sols_10kt
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-K
[
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended
[X]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from March 31, 2020 to December 31,
2020.
Commission File Number 333-174581
SOLLENSYS CORP
(Exact
name of registrant as specified in its charter)
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Nevada
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86-1226793
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(State
or other jurisdiction of incorporation or
organization)
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(I.R.S.
Employer Identification No.)
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2475 Palm Bay Rd. NE, Suite 120
Palm Bay, FL
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32905
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(Address
of principal executive offices)
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(Zip
Code)
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(866) 438-7657
(Registrant’s
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
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Title
of each class
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Trading
Symbol(s)
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Name
of each exchange on which registered
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N/A
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N/A
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N/A
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Securities
registered pursuant to section 12(g) of the Act:
Indicate
by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes [ ] No
[X]
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
[X]
Indicate
by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]
Indicate
by check mark whether the registrant has submitted electronically
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 [X] 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. (Check one):
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Large
accelerated filer
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[
]
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Accelerated
filer
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[
]
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Non-accelerated
filer
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[X]
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Smaller
reporting company
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[X]
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Emerging
growth company
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[X]
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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 and
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 [X]
The
aggregate market value of the voting and non-voting common equity
held by non-affiliates of the registrant as of June 30, 2020 based
upon the closing sale price of the registrant’s common stock
was $23,827,662 as computed by reference to the price at which the
common equity was last sold, which was $5.695 on that
date.
As of
March 29, 2021, there were 99,354,547 shares of the
registrant’s common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
Table of Contents
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Page
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Part I
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1
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Item
1.
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Business
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1
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Item
1A.
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Risk
Factors
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7
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Item
1B.
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Unresolved
Staff Comments
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18
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Item
2.
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Properties
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18
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Item
3.
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Legal
Proceedings
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18
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Item
4.
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Mine
Safety Disclosures
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18
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Part II
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19
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Item
5.
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Market
for Registrant’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
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19
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Item
6.
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Reserved
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20
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Item
7.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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20
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Item
7A.
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Quantitative
and Qualitative Disclosures About Market Risk
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22
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Item
8.
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Financial
Statements and Supplementary Data
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22
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Item
9.
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Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
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22
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Item
9A.
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Controls
and Procedures
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22
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Item
9B.
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Other
Information
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23
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Part III
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24
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Item
10.
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Directors,
Executive Officers and Corporate Governance
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24
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Item
11.
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Executive
Compensation
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25
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Item
12.
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
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26
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Item
13.
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Certain
Relationships and Related Transactions, and Director
Independence
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27
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Item
14.
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Principal
Accountant Fees and Services
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28
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Part IV
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29
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Item
15.
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Exhibit
and Financial Statement Schedules
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29
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Item
16.
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Form
10-K Summary
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29
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
transition report includes “forward-looking statements”
within the meaning of the federal securities laws that involve
risks and uncertainties. Forward-looking statements include
statements we make concerning our plans, objectives, goals,
strategies, future events, future revenues or performance, capital
expenditures, financing needs and other information that is not
historical information. When used in this transition report, the
words “estimates,” “expects,”
“anticipates,” “projects,”
“forecasts,” “plans,”
“intends,” “believes,”
“foresees,” “seeks,” “likely,”
“may,” “might,” “will,”
“should,” “goal,” “target” or
“intends” and variations of these words or similar
expressions (or the negative versions of any such words) are
intended to identify forward-looking statements. All
forward-looking statements are based upon information available to
us on the date of this transition report.
These
forward-looking statements are subject to risks, uncertainties, and
other factors, many of which are outside of our control, that could
cause actual results to differ materially from the results
discussed in the forward-looking statements. For the complete list
of risks relating to our operations, see the section titled
“Risk Factors” contained in this transition
report.
All
forward-looking statements attributable to us in this transition
report apply only as of the date of this transition report and are
expressly qualified in their entirety by the cautionary statements
included in this transition report. Should one or more of these
risks or uncertainties materialize, or should any of our
assumptions prove incorrect, actual results may vary in material
respects from those projected in these forward-looking statements.
We undertake no obligation to publicly update or revise
forward-looking statements to reflect events or circumstances after
the date made or to reflect the occurrence of unanticipated events,
except as required by law.
PART I
ITEM 1. BUSINESS
In this transition report, unless the context indicates otherwise,
the “Company,” “we,” “our,”
“ours” or “us” refer to Sollensys Corp, a
Nevada corporation, and Eagle Lake Laboratories, Inc. (“Eagle
Lake”), its wholly owned subsidiary.
Overview
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.
Change in Fiscal Year-End
On
December 29, 2020, the Board of Directors of Sollensys Corp
approved the change in our fiscal year end from March 31 to
December 31. As required, the Company is filing this transition
report on Form 10-K covering the transition period from March 31,
2020 to December 31, 2020.
Products and Services
Blockchain Archive Server
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
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.
On
August 18, 2020, the Blockchain Archive Server was publicly
introduced and demonstrated at Florida Institute of Technology's
CAMID Center to clients and distributors. The event was held to
allow inspection of the working system that currently protects
proprietary research data at the University Center for Advanced
Manufacturing and Innovative Design. Complete installation and
coordination with existing security systems was achieved in less
than one week at the facility.
On
September 15, 2020, the Blockchain Archive Server product won at TV
Worldwide's CyberSecurity Shark Fest. The event was produced live
by CyberSecurity TV on the TV Worldwide Network with remote
interviewing and judging via a virtual platform. The contest was
viewed by a worldwide audience of cyber security professionals
seeking improved solutions for data protection. The Company also
sponsored the event.
Regional Service Centers
In
December 2020, we made our second product offering—the
Regional Service Center—available on a limited test market
basis. The Regional Service Center was added to our standard
product line effective January 1, 2021. A Regional Service Center
is a single unit system of 32 Blockchain Archive Servers capable of
servicing up to 2,580 individual small accounts, and is marketed to
existing IT service providers with established accounts. The
Regional Service Center offers small businesses the same state of
the art technology previously available only to large or very
well-funded companies. We believe that smaller companies, and even
certain individuals, will find the Regional Service Center
affordable, paying only for the actual space they use.
