Quarterly Report (10-q)

Date : 09/12/2019 @ 7:13PM
Source : Edgar (US Regulatory)
Stock : Solei Systems, Inc. (GM CE) (SOLI)
Quote : 0.23  0.01 (4.55%) @ 9:30PM

Quarterly Report (10-q)

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

(Mark One)

 

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019

 

[  ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from __________ to ___________

 

Commission file number: 000-55987

 

Solei Systems, Inc.
(Exact name of registrant as specified in its charter)

 

Florida   20-1801530
State or other jurisdiction of incorporation or organization   (I.R.S. Employer Identification No.)
     

206 N. Washington St., Suite 100

Alexandria, VA

  22314
(Address of principal executive offices)   (Zip Code)

 

(703) 832-4473

Registrant’s telephone number, including area code

 

______________________________________

 

(Former Address and phone of principal executive offices)

 

Securities registered pursuant to Section 12(b) of the Act: None

 

Title of each Class Trading Symbol Name of each exchange on which registered
N/A N/A N/A

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the 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 for 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 file, an accelerated filer, a non-accelerated filer, or a smaller reporting Company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting Company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   [  ] Accelerated filer [  ]
Non-accelerated filer   [  ] Smaller reporting Company [X]
      Emerging growth Company [X]

 

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 to Section 7(a)(2)(B) of the Securities Act. [ ]

 

Indicate by check mark whether the registrant is a shell Company (as defined in Rule 12b-2 of the Exchange Act).

Yes [  ]   No [X]

 

Indicate the number of share outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

As of September 11, 2019, there were 103,804,390 shares of the registrant’s common stock, $.001 par value, issued and outstanding.

 

 

  

 

 
 

 

TABLE OF CONTENTS

 

    Page
  PART 1 – FINANCIAL INFORMATION  
     
Item 1. Financial Statements (Unaudited) 1
     
  Consolidated Balance Sheets – June 30, 2019 and December 31, 2018 F-1
     
  Consolidated Statements of Operations - Three and Six Months ended June 30, 2019 and 2018 F-2
     
  Consolidated Statements of Stockholder’s Equity – June 30, 2019 F-3
     
  Consolidated Statements of Cash Flows – Six months ended June 30, 2019 and 2018 F-4
     
  Notes to the Financial Statements F-5
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 2
     
Item 3. Quantitative and Qualitative Disclosures About Market RiskNot Applicable 7
     
Item 4. Controls and Procedures 8
     
  PART II- OTHER INFORMATION  
     
Item 1. Legal ProceedingsNot Applicable 8
     
Item 1A. Risk Factors 8
     
Item 2. Unregistered Sales of Equity Securities and Use of ProceedsNot Applicable 19
     
Item 3. Defaults Upon Senior SecuritiesNot Applicable 20
     
Item 4. Mine Safety DisclosureNot Applicable 20
     
Item 5. Other InformationNot Applicable 20
     
Item 6. Exhibits 20
     
  Signatures 20

 

 

 

 

 

 
 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

 

1 


 

SOLEI SYSTEMS, INC
and SUBSIDIARIES
Consolidated Balance Sheets
June 30, 2019 and December 31, 2018
 
    June 30, 2019   December 31,
ASSETS   (Unaudited)   2018
Current Assets                
Cash   $ 385,211     $ 2,563  
Accounts receivable, net     280,151       —    
Inventory     38,833       41,770  
Total current assets     704,195       44,333  
                 
Fixed Assets, net of depreciation of $3,467 and                
0, respectively     76,533       —    
Total Fixed Assets     76,533       —    
                 
Other Assets                
Intangible Assets, net of amortization of $99,937                
   and $ 58,925, respectively     1,735,814       8,400  
Goodwill     50,000       —    
Total Other Assets     1,785,814       8,400  
Total Assets   $ 2,566,542     $ 52,733  
                 
LIABILITIES AND SHAREHOLDERS' EQUITY                
Liabilities                
Current liabilities                
Accounts payable     9,490       6,720  
Other Current Liabilities                
Accrued interest     21,527       —    
Accrued expenses     88,790       —    
Convertible Notes     1,680,000       —    
Note Premium at fair value     1,680,000       —    
Balance due on acquisition     900,000       —    
Related Party Loans     372,195       323,563  
Related Party Payables     1,447,250       1,288,250  
Total Other Current Liabilities     6,199,252       1,618,533  
Total Liabilities     6,199,252       1,618,533  
                 
Shareholders' Equity (Deficit)                
Preferred stock, $0.001 par value, 50,000,000 shares                
authorized, no shares issued and outstanding     —         —    
Common Stock, $0.001 par value, 300,000,000 shares                
authorized, 103,804,390 shares issued and outstanding                
at June 30, 2019 and December 31, 2018     103,804       103,804  
Paid in Capital     102,888       102,888  
Retained Earnings     (3,839,402 )     (1,772,492 )
Shareholders' Deficit     (3,632,710 )     (1,565,800 )
Total Liabilities and Shareholders' Deficit   $ 2,566,542     $ 52,733  
                 
                 
See accompanying notes to financial statements.  

