UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

☒     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended September 30, 2020

 

OR

 

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

 

Commission file number 333-148546

 

DLT RESOLUTION, INC

(Exact name of registrant as specified in its charter)

 

Nevada

 

20-8248213

(State of Incorporation)

 

(I.R.S. Employer Identification No.)

 

 

 

5940 S. Rainbow Blvd., Ste 400-32132, Las Vegas, NV

 

89118

(Address of principal executive offices)

 

(Zip Code)

 

(702) 796-6363

(Registrant’s telephone number, including area code)

 

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

 

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

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐     No ☒

 

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S‑T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☐     No ☒

 

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

 

Large accelerated filer

Non‑accelerated filer

Accelerated filer

Smaller reporting company

(Do not check if a smaller reporting company)

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

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

 

As of November 16, 2020, 25,926,287 shares of the registrant’s Common Stock, $0.001 par value, were issued and 22,667,537 were outstanding.

 

 

 

  

TABLE OF CONTENTS

 

FORM 10-Q

 

QUARTER ENDED SEPTEMBER 30, 2020

 

 

 

Page

 

PART I FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1.

Financial Statements (Unaudited)

 

3

 

 

 

 

 

Condensed Consolidated Balance Sheets

 

3

 

 

 

 

Condensed Consolidated Statements of Operations

 

4

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Loss

 

5

 

 

 

 

 

 

 

Condensed Consolidated Statements of Changes in Stockholders’ Deficit

 

6

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows

 

7

 

 

 

 

Notes to Condensed Consolidated Financial Statements

 

8

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

18

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

21

 

 

 

 

Item 4.

Controls and Procedures

 

21

 

 

 

PART II - OTHER INFORMATION

 

 

 

Item 1.

Legal Proceedings

 

24

 

 

 

 

 

 

Item 1A.

Risk Factors

 

24

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

25

 

 

 

Item 3.

Defaults Upon Senior Securities

 

25

 

 

 

Item 4.

Mine Safety Disclosures

 

25

 

 

 

Item 5.

Other Information

 

25

 

 

 

Item 6.

Exhibits

 

25

 

 

 
2

 

  

Item 1: Financial Statements

 

DLT RESOLUTION, INC

 

Condensed Consolidated Balance Sheets

 

(Unaudited)

 

 

 

 

 

 

 

September 30,

2020

 

 

December 31,

2019

 

ASSETS

 

Current assets

 

 

 

 

 

 

Cash and cash equivalents

 

$ 11,487

 

 

$ 13,140

 

Accounts receivable, net of allowance for doubtful accounts of $44,730 at September 30, 2020 and $0 at December 31, 2019

 

 

296,969

 

 

 

34,631

 

Other current asset

 

 

76,587

 

 

 

-

 

Total current assets

 

 

385,043

 

 

 

47,771

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net of accumulated depreciation

 

 

76,963

 

 

 

-

 

Operating lease – right of use asset

 

 

9,082

 

 

 

-

 

Intangible assets, net of accumulated amortization

 

 

2,020,358

 

 

 

376,460

 

Goodwill

 

 

914,959

 

 

 

165,022

 

 

 

 

 

 

 

 

 

 

Total assets

 

$ 3,406,405

 

 

$ 589,253

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Bank overdraft

 

$ 32,085

 

 

$ 16,782

 

Accounts payable and accrued liabilities

 

 

568,867

 

 

 

99,201

 

Related party payables

 

 

35,872

 

 

 

35,880

 

Interest payable, related party

 

 

39,722

 

 

 

34,190

 

Note payable, related party

 

 

81,500

 

 

 

81,500

 

Notes payable, current portion

 

 

5,000

 

 

 

-

 

Lease obligation – operating lease

 

 

6,116

 

 

 

-

 

Total current liabilities

 

 

769,162

 

 

 

267,553

 

 

 

 

 

 

 

 

 

 

Notes payable, net of current portion

 

 

90,069

 

 

 

5,000

 

Other long term liability

 

 

1,860,000

 

 

 

685,000

 

Lease obligation – operating lease, net of current portion

 

 

2,412

 

 

 

-

 

Total liabilities

 

 

2,721,643

 

 

 

957,553

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity (deficit)

 

 

 

 

 

 

 

 

Series A convertible preferred stock, $1.00 par value; 5,000,000 shares authorized; 0 and 25,000 issued and outstanding at September 30, 2020 and December 31, 2019

 

 

-

 

 

 

-

 

Series B convertible preferred stock, $1.00 par value; 500,000 shares authorized; 64,000 and 64,000 issued and outstanding at September 30, 2020 and December 31, 2019

 

 

64,000

 

 

 

64,000

 

Common stock, $0.001 par value; 275,000,000 shares authorized; 25,926,287 and 24,395,037 issued; 22,698,787 and 21,167,537 outstanding at September 30, 2020 and December 31, 2019

 

 

25,926

 

 

 

24,395

 

Common stock subscribed

 

 

14,000

 

 

 

-

 

Additional paid-in capital

 

 

4,913,010

 

 

 

4,218,265

 

Other comprehensive income

 

 

718,672

 

 

 

(34,430 )

Treasury stock, 3,815,000 shares as of September 30, 2020 and December 31, 2019, at cost

 

 

(5,300 )

 

 

(5,300 )

Accumulated deficit

 

 

(5,045,546 )

 

 

(4,653,230 )

Total stockholders’ equity (deficit)

 

 

684,762

 

 

 

(368,300 )

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity (deficit)

 

$ 3,406,405

 

 

$ 589,253

 

 

 

 

 

 

 

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

 
3

Table of Contents

  

DLT RESOLUTION, INC.

 

Condensed Consolidated Statements of Operations

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

September 30,

 

 

Nine months ended

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Revenue

 

$ 599,160

 

 

$ 128,482

 

 

$ 1,576,960

 

 

$ 363,849

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue and operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue

 

 

317,665

 

 

 

42,264

 

 

 

820,179

 

 

 

114,676

 

General and administrative

 

 

245,005

 

 

 

72,482

 

 

 

613,893

 

 

 

194,852

 

Depreciation and amortization

 

 

1,288

 

 

 

25,768

 

 

 

268,321

 

 

 

76,980

 

Professional fees

 

 

29,060

 

 

 

55,421

 

 

 

93,481

 

 

 

119,842

 

Goodwill impairment loss

 

 

6,175

 

 

-

 

 

 

160,594

 

 

 

-

 

Total operating expenses

 

 

599,193

 

 

 

198,295

 

 

 

1,956,468

 

 

 

506,350

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

(33 )

 

 

(69,813 )

 

 

(379,508 )

 

 

(142,501 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain/(loss) on stock based liability

 

 

-

 

 

 

267,602

 

 

 

-

 

 

 

(227,836 )

Foreign exchange gain/(loss)

 

 

(3 )

 

 

4

 

 

 

(3 )

 

 

5,353

 

Loss on investment

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(331,787 )

Interest expense

 

 

(11,899 )

 

 

(1,844 )

 

 

(30,805 )

 

 

(5,471 )

Total other income (expense)

 

 

(11,902 )

 

 

265,762

 

 

 

(30,808 )

 

 

(559,741 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income

 

$ (11,935 )

 

$ 195,949

 

 

$ (410,316 )

 

$ (702,242 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic loss per common share – net (loss) income

 

$ (0.00 )

 

$ 0.01

 

 

$ (0.02 )

 

$ (0.03 )

Diluted loss per common share – net (loss) income

 

$ (0.00 )

 

$ 0.01

 

 

$ (0.02 )

 

$ (0.03 )

Weighted average basic shares outstanding

 

 

25,926,287

 

 

 

21,170,526

 

 

 

25,760,571

 

 

 

21,113,158

 

Weighted average diluted shares outstanding

 

 

25,926,287

 

 

 

21,170,526

 

 

 

25,760,571

 

 

 

21,153,158

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

 
4

Table of Contents

  

DLT RESOLUTION, INC.