In
December 2020, we entered into Regional Service Center contracts
representing an aggregate of $2.25 million in potential gross sales
over the term of the five year contract. In connection with these
contracts, we recorded an aggregate of $45,000 in revenue in
December 2020.
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, 2020, 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, 2020, the Argus Panoptes RFID System is
still under development, but we hope to launch before the end of
2021. We are preparing potential patents to be filed for the
technology underlying the Argus Panoptes RFID System, which we
believe to be unique.
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 (which, as of December 31, 2020, consist
solely of the Blockchain Archive Server). 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 targeting consumers, governments,
and a broad range of industries. According to a 2019 Year End
Report published by RiskBased Security, during 2019, over 7,000
data breaches were reported, resulting in over 15 billion records
being exposed, evidencing that companies have increasingly greater
needs to protect themselves from increasing cyber-attacks.
According to a June 2019 white paper published by International
Data Corporation (“IDC”), 93% of organizations have
been the victim of cyber-attacks within the past three years, and
nearly half of organizations have suffered at least one
unrecoverable data event within the past three years. One category
of attacks is ransomware attacks, which have generated billions of
dollars in payments to cybercriminals and inflicted significant
damage and expenses for consumers, businesses and governments.
According to a May 2020 report titled “The State of
Ransomware 2020” published by Sophos, 59% of 500
organizations surveyed in the United States reported 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.) is $732,520 for organizations that do not
pay the ransom, rising to $1,448,458 for organizations that do pay.
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, with the average ransomware demand
increasing 100% from 2019 through the first quarter of
2020.
We
believe these trends mean there is a significant need for products
like the Blockchain Archive Server in the cybersecurity
market. According to IDC, the
addressable enterprise security market addressed by our 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).
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;
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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
transition report.
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.
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.
Employees
As of
December 31, 2020, we employ 14 full-time employees and no
part-time employees. Approximately 5% 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
Organizational History of the Company and Eagle Lake
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.
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
transition 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.
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.
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.
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.
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.
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 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 financial statements, we had a net loss of
$2,828,132 for the
period ended December 31,
2020. 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 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, 2020, we had a
working capital surplus of $120,347 and
an accumulated
deficit of $3,422,078. 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.
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 17.07% 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.
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 of 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 at this time. 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.
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
and is labeled as a “shell risk.”
Our
common stock currently trades on the Pink tier of OTC Market Group
LLC’s Marketplace under the symbol “SOLS” and the
Company is currently labeled as a “Shell Risk” at this
time. 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.
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.
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,
●
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 is 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. This may make it
more difficult for investors to dispose of our common stock and
cause a decline in the market value of our stock.
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.
ITEM 2. PROPERTIES
Our
corporate office is located at 2475 Palm Bay Road NE Palm Bay,
Florida 32905. We lease in three separate suites:
●
Suite #120, which
is approximately 3,100 square feet of office space, and a lease
term that expires on January 1, 2023
●
Suite #7, which is
approximately 1,885 square feet of office space, and has a lease
term that expires on February 28, 2026
●
Suite #2, which is
approximately 2,007 square feet of office space, and has a lease
term that expires on August 1, 2025.
Terms of the office leases provide for an aggregate base rent
payment of $8,438 per month. We believe that these facilities are adequate to
support our existing operations and that we will be able to obtain
appropriate additional facilities or alternative facilities on
commercially reasonable terms if and when
necessary.
ITEM 3. LEGAL PROCEEDINGS
We are
not involved in any pending legal proceeding nor are we aware of
any pending or threatened litigation against us.
ITEM 4. MINE SAFETY DISCLOSURES
Not
applicable.
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.
On December 29, 2020, the Board of Directors of Sollensys Corp
approved the change in our fiscal year end from March 31 to
December 31.
|
|
|
|
|
|
|
|
2021
|
|
|
|
First Quarter
(January 1 – March 31) (1)
|
$8.90
|
$3.00
|
|
|
|
|
|
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
|
|
|
|
|
|
2019
|
|
|
|
|
|
|
|
First Quarter
(January 1 – March 31)
|
$1.00
|
$0.57
|
|
Second Quarter
(April 1 – June 30)
|
$3.88
|
$0.54
|
|
Third Quarter (July
1 – September 30)
|
$2.30
|
$0.79
|
|
Fourth Quarter
(October 1 – December 31)
|
$10.22
|
$0.86
|
(1)
Reflects
transactions through March 30, 2021.
Holders
On
March 30, 2021, the closing bid price of our common stock as
reported on the OTC Pink was $5.49 and there were approximately 264
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.
Recent Sales of Unregistered Securities
On
November 30, 2020, we consummated the Share Exchange, whereby
95,142,857 shares of our common stock were issued to the Eagle Lake
Shareholders.
We
believe that the issuance of the foregoing securities was exempt
from registration pursuant to Section 4(a)(2) of the Securities Act
as privately negotiated, isolated, non-recurring transactions not
involving any public solicitation.
ITEM 6. RESERVED
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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.
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.
Results of Operations Nine Months ended December 31, 2020 compared
to the Twelve Months Ended March 31, 2020
Revenue
Revenue
for the period ended December 31, 2020 was $180,000 compared to
zero for the period ended March 31, 2020. The revenue of $135,000
was recorded from the sale of three Blockchain Archive Servers.
Additionally, in December 2020, we entered into Regional Service
Center contracts representing an aggregate of $2.25 million in
potential gross sales over the term of the five year contract. In
connection with these contracts, we recorded an aggregate of
$45,000 in revenue in December 2020.
Gross Profit
The
Company’s gross profit on revenue was $150,000 for the period
ended December 31, 2020 compared to $-0- due to no revenue, for the
period ended March 31, 2020.
Operating Expenses
Operating
expenses for the period ended December 31, 2020 were $3,063,903
compared to $26,100 during the same period ended March 31, 2020.