 

 

F-1 

 

 

SOLEI SYSTEMS, INC
and SUBSIDIARIES
Consolidated Statements of Operations
Three and Six Months Ended
June 30, 2019 and 2018
(Unaudited)
                 
    3 Months Ended   6 Months Ended
    June 30,   June 30,   June 30,   June 30,
INCOME   2019   2018   2019   2018
                 
Revenues, net of returns   $ 438,842     $ 6,599     $ 443,193     $ 11,517  
Cost of Revenue     (286,012 )     (2,466 )     (288,563 )     (4,450 )
                                 
Gross profit     152,830       4,133       154,630       7,067  
                                 
General, selling and administrative expenses                                
                                 
Officer salaries     30,000       30,000       60,000       60,000  
Rent and Management fees     25,500       25,500       51,000       51,000  
Payroll expense     107,155       —         107,155       —    
Consulting expenses     74,845       —         114,842       —    
Professional fees     26,250       31,845       47,150       69,749  
General and administrative expenses     126,780       1,695       135,496       3,561  
                                 
Total expenses     390,530       89,040       515,643       184,310  
Operating profit (loss)     (237,700 )     (84,907 )     (361,013 )     (177,243 )
                                 
Nonoperating income (expenses)                                
                                 
Interest income     2,340       —         2,340       —    
Total nonoperating income     2,340       —         2,340       —    
                                 
Interest expense     24,847       2,981       28,237       5,766  
Interest premium expense on convertible notes     1,680,000       —         1,680,000       —    
Total nonoperating expense     1,704,847       2,981       1,708,237       5,766  
Net Other Income (Loss)     (1,702,507 )     (2,981 )     (1,705,897 )     (5,766 )
                                 
Net income (loss)   $ (1,940,207 )   $ (87,888 )   $ (2,066,910 )   $ (183,009 )
                                 
Net loss per share, basic and diluted   $ (0.02 )   $ (0.00 )   $ (0.02 )   $ (0.00 )
                                 
Weighted average number of shares of common stock                                
outstanding     103,804,390       103,804,390       103,804,390       103,804,390  
                                 
                                 
See accompanying notes to financial statements.  

 

 

F-2 

 

 

SOLEI SYSTEMS, INC.
and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
(Unaudited)
                     
    Common Stock   Additional   Accumulated    
    Shares   Amount   Paid-in Capital   Deficit   Total
                     
Balance, December 31, 2015     95,103,390     $ 95,103     $ 116,589     $ (617,205 )     (405,513 )
Net loss, December 31, 2016     —         —         —         (385,789 )     (385,789 )
Balance, December 31, 2016     95,103,390       95,103       116,589       (1,002,994 )     (791,302 )
                                         
Payment for former company treasury stock and cancellation prior to reorganization     (50,000 )     (50 )     (4,950 )     —         (5,000 )
Reorganization     8,751,000       8,751       (8,751 )     —         —    
Net loss, December 31, 2017     —         —         —         (366,839 )     (366,839 )
Balance, December 31, 2017     103,804,390     $ 103,804     $ 102,888     $ (1,369,833 )   $ (1,163,141 )
                                         
Net Loss, December 31, 2018     —         —         —         (402,659 )     (402,659 )
Balance, December 31, 2018     103,804,390       103,804       102,888       (1,772,492 )     (1,565,800 )
Net Loss, June 30, 2019     —         —         —         (2,066,910 )     (2,066,910 )
Balance, June 30, 2019     103,804,390     $ 103,804     $ 102,888     $ (3,839,402 )     (3,632,710 )
                                         
See accompanying notes to financial statements.  

 

 

F-3 

 

SOLEI SYSTEMS, INC
and SUBSIDIARIES
Consolidated Statements of Cash Flows
Six Months Ended
June 30, 2019 and 2018
(Unaudited)
         
    Six Months   Six Months
    Ended June 30,   Ended June 30,
    2019   2018
Cash Flows From Operating Activities                
     Net loss   $ (2,066,910 )   $ (183,009 )
Adjustments to reconcile net (loss) to cash provided by (used in)                
     operating activities:                
Premium on convertible notes     1,680,000       —    
Depreciation and amortization     46,053       1,575  
     Changes in assets and liabilities                
Decrease in Inventory     2,936       2,946  
Increase in  related party accruals     174,750       159,000  
(Increase) in accounts receivable     (280,151 )     —    
(Decrease) in accounts payable     (12,980 )     —    
Increase in accrued expense     88,790       —    
Increase in accrued interest     21,527       —    
Net cash used in operating activities     (345,985 )     (19,488 )
                 
Cash Flows From Investing Activities                
Acquisition of CareClix assets     (1,000,000 )     —    
Net cash used in investing activities     (1,000,000 )     —    
                 
Cash Flows from Financing Activities                
Sale of Convertible notes     1,680,000       —    
Proceeds from related party     49,820       18,089  
Net cash provided by financing activities     1,729,820       18,089  
                 
Net increase (decrease) in cash   $ 383,835     $ (1,399 )
Cash, beginning of period     2,563       7,338  
Cash, end of period   $ 385,211     $ 5,939  
                 
SUPPLEMENTAL INFORMATION                
Interest paid   $ 5,766     $ 5,766  
Income Taxes Paid   $ —       $ —    
                 
Non-cash Financing Activities                
Stock Issuable for acquisition   $ 900,000     $ —    

 

See accompanying notes to financial statements.

