Period”), Buyer shall pay to the Company an amount equal to 5% of the gross proceeds received by the Company with respect to contracts and agreements in place with Abstract Media as of the Closing Date. Such payments shall be made within 7 days of each calendar month during the Earn-Out Period.
Sale of Company Headquarters Building
On November 3, 2022 the Company entered into a Purchase and Sale Agreement with EML Realty Partners (“EML”), a Florida LLC to sell its corporate headquarters located at 1470 Treeland Boulevard SE, Palm Bay, Florida 32909 for $3,850,000 with an expected closing date of no later than December 30, 2022. The transaction is expressly contingent on EMP completing successful due diligence, to their sole and absolute discretion within 30 days of November 3, 2022. If the closing occurs the Company and EML have agreed to a lease where the Company will leaseback its premises for a 5five year period at a monthly base rent of $25,667 with an annual 3% escalator clause.
19
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis should be read in conjunction with our unaudited consolidated financial statements and the related notes thereto. The management’s discussion and analysis contains forward-looking statements, may include words such as statements of our plans, objectives, expectations, and intentions. Any statements that are not statements of historical fact are forward-looking statements. When used, the words “believe,” “plan,” “intend,” “anticipate,” “believe,“target,” “estimate,” “intend,“expect” and the like, and/or future tense or conditional constructions (“will,” “may,” “could,” “should,” “would,” “may,” “seek,” “plan,” “might,” “will,” “expect,” “predict,” “project,” “forecast,” “potential,” “continue” negatives thereofetc.), or similar expressions. Forward-looking statements speak only as of the date they are made, are based on various underlying assumptions and current expectations about the future and are not guarantees. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, level of activity, performance or achievement to be materially different from the results of operations or plans expressed or implied by such forward-looking statements.
We cannot predict all of the risks and uncertainties. Accordingly, such information should not be regarded as representations that the results or conditions described in such statements or that our objectives and plans will be achieved and we do not assume any responsibility for the accuracy or completeness of anyexpressions, identify certain of these forward-looking statements. These forward-looking statements are found at various places throughout this Report and include information concerning possible or assumed future results of our operations, including statements about potential acquisition or merger targets; business strategies; future cash flows; financing plans; plans and objectives of management; any other statements regarding future acquisitions, future cash needs, future operations, business plans and future financial results, and any other statements that are not historical facts.
These forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks and uncertainties and other factors. Many of those factors are outside of our control andthat could cause actual results or events to differ materially from the resultsthose expressed or implied by thosethe forward-looking statements. In lightOur actual results and the timing of these risks, uncertainties and assumptions, the events describedcould differ materially from those anticipated in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. You are cautioned not to place undue reliance on these forward-looking statements which speak only as a result of several factors. We do not undertake any obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this Report. All subsequent writtenQuarterly Report on Form 10-Q. The following discussion should be read in conjunction with our audited financial statements and oral forward-looking statements concerningthe related notes that appear in our Annual Report on Form 10-K, as filed with the Securities and Exchange Commission on March 30, 2022.
Overview
Business Overview
Our primary product is the Blockchain Archive Server—a turn-key, off-the-shelf, blockchain solution that works with virtually any hardware and software combinations currently used in commerce, without the need to replace or eliminate any part of the client’s data security that is being utilized. The Blockchain Archive Server encrypts, fragments, and distributes data across thousands of secure nodes every day, which makes it virtually impossible for hackers to compromise. Using blockchain technology, the Blockchain Archive Server maintains a redundant, secure, and immutable backup of data. Redundant backups and the blockchain work together to assure not only the physical security of the database but also the integrity of the information held within.
Blockchain Archive Server protects client data from “ransomware”—malicious software that infects your computer and displays messages demanding a fee to be paid in order for your system to work again. Blockchain technology is a leading-edge tool for data security, providing an added layer of security against data loss due to all types of software specifically designed to disrupt, damage, or gain unauthorized access to a computer system (i.e., malware).
Uniquely, the Blockchain Archive Server is a turn-key solution that can stand alone or seamlessly integrate into an existing data infrastructure to quickly recover from a cyber-attack. The Blockchain Archive Server is a server that comes pre-loaded with the blockchain-powered cybersecurity software, which can be delivered, installed, and integrated into a client’s computer systems with ease.
In December 2020, we made our second product offering—the Regional Service Center—available on a limited test market basis. The Regional Service Center was added to our standard product line effective January 1, 2021. A Regional Service Center is a single unit system of 32 Blockchain Archive Servers capable of servicing up to 2,580 individual small accounts, and is marketed to existing IT service providers with established accounts. The Regional Service Center offers small businesses the same state of the art technology previously available only to large or very well-funded companies. Sollensys believes that smaller companies, and even certain individuals, will find the Regional Service Center affordable, paying only for the actual space they use.
20
Recent Developments
Rescission Agreement
As previously disclosed, pursuant to the Amended and Restated Merger Agreement dated as of April 7, 2022 (the “Merger Agreement”), by and among S-CC Merger Sub, Inc. (“S-CC Merger Sub”), a previously a wholly owned subsidiary of Sollensys Corp (“Sollensys”); SSolutions Merger Sub, Inc., a previously a wholly owned subsidiary of Sollensys (“S-Solutions Merger Sub”); SCARE Holdings, LLC, a wholly owned subsidiary of Sollensys (“SCARE”); (iii) Celerit Corporation, a wholly owned subsidiary of Sollensys (“Celerit”); (iv) Celerit Solutions Corporation, a wholly owned subsidiary of Sollensys (“Celerit Solutions”); (v) Terry Rothwell; and (vi) CRE Holdings, LLC (“CRE”), the parties to the Merger Agreement undertook certain transactions, including the merger of Celerit with and into S-CC Merger Sub, with Celerit surviving, and the merger of Celerit Solutions with and into S-Solutions Merger Sub, with Celerit Solutions surviving, in which transactions Ms. Rothwell received certain consideration as set forth in the Merger Agreement, and in connection with which the parties entered into certain other matters addressedagreements and certain other transactions. Subsequent to entry into the Merger Agreement, the parties determined that they would unwind the transactions as set forth in this Reportthe Merger Agreement and attributablein the other agreements entered into in connection therewith.