Operating expenses in the December 31, 2020 period include a
one-time non-cash charge of $1,900,000 for stock-based compensation
relating to the issuance of preferred stock. Excluding this charge
operating expenses were $1,163,903 for the period ended December
31, 2020. The primary component of operating expenses for the
period ended December 31, 2020 are approximately, $70,000 in
marketing and advertising expense, $49,000 in insurance costs,
$430,000 in legal and professional services, $286,000 in salaries
and wages, $67,000 in rent expense and $20,000 for software
licensing fees.
Net Loss
As a
result of the foregoing, the Company had net losses
of $2,828,132 and $26,100 for the periods ended December 31,
2020 and March 31, 2020 respectively.
Liquidity and Capital Resources
As of
December 31, 2020 we had $129,624 cash and cash equivalents. Net
cash used in operating activities was $910,926 for the period ended
December 31, 2020 compared to $26,100 for the period ended March
31, 2020.
Net
cash from financing activities was $1,040,550 for the period ended
December 31, 2020 This was primarily attributable to the sale of
646,167 shares of Eagle Lake’s common stock for $945,550 in
proceeds pursuant to an offering pursuant to 506(b) of Regulation D
conducted by Eagle Lake that commenced in March 2020, and $94,500
from sale of 27,000 shares of common stock.
We may
have ongoing needs for working capital to fund operations and to
continue to expand our operations. To that end, we would 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. Our inability to raise capital could require us to
significantly curtail or terminate our operations
altogether.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
A
smaller reporting company is not required to provide the
information required by this Item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference
is made to Pages F-1 through F-13 comprising a portion of this
transition report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
(a) As
of the end of the period covered by this report, management
performed, with the participation of our principal executive and
principal financial officers, an evaluation of the effectiveness of
our disclosure controls and procedures as defined in Rules
13a-15(e) and 15d-15(e) of the Exchange Act. Our disclosure
controls and procedures are designed to ensure that information
required to be disclosed in the reports we file or submit under the
Exchange Act is recorded, processed, summarized, and reported
within the time periods specified in the SEC’s forms, and
that such information is accumulated and communicated to our
management, including our principal executive officer and principal
financial officer, to allow timely decisions regarding required
disclosures. Based on the evaluation, our principal executive and
principal financial officers concluded that, as of December 31,
2020, our disclosure controls and procedures were not effective due
to a material weakness in internal control over financial
reporting, as described below.
As
permitted by applicable SEC rules, this report does not include an
attestation report of our independent registered public accounting
firm regarding internal control over financial reporting.
Management’s report, which is included below, was not subject
to attestation by our registered public accounting firm pursuant to
temporary rules of the SEC that permit us to provide only
management’s report in this annual report.
Management’s Report on Internal Control Over Financial
Reporting
Our
management is responsible for establishing and maintaining
effective internal control over financial reporting as defined in
Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Internal control
over financial reporting is a process designed to provide
reasonable assurance to the Company’s management and board of
directors regarding the reliability of our financial reporting for
external purposes in accordance with accounting principles
generally accepted in the United States of America.
Because
of its inherent limitations, internal control over financial
reporting is not intended to provide absolute assurance that a
misstatement of our consolidated financial statements would be
prevented or detected. 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 or procedures may
deteriorate. Therefore, even those systems determined to be
effective can only provide reasonable assurance with respect to
financial statement preparation and presentation.
Management
conducted an evaluation of the effectiveness of our internal
control over financial reporting based on the framework in
Internal Control –
Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission.
A
material weakness is a deficiency, or a combination of
deficiencies, in internal control over financial reporting, such
that there is a reasonable possibility that a material misstatement
of our annual or interim financial statements will not be prevented
or detected on a timely basis. Management has identified the
following material weakness as of December 31, 2020:
1.
Lack
of segregation of duties and multiple level of review due to
limited accounting personal.
2.
Lack
of formal documentation surrounding internal controls.
3.
Lack
of controls over proper maintenance of records.
Because
of these material weaknesses, management concluded that the
Company’s internal control over financial reporting was not
effective as of December 31, 2020.
To
remediate our internal control weaknesses, management intends to
implement the following measures:
●
Add sufficient
accounting personnel or outside consultants to properly segregate
duties and to effect a timely, accurate preparation of the
financial statements.
●
Upon the hiring of
additional accounting personnel or outside consultants, develop and
maintain adequate written accounting policies and
procedures.
This
Annual Report does not include an attestation report of the
Company’s registered public accounting firm due to a
transition period established by rules of the SEC for newly public
companies.
There
were no changes in our internal control over financial reporting
(as such term is defined in Rules 13a-15(f) and 15d-15(f) of the
Exchange Act) during the most recent fiscal quarter that have
materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
The
following table sets forth the name and position of our current
executive officers and directors.
|
Name
|
|
Age
|
|
Position
|
|
Donald
Beavers
|
|
56
|
|
Chief
Executive Officer, Secretary and Director
|
|
Anthony
Motto
|
|
62
|
|
Chief
Operating Officer
|
|
Anthony
Nolte
|
|
57
|
|
Director
|
|
Stamatlos
Hadoulias
|
|
69
|
|
Director
|
Donald Beavers. Mr. Beavers is our Chief Executive Officer,
Secretary, and a Director Donald 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
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.
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.
Stamatlos (Tom) Hadoulias. Mr. Hadoulias joined the Company
as an independent Director in November 2020. Mr. Hadoulias has 34
years of experience working in defense aeronautics and space
systems. He was a Design Engineer with Rockwell International until
1987, and was a Reliability and Material Review Engineer with
Lockheed, United
Space
Alliance and NASA until 1996. From there, he went on to be a
Quality and Reliability Engineer at Kennedy Space Center, until he
retired in 2005.
Currently,
Mr. Hadoulias serves as the Director of Inductive Engineering
Technology (IET), a collective of professional engineers and
programs managers that have come together to develop a wide range
of energy efficient products for residential commercial or
industrial applications utilizing IET’s patented technology.
The members of IET conceptualize and design heating products for an
energy efficient world using the performance of our magnetic
induction technology. Mr. Hadoulias joined IET in
2016.