F-4 


SOLEI SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Period Ended June 30, 2019

 

 

Note 1.        Nature of Business and Significant Accounting Policies

 

NATURE OF BUSINESS:

 

SOLEI SYSTEMS, INC. (“Company”) was organized October 26, 2004 under the laws of the State of Florida. On October 20, 2017, the Company acquired Clinical & Herbal Innovations, Inc. (CHII) a Georgia corporation, in a share exchange. The transaction was treated as a capital transaction where the Company was treated as a non-business entity; therefore, the accounting for the merger was identical to that resulting from a reverse merger except that no goodwill or other intangible assets were recorded. For accounting purposes, CHII was treated as the accounting acquirer and has been presented as the continuing entity. The historical financial statements are those of CHII except for the shareholder equity portion and are reported in this Report on a consolidated basis with the Company along with the financial statements of CareClix, Inc.

 

A majority of the common stock of the Company is owned by Charles Scott, who controls the shareholder vote as a result. Mr. Scott is also Chairman and Chief Executive Officer.

 

The Company is a holding Company which had a wholly-owned subsidiary, CHII, for the entire quarter ended June 30, 2019 and a second wholly-owned subsidiary, CareClix, Inc. commencing April 12, 2019. CHII is a supplement development Company with a proprietary product that is distributed primarily through the Internet. The majority shareholder of the Company licenses the product to CHII. CareClix, Inc. is a Virginia corporation formed by the Company in April 2019 to receive proprietary and patent pending telemedicine operating software acquired by the Company.

 

In early 2019, the Company entered into an agreement to acquire the proprietary CareClix™ operating software, and pending patent for that software, the domain name and trademark for the software and certain related incidental tangible assets of KB Medical Systems, LLC, an unrelated Company and the developer of the proprietary CareClix™ operating systems for telemedicine providers. The acquisition was closed April 12, 2019. Under the terms of the acquisition agreement, the Company formed a new, wholly-owned subsidiary CareClix, Inc., to acquire the CareClix™ operating software and pending patent and commenced a new operating business with the assets following the acquisition. The Company did not acquire cash, accounts receivables, or any other assets, any liabilities of KB Medical, and no customer lists, although certain customers of KB Medical continued working with the Company after the acquisition because they were already using the CareClix™ operating software acquired by the Company. One of the two founders of KB Medical, Dr. John Korangy, and one other employee of KB Medical also joined the Company. KB Medical continued its existence after the acquisition at tis own original office location and the Company relocated the acquired assets to its location in Virginia. In the accompanying financial statements, the acquisition has been treated as a business combination under ASC 805. See Business Combination.

 

In April, 2019, immediately following the closing of the acquisition of the CareClix™ software and related assets, Dr. John Korangy was appointed as a member of the Board of Directors of the Company and as President and CEO of the CareClix, Inc. subsidiary. Dr. Korangy is a Board Certified vvc who has spent his entire career involved with developing and implementing telehealth systems. As a founder of CareClix he helped develop one of the most robust telehealth platforms in the world. Dr. Korangy completed his medical degree at the George Washington University where he also obtained a Masters in Public Health. He went on to complete his medical training at Georgetown University, as well as at the National Institutes of Health. Dr. Korangy has authored many papers and speaks nationally about virtual medical care and deploying telemedicine within healthcare.

 

F-5 

 

A SUMMARY OF THE COMPANY’S SIGNIFICANT ACCOUNTING POLICIES IS AS FOLLOWS:

 

BASIS FOR CONSOLIDATION

 

The financial statements of the Company, including the consolidated Balance Sheets for the periods ended June 30, 2019 and December 31, 2018 and the Statements of Operations, Statements of Shareholders’ Deficits and Statements of Cash Flows for the three and six month periods ended June 30, 2019 and 2018, were prepared on a consolidated basis with the wholly-owned subsidiaries, Clinical and Herbal Innovations, Inc. and CareClix, Inc. and all intercompany activities were eliminated in the consolidation. During the periods ended June 30, 2019 and 2018, there were no intercompany activities and the equity of the subsidiaries was eliminated in the consolidation. The financial statements included in this Report should be read in conjunction with the audited financial statements and footnotes for the fiscal year ended December 31, 2018 as reported in the Form 10-K filed by the Company for that period.

 

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 materially from those estimates.

 

RECLASSIFICATION

 

An account payable in the amount of $15,750 is due for services provided in 2017 in connection with the development

of the Company web site by Josh Flood, current President and a director of the Company. The payable was reclassified from the December 31, 2018 audited financial statements as a related party payable in the included financial statements to conform to current year presentation.

 

CASH AND CASH EQUIVALENTS

 

We consider highly liquid investments with maturity of three months or less cash equivalents. There were no cash equivalents as of June 30, 2019 and December 31, 2018.

 

INVENTORY

 

Inventory is stated at lower of cost or net realizable value (on a first in-first out basis). The inventory consists of finished goods supplements in 90 count and 120 count bottles. Inventory is also supplied to testing facilities to verify the potency and composition of the supplements. The Company continues to closely monitor its inventory balances and to assess for obsolescence. There was no obsolescence considered necessary at June 30, 2019 and 2018, respectively.