Accordingly, on August 22, 2022, the Company entered into the Rescission, Termination and Release Agreement (the “Rescission Agreement”) by and among (i) the Company, (ii) SCARE; (iii) Celerit; (iv) Celerit Solutions; (v) Ms. Rothwell; (vi) Ron Harmon; and (vii) CRE. Pursuant to us or any person acting on our behalf are expressly qualifiedthe terms of the Rescission Agreement, the parties agreed to unwind the transactions as set forth in their entiretythe Merger Agreement and in the other agreements entered into in connection therewith, so as to place each of the parties to the Merger Agreement in the position that they were as of immediately prior to the closing of the transactions as set forth in and as contemplated by the cautionary statements containedMerger Agreement and the related agreements. As a result, on August 26, 2022, the following agreements were terminated, except as set forth in the Rescission Agreement: (i) the Rothwell Employment Agreement, (ii) the Harmon Employment Agreement, (iii) the Blockchain Archive Server Agreement, (iv) the Rothwell Note, (v) the Banking Agreement, and (vi) the Real Estate Purchase Agreement.
Pursuant to the terms of the Rescission Agreement, among other things, the parties agreed as follows:
| (viii) | Sollensys agreed to transfer to Ms. Rothwell one share of Celerit common stock; |
| (ix) | Sollensys agreed to transfer to Ms. Rothwell one share of Celerit Solutions common stock; |
| (x) | Ms. Rothwell agreed to transfer to Sollensys 4,000,000 shares of Sollensys common stock; |
| (xi) | Ms. Rothwell agreed to resign from any and all positions with Sollensys, including as a member of Sollensys’ board of directors; |
| (xii) | Donald Beavers agreed to resign as a director and officer of Celerit and Celerit Solutions; |
| (xiii) | Anthony Nolte agreed to resign as a director and officer of Celerit and Celerit Solutions; and |
| (xiv) | Sollensys agreed, in connection with its withdrawal from Celerit of an aggregate of $605,000 following the closing of the Merger Agreement, to issue to Celerit a promissory note in the principal amount of $605,000, accruing interest at the rate of 7% per annum and due on September 30, 2022 (the “Celerit Note”). |
In addition, pursuant to the terms of the Rescission Agreement, the parties agreed to terminate:
| (vii) | The Executive Employment Agreement, dated as of April 7, 2022, by and between Sollensys and Ms. Rothwell (the “Rothwell Employment Agreement”), except as set forth in the Rescission Agreement; |
| (viii) | The Executive Employment Agreement, dated as of April 7, 2022, by and between Sollensys and Mr. Harmon (the “Harmon Employment Agreement”), except as set forth in the Rescission Agreement; |
21
| (ix) | The Rothwell Sollensys Blockchain Archive Server Distributive Data Center Agreement (2 Units), dated as of April 7, 2022, by and among Sollensys, Ms. Rothwell and George Benjamin Rothwell (the “Blockchain Archive Server Agreement”); |
| (x) | The Promissory Note issued by Sollensys to Ms. Rothwell on April 7, 2022 (the “Rothwell Note”); |
| (xi) | The Banking and Credit Union Services Agreement, dated as of April 7, 2022, by and between Sollensys and Celerit (the “Banking Agreement”); |
| (xii) | The Real Estate Purchase Agreement, dated as of March 24, 2022, by and among Sollensys, SCARE, CRE, Ms. Rothwell and Mr. Rothwell (the “Real Estate Purchase Agreement”). |
Promissory Note
On August 22, 2022, Sollensys issued a Promissory Note, in the principal amount of $605,000, to Celerit. The Celerit Note bears simple interest at a rate of 7% per annum to the maturity date, September 30, 2022, or referredsuch earlier date as the Celerit Note may be paid pursuant to the terms of the Celerit Note. There is no penalty or premium for prepayment. In the Event of Default (as defined in this Report.the Celerit Note), Celerit may, at its option, declare the entire indebtedness under the Celerit Note immediately due and payable.
Board Resignations
Pursuant to the terms of the Rescission Agreement, effective August 22, 2022, Ms. Rothwell resigned as a member of Sollensys’ board of directors. Effective August 23, 2022, Anthony Nolte resigned as a member of Sollensys’ board of directors. Ms. Rothwell’s and Mr. Nolte’s resignations are not because of a disagreement with Sollensys on any matter relating to Sollensys’ operations, policies or practices.
We acquired Abstract Media, LLC (“Abstract Media”) in December 2021. Abstract Media was formed in October 2011 with the goal of improving user engagement using visualization tools, and has evolved into an interactive media and software development company to optimize effective corporate learning, operational workflow and communication using technology in the augmented reality or virtual reality space. Abstract Media conducts its operations from its office location in Houston, Texas.
ExceptOn November 4, 2022 the company sold 100% of its membership interest in Abstract Media, LLC to Tech Edge Services for $1,000. Additional terms are as follows:
(a) The Parties acknowledge and agree that Abstract Media is currently the lessee pursuant to a lease for the premises located at 33136 Magnolia Circle, Suite F, Magnolia, Texas 77354 (the “Lease”). Following the Closing, the Seller shall continue to pay the rent payable pursuant to the extent requiredLease for the months of November 2022 and December 2022. Buyer shall thereafter be responsible for rent payments in the Lease commencing on January 1, 2023.
(b) The Company shall pay, and shall be responsible for, all outstanding liabilities of Abstract Media related to any and all contracts of Abstract Media as of the Closing Date.
(c) Following the Closing and for a period of 24 months thereafter (the “Earn-Out Period”), Buyer shall pay to the Company an amount equal to 5% of the gross proceeds received by law, we undertake no obligationthe Company with respect to update or revise any forward-looking statements, whethercontracts and agreements in place with Abstract Media as of the Closing Date. Such payments shall be made within 7 days of each calendar month during the Earn-Out Period.
Under the terms of the Membership Interest Purchase Agreement, the Company determined that the goodwill and the unamortized value of intangible assets as of September 30, 2022 had been fully impaired. As a result the Company recorded an impairment charge of $344,787 on its Consolidated Statement of Operations for the three months ended September 30, 2022
Results of Operations for the Three and Nine Months Ended September 30, 2022 Compared to the Three and Nine Months Ended September 30, 2021
The comparison of operating results includes the operations of Abstract Media in the three and nine months ended September 30, 2022 compared to zero operating results for Abstract Media in the same three and nine month periods in 2021. See “—Overview—Recent Developments” regarding the unwinding of all of the Celerit transactions. During the nine months ended September 30, 2022, Celerit generated $7,245,182 in revenue and a pre-tax profit of $2,651,278. Additionally, as a result of new information, future events,the Celerit unwinding we lost $14,649,778 upon rescission resulting in a changenet loss of $11,998,500 from discontinued operations for the nine months ended September 30, 2022. The results from discontinued operations are excluded from management’s discussion of operation below, and from the Liquidity analysis.
