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Sollensys (SOLS)

Filed: 30 Mar 22, 4:05pm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

 

FORM 10-K

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2021

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

  

For the transition period from ______, 20___, to ______, 20___.

 

Commission File Number 333-174581

 

Sollensys Corp

(Exact Name of Registrant as Specified in its Charter)

 

Nevada 80-0651816
(State or Other Jurisdiction of
Incorporation or Organization)
 (I.R.S. Employer
Identification No.)
   

1470 Treeland Blvd SE

Palm Bay, FL

 32909
(Address of Principal Executive Offices) (Zip Code)

 

(866) 438-7657

(Registrant’s Telephone Number, Including Area Code)

 

N/A

(Former name or former address and former fiscal year, if 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

 

Securities registered pursuant to Section 12(g) of the Act: (none)

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐   No

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐   No

 

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.

 

Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
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 has filed a report on an attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐   No

 

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold as of June 30, 2021 ($9.00 per share), the last business day of the registrant’s most recently completed second fiscal quarter, was $677,545,794.

 

There were 100,874,486 shares of the registrant’s common stock, $0.001 par value per share, outstanding as of March 30, 2022.

 

Documents Incorporated by Reference

 

None

 

 

 

 

 

 

Sollensys Corp

 

Contents

 

  Page
Cautionary Statement Regarding Forward-Looking Statements ii
   
Part I  
   
Item 1. Business 1
Item 1A. Risk Factors 8
Item 1B. Unresolved Staff Comments 19
Item 2. Properties 20
Item 3. Legal Proceedings 20
Item 4. Mine Safety Disclosures 20
     
Part II  
     
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 21
Item 6. Selected Financial Data 22
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 23
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 28
Item 8. Financial Statements and Supplementary Data 28
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 28
Item 9A. Controls and Procedures 29
Item 9B. Other Information 30
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 30
     
Part III  
     
Item 10. Directors, Executive Officers and Corporate Governance 31
Item 11. Executive Compensation 35
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 39
Item 13. Certain Relationships and Related Transactions, and Director Independence 40
Item 14. Principal Accounting Fees and Services 41
     
Part IV  
     
Item 15. Exhibits, Financial Statement Schedules 42
Item 16. Form 10-K Summary 43
  Signatures 44

 

i

 

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

This Annual Report on Form 10-K and the documents incorporated herein by reference contain forward-looking statements. Such forward-looking statements are based on current expectations, estimates and projections about Sollensys Corp’s industry, management beliefs, and assumptions made by management. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict; therefore, actual results and outcomes may differ materially from what is expressed or forecasted in any such forward-looking statements. Although we believe the expectations reflected in our forward-looking statements are based upon reasonable assumptions, it is not possible to foresee or identify all factors that could have a material effect on the future financial performance of the Company. The forward-looking statements in this Annual Report on Form 10-K are made on the basis of management’s assumptions and analyses, as of the time the statements are made, in light of their experience and perception of historical conditions, expected future developments and other factors believed to be appropriate under the circumstances. Except as otherwise required by the federal securities laws, we disclaim any obligation or undertaking to publicly release any updates or revisions to any forward-looking statement contained in this Annual Report on Form 10-K and the information incorporated by reference in this Annual Report on Form 10-K to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any statement is based.

 

ii

 

 

PART I

 

ITEM 1. BUSINESS

 

Unless the context indicates otherwise, the “Company,” “we,” “our,” “ours” or “us” refer to Sollensys Corp, a Nevada corporation, and its wholly owned subsidiaries, Eagle Lake Laboratories, Inc. (“Eagle Lake”) and Abstract Media, LLC (“Abstract”).

 

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, Sollensys made its second product offering—the Regional Service Center—available on a limited test market basis. The Regional Service Center was added to the Company’s 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.

 

In connection with the closing of the Stock Purchase, on August 5, 2020, Mr. Lazar, the then-sole member of the Board of Directors (the “Board”) of Sollensys, pursuant to the power granted to the Board in Sollensys’ bylaws, increased the size of Sollensys’ Board to two members. Simultaneously, Mr. Lazar, as the sole Board member, appointed Donald Beavers as a director to fill the newly created Board vacancy. At the same time, Mr. Lazar appointed Donald Beavers as Chief Executive Officer and Secretary of Sollensys.

 

Also on August 5, 2020, following the above officer and director appointments and effective on the closing of the Stock Purchase, Mr. Lazar resigned from any and all officer and director positions with Sollensys.

 

On November 30, 2020, Sollensys entered into a share exchange agreement (the “Share Exchange Agreement”) with (i) Eagle Lake, (ii) each of the shareholders of Eagle Lake (the “Eagle Lake Shareholders”) and (iii) Mr. Beavers as the representative of the Eagle Lake Shareholders. Among other conditions to the closing of the transactions contemplated by the Share Exchange Agreement (the “SEA Closing”), pursuant to the terms of the Share Exchange Agreement, the parties agreed that Sollensys would acquire 100% of Eagle Lake’s issued and outstanding capital stock, in exchange for the issuance to the Eagle Lake Shareholders of a number of shares of Sollensys common stock to be determined at the SEA Closing.

 

The SEA Closing occurred on November 30, 2020. Pursuant to the terms of the Share Exchange Agreement, Sollensys acquired from the Eagle Lake Shareholders 10,000,000 shares Eagle Lake’s common stock, no par value per share, representing 100% of the issued and outstanding capital stock of Eagle Lake, in exchange for the issuance to the Eagle Lake Shareholders of 95,000,000 shares of Sollensys common stock (the “Share Exchange”). At the time of the SEA Closing, Eagle Lake had 10,011,667 shares of its common stock issued and outstanding, which was 11,667 shares in excess of the number of shares of common stock authorized pursuant to Eagle Lake’s articles of incorporation. Such over-issued shares are void under Florida law and are not entitled to any rights of a stockholder of Eagle Lake. As such, the 10,000,000 shares of Eagle Lake common stock that Sollensys acquired from the Eagle Lake Shareholders, represented 100% of the issued and outstanding capital stock of Eagle Lake of the presence of over-issued shares.

 

1

 

 

As a result of the Share Exchange, Eagle Lake became a wholly owned subsidiary of Sollensys and the business of Eagle Lake became the business of Sollensys.

 

Eagle Lake was incorporated in the State of Florida on May 8, 2020. Eagle Lake offers advanced technology products for cybersecurity that ensure a clients’ data integrity through collection, storage, and transmission.

 

On September 8, 2021, the Company closed on the purchase of a commercial building, land, and fixtures in Palm Bay, Florida, as a location for the Company’s new headquarters.

 

On October 15, 2021, the Company entered into that certain 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”).

 

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 equal to $605,000 based on the trading price of the Company’s common stock minus the Debt Repayment Amount (as hereinafter defined), divided by the VWAP (as defined in the Agreement) as of the closing date, plus (ii) $15,000, plus (iii) $15,000 to be paid solely to John Swain as additional consideration for Mr. Swain’s membership interests (the “Acquisition”). The “Debt Repayment Amount” means the debt owned by the Company to Mr. Swain pursuant to a promissory note dated as of August 15, 2017, which debt the parties agree is approximately $80,000, but which shall be finally calculated on the closing date.

 

The Acquisition closed on December 6, 2021. 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 73,244 shares of the Company’s common stock, plus (ii) $15,000 paid to members, plus (iii) $15,000 paid solely to John Swain as additional consideration for Mr. Swain’s membership interests.

 

Impact of COVID-19

 

On January 30, 2020, the World Health Organization announced a global health emergency because of the spread of a new strain of the novel coronavirus (“COVID-19”). On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 a global pandemic. COVID-19 has significantly affected, and continues to significantly affect, the United States and global economies.

 

The outbreak has, and may continue to, spread, which could materially impact the Company’s business. The full extent of potential impacts on the Company’s business, financing activities and the global economy will depend on future developments, which cannot be predicted due to the uncertain nature of the continued COVID-19 pandemic, government mandated shutdowns, and its adverse effects, including new information which may emerge concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others. These effects could have a material adverse impact on the Company’s business, operations, financial condition, and results of operations.

 

Future Product and Service Offerings

 

In the future, we may decide to expand our product and service offerings outside of blockchain cybersecurity solutions, and develop science, technology, and engineering solutions for companies in fields such as aerospace, chemical engineering, defense and intelligence, but as of December 31, 2021, we focus exclusively on blockchain technology solutions for cybersecurity and data management. We focus on innovation and development of commercial blockchain applications that are either complementary to the Blockchain Archive Server or standalone products and services related to cybersecurity.

 

We are in the process of developing a new blockchain cybersecurity application—the “Argus Panoptes RFID System”—and is preparing to file related patent applications for the product. The Argus Panoptes RFID System is a developmental stage product that allows the Blockchain Archive Server to record data from radio-frequency identification (RFID) sensors. As of December 31, 2021, the Argus Panoptes RFID System is still under development, but we expect to launch within 12 months from the filing of this Annual Report on Form 10-K. We are preparing potential patents to be filed for the technology underlying the Argus Panoptes RFID System, which we believe to be unique.

 

2

 

 

Distribution

 

Sales Structure

 

The Blockchain Archive Server is now available across the United States and Canada through authorized distributors. Currently, Sollensys Corp is the only authorized distributor of the Blockchain Archive Server, pursuant to a Reseller Agreement between Eagle Lake and Sollensys entered into on August 20, 2020 (the “Reseller Agreement”).

 

Pursuant to the terms of the Reseller Agreement, Eagle Lake appointed Sollensys as a non-exclusive distributor of Eagle Lake’s products and services. As a distributor for Eagle Lake, Sollensys has agreed to, among other things, use its best efforts to solicit orders from interested parties for Eagle Lake’s products and services, secure channel partners and distributors for Eagle Lake’s products and services, and to resell Eagle Lake’s products and services to for-profit organizations, non-profit-organizations, government entities, quasi-governmental agencies, and any other type of organizations in the United States and abroad. Sollensys also has the right to engage its own distributors for Eagle Lake’s products. For all sales, Sollensys is entitled to any profits generated on such sales, which is the difference between the cost of Sollensys to acquire the products and/or services from Eagle Lake to sell and the price at which Sollensys is ultimately able to sell those products and/or services to customers.

 

Delivery & Installation

 

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. Delivery of the Blockchain Archive Server to a client is accomplished by delivering a server loaded with Eagle Lake’s blockchain cybersecurity software (i.e., the Blockchain Archive Server) to a client’s physical location where such client’s information technology (“IT”) systems infrastructure is accessible. Once physically delivered on-site, the Blockchain Archive Server is installed and integrated with the client’s existing IT system servers. The unit remains at the client’s location to run the software. Sollensys (or its authorized distributors) handles all delivery and installation of the Blockchain Server, and provides maintenance as needed.

 

Industry Overview and Market Opportunity

 

Cyberattacks have evolved from rudimentary malware into highly sophisticated, organized, and large-scale attacks. A broad range of industries are affected by these attacks, consumers to governments, no one is safe.

 

According to a 2019 Year End Report published by RiskBased Security, over 7,000 data breaches were reported in 2019 alone, resulting in over 15 billion records being exposed that show companies have an expanding need to protect themselves from persistent cyber-attacks.

 

Ransomware attacks have generated billions of dollars in payments to cybercriminals and inflicted significant damage and expenses for consumers, businesses, and governments. Sophos publish a report in May 2020 titled “The State of Ransomware 2020”. This showed 59% of 500 U.S. organizations surveyed, experienced a ransomware attack, with a global average of 51% of companies having been victims of ransomware attacks in the last year. This report also stated that the average cost to rectify the impacts of a ransomware attack (considering downtime, human resources, device cost, network cost, ransom price, etc.) was $732,520 for organizations that do not pay the ransom. The price tag for organizations that do pay rises to $1,448,458. As of October 1, 2021, the U.S. Department of Treasure warns that paying a ransom my violate U.S. law.

 

An October 2020 article published by Security Magazine reported that data from 25,000 small-to-midsize organizations in the United States reveal ransomware as the top cyber insurance incident in the first half of the year. The average ransomware demand increased 100% from 2019 through the first quarter of 2020. Additionally, 10% of small businesses were put out of business in 2019 due to cyber-attacks according to DarkReading.com.

 

These trends provide significant data demonstrating the need for Sollensys’ Blockchain Archive Server in the cybersecurity market. According to the International Data Corporation (IDC), the “addressable enterprise security market” benefiting from Sollensys solutions is expected to reach nearly $17.3 billion in 2020, growing at a CAGR of 6.9% through 2024. The “addressable enterprise security market” represents revenue from five markets (web security, security information and event management, network security, corporate endpoint, and data loss protection).

 

3

 

 

Abstract Media Acquisition

 

On October 15, 2021, the Company entered into that certain 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”).

 

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 equal to $605,000 minus the Debt Repayment Amount (as hereinafter defined), divided by the VWAP (as defined in the Agreement) as of the closing date, plus (ii) $15,000, plus (iii) $15,000 to be paid solely to John Swain as additional consideration for Mr. Swain’s membership interests (the “Acquisition”). The “Debt Repayment Amount” means the debt owned by the Company to Mr. Swain pursuant to a promissory note dated as of August 15, 2017, which debt the parties agree is approximately $80,000, but which shall be finally calculated on the closing date.

 

The Acquisition closed on December 6, 2021. 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 73,244 shares of the Company’s common stock (representing a value of $605,000 minus the Debt Repayment Amount of $80,000), plus (ii) $15,000, plus (iii) $15,000 paid solely to John Swain as additional consideration for Mr. Swain’s membership interests.

 

Celerit Merger Agreement

 

On October 26, 2021, the Company entered into that certain Merger Agreement (“Merger Agreement”) by and among (i) the Company; (ii) S-CC Merger Sub, Inc., an Arkansas corporation and a wholly owned subsidiary of the Company (“S-CC Merger Sub”); (iii) S-Solutions Merger Sub, Inc., an Arkansas corporation and a wholly owned subsidiary of the Company (“S-Solutions Merger Sub”); (iv) Celerit Corporation, an Arkansas corporation (“Celerit”); (v) Celerit Solutions Corporation, an Arkansas corporation (“Celerit Solutions”); and (vi) Terry Rothwell (“Shareholder”). The Company believes that the Merger Agreement will terminate pursuant to its terms on March 31, 2022.

 

Pursuant to the terms of the Merger Agreement, on the closing date, (i) Celerit will merge with and into S-CC Merger Sub, with Celerit surviving, (ii) Celerit Solutions will merge with and into S-Solutions Merger Sub, with Celerit Solutions surviving, and (iii) the Shareholder will receive from the Company certain cash consideration and other consideration as set forth in the Merger Agreement (the “Merger”), on the terms and subject to the conditions set forth therein, including but not limited to payment by the Company of (a) the sum of $4,440,000 in cash, and (b) 3,000,000 shares of the Company’s common stock.

 

Celerit, together with its affiliate Celerit Solutions, are an IT services business with a world class customer success department serving the financial sector since 1985. The Merger is being effected to further the Company’s mission to create a safe and immutable environment, in conjunction with Celerit and Celerit Solutions, for the future of banking.

 

Pursuant to the terms of the Merger Agreement, the Company expects to enter into a Purchase Agreement (“Purchase Agreement”) by and among (i) the Company; (ii) CRE Holdings LLC, an Arkansas limited liability company (“CRE”); and (iii) Terry Rothwell and George Rothwell, the sole members of CRE (together, the “Rothwells”). The Company expects that the Purchase Agreement will stipulate the terms of the acquisition of four real property parcels owned by CRE, as well as one real property parcel owned by the Rothwells, for a total purchase price of $5,560,000 (the “Real Estate Acquisition”). Included within the combined five real property parcels are Celerit’s and Celerit Solutions’ administrative offices, data center, as well as three vacant land parcels.

 

The Merger Agreement includes customary representations, warranties and closing conditions.

 

Neither the Merger nor the Real Estate Acquisition have closed yet, however pursuant to the terms of the Merger Agreement, they were expected to close substantially simultaneously. Pursuant to the terms of the Merger Agreement, if the Merger did not close by January 31, 2022, the Merger Agreement would terminate. On January 28, 2022, the parties to the Merger Agreement entered into an Amendment to Merger Agreement, dated as of January 28, 2022 (the “Amendment”), pursuant to which the parties agreed to extend the closing deadline to March 31, 2022. All other terms of the Merger Agreement remain in full force and effect. The Company does not expect that parties will extend the termination date of the Merger Agreement, and believes that the Merger Agreement will terminate pursuant to its terms on March 31, 2022.

 

4

 

 

Competition

 

The market for cybersecurity solutions for organizations (i.e., enterprises, governments, etc.) is highly competitive and constantly evolving. Conditions in our market are prone to frequent and rapid changes in technology, customer requirements and preferences, and industry standards resulting in frequent new product and service offerings and improvements and the entrance of new market participants. As a result, we face a broad set of competitors.

 

We compete for cybersecurity budgets both with larger integration providers, such as Symantec (a division of Broadcom), Palo Alto Networks, Sophos, Microsoft, Trend Micro, and Sentinel One in the endpoint, networking, and cloud access security broker (“CASB”) space, as well as with point solutions focusing on a subset of the cybersecurity market. These competitors include Crowdstrike, Carbon Black (a division of VMware), Tanium, and Cylance (a division of BlackBerry) in the endpoint market, Netskope, and Bitglass in the CASB market, IBM and Cisco in network intrusion, Forcepoint, and Zscaler in the secure web gateways market, and IBM, Splunk, Micro Focus, Dell, and LogRhythm in the security operations market. Products and services differ depending on the organization, but are all considered part of the end user’s cybersecurity budget.

 

The principal competitive factors in the markets for our solutions include:

 

brand recognition and reputation;

 

breadth and integration of product offerings;

 

product features, reliability, performance, and effectiveness;

 

price and total cost of ownership;

 

strength and productivity of sales and marketing efforts;

 

quality of customer service; and

 

financial resources and stability.

 

We are not aware of any direct competitors with a product solution similar to the Blockchain Archive Server. Nonetheless, we face competition for budget allocations in all of the areas outlined above. We believe we compete favorably in a number of the above factors; however, we believe that our primary competitive advantage is the compatibility and ease of installation of our Blockchain Archive Server, which was designed as a turn-key solution that can stand alone or seamlessly integrate into an existing data infrastructure to quickly recover from a cyber-attack.

 

However, many of our current competitors and potential competitors have competitive advantages, such as more extensive operations, larger product development and strategic acquisition budgets, or greater financial, technical, sales, or marketing resources than we do. For additional information about the risks to our business related to competition, see the “Risk Factors” section of this Annual Report on Form 10-K.

 

Customers, Sales and Marketing

 

We sell our products or services directly to customers. In addition, in the future, we may contract with third party distributors on an exclusive or non-exclusive basis to sell our products and services.