Consolidated Statements of Comprehensive Loss

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Three months ended

September 30,

 

 

Nine months ended

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Net (loss) income

 

$ (11,935 )

 

$ 195,949

 

 

$ (410,316 )

 

$ (702,242 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain on adjusted value of other long-term liability

 

 

130,000

 

 

 

-

 

 

 

360,024

 

 

 

-

 

Foreign currency translation adjustment

 

 

608,429

 

 

 

2,449

 

 

 

393,078

 

 

 

18,036

 

Total other comprehensive income (loss)

 

 

738,429

 

 

 

2,449

 

 

 

753,102

 

 

 

18,036

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income (loss)

 

$ 726,494

 

 

$ 198,398

 

 

$ 342,786

 

 

$ (684,206 )

 

See accompanying notes to condensed consolidated financial statements.

 

 
5

Table of Contents

  

DLT RESOLUTION, INC

Condensed Consolidated Statements of Changes in Stockholders’ Deficit

(Unaudited)

 

Nine Months Ended September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series B

Preferred Stock

 

 

Common Stock

 

 

Common

Stock

 

 

Additional

Paid-in

 

 

Treasury

 

 

Other

Comprehensive

 

 

Accumulated

 

 

Non-Controlling

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Subscribed

 

 

Capital

 

 

Stock

 

 

income

 

 

Deficit

 

 

Interest

 

 

Total

 

Balance, December 31, 2019

 

 

64,000

 

 

$ 64,000

 

 

 

24,395,037

 

 

$ 24,395

 

 

$ -

 

 

$ 4,218,265

 

 

$ (5,300 )

 

$ (34,430 )

 

$ (4,635,230 )

 

 

-

 

 

 

(368,300 )

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-

 

 

 

-

 

Issuance of common stock for cash proceeds

 

 

-

 

 

 

-

 

 

 

31,250

 

 

 

31

 

 

 

-

 

 

 

24,969

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

25,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-

 

 

 

-

 

 

 

 

 

Issuance of common stock for acquisitions

 

 

-

 

 

 

-

 

 

 

1,500,000

 

 

 

1,500

 

 

 

-

 

 

 

669,776

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

671,276

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sale of common stock subscription

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

14,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

14,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

393,078

 

 

 

-

 

 

 

-

 

 

 

393,078

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain on adjusted value of other long-term liability

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

360,024

 

 

 

-

 

 

 

-

 

 

 

360,024

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

-

 

 

 

(410,316 )

 

 

-

 

 

 

(410,316 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, September 30, 2020

 

 

64,000

 

 

$ 64,000

 

 

 

25,926,287

 

 

$ 25,926

 

 

$ 14,000

 

 

$ 4,913,010

 

 

$ (5,300 )

 

$ 718,672

 

 

$ (5,045,546 )

 

 

-

 

 

$ 684,762

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2018

 

 

64,000

 

 

$ 64,000

 

 

 

24,982,537

 

 

$ 24,983

 

 

$ -

 

 

$ 4,192,678

 

 

$ (37,688 )

 

$ (5,300 )

 

$ (3,595,912 )

 

$ 94,087

 

 

$ 736,848

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock for cash proceeds

 

 

 

 

 

 

 

 

 

 

25,000

 

 

 

25

 

 

 

-

 

 

 

24,975

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

25,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

18,035

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

18,035

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(702,242 )

 

 

(94,087 )

 

 

(796,329 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, September 30, 2019

 

 

64,000

 

 

$ 64,000

 

 

 

25,007,537

 

 

$ 25,008

 

 

$ -

 

 

$ 4,217,653

 

 

$ (19,653 )

 

$ (5,300 )

 

$ (4,298,154 )

 

$ -

 

 

$ (16,446 )

 

See accompanying notes to condensed consolidated financial statements.

 

 
6

Table of Contents

  

DLT RESOLUTION, INC

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

Nine Months

Ended

September 30,

2020

 

 

Nine Months

Ended

September 30,

2019

 

 

 

 

 

 

 

 

Cash flows from operating activities

 

 

 

 

 

 

Net loss

 

$ (410,316 )

 

$ (702,242 )

Adjustments to reconcile net loss to net cash used in operating activities

 

 

 

 

 

 

 

 

Loss on investment

 

 

 

 

 

 

331,787

 

Loss on stock based liability

 

 

-

 

 

 

227,836

 

Loss related items

 

 

-

 

 

 

(50,581 )

Depreciation and amortization expense

 

 

268,321

 

 

 

76,980

 

Goodwill impairment loss

 

 

160,594

 

 

 

-

 

Changes in operating assets and liabilities

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(101,236 )

 

 

(53,310 )

Other current asset

 

 

 (76,608

)

 

 

 -

 

Lease obligation

 

 

(4,907 )

 

 

-

 

Interest payable, related party

 

 

5,532

 

 

 

5,471

 

Accounts payable and accrued liabilities

 

 

93,263

 

 

 

26,396

 

Accounts payable, related party

 

 

-

 

 

 

(25,000 )

Net cash used in operating activities

 

 

(65,357 )

 

 

(162,663 )

 

 

 

 

 

 

 

 

 

Net cash used in investing activities

 

 

 

 

 

 

 

 

Purchase of equipment

 

 

(766 )

 

 

-

 

Net cash used in investing activities

 

 

(766 )

 

 

-

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

Proceeds from notes payable

 

 

90,093

 

 

 

-

 

(Repayments) proceeds from bank overdrafts

 

 

(9,373 )

 

 

6,366

 

Proceeds from sale of common stock

 

 

25,000

 

 

 

25,000

 

Proceeds from sale of common stock subscription

 

 

14,000

 

 

 

-

 

Proceeds from (repayments to) related parties

 

 

(56,506 )

 

 

144,489

 

Net cash provided by financing activities

 

 

63,214

 

 

 

175,855

 

 

 

 

 

 

 

 

 

 

Net change in cash

 

 

(2,909 )

 

 

13,192

 

Effect of exchange rate on cash

 

 

1,256

 

 

 

1,154

 

Cash at beginning of period

 

 

13,140

 

 

 

12,908

 

Cash at end of period

 

$ 11,487

 

 

$ 27,254

 

 

 

 

 

 

 

 

 

 

Supplemental cash flow information

 

 

 

 

 

 

 

 

Cash paid for interest

 

$ -

 

 

$ -

 

Cash paid for income taxes

 

$ -

 

 

$ -

 

 

 

 

 

 

 

 

 

 

Non-cash investing and financing activities

 

 

 

 

 

 

 

 

Other long term liability entered into for acquisition of Union Strategies, Inc.

 

$ 1,370,000

 

 

$ -

 

Common shares issued for acquisition of Union Strategies, Inc.