22
Revenue
For the three months ended September 30, 2022, we recorded $102,353 in events, conditions, circumstances or assumptions underlying such statements, or otherwise.revenue at Sollensys from the execution of our blockchain archive server agreements and due to addition of Abstract Media revenue, compared to $35,714 in revenue for the three months ended September 30, 2021. We are in the process of developing our strategic business plan going forward and, therefore, revenue may vary from period to period.
For the nine months ended September 30, 2022, we recorded $890,576 in revenue compared to $145,357 for the same period ended September 30, 2021. We are in the process of developing our strategic business plan going forward and, therefore, revenue may vary from period to period.
Cost of sales
Cost of sales was $190,048 for the three months ended September 30, 2022, compared to cost of sales of $104,608 for the three months ended September 30, 2021. The significant increase in cost of sales is attributable to higher sales, the buildout of our infrastructure in the prior period in anticipation of higher sales levels in 2022, and the addition of Abstract Media’s revenue and cost of sales.
Cost of sales was $999,093 for the nine months ended September 30, 2022, compared to cost of sales of $167,352 for the nine months ended September 30, 2021. The significant increase in cost of sales is attributable to higher sales, the buildout of our infrastructure in the prior period in anticipation of higher sales levels in 2022, and the addition of Abstract Media’s revenue and cost of sales.
Operating expenses
Operating expenses for the three months ended September 30, 2022 were $1,222,896 compared to $1,058,574 for the three months ended September 30, 2021. The increase in operating expenses in the three months ended September 30, 2022, compared to the same period in 2021 is indicative of an impairment charge to goodwill and intangible assets of $344,787, offset by the Company’s efforts to reduce operating expenses going forward. There can be no assurance that the Company can continue reducing expenses in the future.
Operating expenses for the nine months ended September 30, 2022 were $4,111,884 compared to $2,505,120 for the nine months ended September 30, 2021. The significant increase in operating expenses in the nine months ended September 30, 2022, compared to the same period in 2021 is due to the buildout of the infrastructure at the Company in 2021 to support higher levels of activity and revenue generation in 2022, the addition of Abstract Media’s operating expenses, and due to an impairment charge to goodwill and intangible assets of $344,787. However, prospectively the Company is attempting to reduce its level of operating expenses because its anticipated revenue ramp-up has not occurred. There can be no assurance that the company can reduce expenses and that the levels of revenue will increase in the future.
CERTAIN TERMS USED IN THIS REPORT
When this report uses the words “we,” “us,” “our,” and the “Company,” they refer to Sollensys Corp. “SEC” refers to the Securities and Exchange Commission.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
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SOLLENSYS CORP.
(FORMERLY KNOWN AS HEALTH DIRECTORY, INC.)
(A Development Stage Company)
Condensed Balance Sheets
(Unaudited)
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| December 31, 2012 |
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| March 31, 2012 |
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Assets |
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Current assets |
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Cash |
| $ | 460 |
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| $ | 7,813 |
Prepaid Expenses |
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| 20,270 |
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| - |
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Total current assets |
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| 21,210 |
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| 7,813 |
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Total assets |
| $ | 21,210 |
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| $ | 7,813 |
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Liabilities and stockholders' deficit |
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Current liabilities: |
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Accrued expenses |
| $ | 16,634 |
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| $ | 23,706 |
Advances from stockholder |
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| 133,110 |
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| - |
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Total current liabilities |
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| 149,744 |
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| 23,706 |
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Total Liabilities |
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| 149,744 |
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| 23,706 |
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Stockholders' deficit |
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Preferred stock: $0.001 par value: 25,000,000 shares authorized; |
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none issued or outstanding |
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| - |
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| - |
Common stock: $0.001 par value: 1,500,000,000 shares authorized; |
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500,075,386 and 495,075,386 shares issued and outstanding, respectively |
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| 500,075 |
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| 495,075 |
Additional paid-in capital |
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| (376,516) |
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| (405,005) |
Deficit accumulated during the development stage |
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| (252,093) |
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| (105,963) |
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Total stockholders' deficit |
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| (128,534) |
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| (15,893) |
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Total liabilities and stockholders' deficit |
| $ | 21,210 |
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| $ | 7,813 |
See accompanying notes to the financial statements.
SOLLENSYS CORP.
(FORMERLY KNOWN AS HEALTH DIRECTORY, INC.)
(A Development Stage Company)
Condensed Statement of Operations
(Unaudited)
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| For the Period from | |
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| For the Three Months |
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| For the Three Months |
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| For the Nine Months |
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| For the Nine Months |
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| September 29, 2010 | |
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| Ended |
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| Ended |
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| Ended |
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| Ended |
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| (inception) through | |
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| December 31, 2012 |
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| December 31, 2011 |
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| December 31, 2012 |
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| December 31, 2011 |
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| December 31, 2012 | |
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Revenues |
| $ | -- |
| $ | -- |
| $ | -- |
| $ | -- |
| $ | -- | |
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Operating expenses |
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General and administrative expenses |
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| 7,264 |
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| 52,250 |
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| 17,350 |
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| 55,419 |
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| 76,335 | |
Professional fees |
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| 55,107 |
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| 4,803 |
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| 128,863 |
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| 18,583 |
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| 175,841 | |
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Total operating expenses |
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| 62,371 |
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| 57,053 |
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| 146,213 |
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| 74,002 |
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| 252,176 | |
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LOSS FROM OPERATIONS |
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| (62,371) |
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| (57,053) |
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| (146,213) |
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| (74,002) |
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| (252,176) | |
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OTHER (INCOME) EXPENSES |
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Other income |
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| (83) |
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| -- |
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| (83) |
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| -- |
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| (83) | |
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Total Other (Income) Expenses |
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| (83) |
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| -- |
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| (83) |
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| -- |
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| (83) | |
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Loss before taxes |
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| (62,288) |
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| (57,053) |
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| (146,130) |
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| (74,002) |
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| (252,093) | |
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Income tax provision |
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| -- |
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| -- |
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| -- |
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| -- |
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| -- | |
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Net loss |
| $ | (62,288) |
| $ | (57,053) |
| $ | (146,130) |
| $ | (74,002) |
| $ | (252,093) | |
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Net loss per common share: |
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| - Basic and diluted |
| $ | (0.00) |
| $ | (0.00) |
| $ | (0.00) |
| $ | (0.00) |
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|
|
|
|
|
|
|
| |
| Weighted average common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 500,075,386 |
|
| 406,082,655 |
|
| 497,220,886 |
|
| 377,523,285 |
|
|
| |
See accompanying notes to the financial statements.