 

Inventory as of June 30, 2019 and December 31, 2018 was $38,883 and $41,770, respectively. 

 

BUSINESS COMBINATION

 

In April, 2019, the Company completed the acquisition of certain assets of KB Medical Systems, LLC, an unaffiliated Company for a total consideration of $1,900,000, of which $1,000,000 was paid in cash at closing and the balance of which will be paid in the future in shares of unregistered common stock of the Company based on the five day trailing average closing market price of the common stock on the date which is six months after closing. KB Medical Systems, LLC remained in existence after closing and will continue its separate business operations at its original offices in Washington, DC. The assets acquired did not include a majority of the assets of KB Medical as reported on its closing date balance sheet, and were acquired free of any and all liabilities of KB Medical Systems, LLC. The primary asset acquired was the CareClix™ software, the CareClix™ trademark and domain name and the patent pending on the CareClix™ software, which are all interrelated and considered by management in essence as a single asset; the remaining assets acquired were incidental to the principal purchase.

 

F-6 

Following the acquisition, which was legally structured as an asset acquisition, the acquired assets were contributed by the Company to a newly formed Virginia subsidiary corporation, CareClix, Inc., incorporated for that purpose. CareClix, Inc. has commenced new operations at the offices of the Company in Virginia with new marketing, management and finance staff and one of the two founders and only one former employee of KB Medical Systems, Inc. have been employed by CareClix, Inc.

 

Based on the terms of the acquisition, the Company evaluated the proper accounting treatment for this acquisition to determine if the acquisition should be treated for accounting purposes as an acquisition of assets, or as a business combination. under ASC 805. The Company has concluded initially that, since some, but not all, of the customers of KB Medical Systems became customers of the Company, due to the fact that they were already using the CareClix™ Software acquired by the Company, and to the accounting guidance that indicates that separate intangible assets acquired in an acquisition transaction are to be treated as separate assets and not a single asset, ASC 805 would require the transaction to be reported as a business combination. ASC 805 mandates the evaluation of the inputs and outputs of each separate asset acquired with an allocation of the total purchase price to all assets acquired, including good will or going concern value. In this evaluation, the Company has concluded that the patent pending, trademark and domain name have minimal value as separate assets apart from the software, and that any good will value is minimal apart from the software itself. Accordingly, the Company has reported the acquisition as business combination initially, subject to further review and possibly seeking advice form the SEC accounting staff. and has allocated the total purchase price among the respective fair values or replacement values of the various assets. The allocations are based on management’s best estimate of values based on replacement values, but the Company reserves the right to re-evaluate the assets and allocation over the next 12 months, as permitted in ASC 805:

 

CareClix Software   $ 1,500,000  
Computer Equipment   $ 50,000  
Furniture and equipment   $ 3,000  
Medical Equipment   $ 27,000  
Patent application and rights thereto   $ 50,000  
CareClix domain name (CareClix.com)   $ 100,000  
CareClix trademark and trade name   $ 120,000  
Goodwill   $ 50,000  
Total Assets acquired   $ 1,900,000  

 

The Company has not included audited financial statements for KB Medical Systems, LLC in this quarterly report due to the uncertainty over the proper reporting of the transaction and due to the lack of access to financial records of KB Medical Systems, LLC, which continued after closing as an independent, unrelated entity.

 

PROPERTY AND EQUIPMENT

 

Property and equipment are stated at cost and depreciated over appropriate estimated useful lives. In 2016, the Company purchased a website for $15,750. The website is being amortized over a 60-month expected useful life. In addition, certain tangible and intangible assets were acquired by the Company on April 12, 2019 and contributed to CareClix, Inc., as noted above in Business Combination, and are all being amortized or depreciated over their remaining useful lives.

 

Depreciation and amortization for the six-month periods ended June 30, 2019 and 2018 were $46,053 and $1,575, respectively.

 

LEASE ACCOUNTING

 

The Company currently subleases space in a commercial property leased by an affiliate of the principal shareholder of the Company and the Company Chairman. The occupancy is of approximately 51 percent of the total leasehold space, and the Company sublease payment is 51 percent of the total lease due under the main lease. The sublease had been on a month- to-month basis with no written lease agreement while the Company determines its long term office needs in the light of planned acquisitions and expansion; however, the Company has entered into a one year short-term lease for the property, with no option for renewal or purchase, effective January 1, 2019 in order to clarify the lease accounting under Accounting Standards Codification 842, Leases, issued by the Financial Accounting Standards

F-7 

Board. As a month-to-month, short-term operating lease with no variable lease payments or purchase or renewal option, the Company is electing not to create a Right of Use Balance Sheet Asset for the lease, and no Lease Liability Balance Sheet entry and instead will report the short-term lease payments monthly as accrued, as lease expense. As the Company needs become clear over the fiscal year and if the Company determines that it would like to remain in the current premises thereafter or instead to lease other premises, the Company then will attempt to negotiate a longer term commercial lease at that time, and thereafter will account for any such lease in accordance with ASC 842.