 

We have sold the Blockchain Archive Server to a number of different companies in a wide array of industries. Companies that have purchased the Blockchain Archive Server include SFTF, LLC, which operates five Ashley HomeStore Outlets in Jacksonville, Florida. Ashley HomeStore is the number one furniture and mattress retailer in America and the number one selling furniture store brand in the world. In addition, the Blockchain Archive Server has been purchased and installed for medical data protection at Ability Plus Therapy Inc., which operates a pediatric therapy center in Melbourne, Florida and at Island Direct Primary Care, a concierge medical service in Merritt Island, Florida. Both firms provide private health care and wellness services to individuals or companies. At these locations, a special version of the Blockchain Archive Server designed to meet the unique requirements under the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) regarding patient/doctor confidentiality was delivered to these customers.

 

The Blockchain Archive Server is available across the United States and Canada. To date, most customers have been small-to-medium sized businesses. We are dependent on any of these individual customers.

 

5

 

 

Suppliers and Raw Materials

 

We purchase the servers used to make the Blockchain Archive Servers from third-party retailers, such as Amazon. We have not entered into any agreements with suppliers for any hardware or other raw materials.

 

Government Regulation

 

We are subject to compliance with a number of regulations, in the United States and internationally, in connection with the operation of our business. By virtue of the fact that our Blockchain Archive Server involves processing of personal information, we are subject to data protection and privacy laws and regulations, which are evolving and being tested in courts, which may result in increasing regulatory and public scrutiny and escalating levels of enforcement and sanctions.

 

A variety of data protection legislation apply in the U.S. at both the federal and state level, including new laws that may impact our operations. For example, in 2018, the State of California enacted the California Consumer Privacy Act of 2018 (“CCPA”), which went into effect on January 1, 2020, with enforcement by the state attorney general beginning July 1, 2020. The CCPA defines “personal information” in a broad manner and generally requires companies that process personal information of California residents to make new disclosures about their data collection, use, and sharing practices, allows consumers to opt-out of certain data sharing with third parties or sale of personal information, and provides a new cause of action for data breaches.

 

In 2016, the European Union (the “E.U.”) adopted the General Data Protection Regulation (“GDPR”), which took effect in 2018. The GDPR includes more stringent operational requirements on entities that receive or process personal data (as compared to existing E.U. law), along with significant penalties for non-compliance, more robust obligations on data processors and data controllers, greater rights for data subjects (potentially requiring significant changes to both our technology and operations), and heavier documentation requirements for data protection compliance programs. Similarly, there are a number of federal and state level legislative proposals in the U.S. that could impose new obligations on us. In addition, some countries are considering or have passed legislation implementing more onerous data protection requirements or requiring local storage and processing of data or other requirements that could increase the cost and complexity of delivering our services. Although our sales are currently focused on customers in the U.S. and Canada, we may expand into Europe in the future, and would then be subject to such laws.

 

Like other U.S.-based IT security products, our products are subject to U.S. export control laws and regulations, specifically the Export Administration Regulations (“EAR”), U.S. economic and trade sanctions regulations and applicable foreign government import, export and use requirements. Certain of our products may be subject to encryption controls under the EAR due to the nature of the product and its use or incorporation of encryption functionality. Under the encryption controls in the EAR, applicable products may only be exported outside of the U.S. with required export authorizations, such as a license, a license exception or other appropriate government authorizations. In addition to the restrictions under the EAR, U.S. export control laws and economic sanctions prohibit the export of products and services to countries, governments, entities or persons subject to U.S. embargoes or trade sanctions.

 

Intellectual Property

 

We filed an application for a trademark with the United States Patent and Trademark Office (“USPTO”) on July 14, 2020 under Application Serial No. 90051101 for the Word Mark “Blockchain Archive Server”. The trademark is currently pending registration by the USPTO.

 

We are in the process of preparing multiple patent applications related to our blockchain technology. We treat our unique technology as trade secrets and all software source code is obfuscated before being distributed. On August 12, 2020, we acquired the intellectual property rights to certain technology that we intend to utilize in connection with the Argus Panoptes RFID System.

 

6

 

 

Employees

 

As of December 31, 2021, we employ 33 full-time employees and no part-time employees. Approximately 10% of our workforce are independent contractors. We believe that a diverse workforce is important to our success. We will continue to focus on the hiring, retention and advancement of women and underrepresented populations, and to cultivate an inclusive and diverse corporate culture. In the future, we intend to continue to evaluate our use of human capital measures or objectives in managing our business such as the factors we employ or seek to employ in the development, attraction and retention of personnel and maintenance of diversity in our workforce.

 

The success of our business is fundamentally connected to the well-being of our people. Accordingly, we are committed to the health, safety and wellness of our employees. We provide our employees and their families with robust compensation and benefits, including salaries and health benefits, to help meet the needs of our employees.

 

We believe that we maintain a satisfactory working relationship with our employees and have not experienced any labor disputes.

 

Corporate History

 

Sollensys Corp was formerly a development stage company, incorporated in Nevada on September 29, 2010, under the name Health Directory, Inc. The Company’s 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 did not, however, generate any revenues from these efforts.

 

Effective July 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 approving an amendment to the Articles of Incorporation to change the Company’s name to Sollensys Corp, to increase the number of authorized shares of common stock 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.

 

Subsequently, beginning September 30, 2012, the Company went dormant.

 

On December 27, 2019, the Eighth Judicial District Court of Clark County, Nevada (the “Court”), pursuant to Case number A-19-805633-B appointed Custodian Ventures, LLC (“Custodian Ventures”) as the custodian of Sollensys Corp David Lazar, who controls Custodian Ventures, was subsequently named the only interim officer and director of the Company.

 

On June 16, 2020, Custodian Ventures filed a motion with the Court asking the Court to enter an order concluding and terminating the custodianship of the Company. On July 20, 2020, the Court entered an order terminating custodianship and barring non-asserted claims against the Company.

 

Effective August 5, 2020, Mr. Lazar, the interim Chief Executive Officer, President, Secretary, Treasurer, and sole director of the Company and the beneficial owner, through his ownership of Custodian Ventures of 19,000,000 shares of Series A preferred stock, representing 100% of the Company’s issued and outstanding shares of preferred stock, entered into a Stock Purchase Agreement (the “SPA”) by and among Eagle Lake, Sollensys Corp, and Custodian Ventures. Pursuant to the terms of the SPA, Eagle Lake agreed to purchase, and Custodian Ventures agreed to sell, 19,000,000 shares of the Company’s Series A preferred stock in exchange for payment by Eagle Lake 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 are convertible into shares of 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.

 

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In connection with the closing of the Stock Purchase, on August 5, 2020, Mr. Lazar, the then-sole member of the Board of Directors (the “Board”) of the Company, pursuant to the power granted to the Board in the Company’s bylaws, increased the size of the Company’s Board to two members. Simultaneously, Mr. Lazar, as the sole Board member, appointed Donald Beavers as a director to fill the newly created Board vacancy. At the same time, Mr. Lazar appointed Mr. Beavers as Chief Executive Officer and Secretary of the Company.

 

Also on August 5, 2020, following Mr. Beaver’s appointment and effective on the closing of the Stock Purchase, Mr. Lazar resigned from any and all officer and director positions with the Company. Mr. Lazar’s resignation was not the result of a disagreement with the Company on any matter relating to the Company’s operations, policies, or practices.

 

On November 30, 2020, Sollensys Corp entered into a share exchange agreement (the “Share Exchange Agreement”) with (i) Eagle Lake, (ii) each of the shareholders of Eagle Lake (the “Eagle Lake Shareholders”) and (iii) Mr. Beavers as the representative of the Eagle Lake Shareholders (the “Shareholders’ Representative”).

 

Among other conditions to the closing of the transactions contemplated by the Share Exchange Agreement (the “SEA Closing”), pursuant to the terms of the Share Exchange Agreement, the parties agreed that Sollensys Corp would acquire 100% of Eagle Lake’s issued and outstanding capital stock, in exchange for the issuance to the Eagle Lake Shareholders of a number of shares of Sollensys Corp’s common stock to be determined at the SEA Closing.

 

The SEA Closing occurred on November 30, 2020. Pursuant to the terms of the Share Exchange Agreement, Sollensys Corp acquired from the Eagle Lake Shareholders 10,000,000 shares Eagle Lake’s common stock, no par value per share, representing 100% of the issued and outstanding capital stock of Eagle Lake, in exchange for the issuance to the Eagle Lake Shareholders of 95,000,000 shares of Sollensys common stock (the “Share Exchange”). At the time of the SEA Closing, Eagle Lake had 10,011,667 shares of its common stock issued and outstanding, which was 11,667 shares in excess of the number of shares of common stock authorized pursuant to Eagle Lake’s articles of incorporation. Such over-issued shares are void under Florida law and are not entitled to any rights of a stockholder of Eagle Lake. As such, the 10,000,000 shares of Eagle Lake common stock that Sollensys Corp acquired from the Eagle Lake Shareholders, represented 100% of the issued and outstanding capital stock of Eagle Lake of the presence of over-issued shares.

 

As a result of the Share Exchange, Eagle Lake became a wholly owned subsidiary of Sollensys Corp and the business of Eagle Lake became the business of Sollensys Corp.

 

The Share Exchange is intended to be a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”), and the Share Exchange Agreement is intended to be a “plan of reorganization” within the meaning of the regulations promulgated under Section 368(a) of the Code and for the purpose of qualifying as a tax-free transaction for federal income tax purposes.

 

Available Information

 

We maintain a website at www.sollensys.com. The information on the Company’s website is not incorporated herein by reference. The Company will make available, free of charge on its website, the most recent annual report on Form 10-K and subsequently filed quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after the Company files such material with, or furnishes it to, the SEC.

 

The public may also read and copy any materials the Company files with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549 or by calling the SEC at 1-800-SEC-0330. The SEC maintains, free of charge, an Internet site (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

 

ITEM 1A. RISK FACTORS

 

Investment in our securities involves a number of substantial risks. You should not invest in our securities unless you are able to bear the complete loss of your investment. In addition to the risks and investment considerations discussed elsewhere in this Annual Report on Form 10-K, the following factors should be carefully considered by anyone purchasing our securities. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations. If any of the following risks actually occur, our business could be harmed.

 

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Risks Related to Our Business and Industry

 

We are an early stage company with a limited operating history. Such limited operating history may not provide an adequate basis to judge our future prospects and results of operations.

 

Eagle Lake was incorporated on May 8, 2020. We have limited experience and a limited operating history in which to assess our future prospects as a company. In addition, the market for our products and services is highly competitive. If we fail to successfully develop and offer our products and services in an increasingly competitive market, we may not be able to capture the growth opportunities associated with them or recover our development costs, and our future results of operations and growth strategies could be adversely affected. Our limited history may not provide a meaningful basis for investors to evaluate our business, financial performance, and prospects.

 

We may fail to successfully execute our business plan.

 

Our shareholders may lose their entire investment if we fail to execute our business plan. Our prospects must be considered in light of the following risks and uncertainties, including but not limited to, competition, the erosion of ongoing revenue streams, the ability to retain experienced personnel and general economic conditions. We cannot guarantee that we will be successful in executing our business plan. If we fail to successfully execute our business plan, we may be forced to cease operations, in which case our shareholders may lose their entire investment.

 

The cybersecurity market is rapidly evolving and becoming increasingly competitive in response to continually evolving cybersecurity threats from a variety of increasingly sophisticated cyberattackers. If we fail to anticipate changing customer requirements or industry and market developments, or we fail to adapt our business model to keep pace with evolving market trends, our financial performance will suffer.

 

The cybersecurity market is characterized by continual changes in customer preferences and requirements, frequent and rapid technological developments and continually evolving market trends. We must continually address the challenges of dynamic, and accelerating market trends, such as the emergence of new cybersecurity threats, the continued decline in the sale of new personal computers, and the rise of mobility and cloud-based solutions, all of which make satisfying our customers’ diverse and evolving needs more challenging. In addition, many of our target enterprise customers operate in industries characterized by rapidly changing technologies and business plans, which require them to adapt quickly to increasingly complex cybersecurity requirements. We may be unable to develop new technologies to keep pace with evolving threats therefore fail to meet customer expectations, which could lead to our competitive position, business, and financial results being harmed.

 

The introduction of new products or services by competitors and market acceptance of products or services based on emerging or alternative technologies could each render our existing solutions obsolete or make it easier for other products or services to compete with our solutions. In addition, modern cyberattackers are skilled at adapting to new technologies and developing new methods of breaching customers. For example, ransomware attacks have increased in frequency and complexity, and the costs associated with successful ransomware attacks have increased. We must continuously work to ensure our solutions protect against the increased volume and complexity of the cybersecurity threat landscape, or our business could suffer.

 

We cannot be sure that we will accurately predict how the cybersecurity markets in which we compete or intend to compete will evolve. Failure on our part to anticipate changes in our markets and to develop solutions and enhancements that meet the demands of those markets will significantly impair our business, financial condition, results of operations, and cash flows.

 

We operate in a highly competitive environment, and we expect competitive pressures to increase in the future, which could cause us to lose market share.

 

The markets for our solutions are highly competitive, and we expect both the requirements and pricing competition to increase, particularly given the increasingly sophisticated attacks, changing customer preferences and requirements, current economic pressures, and market consolidation. Competitive pressures in these markets may result in price reductions, reduced margins, loss of market share and inability to gain market share, and a decline in sales, any one of which could seriously impact our business, financial condition, results of operations, and cash flows.

 

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Our business depends substantially on our ability to retain customers, through continued quality service and/or new product offerings. If we are unable to retain our customers or to expand our product offerings, our future results of operations will be harmed.

 

While we receive revenues from the sale of the Blockchain Archive Server software and hardware “units”, or secondary revenue stream comes from the annual maintenance fees associated with each “unit” that a customer purchases. Such fees, over time, will eclipse the revenues that we receive from the initial sale of our products, and therefore customer retention is important to our Company.

 

Retention rates may decline or fluctuate as a result of a number of factors, including but not limited to the level of our customers’ satisfaction or dissatisfaction with our solutions, our prices and the prices of competing products or services, new technologies, changes in our customers’ spending levels, and changes in how our customers perceive the cybersecurity threats. Any of the above factors could lead to a loss of customers, which would have negative impact on our financial condition and operating results. Further, our customers have no obligation to renew their contracts with us upon their expiration, which increases the risk that we may suffer from customer attrition.

 

Further, while it is important that we retain existing customers, it is also important that our customers expand their use of our solutions. Our ability improve our results of operations partly depends on our ability to increase sales of and cross-sell new solutions to existing customers. At present, we do not have any other product offerings apart from the Blockchain Archive Server to offer to our existing customers. Any new products that we develop to offer to customers are therefore untested, and may be unsuccessful. Our failure to sell additional solutions to our existing and new customers could adversely affect our ability to grow our business.

 

We may need to change our pricing models to compete successfully.

 

The intense competition we face in the cybersecurity market, in addition to general economic and business conditions (including the economic downturn resulting from the COVID-19 pandemic), can result in downward pressure on the prices of our solutions. If our competitors offer significant discounts on competing products or services, or develop products or services that our customers believe are more valuable or cost-effective, we may be required to decrease our prices or offer other sales incentives in order to compete successfully. Additionally, if we increase prices for our solutions, demand for our solutions could decline as customers adopt less expensive competing products and our market share could suffer. If we do not adapt our pricing models to reflect changes in customer use of our products or changes in customer demand, our revenues could decrease.

 

Our solutions may have defects, errors, or vulnerabilities, and may fail to detect, prevent, or block cyberattacks, which our reputation and our brand could suffer, which would adversely impact our business, financial condition, results of operations, and cash flows.

 

Cybersecurity is a complex area of operation. The Blockchain Archive Server and/or future products may contain design defects, vulnerabilities, or errors that are not yet detected. Such defects of our solutions could cause our solutions to be vulnerable to cybersecurity attacks, cause them to fail to perform the intended operation, or temporarily interrupt the operations of our customers. In addition, since the techniques used by adversaries change frequently and generally are not recognized until widely applied, there is a risk that our solutions would not be able to address certain attacks. Moreover, our solutions and infrastructure technology systems could be targeted by bad actors and attacks specifically designed to disrupt our business and undermine the perception that our solutions are capable of providing their intended benefits, which, in turn, could have a serious impact on our reputation.

 

The failure, perceived or real, of any of our solutions to detect or prevent malware, viruses, worms, or similar threats for any number of reasons, including our failure to enhance and expand our solutions to reflect market trends and new attack methods, new technologies and new operating environments, the complexity of our customers’ environment and the sophistication and coordination of threat actors launching malware, ransomware, viruses, intrusion devices, and other threats could cause our reputation and business could be harmed.

 

We may also incur significant costs and operational consequences of investigating, remediating, eliminating, and putting in place additional tools and devices designed to prevent actual or perceived security breaches and other incidents, as well as the costs to comply with any notification obligations resulting from any security incidents.

 

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Our investments in new or enhanced solutions may not yield the benefits we anticipate.

 

The success of our business depends on our ability to develop new technologies and solutions, to anticipate future customer requirements and applicable industry standards, and to respond to the changing needs of our customers, competitive technological developments, and industry changes. We currently only have two products. We will need to continue to develop products and services in order to grow, or even maintain, our current levels of operations.

 

The process of developing new technologies is time consuming, complex, and uncertain, and requires the commitment of significant resources well in advance of being able to fully determine market requirements and industry standards. Furthermore, we may not be able to timely execute new technical product or solution initiatives for a variety of reasons such as errors in planning or timing, technical difficulties that we cannot timely resolve, or a lack of appropriate resources. Complex solutions like ours may contain undetected errors or compatibility problems, particularly when first released, which could delay or adversely impact market acceptance. We may also experience delays or unforeseen costs related to integrating products we acquire with products we develop, because we may be unfamiliar with errors or compatibility issues of products we did not develop ourselves. Any of these development challenges, or the failure to appropriately adjust our go-to-market strategy to accommodate new offerings, may result in delays in the commercial release of new solutions or may cause us to terminate development of new solutions prior to commercial release. Any such challenges could result in competitors bringing products or services to market before we do and a related decrease in our market segment share and net revenue. Our inability to introduce new solutions and enhancements in a timely and cost-effective manner, or the failure of these new solutions or enhancements to achieve market acceptance and comply with industry standards and governmental regulation, could seriously harm our business, financial condition, results of operations, and cash flows.

 

If we are unable to attract, train, motivate, and retain senior management and other qualified personnel, our business could suffer.