SOLLENSYS CORP.
(FORMERLY KNOWN AS HEALTH DIRECTORY, INC.)
(A Development Stage Company)
Condensed Statement of Stockholders' Equity (Deficit)
For the Period from September 29, 2010 (Inception) through December 31, 2012
(Unaudited)
|
|
|
|
|
| Deficit |
|
| ||||||
|
| Common Stock, $0.001 Par Value |
| Additional |
| Accumulated |
| Total | ||||||
|
| Number of |
|
|
| Paid-in |
| during the |
| Stockholders' | ||||
|
| Shares |
| Amount |
| Capital |
| Development Stage |
| Equity (Deficit) | ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Balance, September 29, 2010 (inception) |
| 263,380,000 |
| $ | 263,380 |
| $ | (261,380) |
| $ | - |
| $ | 2,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contribution to capital |
|
|
|
| - |
|
| 100 |
|
| - |
|
| 100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued at $0.00038 per share for cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
from December 1, 2010 through March 31, 2011 |
| 100,005,386 |
|
| 100,005 |
|
| (62,035) |
|
| - |
|
| 37,970 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
| (9,175) |
|
| (9,175) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2011 |
| 363,385,386 |
|
| 363,385 |
|
| (323,315) |
|
| (9,175) |
|
| 30,895 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued to officer for compensation valued |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
at $0.00038 per share on December 1, 2011 |
| 131,690,000 |
|
| 131,690 |
|
| (81,690) |
|
|
|
|
| 50,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
| (96,788) |
|
| (96,788) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2012 |
| 495,075,386 |
|
| 495,075 |
|
| (405,005) |
|
| (105,963) |
|
| (15,893) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contribution of Capital |
|
|
|
|
|
|
| 28,489 |
|
| - |
|
| 28,489 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued to officer for compensation valued |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
at $0.001 per share on September 4, 2012 |
| 5,000,000 |
|
| 5,000 |
|
| - |
|
| - |
|
| 5,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
| (146,130) |
|
| (146,130) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2012 |
| 500,075,386 |
| $ | 500,075 |
| $ | (376,516) |
| $ | (252,093) |
| $ | (128,534) |
See accompanying notes to the financial statements.
SOLLENSYS CORP.
(FORMERLY KNOWN AS HEALTH DIRECTORY, INC.)
(A Development Stage Company)
Condensed Statement of Cash Flows
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Period from |
|
|
| For the Nine Months |
|
|
| For the Nine Months |
|
|
| September 29, 2010 |
|
|
| Ended |
|
|
| Ended |
|
|
| (inception) through |
|
|
| December 31, 2012 |
|
|
| December 31, 2011 |
|
|
| December 31, 2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
Net loss |
| $ | (146,130) |
|
| $ | (74,002) |
|
| $ | (252,093) |
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
|
|
|
Common share issued for compensation |
|
| 5,000 |
|
|
| 5,000 |
|
|
| 57,000 |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses |
|
| (20,750) |
|
|
| -- |
|
|
| (20,750) |
Accrued expenses |
|
| (7,072) |
|
|
| (3,687) |
|
|
| 16,634 |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities |
|
| (168,952) |
|
|
| (27,689) |
|
|
| (199,209) |
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
Shareholder advances |
|
| 133,110 |
|
|
| -- |
|
|
| 133,110 |
Capital contribution |
|
| 28,489 |
|
|
| -- |
|
|
| 28,589 |
Collection of stock subscription receivable |
|
| -- |
|
|
| 13,070 |
|
|
| 13,070 |
Proceeds from sale of common stock |
|
| -- |
|
|
| - |
|
|
| 24,900 |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
| 161,599 |
|
|
| 13,070 |
|
|
| 199,669 |
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash |
|
| (7,353) |
|
|
| (14,619) |
|
|
| 460 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash, beginning of period |
|
| 7,813 |
|
|
| 25,000 |
|
|
| -- |
|
|
|
|
|
|
|
|
|
|
|
|
Cash, end of period |
| $ | 460 |
|
| $ | 10,381 |
|
| $ | 460 |
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flows information: |
|
|
|
|
|
|
|
|
|
|
|
Interest paid |
| $ | - |
|
| $ | - |
|
| $ | - |
Income tax paid |
| $ | - |
|
| $ | - |
|
| $ | - |
See accompanying notes to the financial statements.
SOLLENSYS CORP.
(Formerly known as Health Directory, Inc.)
(A Development Stage Company)
December 31, 2012
Notes to the Condensed Financial Statements
(Unaudited)
Note 1 - Organization and Operations
Sollensys Corp. (fka Health Directory, Inc. or the “Company”), a development stage company, was incorporated on September 29, 2010 under the laws of the State of Nevada. Initial operations have included organization and incorporation, target market identification, marketing plans, and capital formation. A substantial portionKey components of the Company’s operating expenses for the nine months ended September 30, 2022 include approximately $1,118,000 in legal and professional fees, approximately $1,475,000 in payroll and benefits, approximately $135,000 in rent expense, approximately $503,000 in stock-based compensation for services, approximately $143,000 in amortization of intangible assets and depreciation, and approximately $54,000 in marketing expense.
Liquidity and Capital Resources
We had $5,288 in cash and cash equivalents on hand as of September 30, 2022.
As described throughout this Report, the Company entered into a rescission agreement with Celerit on August 21, 2022. The analysis below of the Company’s liquidity excludes any discussion of the impact on cash flows from discontinued operations.
Net cash used in operating activities has involved developing a business planfor continuing operations was $2,953,008 for the nine months ended September 30, 2022, compared to $1,641,486 in cash used for continuing operations for the nine months ended September 30, 2021. The material increase in cash used in operating activities during the nine months ended September 30, 2022 was primarily due to the decrease in profitability from continuing operations of approximately $1,458,000 during the nine months ended September 30, 2022.