Mr.
Hadoulias studied Aircraft Systems at George T. Baker Aviation
School where he received his Airframe and Power Plant
Certification. He also studied engineering at the University of
Miami and received his BSME from Northrup Institute of Technology,
Inglewood California. He is a certified in material review as a
Quality and Reliability Engineer.
Mr.
Hadoulias also served in the US Army as a communications and
intelligence operator during the Vietnam era and is a veteran of
Southeast Asia during the early 1970s.
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.
Committees
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
We
have one independent director (Mr. Hadoulias), as such term is
defined in the listing standards of The NASDAQ Stock Market, at
this time. Our securities are not listed on any exchange that has
director independence requirements.
Code of Ethics
We
have adopted a written code of ethics, which outlines the
principles of legal and ethical business conduct under which we do
business. 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.
Family Relationships
None.
Involvement in Certain Legal Proceedings
No
executive officer, member of the board of directors or control
person of our Company has been involved in any legal proceeding
listed in Item 401(f) of Regulation S-K in the past 10
years.
ITEM 11. EXECUTIVE COMPENSATION
2020 Summary Compensation Table
The
following table summarizes all compensation recorded by us in the
past two fiscal years for each of our executive officers. For
definitional purposes, these individuals are sometimes referred to
as the “named executive officers.”
Name and
Principal Position
|
|
Year
|
|
|
|
|
Nonqualified
Deferred
Compensation
($)
|
All
Other
Compensation($)
|
|
|
Donald
Beavers,
|
|
2020
|
$ 105,000
|
-
|
-
|
-
|
-
|
-
|
$ 105,000
|
|
Chief Executive
Officer
|
|
2019
|
$ 105,000
|
-
|
-
|
-
|
-
|
-
|
$ 105,000
|
|
Anthony
Motto,
|
|
2020
|
$ 100,000
|
-
|
-
|
-
|
-
|
-
|
$ 100,000
|
|
Chief Operating
Officer
|
|
2019
|
$ 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.
Compensation Plans
We
have not adopted any compensation plan to provide for future
compensation of any of our directors or executive
officers.
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.
Long-Term, Stock Based Compensation
In
order to attract, retain and motivate executive talent necessary to
support the Company’s long-term business strategy we may
award our executives and any future executives with long-term,
stock-based compensation in the future, at the sole discretion of
our Board, which we do not currently have any immediate plans to
award.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The
following table sets forth certain information regarding beneficial
ownership of our common stock as of December 31, 2020,
by:
●
Each director and
each of our Named Executive Officers,
●
All executive
officers and directors as a group, and
●
Each person known
by us to be the beneficial owner of more than 5% of our outstanding
common stock.
As of
December 31, 2020, there were 99,354,547 shares of our common stock
outstanding.
Unless
otherwise noted below, the address for each beneficial owner listed
on the table is c/o Sollensys Corp, 2475 Palm Bay Rd. NE, Suite 120,
Palm Bay, FL 32905. We believe, based on the information furnished
to us, that the persons and entities named in the tables below have
sole voting and investment power with respect to all membership
interests that they beneficially own, subject to applicable
community property laws. The number of shares of common stock
beneficially owned by each person is determined under the rules of
the SEC and the information is not necessarily indicative of
beneficial ownership for any other purpose. Under such rules,
beneficial ownership includes any shares as to which such person
has sole or shared voting power or investment power and also any
shares which the individual has the right to acquire within 60 days
after the date hereof, through the exercise of any stock option,
warrant or other right. Unless otherwise indicated, each person has
sole investment and voting power (or shares such power with his or
her spouse) with respect to the shares set forth in the following
table. The inclusion herein of any shares deemed beneficially owned
does not constitute an admission of beneficial ownership of those
shares.
|
Name and Address
of Beneficial Owner
|
Amount and
Nature of Beneficial Ownership
|
|
|
Named Executive Officers and Directors:
|
|
|
|
Donald
Beavers
|
16,978,498
|
17.1%
|
|
Anthony
Nolte
|
165,244
|
*
|
|
Anthony
Motto
|
3,578,494
|
3.6%
|
|
Stamatlos
Hadoulias
|
--
|
--
|
|
All executive
officers and directors as a group
|
20,722,236
|
20.9%
|
|
|
|
|
|
Other 5% Stockholders: NONE
|
|
|
|
*
|
Less
than 1%.
|
|
(1)
|
Based
on 99,354,547 shares of our common stock issued and outstanding as
of December 31, 2020.
|
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE
The
following includes a summary of transactions since the beginning of
the 2019 fiscal year, or any currently proposed transaction, in
which we were or are to be a participant and the amount involved
exceeded or exceeds the lesser of $120,000 or 1% of the average of
their total assets at year-end for the last two completed fiscal
years, and in which any related person had or will have a direct or
indirect material interest (other than compensation described under
“Executive Compensation”). We believe the terms
obtained or consideration that we paid or received, as applicable,
in connection with the transactions described below were comparable
to terms available or the amounts that would be paid or received,
as applicable, in arm’s-length transactions.
The related party loan balance as of December 31, 2020, and March
31, 2020, was $-0- and $26,100, respectively. The $26,100 was used
to pay the operating expenses of the Company and were funded by the
Company’s Court-appointed custodian, Custodian Ventures, LLC
managed by David Lazar in the form of interest-free demand loans.
Additional expenses of $20,843 were paid on behalf of the Company
by David Lazar during the six months ended September 30, 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.
Related Party Transactions of Sollensys Corp
Share Exchange Agreement
On
November 30, 2020, Sollensys Corp entered the Share Exchange
Agreement with Eagle Lake, each of the Eagle Lake Shareholders and
Donald Beavers as the representative of the Eagle Lake
Shareholders.
Among
other conditions to the SEC 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 of 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 Corp 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 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.
Corporate Offices
Eagle
Lake granted Sollensys Corp the right to use its premises without
any rent obligation.
Capital Donation
The
Company’s CEO donated $5,311 capital to Sollensys Corp during
the period from inception through December 31, 2020.