 

Our success depends in large part on our ability to attract and retain senior management personnel, as well as technically qualified and highly skilled sales, consulting, technical, finance, and marketing personnel. It could be difficult, time consuming, and expensive to identify, recruit, and onboard any key management member or other critical personnel. Competition for highly skilled personnel is often intense, particularly in the markets in which we operate, including Silicon Valley. If we are unable to attract and retain qualified individuals, our ability to compete in the markets for our products could be adversely affected, which would have a negative impact on our business and financial results. Our competitors may be successful in recruiting and hiring members of our management team or other key employees, including key employees obtained through our acquisitions, and it may be difficult for us to find suitable replacements on a timely basis, on competitive terms or at all.

 

Changes in management or other critical personnel may be disruptive to our business and might also result in our loss of unique skills, loss of knowledge about our business, and may result in the departure of other existing employees, customers or partners. We have experienced recent turnover in our senior management team, and further turnover in the future could adversely affect our business.

 

We operate in an industry with an overall shortage of skilled and experienced talent that generally experiences high employee attrition. We have experienced significant turnover over the last few years and expect that may continue. The loss of one or more of our key employees could seriously harm our business. If we are unable to attract, integrate, or retain the qualified and highly skilled personnel required to fulfill our current or future needs, our business, financial condition, results of operations, and cash flows could be harmed.

 

Effective succession planning is also important to the long-term success of our business. If we fail to ensure effective transfer of knowledge and smooth transitions involving key employees could hinder our strategic planning and execution. The loss of senior management or any ineffective transitions in management, especially in our sales organization, could significantly delay or prevent the achievement of our development and strategic objectives, which could adversely affect our business, financial condition, results of operations, and cash flows.

 

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If we are unable to increase sales of our solutions to new customers, our future results of operations may be harmed.

 

An important part of our growth strategy involves continued investment in direct marketing efforts, distributor relationships, our sales force, and infrastructure to add new customers. The number and rate at which new customers may purchase our products and services depends on a number of factors, including those outside of our control, such as customers’ perceived need for our solutions, competition, general economic conditions, market transitions, product obsolescence, technological change, shifts in buying patterns, the timing and duration of hardware refresh cycles, financial difficulties and budget constraints of our current and potential customers, public awareness of security threats to IT systems, and other factors. These new customers, if any, may renew their contracts with us and purchase additional solutions at lower rates than we have experienced in the past, which could affect our financial results.

 

Our ability to maintain customer satisfaction depends in part on the quality of our technical support services, and increased demands on those services may adversely affect our relationships with our customers and negatively impact our financial results.

 

We offer technical support services with many of our solutions. We may be unable to respond quickly enough to accommodate short-term increases in customer demand for support services. We also may be unable to modify the format of our support services to compete with changes in support services provided by competitors or to successfully integrate support for our customers. Further customer demand for these services, without corresponding revenue, could increase costs and adversely affect our results of operations.

 

If we fail to provide at an acceptable level of customer service, relationships with our customers could be materially harmed.

 

We rely on third-party manufacturers to manufacture and produce hardware used as part of our products, which subjects us to supply risks.

 

We rely on third parties to manufacture the hardware-portion of our Blockchain Archive Server. This reliance on third parties involves a number of risks that could have a negative impact on our business and financial results. Our reliance on these third-party manufacturers reduces our control over the manufacturing process and exposes us to risks, including reduced control over quality assurance, product costs, product supply, timing, and transportation risk. If we lose, terminate, or fail to effectively manage our manufacturing partner relationships, or if any of our manufacturing partners experience production interruptions or shut-downs, including those caused by a natural disaster, epidemic, pandemic (such as the COVID-19 pandemic), capacity shortage, or quality-control problem, it would negatively affect sales of our product lines manufactured by that manufacturing partner and adversely affect our business and results of operations.

 

Our failure to adequately maintain and protect personal information of our customers or our employees in compliance with evolving legal requirements could have a material adverse effect on our business.

 

We collect, use, store, disclose, or transfer (collectively, “process”) personal information, including from employees and customers, in connection with the operation of our business. A wide variety of local and international laws and regulations apply to the processing of personal information. Data protection and privacy laws and regulations are evolving and being tested in courts and may result in increasing regulatory and public scrutiny and escalating levels of enforcement and sanctions.

 

A variety of data protection legislation apply in the U.S. at both the federal and state level, including new laws that may impact our operations. For example, in 2018, the State of California enacted the CCPA, which went into effect on January 1, 2020, with enforcement by the state attorney general beginning July 1, 2020. The CCPA defines “personal information” in a broad manner and generally requires companies that process personal information of California residents to make new disclosures about their data collection, use, and sharing practices, allows consumers to opt-out of certain data sharing with third parties or sale of personal information, and provides a new cause of action for data breaches. Moreover, a new privacy law, the California Privacy Rights Act (“CPRA”) was approved by California voters in November 2020, significantly modifying the CCPA, and potentially resulting in further uncertainty and requiring us to incur additional expenditures to comply. Additionally, the Federal Trade Commission, and many state attorneys general are interpreting federal and state consumer protection laws to impose standards for the online collection, use, dissemination, and security of data. The burdens imposed by the CCPA and other similar laws that have been or may be enacted at the federal and state level may require us to modify our data processing practices and policies and to incur substantial expenditures in order to comply.

 

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Our actual or alleged failure to comply with any applicable laws and regulations or privacy-related contractual obligations, or to protect such data that we process, could result in litigation, regulatory investigations, and enforcement actions against us, including fines, orders, public censure, claims for damages by employees, customers, and other affected individuals, public statements against us by consumer advocacy groups, damage to our reputation and competitive position, and loss of goodwill (both in relation to existing customers and prospective customers), any of which could have a material adverse effect on our business, financial condition, results of operations, and cash flows. Evolving and changing definitions of personal information, personal data, and similar concepts within the U.S., Canada, and elsewhere, especially relating to classification of IP addresses, device identifiers, location data, household data, and other information we may collect, may limit or inhibit our ability to operate or expand our business, including limiting strategic partnerships that may involve the sharing of data. Additionally, if third parties that we work with, such as vendors or developers, violate applicable laws or our policies, such violations may also place personal information at risk and have an adverse effect on our business. Even the perception of privacy concerns, whether or not valid, may harm our reputation, subject us to regulatory scrutiny and investigations, and inhibit adoption of our products by existing and potential customers.

 

Our products are currently being used by medical facilities, which subjects us to increased compliance obligations with certain regulations.

 

The Blockchain Archive Server has been sold to medical facilities. For medical facilities, our Blockchain Archive Server must be compliant with HIPPA and its implementing regulations, establish privacy and security standards that limit the use and disclosure of Protected Health Information (“PHI”) and require the implementation of administrative, physical, and technical safeguards to ensure the confidentiality, integrity, and availability of individually identifiable health information in electronic form. The Health Information Technology for Economic and Clinical Health Act (“HITECH”) which became effective on February 17, 2010, and an implementing regulation known as the Omnibus Final Rule, which became effective on September 23, 2013, significantly expanded HIPAA’s privacy and security requirements. Among other things, HITECH and the Omnibus Final Rule make HIPAA’s privacy and security standards directly applicable to “business associates,” which are independent contractors or agents of covered entities that create, receive, maintain, or transmit PHI in connection with providing a service for or on behalf of a covered entity. Under HIPAA and our contractual agreements with our customers, we are considered a “business associate” to our customers and thus are directly subject to HIPAA’s privacy and security standards. If we do not comply with these standards and regulations, we could be subject to liabilities, penalties, and fines.

 

Since inception, we have experienced losses, and may have to further reduce our costs by curtailing future operations to continue as a business.

 

Since our inception on May 8, 2020, we have had operating losses and our cash flow has been inadequate to support our ongoing operations. Our ability to fund our capital requirements out of our available cash and cash generated from our operations depends on a number of factors, including our ability to gain interest in our products and services and continue growing our existing operations and our ability to raise funds as needed. If we cannot continue to generate positive cash flow from operations, we will have to reduce our costs and try to raise working capital from other sources. These measures could materially and adversely affect our ability to execute our operations and expand our business.

 

Our auditors have indicated that there is substantial doubt about our ability to continue as a going concern.

 

The accompanying consolidated financial statements have been prepared assuming that we 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 consolidated financial statements, we had a net loss of $4,525,585 for the year ended December 31, 2021. These factors among others raise substantial doubt about our ability to continue as a going concern. While we are attempting to commence operations and generate revenues, our cash position may not be significant enough to support our 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 us to continue as a going concern. While we believe in the viability of its strategy to generate revenues and in its ability to raise additional funds, there can be no assurances to that effect. Our ability to continue as a going concern is dependent upon our ability to further implement our business plan and generate revenues. The consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern. For further discussion about our ability to continue as a going concern and our plan for future liquidity, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Further, as of December 31, 2021, we had a working capital deficit of $2,472,140 and an accumulated deficit of $7,967,663. Our ability to continue as a going concern ultimately is dependent on the management’s ability to obtain equity or debt financing, attain further operating efficiencies, and achieve profitable operations.

 

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The Company may suffer from lack of availability of additional funds.

 

We expect to have ongoing needs for working capital in order to fund operations and to continue to expand our operations. To that end, we will be required to raise additional funds through equity or debt financing. However, there can be no assurance that we will be successful in securing additional capital on favorable terms, if at all. If we are successful, whether the terms are favorable or unfavorable, there is a potential that we will fail to comply with the terms of such financing, which could result in severe liability for our Company. If we are unsuccessful, we may need to (a) initiate cost reductions; (b) forego business development opportunities; (c) seek extensions of time to fund liabilities, or (d) seek protection from creditors. In addition, any future sale of our equity securities would dilute the ownership and control of your shares and could be at prices substantially below prices at which our shares currently trade. Our inability to raise capital could require us to significantly curtail or terminate our operations altogether. We may seek to increase our cash reserves through the sale of additional equity or debt securities. The sale of convertible debt securities or additional equity securities could result in additional and potentially substantial dilution to our shareholders. The incurrence of indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations and liquidity. In addition, our ability to obtain additional capital on acceptable terms is subject to a variety of uncertainties.

 

In addition, if we are unable to generate adequate cash from operations, and if we are unable to find sources of funding, it may be necessary for us to sell all or a portion of our assets, enter into a business combination, or reduce or eliminate operations. These possibilities, to the extent available, may be on terms that result in significant dilution to our shareholders or that result in our shareholders losing all of their investment in our Company.

 

The ability of our Chief Executive Officer, Donald Beavers, to control our business may limit or eliminate minority shareholders’ ability to influence corporate affairs.

 

Mr. Beavers, our Chief Executive Officer and our largest stockholder, holds 16.9% of the voting power of our company. Because of this voting control, he is in a position to influence membership of our board of directors, as well as all other matters requiring stockholder approval. The interests of our Chief Executive Officer may differ from the interests of other shareholders with respect to the issuance of shares, business transactions with or sales to other companies, selection of other officers and directors and other business decisions. The minority shareholders have no way of overriding decisions made by our Chief Executive Officer.

 

We rely on technology, such as our information systems, to conduct our business. Failure to protect our technology against breakdowns and security breaches could adversely affect our business.

 

We rely on technology, such as our information systems and servers, to conduct our business. This technology is vulnerable to service interruptions and security breaches from inadvertent or intentional actions by our employees, partners and vendors, or from attacks by malicious third parties. Such attacks are of ever-increasing levels of sophistication and are made by groups and individuals with a wide range of motives and expertise, including organized criminal groups, “hacktivists,” nation states and others. The techniques used to breach security safeguards evolve rapidly, and they may be difficult to detect for an extended period of time, and the measures we take to safeguard our technology may not adequately prevent such incidents.

 

While we have taken steps to protect our confidential and personal information and invested in information technology, there can be no assurance that our efforts will prevent service interruptions or security breaches in our systems or the unauthorized or inadvertent wrongful use or disclosure of confidential information. Such incidents could adversely affect our business operations, reputation and client relationships. Any such breach would require us to expend significant resources to mitigate the breach of security and to address matters related to any such breach, including the payment of fines. Although we maintain an insurance policy that covers data security, privacy liability and cyber-attacks, our insurance may not be adequate to cover losses arising from breaches or attacks on our systems. We also may be required to notify regulators about any actual or perceived personal data breach as well as the individuals who are affected by the incident within strict time periods.

 

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The commercial success of our products is dependent, in part, on factors outside our control.

 

The commercial success of our products is dependent upon unpredictable and volatile factors beyond our control, such as the success of our competitors’ products. Our failure to attract market acceptance and a sustainable competitive advantage over our competitors would materially harm our business.

 

We may be unable to scale our operations successfully.

 

Our growth strategy will place significant demands on our management and financial, administrative and other resources. Operating results will depend substantially on the ability of our officers and key employees to manage changing business conditions and to implement and improve our financial, administrative and other resources. If the Company is unable to respond to and manage changing business conditions, or the scale of its operations, then the quality of its services, its ability to retain key personnel, and its business could be harmed.

 

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, our ability to refinance our indebtedness, and our access to capital.

 

The ultimate 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 response to the pandemic, the extent and effectiveness of 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.

 

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Economic conditions or changing consumer preferences could adversely impact our business.

 

A downturn in economic conditions in one or more of the Company’s markets could have a material adverse effect on our results of operations, financial condition, business and prospects. Although we attempt to stay informed of government and customer trends, any sustained failure to identify and respond to trends could have a material adverse effect on our results of operations, financial condition, business and prospects.

 

The requirements of remaining a public company may strain our resources and distract our management, which could make it difficult to manage our business.

 

We are required to comply with various regulatory and reporting requirements, including those required by the SEC. Complying with these reporting and other regulatory requirements are time-consuming and expensive and could have a negative effect on our business, results of operations and financial condition.

 

Our intellectual property rights are valuable, and if we are unable to protect them or are subject to intellectual property rights claims, our business may be harmed.

 

The Blockchain Archive Server technology and name are important products to our business. We do not hold any patents or trademarks protecting our intellectual property. While we have filed both a patent and a trademark application for the Blockchain Archive Server, there is no guarantee that these applications will result in the requested trademark and patent being issued to us. Without such protections, our technology is more vulnerable to being copied and used by competitors. Various events outside of our control pose a threat to our intellectual property rights as well as to our business. Regardless of the merits of the claims, any intellectual property claims could be time-consuming and expensive to litigate or settle. In addition, if any claims against us are successful, we may have to pay substantial monetary damages or discontinue any of our practices that are found to be in violation of another party’s rights. We also may have to seek a license to continue such practices, which may significantly increase our operating expenses or may not be available to us at all. Also, the efforts we have taken to protect our proprietary rights may not be sufficient or effective. Any significant impairment of our intellectual property rights could harm our business or our ability to compete.

 

We are required to comply with certain provisions of Section 404 of the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”) and if we fail to continue to comply, our business could be harmed, and the price of our securities could decline.

 

Rules adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act require an annual assessment of internal control over financial reporting, and for certain issuers an attestation of this assessment by the issuer’s independent registered public accounting firm. The standards that must be met for management to assess the internal control over financial reporting as effective are evolving and complex, and require significant documentation, testing, and possible remediation to meet the detailed standards. We expect to incur significant expenses and to devote resources to Section 404 compliance on an ongoing basis. It is difficult for us to predict how long it will take or costly it will be to complete the assessment of the effectiveness of our internal control over financial reporting for each year and to remediate any deficiencies in our internal control over financial reporting. As a result, we may not be able to complete the assessment and remediation process on a timely basis. In the event that our Chief Executive Officer or Chief Financial Officer determines that our internal control over financial reporting is not effective as defined under Section 404, we cannot predict how regulators will react or how the market prices of our securities will be affected; however, we believe that there is a risk that investor confidence and the market value of our securities may be negatively affected.

 

Risks Related to Our Common Stock

 

Our common stock currently trades on the Pink tier of OTC Markets.

 

Our common stock currently trades on the Pink tier of OTC Market Group LLC’s Marketplace under the symbol “SOLS.” The OTC Market is a network of security dealers who buy and sell stock. The dealers are connected by a computer network that provides information on current “bids” and “asks,” as well as volume information. The trading of securities on the OTC Pink is often sporadic and investors may have difficulty buying and selling our shares or obtaining market quotations for them, which may have a negative effect on the market price of our common stock.

 

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Our common stock is subject to risks arising from restrictions on reliance on Rule 144 by shell companies or former shell companies.

 

Under a regulation of the SEC known as Rule 144, a person who beneficially owns restricted securities of an issuer and who is not an affiliate of that issuer may sell them without registration under the Securities Act provided that certain conditions have been met. One of these conditions is that such person has held the restricted securities for a prescribed period, which will be six months for the common stock. However, Rule 144 is unavailable for the resale of securities issued by an issuer that is a shell company (other than a business combination related shell company) or, unless certain conditions are met, that has been at any time previously a shell company.

 

The SEC defines a shell company as a company that has (a) no or nominal operations and (b) either (i) no or nominal assets, (ii) assets consisting solely of cash and cash equivalents; or (iii) assets consisting of any amount of cash and cash equivalents and nominal other assets.

 

As a result of the Share Exchange, we ceased being a shell company as such term is defined in Rule 12b-2 under the Exchange Act. While we believe that as a result of the Share Exchange, we ceased to be a shell company, the SEC and others whose approval is required in order for shares to be sold under Rule 144 might take a different view.

 

Rule 144 is available for the resale of securities of former shell companies if and for as long as the following conditions are met:

 

(i)the issuer of the securities that was formerly a shell company has ceased to be a shell company,

 

(ii)the issuer of the securities is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act,

 

(iii)the issuer of the securities has filed all Exchange Act reports and material required to be filed, as applicable, during the preceding 12 months (or such shorter period that the issuer was required to file such reports and materials), other than Current Reports on Form 8-K; and

 

(iv)at least one year has elapsed from the time that the issuer filed current comprehensive disclosure with the SEC reflecting its status as an entity that is not a shell company known as “Form 10 Information.”

 

Although we previously filed Form 10 Information with the SEC, shareholders who receive our restricted securities will not be able to sell them pursuant to Rule 144 without registration until we have met the other conditions to this exception and then for only as long as we continue to meet the condition described in subparagraph (iii), above, and we are not a shell company. No assurance can be given that we will meet these conditions or that, if we have met them, we will continue to do so, or that we will not again be a shell company.

 

Our common stock constitutes restricted securities and is subject to limited transferability.

 

All of our common stock, should be considered a long-term, illiquid investment. In addition, our common stock is not registered under any state securities laws that would permit its transfer. Because of these restrictions and the absence of an active trading market for our securities, a shareholder will likely be unable to liquidate an investment even though other personal financial circumstances would dictate such liquidation.

 

Our common stock price may decrease due to factors beyond our control.