Net cash used in investing activities from continuing operations during the nine months ended September 30, 2022 was $18,469 compared to $408,691 cash used in investing activities from continuing operations for the nine months ended September 30, 2021. The decrease in cash used in investing activities during the nine months ended September 30, 2022 was primarily due to the decrease in capital expenditures during 2022, compared to cash used for building improvements of $167,246 on Company’s corporate headquarters, and establishing contactscash used of $241,445 for the purchase of furniture and visibilityequipment in the marketplace.2021 period.
23
Net cash provided by financing activities from continuing operations was $2,603,481 for the nine months ended September 30, 2022, compared to $2,066,959 for the nine months ended September 30, 2021. The Company has not generated any revenues since inception.
Effective July 30, 2012,increase in cash provided during the holder2022 period was primarily due to an in increase in notes payable and related party loans of 3,000,000 shares, or approximately 79.8% of Sollensys Corporation, (the “Company”) then outstanding voting securities, executed a written consent in accordance with Section 78.320 of$2,149,000, plus proceeds from the NRS, approving the amendment to the Articles of Incorporation to change the Company’s name to Sollensys Corp. and increase the common shares authorized to 1,500,000,000 and increase the preferred shares authorized to 25,000,000, and to split each outstanding sharesale of common stock into 131.69 shares of common stock. All share and per share amountsapproximately $510,000 in the 2022 period compared to $2,040,979 in the comparable 2021 period.
Since we have been restatedincurring losses from operations, we have relied on ongoing sales of unregistered securities and the personal guarantees of Mr. Beavers, our Chief Executive Officer, a member of our Board of Directors and a significant stockholder, to give effectobtain financing to fund our operations.
There can be no assurance that we will be able to continue to raise capital from the sale of our securities, or use our securities to make acquisitions. Additionally, there can be no assurances that Mr. Beavers will continue to provide his personal guaranty on financing transactions to help raise capital.
Plans to Address Liquidity Shortages
In order to address liquidity shortages, the Company has undertaken two initiatives (i) the sale and leaseback of its corporate headquarters at a significant profit, and the divestiture of Abstract Media which has generated negative cash flow during 2022. See Note 12: Subsequent Events
Financial Impact of COVID-19
The COVID-19 pandemic has affected how we are operating our business, and the duration and extent to which this will impact our future results of operations and overall financial performance remains uncertain. The COVID-19 pandemic is having widespread, rapidly evolving, and unpredictable impacts on global society, economies, financial markets, and business practices. Federal, state and foreign governments have implemented measures to contain the virus, including social distancing, travel restrictions, border closures, limitations on public gatherings, work from home, and closure of non-essential businesses. To protect the health and well-being of our employees, partners, and third-party service providers, we have implemented work-from-home requirements, made substantial modifications to employee travel policies, and cancelled or shifted marketing and other corporate events to virtual-only formats for the foreseeable future. While we continue to monitor the situation and may adjust our current policies as more information and public health guidance become available, such precautionary measures could negatively affect our customer success efforts, sales and marketing efforts, delay and lengthen our sales cycles, or create operational or other challenges, any of which could harm our business and results of operations. In addition, the COVID-19 pandemic has disrupted the operations of our current enterprise customers, as well as many potential enterprise customers, and may continue to disrupt their operations, for an indefinite period of time, including as a result of travel restrictions and/or business shutdowns, uncertainty in the financial markets, or other harm to their businesses and financial results, resulting in delayed purchasing decisions, extended payment terms, and postponed or cancelled projects, all of which could negatively impact our business and results of operations, including our revenue and cash flows.
Beginning in March 2020, the U.S. and global economies have reacted negatively in response to worldwide concerns due to the economic impacts of the COVID-19 pandemic. These factors also may adversely impact enterprise and government spending on technology as well as such customers’ ability to pay for our products and services on an ongoing basis. For example, some businesses in industries particularly impacted by the COVID-19 pandemic, such as travel, hospitality, retail, and oil and gas, have significantly cut or eliminated capital expenditures. A prolonged economic downturn could adversely affect technology spending, demand for our offerings, which could have a negative impact on our financial condition, results of operations and cash flows. Any resulting instability in the financial markets could also adversely affect the value of our common stock, split. our ability to refinance our indebtedness, and our access to capital.
The Company’s name was changedultimate duration and extent of the impact from the COVID-19 pandemic depends on future developments that cannot be accurately forecasted at this time, such as the severity and transmission rate of the disease, the actions of governments, businesses and individuals in anticipationresponse to the pandemic, the extent and effectiveness of merging with Sollensys Corporation -containment actions, the impact on economic activity and the impact of these and other factors on our employees, partners, and third-party service providers. These uncertainties may increase variability in our future results of operations and adversely impact our ability to accurately forecast changes in our business performance and financial condition in future periods. If we are not able to respond to and manage the impact of such events effectively or if global economic conditions do not improve, or deteriorate further, our business, financial condition, results of operations, and cash flows could be adversely affected.
24
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a South Korean corporation.current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Note 2 - Summary of SignificantCritical Accounting Policies and Estimates
BasisThe preparation of Presentation
The accompanying unaudited interim financial statements and related notes have been prepared in accordanceconformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, and with the rules and regulations of the United States Securities and Exchange Commission (“SEC”) to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The unaudited interim financial statements furnished reflect all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. Interim results are not necessarily indicative of the results for the full year. The Balance Sheet at March 31, 2012 has been derived from the audited financial statements. These unaudited interim financial statements should be read in conjunction with the financial statements of the Company for the year ended March 31, 2012 and notes thereto contained in the Company’s Annual Report on Form 10-K filed with the SEC on June 28, 2012.
Development Stage Company
The Company is a development stage company as defined by section 915-10-20 of the FASB Accounting Standards Codification. The Company is still devoting substantially all of its efforts on establishing the business and its planned principal operations have not commenced. All losses accumulated since inception have been considered as part of the Company's development stage activities.
Use of Estimates and Assumptions
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reportingreported amounts of revenues and expenses during the reporting period.
SOLLENSYS CORP.
(Formerly known as Health Directory, Inc.)
(A Development Stage Company)
December 31, 2012
Notes to the Condensed Financial Statements
(Unaudited)
The Company’s significant estimates and assumptions include the fair value of financial instruments and the assumption that the Company will be a going concern. Those significant accounting estimates or assumptions bear the risk of change due to the fact that there are uncertainties attached to those estimates or assumptions, and certain estimates or assumptions are difficult to measure or value.
Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable in relation to the financial statements taken as a whole under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
Management regularly evaluates the key factors and assumptions used to develop the estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such evaluations, if deemed appropriate, those estimates are adjusted accordingly.
Actual results could differ from those estimates.
Fair ValueWe believe that the following critical policies affect our more significant judgments and estimates used in the preparation of Financial Instrumentsour consolidated financial statements.
The Company follows paragraph 825-10-50-10 ofNew Accounting Pronouncements
In February 2016, the FASBFinancial Accounting Standards Codification for disclosures about fair value of its financial instruments and has adopted paragraph 820-10-35-37 of the FASBBoard (“FASB”) issued Accounting Standards CodificationUpdate (“Paragraph 820-10-35-37”ASU”) to measure the fair value of its financial instruments. Paragraph 820-10-35-37 of the FASB Accounting Standards CodificationNo. 2016-02, Leases (Topic 842), which establishes a frameworknew lease accounting model for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, paragraph 820-10-35-37 of the FASB Accounting Standards Codification establishes a fair value hierarchy which prioritizes the inputslessees. The updated guidance requires an entity to valuation techniques used to measure fair value into three (3) broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three (3) levels of fair value hierarchy defined by paragraph 820-10-35-37 of the FASB Accounting Standards Codification are described below:
|
| |
|
| |
|
|
Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.
The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. If the inputs used to measure the financialrecognize assets and liabilities fallarising from financing and operating leases, along with additional qualitative and quantitative disclosures. The amended guidance is effective for fiscal years, and interim periods within more than one level described above,those years, beginning after December 15, 2018, with early adoption permitted. In March 2019, the categorization is based on the lowest level input that is significant to the fair value measurementFASB issued ASU 2019-01, Codification Improvements, which clarifies certain aspects of the instrument.
new lease standard. The carrying amounts ofFASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases in July 2018. Also in 2018, the Company’s financial assetsFASB issued ASU 2018-11, Leases (Topic 842) Targeted Improvements, which provides an optional transition method whereby the new lease standard is applied at the adoption date and liabilities, suchrecognized as cashan adjustment to retained earnings. The amendments have the same effective date and accrued expenses, approximate their fair values because of the short maturity of these instruments.
SOLLENSYS CORP.
(Formerly known as Health Directory, Inc.)
(A Development Stage Company)
December 31, 2012
Notes to the Condensed Financial Statements
(Unaudited)
Transactions involving related parties cannot be presumed to be carried out on an arm's-length basis,transition requirements as the requisite conditions of competitive, free-market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm's-length transactions unless such representations can be substantiated.
It is not, however, practical to determine the fair value of advances from stockholders due to their related party nature.
Income Taxes Provision
The Company adopted the provisions of paragraph 740-10-25-13 ofnew lease standard On November 15, 2019, the FASB Accounting Standards Codification. Paragraph 740-10-25-13.addressesissued ASU 2019-10, which amends the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded ineffective dates for three major accounting standards. The ASU defers the financial statements. Under paragraph 740-10-25-13, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent (50%) likelihood of being realized upon ultimate settlement. Paragraph 740-10-25-13 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. The Company had no material adjustments to its liabilities for unrecognized income tax benefits according to the provisions of paragraph 740-10-25-13.
The estimated future tax effects of temporary differences between the tax basis of assets and liabilities are reported in the accompanying consolidated balance sheets, as well as tax credit carry-backs and carry-forwards. The Company periodically reviews the recoverability of deferred tax assets recorded on its consolidated balance sheets and provides valuation allowances as management deems necessary.
Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In addition, the Company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions. In management’s opinion, adequate provisions for income taxes have been made for all years. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary.
Uncertain Tax Positions
The Company did not take any uncertain tax positions and had no adjustments to unrecognized income tax liabilities or benefits pursuant to the provisions of Section 740-10-25effective dates for the period ended December 31, 2012.
Net Income (Loss) per Common Share
Net income (loss) per common share is computed pursuant to section 260-10-45 of the FASB Accounting Standards Codification. Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stockcredit losses, derivatives, and potentially outstanding shares of common stock during the period to reflect the potential dilution that could occur from common shares issuable through contingent shares issuance arrangement, stock options or warrants.
There were no potentially outstanding dilutive shareslease standards for the three and nine months ended December 31, 2012 or 2011.
SOLLENSYS CORP.
(Formerly known as Health Directory, Inc.)
(A Development Stage Company)
December 31, 2012
Notes to the Condensed Financial Statements
(Unaudited)
Recently Issued Accounting Pronouncements
Management does not believe that any recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying consolidated financial statements.
Note 3 - Going Concern
The accompanying condensed financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.
As reflected in the accompanying condensed financial statements, the Company had a deficit accumulated during the development stage at December 31, 2012, and a net loss and net cash used in operating activities for the fiscal year then ended, respectively, with no revenues earned since inception. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
Whilecertain companies. Since the Company is attempting to commence operationsclassified as a small reporting company, emerging growth company, and generate revenues, the Company’s cash position may not be significant enough to support the Company’s daily operations. Management intends to raise additional funds by way ofhas a public or private offering. Management believes that the actions presently being taken to further implement its business plan and generate revenues provide the opportunity forcalendar-year end the Company was eligible for deferring the adoption of ASC 842 to continueJanuary 1, 2022.
In the first quarter of fiscal 2022, we adopted ASU 2016-02 using the “Comparatives Under 840 Option” approach to transition. Under this method, financial information related to periods prior to adoption will be as originally reported under the previous standard – ASC 840, Leases. The effects of adopting the new standard (ASC 842, Leases) in fiscal 2022 were recognized as a going concern. While the Company believes in the viability of its strategycumulative-effect adjustment to increase revenues and in its ability to raise additional funds, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to further implement its business plan and generate revenues.
The condensed financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Note 4 - Related Party Transactions and Employment Agreement
Free Office Space
The Company has been provided office space by its Chief Executive Officer at no cost. The management determined that such cost is nominal and did not recognize the rent expense in its financial statement.
Employment Agreement
The Company entered into an employment agreement (“Employment Agreement”) with its president and chief executive officer (“Employee”) commencing May 1, 2011, which requires that the Employee be paid a minimum of $500 per month for three (3) years from date of signing. Either the employee or the Company has the right to terminate the Employment Agreement upon thirty (30) days’ notice to the other party. This agreement was terminated on July 18, 2012.