Related Party Transactions of Eagle Lake Labs, Inc.
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.
Director Independence
We
have one independent director (Mr. Hadoulias), as such term is
defined in the listing standards of The NASDAQ Stock Market, at
this time. Our securities are not listed on any exchange that has
director independence requirements.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The
following is a summary of fees paid or to be paid to auditors for
services rendered.
|
Fees
|
Year
Ended
December
31,
2020
|
Year
Ended
March
31,
2020
|
|
Audit
Fees
|
$40,000
|
$17,800
|
|
Total
Fees
|
$40,000
|
$17,800
|
Audit Fees. Audit fees consisted of
the fees billed for professional services rendered for the audit of
our annual financial statements and the reviews of the financial
statements included in our Quarterly Reports on Form
10-Q.
Audit-Related Fees. During the 2020
and 2019 fiscal years, our independent registered public
accountants did not provide any assurance and related services that
are reasonably related to the performance of the audit or review of
our financial statements that are not reported under the caption
“Audit Fees” above. Therefore, there were no
audit-related fees billed or paid during the 2020 and 2019 fiscal
years.
Tax Fees. Tax fees consists of fees
billed for professional services rendered for tax compliance, tax
advice and tax planning. Included in such tax fees were fees for
preparation of our tax returns and consultancy and advice on other
tax planning matters. As our independent registered public
accountants did not provide any services to us for tax compliance,
tax advice and tax planning during the fiscal years ended December
31, 2020 and 2019, no tax fees were billed or paid during those
fiscal years.
All Other Fees. Our independent
registered public accountants did not provide any products and
services not disclosed in the table above during the 2020 and 2019
fiscal years. As a result, there were no other fees billed or paid
during those fiscal years.
Audit Committee Pre-Approval Policies and Procedures
The
Company has not designated a formal audit committee. However, the
entire Board of Directors, in the absence of a formally appointed
audit committee, acts as the Company's audit committee. Our Board
of Directors has considered whether the provision of any non-audit
services is compatible with maintaining auditor independence and
determined that such services are appropriate. Before auditors are
engaged to provide us audit or non-audit services, such engagement
is approved by Board of Directors.
Our
principal accountant did not engage any other persons or firms
other than the principal accountant's full-time, permanent
employees.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)
The following
documents are filed as part of this report:
|
|
(1)
|
Financial
Statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2)
|
Financial
Statement Schedules
|
|
|
|
|
|
|
|
All
financial statements schedules are omitted because they are not
applicable or the amounts are immaterial and not required, or the
required information is presented in the financial statements and
notes thereto beginning on page F-1 of this transition
report.
|
|
|
|
|
|
|
(3)
|
Exhibits
|
|
|
|
We
hereby file as part of this transition report the exhibits listed
in the attached Exhibit Index. Exhibits which are incorporated
herein by reference can be inspected and copied at the public
reference facilities maintained by the SEC, 100 F Street, N.E.,
Room 1580, Washington, D.C. 20549. Copies of such material can also
be obtained from the Public Reference Section of the SEC, 100 F
Street, N.E., Washington, D.C. 20549, at prescribed rates or on the
SEC website at www.sec.gov.
|
|
|
|
|
ITEM 16. FORM 10-K SUMMARY
Not
applicable.
EXHIBIT INDEX
|
Exhibit No.
|
|
Document
|
|
|
|
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).
|
|
|
|
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).
|
|
|
|
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).
|
|
|
|
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).
|
|
|
|
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).
|
|
|
|
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).
|
|
|
|
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).
|
|
|
|
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).
|
|
|
|
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).
|
|
|
|
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).
|
|
|
|
List of
Subsidiaries.
|
|
|
|
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.
|
|
|
|
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.
|
|
|
|
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.
|
|
101.INS*
|
|
XBRL
Instance Document.
|
|
101.SCH*
|
|
XBRL
Taxonomy Extension Schema.
|
|
101.CAL*
|
|
XBRL
Taxonomy Extension Calculation Linkbase.
|
|
101.LAB*
|
|
XBRL
Taxonomy Extension Label Linkbase.
|
|
101.PRE*
|
|
XBRL
Taxonomy Extension Presentation Linkbase.
|
|
101.DEF*
|
|
XBRL
Taxonomy Extension Definition Document.
|
*
Filed herewith.
**
Furnished herewith.
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.
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 and has an accumulated deficit that raises
substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also 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 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 since 2020.
Houston,
Texas
March
31, 2021
Report of Independent Registered Public Accounting
Firm
To the shareholders and the board of directors of Sollensys
Corp.
Opinion on the Financial Statements
We have
audited the accompanying balance sheet of Sollensys Corp. (the "Company") as of March
31, 2020, the related statements of operations, stockholders'
equity (deficit), and cash flows for the year then ended, 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 March 31, 2020, 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.
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 audits 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
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 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.
Substantial Doubt about the Company’s Ability to Continue as
a Going Concern
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’s significant
operating losses raise substantial doubt about its ability to
continue as a going concern. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
/s/ BF
Borgers CPA PC
BF Borgers CPA PC
We have
served as the Company's auditor since 2020
Lakewood,
CO
April
29, 2020
SOLLENSYS CORP
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
Current
assets:
|
|
|
|
Cash and cash
equivalents
|
$129,624
|
$-
|
|
Inventory
|
54,000
|
-
|
|
Total
current assets
|
183,624
|
-
|
|
Total
assets
|
$183,624
|
$-
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
Current
liabilities:
|
|
|
|
Accrued
expenses
|
$46,134
|
$31,429
|
|
Customer
deposits - short term
|
17,143
|
|
|
Advance
from stockholder
|
-
|
54,342
|
|
Loans
payable related party
|
-
|
26,100
|
|
Total current
liabilities
|
63,277
|
111,871
|
|
Customer
deposits-long term
|
72,857
|
-
|
|
Total
liabilities
|
136,134
|
111,871
|
|
|
|
|
|
Commitments and
contingencies
|
-
|
-
|
|
|
|
|
|
Stockholders'
Equity:
|
|
|
|
Preferred
stock, Series A, $0.001 par value, 10,000,000 shares
authorized,
|
|
|
|
no
shares issued and outstanding as of December 31, 2020 and March 31,
2020
|
-
|
-
|
|
Common stock,
$0.001 par value, 300,000,000 shares authorized; 99,354,547
and
|
|
|
|
4,183,962
shares issued and outstanding as of December 31, 2020 and March 31,
2020, respectively
|
99,355
|
4,184
|
|
Additional paid-in
capital
|
3,390,213
|
497,891
|
|
Accumulated
deficit
|
(3,442,078)
|
(613,946)
|
|
Total stockholders'
equity(deficit)
|
47,490
|
(111,871)
|
|
Total liabilities
and equity
|
$183,624
|
$-
|
The
accompanying notes are an integral part of the consolidated
financial statements.