 

RESEARCH AND DEVELOPMENT

 

All research and development costs are expensed as incurred and classified in selling, general and administrative expense. Total research and development expenses were $0 and $20 for the three-month periods ended June 30, 2019 and 2018, respectively.

   

ACCRUED EXPENSES

 

The Company has retained the services of medical doctors provided through CareClix Network, LLC, an unrelated entity, as part of its telemedicine services. The Company pays CareClix Network LLC on a monthly basis for the services provided during each month. The Company is billed for these services on the 15th day of the month following the month in which the services are provided, and the cost of the services is recorded as a cost of sales. For the month of June 2019, the Company was billed a total of $88,790 for these services by CareClix Network, LLC in, the Company recorded the total amount as a cost of sales for June 2019 and recorded an accrued expense of $88,790.

 

FAIR VALUE OF FINANCIAL INSTRUMENTS

 

FASB ASC 820 “FAIR VALUE MEASUREMENTS AND DISCLOSURES,” defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosure about fair value measurements. FASB ASC 820 establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value as follows.

 

Level 1. Observable inputs such as quoted prices in active markets;

 

Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly, and

 

Level 3. Unobservable inputs in which there is little or no market data which requires the reporting entity to develop its own assumptions.

 

Except as noted below under Convertible Notes, the Company does not have any assets or liabilities measured at fair market value on a recurring basis at June 30, 2019 and December 31, 2018. The Company did not have any fair value adjustments for assets or liabilities measured at fair market value on a nonrecurring basis during the three-month periods ended June 30, 2019 and 2018.

 

CONVERTIBLE NOTES

 

The Company commenced a private offering of convertible debt in the total principal amount of up to $3,000,000 in April 2019. The Company closed on a total of $1,680,000 in convertible notes, and the offering has been closed. As issued, the convertible notes bear interest at 6 percent per annum and may be converted at the election of the holder into common stock of the Company at a conversion price per share equal to 50 percent of the closing price of the stock at the time of a conversion election. No conversions are permitted during the first 6 months after issue. The notes mature on October 31, 2019.

 

Due to the conversion feature of the convertible notes, the Company evaluated the proper accounting and reporting treatment for the favorable conversion feature of the notes. After review of the accounting guidance, the Company concluded that the notes should be reflected as Share Settled Debt at fair value

 

Each of the convertible notes (the “Notes”) settles by providing the holder with a variable number of the Company’s shares with an aggregate fair value determined by reference to the debt principal outstanding. Because the value that

F-8 

the holder receives at settlement does not vary with the value of the Company’s equity shares, the settlement provision is not considered a conversion option for financial accounting purposes. Rather, these Notes are recognized as share-settled debt at fair value. To illustrate the fact that the debt is settled with a variable number of shares for a fixed dollar amount: If the Company’s stock price is $2.00 at conversion date, the holder will convert at $1.00 (50% of market) per share and receive 1,680,000 shares, valued at $3,360,000. If the Company stock price is $5.00 at conversion date, the holder will convert at $2.50 (50% of market) per share and receive 672,000 shares, valued at the same $3,360,000.

 

The Convertible Notes total $1,680,000, and settle at a premium of $1,680,000 in common stock. The Company therefore recorded a Premium Liability of $1,680,000 in addition to the $1,680,000 in principal debt amount, with the Premium Liability reported as Other Interest Expense for the three months ended June 30, 2019.

 

REVENUE RECOGNITION

 

We recognize revenue from product sales or services rendered under ASC 606, which directs that revenue should be recognized when the promised goods or services are transferred to the customer. The amount of revenue recognized should equal the total consideration expected to be received in return for the goods or services. ASC 606 creates a five-step approach that should be applied when determining the amount and timing of revenue recognition.

 

· Step 1: Identify the contract with a customer
· Step 2: Identify the performance obligations in the contract
· Step 3: Determine the transaction price
· Step 4: Allocate the transaction price to the performance obligations in the contract
· Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation

 

The Company and its subsidiaries currently maintain three separate lines of revenue; revenue from sales of product by Clinical and Herbal Innovations; revenues from use of the recently acquired CareClix software by third parties (Software as a Service or SaaS); and revenues from patient consultations through the CareClix telemedicine system. The revenues from these three lines of business are recognized as follows:

 

Product Sales: Clinical and Herbal Innovations sells its Panoxol™ branded products through third party outlets such as Amazon and through on-line sales through TSYS. Orders are received and payment is collected through the third-party systems and product is shipped on notice to Clinical from the third-party operators. Sales proceeds are transmitted to Clinical from the third-party marketing groups after their fees and charges are collected. Revenue is recognized by Clinical on shipment of the product to the customers. The full sales price is recognized as income and the fees and charges of the third-party selling groups are charged as a cost of sales. Product sales represent revenue from the sale of products and related shipping fees where the Company is the seller of record. Product sales and shipping revenues are recorded when the products are shipped and title passes to customers. Since all of the sales are on-line sales, collected through third parties, the Company does not invoice customers; rather, product is shipped and matched with the revenue payments received from the third parties. Product sales for the three and six months ended June 30, 2019 totaled $2,969 and $7,320.