Pursuant to the Employment Agreement the Company recorded $2,000 and $4,000 for the nine months ended December 31, 2012 and 2011, respectively.
SOLLENSYS CORP.
(Formerly known as Health Directory, Inc.)
(A Development Stage Company)
December 31, 2012
Notes to the Condensed Financial Statements
(Unaudited)
Advances from Stockholder
From time to time, stockholder of the Company advances funds to the Company for working capital purpose. Those advances are unsecured, non-interest bearing and due on demand.
Advances from stockholder at December 31, 2012 and March 31, 2012, consisted of the following:
|
| December 31, 2012 |
|
| March 31, 2012 |
| ||
|
|
|
|
|
|
|
|
|
Advances from stockholder |
| $ | 133,110 |
|
| $ | - |
|
|
|
|
|
|
|
|
|
|
Total |
| $ | 133,110 |
|
| $ | - |
|
|
|
|
|
|
|
| ||
Note 5 - Stockholders’ Equity
Shares Authorized
The total number of shares of all classes of stock which the Company is authorized to issue is 1,525,000,000 shares of which 25,000,000 shares shall be Preferred Stock, par value $0.001 per share, and 1,500,000,000 shares shall be Common Stock, par value $0.001 per share.
Common Stock
On September 29, 2010, the Company issued 263,380,000 common shares to its Chief Executive Officer at the par value of $0.000008 per share or $2,000 for compensation upon formation of the Company.
For the period from December 1, 2010 through December 31, 2010, the Company sold 33,185,880 shares of its common stock at $0.00038 per share or $12,600 in aggregate to 10 individuals.
For the period from January 1, 2011 through March 31, 2011, the Company sold 66,819,506 shares of its common stock at $0.00038 per share or $25,370 in aggregate to 25 individuals.
On December 1, 2011, the Company issued 131,690,000 common shares to its Chief Executive Officer at $0.00038 per share or $50,000 for compensation.
On July 18, 2012, in a private transaction, 3,000,000 shares of common stock, which represented 79.8% of the issued and outstanding shares of common stock, were sold to Middle East Ventures FZE for the total price of $25,000. This resulted in a change in control of the Company. In connection with this transaction, also on July 18, 2012, Humaira Haider resigned from her position as Chief Executive Officer of the Company and Rowland W. Day was appointed as the new President and sole director of the Company as well as Chief Executive Officer of the Company, Secretary, and Chief Financial Officer.
On July 30, 2012, the Company effectuated a forward 131.69-to-1 stock split of common shares.
On September 4, 2012, the Company issued 5,000,000 shares of restricted common stock to its legal counsel at $0.001 per share or $5,000 for services.
SOLLENSYS CORP.
(Formerly known as Health Directory, Inc.)
(A Development Stage Company)
December 31, 2012
Notes to the Condensed Financial Statements
(Unaudited)
Payments Received from Stock Subscription Receivable
On April 6, 2011, April 7, 2011 and April 13, 2011, payments of $13,070 in the aggregate were received from the sale of 261,400 of the 759,400 shares sold from December 1, 2010 through March 31, 2011. Since these payments were received prior to the issuance of these financial statements, they were reflected as an asset on the balance sheet as of March 31, 2011.
Capital Contribution
In October 2010, the Company’s Chief Executive Officer contributed $100 for the general working capital to the Company.
On July 24, 2012, $27,989 in advance from shareholder were converted to capital and recorded as contribution to paid-in capital.
On November 8, 2012, the Company’s Chief Executive Officer contributed $500 for the general working capital to the Company.
Note 6 - Share Acquisition Agreement
On September 30, 2012 a Share Acquisition Agreement (“Agreement”) was entered into for the acquisition of all of the outstanding shares of Sollensys Corporation, a South Korean Corporation (“Sollensys Korea”) by the Registrant. Pursuant to the Agreement, the Registrant intends to acquire all of the outstanding shares of Sollensys Korea by issuing approximately 200,000,000 million shares of the Registrant’s common stock. Upon issuance of the 200,000,000 common shares, the shareholders of Sollensys Korea will own approximately 40% of the Registrant. The closing of the Agreement is subject to the audit of Sollensys Korea’s financial statements for the past two fiscal years, approval by the shareholders of Sollensys Korea and other standard terms and conditions. The parties intend to close the transaction by approximately February 2013.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion provides information which management believes is relevant to an assessment and understanding of our results of operations and financial condition. The discussion should be read along with our financial statements and notes thereto contained elsewhere in this Report. The following discussion and analysis contains forward-looking statements, which involve risks and uncertainties. Our actual results may differ significantly from the results, expectations and plans discussed in these forward-looking statements.
Overview
We were incorporated in the State of Nevada on September 29, 2010 as Health Directory, Inc. and were based in Falls Church, VA. On August 27, 2012 our name was changed to Sollensys Corp. and we are now located in Newport Beach, California.
We were originally developing our health related online directory. We have decided to suspend the development of our website at this time to pursue another business opportunity.
On September 30, 2012, we entered into a share purchase agreement with a Korean company that is developing touch screen panels (“TSP”) for use in consumer products. The Korean company is a development stage company and we believe that its acquisition could lead to a more viable economic opportunity for the Company. We are revising our business plan and working to expand our operations within the manufacturing of touch screen panels. This transaction has not closedretained earnings as of the datebeginning of this report.the fiscal first quarter. We elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allows us to carry forward the historical lease classification as operating or capital leases. We also elected to combine lease and non-lease components and to exclude short-term leases from our consolidated balance sheets.
The most significant impact of adoption was the recognition of operating lease assets and operating lease liabilities of $496 thousand and $541 thousand, respectively. The cumulative impact of these changes increased accumulated deficit by $46 thousand. We do not consider ourselvesexpect the impact of adoption to be a blank check company. We have a specific business planimmaterial to our consolidated statements of earnings and have moved forward implementing it withconsolidated statements of cash flows on an ongoing basis. As part of our proposed acquisition.adoption, we also modified our control procedures and processes, none of which materially affected our internal control over financial reporting. See Note 10, Leases, for additional information regarding our accounting policy for leases and additional disclosures.
We anticipate that depending on market conditions and our plan of operations, we may incur operating losses in the foreseeable future after the closing of the acquisition. Therefore, our auditors have raised substantial doubt about our ability to continue as a going concern.
Business Strategy and Objectives
Our objective, after the closing of the acquisition, is to become the leading touch screen panel manufacturer. The Company expects to accomplish this objective by retaining key personnel, raising sufficient operating capital and developing next generation TSP’s.