 

$ 2,400,000

 

 

$ -

 

Net of Union Strategies, Inc. assets acquired and liabilities assumed

 

$ 4,000,000

 

 

$ -

 

 

 

 

 

 

 

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

 
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DLT RESOLUTION, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

September 30, 2020

 

Note 1 – Organization and Significant Accounting Policies

 

DLT Resolution Inc. (“DLT, the “Company”, “we” and “our”) operates in three high-tech industry segments: Blockchain Applications; Telecommunications; and Data Services which includes Image Capture, Data Collection, Data Phone Center Services, and Payment Processing. The Company offers secure data management, Information Technology (IT) and other telecommunications services in Canada and the United States. The Company operates a Health Information Exchange providing the ability to request and retrieve medical information and records while meeting all of today’s Security & Compliance demands for HIPAA, PIPEDA and PHIPA. Through our acquisition of Union Strategies, Inc. (“USI”), the Company operates a business focused on designing, installing and maintaining telephony, data, video, storage, and LAN/WAN networks. USI’s clients encompass K-12 and higher education institutions, trades industry organizations, and local government entities having memberships ranging from 100 to 10,000 people that utilize products and services that USI provides by deploying a variety of technologies to keep client networks up and running efficiently.

 

The Company had an accumulated deficit of $4,653,230 and a working capital deficit of $219,782 as of December 31, 2019. These matters raise substantial doubt about the Company’s ability to continue as a going concern. Continuation of the Company’s existence depends upon its ability to obtain additional capital. Management’s plans in regards to this matter include raising additional equity financing and borrowing funds under a private credit facility and/or other credit sources. These unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and in conformity with the instructions to Form 10-Q and Article 8 of Regulation S-X and the related rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, certain information and note disclosures normally included in financial statements prepared in accordance with US GAAP have been condensed or omitted pursuant to such rules and regulations. However, we believe that the disclosures included in these condensed consolidated financial statements are adequate to make the information presented not misleading. The unaudited condensed consolidated financial statements included in this document have been prepared on the same basis as the annual consolidated financial statements, and in our opinion reflect all adjustments, which include normal recurring adjustments necessary for a fair presentation in accordance with US GAAP and SEC regulations for interim financial statements. The results for the three months ended September 30, 2020 are not necessarily indicative of the results that we will have for any subsequent period.

 

 
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Interim Condensed Consolidated Financial Statements

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and in conformity with the instructions to Form 10-Q and Article 8 of Regulation S-X and the related rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, certain information and note disclosures normally included in financial statements prepared in accordance with US GAAP have been condensed or omitted pursuant to such rules and regulations. However, we believe that the disclosures included in these condensed consolidated financial statements are adequate to make the information presented not misleading. The unaudited condensed consolidated financial statements included in this document have been prepared on the same basis as the annual consolidated financial statements, and in our opinion reflect all adjustments, which include normal recurring adjustments necessary for a fair presentation in accordance with US GAAP and SEC regulations for interim financial statements. The results for the three and nine months ended September 30, 2020 are not necessarily indicative of the results that we will have for any subsequent period. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes to those statements for the year ended December 31, 2019 included in our Annual Report on Form 10-K as filed with the SEC on April 30, 2020.

 

Use of Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Income taxes

 

Income taxes are provided for using the liability method of accounting in accordance with FASB ASC Topic 740 (formally SFAS No. 109 “Accounting for Income Taxes”). A deferred tax asset or liability is recorded for all temporary differences between financial and tax reporting. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effect of changes in tax laws and rates on the date of enactment.

 

At September 30, 2020, there were no uncertain tax positions that require accrual.

 

Revenue Recognition

 

The Company follows ASC 606 of the FASB Accounting Standards Codification for revenue recognition. The Company recognizes revenue upon the transfer of promised services to customers in amounts that reflect the consideration to which the Company expects to be entitled the transfer of services. The Company considers revenue earned when all the following criteria are met: (i) the contract with the customer has been identified, (ii) the performance obligations have been identified, (iii) the transaction price has been determined, (iv) the transaction price has been allocated to the performance obligations, and (v) the performance obligations have been satisfied. The Company primarily generates revenues through the sale of products through its website and at industry tradeshows.

 

 
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Net Income (Loss) Per Share

 

Net loss per share is calculated in accordance with FASB ASC topic 260. Basic earnings (loss) per share is computed by dividing net income, or loss, by the weighted average number of shares of common stock outstanding for the period. Diluted earnings (loss) per share is computed by dividing net income, or loss, by the weighted average number of shares of common stock outstanding for the period, assuming conversion or exercise of all potentially dilutive securities outstanding during each reporting period presented. Potentially dilutive securities are not presented or used in the computation of diluted loss per share on the statement of operations for periods when the Company incurs net losses, as their effect would be anti-dilutive.

 

As of September 30, 2020 and 2019, the Company had 64,000 shares of Series B Convertible Preferred Stock issued and outstanding, which were convertible into 12,800 shares of the Company’s common stock. As of September 30, 2020, the Company expects to issue an additional 1,500,000 restricted common shares of stock from recent acquisitions. See Note 2.

 

Foreign Currency Translation

 

The functional currency of the Company’s subsidiaries in Canada is the Canadian Dollar. The subsidiaries’ assets and liabilities have been translated to U.S. dollars using exchange rates of 0.734538 and 0.771486 in effect at the balance sheet dates of September 30, 2020 and December 31, 2019, respectively. Unaudited condensed consolidated statements of operations amounts have been translated using the annual weighted average exchange rates of 0.750785 for the nine months ended September 30, 2020 and 0.752306 for the three months ended September 30, 2019. Resulting gains or losses from translating foreign currency financial statements are recorded as other comprehensive income (loss). Foreign currency transaction gains and losses resulting from exchange rate fluctuations on transactions denominated in a currency other than the local currency are included in other income (expense). Foreign currency transaction (losses) gains recognized for the three-month periods ended September 30, 2020 and 2019 were $(3) and $5,353, respectively.

 

Fair Value of Financial Instruments

 

Fair value of certain of the Company’s financial instruments including cash, prepaid expenses, accounts payable, accrued expenses, notes payable, and other accrued liabilities approximate cost because of their short maturities. The Company measures and reports fair value in accordance with ASC 820, “Fair Value Measurements and Disclosure” defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value investments.

 

Fair value, as defined in ASC 820, is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value of an asset should reflect its highest and best use by market participants, principal (or most advantageous) markets, and an in-use or an in-exchange valuation premise. The fair value of a liability should reflect the risk of non-performance, which includes, among other things, the Company’s credit risk.

 

Valuation techniques are generally classified into three categories: the market approach; the income approach; and the cost approach. The selection and application of one or more of the techniques may require significant judgment and are primarily dependent upon the characteristics of the asset or liability, and the quality and availability of inputs. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. ASC 820 also provides fair value hierarchy for inputs and resulting measurement as follows:

 

Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities.

 

Level 2: Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities; and

 

Level 3: Unobservable inputs for the asset or liability that are supported by little or no market activity, and that are significant to the fair values.

 

 
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Table of Contents

 

Fair value measurements are required to be disclosed by the Level within the fair value hierarchy in which the fair value measurements in their entirety fall. Fair value measurements using significant unobservable inputs (in Level 3 measurements) are subject to expanded disclosure requirements including a reconciliation of the beginning and ending balances, separately presenting changes during the period attributable to the following: (i) total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings, and a description of where those gains or losses included in earning are reported in the statement of income.

 

Recently Adopted Accounting Pronouncements

 

In 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326) — Measurement of Credit Losses on Financial Instruments (ASU 2016-13). ASU 2016-13 requires entities to establish an allowance for credit losses for most financial assets. Prior US GAAP was based on an incurred loss methodology for recognizing credit losses on financial assets measured at amortized cost and available-for sale debt securities. The update is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 31, 2018. The amendments in this ASU did not have a material impact on our condensed consolidated financial statements.

