UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

☒   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)15(d) OF THE SECURITIES EXCHANGE ACT OF 1933

FOR THE QUARTERLY PERIOD ENDED SEPTEMBERJUNE 30, 2020

☐   TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM ________________ TO ________________________.

Commission File Number 333-174581

2475 Palm Bay Road NE, Suite 120

Palm Bay, Florida 32905

(Address of principal executive offices) (Zip Code)

(866)-438-7657

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

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 ☐☒     No ☒

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☑☒     No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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. ☐

SOLLENSYS CORP.

Consolidated Statements of Operations

(Unaudited)

SOLLENSYS CORP.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

Sollensys Corp.Corp (“Sollensys” or the “Company”) was formerly a development stage company, incorporated in Nevada on September 29, 2010, under the name Health Directory, Inc. Initial plans included organization and incorporation, target market identification, marketing plans, and capital formation. A substantial portion of the Company’s efforts involved developing a business plan and establishing contacts and visibility in the marketplace. The Company had not generated any revenues before the current period. Effective July

On November 30, 2012, the holder of 3,000,000 shares, or approximately 79.8% of the Company’s then outstanding voting securities, executed a written consent in accordance with Section 78.320 of the Nevada Revised Statutes approving an amendment to the Articles of Incorporation to change the Company’s name to2020, Sollensys Corp., increase the number of authorized common shares to 1,500,000,000, increase the number of authorized preferred shares to 25,000,000, and to split each outstanding share of common stock into 131.69 shares of common stock.

Among other conditions to the closing of the transactions contemplated by the Share Exchange Agreement (the “Closing” Pursuant), pursuant to the terms of the SPA,Share Exchange Agreement, the parties agreed that the Company would acquire 100% of Eagle agreedLake’s issued and outstanding capital stock, in exchange for the issuance to purchase, and Custodian Ventures agreed to sell, 19,000,000the Eagle Lake Shareholders of a number of shares of the Company’s Series A Preferred Stock in exchange for payment by Eagle to Custodian Ventures of $230,000 (collectively with the other transactions in the SPA, the “Stock Purchase”). The Stock Purchase closed on August 5, 2020. The shares of Series A Preferred Stock, par value $0.001 per share, of the Company are convertible into shares of common stock, par value $0.001 per share, to be determined at the Closing of the Company (the “Common Stock”) at a rate of 50 shares of Common Stock per share of Series A Preferred Stock, and has voting power on an as-converted basis (voting with the Common Stock as one class) and thus represents 65.4% of the voting power of all shares of stock of the Company.

Eagle Lake is a Florida basedFlorida-based science, technology, and engineering solutions corporation offering products that ensure their clientsclients' data integrity through the collection, storage, and transmission. Eagle intends to merge with the Company; however, there can no assurances, that this will occur. Currently, Eagle personnel are managing the Company. New management will be steering the Company toward commercialization of proprietary data platforms as the Company moves away from touch screen manufacturing. 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.

On November 2,October 14, 2020, the Company effectedfiled with the Secretary of State of Nevada a Certificate of Amendment to its Articles of Incorporation (the “Amendment”) to effect a 1-for-120 reverse stock split (the “Reverse Split”) of itsthe Company’s issued and outstanding common stock $0.001 par value common stock. Accordingly,Pursuant to the Amendment, effective November 2,as of October 30, 2020, every 120 shares of the Company’s issued and outstanding common stock will be converted into one share of common stock, without any change in the par value per share.

The Reverse Split became effective on November 2, 2020. Following the effectiveness of the Reverse Split, on November 2, 2020, the number of authorized shares of common stock was reduced from 12,000,000,000 shares to 300,000,000. Additionally, following the Reverse Split, Eagle Lake’s 11,400,000,000 common shares were adjusted to 95,000,000 shares and they continued to maintain 95.8% of the total of 99,193,962 common shares outstanding.

No fractional shares of common stock will bewere issued in connection with the Reverse Split. If, as a result of the Reverse Split, a shareholder would otherwise hold a fractional share, the shareholder will receive, in lieureceived, instead of the issuance of such fractional share, one whole share of common stock.

SOLLENSYS CORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited consolidated financial statements have been prepared in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”),FASB’s ASC, which is the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) in the United States.