 

The stock market from time to time has experienced extreme price and volume fluctuations, which have particularly affected the market prices for early stage companies and which often have been unrelated to the operating performance of the companies. These broad market fluctuations may adversely affect the market price of our stock, if a trading market for our stock ever develops. If our shareholders sell substantial amounts of their stock in the public market, the price of our stock could fall. These sales also might make it more difficult for us to sell equity, or equity-related securities, in the future at a price we deem appropriate.

 

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The market price of our stock may also fluctuate significantly in response to the following factors, most of which are beyond our control:

 

variations in our quarterly operating results,

 

changes in general economic conditions,

 

changes in market valuations of similar companies,

 

announcements by us or our competitors of significant acquisitions, strategic partnerships or joint ventures, or capital commitments,

 

poor reviews;

 

loss of a major customer, partner or joint venture participant; and

 

the addition or loss of key managerial and collaborative personnel.

 

Any such fluctuations may adversely affect the market price or value of our common stock, regardless of our actual operating performance. As a result, shareholders may be unable to sell their shares, or may be forced to sell them at a loss.

 

Our common stock has been in the past, and may be in the future, subject to the application of the “penny stock” rules, which could adversely affect the market price of our common stock and increase transaction costs to sell those shares.

 

The SEC has adopted rule 3a51-1 which establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, Rule 15g-9 requires:

 

that a broker or dealer approve a person’s account for transactions in penny stocks, and

 

the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.

 

In order to approve a person’s account for transactions in penny stocks, the broker or dealer must:

 

obtain financial information and investment experience objectives of the person, and

 

make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.

 

The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form:

 

sets forth the basis on which the broker or dealer made the suitability determination and

 

that the broker or dealer received a signed, written agreement from the investor prior to the transaction.

 

Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. If our common stock falls below $5.00, it may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.

 

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The market price for our common stock is particularly volatile which could lead to wide fluctuations in our share price. You may be unable to sell your common stock at or above your purchase price, or at all, which may result in substantial losses to you.

 

The market for our common stock is characterized by significant price volatility when compared to seasoned issuers, and we expect that our share price will continue to be more volatile than a seasoned issuer for the indefinite future. As a consequence of this enhanced risk, more risk-adverse investors may, under the fear of losing all or most of their investment in the event of negative news or lack of progress, be more inclined to sell their shares on the market more quickly and at greater discounts than would be the case with the stock of a seasoned issuer. Many of these factors are beyond our control and may decrease the market price of our common shares, regardless of our operating performance. We cannot make any predictions or projections as to what the prevailing market price for our common stock will be at any time, or if our common stock will ever be able to trade, or as to what effect the sale of shares or the availability of common stock for sale at any time will have on the prevailing market price.

 

The sale and issuance of additional shares of our common stock could cause dilution as well as the value of our common stock to decline.

 

Investors’ interests in us will be diluted and investors may suffer dilution in their net book value per share when we issue additional shares. We are authorized to issue 300,000,000 shares of common stock. We anticipate that all or at least some of our future funding, if any, will be in the form of equity financing from the sale of our common stock. If we do sell or issue more common stock, any investors’ investment in the Company will be diluted. Dilution is the difference between what you pay for your stock and the net tangible book value per share immediately after the additional shares are sold by us. If dilution occurs, any investment in our common stock could seriously decline in value.

 

FINRA sales practice requirements may also limit a shareholder’s ability to buy and sell our stock.

 

In addition to the “penny stock” rules described above, FINRA has adopted Rule 2111 that requires a broker-dealer to have reasonable grounds for believing that an investment is suitable for a customer before recommending the investment. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low-priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.

 

We do not intend to pay dividends for the foreseeable future.

 

We have never declared or paid any cash dividends on our stock and do not intend to pay any cash dividends in the foreseeable future. We anticipate that we will retain all of our future earnings for use in the development of our business and for general corporate purposes. Any determination to pay dividends in the future will be at the discretion of our Board.

 

If we are unable to comply with the financial reporting requirements mandated by the SEC’s regulations, investors may lose confidence in our financial reporting and the price of our common stock, if a market ever does develop for it, could decline.

 

If we fail to maintain effective internal controls over financial reporting, our ability to produce timely, accurate and reliable periodic financial statements could be impaired. If we do not maintain adequate internal control over financial reporting, investors could lose confidence in the accuracy of our periodic reports filed under the Exchange Act. Additionally, our ability to obtain additional financing could be impaired or a lack of investor confidence in the reliability and accuracy of our public reporting could cause our stock price to decline.

 

ITEM 1B. UNRESOLVED STAFF COMMENTS

 

None.

 

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ITEM 2. PROPERTIES

 

Effective January 3, 2022, our principal executive office with approximately 35,000 square feet of office space became located at 1470 Treeland Blvd SE, Palm Bay, FL 32909. The Company owns this property.

 

Prior to January 3, 2022, we maintained our principal offices at 2475 Palm Bay Road NE, Palm Bay, Florida 32905 where we leased four separate suites. These leases all have an expiration date of February 28, 2026:

 

 Suite #120, which is approximately 3,100 square feet of office space, and a lease term that expires on February 28, 2026; and

 

 Suite #7, which is approximately 1,885 square feet of office space, and has a lease term that expires on February 28, 2026; and

 

 Suite #2, which is approximately 2,007 square feet of office space, and has a lease term that expires on February 28, 2026; and

 

Suite #110, which is approximately 2,808 square feet, and has a lease term that expires on February 28, 2026.

 

Terms of the four office leases provide for an aggregate base rent payment of $12,756 per month and are subject to annual 3% escalation charges. Two of these suites are currently vacant. We have sublet two of these suites for $3,642 for a one year period commencing on January 1, 2022 and are actively seeking to sublet the other two suites

 

At Abstract Medias facility we lease office space which expires on March 31, 2023 and sublease a portion of that office space to other companies. As of December 31, 2021 our net rent expense, after deducting sublease income was approximately $4,830 per month. Future minimum lease payments through the end of March 31, 2023 are $6,830 per month.

 

ITEM 3. LEGAL PROCEEDINGS

 

Except as set forth herein, as of the filing date of this Annual Report on Form 10-K, there are no material pending legal proceedings, other than ordinary routine litigation incidental to our business, to which we are a party or which our property is the subject. In addition, none of our officers, directors, affiliates or 5% stockholders (or any associates thereof) is a party adverse to us, or has a material interest adverse to us, in any material proceeding.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

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PART II

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Market Information

 

Our common stock is quoted on the OTC Pink tier of the OTC Markets Group under the symbol, “SOLS.” The OTC Market is a computer network that provides information on current “bids” and “asks,” as well as volume information.

 

The following table sets forth the range of high and low closing bid quotations for our common stock for each of the periods indicated as reported by the OTC Markets. These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

 

  High  Low 
2022      
First Quarter (January 1 – March 31) (1) $ 8.00  $ 3.20 
         
2021        
First Quarter (January 1 – March 31) $8.90  $3.00 
Second Quarter (April 1 – June 30) $9.00  $3.24 
Third Quarter (July 1 – September 30) $9.00  $4.00 
Fourth Quarter (October 1 – December 31) $10.50  $6.14 
         
2020        
First Quarter (January 1 – March 31) $7.68  $2.69 
Second Quarter (April 1 – June 30) $8.64  $2.44 
Third Quarter (July 1 – September 30) $51.62  $0.52 
Fourth Quarter (October 1 – December 31) $26.00  $3.73 

 

 
(1)Reflects transactions through March 29, 2022.

 

Holders

 

On March 29, 2022, the closing bid price of our common stock as reported on the OTC Pink was $4.02 and there were approximately 335 shareholders of record. The number of record holders does not include beneficial owners of common stock whose shares are held in the names of banks, brokers, nominees or other fiduciaries.

 

Dividends

 

We have not declared any dividends since inception and we do not anticipate paying any dividends in the foreseeable future on our common stock. The payment of dividends is within the discretion of the Board of Directors and will depend on our earnings, capital requirements, financial condition, and other relevant factors. There are no restrictions that currently limit our ability to pay dividends on our common stock other than those generally imposed by applicable state law.

 

Securities Authorized for Issuance Under Equity Compensation Plans

 

None.

 

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Recent Sales of Unregistered Securities

 

During the year ended December 31, 2021 the Company recorded the following sales of unregistered securities

 

raised $4,603,979 from the sale 1,231,580 common shares to investors

 

issued 73,244 shares valued at $292,976 in connection with the acquisition of Abstract Media

 

issued an aggregate of 56,365 shares of common stock, valued at $310,000 pursuant to the Sollensys Corp 2021 Equity Incentive Plan to numerous consultants.

 

ITEM 6. SELECTED FINANCIAL DATA

 

Not required for smaller reporting companies.

 

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis of the financial condition and results of operations of Sollensys Corp (the “Company” or “Sollensys”) should be read in conjunction with our consolidated financial statements and the accompanying notes thereto included elsewhere in this Annual Report on Form 10-K. References in this Management’s Discussion and Analysis of Financial Condition and Results of Operations to “us,” “we,” “our,” and similar terms refer to the Company. This Annual Report on Form 10-K includes forward-looking statements, as that term is defined in the federal securities laws, based upon current expectations that involve risks and uncertainties, such as plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors. Words such as “anticipate,” “estimate,” “plan,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions are used to identify forward-looking statements. We caution you that these statements are not guarantees of future performance or events and are subject to a number of uncertainties, risks and other influences, many of which are beyond our control, which may influence the accuracy of the statements and the projections upon which the statements are based. Reference is made to “Risk Factors,” which are included elsewhere in this Annual Report on Form 10-K.

 

Business Overview

 

Sollensys Corp was formerly a development stage company, incorporated in Nevada on September 29, 2010, under the name Health Directory, Inc. Sollensys’ initial plans included organization and incorporation, target market identification, marketing plans, and capital formation. A substantial portion of Sollensys’ efforts involved developing a business plan and establishing contacts and visibility in the marketplace. Sollensys did not, however, generate any revenues from these efforts.

 

Effective July 30, 2012, the holder of 3,000,000 shares, or approximately 79.8% of Sollensys’ 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 Sollensys’ name to Sollensys, increase the number of authorized shares of Common Stock to 1,500,000,000, increase the number of authorized preferred shares of Sollensys, par value $0.001 (the “Preferred Stock”) to 25,000,000, and to split each outstanding share of Common Stock into 131.69 shares of Common Stock.

 

Subsequently, beginning September 30, 2012, Sollensys went dormant.

 

On December 27, 2019, the Eighth Judicial District Court of Clark County, Nevada (the “Court”), pursuant to Case number A-19-805633-B appointed Custodian Ventures, LLC (“Custodian Ventures”) as the custodian of Sollensys David Lazar, who controls Custodian Ventures was subsequently named the only interim officer and director of Sollensys.

 

On June 16, 2020, Custodian Ventures filed a motion with the Court asking the Court to enter an order concluding and terminating the custodianship of Sollensys. On July 20, 2020, the Court entered an order terminating custodianship and barring non-asserted claims against Sollensys.

 

Effective August 5, 2020, David Lazar, the interim Chief Executive Officer, President, Secretary, Treasurer, and sole director of Sollensys and the beneficial owner, through his ownership of Custodian Ventures of 19,000,000 shares of Series A Preferred Stock, representing 100% of Sollensys’ issued and outstanding shares of preferred stock, entered into a Stock Purchase Agreement by and among Eagle Lake, Sollensys, and Custodian Ventures. The Stock Purchase Agreement is referred to herein as the “SPA.” Pursuant to the terms of the SPA, Eagle Lake agreed to purchase, and Custodian Ventures agreed to sell, 19,000,000 shares of Sollensys’ Series A Preferred Stock in exchange for payment by Eagle Lake 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 Sollensys are convertible into shares of Common Stock of Sollensys 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 Sollensys.

 

In connection with the closing of the Stock Purchase, on August 5, 2020, Mr. Lazar, the then-sole member of the Board of Directors (the “Board”) of Sollensys, pursuant to the power granted to the Board in Sollensys’ bylaws, increased the size of Sollensys’ Board to two members. Simultaneously, Mr. Lazar, as the sole Board member, appointed Donald Beavers as a director to fill the newly created Board vacancy. At the same time, Mr. Lazar appointed Donald Beavers as Chief Executive Officer and Secretary of Sollensys.

 

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Also on August 5, 2020, following the above officer and director appointments and effective on the closing of the Stock Purchase, Mr. Lazar resigned from any and all officer and director positions with Sollensys. Mr. Lazar’s resignation is not the result of a disagreement with Sollensys on any matter relating to Sollensys’ operations, policies, or practices.

 

On November 30, 2020, pursuant to the Closing of the Share Exchange Agreement, Sollensys acquired Eagle Lake, and Eagle Lake thereafter became a wholly owned subsidiary of Sollensys, and the business of Eagle Lake became the business of the Company going forward. At the time of the Closing, Eagle Lake had 10,011,667 shares of its common stock issued and outstanding, which is 11,667 shares in excess of the number of shares of common stock authorized pursuant to Eagle Lake’s Articles of Incorporation. Such over-issued shares are void under Florida law and are not entitled to any rights of a stockholder of Eagle Lake. As such, the 10,000,000 shares of Eagle Lake common stock that the Company acquired from the Eagle Lake Shareholders, represented 100% of the issued and outstanding capital stock of Eagle Lake of the presence of over-issued shares.

 

Eagle Lake Laboratories, Inc. was incorporated in the State of Florida on May 8, 2020. Eagle Lake offers advanced technology products for cybersecurity that ensure a clients’ data integrity through collection, storage, and transmission.

 

The Acquisition of Abstract Media as described throughout this Report, closed on December 6, 2021. The Results of Operations include the activity of Abstract Media for the period December 7, 2021 through December 31, 2021, with no comparable results in the prior year period.

 

Results of Operations for the Twelve Months Ended December 31, 2021 Compared to the Nine Months Ended December 31, 2020

 

Revenue

 

For the year ended December 31, 2021 we recorded $182,321 in subscription revenue from the execution of our blockchain archive server agreements , compared to $180,000 from the sale of servers for the year ended December 31, 2020. As an emerging growth company we are in the process of developing our strategic business plan going forward, therefore, revenues may vary from period to period.

 

Cost of sales

 

Cost of sales was $384,908 for year ended December 31, 2021 compared to cost of sales of $30,000 for the period ended December 31, 2020. The significant increase in cost of sales is attributable to the buildout of our infrastructure in the December 31, 2021 period in anticipation for higher sales levels in 2022.

 

Operating expenses

 

Operating expense for the period ended December 31, 2021 were $4,253,875 compared to $3,063,903 for the period ended December 31, 2020. The significant increase in operating expenses in 2021 compared to 2020 is due to the buildout of the infrastructure at the Company in 2021 to support higher levels of activity and revenue generation.

 

During the period ended September 30, 2020 expenses of $20,843 were paid on behalf of the Company by David Lazar In connection with the August 5, 2020 change of control, the aggregate amount of $46,943 due to Mr. Lazar was forgiven and recognized as a capital contribution to the Company.

 

Key components of the Company’s operating expenses for the year ended December 31, 2021 include approximately $2,459,000 in payroll, consultants, staffing of temporary help and benefits (which includes approximately $242,000 in non-cash stock based compensation); approximately $962,000 in legal and professional services, and $127,000 in rent expense.

 

Liquidity and Capital Resources

 

We had $592,534 in cash on hand as of December 31, 2021.

 

Net cash used in operating activities was $3,717,036 for the year ended December 31, 2021 compared to $910,926 for the year ended December 31, 2020. The material increase in cash used in operating activities was primarily due to an increase of approximately $1,700,000 in operating losses in 2021(net of non-cash stock based compensation) compared to 2020 operating losses, partially offset by an increase in customers deposit in the 2021 period of approximately $553,000 over 2020 levels.

 

24

 

 

Net cash used for investing activities for the year ended December 31, 2021 was $422,453 compared to $-0- for the year ended December 31, 2020. The investing activity in 2021 was comprised of the acquisition of Abstract Media for $8,920 and the purchase of property and equipment of $413,533.

 

Net cash provided by financing activities was $4,602,399 for the year ended December 31, 2021 compared to $1,040,550 for the period ended December 31, 2020. The material increase during 2021 is due to an increase in proceeds from the sale of common stock of approximately $4,600,000.

 

During the year ended December 31, 2021, we issued 73,244 shares of our common stock valued at $292,976 to purchase Abstract, LLC.

 

Since we have been incurring losses from operations we have relied on ongoing sales of unregistered securities and the personnel guarantees of our CEO to obtain financing to fund our operations. During the year ended December 31, 2021 we issued 73,244 shares of our common stock to help fund our acquisition of Abstract Media. Additionally, we were able to purchase our corporate headquarters with a cash outlay of $186,087 and through the issuance of a $2,500,000 mortgage due to the personal guarantee of our CEO.

 

There can be no assurance that we will be able to continue to raise capital from the sale of our securities, use our securities to make acquisitions, nor can there be any assurances that our CEO will continue to provide his personal guaranty on financing transactions to help raise capital.

 

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, our ability to refinance our indebtedness, and our access to capital.

 

The ultimate 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 response to the pandemic, the extent and effectiveness of 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.

 

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a 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.

 

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Critical Accounting Policies and Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“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 reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

We believe that the following critical policies affect our more significant judgments and estimates used in preparation of our consolidated financial statements.

 

Common Control Accounting Treatment

 

Sollensys Corp and Eagle Lake were under the common control of the CEO before and after the date of transfer. As a result, the Company adopted the guidance in the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) 805-50-05-5 for the transfer of net assets between entities under common control to apply a method similar to the pooling-of-interests-method. Under the method, the financial statements of the Company shall report results of operations for the period in which the transfer occurs as though the transfer of the net assets had occurred at the beginning of the period. Results of operations for the period will thus comprise both those of the previously separate entities combined from the beginning of the period to the date the transfer is completed and those of the combined operations from that date to the end of the period. Similarly, the Company shall present the statements of financial position and other financial information presented as of the beginning of the period as though the assets and liabilities had been transferred at that date. Financial statements and financial information presented for prior years also shall be retrospectively adjusted to furnish comparative information.

 

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.

 

The Company expects to generate operating cash flow that will be sufficient to fund presently anticipated operations although there can be no assurance. This raises 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 operations become profitable.

 

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 acceptable terms or at all.

 

Revenue Recognition

 

Revenues are accounted for in accordance with the FASB’s Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606).

 

The Company derives revenue from two sources. The Company’s 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 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”.

 

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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 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.

 

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.

 

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New Accounting Pronouncements

 

The Company currently follows the guidance in ASC 840 “Leases,” which requires us to evaluate the lease agreements the Company enters into to determine whether they represent operating or capital leases at the inception of the lease.

 

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (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 has 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 an emerging growth company the Company is eligible for deferring the adoption of ASC 842 to December 15, 2021.

 

ASC 842 will be effective for the Company beginning on January, 1 2022. We do not believe that the adoption of this guidance will have a material impact on our consolidated financial statements.