Products and Services
Upon the closing of the acquisition we will produce TSP of various sizes for use in many consumer products, including but not limited to computer and mobile devices.
Market Opportunity
The worldwide market for TSP was estimated at $3.6B in 2008 increasing to $9.0B by 2014. By the end of 2012, more than 80% of the worldwide mobile phone market will use TSP. Because of the growth prospects, we believe the completion of the acquisition represents a unique economic opportunity for the Company.
Competition
Upon completion of the acquisition, we will compete with companies that are substantially larger, more advanced technologically, with greater resources than we will have.
We plan to hire engineers that are capable of creating new TSP technologies that will compete with these larger competitors in the world markets.
Employees
As of February 5, 2013, we do not have any employees.
Results of Operations
Revenues and Cost of Revenues. We have not generated any revenue or incurred any related cost of revenue to date. We are in the formation stage as our business was formed on September 29, 2010 and no revenue activities have yet begun.
General and Administrative. General and administrative expenses for the three and six month period ended September 30, 2012 were $8,443 and $10,087 respectively. The expense relates to office supplies and computer maintenance.
Professional Fees. Professional fees for the three month and six month period ended September 30, 2012 was $64,865 and $72,505 respectively. The expense relates to legal and accounting fees as a result of being a public company.
Liquidity and Capital Resources
Our cash and cash equivalents totaled approximately $460 at December 31, 2012 and $7,813 at March 31, 2012.
Net Cash Used in Operating Activities. Cash used in operating activities for the nine months ended December 31, 2012 was $(168,952).
Net Cash Provided By/Used in Investing Activities. We did not use cash in investing activities for the nine months ended December 31, 2012.
Net Cash Provided By Financing Activities. Cash generated from financing activities for the nine months ended December 31, 2012 was $161,599 which consisted mostly of advances from stockholder.
Critical Accounting Policies
The accompanying condensed financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.
As reflected in the accompanying condensed financial statements, the Company had a deficit accumulated during the development stage at December 31, 2012, and a net loss and net cash used in operating activities for the fiscal year then ended, respectively, with no revenues earned since inception. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
While the Company is attempting to commence operations and generate revenues, the Company’s cash position may not be significant enough to support the Company’s daily operations. Management intends to raise additional funds by way of a public or private offering. Management believes that the actions presently being taken to further implement its business plan and generate revenues provide the opportunity for the Company to continue as a going concern. While the Company believes in the viability of its strategy to increase revenues and in its ability to raise additional funds, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to further implement its business plan and generate revenues.
Recent Accounting Pronouncements
Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying consolidated financial statements.
Off-balance sheet arrangements
At December 31, 2012, we did not have any material commitments for capital expenditures or have any transactions, obligations or relationships that could be considered off-balance sheet arrangements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Not applicable toWe are a smaller reporting companies.company and are not required to provide this information.
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Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and principal financial officer, as of September 30, 2022, we conducted an evaluation of our disclosure controls and procedures.Pursuant toprocedures, as such term is defined under Rule 13a-15(b)13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, (“Exchangeas amended (the “Exchange Act”), the Company carried out an. Based on this evaluation, with the participation of the Company’s management, including the Company’s principal executive officer and principal financial officer of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Company’s principal executive officerour Chief Executive Officer and principal financial officer concluded that the Company’sour disclosure controls and procedures arewere not effective as of September 30, 2022 to ensure that information required to be disclosed by the Companyus in the reports that the Company filesfiled or submitssubmitted under the Exchange Act iswere recorded, processed, summarized, and reported within the time periods specified in the SEC’sSecurities and Exchange Commission’s rules and forms and that suchour disclosure controls are effectively designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to the Company’s management, including the Company’s principal executive officerour Chief Executive Officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Our management, including our Chief Executive Officer and principal financial officer, does not expect that our disclosure controls and procedures will prevent all error and all fraud. A control system, no matter how well-conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdown can occur because of simple error or mistake. In particular, many of our current processes rely upon manual reviews and processes to ensure that neither human error nor system weakness has resulted in erroneous reporting of financial data.
Changes in internal controlInternal Control over financial reporting.Financial Reporting
There have beenwere no changes in our internal control over financial reporting that occurred during the quarter covered by this Quarterly Report on Form 10-Qended September 30, 2022 that hashave materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
ITEMItem 1. LEGAL PROCEEDINGS.Legal Proceedings.
WeThere are currently not involvedno pending legal proceedings to which the Company is a party or in which any litigation that we believe could havedirector, officer or affiliate of the Company, any owner of record or beneficially of more than 5% of any class of voting securities of the Company, or security holder is a party adverse to the Company or has a material interest adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledgeCompany. The Company’s property is not the subject of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could havepending legal proceedings.
Item 1A. Risk Factors.
As a material adverse effect.
ITEM 1A. RISK FACTORS.
Not required for smaller reporting companies.company, we are not required to include this disclosure in this Quarterly Report on Form 10-Q.
ITEMItem 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.Unregistered Sales of Equity Securities and Use of Proceeds.
On December 1, 2011,During the three months ended September 30, 2022, the Company issued 1,000,000253,336 common shares to its Chief Executive Officerconsultants and service providers at $0.05 per share an average price of $1.13.
The above sales were made pursuant to an exemption from registration as set forth in Section 4(a)(2) of the Securities Act and/or $50,000 for compensation.Rule 506 of Regulation D promulgated under the Securities Act.
On September 4, 2012 the Company issued 5,000,000 shares of restricted common stock to its legal counsel at $0.001 per share or $5,000 for services.Item 3. Defaults Upon Senior Securities.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
There were no reportable events under this
Item 3 during the quarterly period ended December 31, 2012.4. Mine Safety Disclosures.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEMItem 5. OTHER INFORMATION.Other Information.
There were no reportable events under this Item 5 during the quarterly period ended December 31, 2012.
ITEM 6. EXHIBITS.
(a) Exhibits
| (a) | None. |
| (b) | There have been no material changes to the procedures by which security holders may recommend nominees to the Company’s Board of Directors since the filing with the SEC of the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2022. |
Item 6. Exhibits
| * | Filed herewith. |
| ** | Furnished herewith. |
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SIGNATURES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| SOLLENSYS CORP | |||
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| Dated: November 21, 2022 | By: | /s/ Donald Beavers | |
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