 

SaaS: The CareClix software system is used by certain third-party customers to service their telemedicine clients under written service agreements with CareClix, Inc. Those clients generally pay a co-pay at the time of service, in most cases by credit card, and those co-pay fees are transmitted to CareClix, Inc. through STRIPE, a card processing service, as part of the third-party service agreement. That revenue is recognized as received. On a monthly basis, the balance of the client fees are billed and the invoice is charged to service revenue immediately. The identity of the client, the related performance obligations, the various transaction prices for different levels and frequency of use are all determined by the individual service agreements with each client, and the CareClix software maintains all of the details of the price, performance, frequency and billing under each contract. The co-pay fees are received after the completion of the service provided to the telemedicine client by the CareClix customer and the balance due for those services is billed monthly in arrears by CareClix. SaaS revenues for the three and six months ended June 30, 2019 totaled approximately $132,000 and $132,000.

 

Telemedicine Revenues: Other customers of CareClix use the CareClix telemedicine platform directly to service their clients or members and the CareClix software maintains the record of the number of consultations and other work performed for the customer’s clients, using the CareClix contracted medical doctors, and CareClix bills the customer

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monthly for all services provided during the month, in accordance with the written agreement between CareClix and the customer. That revenue is recognized as income at the time it is invoiced since it is for services already rendered during the month of billing. Telemedicine revenues for the three and six months ended June 30, 2019 totaled approximately $308,000 and $308,000.

Approximately 40 percent of the Company revenues for the three and six months ended June 30, 2019 were derived from one customer.

 

Since the CareClix, Inc. telemedicine operation commenced in mid-April, 2019, the accounts receivable of the subsidiary are less than 75 days old and there do not appear to be any uncollectible accounts as of June 30, 2019, or to the date of this report. Accordingly, no allowance for bad debts has been established and will not be established until the subsidiary has more experience with its receivables collections.

 

ADVERTISING

 

The Company follows the policy of charging the costs of advertising to expense as incurred. Advertising expense for the three-month periods ended June 30, 2019 and 2018 was $0 and $20, respectively.

 

INCOME TAXES

 

The Company accounts for income taxes under FASB ASC 740 “INCOME TAXES.” Under the asset and liability method of FASB ASC 740, deferred tax asset and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under FASB ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the enactment occurs. A valuation allowance is provided for certain deferred tax asset if it is more likely than not that the Company will not realize tax assets through future operations.

 

GOING CONCERN

 

The Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which contemplates the Company’s continuation as a going concern. The Company incurred operating losses of $402,659 during the year ended December 31, 2018 and had an accumulated deficit of $1,772,492 as of December 31, 2018. The Company incurred additional operating losses of $2,066,910 in the six months ended June 30, 2019.

  

Management intends to raise additional operating funds through equity and/or debt offerings. However, there can be no assurance management will be successful in its endeavors. There are no assurances that the Company will be able to either (1) achieve a level of revenues adequate to generate sufficient cash flow from operations; or (2) obtain additional financing through either private placement, public offerings and/or bank financing necessary to support its working capital requirements. To the extent that funds generated from operations and any private placements, public offerings and/or bank financing are insufficient, the Company will have to raise additional working capital. No assurance can be given that additional financing will be available, or if available, will be on terms acceptable to the Company. If adequate working capital is not available to the Company, it may be required to curtail or cease its operations.

 

Although the Company successfully raised a total of $1,680,000 in funds from a private offering of convertible debt in April 2019 (See, Convertible Notes), a total of $1,000,000 of that funding was used for the cash payment portion of the consideration for the acquisition of the CareClix software and related assets from KB Medial Systems, LLC and additional funds will be required for operations and expansion of the business of the Company.

 

Due to uncertainties related to these matters, there exists a substantial doubt about the ability of the Company to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments related to the recoverability or classification of asset-carrying amounts or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern.

 

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RECENT ACCOUNTING PRONOUNCEMENTS

 

The Company evaluates new pronouncements as issued and evaluates the effect of adoption on the Company at the time. The Company has determined that recently adopted accounting pronouncements will not have a material impact on the financial statements.

  

Note 2.        Stockholders’ Equity

 

COMMON STOCK

 

The authorized common stock of the Company consists of 300,000,000 shares with par value of $0.001. On October 20, 2017, the Company acquired Clinical & Herbal Innovations, Inc. (CHII) a Georgia corporation, in a share exchange. The Company authorized and issued 8,751,000 shares of its $0.001 par value common stock in exchange for 8,751,000 shares of CHII stock. The 8,751,000 shares acquired represented 100% of the shares of CHII. After the transaction, the Company had 116,410,890 shares issued and outstanding.

 

In early 2019, the Company filed an action in the United States District Court for the District of Maryland against the entity shareholders of record of the Company, alleging that a total of 12,606,500 common shares held in their collective names had been issued improperly and illegally. On May 20, 2019, a default judgment was entered in favor of the Company. On June 21, 2019, the Court entered judgment in favor of the Company cancelling the 12,606,500 common shares as illegally issued and declaring them void. Accordingly, the outstanding number of common shares has been adjusted retroactively by the Company and its transfer agent to reflect that 103,804,390 common shares are, and have been, issued and outstanding

 

As of June 30, 2019 and December 31, 2018, the Company had 103,804,390 common shares issued and outstanding. As part of the consideration for the acquisition of certain assets of KB Medical Systems, LLC, the Company will issue common stock valued at a total of $900,000 based on the closing market price for the common stock six months after closing of the transaction.