 

Except for the adoption of ASC 842, management does not believe that any recently issued, but not yet effective, accounting standards could have a material effect on the accompanying financial statements. As new accounting pronouncements are issued, we will adopt those that are applicable under the circumstances.

 

Recent accounting pronouncements issued by the FASB, the American Institute of Certified Public Accountants and the SEC did not have, or are not believed by management to have, a material effect on the Company’s financial statements.

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable.

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

Reference is made to pages F-1 through F-18 comprising a portion of this Annual Report on Form 10-K.

 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

On December 2, 2021, the Company terminated the engagement of MaloneBailey, LLP (“MaloneBailey”) as the Company’s independent registered accounting firm.

 

MaloneBailey’s report on the Company’s financial statements for the transition period from March 31, 2020 to December 31, 2020 did not contain an adverse opinion or a disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope or accounting principles, except that the report included an explanatory paragraph relating to an uncertainty as to the Company’s ability to continue as a going concern. Furthermore, from March 31, 2020 and through December 2, 2021, there have been no disagreements with MaloneBailey on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to MaloneBailey’s satisfaction, would have caused MaloneBailey to make reference to the subject matter of the disagreement in connection with its report on the Company’s financial statements for the transition period from March 31, 2020 to December 31, 2020.

 

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Except as set forth below, for the transition period from March 31, 2020 to December 31, 2020, there were no “reportable events” as that term is described in Item 304(a)(1)(v) of Regulation S-K. In connection with the audit of the Company’s financial statements for the transition period from March 31, 2020 to December 31, 2020, MaloneBailey identified the existence of a material weakness in the Company’s internal control over financial reporting. The ineffectiveness of the Company’s internal control over financial reporting was due to the following material weaknesses which the Company identified in its internal control over financial reporting: lack of segregation of duties and multiple level of review due to limited accounting personal, lack of formal documentation surrounding internal controls, and lack of controls over proper maintenance of records. These material weaknesses have not been corrected.

 

The Company provided MaloneBailey with a copy of the disclosure contained herein, prior to its filing with the Securities and Exchange Commission (the “Commission”), and requested that MaloneBailey furnish the Company a letter addressed to the Commission stating whether or not it agreed with the statements herein and, if not, stating the respects in which it does not agree. MaloneBailey’s letter to the Commission was previously filed as an exhibit to the Company’s Current Report on Form 8-K filed with the SEC on December 7, 2021.

 

On December 2, 2021, the Company appointed HoganTaylor LLP (“HoganTaylor”) as the Company’s new independent registered accounting firm. During the Company’s two most recent fiscal years and through December 2, 2021, neither the Company nor anyone acting on the Company’s behalf consulted HoganTaylor with respect to any of the matters or reportable events set forth in Item 304(a)(2)(i) and (ii) of Regulation S-K.

 

ITEM 9A. CONTROLS AND PROCEDURES

 

Disclosure Controls and Procedures

 

The Company’s principal executive officer and principal financial officer have evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2021. Based upon such evaluation, the principal executive officer and principal financial officer have concluded that, as of December 31, 2021, the Company’s disclosure controls and procedures were not effective as required under Rules 13a-15(e) and 15d-15(e) under the Exchange Act.

 

Management’s Report on Internal Control over Financial Reporting

 

Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rue 13a-15(f) and 15d-15(f) of the Exchange Act) of the Company. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

 

The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

 

Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.

 

Management, under the supervision of the Company’s principal executive officer and principal financial officer, conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework in 2013 Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that the Company’s internal control over financial reporting was not effective as of December 31, 2021 under the criteria set forth in the 2013 Internal Control – Integrated Framework.

 

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A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. Management has determined that a material weaknesses exists due for the following reasons:

 

The Company has an ineffective control environment due to a lack of the necessary corporate accounting resources with SEC financial reporting experience to ensure consistent, complete and accurate financial reporting, as well as disclosure controls and procedures.

 

The Company has limited resources to ensure that necessary internal controls are implemented and followed throughout the Company. The limited resources result in inadequate internal controls relating to the authorization, recognition, capture, and review of transactions, facts, circumstances and events that could have a material impact on the Company’s financial reporting process.

 

The Company is addressing the ineffective controls by searching for a full-time Chief Financial Officer.

 

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting that occurred during the fiscal quarter ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

ITEM 9B. OTHER INFORMATION

 

None.

 

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

 

Not applicable.

 

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PART III

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

Set forth below is certain information concerning the directors and executive officers of the Company.

 

Name Age Position
Donald Beavers 58 Chief Executive Officer, Secretary and Director
     
Anthony Nolte 58 Director
     
Anthony Motto 62 Chief Operating Officer

 

Biographies

 

Donald Beavers. Mr. Beavers is our Chief Executive Officer, Secretary, and a Director. Mr. Beavers is the founder and President of Probability and Statistics, Inc., a math and science company headquartered in Florida’s Space Coast. Founded in 2017, Probability and Statistics, Inc. develops integrated solutions powered by the latest technologies in blockchain development, artificial intelligence, additive manufacturing, multi-physics computations & specialized software application development for the public sector and private industry. Under Mr. Beavers’ leadership, the company has grown to 16 employees since its inception, has been awarded government contracts, and has received awards and certifications including a spot in GrowFL’s “Company to Watch” list in 2019. Prior to founding Probability and Statistics, Donald Beavers was the Education Director at SpaceCoast FabLab from 2015 to 2017. SpaceCoast FabLab is a learning center affiliated with MIT’s Center for Bits and Atoms. Mr. Beavers also founded Eagle Lake in May 2020. A database programmer by trade, Mr. Beavers has 20 years of experience rescuing high-profile databases around the world, and brings a wealth of technical and business experience to the Company.

 

Anthony Nolte. Mr. Nolte joined the Company as a Director in November 2020. Mr. Nolte has 30 years of experience in both the finance and legal disciplines to help companies grow and founders reach their goals. From 1989 to 2017, Mr. Nolte held a number of senior positions at Shell Oil Company, where he structured business deals, oversaw corporate consolidation teams, and provided financial planning, analysis, and risk management services. His experience includes working with CPG, SaaS, subscription retail, manufacturing and service companies, and over 20 years with Shell in a wide variety of finance and legal roles. From 2018 to 2019, Mr. Nolte served as the Head of Finance, Treasurer, Secretary and Corporate Counsel to NBGHome, a private equity-owned manufacturer, distributor and importer/exporter of consumer goods. From 2019 to present, Mr. Nolte has been the Chief Financial Officer and General Counsel of Open Mortgage, LLC, a multi-channel mortgage lender that serves thousands of clients annually.

 

Mr. Nolte’s brings experience to the Company from holding a number of positions in his career, including CFO, Treasurer, Controller, FP&A Manager, M&A Consultant and Attorney. His capital optimization experience includes cash management, general debt financing, factoring, asset backed loans, revolvers, commercial paper programs and other forms of raising money. Along with his capital markets knowledge, he has expertise in business plan generation, forecasting, accounting and financial planning and analysis.

 

Mr. Nolte holds a JD (Magna Cum Laude) from South Texas College of Law, an MBA (Finance) from Eastern Kentucky and a BBA (Industrial Administration) from the University of Kentucky. He also completed the Shell Executive Leadership Program at Wharton Business School.

 

Anthony Motto. Mr. Motto is our Chief Operating Officer. Since 2014, Mr. Motto has also served as VMware Global Staff Technical Account Manager for the Walt Disney Company. In this role, Mr. Motto was responsible for helping Disney align business goals with IT strategy and maximizing the return on investment on their VMware software investment.

 

Advisory Board

 

The Company has an Advisory Board consisting of eight members with expertise in finance, software, manufacturing, and sales that provide guidance to the Company in these areas.

 

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Involvement in Certain Legal Proceedings

 

No director, executive officer, significant employee or control person of the Company has been involved in any legal or regulatory proceeding listed in Item 401(f) of Regulation S-K in the past 10 years.

 

Board Composition

 

Our business and affairs are managed under the direction of our Board of Directors. The number of directors is fixed by our Board of Directors, subject to our articles of incorporation and our bylaws. Currently, our Board of Directors consists of three directors, with one vacancy. We do not have a standing audit, compensation or nominating committee. Rather, our full board of directors performs the functions of these committees. We do not believe it is necessary for our board of directors to appoint such committees because the volume of matters that come before our board of directors for consideration permits the directors to give sufficient time and attention to such matters to be involved in all decision making. Additionally, because our common stock is not listed for trading or quotation on a national securities exchange, we are not required to have such committees.

 

Director Independence

 

Our Board of Directors has undertaken a review of the independence of each director. Based on information provided by each director concerning his or her background, employment and affiliations, our Board of Directors has determined that none of our directors is “independent” as that term is defined under the listing standards of The Nasdaq Stock Market.

 

Board Leadership Structure and Board’s Role in Risk Oversight

 

Our Board of Directors has a Chairman, Mr. Beavers. The Chairman has authority, among other things, to preside over Board meetings and set the agenda for Board meetings. Accordingly, the Chairman has substantial ability to shape the work of our Board of Directors. We believe that separation of the roles of Chairman and Chief Executive Officer is not necessary at this time to ensure appropriate oversight by the Board of Directors of our business and affairs. However, no single leadership model is right for all companies and at all times. The Board of Directors recognizes that depending on the circumstances, other leadership models, such as the appointment of a lead independent director, might be appropriate. Accordingly, the Board of Directors may periodically review its leadership structure.

 

Our Board of Directors is generally responsible for the oversight of corporate risk in its review and deliberations relating to our activities. Our principal source of risk falls into two categories, financial and product commercialization. The audit committee will oversee management of financial risks; our Board of Directors regularly reviews information regarding our cash position, liquidity and operations, as well as the risks associated with each. The Board of Directors regularly reviews plans, results and potential risks related to our product development and commercialization efforts.

 

Procedures for Contacting the Board

 

The Board has established a process for stockholders and other interested parties to send written communications to the Board or to individual directors, as applicable. Such communications should be sent by U.S. mail addressed to:

 

Sollensys Corp Board of Directors

c/o Sollensys Corp

Attention: Corporate Secretary

2475 Palm Bay Rd. NE, Suite 120

Palm Bay, FL 32905

 

The Board has instructed the Corporate Secretary to promptly forward all communications so received to the full Board or the individual Board member(s) specifically addressed in the communication. Comments or questions regarding our accounting, internal controls or auditing matters, our compensation and benefit programs, or the nomination of directors and other corporate governance matters will remain with the full Board.

 

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Depending on the subject matter, the Company’s Corporate Secretary will:

 

 Forward the communication to the director or directors to whom it is addressed;
   
 Attempt to handle the inquiry directly, for example, where it is a request for information about our Company or if it is a stock-related matter; or
   
 Not forward the communication if it is primarily commercial in nature or if it relates to a topic that is not relevant to the Board or a particular committee or is otherwise improper.

 

Procedures for Recommending, Nominating and Evaluating Director Candidates

 

Recommending Director Candidates for Nomination by the Board

 

The Board will consider director candidates recommended by stockholders. A stockholder who wishes to recommend a director candidate for nomination by the Board at an annual meeting of stockholders or for vacancies of the Board that arise between annual meetings must provide the Board with sufficient written documentation to permit a determination by the Board whether such candidate meets the required and desired director selection criteria set forth in our bylaws. Such documentation and the name of the director candidate should be sent by U.S. mail to:

 

Sollensys Corp Board of Directors

c/o Sollensys Corp

Attention: Corporate Secretary

2475 Palm Bay Rd. NE, Suite 120

Palm Bay, FL 32905

 

Nominating Director Candidates

 

For director nominations to be properly brought before an annual meeting of stockholders by a stockholder, the stockholder must give timely notice in proper written form to the Secretary, consistent with the Company’s bylaws.

 

Evaluating Director Candidates

 

The Board has no formal guidelines or policy with regard to the consideration of any director candidates recommended by shareholders. The Board will consider several factors when evaluating the appropriate characteristics of candidates for service as a director. The Board initially evaluates a prospective nominee based on his or her resume and other background information that has been provided to the Board. At a minimum, director candidates must demonstrate high standards of ethics, integrity, independence, sound judgment, strength of character, and meaningful experience and skills in business or other appropriate endeavors. In addition to these minimum qualifications, the Board considers other factors it deems appropriate based on the current needs and desires of the Board, including specific business and professional experience that is relevant to the Board’s needs, including, but not limited to, Board diversity. A member of the Board will contact, for further review, those candidates who the committee believes are qualified, who may fulfill a specific Board need and who would otherwise best make a contribution to the Board. The Board is responsible for conducting, with the assistance of the Corporate Secretary, and subject to applicable law, any inquiries into the background and qualifications of the candidate. Based on the information the Board learns during this process, it determines which nominee(s) to submit for election. The Board uses a comparable process for evaluating all director candidates, regardless of the source of the recommendation.

 

The Board is authorized to use, as it deems appropriate or necessary, an outside consultant to identify and screen potential director candidates. No outside consultants were used during the fiscal year ended December 31, 2021 to identify or screen potential director candidates. The Board will reassess the qualifications of a current director, including the director’s attendance and contributions at Board meetings, prior to recommending a director for reelection.

 

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CODE OF ETHICS

 

We have adopted a code of ethics meeting the requirements of Section 406 of the Sarbanes-Oxley Act of 2002. We believe our code of ethics is reasonably designed to deter wrongdoing and promote honest and ethical conduct; provide full, fair, accurate, timely and understandable disclosure in public reports; comply with applicable laws; ensure prompt internal reporting of violations; and provide accountability for adherence to the provisions of the code of ethics. The code of ethics is applicable to all of our directors, officers and employees and is available on our corporate website, www.sollensys.com. We intend to disclose any amendments to our code of ethics, or waivers of its requirements, on our website or in filings under the Exchange Act to the extent required by applicable rules and exchange requirements.

 

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ITEM 11. EXECUTIVE COMPENSATION

 

The following table summarizes all compensation earned by Messrs. Beavers and Motto (together, our “Named Executive Officers”).

 

2021 SUMMARY COMPENSATION TABLE

 

Name and Principal Position Fiscal
Year
  Salary  Bonus  Stock
Awards
  Option
Awards
  All Other
Compensation
  Total 
Donald Beavers 2021  $176,236  $-  $-  $-  $45,816  $220,052 
Chief Executive Officer 2020  $105,000  $-  $-  $-  $-  $105,000 
                           
Anthony Motto 2021  $145,388  $-  $-  $-  $11,708  $157,096 
Chief Operating Officer 2020  $100,000  $-  $-  $-  $-  $100,000 

 

Employment Agreements

 

We are not currently a party to any employment agreements with any of our executive officers.

 

Outstanding Equity Awards at Fiscal Year-End

 

None of the named executive officers had any outstanding equity awards at the 2020 fiscal year-end.

 

Sollensys Corp 2021 Equity Incentive Plan

 

On April 14, 2021, the Board and stockholders holding a majority of the Company’s outstanding common stock approved the Sollensys Corp 2021 Equity Incentive Plan (the “2021 Plan”).

 

Authorized Shares

 

A total of 1,000,000 shares of the Company’s common stock are authorized for issuance pursuant to the 2021 Plan. Subject to adjustment as provided in the 2021 Plan, the maximum aggregate number of shares that may be issued under the 2021 Plan will be cumulatively increased on January 1, 2022 and on each subsequent January 1 through and including January 1, 2023, by a number of shares equal to the smaller of (i) 3% of the number of shares of common stock issued and outstanding on the immediately preceding December 31, or (ii) an amount determined by the Board.

 

Additionally, if any award issued pursuant to the 2021 Plan expires or becomes unexercisable without having been exercised in full, is surrendered pursuant to an exchange program, as provided in the 2021 Plan, or, with respect to restricted stock, restricted stock units (“RSUs”), performance units or performance shares, is forfeited to or repurchased by the Company due to the failure to vest, the unpurchased shares (or for awards other than stock options or stock appreciation rights the forfeited or repurchased shares) which were subject thereto will become available for future grant or sale under the 2021 Plan (unless the 2021 Plan has terminated). With respect to stock appreciation rights, only shares actually issued pursuant to a stock appreciation right will cease to be available under the 2021 Plan; all remaining shares under stock appreciation rights will remain available for future grant or sale under the 2021 Plan (unless the 2021 Plan has terminated). Shares that have actually been issued under the 2021 Plan under any award will not be returned to the 2021 Plan and will not become available for future distribution under the 2021 Plan; provided, however, that if shares issued pursuant to awards of restricted stock, restricted stock units, performance shares or performance units are repurchased by the Company or are forfeited to the Company due to the failure to vest, such shares will become available for future grant under the 2021 Plan. Shares used to pay the exercise price of an award or to satisfy the tax withholdings related to an award will become available for future grant or sale under the 2021 Plan. To the extent an award under the 2021 Plan is paid out in cash rather than shares, such cash payment will not result in reducing the number of shares available for issuance under the 2021 Plan.

 

Notwithstanding the foregoing and, subject to adjustment as provided in the 2021 Plan, the maximum number of shares that may be issued upon the exercise of incentive stock options will equal the aggregate share number stated above, plus, to the extent allowable under Section 422 of the Internal Revenue Code of 1986, as amended, and regulations promulgated thereunder, any shares that become available for issuance under the 2021 Plan in accordance with the foregoing.

 

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Plan Administration

 

The Board or one or more committees appointed by the Board will administer the 2021 Plan. In addition, if the Company determines it is desirable to qualify transactions under the 2021 Plan as exempt under Rule 16b-3 of the Securities Exchange Act of 1934, as amended, such transactions will be structured with the intent that they satisfy the requirements for exemption under Rule 16b-3. Subject to the provisions of the 2021 Plan, the administrator has the power to administer the 2021 Plan and make all determinations deemed necessary or advisable for administering the 2021 Plan, including the power to determine the fair market value of the Company’s common stock, select the service providers to whom awards may be granted, determine the number of shares covered by each award, approve forms of award agreements for use under the 2021 Plan, determine the terms and conditions of awards (including the exercise price, the time or times at which the awards may be exercised, any vesting acceleration or waiver or forfeiture restrictions and any restriction or limitation regarding any award or the shares relating thereto), construe and interpret the terms of the 2021 Plan and awards granted under it, prescribe, amend and rescind rules relating to the 2021 Plan, including creating sub-plans and modify or amend each award, including the discretionary authority to extend the post-termination exercisability period of awards (provided that no option or stock appreciation right will be extended past its original maximum term), and to allow a participant to defer the receipt of payment of cash or the delivery of shares that would otherwise be due to such participant under an award. The administrator also has the authority to allow participants the opportunity to transfer outstanding awards to a financial institution or other person or entity selected by the administrator and to institute an exchange program by which outstanding awards may be surrendered or cancelled in exchange for awards of the same type which may have a higher or lower exercise price or different terms, awards of a different type or cash, or by which the exercise price of an outstanding award is increased or reduced. The administrator’s decisions, interpretations and other actions are final and binding on all participants.