SOLLENSYS CORP
Consolidated Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$180,000
|
$-
|
|
Cost of sales
|
30,000
|
-
|
|
Gross profit
|
150,000
|
-
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
General and administrative -related
party
|
3,063,903
|
26,100
|
|
Total operating
expenses
|
3,063,903
|
26,100
|
|
Income loss from
operations
|
(2,913,903)
|
-
|
|
Other income
(expense)
|
|
|
|
Gain from the extinguishment of
debt
|
85,771
|
-
|
|
Total other income
(expense)
|
85,771
|
-
|
|
Net
loss
|
$(2,828,132)
|
$(26,100)
|
|
|
|
|
|
Basic and loss per common
share
|
$(0.19)
|
$(0.01)
|
|
|
|
|
|
Weighted-average number of common
shares outstanding:
|
|
|
|
Basic and
diluted
|
14,910,512
|
4,183,962
|
The
accompanying notes are an integral part of the consolidated
financial statements.
SOLLENSYS CORP
Statements of Changes in Stockholder's Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31,
2019
|
-
|
-
|
4,183,962
|
4,184
|
497,891
|
(587,846)
|
(85,771)
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
(26,100)
|
(26,100)
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31,
2020
|
-
|
$-
|
4,183,962
|
$4,184
|
$497,891
|
$(613,946)
|
$(111,871)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31,
2020
|
-
|
$-
|
4,183,962
|
$4,184
|
$497,891
|
$(613,946)
|
$(111,871)
|
|
|
|
|
|
|
|
|
|
|
Sale of common stock by Eagle Lake
prior to the merger
|
|
|
|
|
945,550
|
|
945,550
|
|
|
|
|
|
|
|
|
|
|
Issuance of preferred shares
resulting in
|
|
|
|
|
|
|
|
|
stock-based
compensation
|
19,000,000
|
19,000
|
|
|
1,881,000
|
|
1,900,000
|
|
|
|
|
|
|
|
|
|
|
Conversion of preferred stock to
common stock
|
(19,000,000)
|
(19,000)
|
95,000,000
|
95,000
|
(76,000)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Issuance of odd lot shares on
common stock conversion
|
|
|
143,585
|
144
|
(144)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Private placement of common
shares
|
|
|
27,000
|
27
|
94,473
|
|
94,500
|
|
|
|
|
|
|
|
|
|
|
Conversion of related party loan to
capital contribution
|
|
|
|
|
46,943
|
|
46,943
|
|
|
|
|
|
|
|
|
|
|
Capital
contribution
|
|
|
|
|
500
|
|
500
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
(2,828,132)
|
(2,828,132)
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31,
2020
|
-
|
$-
|
99,354,547
|
$99,355
|
$3,390,213
|
$(3,442,078)
|
$47,490
|
The
accompanying notes are an integral part of the consolidated
financial statements.
SOLLENSYS CORP
Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from
operating activities of continuing operations:
|
|
|
|
Net
loss
|
$(2,828,132)
|
$(26,100)
|
|
Adjustments to
reconcile net loss to cash used in operating
activities:
|
|
-
|
|
Stock-based
compensation
|
1,900,000
|
-
|
|
Gain from the
extinguishment of debt
|
(85,771)
|
-
|
|
Changes in
operating assets and liabilities
|
|
-
|
|
Inventory
|
(54,000)
|
-
|
|
Customer
deposits
|
90,000
|
-
|
|
Accrued
expenses
|
66,977
|
-
|
|
Net cash used in
operating activities
|
(910,926)
|
(26,100)
|
|
|
|
|
|
Cash flows from
financing activities:
|
|
|
|
Sale of common
stock by Eagle Lake prior to the merger
|
945,550
|
-
|
|
Capital
contributions
|
500
|
-
|
|
Proceeds for the
sale of common stock
|
94,500
|
-
|
|
Related party
loans
|
-
|
26,100
|
|
Net cash provided
by financing activities
|
1,040,550
|
26,100
|
|
|
|
|
|
Net increase in
cash and cash equivalents
|
129,624
|
-
|
|
Cash and cash
equivalents at beginning of period
|
-
|
-
|
|
Cash and cash
equivalents at end of period
|
$129,624
|
$-
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
Cash paid for
interest
|
$-
|
$-
|
|
Cash paid for
income taxes
|
$-
|
$-
|
|
|
|
|
|
Supplemental
disclosure of non-cash investing and financing
activities:
|
|
|
Issuance of shares
due to rounding
|
$144
|
$-
|
|
Conversion of
preferred stock to common stock
|
$95,000
|
$-
|
|
Expense paid by
related party
|
$20,843
|
$-
|
|
Forgiveness of debt
by former related party due to a change of control
|
$46,943
|
$-
|
The
accompanying notes are an integral part of the consolidated
financial statements.