Going Concern

The accompanying unaudited financial statements have been prepared by the Company without audit pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted as allowed by such rules and regulations, and management believes that the disclosures are adequate to make the information presented not misleading. These unaudited 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. Interim results are not necessarily indicative of results for a full year. These unaudited financial statements should be read in conjunction with the audited financial statements for the fiscal years ended March 31, 2020, and 2019, as presented in the Company’s Annual Report on Form 10-K filed on April 29, 2020, with the SEC.

The preparation of financial statements in 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 financial statements and the reported amount of expenses during the reporting period. The most significant estimates relate to income taxes 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 unauditedconsolidated financial statements. The results of these assumptions provide the basis for making estimates about the carrying amounts of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates.

The Company considers all highly liquid temporary cash investments with an original maturity of three months or less to be cash equivalents. On SeptemberJune 30, 2020,2021 and MarchDecember 31, 2020, the Company’s cash equivalents totaled $45,485$347,205 and $0,$129,624, respectively.

The Company accounts for stock-based compensation using the fair value method following the guidance outlined in Section 718-10 of the FASB ASC for disclosure about stock-based compensation. This section requires a public entity to measure the cost of employee and non-employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That cost will be recognized over the period during which service is provided. No compensation cost is recognized for equity instruments for which service is nornot provided or rendered.

NOTE 3 – RELATED PARTY TRANSACTIONS

As of SeptemberJune 30, 2020,2021, and MarchDecember 31, 2020, the balance of payables to related party were $135,000 and $-0-, respectively. The $135,000 was used to purchase nine computer servers from Eagle. Currently, Eagle is providing office space to Sollensys at no cost. Additionally, Eagle contributed $500 to the Company for administrative purposes.

NOTE 4 – FIXED ASSETS

As of June 30, 2021 and December 31, 2020 fixed assets amounted to $2,453,349 and $-0-, respectively, compared to $31,429 and $54,342, respectively, on March 31, 2020. During the three months endedrespectively. At June 30, 2020,2021 fixed were comprised of the following:

On June 8, 2021, the Company receivedacquired a legal opinion thatbuilding in Palm Bay, Florida with approximately 36,810 square feet of office space for $2,430,762 excluding closing costs. Since the statute of limitations per Nevada law for any claims to be made relating to liabilities that hadbuilding has not yet been recorded on the Company’s books and records dating back to 2013 and prior, had expired. As a result, the Company determined itoccupied, no longer had any liability for accrued expenses or an advance to stockholder anddepreciation has been recorded “other income” as a gain on the extinguishment of debt of $85,771 on its statements of operations for the period ended SeptemberJune 30, 2020.

The terms of the mortgage call for monthly interest only payments of approximately $10,000 each through December 2021 at an interest rate of 4.75%. Effective January 8, 2022, monthly mortgage payments of principal and interest of $16,250 each, at an interest rate of 4.75% per annum, with a maturity date of December 8, 2024 and a balloon 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 500,000 shares of the Company’s common pledged by the Company’s CEO, as well his personal guarantee for the full amount of the mortgage.

The 42 month principal payment schedule on the 42 month loan is as follows:

As of June 30, 2021, the balance of the short-term mortgage payable was $38,504 and the long-term portion was $2,461,496.

NOTE 5 – STOCKHOLDERS’ EQUITY

On March 21, 2020, the Company filed a Certificate of Designation to authorize 25,000,000 shares of Series A preferred stock, at a par value of $0.001.$0.001 per share. Among other rights, the holders of Series A preferred stock have the right to convert each share of Series A preferred stock into 50 shares of common stock. On April 1, 2020, the Company issued 19,000,000 shares of Series A preferred stock to the Company’s Chiefthen-Chief Executive Officer, David Lazar. The fair value of the issuance was estimated at $1,900,000 and recorded as stock-based compensation.

The Company has authorized 300,000,000 shares of common stock, $0.001 common stock.par value per share. As of SeptemberJune 30, 2020,2021 and MarchDecember 31, 2020, respectively, there were 4,183,96299,635,377 and 99,327,547 shares of common stock issued and outstanding. These

During the six months ended June 30, 2021, the Company raised $862,577 from sale of 236,465 shares representto investors.