 

In 2018, the FASB issued ASU 2018-13, Fair Value Measurement (ASC 820) — Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 removes certain disclosures, modifies certain disclosures and adds additional disclosures. ASU 2018-13 is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2019. Early adoption is permitted. The amendments in this ASU did not have a material impact on our condensed consolidated financial statements.

  

Recent Accounting Pronouncements

 

In 2019, the FASB issued ASU 2019-12, Income Taxes (ASC 740) — Simplifying the Accounting for Income Taxes. ASU 2019-12 which modifies ASC 740 to simplify the accounting for income taxes. The ASU removes certain exceptions for recognizing deferred taxes for investments, performing intraperiod allocation and calculating income taxes in interim periods. The ASU also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. ASU 2019-12 is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2020. We have not yet completed the full assessment of the impact on our condensed consolidated financial statements or related disclosures.

 

In March 2020, The FASB issued ASU 2020-03, Codification Improvements to Financial Instruments – Issue 4: Cross-Reference to Line of-Credit or Revolving-Debt Arrangements Guidance in Subtopic 470-50. Stakeholders the ASU requests that paragraphs 470-50-40-17 through 40-18, which describe the accounting for fees between debtor and creditor and third-party costs directly related to exchanges or modifications of debt instruments, reference paragraph 470-50-40-21 for line-of-credit or revolving-debt arrangements. We have not yet completed the full assessment of the impact on our condensed consolidated financial statements or related disclosures.

 

Note 2 Acquisitions

 

Acquisition of 1922861 Ontario Inc.

 

On April 12, 2018, the Company entered into and closed the transactions contemplated by the definitive asset purchase agreement and plan of re-organization by and among the Company, 1922861 Ontario Inc. a corporation organized under the laws of Ontario (“1922861 Ontario Inc.”), the stockholders of 1922861 Ontario Inc. and other parties signatory thereto to acquire all the operating assets of 1922861 Ontario Inc. for 500,000 restricted common shares of DLT Resolution valued at $212,520, and a payment of CAD $19,200 to 1922861 Ontario’s supplier. On September 21, 2018 the 1922861 Ontario Inc. acquisition reached the first milestone and received another 500,000 restricted commons shares of DLT Resolution valued at $205,295. The acquisition is considered a business combination for accounting purposes under ASC 805, and resulted in the integration of 1922861 Ontario Inc.’s operating assets and processes into the Company’s Canadian subsidiary DLT Resolution Corp.

 

 
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In addition to the consideration on closing, an additional 500,000 restricted shares of Company Common Stock may potentially be issued upon the acquired base generating CAD $500,000 in cumulated gross sales with a 10% pre-tax profit. The Company has allotted 24 months to achieve this milestone. There is full acceleration to allow for full vesting as quickly as the cumulative sales milestones are reached.

 

The Company applied the acquisition method to the business combination and valued each of the assets acquired (cash, accounts receivable, equipment, customer relationships, software, domain names and non-compete agreements) and liabilities assumed (accounts payable and related party payable) at fair value as of the acquisition date. The carrying values of cash, accounts receivable, accounts payable and related party payable were deemed to be fair value as of the acquisition date. The Company determined the fair value of the equipment to be historical net book value. The preliminary allocation of the purchase price was based on estimates of the fair value of the assets and liabilities assumed based on provisional amounts. However, the allocation of excess purchase and the amounts allocated to intangible assets are now as per valuation of assets and liabilities performed by independent valuer. Under the purchase agreement, the Company issued 1,000,000 shares of Common Stock valued at $417,815 and committed to issue an additional 500,000 shares of Common Stock at certain milestones, which was determined to have a fair value of $685,000 with mark to market pricing of DLT stock price as of December 31, 2019 using its $1.37 closing price on that date and $800,000 as of September 30, 2020 using its $1.60 closing price as of that date. The obligation to issue the 500,000 shares of Company Common Stock is shown as an “other long-term liabilities” on the face of the balance sheet and was valued at $800,000 and $685,000 as of September 30, 2020 and December 31, 2019, respectively. The following table shows the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:

 

ASSETS ACQUIRED

 

 

 

Accounts receivable

 

$ 18,663

 

Customer list

 

 

103,255

 

Developed technology

 

 

321,679

 

Domain and trade name

 

 

3,971

 

Non-compete

 

 

37,330

 

Goodwill

 

 

169,896

 

TOTAL ASSETS ACQUIRED

 

$ 654,794

 

 

 

 

 

 

LIABILITIES ASSUMED

 

 

 

 

Accounts payable

 

 

22,197

 

HST payable

 

 

2,147

 

TOTAL LIABILITIES ASSUMED

 

 

24,344

 

 

 

 

 

 

NET ASSETS ACQUIRED

 

$ 630,450

 

 

Acquisition of Union Strategies Inc.

 

On January 30, 2020, the Company entered into transactions contemplated by the definitive share for share exchange agreement and plan of re-organization (the “Purchase Agreement”) by and among the Company, Union Strategies. Inc. (“USI”), the stockholders of USI and other parties signatory thereto to acquire all the issued and outstanding capital stock of USI for 1,500,000 shares of the Company’s restricted Common Stock (the “Closing Shares”). The acquisition resulted in USI becoming a wholly-owned subsidiary of the Company.

 

 
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In the event that USI’s gross revenue for 2020 exceeds CAD $3,100,000 and it generates a minimum $75,000 in EBITDA (the “Performance Targets”), the Company agreed to issue an additional 1,000,000 shares of restricted Company Common Stock (“the Contingent Shares”) as additional purchase price consideration, which the Company estimates is probable that the Performance Targets will be achieved. The Company engaged an independent third party professional valuation firm to determine the value of the consideration that the Company paid and the values of the tangible assets, intangible assets and liabilities acquired.

 

The valuation firm determined that based on a 30-day average closing share of the Company’s Common Stock on January 30, 2020 and a 22.7% discount factor to reflect the shares’ resale restriction; the Closing and Contingent Shares are valued at $1.47 per share for a total purchase price consideration of $2,564,122.

 

The Company applied the acquisition method to the business combination and valued each of the assets acquired and liabilities assumed at fair value as of the acquisition date. The carrying values of accounts receivable, property and equipment, right to use asset, accounts payable, HST payable, accrued liabilities and lease obligation were deemed to be fair value as of the acquisition date. The obligation to issue the Contingent Shares is subject mark to market pricing of DLT stock price and is included in “other long-term liabilities” on the face of the balance sheet and valued at $1,240,000 based on the $1.24 closing share price of DLT Common Stock on September 30, 2020.

  

The following table shows the estimated fair values of USI’s assets acquired and liabilities assumed at the January 30, 2020 date of acquisition:

 

ASSETS ACQUIRED

 

 

 

Customer list

 

$ 874,631

 

Non-compete agreement

 

 

779,299

 

Developed technology

 

 

133,918

 

Domain name

 

 

129,379

 

Total intangible assets acquired

 

 

1,917,228

 

Tangible assets acquired

 

 

140,723

 

TOTAL ASSETS ACQUIRED

 

$ 2,057,951

 

 

 

 

 

 

TOTAL LIABILITIES ASSUMED

 

 

416,126

 

 

 

 

 

 

NET ASSETS ACQUIRED

 

 

1,641,825

 

 

 

 

 

 

Goodwill

 

 

922,297

 

NET ASSETS ACQUIRED

 

$ 2,564,122

 

 

 
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Pro Forma

 

The following table presents the unaudited pro forma results of the Company for the years ended December 31, 2019 and 2018 as if the acquisitions of USI and the combined 1922861 Ontario Inc. and DLT Resolution Corp. occurred on January 1, 2018. The pro forma results include estimates and assumptions which management believes are necessary. However, pro forma results do not include an anticipated cost savings or their effects of the planned integration of USI and 1922861 Ontario Inc. and are not necessarily indicative of the result that would have occurred if the business combination had been in effect on the dates indicated, or which may result in the future. The unaudited pro forma revenue and net loss for USI was approximately $2,730,000 and $175,000, respectively, for 2019. The unaudited pro forma revenue and net income for USI was approximately $2,700,000 and $88,000, respectively, for 2018. The unaudited pro forma revenue and net loss for the combined 1922861 Ontario Inc. and DLT Resolution Corp. was approximately $953,000 and $374,000, respectively, for the year ended December 31, 2018. The pro forma information includes adjustments for the amortization of intangible assets.