 

The Company has authorized 50,000,000 shares of $0.001 par value preferred stock. As of June 30, 2019 and December 31, 2018 and to the date of this report, no preferred shares have been issued or are outstanding.

  

NET LOSS PER COMMON SHARE

 

Net loss per share is calculated in accordance with FASB ASC 260, “EARNINGS PER SHARE.” The weighted-average number of common shares outstanding during each period is used to compute basic loss per share. Diluted loss per share is computed using the weighted average number of shares and dilutive potential common shares outstanding. Dilutive potential common shares are additional common shares assumed to be exercised.

 

Basic net loss per common share is based on the weighted average number of shares of common stock outstanding of 103,804,390 and 103,804,390 during 2018 and at June 30, 2019, respectively. As of June 30, 2019, and since inception, the Company had no dilutive potential common shares; however, in April and May, 2019, the Company issued convertible promissory notes in the total principal amount of $1,680,000, which are convertible after six months into common stock at a discounted price of 50% of the average market price at the time of conversion. (See Convertible Notes).

 

Note 3.        Income Taxes

 

On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (Tax Reform Act). The Tax Reform Act alters U.S. corporate income taxation in a number of significant ways including, lowering the corporate income tax rate from 35% to 21%, implementing a quasi-territorial tax regime by providing a 100% Dividends Received Deduction (“DRD”) of foreign dividends, imposing a one-time transition tax on deemed repatriated post-1986 undistributed earnings of foreign subsidiaries and revising or eliminating certain deductions.

 

In accordance with FASB ASC 740, “INCOME TAXES,” the deferred tax liabilities and valuation allowance has been adjusted for the effect of the change in tax rates.

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We did not provide any current or deferred U.S. federal income tax provision or benefit for any of the periods presented because we have experienced operating losses since inception. When it is more likely than not a tax asset cannot be realized through future income the Company must allow for future tax benefits. We provided a full valuation allowance on the net deferred tax asset, consisting of net operating loss carryforwards, because management has determined that it is more than likely than not we will not earn income sufficient to realize deferred tax assets during the carryforward period.

 

The Company has not taken a tax position that, if challenged, would have a material effect on the financial statements for the fiscal years ended December 31, 2018 and 2017, or during the prior three years applicable under FASB ASC 740. We did not recognize any adjustment to the liability for uncertain tax position and therefore did not record any adjustment to the beginning balance of accumulated deficit on the balance sheet.

 

The components of the Company’s deferred tax asset as of June 30, 2019 and December 31, 2018 are as follows:

 

    June 30,   December 31,
    2019   2018
Net operating loss carryforward   $ 826,524     $ 372,223  
Valuation allowance     (826,524 )     (372,223 )
Net deferred tax asset   $ 0     $ 0  

 

A reconciliation of income taxes computed at the 21% statutory rate to the income tax recorded is as follows:

 

    June 30,   December 31,
    2019   2018
Tax at statutory rate (21%)   $ 434,301     $ 84,558  
Valuation allowance     (434,301 )     (84,558 )
Net deferred tax asset   $ 0     $ 0  

 

The Company did not pay any income taxes during the periods ended December 31, 2018 and 2017 and incurred additional losses in the quarter ended June 30, 2019.

 

The net federal operating loss carry forward of $1,772,492 at December 31, 2018 will expire between 2032 and 2038. This carry forward may be limited or eliminated as a result of the acquisition of Clinical and Herbal Innovations, Inc. by the Company in October 2017 under IRC Section 381.

 

Note 4.        Related party Transactions 

 

Charles Scott, Chief Executive Officer and majority shareholder of the Company, has advanced funds to the Company and has accrued rent and management fees for office and storage space and services provided to the Company through Eagles United Financial, an affiliate of Mr. Scott. There is no note and the amounts are unsecured, and repayable on demand. Effective January 1, 2019, the Company entered into a 12-month, non-renewable month-to-month sublease for the commercial office space and storage space with Eagle United Financial. There is no option to renew the lease term and no option to purchase the leased property. The Company has elected to treat the lease as a short-term lease under ASC 842. The Company sublease payment is equal to approximately 51 percent of the total main lease payment, representing the portion of the total leased space used by the Company.

 

Mr. Scott also owns the patent utilized by CHII. The patent is licensed to CHII for the production and sale of the proprietary supplement. No patent fees or royalties from use of the patent have been paid or accrued as of June 30, 2019 and no fees are due. The terms of the patent agreement are currently under review and are expected to be modified during the current fiscal year.

 

Rent and storage fees to Eagles United Financial, a related party by common ownership, for the three-month periods ended June 30, 2019 and 2018 was $25,500 and $25,500, respectively, and for the six months ended June 30, 2019

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and 2018 was $51,000 and $51,000, respectively. The balance due to Eagles United Financial was $459,000 and $408,000 as of June 30, 2019 and December 31, 2018, respectively.