Additionally, during the 1 for 120 stock split that became effective on November 2, 2020

Overview

Sollensys Corp’s (“Sollensys” or the Company. New management will be steering the Company toward commercialization of proprietary data platforms as the Company moves away from touch screen manufacturing. The Company expects to generate revenue with Eagle’s innovative flagship“Company”) primary product is the Blockchain Archive Server™Server—a turn-key, off-the-shelf, blockchain solution that can be utilizedworks with virtually any hardware and software combinations currently used in commerce, without the need to protectreplace 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.“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 malware.

Results of Operations

Revenue

For the three months ended June 30, 2021, we recorded $38,214 in subscription revenue from the rental of customized servers compared to $-0- for the three months ended June 30, 2020.

For the six months ended SeptemberJune 30, 2020,2021, we purchased inventoryrecorded $109,643 in subscription revenue from Eagle and generated revenuethe rental of customized servers compared to $-0- for the first time since our inception. Therefore, any comparison to the prior period is not indicative of current operations or trends.

Our gross profit on revenue was $90,000$7,814 for the three and six months ended SeptemberJune 30, 2020,2021 compared to $-0- for the three andmonths ended June 30, 2020.

Our gross profit on revenue was $46,899 for the six months ended SeptemberJune 30, 2019.

Operating expenses for the three months ended SeptemberJune 30, 20202021 were $98,440$882,989, compared to $-0- during$1,912,418 for the three months ended SeptemberJune 30, 2019. The increase2020. Key components of the Company’s expenses for the three months ended June 30, 2021 include approximately $485,786 in the 2020 periodpayroll and benefits (which includes a commission expense of $90,000 on the sale of servers to third party distributors.

Operating expenses for the six months ended SeptemberJune 30, 2020,2021 were $2,010,858$1,446,546, compared to $-0- during$1,922,480 for the six months ended SeptemberJune 30, 2019. The increase2020. Key components of the Company’s expenses for the six months ended June 30, 2021 include approximately $894,088 in operating expensespayroll and benefits (which includes $234,360 in the 2020 period is primarily attributable to a one-time, non-cash charge of $1,900,000 to stock-based compensation related to the issuance of 19,000,000 shares of Series A preferred stock to Mr. Lazar.

Liquidity and Capital Resources

As of June 30, 2021, we had $347,205 in cash and cash equivalents. Net cash used in operating activities was $691,647 for the six months ended June 30, 2021, compared to August 5,net cash used in operating activities $12,418 for the six months ended June 30, 2020.

Net cash used in investing activities was $2,453,349 for the six months ended June 30, 2021 compared to $-0- for the six months ended June 30, 2020 all of our funding

Net cash from financing activities was provided by Custodian Ventures,$3,362,577 for the Court appointed custodian. Subsequent to August 5, 2020, our funding has been provided by Eagle, a related party. Subsequent to the change of control on August 5, 2020, we generated revenue of $135,000six months ended June 30, 2021 from the saleproceeds of custom serversprivate sales of common stock to a third party; however,accredited investors, compared to $12,418 from related party loans during the period ended June 30, 2020.

We will have significant ongoing needs for working capital to fund operations and to continue to expand our operations. To that end, we did not record any profit on the transaction. Until we generate increasing sales at a profitable margin, we willwould be reliant on Eaglerequired to provide ourraise additional funds through equity or debt financing. ThereHowever, there can be no assurance that Eagle will continue to do so, and currently, we have no other sources of financing. We may attempt to raise capital in the near future through the sale of equity or through debt financing; however, there can be assurances we will be successful in doing so. There can be no assurance that suchsecuring additional financing will be availablecapital on favorable terms, if at all. Our inability to raise capital could require us on acceptable termsto significantly curtail or at all.

Going Concern

The accompanying unaudited consolidated financial statements have been prepared assuming we 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-monthstwelve-month period following the date of these unaudited consolidated financial statements. We have incurred significant operating losses since inception. Because we do not expect that existing operational cash flow will be sufficient to fund presently anticipated operations, this raises substantial doubt about our ability to continue as a going concern. Therefore, we will need to raise additional funds and are currently exploring sources of financing. Historically, we have raised capital through private offerings of debt and equity and officer loans to finance working capital needs. There can be no assurances that we will be able to continue to raise additional capital through the sale of common stock or other securities or obtain short-term loans.

Critical Accounting Estimates

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Changes in Internal Control over Financial Reporting

Item 1. Legal Proceedings.

Item 1A. Risk Factors.