 

 

 

Year ended December 31,

 

 

 

2019

 

 

2018

 

 

 

(unaudited)

 

 

(unaudited)

 

 

 

 

 

 

 

 

Revenue

 

$ 3,193,000

 

 

$ 3,653,000

 

Net loss

 

 

(1,472,000 )

 

 

(544,000 )

 

USI and 1922861 Ontario Inc. did not have any material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and net losses.

 

Note 3 – Goodwill and Intangible Assets

 

Due to a sustained decline in the market capitalization of our common stock during the first quarter of 2020, we performed an interim goodwill impairment test. Management considered that, along with other possible factors affecting the assessment of the Company’s reporting unit for the purposes of performing a goodwill impairment assessment, including management assumptions about expected future revenue forecasts and discount rates, changes in the overall economy, trends in the stock price, estimated control premium, other operating conditions, and the effect of changes in estimates and assumptions that could materially affect the determination of fair value and goodwill. As a result of the significant decline in the current market capitalization despite any of the other positive factors contemplated and relatively little change in our ongoing business operations, the outcome of this goodwill impairment test resulted in a charge for the impairment of goodwill of $160,594 recorded in the unaudited condensed consolidated financial statements for the nine months ended September 30, 2020.

 

We amortize identifiable intangible assets on a straight-line basis over their estimated useful lives. As of September 30, 2020 and December 31, 2019, identifiable intangibles were as follows:

 

 

 

September 30,

2020

 

 

December 31,

2019

 

 

 

 

 

 

 

 

Developed technology

 

$ 132,853

 

 

$ 312,452

 

Customer relationships

 

 

965,248

 

 

 

100,293

 

Website

 

 

119,000

 

 

 

119,000

 

Domain and trade name

 

 

132,102

 

 

 

3,857

 

Non-compete

 

 

808,376

 

 

 

36,260

 

Accumulated amortization

 

 

(441,207 )

 

 

(195,402 )

Total intangible assets, net

 

$ 2,020,358

 

 

$ 376,460

 

 

 
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Expected future amortization expense related to identifiable intangibles based on our carrying amount as of September 30, 2020 for the following five years is as follows (in thousands):

 

For the Twelve Months ended September 30,

 

 

 

2021

 

$ 339,767

 

2022

 

 

332,906

 

2023

 

 

332,906

 

2024

 

 

316,778

 

2025

 

 

116,259

 

Thereafter

 

 

581,744

 

 

 

$ 2,020,359

 

 

Note 4 – Notes Payable

 

On August 1, 2017, the Company issued a non-interest bearing $5,000 note payable due on July 1, 2019 to a third party in exchange for Company Common Stock held by the third party. As of September 30, 2020, the note is unpaid.

 

The Government of Canada launched CEBA to assist businesses during the current challenges by providing interest-free unsecured loans. During the nine months ended September 30, 2020, the Company’s three Canadian subsidiaries each received CAD 40,000 CEBA loans. The loans bear zero interest and may be repaid any time after October 1, 2020 and if repaid on or before December 31, 2022, CEBA will forgive CAD 10,000 in loan principal. Should a CEBA loan be unpaid as of December 31, 2022, the loan converts to a three-year term loan having a 5% annual fixed rate of interest. As of September 30, 2020, the Company has a total of $90,069 (CAD 120,000) in outstanding CEBA loans.

 

Note 5 – Other Long-term Liabilities

 

Other long-term liabilities consist of the Company’s obligations to issue shares of its Common Stock pursuant to recent acquisitions. See Note 2. As of September 30, 2020, total other long-term liabilities $1,860,000 consisted of $620,000 for shares issuable for the Acquisition of 1922861 Ontario Inc. and $1,240,000 for the shares issuable for the acquisition of USI. As of December 31, 2019, total other long-term liabilities consisted of $685,000 for shares issuable for the Acquisition of 1922861 Ontario Inc. The liabilities are subject to mark to market accounting based on the market price of DLT shares of Common Stock and will be extinguished once the shares are issued.

 

Note 6 – Stockholders’ Equity

 

Common Stock

 

On January 13, 2020, the Company issued 31,250 shares of restricted Company Common Stock to a third party individual in a stock subscription agreement for $25,000 in cash.

 

The Company issued 1,500,000 shares of restricted Common Stock pursuant to the Purchase Agreement to acquire USI. See Note 2.

 

Common stock subscribed

 

The Company sold a subscription to purchase 14,000 shares of its Common Stock for $14,000 on April 24, 2020. To date, the shares have not been issued to the purchaser.

 

 
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Series A Convertible Preferred Stock

 

The Company is authorized to issue 5,000,000 shares of Series A Convertible Preferred Stock. The Series A Convertible Preferred Stock can be converted to common shares at the option of the holder at a rate of $0.10 per share. There were no shares of series A convertible preferred stock issued and outstanding as of September 30, 2020 and December 31, 2019.

 

Series B Convertible Preferred Stock

 

The Company is authorized to issue 500,000 shares of Series B Convertible Preferred Stock. The Series B Convertible Preferred Stock can be converted to common shares at the option of the holder at a rate of $0.20 per share. There were 64,000 shares of series B convertible preferred stock issued and outstanding as of September 30, 2020 and December 31, 2019.

 

Note 7 - Related Party Transactions

 

No compensation was incurred for the services of the Company’s directors or executives during the periods ended September 30, 2020 and 2019.

 

As of September 30, 2020 and December 31, 2019, the Company had outstanding amounts payable to related parties of $20,872 and $20,880. The obligations are unsecured, non-interest bearing, due on demand and payable in Canadian dollars, with the change in the liability from December 31, 2019 to September 30, 2020 attributable to the change in the exchange rate for U.S. and Canadian dollars.

 

During the nine months ended September 30, 2019, the Company also made payments for services rendered by related parties totaling $25,000, resulting in balances owed for such services of $15,000 as of September 30, 2020 and December 31, 2019.

 

The Company has a note payable to a related party as settlement for consulting services. The note carries interest of 9% compounded annually and is due on demand. As of September 30, 2020 and December 31, 2019, $81,500 of principal and $39,722 and $34,190 of accrued interest was due, respectively.

 

During the three months ended September 30, 2020, the Company advanced a total of $76,587 to two individual who manage USI’s operations. The advances are repayable with installment payments starting on April 1, 2021.

 

Note 8 – Concentrations

 

During the three-month and nine-month periods ended September 30, 2020 and 2019, no single customer accounted for more than 10% of our total revenue for the respective periods. As of September 30, 2020, one customer had an outstanding accounts receivable balance that were 23% of our total accounts receivable at that time. As of December 31, 2019, no single customer had an outstanding accounts receivable balance that exceeded 10% of our total accounts receivable at that time.