 

Eligibility

 

Awards under the 2021 Plan, other than incentive stock options, may be granted to employees (including officers) of the Company or a subsidiary, members of the Company’s Board, or consultants engaged to render bona fide services to the Company or a subsidiary. Incentive stock options may be granted only to employees of the Company or a subsidiary.

 

Stock Options

 

Stock options may be granted under the 2021 Plan. The exercise price of options granted under the 2021 Plan generally must at least be equal to the fair market value of the Company’s common stock on the date of grant. The term of each option will be as stated in the applicable award agreement; provided, however, that the term may be no more than 10 years from the date of grant. The administrator will determine the methods of payment of the exercise price of an option, which may include cash, shares or other property acceptable to the administrator, as well as other types of consideration permitted by applicable law. After the termination of service of an employee, director or consultant, they may exercise their option for the period of time stated in their option agreement. In the absence of a specified time in an award agreement, if termination is due to death or disability, the option will remain exercisable for 12 months. In all other cases, in the absence of a specified time in an award agreement, the option will remain exercisable for three months following the termination of service. An option may not be exercised later than the expiration of its term. Subject to the provisions of the 2021 Plan, the administrator determines the other terms of options.

 

Notwithstanding any other provision of the 2021 Plan to the contrary, the aggregate grant date fair value of all awards granted, under the 2021 Plan, to any director who is not an employee, during any fiscal year of the Company, taken together with any cash compensation paid to such director during such fiscal year, shall not exceed $300,000.

 

Stock Appreciation Rights

 

Stock appreciation rights may be granted under the 2021 Plan. Stock appreciation rights allow the recipient to receive the appreciation in the fair market value of the Company’s common stock between the exercise date and the date of grant. Stock appreciation rights may not have a term exceeding 10 years. After the termination of service of an employee, director or consultant, they may exercise their stock appreciation right for the period of time stated in their stock appreciation right agreement. In the absence of a specified time in an award agreement, if termination is due to death or disability, the stock appreciation rights will remain exercisable for 12 months. In all other cases, in the absence of a specified time in an award agreement, the stock appreciation rights will remain exercisable for three months following the termination of service. However, in no event may a stock appreciation right be exercised later than the expiration of its term. Subject to the provisions of the 2021 Plan, the administrator determines the other terms of stock appreciation rights, including when such rights become exercisable and whether to pay any increased appreciation in cash or with shares of the Company’s common stock, or a combination thereof, except that the per share exercise price for the shares to be issued pursuant to the exercise of a stock appreciation right will be no less than 100% of the fair market value per share on the date of grant.

 

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Restricted Stock

 

Restricted stock may be granted under the 2021 Plan. Restricted stock awards are grants of shares of the Company’s common stock that vest in accordance with terms and conditions established by the administrator. The administrator will determine the number of shares of restricted stock granted to any employee, director or consultant and, subject to the provisions of the 2021 Plan, will determine the terms and conditions of such awards. The administrator may impose whatever conditions to vesting it determines to be appropriate (for example, the administrator may set restrictions based on the achievement of specific performance goals or continued service to the Company); provided, however, that the administrator, in its sole discretion, may accelerate the time at which any restrictions will lapse or be removed. Recipients of restricted stock awards generally will have voting and dividend rights with respect to such shares upon grant without regard to vesting, unless the administrator provides otherwise. Shares of restricted stock that do not vest are subject to the Company’s right of repurchase or forfeiture.

 

Restricted Stock Units

 

RSUs may be granted under the 2021 Plan. RSUs are bookkeeping entries representing an amount equal to the fair market value of one share of the Company’s common stock. Subject to the provisions of the 2021 Plan, the administrator determines the terms and conditions of RSUs, including the vesting criteria and the form and timing of payment. The administrator may set vesting criteria based upon the achievement of Company-wide, divisional, business unit or individual goals (including continued employment or service), applicable federal or state securities laws or any other basis determined by the administrator in its discretion. The administrator, in its sole discretion, may pay earned RSUs in the form of cash, in shares of the Company’s common stock or in some combination thereof. Notwithstanding the foregoing, the administrator, in its sole discretion, may accelerate the time at which any vesting requirements will be deemed satisfied.

 

Performance Units and Performance Shares

 

Performance units and performance shares may be granted under the 2021 Plan. Performance units and performance shares are awards that will result in a payment to a participant only if performance goals established by the administrator are achieved or the awards otherwise vest. The administrator will establish performance objectives or other vesting criteria in its discretion, which, depending on the extent to which they are met, will determine the number or the value of performance units and performance shares to be paid out to participants. The administrator may set performance objectives based on the achievement of Company-wide, divisional, business unit or individual goals (including continued employment or service), applicable federal or state securities laws or any other basis determined by the administrator in its discretion. After the grant of a performance unit or performance share, the administrator, in its sole discretion, may reduce or waive any performance criteria or other vesting provisions for such performance units or performance shares. Performance units shall have an initial dollar value established by the administrator on or prior to the grant date. Performance shares shall have an initial value equal to the fair market value of the Company’s common stock on the grant date. The administrator, in its sole discretion, may pay earned performance units or performance shares in the form of cash, in shares or in some combination thereof.

 

Non-Employee Directors

 

The 2021 Plan provides that all non-employee directors will be eligible to receive all types of awards (except for incentive stock options) under the 2021 Plan. The 2021 Plan includes a maximum limit of $750,000 of equity awards that may be granted to a non-employee director in any fiscal year, increased to $1,500,000 in connection with his or her initial service. For purposes of this limitation, the value of equity awards is based on the grant date fair value (determined in accordance with accounting principles generally accepted in the United States). Any equity awards granted to a person for their services as an employee, or for their services as a consultant (other than as a non-employee director), will not count for purposes of the limitation. The maximum limit does not reflect the intended size of any potential compensation or equity awards to the Company’s non-employee directors.

 

Non-transferability of Awards

 

Unless the administrator provides otherwise, the 2021 Plan generally does not allow for the transfer of awards and only the recipient of an award may exercise an award during their lifetime. If the administrator makes an award transferrable, such award will contain such additional terms and conditions as the administrator deems appropriate.

 

Certain Adjustments

 

In the event of certain changes in the Company’s capitalization, to prevent diminution or enlargement of the benefits or potential benefits available under the 2021 Plan, the administrator will adjust the number and class of shares that may be delivered under the 2021 Plan or the number, and price of shares covered by each outstanding award and the numerical share limits set forth in the 2021 Plan.

 

37

 

 

Dissolution or Liquidation

 

In the event of the Company’s proposed liquidation or dissolution, the administrator will notify participants as soon as practicable and all awards will terminate immediately prior to the consummation of such proposed transaction.

 

Merger or Change in Control

 

The 2021 Plan provides that in the event of the Company’s merger with or into another corporation or entity or a “change in control” (as defined in the 2021 Plan), each outstanding award will be treated as the administrator determines, including, without limitation, that (i) awards will be assumed, or substantially equivalent awards will be substituted, by the acquiring or succeeding corporation (or an affiliate thereof) with appropriate adjustments as to the number and kind of shares and prices; (ii) upon written notice to a participant, that the participant’s awards will terminate upon or immediately prior to the consummation of such merger or change in control; (iii) outstanding awards will vest and become exercisable, realizable or payable, or restrictions applicable to an award will lapse, in whole or in part, prior to or upon consummation of such merger or change in control and, to the extent the administrator determines, terminate upon or immediately prior to the effectiveness of such merger or change in control; (iv) (A) the termination of an award in exchange for an amount of cash or property, if any, equal to the amount that would have been attained upon the exercise of such award or realization of the participant’s rights as of the date of the occurrence of the transaction (and, for the avoidance of doubt, if as of the date of the occurrence of the transaction the administrator determines in good faith that no amount would have been attained upon the exercise of such award or realization of the participant’s rights, then such award may be terminated by the Company without payment) or (B) the replacement of such award with other rights or property selected by the administrator in its sole discretion; or (v) any combination of the foregoing. The administrator will not be obligated to treat all awards, all awards a participant holds, or all awards of the same type, similarly. In the event that awards (or portion thereof) are not assumed or substituted for in the event of a merger or change in control, the participant will fully vest in and have the right to exercise all of their outstanding options and stock appreciation rights, including shares as to which such awards would not otherwise be vested or exercisable, all restrictions on restricted stock and RSUs will lapse and, with respect to awards with performance-based vesting, all performance goals or other vesting criteria will be deemed achieved at 100% of target levels and all other terms and conditions met, in all cases, unless specifically provided otherwise under the applicable award agreement or other written agreement between the participant and the Company or any of the Company’s subsidiaries or parents, as applicable. If an option or stock appreciation right is not assumed or substituted in the event of a merger or change in control, the administrator will notify the participant in writing or electronically that the option or stock appreciation right will be exercisable for a period of time determined by the administrator in its sole discretion and the vested option or stock appreciation right will terminate upon the expiration of such period.

 

For awards granted to an outside director, the outside director will fully vest in and have the right to exercise all of their outstanding options and stock appreciation rights, all restrictions on restricted stock and RSUs will lapse and, for awards with performance-based vesting, unless specifically provided for in the award agreement, all performance goals or other vesting criteria will be deemed achieved at 100% of target levels and all other terms and conditions met.

 

Clawback

 

Awards will be subject to any Company clawback policy that the Company is required to adopt pursuant to the listing standards of any national securities exchange or association on which the Company’s securities are listed or as is otherwise required by the Dodd-Frank Wall Street Reform and Consumer Protection Act or other applicable laws. The administrator also may specify in an award agreement that the participant’s rights, payments or benefits with respect to an award will be subject to reduction, cancellation, forfeiture or recoupment upon the occurrence of certain specified events. The Board may require a participant to forfeit, return or reimburse the Company all or a portion of the award or shares issued under the award, any amounts paid under the award and any payments or proceeds paid or provided upon disposition of the shares issued under the award in order to comply with such clawback policy or applicable laws.

 

Amendment and Termination

 

The administrator has the authority to amend, suspend or terminate the 2021 Plan provided such action does not impair the existing rights of any participant. The 2021 Plan automatically will terminate on April 14, 2031, unless it is terminated sooner.

 

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Director Compensation

 

Historically, our directors have not received compensation for their services, and we have no plans to compensate directors in the near future.

 

Executive Compensation Philosophy

 

Our Board determines the compensation given to our executive officers in their sole determination. Our Board reserves the right to pay our executives or any future executives a salary, and/or issue them shares of stock issued in consideration for services rendered and/or to award incentive bonuses which are linked to our performance, as well as to the individual executive officer’s performance. This package may also include long-term stock-based compensation to certain executives, which is intended to align the performance of our executives with our long-term business strategies. Additionally, the Board reserves the right to grant performance base stock options in the future, if the Board in its sole determination believes such grants would be in the best interests of the Company.

 

Incentive Bonus

 

The Board has not, but may grant incentive bonuses to our executive officers and/or future executive officers in its sole discretion, if the Board believes such bonuses are in the Company’s best interest, after analyzing our current business objectives and growth, if any, and the amount of revenue and profits we are able to generate each month, both of which are a direct result of the actions and ability of such executives.

 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

The following table sets forth as of December 31, 2021 certain information with respect to the beneficial ownership of the Company’s common stock by:

 

 Each of the directors and the Named Executive Officers;
   
 All executive officers and directors as a group; and
   
 Each person known by the Company to beneficially own more than 5% of the Company’s common stock based on certain filings made under Section 13 of the Exchange Act.

 

All such information provided by the stockholders who are not executive officers or directors reflects their beneficial ownership as of the dates specified in the relevant footnotes to the table. The percent of shares beneficially owned is based on 100,638,236 shares issued and outstanding as of December 31, 2021. Unless otherwise indicated, the owners have sole voting and investment power with respect to their respective shares.

 

Name and Address of Beneficial Owner Number of
Shares
Beneficially
Owned
  Percentage of
Outstanding
Common
Stock Owned
 
Named Executive Officers and Directors:      
Donald Beavers  16,957,676(1)  16.9%
Anthony Nolte  392,545(2)  * 
Anthony Motto  7,078,753(3)  7.0%
All directors and executive officers as a group (3 persons)  24,428,974   24.3%

 

 

*Less than 1%.
  
(1)Represents (i) 16,456,920 shares held by Mr. Beavers directly; and (ii) 500,756 shares held by children of Mr. Beavers, over which Mr. Beavers has voting and dispositive power.
(2)Represents (i) 382,545 shares held by Mr. Nolte directly; and (ii) 10,000 shares held by Mr, Nolte’s spouse.
(3)Represents (i) 3,578,494 shares held by Mr. Motto directly; and (ii) 3,500,259 shares held by Mr. Motto’s spouse.

 

39

 

 

EXISTING EQUITY COMPENSATION PLAN INFORMATION

 

The table below shows information with respect to all our equity compensation plans as of December 31, 2021.

 

Plan category Number of securities to be issued upon exercise of outstanding options, warrants and rights
(a)
  Weighted- average exercise price of outstanding options, warrants and rights
(b)
  Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
(c)
 
Equity compensation plans approved by security holders (1)  -  $N/A   943,635(2)
Equity compensation plans not approved by security holders  -  $N/A   - 

 

 
(1)On April 14, 2021, the Board and stockholders holding a majority of the Company’s outstanding common stock approved the 2021 Plan. A total of 1,000,000 shares of the Company’s common stock are authorized for issuance pursuant to the 2021 Plan. Subject to adjustment as provided in the 2021 Plan, the maximum aggregate number of shares that may be issued under the 2021 Plan will be cumulatively increased on January 1, 2022 and on each subsequent January 1 through and including January 1, 2023, by a number of shares equal to the smaller of (i) 3% of the number of shares of common stock issued and outstanding on the immediately preceding December 31, or (ii) an amount determined by the Board. The Board did not increase the number of shares authorized for issuance under the 2021 Plan as of January 1, 2022.
(2)As of December 31, 2021, an aggregate of 56,365 shares of common stock had been issued under the 2021 Plan. No other securities have been issued under the 2021 Plan as of December 31, 2021.

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

The following is a description of each transaction since January 1, 2020 and each currently proposed transaction in which:

 

 We and any of our subsidiaries have been or will be a participant;
   
 The amount involved exceeds the lesser of $120,000 or 1% of the average of our total assets at year-end for the last two completed fiscal years; and
   
 Any of our directors, executive officers or beneficial owners of more than 5% of our capital stock, or any immediate family member of, or person sharing the household with, any of these individuals, had or will have a direct or indirect material interest.

 

Expenses of $46,943 were paid on behalf of the Company by David Lazar, the Company’s former court-appointed custodian, during the year ended December 31, 2020. In connection with the August 5, 2020 change of control, the aggregate amount of $46,943 due to Mr. Lazar was forgiven and recognized as a capital contribution to the Company. 

 

40

 

 

Additionally, the following related party transactions occurred during the nine month period ended December 31, 2020.

 

Eagle Lake granted Sollensys Corp the right to use its premises without any rent obligation.

 

The Company’s CEO donated $5,311 capital to Sollensys Corp.

 

In 2020, Eagle Lake purchased 13 computer servers (used to make Blockchain Archive Servers) from Probability and Statistics, Inc, an entity owned by Mr. Beavers, the Chief Executive Officer, director and significant stockholder of Eagle Lake and Sollensys Corp. Each server was purchased for $6,000. Eagle Lake subsequently sold three of these computer servers to Sollensys Corp during the period from inception to December 31, 2020, which Sollensys Corp then sold to unrelated third parties for $45,000 each. For each of these sales, $30,000 in commission expense was paid to distributor-entity that is owned by an employee of Sollensys Corp.

 

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

 

HoganTaylor LLP (“HoganTaylor”) has served as the Company’s independent registered public accounting firm since December 2, 2021. Prior to that time, MaloneBailey, LLP (“MaloneBailey”) served as the Company’s independent registered accounting firm.

 

The following table shows the fees that were billed for the audit and other services provided by HoganTaylor and MaloneBailey for the fiscal years ended December 31, 2021 and 2020.

 

  HoganTaylor  MaloneBailey 
  

Fiscal Year Ended

December 31,

  

Fiscal Year Ended

December 31,

 
  2021  2020  2021  2020 
Audit fees (1) $92,000  $-  $29,000  $48,000 
Audit-related fees (2)  87,500   -   3,000   - 
Tax fees (3)  -   -   -   - 
All other fees (4)  -   -   -   - 
Total $179,500  $-  $32,000  $48,000 

  

 
(1)Audit Fees—This category includes the audit of our annual financial statements, review of financial statements included in our Quarterly Reports on Form 10-Q and services that are normally provided by the independent registered public accounting firm in connection with engagements for those fiscal years. This category also includes advice on audit and accounting matters that arose during, or as a result of, the audit or the review of interim financial statements.
(2)Audit-Related Fees—This category consists of assurance and related services by the independent registered public accounting firm that are reasonably related to the performance of the audit or review of our financial statements and are not reported above under “Audit Fees.” The services for the fees disclosed under this category include historical audits of the businesses acquired, consultation regarding our correspondence with the SEC, other accounting consulting and other audit services.
(3)Tax Fees—This category consists of professional services rendered by our independent registered public accounting firm for tax compliance and tax advice. The services for the fees disclosed under this category include tax return preparation and technical tax advice.
(4)All Other Fees—This category consists of fees for other miscellaneous items.

 

Board of Directors Pre-Approval Process, Policies and Procedures

 

All audit and permissible non-audit services provided by our independent registered public accounting firm must be pre-approved. These services may include audit services, audit-related services, tax services and other services. Pre-approval is generally provided for up to one year and any pre-approval is detailed as to the particular service or category of service. The independent registered public accounting firm and management periodically report to the board of directors regarding the extent of services provided by the independent registered public accounting firm. Consistent with the board of directors’ policy, all audit and permissible non-audit services provided by our independent registered public accounting firm were pre-approved by our board of directors.