SOLLENSYS CORP
NOTES TO AUDITED FINANCIAL STATEMENTS
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. Initial
plans included organization and incorporation, target market
identification, marketing plans, and capital formation. A
substantial portion of the Company’s efforts involved
developing a business plan and establishing contacts and visibility
in the marketplace. The Company had not generated any revenues
before the current period. Effective July 30, 2012, the holder of
3,000,000 shares, or approximately 79.8% of the Company’s
then outstanding voting securities, executed a written consent in
accordance with Section 78.320 of the Nevada Revised Statutes
approving an amendment to the Articles of Incorporation to change
the Company’s name to Sollensys Corp, increase the number of
authorized common shares to 1,500,000,000, increase the number of
authorized preferred shares to 25,000,000, and to split each
outstanding share of common stock into 131.69 shares of common
stock.
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 a Florida corporation, (ii) each of the shareholders of
Eagle Lake (the “Eagle Lake Shareholders”), and (iii)
Donald 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 “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
(“Common Stock”) to be determined at the Closing of the
Share Exchange Agreement.
The
Closing of the Share Exchange Agreement occurred on November 30,
2020. Pursuant to the terms of the Share Exchange
Agreement, the Company 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 the
Company’s Common Stock (the “Share
Exchange”).
As a
result of the Share Exchange, Eagle Lake became a wholly-owned
subsidiary of the Company and the business of Eagle Lake became the
business of the Company.
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.
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.
Common Control Accounting Treatment
Sollensys Corporation and Eagle Lake Laboratories were under the
common control of the CEO before and after the date of transfer. As
a result, the Company adopted the guidance in 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, par value $0.001 per share
(“Common Stock”). Pursuant to the Amendment, effective
as of October 30, 2020, every one hundred and twenty (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 1
for 120 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’s 11,400,000,000 common shares was
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.
The
Company’s financial statements in this Report for December 1,
2020, and March 1, 2020, and all references thereto have been
retroactively adjusted to reflect the split unless specifically
stated otherwise.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation
The
accompanying consolidated financial statements have been prepared
in accordance with the Financial Accounting Standards Board
(“FASB”) Accounting Standards Codification
(“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 subsidiary, Eagle Lake. All intercompany accounts and
transactions are eliminated in consolidation.
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, 2020, the Company had a working
capital surplus of $120,348 and an accumulated deficit of
$3,442,078.
The
Company expect 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.
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 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.
Revenue Recognition
Revenues
are accounted for in accordance with the Financial Accounting
Standards Board issued ASU 2014-09 (Revenue from Contracts with
Customers (Topic 606).
The
amount of revenue recognized reflects the consideration which the
Company expects to be entitled to receive in exchange for the
products and/or services. To achieve this principle, the Company
applies the following five steps:
1.
Identify the
contract with the customer;
2.
Identify the
performance obligations in the contract;
3.
Determine the
transaction price;
4.
Allocate the
transaction price to performance obligations in the contract,
and
5.
Recognize revenue
when or as the Company satisfies a performance
obligation.
The Company 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. Additionally, the Company recognizes revenue
when a service is completed thereby completing a performance
obligation.
Customer Deposits
Under the terms of these existing 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 liabilities on the
Company’s balance sheet. As of December 31, 2020, and March
31, 2020, the balance of deposits was $17,413 included in current
liabilities and $72,857 in long-term liabilities, compared to $-0-
and $-0-, respectively.
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, 2020, and March 31, 2020, the
Company’s cash equivalents totaled $129,624 and $0,
respectively.
Stock-based Compensation
The
Company accounts for stock-based compensation using the fair value
method following the guidance outlined in Section 718-10 of the
FASB ASC for disclosure about stock-based compensation. This
section requires a public entity to measure the cost of employee
and non-employee services received in exchange for an award of
equity instruments based on the grant-date fair value of the award
(with limited exceptions). That cost will be recognized over the
period during which service is provided. No compensation cost is
recognized for equity instruments for which service is not provided
or rendered.
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
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 Topic 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, 2020 there
were no common stock equivalents.
Inventory
The
Company inventory comprised of finished goods is valued at the
lower of cost or net realizable value. Inventory cost is determined
using the first-in, and first-first out basis. As of December 31,
2020, the Company had $75,000 of inventory on hand. No inventory
allowance for obsolescence or impairment was deemed necessary by
the Company’s management.
Income Taxes
Income
taxes are provided for the tax effects of transactions reported in
the consolidated financial statements and consist of taxes
currently due plus deferred taxes related primarily to differences
between depreciation which is deductible for tax purposes prior to
being deductible for book purposes. The deferred tax assets and
liabilities represent the future tax return consequences of those
differences, which will either be taxable or deductible when the
assets and liabilities are recovered or settled. Deferred taxes
also are recognized for operating losses that are available to
offset future taxable income.
From
time to time, the Company may have differences in computing the
book and tax bases of property and equipment; reserves for bad
debts; capitalized overhead included in inventories; bonus plan
payables, and accrued wages to shareholders/employees. Deferred tax
expense or benefit is the result of the changes in the deferred tax
assets, net of the valuation reserve, and liabilities.
The
Company accounts for income taxes in accordance with Financial
Accounting Standards Board Accounting Standards Codification Topic
740 (“FASB ASC 740”), Income Taxes, which clarifies the
accounting and disclosure requirements for uncertainty in tax
positions. It requires a two-step approach to evaluate tax
positions and determine if they should be recognized in the
consolidated financial statements. The two-step approach involves
recognizing any tax positions that are “more likely than
not” to occur and then measuring those positions to determine
if they are recognizable in the consolidated financial statements.
Management regularly reviews and analyzes all tax positions and has
determined that no uncertain tax positions requiring recognition
have occurred.
In
general, the Company’s income tax returns are subject to
examination by the taxing authorities for three years after they
were filed. The Company has not filed any tax returns.
Recent Accounting Pronouncements
In
February 2016, the 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.
In
December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) which enhances
and simplifies various aspects of the income tax accounting
guidance, including requirements such as tax basis step-up in
goodwill obtained in a transaction that is not a business
combination, ownership changes in investments, and interim-period
accounting for enacted changes in tax law. The amendment will be
effective for public companies with fiscal years beginning after
December 15, 2020; early adoption is permitted. The Company is
evaluating the impact of this amendment on its consolidated
financial statements.