   

Note 9 – Commitments and Contingencies

 

Litigation

 

On March 29, 2019, DLT Resolution Corp. and DLT Resolution Inc. was served with a Statement of Claimants 300-306 Town Centre Boulevard Limited Partnership/Court File No. CV-19-00617228-000 (Toronto) for unpaid rent and lost revenue related to the premises. In this action, the Plaintiff has claimed damages against the Defendants DLT Resolution Corp. and DLT Resolution Inc. in the amount of $567,385 for an alleged breach of lease. The Plaintiff has claimed damages against the Defendant DLT Resolution Inc. in the amount of $567,385 for allegedly wrongfully inducing a breach of lease and tortious interference with contractual relations. The Plaintiff has further claimed damages against the Defendant DLT Resolution Inc. in the amount of $567,385 for allegedly oppressive conduct under the Ontario Business Corporations Act. The Plaintiff has further claimed compensation for its legal costs and for pre-judgment interest. The Company filed a statement of Defense citing, amongst other things, that it has never entered into any agreement with the landlord, nor guaranteed any such liability. The Defendants DLT Resolution Corp. and DLT Resolution Inc. intend to contest the claim vigorously. There is no intention to make a settlement offer nor have instructions been received to make a settlement offer at this juncture. Since the statement of defense was delivered on 16 May 2019, the Company had no further communication from counsel for the Plaintiff nor have any steps been taken to move the litigation forward. Although there can be no assurance of the Company’s ability to dismiss the claim, management feels the claim is without merit and is confident it will receive a ruling in its favor.

 

 
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Leases Commitment

 

Under Topic 842, operating lease expense is generally recognized evenly over the term of the lease. USI has an operating lease for its Edmonton, Canada facility that started in March 2019 and terminates in February 2022. There was no sublease rental income for the three-month periods ended September 30, 2020 and 2019. USI paid approximately $2,137 and $6,538 against the Lease obligation in the three and nine months ended September 30, 2020.

 

USI’s lease agreement does not provide an implicit borrowing rate; therefore, an internal incremental borrowing rate is determined based on information available at lease commencement date for purposes of determining the present value of lease payments.

 

ROU lease asset and lease liability for the operating lease is recorded in the balance sheet as follows:

 

 

 

As of

 

 

 

September 30,

2020

 

Operating lease - right of use asset

 

$ 9,082

 

 

 

 

 

 

Lease obligations — operating leases, current portion

 

$ 8,149

 

Lease obligations — operating leases, net of current portion

 

 

3,214

 

Total lease liability

 

$ 11,362

 

 

 

 

 

 

Weighted average remaining lease term (in years)

 

 

1.4

 

Weighted average discount rate

 

 

7.75 %

 

Future lease payments included in the measurement of lease liabilities on the unaudited balance sheet as of September 30, 2020, for the following five fiscal years and thereafter were as follows:

 

 

 

For the year

ending

 

 

 

December 31,

 

 

 

 

 

2020

 

$ 1,801

 

2021

 

 

7,206

 

2022

 

 

1,201

 

Total future minimum lease payments

 

 

10,208

 

Present value adjustment

 

 

1,679

 

Total

 

$ 8,528

 

 

Other Commitments

 

As permitted under Canadian Corporations Business Act, USI agrees to indemnify officers and directors for certain events or occurrences while the officer or director is, or was, serving at USI’s request in this capacity. The term of the indemnification period is indefinite. There is no limit on the amount of future payments USI could be required to make under these indemnification agreements; however, USI maintains insurance policy coverage that may enable USI to recover a portion of any amounts paid. As a result of USI’s insurance policy coverage, management believes the estimated fair value of these indemnifications is minimal. Accordingly, USI did not record any indemnification liabilities as of September 30, 2020 and December 31, 2019.

 

 
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation. Shareholders’ Equity General

 

SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q contains forward-looking statements that have been made pursuant to the provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations, estimates, and projections about DLT Resolutions’ industry, management’s beliefs, and certain assumptions made by management. Forward-looking statements include our expectations regarding product, services, and maintenance revenue, annual savings associated with the organizational changes effected in prior years, and short- and long-term cash needs. In some cases, words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “estimates,” variations of these words, and similar expressions are intended to identify forward-looking statements. In addition, statements about the potential effects of the COVID-19 pandemic on the Company’s businesses, results of operations and financial condition may constitute forward-looking statements. The statements are not guarantees of future performance and are subject to certain risks, uncertainties, and assumptions that are difficult to predict; therefore, actual results may differ materially from those expressed or forecasted in any forward-looking statements. Risks and uncertainties of our business include those set forth in our Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the SEC on April 30, 2020, under “Item 1A. Risk Factors” as well as additional risks described in this Form 10-Q. Unless required by law, we undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise. However, readers should carefully review the risk factors set forth in other reports or documents we file from time to time with the Securities and Exchange Commission, particularly the Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K.

 

Overview

 

DLT Resolution Inc. (“DLT, the “Company”, “we” and “our”) operates in three high-tech industry segments: Blockchain Applications; Telecommunications; and Data Services which includes Image Capture, Data Collection, Data Phone Center Services, and Payment Processing. The Company offers secure data management, Information Technology (IT) and other telecommunications services in Canada and the United States. The Company operates a Health Information Exchange providing the ability to request and retrieve medical information and records while meeting all of today’s Security & Compliance demands for HIPAA, PIPEDA and PHIPA. Through our acquisition of Union Strategies, Inc. (“USI”), the Company operates a business focused on designing, installing and maintaining telephony, data, video, storage, and LAN/WAN networks. USI’s clients encompass K-12 and higher education institutions, trades industry organizations, and local government entities having memberships ranging from 100 to 10,000 people that utilize products and services that USI provides by deploying a variety of technologies to keep client networks up and running efficiently.

 

Recent Developments

 

On January 30, 2020, the Company acquired all the issued and outstanding capital stock of USI for 1,500,000 shares of the Company’s restricted Common Stock with the potential issuance of an additional 1,000,000 shares should USI achieve financial performance targets (See Note 2). The acquisition, valued at $4,000,000 resulted in USI becoming a wholly owned subsidiary of the Company. USI was organized on October 24, 2011 under the Ontario Business Corporations Act of 1990 and is located in Woodbridge, Ontario, Canada. USI is focused on designing, installing and maintaining telephony, data, video, storage, and LAN/WAN networks. USI has clients encompassing K-12 and higher education institutions, trades industry organizations, and local government entities having memberships ranging from 100 to 10,000 people that utilize products and services that USI provides by deploying a variety of technologies to keep client networks up and running efficiently.

 

 
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Results of Operations

 

Revenues

 

Revenues for the three months ended September 30, 2020 and 2019 were $599,160 and $128,482, respectively. The increase resulted primarily from the inclusion of USI’s $467,049 revenue in the current quarter following its acquisition on January 30, 2020.

 

Revenues for the nine months ended September 30, 2020 and 2019 were $1,576,960 and $363,849, respectively. The increase resulted primarily from the inclusion of USI’s $1,257,172 revenue from the acquisition on January 30, 2020 to September 30, 2020.

 

Cost of Revenue

 

Cost of revenue for the three months ended September 30, 2020 and 2019 were $317,665 and $42,264, respectively. The increase resulted primarily from the inclusion of USI’s $270,766 cost of revenue in the current quarter following its acquisition on January 30, 2020.

 

Cost of revenue for the nine months ended September 30, 2020 and 2019 were $820,179 and $114,676, respectively. The increase resulted primarily from the inclusion of USI’s $694,938 in cost of revenue from the acquisition on January 30, 2020 to September 30, 2020.