 

41

 

 

PART IV

 

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

 

Exhibit No. Document
2.1 Share Exchange Agreement dated November 30, 2020 by and between Sollensys Corp, Eagle Lake Laboratories, Inc., the Eagle Lake Shareholders and Donald Beavers as the representative of the Eagle Lake Shareholders (incorporated by reference to Exhibit 2.1 to the registrant’s Current Report of Form 8-K filed with the Commission on November 30, 2020).
2.2 Membership Interest Exchange Agreement, dated as of October 15, 2021, by and among (i) the Company; (ii) Abstract Media, LLC, (iii) each of the members of Abstract Media, LLC; and (iv) Andrew Baker as the representative of the members of Abstract Media, LLC (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed with the Commission on October 19, 2021).
2.3 Merger Agreement, dated as of October 26, 2021, by and among (i) the Company; (ii) S-CC Merger Sub, Inc.; (iii) S-Solutions Merger Sub, Inc.; (iv) Celerit Corporation; (v) Celerit Solutions Corporation; and (vi) Terry Rothwell (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed with the Commission on October 29, 2021).
2.4 Amendment to Merger Agreement, dated as of January 28, 2022, by and among the registrant, S-CC Merger Sub, Inc., S-Solutions Merger Sub, Inc.; Celerit Corporation; Celerit Solutions Corporation; and Terry Rothwell (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed with the Commission on February 3, 2022).
3.1 Amended and Restated Bylaws of Sollensys Corp (incorporated by reference to Exhibit 3.1 to the registrant’s Current Report on Form 8-K filed with the Commission on August 11, 2020).
3.2 Certificate of Change to Articles of Incorporation, effective as of September 18, 2020 (incorporated by reference to Exhibit 3.1 to the registrant’s Current Report on Form 8-K filed with the Commission on August 14, 2020).
3.3 Certificate of Correction filed with the Secretary of State of Nevada on October 8, 2020 (incorporated by reference to Exhibit 3.1 to the registrant’s Current Report on Form 8-K filed with the Commission on October 13, 2020).
3.4 Certificate of Amendment filed with the Secretary of State of Nevada on October 8, 2020 (incorporated by reference to Exhibit 3.2 to the registrant’s Current Report on Form 8-K filed with the Commission on October 13, 2020).
3.5 Certificate of Designations filed with the Secretary of State of Nevada on October 8, 2020 (incorporated by reference to Exhibit 3.3 to the registrant’s Current Report on Form 8-K filed with the Commission on October 13, 2020).
3.6 Certificate of Withdrawal for Series A Preferred Stock Designation Filed October 14, 2020 (incorporated by reference to Exhibit 3.1 to the registrant’s Current Report on Form 8-K filed with the Commission on October 19, 2020).
3.7 Certificate of Amendment filed with the Secretary of State of Nevada on October 14, 2020 (incorporated by reference to Exhibit 3.2 to the registrant’s Current Report on Form 8-K filed with the Commission on October 19, 2020).
10.1 Reseller Agreement between the registrant and Eagle Lake Laboratories, Inc. dated August 20, 2020 (incorporated by reference to Exhibit 3.2 to the registrant’s Current Report on Form 8-K filed with the Commission on October 22, 2020).
10.2 Argus RFID IP Purchase and Assignment Agreement dated August 12, 2020 (incorporated by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K filed with the Commission on November 30, 2020).
10.3† Sollensys Corp 2021 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed with the Commission on April 20, 2021).
10.4 Commercial Contract, entered into on April 2, 2021 by and between the registrant and MRIGlobal (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed with the Commission on April 28, 2021).
10.5 Addendum to Contract, entered into on April 27, 2021, by and between the registrant and MRIGlobal (incorporated by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K filed with the Commission on April 28, 2021).
21.1* List of Subsidiaries.
23.1* Consent of independent registered public accounting firm.
31.1* Certification of Principal Executive Officer pursuant to Exchange Act Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2* Certification of Principal Financial Officer pursuant to Exchange Act Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1** Certification of Principal Executive Officer and Principal Financial Officer pursuant to Exchange Act Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

42

 

 

101.INS* Inline XBRL Instance Document.
101.SCH* Inline XBRL Taxonomy Extension Schema.
101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase.
101.LAB* Inline XBRL Taxonomy Extension Label Linkbase.
101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase.
101.DEF* Inline XBRL Taxonomy Extension Definition Document.
104* Cover Page Interactive Data File (embedded within the Inline XBRL document).

 

 
*Filed herewith.
**Furnished herewith.
Management contract or compensatory plan or arrangement.

 

Item 16. Form 10–K Summary.

 

Not applicable.

 

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SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) 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
   
Dated: March 30, 2022By:/s/ Donald Beavers
  

Donald Beavers

  Chief Executive Officer
  (principal executive officer, principal financial officer and principal accounting officer)

 

POWER OF ATTORNEY

 

KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature appears below constitutes and appoints Donald Beavers his or her true and lawful attorney-in-fact, with full power of substitution and re-substitution for him or her and in his or her name, place and stead, in any and all capacities to sign any and all amendments to the Annual Report on Form 10-K and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact or his substitute may lawfully do or cause to be done by virtue thereof.

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Dated: March 30, 2022By:/s/ Donald Beavers
  

Donald Beavers

  Chief Executive Officer and Director
  (principal executive officer, principal financial officer and principal accounting officer)
   
Dated: March 30, 2022By:/s/ Anthony Nolte
  

Anthony Nolte

  Director

 

44

 

 

SOLLENSYS CORP

Consolidated Financial Statements

 

Contents

 

  Page
Financial Statements:  
   
Report of Independent Registered Public Accounting Firm - HoganTaylor LLP (PCAOB ID #483) F-2
   
Report of Independent Registered Public Accounting Firm - MaloneBailey, LLP (PCOAB ID#206) F-3
   
Consolidated Balance Sheets as of December 31, 2021 and 2020 F-4
   
Consolidated Statements of Operations for the Year Ended December 31, 2021 and the nine months ended December 31, 2020 F-5
   
Consolidated Statement of Stockholders’ Equity for the Year Ended December 31, 2021 and the nine months ended December 31, 2020 F-6
   
Consolidated Statements of Cash Flows for the Year Ended December 31, 2021 and the nine months ended December 31, 2020 F-7
   
Notes to Consolidated Financial Statements F-8

 

F-1

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

To the Shareholders and Board of Directors of

Sollensys Corp

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheet of Sollensys Corp and its subsidiaries (the Company) as of December 31, 2021, and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for the year then ended, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

 

Going Concern Matter

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered recurring losses from operations, has a significant working capital deficiency, and needs to raise additional funds to meet its obligations and sustain its operations. This raises substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters also are described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purposes of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provide a reasonable basis for our opinion.

 

/s/ HoganTaylor LLP

 

We have served as the Company's auditor since 2021.

 

Tulsa, Oklahoma

March 30, 2022

 

F-2

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Shareholders and Board of Directors of

Sollensys Corp.

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheet of Sollensys Corp. and its subsidiary (collectively, the “Company”) as of December 31, 2020, and the related consolidated statement of operations, stockholders’ deficit, and cash flows for the nine months ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020, and the results of their operations and their cash flows for the nine months then ended, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

 

/s/ MaloneBailey, LLP

 

www.malonebailey.com

 

We have served as the Company's auditor from 2020 to 2021.

 

Houston, Texas

March 31, 2021

 206

F-3

 

 

SOLLENSYS CORP

CONSOLIDATED BALANCE SHEETS

As of December 31, 2021 and 2020

 

         
  December 31,  December 31, 
  2021  2020 
ASSETS        
Current assets:        
Cash and cash equivalents $592,534  $129,624 
Accounts receivable  1,717   0 
Inventory  78,000   54,000 
Prepaid expenses  60,749   0 
Total current assets  733,000   183,624 
Property and equipment, net  2,944,830   0 
Other assets  17,994   0 
Goodwill  200,199   0 
Intangible assets, net  194,638   0 
Total assets $4,090,661  $183,624 
         
LIABILITIES AND STOCKHOLDERS’ EQUITY        
Current liabilities:        
Accounts payable $66,268  $0 
Accrued expenses  195,589   46,134 
Deferred revenue  437,731   17,143 
Notes payable  2,505,553   0 
Total current liabilities  3,205,141   63,277 
Notes payable - long term  19,137   0 
Deferred revenue - long term  205,714   72,857 
Total liabilities  3,429,992   136,134 
         
Commitments and contingencies  0   0 
         
Stockholders’ Equity:        
Preferred stock, Series A, $0.001 par value, 10,000,000 shares authorized, 0 shares issued and outstanding as of December 31, 2021 and 2020  0   0 
Common stock, $0.001 par value, 300,000,000 shares authorized; 100,715,736 and 99,354,547 shares issued and outstanding as of December 31, 2021 and 2020, respectively  100,716   99,355 
Additional paid-in capital  8,527,616   3,390,213 
Accumulated deficit  (7,967,663)  (3,442,078)
Total stockholders’ equity  660,669   47,490 
Total liabilities and equity $4,090,661  $183,624 

 

The accompanying footnotes are an integral part of these consolidated financial statements.

 

F-4

 

 

SOLLENSYS CORP

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Year Ended December 31, 2021 and the Nine Months Ended December 31, 2020

 

         
  Year ended  Nine months ended 
  December 31,  December 31, 
  2021  2020 
Revenue $182,321  $180,000 
Cost of sales  384,908   30,000 
Gross margin  (202,587)  150,000 
         
Operating expenses:        
General and administrative expense  4,253,875   3,063,903 
Total operating expenses  4,253,875   3,063,903 
Loss from operations  (4,456,462)  (2,913,903)
Other income (expense)        
         
Gain on extinguishment of debt  0   85,771 
Interest expense  (69,123)  0 
Total other income (expense), net  (69,123)  85,771 
Loss before income taxes  (4,525,585)  (2,828,132)
Provision (benefit) for income taxes  0   0 
Net loss $(4,525,585) $(2,828,132)
         
Basic and diluted loss per common share $(0.05) $(0.19)
         
Weighted-average number of common shares outstanding:        
Basic and diluted  99,719,004   14,910,512 

 

The accompanying footnotes are an integral part of these consolidated financial statements.

 

F-5

 

 

SOLLENSYS CORP

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Year Ended December 31, 2021 and the Nine Months Ended December 31, 2020

 

                             
  Preferred Stock        Additional  Retained  Total 
  Series A  Common stock  Paid-in  Earnings  Stockholders’ 
  Shares  Value  Shares  Value  Capital  (Deficit)  Equity 
March 31, 2020  -   -   4,183,962   4,184   497,891   (613,946)  (111,871)
                             
Issuance of shares to related party  19,000,000   19,000           1,881,000       1,900,000 
                             
Conversion of preferred stock  (19,000,000)  (19,000)  95,000,000   95,000   (76,000)      - 
                             
Sale of common stock by Eagle Lake prior to merger                  945,550       945,550 
                             
Issuance of odd lot shares on conversion          143,585   144   (144)      - 
                             
Related party loans reclassified as a capital contribution                  46,943       46,943 
                             
Capital contribution from shareholder                  500       500 
                             
Private placement of common shares          27,000   27   94,473       94,500 
                             
Net loss      -        -    -    (2,828,132)  (2,828,132)
                             
December 31, 2020  -  $-   99,354,547  $99,355  $3,390,213  $(3,442,078) $47,490 

 

  Preferred Stock        Additional  Retained  Total 
  Series A  Common stock  Paid-in  Earnings  Stockholders’ 
  Shares  Value  Shares  Value  Capital  (Deficit)  Equity 
Balance, December 31, 2020  -  $-   99,354,547  $99,355  $3,390,213  $(3,442,078) $47,490 
                             
Stock based compensation          56,365   56   241,753       241,809 
                             
Private placement of common shares          1,231,580   1,232   4,602,747       4,603,979 
                             
Shares issued in connection with the acquisition of Abstract          73,244   73   292,903       292,976 
                             
Net loss      -        -    -    (4,525,585)  (4,525,585)
                             
Balance, December 31, 2021  -  $-   100,715,736  $100,716  $8,527,616  $(7,967,663) $660,669 

 

The accompanying footnotes are an integral part of these consolidated financial statements.

 

F-6

 

 

SOLLENSYS CORP

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Year Ended December 31, 2021 and the Nine Months Ended December 31, 2020

 

         
  Year ended  Nine months ended 
  December 31  December 31 
  2021  2020 
Cash flows from operating activities        
Net loss $(4,525,585) $(2,828,132)
Stock-based compensation  241,809   1,900,000 
Gain on extinguishment of debt  0   (85,771)
Depreciation and amortization  16,001   0 
Changes in operating assets and liabilities:        
Accounts receivable  37,627   0 
Prepaid expenses  (60,749)  (54,000)
Inventory  (24,000)  0 
Other assets  (13,694)  0 
Accounts payable  12,002   0 
Accrued expenses  46,108   66,977 
Deferred revenues  553,445   90,000 
Net cash used in operating activities  (3,717,037)  (910,926)
         
Cash flows from investing activities        
Acquisition of a business, net of cash acquired  (8,920)  0 
Purchase of property and equipment  (413,533)  0 
Net cash used in operating activities  (422,453)  0 
         
Cash flows from financing activities:        
Sale of common stock by Eagle Lake prior to the merger  0   945,550 
Payments on notes payable  (1,580)  0 
Proceeds from the sale of common stock  4,603,979   94,500 
Capital contribution from shareholder  0   500 
Net cash provided by financing activities  4,602,399   1,040,550 
         
Net increase in cash and cash equivalents  462,911   129,624 
Cash and cash equivalents at beginning of period  129,624   0 
Cash and cash equivalents at end of period $592,534  $129,624 
         
Supplemental disclosure of cash flow information:        
Cash paid for interest  61,623  $0 
Cash paid for income taxes $0  $0 
         
Supplemental disclosure of non-cash activities:        
Issuance of shares due to rounding $0  $144 
Conversion of preferred stock to common stock $0  $95,000 
Expenses paid on behalf of the Company by related party $0  $20,843 
Forgiveness of debt by former related party due to a change of control $0  $46,943 
Common stock issued for the acquisition of a business $292,976  $0 
Acquisition of a property and equipment with debt $2,526,270  $0 

 

The accompanying footnotes are an integral part of these consolidated financial statements.

 

F-7

 

 

SOLLENSYS CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 2021 and the Nine Months Ended December 31, 2020

 

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.

 

The Company had been dormant since September 30, 2012.

 

On December 27, 2019, the Eighth Judicial District Court of Clark County, Nevada (the “Court”), pursuant to Case number A-19-805633-B appointed Custodian Ventures, LLC (“Custodian Ventures”) as the custodian of Sollensys Corp David Lazar, who controls Custodian Ventures was subsequently named the only interim officer and director of the Company and is considered a related party for the purpose of financial statement presentation.

 

On June 16, 2020, Custodian Ventures filed a motion with the Court asking the Court to enter an order concluding and terminating the custodianship of the Company.

 

On July 20, 2020, the Court entered an order terminating custodianship and barring non-asserted claims against the Company.

 

Effective August 5, 2020, David Lazar, the interim Chief Executive Officer, President, Secretary, Treasurer, and sole director of the Company and the beneficial owner, through his ownership of Custodian Ventures of 19,000,000 shares of Series A Preferred Stock, representing 100% of the Company’s issued and outstanding shares of preferred stock, entered into a Stock Purchase Agreement by and among Eagle Lake Laboratories, Inc., a Florida corporation (“Eagle Lake”); (ii) the Company; and (iii) Custodian Ventures. The Stock Purchase Agreement is referred to herein as the “SPA.” Pursuant to the terms of the SPA, Eagle Lake agreed to purchase, and Custodian Ventures agreed to sell, 19,000,000 shares of the Company’s Series A Preferred Stock in exchange for payment by Eagle Lake 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, 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.

 

In connection with the closing of the Stock Purchase, on August 5, 2020, Mr. Lazar, the then-sole member of the Board of Directors (the “Board”) of the Company, pursuant to the power granted to the Board in the Company’s bylaws, increased the size of the Company’s Board to two members. Simultaneously, Mr. Lazar, as the sole Board member, appointed Donald Beavers as a director to fill the newly created Board vacancy. At the same time, Mr. Lazar appointed Donald Beavers as Chief Executive Officer and Secretary of the Company.

 

Also on August 5, 2020, following the above officer and director appointments and effective on the closing of the Stock Purchase, Mr. Lazar resigned from any and all officer and director positions with the Company. Mr. Lazar’s resignation is not the result of a disagreement with the Company on any matter relating to the Company’s operations, policies, or practices.

 

On November 30, 2020, Sollensys entered into a share exchange agreement (the “Share Exchange Agreement”) with (i) Eagle Lake Laboratories, Inc., a Florida corporation (“Eagle Lake”), (ii) each of the shareholders of Eagle Lake (the “Eagle Lake Shareholders”), and (iii) Donald Beavers as the representative of the Eagle Lake Shareholders.

 

Among other conditions to the closing of the transactions contemplated by the Share Exchange Agreement (the “Closing”), pursuant to the terms of the Share Exchange Agreement, the parties agreed that the Company would acquire 100% of Eagle Lake’s issued and outstanding capital stock, in exchange for the issuance to the Eagle Lake Shareholders of a number of shares of the Company’s common stock, par value $0.001 per share, to be determined at the Closing of the Share Exchange Agreement.

 

F-8

 

 

SOLLENSYS CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 2021 and the Nine Months Ended December 31, 2020

 

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.

 

On December 29, 2020, the Company’s Board approved the change in the Company’s fiscal year-end from March 31 to December 31.

 

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.

 

Common Control Accounting Treatment

 

Sollensys Corp and Eagle Lake were under the common control of the CEO before and after the date of transfer. As a result, the Company adopted the guidance in the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) 805-50-05-5 for the transfer of net assets between entities under common control to apply a method similar to the pooling-of-interests-method. Under the method, the financial statements of the Company shall report results of operations for the period in which the transfer occurs as though the transfer of the net assets had occurred at the beginning of the period. Results of operations for the period will thus comprise both those of the previously separate entities combined from the beginning of the period to the date the transfer is completed and those of the combined operations from that date to the end of the period. Similarly, the Company shall present the statements of financial position and other financial information presented as of the beginning of the period as though the assets and liabilities had been transferred at that date. Financial statements and financial information presented for prior years also shall be retrospectively adjusted to furnish comparative information.

 

Reverse Stock Split

 

On October 14, 2020, the Company filed 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 the Company’s issued and outstanding common stock. Pursuant to the Amendment, effective as of October 30, 2020, every 120 shares of the 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 were 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 received, instead of the issuance of such fractional share, one whole share of common stock. As a result, 143,585 additional shares were issued due to the rounding up fractional shares.

 

F-9

 

 

SOLLENSYS CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 2021 and the Nine Months Ended December 31, 2020

 

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. The Company has incurred significant operating losses since its inception. As of December 31, 2021, the Company had a working capital deficit of $2,472,140 and an accumulated deficit of $7,967,663.

 

The Company expects to generate operating cash flows that will be sufficient to fund presently anticipated operations although there can be no assurance. This raises 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 operations become profitable.

 

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 acceptable terms or at all.

 

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying consolidated financial statements have been prepared in accordance with the 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. The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Eagle Lake and Abstract Media. All intercompany accounts and transactions are eliminated in consolidation.