In
February 2020, the FASB issued ASU 2020-02, Financial Instruments-Credit Losses (Topic
326) and Leases (Topic 842) - Amendments to SEC Paragraphs Pursuant
to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section
on Effective Date Related to Accounting Standards Update No.
2016-02, Leases (Topic 842) which amends the effective
date of the original pronouncement for smaller reporting companies.
ASU 2016-13 and its amendments will be effective for the Company
for interim and annual periods in fiscal years beginning after
December 15, 2022. The Company believes the adoption will modify
the way the Company analyzes financial instruments, but it does not
anticipate a material impact on results of operations. The Company
is in the process of determining the effects adoption will have on
its consolidated financial statements.
NOTE 3 – RELATED PARTY TRANSACTIONS
The
related party loan balance as of December 31, 2020, and March 31,
2020, was $-0- and $26,100, respectively.
The
$26,100 was used to pay the operating expenses of the Company and
were funded by the Company’s Court-appointed custodian,
Custodian Ventures, LLC managed by David Lazar in the form of
interest-free demand loans. Additional expenses of $20,843 were
paid on behalf of the Company by David Lazar during the nine months
ended September 30, 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. For each of these sales, $30,000 in
commission expense was paid to distributor-entity that is owned by
an employee of Sollensys Corp.
NOTE 4 – ACCRUED EXPENSES AND ADVANCE FROM
STOCKHOLDER
As of
December 31, 2020, and March 31, 2020, the balances of
“accrued expenses” and “advance from stockholder
were $46,134 and $31,429 respectively, and $-0- and $54,342,
respectively. During the three months ended June 30, 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.
The
accrued expenses as of December 31, 2020, are comprised of $12,634
in credit card payables, and $33,500 in miscellaneous
liabilities.
NOTE 5 – 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.
|
Rate
reconciliation
|
|
|
|
|
|
|
|
|
|
Pretax Book
Income
|
$(2,828,132)
|
|
$(26,100)
|
|
|
Provision at
Statutory Rate
|
(593,900)
|
21.0%
|
(5,481)
|
21%
|
|
Permanent
Differences
|
473,900
|
-16.8%
|
-
|
|
Change in Valuation
Allowance
|
120,000
|
-4.2%
|
5,481
|
-21%
|
|
Total Tax Expense
(benefits)
|
$-
|
-%
|
$-
|
-%
|
Net
deferred tax assets consist of the following:
|
Deferred
tax assets
|
|
|
|
|
|
|
|
Deferred
tax assets by jurisdiction
|
|
|
|
Federal
|
$93,300
|
$-
|
|
State
|
26,700
|
-
|
|
Valuation
Allowance
|
(120,000)
|
-
|
|
Net
deferred tax assets
|
$-
|
$-
|
|
|
|
|
|
Deferred
tax assets by components
|
|
|
|
Intangible
assets
|
4,800
|
-
|
|
Net operation
loss
|
115,200
|
-
|
|
Valuation
Allowance
|
(120,000)
|
-
|
|
Net
deferred tax assets
|
$-
|
$-
|
As of December 31, 2020, the Company had federal, state, and
foreign net operating loss carryforwards of approximately $531,000
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 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.
NOTE 6 – COMPARATIVE NINE MONTH FINANCIAL
INFORMATION
The unaudited consolidated statements of operations and cash flows
are provided below with comparative information for the nine months
ended December 31, 2019. This includes all normal recurring
adjustments necessary for a fair statement of the results for those
periods.
Consolidated Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$ -
|
|
|
|
|
Operating
expenses:
|
|
|
General
and administrative -related party
|
16,038
|
|
Total
operating expenses
|
16,038
|
|
Income
loss from operations
|
(16,038)
|
|
Total
other income (expense)
|
-
|
|
Net
loss
|
(16,038)
|
|
|
|
|
Basic
and diluted earnings (loss) per common share
|
$ (0.00)
|
|
|
|
|
Weighted-average
number of common shares outstanding:
|
|
|
Basic
and diluted
|
4,138,962
|
Consolidated
Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities of continuing
operations:
|
|
|
Net
loss
|
$ (16,038)
|
|
Net
cash (used in) operating activities
|
(16,038)
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
Related
party loans
|
16,038
|
|
Net
cash provided by financing activities
|
16,038
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
$ -
|
|
Cash
and cash equivalents at beginning of period
|
-
|
|
Cash
and cash equivalents at end of period
|
$ -
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
Cash
paid for interest
|
$ -
|
|
Cash
paid for income taxes
|
$ -
|
NOTE 7 – 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 at a par
value of $0.001. 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 Chief Executive Officer, David Lazar. The fair
value of the issuance was estimated at $1,900,000 and recorded as
stock-based compensation.
Common Stock
The
Company has authorized 300,000,000 shares of $0.001 common stock.
As of December 31, 2020, and March 31, 2020, respectively, there
were 99.327,547 shares of common stock issued and
outstanding. These shares represent the 1 for 120 stock split
that became effective on November 2, 2020.
As
December 31, 2020, and March 31, 2020, there 10,000,000 shares of
Preferred Series A stock authorized, with -0- shares issued and
outstanding at both periods, respectively.
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 to accredited investors. 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.
NOTE 8 – SUBSEQUENT EVENTS
In
accordance with ASC 855-10 management has
performed an evaluation of subsequent
events from December 31, 2020 through the date the financial
statements were available to be issued and noted no subsequent
events requiring disclosure.
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 31, 2021
|
By:
|
/s/ Donald Beavers
|
|
|
|
Donald
Beavers
|
|
|
|
Chief
Executive Officer
|
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.
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
|
/s/ Donald Beavers
|
|
Chief
Executive Officer and Director
|
|
March
31, 2021
|
|
Donald
Beavers
|
|
(principal
executive officer, principal financial officer and principal
accounting officer)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Anthony Nolte
|
|
Director
|
|
March
31, 2021
|
|
Anthony
Nolte
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Stamatlos Hadoulias
|
|
Director
|
|
March
31, 2021
|
|
Stamatlos
Hadoulias
|
|
|
|
|
|
|
|
|
|
|