 

General and Administrative

 

General and administrative expense, excluding professional fees, was $245,005 and $74,842 for the three months ended September 30, 2020 and 2019, respectively. The increase resulted primarily from the inclusion of USI’s $163,006 in general and administrative expense in the current quarter following its acquisition on January 30, 2020.

 

General and administrative expense, excluding professional fees, was $613,893 and $194,852 for the nine months ended September 30, 2020 and 2019, respectively. The increase resulted primarily from the inclusion of USI’s $419,904 in general and administrative expense from the acquisition on January 30, 2020 to September 30, 2020.

 

Professional Fees

 

Professional fees were $29,060 and $55,421 for the three months ended September 30, 2020 and 2019, respectively. Professional fees decreased despite the inclusion of USI’s $4,790 in professional fees in the current quarter following its acquisition on January 30, 2020.

 

Professional fees were $93,481 and $119,842 for the three months ended September 30, 2020 and 2019, respectively. The increase resulted primarily from the inclusion of USI’s $21,412 in professional fees from the acquisition on January 30, 2020 to September 30, 2020.

 

 
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Depreciation and Amortization

 

Depreciation and amortization expense was $1,288 and $25,768 for the three months ended September 30, 2020 and 2019, respectively. The decrease resulted primarily from a one-time reduction of USI’s amortization expense in the current quarter that resulted from management adopting the results of an independent third party’s valuation of USI as of the January 30, 2020 acquisition date. The valuation reduced the estimated value of the consideration paid and payable to USI’s former owners and determined the allocation of the consideration to USI’s intangible assets and goodwill.

 

Depreciation and amortization expense was $268,321 and $76,980 for the nine months ended September 30, 2020 and 2019, respectively. The increase resulted primarily from the inclusion of USI’s $191,437 in depreciation and amortization expense from the acquisition on January 30, 2020 to September 30, 2020 that relates to USI’s intangible assets and property, plant and equipment.

 

Goodwill Impairment Loss

 

Due to a sustained decline in the market capitalization of our common stock during the first quarter of 2020, we performed an interim goodwill impairment test. Management considered that, along with other possible factors affecting the assessment of the Company’s reporting unit for the purposes of performing a goodwill impairment assessment, including management assumptions about expected future revenue forecasts and discount rates, changes in the overall economy, trends in the stock price, estimated control premium, other operating conditions, and the effect of changes in estimates and assumptions that could materially affect the determination of fair value and goodwill. As a result of the significant decline in the current market capitalization despite any of the other positive factors contemplated and relatively little change in our ongoing business operations, the outcome of this goodwill impairment test resulted in a charge for the impairment of goodwill of $160,594 in the nine months ended September 30, 2020.

 

Other Expense

 

The Company had net other expense of $11,902 for the three months ended September 30, 2020 and other income of $265,762 for the three months ended September 30, 2019. The change is due to a $267,602 gain from revaluing a stock based liability that existed in the quarter ended September 30, 2019, but had been extinguished later in 2019.

 

The Company had net other expense of $30,808 and $559,741 for the nine months ended September 30, 2020 and 2019, respectively. The large change is due to the 2019 disposition of the investment in A.J.D. Data Services and the 2019 loss from a change in the stock based liability that existed at that time.

 

Net Loss

 

The Company had a net loss of $11,935 and net income of $195,949 for the three months ended September 30, 2020 and 2019. The decrease in net result in the current quarter compared to the prior’s year’s quarter primarily resulted from the $267,602 gain on a stock based liability in the quarter ended September 30, 2019 as compared to $0 gain in the quarter ended September 30, 2020

 

The Company had a net loss of $410,316 and $702,242 for the nine months ended September 30, 2020 and 2019. The decrease in net loss in the current year primarily resulted from the decrease in other expense, which was partially offset by the increase in amortization expense from intangible assets purchased in the USI acquisition.

  

 
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Liquidity and Capital Resources

 

As of September 30, 2020, we had total current assets of $385,043 and current liabilities of $769,162 creating a working capital deficit of $384,119. As of December 31, 2019, we had $13,140 of cash, total current assets of $47,771 and current liabilities of $267,553 creating a working capital deficit of $219,782.

 

Net cash used in operating activities was $65,357 during the nine months ended September 30, 2020 compared to $162,663 for the same period in 2019.

 

Net cash used in investing activities was $766 during the nine months ended September 30, 2020 compared to $0 for the same period in 2019.

 

During the nine months ended September 30, 2020, the Company generated $63,214 cash from financing activities. During the nine months ended September 30, 2019, the Company generated $175,855 of cash from financing activities that was the proceeds of advances from related parties, net of repayments and $25,000in proceeds from a sale of our Common Stock.

 

Going Concern

 

We had an accumulated deficit of $4,653,230 and a working capital deficit of $219,782 as of December 31, 2019. These matters raise substantial doubt about our ability to continue as a going concern. Continuation of our existence depends upon our ability to obtain additional capital. Our plans in regards to this matter include raising additional equity financing and borrowing funds under a private credit facility and/or other credit sources. Issuances of additional shares will dilute the ownership of our existing shareholders. There is no assurance that we will achieve any additional sales of our equity securities or arrange for debt or other financing to fund our planned operations.

 

Our unaudited condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles applicable to a going concern. This contemplates the realization of assets and the liquidation of liabilities in the normal course of business. Currently, we have limited cash, and an accumulated deficit of $5,045,546. These factors raise substantial doubt about our ability to continue as a going concern. We will be dependent upon the raising of additional capital through placement of our common stock in order to implement its business plan, or merge with an operating company. There can be no assurance that we will be successful in either situation in order to continue as a going concern. Our officers and directors have demonstrated a willingness to advance funds to us to be used to pay certain of our operating costs.

 

Off-Balance Sheet Arrangements

 

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.

  

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

Not applicable.

 

Item 4. Controls and Procedures.

 

Disclosure Controls and Procedures

 

Management of DLT Resolution Inc. is responsible for maintaining disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

 

 
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In addition, the disclosure controls and procedures must ensure that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required financial and other required disclosures.

 

At the end of the period covered by this report, an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13(a)-15(e) and 15(d)-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”)) was carried out under the supervision and with the participation of our Principal Executive Officer, Principal Financial and Accounting Officer. Based on his evaluation of our disclosure controls and procedures, he concluded that during the period covered by this report, such disclosure controls and procedures were not effective to detect the inappropriate application of US GAAP standards. This was due to deficiencies that existed in the design or operation of our internal control over financial reporting that adversely affected our disclosure controls and that may be considered to be “material weaknesses.”

 

The Company will continue to create and refine a structure in which critical accounting policies and estimates are identified, and together with other complex areas, are subject to multiple reviews by accounting personnel. In addition, the Company will enhance and test our year-end financial close process. Additionally, the Company’s management will increase its review of our disclosure controls and procedures. Finally, we plan to designate individuals responsible for identifying reportable developments. We believe these actions will remediate the material weakness by focusing additional attention and resources in our internal accounting functions. However, the material weakness will not be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

  

Changes in Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over our financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance to our management and board of directors regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions; (ii) provide reasonable assurance that transactions are recorded as necessary for preparation of our financial statements; (iii) provide reasonable assurance that receipts and expenditures of company assets are made in accordance with management authorization; and (iv) provide reasonable assurance that unauthorized acquisition, use or disposition of company assets that could have a material effect on our financial statements would be prevented or detected on a timely basis.