 

Use of Estimates

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of 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 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 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 readily apparent from other sources. Actual results could differ from these estimates.

 

Cash and Cash Equivalents

 

The Company considers all highly liquid temporary cash investments with an original maturity of three months or less to be cash equivalents. On December 31, 2021 and December 31, 2020, the Company’s cash equivalents totaled $592,534 and $129,624, respectively. The Company maintains accounts at financial institutions which are insured by the Federal Deposit Insurance Corporation (FDIC). Cash balances at times are in excess of FDIC insurance limits.

 

Property and Equipment

 

Property and equipment are recorded at historical cost. Major renewals and improvements are capitalized, while normal repairs and maintenance are expensed in the period incurred. Depreciation and amortization are computed using the straight-line method over the asset’s estimated useful life. Computer equipment and office furnishings estimated useful lives range from 5 to 7 years, while buildings life is approximately 39 years. Leasehold improvements are amortized over the shorter of the estimated useful life or the remaining lease term.

 

F-10

 

 

SOLLENSYS CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 2021 and the Nine Months Ended December 31, 2020

 

Intangible Assets

 

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 of primarily of customer relationships with an estimated useful life of three years.

 

Goodwill

 

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 acquisitions is attributable to the value of the potential expanded market opportunity with new customers.

 

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.

 

Determining the fair value of a reporting unit is judgmental in nature and requires the use of significant estimates and assumptions, including revenue growth rates, strategic plans and future market conditions, among others. There can be no assurance that the Company’s estimates and assumptions made for purposes of the goodwill impairment testing will prove to be accurate predictions of the future.

 

Long-Lived Asset Impairment

 

Long-lived assets, other than goodwill and indefinite-lived intangible assets, are evaluated for impairment when changes in events or circumstances indicate that the carrying amount of an asset may not be recoverable. If the projected undiscounted cash flow is less than the carrying value of the assets, the assets will be written down to the estimated fair value and such impairment loss is recognized in the consolidated statements of operations in the period in which the determination is made.

 

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).

 

The Company derives revenue from two sources. The Company’s 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 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”.

 

For the year ended December 31, 2021 we recorded $182,321 in subscription revenue from the execution of our blockchain archive services agreements, compared to $180,000 from the sale of servers for the year ended December 31, 2020. 

 

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:

 

F-11

 

 

SOLLENSYS CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 2021 and the Nine Months Ended December 31, 2020

 

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 recognizes revenue when the control of the products 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.

 

Deferred Revenue

 

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 ASC 606 are considered to be contract liabilities and are classified as deferred revenue on the Company’s consolidated balance sheets. As of December 31, 2021, the current balance of deferred revenue was $437,731 and the long-term balance was $205,714, compared to $17,143 and $72,857, respectively at December 31, 2020. During the year ended December 31, 2021 the Company recognized $17,143 or revenue that had been deferred as of December 31, 2020.

 

Income Taxes

 

The Company accounts for income taxes under FASB ASC 740, “Accounting for Income Taxes”. Under FASB ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Management provides a valuation allowance against deferred tax assets for amount which are considered “more likely than not” to be realized. Under FASB ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. FASB ASC 740-10-05, “Accounting for Uncertainty in Income Taxes” prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities.

 

The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. The Company assesses the validity of its conclusions regarding uncertain tax positions on a quarterly basis to determine if facts or circumstances have arisen that might cause it to change its judgment regarding the likelihood of a tax position’s sustainability under audit. On Dec. 18, 2019, FASB released Accounting Standards Update (ASU) 2019-12, which affects general principles within Topic 740, Income Taxes. The amendments of ASU 2019-12 are meant to simplify and reduce the cost of accounting for income taxes. The FASB has stated that the ASU is being issued as part of its Simplification Initiative, which is meant to reduce complexity in accounting standards by improving certain areas of GAAP without compromising information provided to users of financial statements. The Company adopted this guidance on January 1, 2021 which had no impact on the Company’s consolidated financial statements.

 

Stock-Based Compensation

 

The Company accounts for stock-based compensation using the fair value method following the guidance outlined in ASC 718, Stock Compensation, 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). Once the fair value is established for the grant, the aggregate expenses will be recognized over the period during which service is provided on a straight-line basis.

 

F-12

 

 

SOLLENSYS CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 2021 and the Nine Months Ended December 31, 2020

 

Related Party Transactions

 

The Company follows ASC 850, Related Party Disclosures, for the identification of related parties and disclosure of related party transactions. In accordance with ASC 850, the Company’s consolidated financial statements include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business, as well as transactions that are eliminated in the preparation of financial statements.

 

Net Loss Per Share

 

Net loss per common share is computed by dividing net 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 year. 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 December 31, 2021 and 2020, there were 0 instruments which would have a dilutive effect.

 

Recently Issued Accounting Pronouncements

 

Leases

 

The Company currently follows the guidance in ASC 840 “Leases,” which requires us to evaluate the lease agreements the Company enters into to determine whether they represent operating or capital leases at the inception of the lease.

 

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 has 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 has a calendar-year end companies the Company eligible for deferring the adoption of ASC 842 to December 15, 2021.

 

ASC 842 will be effective for the Company beginning on January 1, 2022. We do not believe that the adoption of this guidance will have a material impact on our financial statements

 

F-13

 

 

SOLLENSYS CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 2021 and the Nine Months Ended December 31, 2020

 

NOTE 4 – PROPERTY AND EQUIPMENT

 

At December 31, 2020, property and equipment amounted to $-0-. At December 31, 2021, property and equipment is comprised of the following:

 

Schedule Of Property Plant And Equipment 2021 
Land $484,197 
Buildings  1,946,586 
Building improvements  270,472 
Furniture and fixtures  179,432 
Equipment  93,627 
Vehicles  31,223 
Subtotal  3,005,537 
Less: accumulated depreciation  (60,707)
Total $2,944,830 

 

Depreciation expense for the periods ended December 31, 2021 and 2020, was $10,140 compared to $-0-, respectively.

 

On September 8, 2021, the Company acquired a building in Palm Bay, Florida with approximately 36,810 square feet of office space for $2,430,762 excluding closing costs. Since the building has not yet been occupied, 0 depreciation has been recorded for the period ended December 31, 2021. In February 2022, the Company occupied the building and commenced operations from this facility. As a result began depreciating the building over a 39 year period.

 

NOTE 5 – NOTES PAYABLE

 

On September 8, 2021, the Company acquired a building in Palm Bay, Florida.. The Company purchased the building by entering into a $2,500,000 mortgage note payable.

 

The terms of the mortgage note payable 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 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 500,000 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 December 31, 2021.

 

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.

 

At December 31, 2021, the aggregate maturities of notes payable for the next five years and thereafter are as follows:

 

Schedule Of Maturities Notes Payable    
2022  2,505,553 
2023  12,687 
2024  6,450 
Total $2,524,690 

 

F-14

 

 

SOLLENSYS CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 2021 and the Nine Months Ended December 31, 2020

 

NOTE 6 – BUSINESS ACQUISITION

 

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 73,244 shares of the Company’s common stock.

 

For the acquisition of Abstract Media, 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 $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 Non cash Or Part Non cash Acquisitions    
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 has allocated the fair value of the total consideration paid of $400,398 to $200,199 to goodwill and the same amount of $200,199 to intangible assets with a life of three years. The value of goodwill represents Abstract Media’s ability to generate profitable operations going forward. Management estimated the provisional fair values of the intangible assets and goodwill at December 31, 2021. The Company’s accounting for the acquisition of Abstract Media is incomplete. Management is performing a valuation study to calculate the fair value of the acquired intangible assets, which it plans to complete within the one-year measurement period.

 

F-15

 

 

SOLLENSYS CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 2021 and the Nine Months Ended December 31, 2020

 

The unaudited financial information in the table below summarizes the combined results of operations of the Company and Abstract Media for the years ended December 31, 2021, and December 31, 2020, on a pro forma basis, as though the companies had been combined as of January 1, 2020. The pro forma earnings for the years ended December 31, 2021, and December 31, 2020, were adjusted to include intangible amortization expense of $66,733 and $66,733, respectively. The $109,831 of acquisition-related expenses were excluded from the year ended December 31, 2021, and included in the year ended December 31, 2020, as if the acquisition occurred at January 1, 2020. The unaudited pro forma financial information does not purport to be indicative of the Company’s combined results of operations which would actually have been obtained had the acquisition taken place on January 1, 2020, nor should it be taken as indicative of future consolidated results of operations.

 

 Schedule of Business acquisition, pro forma information      
  (Unaudited) 
  Years Ended 
  December 31,  December 31, 
  2021  2020 
       
Total net sales $602,954  $773,006 
Loss from operations  (4,666,352) $(3,233,046)
Net loss  (4,494,088) $(3,006,958)
         
Basic and fully diluted loss per share $(0.05) $(0.20)
Weighted average shares outstanding  99,800,723   14,983,756 

 

NOTE 7 – INTANGIBLE ASSETS

 

As of December 31, 2021 the balance of intangible assets was $194,638. During the year ended December 31, 2021 and the nine-month period ended December 31, 2020 the Company recorded $5,561 and $-0- in amortization expense. As discussed in Note 6, the intangible assets have been valued based on provisional estimates of fair value and are subject to change as the Company completes its valuation assessment by the completion of the one year measurement period. Amortization for the following fiscal years is estimated to be: 2022 - $66,733; 2023 - $66,733; and 2024 - $61,172.

 

NOTE 8 – ACCRUED EXPENSES

 

As of December 31, 2021, and December 31, 2020, the balances of accrued expenses were $195,589 and $46,134 respectively. The accrued expenses as of December 31, 2021, were comprised of $123,168 in credit card payables, $24,629 in accrued rent, $13,566 in accrued interest and $34,226 in miscellaneous accrued liabilities. The accrued expenses as of December 31, 2020, were comprised of $12,634 in credit card payables and $33,500 in miscellaneous accrued liabilities.

 

NOTE 9 – RELATED PARTY TRANSACTIONS

 

During the year ended December 31, 2021, the Company has a contract with a member of management to provide service to them. For that service the member of management paid a deposit of $90,000, which is currently reflected as deferred revenue at December 31, 2021.

 

Expenses of $46,943 were paid on behalf of the Company by David Lazar, the Company’s former court-appointed custodian, during the nine month period ended December 31, 2020. In connection with the August 5, 2020 change of control, the aggregate amount of $46,943 due to Mr. Lazar was forgiven and recognized as a capital contribution to the Company. 

 

Additionally, the following related party transactions occurred during the nine month period ended December 31, 2020.

 

Eagle Lake granted Sollensys Corp the right to use its premises without any rent obligation.

 

The Company’s CEO donated $5,311 capital to Sollensys Corp.

 

In 2020, Eagle Lake purchased 13 computer servers (used to make Blockchain Archive Servers) from Probability and Statistics, Inc, an entity owned by Mr. Beavers, the Chief Executive Officer, director and significant stockholder of Eagle Lake and Sollensys Corp. Each server was purchased for $6,000. Eagle Lake subsequently sold three of these computer servers to Sollensys Corp during the period from inception to December 31, 2020, which Sollensys Corp then sold to unrelated third parties for $45,000 each and recorded $135,000 in revenue and $90,000 in gross margin on these sales. For each of these sales, $30,000 in commission expense was paid to distributor-entity that is owned by an employee of Sollensys Corp.

 

During the nine months ended December 31, 2020, the Company received a legal opinion that the statute of limitations per Nevada law for any claims to be made relating to liabilities that had been recorded on the Company’s books and records dating back to 2013 and prior, had expired. As a result, the Company determined it no longer had any liability for accrued expenses or an advance to stockholder and recorded “other income” as a gain on the extinguishment of debt of $85,771 on its statements of operations for the period ended December 31, 2020.

 

F-16

 

 

SOLLENSYS CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 2021 and the Nine Months Ended December 31, 2020

 

NOTE 10 – INCOME TAXES

 

The Company provides for income taxes under ASC 740, “Income Taxes.” Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax basis of assets and liabilities and the tax rates in effect when these differences are expected to reverse. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations.

 

Schedule Of Components Of Income Tax Expense Benefit        
  December 31,  December 31, 
Rate Reconciliation 2021  2020 
Pre-tax book loss $(4,525,585) $(2,828,132)
Provision at statutory rate  (1,177,000)  (593,900)
Permanent differences  63,000   473,900 
Change in valuation allowance  1,114,000   120,000 
Total tax expense (benefit) current and deferred $0  $0 

 

Net deferred tax assets consist of the following:

 

Schedule Of Deferred Tax Assets And Liabilities        
Deferred tax assets 12/31/2021  12/31/2020 
Deferred tax assets by jurisdiction        
Federal $962,300  $93,300 
State  271,700   26,700 
Valuation allowance  (1,234,000)  (120,000)
Net deferred tax assets $0  $0 
         
Deferred tax assets by components        
Intangible assets $4,800  $4,800 
Net operating loss  1,229,200   115,200 
Valuation allowance  (1,234,000)  (120,000)
Net deferred tax assets $0  $0 

 

As of December 31, 2021, the Company had federal, and state net operating loss carryforwards of approximately $4,800,000 with no expiration date to use these credits, that are available to offset future liabilities for income taxes. The Company has generally established a valuation allowance against these carryforwards based on an assessment that it is more likely than not that these benefits will not be realized in future years. The Company has reviewed the scheduled reversals of the deferred tax assets and its projected taxable income in conjunction with the changes in tax laws enacted and determined a valuation allowance is required at December 31, 2021 and 2020. The December 31, 2021 and 2020, results of operations include an increase in our valuation allowance of $1,114,000 and $120,000, respectively. We established the valuation allowance based on the weight of available evidence, both positive and negative, including results of recent and current operations and our estimates of future taxable income or loss by jurisdiction in which we operate. In order to determine the amount of deferred tax assets or liabilities, as well as the valuation allowances, we must make estimates and assumptions regarding future taxable income, and other business considerations. Changes in these estimates and assumptions, including changes in tax laws and other changes impacting our ability to recognize the underlying deferred tax assets, could require us to adjust the valuation allowances. The Company has not undertaken an analysis of Section IRS Section 382 and cannot determine at this time whether the NOL will be subject to limitations due to a change in control

 

F-17

 

 

SOLLENSYS CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 2021 and the Nine Months Ended December 31, 2020

 

NOTE 11 – STOCK BASED COMPENSATION

 

During the year ended December 31, 2021, the Company issued 56,365, free trading 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 $310,048 and are amortized and vest ratably over the one year service period that the consultants provided service over. As of December 31, 2021 the Company expensed $241,809 of the value of the shares issued. The remaining unamortized stock based compensation amount of $68,239 will be amortized to expense through August 2022. Of the 56,365 shares issued, 45,274 have vested during 2021, and 11,091 remain unvested at December 31, 2021.

 

NOTE 12 – STOCKHOLDERS’ EQUITY

 

Series A Preferred Stock

 

On March 21, 2020, the Company filed a Certificate of Designation to authorize 25,000,000 shares of Series A preferred stock, par value $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 then-Chief Executive Officer, David Lazar. The fair value of the issuance was estimated at $1,900,000 and recorded as stock-based compensation.

 

On December 31, 2021, and December 31, 2020, there were 10,000,000 shares of Series A preferred stock authorized, with -0- shares issued and outstanding at both periods, respectively.

 

Common Stock

 

The Company has authorized 300,000,000 shares of common stock, $0.001 par value per share. As of December 31, 2021 and December 31, 2020, respectively, there were 100,713,236 and 99,354,547 shares of common stock issued and outstanding.

 

During the year ended December 31, 2021 the Company:

 

raised $4,603,979 from the sale 1,231,580 common shares to investors

 

issued 73,244 shares valued at $292,976 in connection with the acquisition of Abstract Media

 

issued an aggregate of 56,365 shares of common stock, valued at $310,048 pursuant to the Sollensys Corp 2021 Equity Incentive Plan to numerous consultants.

 

During the nine months ended December 31, 2021, the Company:

 

On October 13, 2020, Eagle, the owner of 100% of the issued and outstanding shares of the Company’s Series A preferred stock converted its 19,000,000 shares of Series A preferred stock into 95,000,000 shares of the Company’s common stock, resulting in the issuance to Eagle of 11,400,000,000 shares of common stock and resulting in Eagle holding approximately 95.8% of the Company’s issued and outstanding common stock.

 

Prior to the merger with Sollensys, Eagle Lake raised $945,550 from the sale of common stock. Eagle Lake’s class of common stock was eliminated after it merged with the Company.

 

In December 2020, the Company raised $94,500 from the sale of 27,000 shares of common stock to accredited investors.

 

F-18

 

 

SOLLENSYS CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 2021 and the Nine Months Ended December 31, 2020

 

NOTE 13 – LEASES

 

Effective January 3, 2022, the Company’s principal executive office with approximately 35,000 square feet of office space became located at 1470 Treeland Blvd. SE, Palm Bay, Fl. 32909. The Company owns this property.

 

Prior to January 3, 2022, the Company maintained its principal offices at 2475 Palm Bay Road NE, Palm Bay, Florida 32905 where it leased four separate suites. These leases all have an expiration date of February 28, 2026:

 

 Suite #120, which is approximately 3,100 square feet of office space, and a lease term that expires on February 28, 2026; and

 

 Suite #7, which is approximately 1,885 square feet of office space, and has a lease term that expires on February 28, 2026; and

 

 Suite #2, which is approximately 2,007 square feet of office space, and has a lease term that expires on February 28, 2026; and

 

Suite #110, which is approximately 2,808 square feet, and has a lease term that expires on February 28, 2026.

 

Terms of the four office leases provide for an aggregate base rent payment of $12,756 per month and are subject to annual 3% escalation charges. Two of these suites are currently vacant. The Company has sublet two of these suites for $3,642 for a one year period commencing on January 1, 2022.

 

At Abstract Media the Company leases office space which expires on March 31, 2023 and sublease a portion of the office space to other companies. As of December 31, 2021 our net rent expense, after deducting sublease income was approximately $4,830 per month. Lease payments through the end of March 31, 2023 are $6,830 per month.

 

The Company’s minimum annual future obligations under all existing operating leases, net of sublet income for each of the next five years are as follows:

 

Schedule of operating leases   
2022$180,905 
2023 171,631 
2024 157,065 
2025 161,777 
2026 27,772 
Total$699,150 

 

NOTE 14 – SUBSEQUENT EVENTS

 

In accordance with FASB ASC 855-10, Subsequent Events, the Company has analyzed its operations subsequent to December 31, 2021 to the date these consolidated financial statements were issued, and has determined that it does not have any material subsequent events to disclose in these consolidated financial statements, except as follows:

 

Subsequent to year end, the Company sold 158,750 shares of restricted common stock to two investors and raised $510,000 in proceeds.

 

F-19