 

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

 

Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2017. In assessing the effectiveness of our internal control over financial reporting as of December 31, 2018, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on its assessment, management concluded that our internal control over financial reporting as of December 31, 2018 was not effective in the specific areas described in the “Disclosure Controls and Procedures” section above and as specifically described in the paragraphs below.

 

 
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As of December 31, 2019, the Principal Executive Officer/Principal Financial Officer identified the following specific material weaknesses in the Company’s internal controls over its financial reporting processes:

 

·

Policies and Procedures for the Financial Close and Reporting Process — Currently there are no policies or procedures that clearly define the roles in the financial close and reporting process. The various roles and responsibilities related to this process should be defined, documented, updated and communicated. Failure to have such policies and procedures in place amounts to a material weakness to the Company’s internal controls over its financial reporting processes.

 

 

·

Representative with Financial Expertise — For the year ending December 31, 2018, the Company did not have a representative with the requisite knowledge and expertise to review the financial statements and disclosures at a sufficient level to monitor the financial statements and disclosures of the Company. Failure to have a representative with such knowledge and expertise amounts to a material weakness to the Company’s internal controls over its financial reporting processes.

 

 

·

Adequacy of Accounting Systems at Meeting Company Needs — The accounting system in place at the time of the assessment lacks the ability to provide high quality financial statements from within the system, and there were no procedures in place or built into the system to ensure that all relevant information is secure, identified, captured, processed, and reported within the accounting system. Failure to have an adequate accounting system with procedures to ensure the information is secure and accurately recorded and reported amounts to a material weakness to the Company’s internal controls over its financial reporting processes.

 

 

·

Segregation of Duties — Management has identified a significant general lack of definition and segregation of duties throughout the financial reporting processes. Due to the pervasive nature of this issue, the lack of adequate definition and segregation of duties amounts to a material weakness to the Company’s internal controls over its financial reporting processes.

 

In light of the foregoing, once we have the adequate funds, management plans to develop the following additional procedures to help address these material weaknesses:

 

·

The Company will create and refine a structure in which critical accounting policies and estimates are identified, and together with other complex areas, are subject to multiple reviews by accounting personnel. In addition, we plan to enhance and test our month-end and year-end financial close process. Additionally, our audit committee will increase its review of our disclosure controls and procedures. We also intend to develop and implement policies and procedures for the financial close and reporting process, such as identifying the roles, responsibilities, methodologies, and review/approval process. We believe these actions will remediate the material weaknesses by focusing additional attention and resources in our internal accounting functions. However, the material weaknesses will not be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

 

There have been no changes in our internal control over financial reporting that occurred during the three months ended September 30, 2020 that have materially affected, or are reasonable likely to materially affect, our internal control over financial reporting.

 

 
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PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

On March 29, 2019, DLT Resolution Corp. and DLT Resolution Inc. was served with a Statement of Claimants 300-306 Town Centre Boulevard Limited Partnership/Court File No. CV-19-00617228-000 (Toronto) for unpaid rent and lost revenue related to the premises. In this action, the Plaintiff has claimed damages against the Defendants DLT Resolution Corp. and DLT Resolution Inc. in the amount of $567,385 for an alleged breach of lease. The Plaintiff has claimed damages against the Defendant DLT Resolution Inc. in the amount of $567,385 for allegedly wrongfully inducing a breach of lease and tortious interference with contractual relations. The Plaintiff has further claimed damages against the Defendant DLT Resolution Inc. in the amount of $567,385 for allegedly oppressive conduct under the Ontario Business Corporations Act. The Plaintiff has further claimed compensation for its legal costs and for pre-judgment interest. The Company filed a statement of Defense citing, amongst other things, that it has never entered into any agreement with the landlord, nor guaranteed any such liability. The Defendants DLT Resolution Corp. and DLT Resolution Inc. intend to contest the claim vigorously. There is no intention to make a settlement offer nor have instructions been received to make a settlement offer at this juncture. Since the statement of defense was delivered on May 16, 2019, the Company had no further communication from counsel for the Plaintiff nor have any steps been taken to move the litigation forward. Although there can be no assurance of the Company’s ability to dismiss the claim, management feels the claim is without merit and is confident it will receive a ruling in its favor.

 

Item 1. Risk Factors.

 

A pandemic, epidemic, or outbreak of infectious disease such as the current coronavirus (COVID-19) pandemic could have an adverse effect on our business, operating results or financial condition.

 

Our business could be adversely impacted by the effects of a pandemic, epidemic, or outbreak of an infectious disease, such as the recent and ongoing COVID-19 outbreak in various parts of the world in which we operate, which has now been declared a global pandemic by the World Health Organization. This outbreak could adversely impact our operations, the operations of our customers and the global economy. Disruptions to our business could include restrictions on our ability to travel and distribute our products, suspension or government-mandated shutdown of operations by us or our customers, or the delay of projects in impacted areas. Travel restrictions or operational problems where we or our customers operate may cause a reduction in the demand for our services. For example, the governor of both Nevada (where our corporate headquarters is located) and Canadian governmental bodies (where several of our executive officers are based) have issued stay-at-home orders which urge residents to work from home and mandate the closures of businesses that are considered non-essential. Any of these events could negatively impact our business, operating results or financial condition.

 

The COVID-19 Pandemic is having an adverse effect on our business.

 

The ongoing COVID-19 pandemic crisis has already caused several instances where meetings and other interactions relevant to our business progress have been postponed or delayed. Our customers are wireless carriers who have, in many instances, begun adopting policies that limit the accessibility of their campuses to external personnel. In addition, government-mandated stay-at-home orders have recently been issued in many of the jurisdictions where we or our customers do business, which will prevent us from conducting in-person meetings with customers while those orders are in effect. Although most of these government mandates are effective for limited periods of time, they may be extended indefinitely depending on ongoing developments related to COVID-19. At the time of this filing, this sporadic lack of access has resulted in only slight delays that are not quantitatively detrimental to operating results, but as the situation and its response continue, this could change. If this current situation continues or extends, because of either our customers’ policies and practices or government-mandated stay-at-home orders, restrictions on travel or gatherings of people, our results will be negatively impacted.

 

 
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

On January 13, 2020, the Company issued 31,250 shares of restricted Company Common Stock to a third party individual in a stock subscription agreement for $25,000 in cash.

 

The Company issued 1,500,000 shares of restricted Company Common Stock to the former shareholders of USI in exchange for all of USI’s issued and outstanding common shares (see Note 2).

 

Item 3. Defaults Upon Senior Securities.

 

None.

 

Item 4. Mine Safety Disclosures.

 

None

 

Item 5. Other Information.

 

None.

 

Item 6. Exhibits.

 

The following exhibits are attached hereto:

 

Exhibit No.

 

Description of Exhibit

 

 

 

31.1

 

Certification of Principal Executive Officer pursuant to Rule 13a-15(e) and 15d-15(e), promulgated under the Securities and Exchange Act of 1934, as amended, filed herewith.

31.2

 

Certification of Principal Accounting Officer pursuant to Rule 13a-15(e) and 15d-15(e), promulgated under the Securities and Exchange Act of 1934, as amended, filed herewith.

32.1

 

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith

101

 

Interactive data files pursuant to Rule 405 of Regulation S-T

 

 
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SIGNATURES

 

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

DLT Resolution, Inc.

 

 

 

 

 

 

 

 

By:

/s/ John Wilkes

/s/ John Wilkes

 

 

John Wilkes

John Wilkes

 

 

President and Chief Executive Officer

Chief Financial Officer, Secretary and Treasurer

 

 

(Principal Executive Officer)

(Principal Financial Officer)

 

 

 

 

November 16, 2020

November 16, 2020

 

 

 
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