 

The Company has advanced funds from an Equity Line of Credit (LOC) secured by the home of Mr. Scott. The LOC allows for draws up to $200,000 through August 2024 with a repayment period through August 2044. Interest is charged at an annual percentage rate of 6.84% as of June 30, 2019. Funds advanced to the Company through the LOC were $200,262 and $200,406 as of June 30, 2019 and December 31, 2018, respectively.

 

Additional funds advanced by Mr. Scott were $172,976 and $123,156 as of June 30, 2019 and December 31, 2018, respectively.

 

Officer compensation to Josh Flood, President, for the three months ended June 30, 2019 and 2018 was $30,000 and $30,000, respectively and for the six months ended June 30, 2019 and 2018 was $60,000 and $60,000, respectively. There is no note and the amounts are unsecured, bear no interest, and are payable on demand. The balance due to Mr. Flood was $540,000 and $480,000 as of June 30, 2019 and December 31, 2018, respectively.

 

Related party compensation to Avril James, an associate of Mr. Scott, for the three ended June 30, 2019 and 2018 was $24,000 and $24,000, respectively and for the six months ended June 30, 2019 and 2018 was $48,000 and $48,000, respectively. There is no note and the amounts are unsecured, bear no interest, and are payable on demand. The balance due to Ms. James was $432,000 and $384,000 as of June 30, 2019 and December 31,2018, respectively.

 

An account payable in the amount of $15,750 is due for services provided in 2017 in connection with the development of the Company web site by Josh Flood, current President and a director of the Company. The services were provided, and the invoice received, prior to Mr. Flood’s affiliation with the Company. The payable has been reclassified as a related party payable in the included financial statements

 

As of June 30, 2019 and December 31, 2018, the Company owed officers and affiliates $1,819,445 and $1,596,062, respectively.

 

Product sales at market price are made from time to time to affiliates, family members of affiliates and employees of a related sales and marketing Company in small amounts. No discounts or other favorable pricing is provided for these sales and all sales are placed through regular market sales channels.

 

Note 5.        Subsequent Events 

  

In July 2019, Glendale Securities filed a Form 15c-211 with the Financial Industry Regulatory Association (FINRA) seeking to have the common stock of the Company admitted for trading on the OTC Markets under the existing symbol SOLI. In addition, in July 2019 a separate broker-dealer filed application with OTC Markets to submit an unsolicited bid on the OTC Link Markets for the Company’s common stock, which application was granted.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

Forward-Looking Statements and Associated Risks.

 

This form 10-Q contains certain statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. For this purpose, any statements contained in this Form 10-Q that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, words such as “may”, “will”, “expect”, “believe”, “anticipate”, “estimate, or “continue” or comparable terminology are intended to identify forward-looking statements. These statements by their nature involve substantial risks and uncertainties, and actual results may differ materially depending on a variety of factors, many of which are not within our control. These factors include but are not limited to economic conditions generally and in the industries in which we may participate; competition within our chosen industry, including competition from much larger competitors; technological advances and failure to successfully develop business relationships.

 

Based on our financial history since inception, our auditor has expressed substantial doubt as to our ability to continue as a going concern. As reflected in the accompanying financial statements, as of June 30, 2019, we had an accumulated deficit totaling $3,839,402. This raises substantial doubts about our ability to continue as a going concern.

 

PLAN OF OPERATIONS

 

We have been in continuous operation since 2011 through the production of our wholly-owned subsidiary’s patented nutritional supplement, “Panoxol”.

 

We typically update our budget on a quarterly basis to adjust for the current market conditions. Any or all of the budget categories may change. None of the line items are to be considered fixed or unchangeable. We may need substantial additional capital to support our operational plans.

 

We expect that working capital requirements will continue to be funded through a combination of our existing funds, shareholder loans and further issuances of securities. Our working capital requirements are expected to increase in line with the growth of our business.

 

In connection with our business plan, management anticipates additional increases in operating expenses and capital expenditures relating to: (i) increasing key staff, acquisition of inventory, and rebranding product; (ii) increased sales and staff division; and (iii) marketing expenses. We intend to finance these expenses with further issuances of securities, and shareholder loans. Thereafter, we expect we will need to raise additional capital and generate revenues to meet long-term operating requirements. Additional issuances of equity or convertible debt securities will result in dilution to our current shareholders. Further, such securities might have rights, preferences or privileges senior to our common stock. Additional financing may not be available upon acceptable terms, or at all. If adequate funds are not available or are not available on acceptable terms, we may not be able to take advantage of prospective new business endeavors or opportunities, which could significantly and materially restrict our business operations.

 

In March, 2019, the Company commenced a private offering of convertible debt in the total principal amount of up to $3,000,000 in April 2019. As of the date of this Report, the Company has closed on a total of $1,680,000 in convertible debts, and $1,000,000 of that total was used as the cash consideration for the acquisition of assets from KB Medical Systems, LLC As issued, the convertible notes bear interest at 6 percent per annum and may be converted at the election of the holder into common stock of the Company at a conversion price per share equal to 50 percent of the closing price of the stock at the time of a conversion election. No conversions are permitted during the first 6 months after issue. The notes have a maturity date of five years from the date of issue. The remaining proceeds of the private offering will be used for working capital to grow the existing business. We are also investigating other possible acquisitions in the healthcare and technology areas.

 

In April, 2019 the Company purchased certain software and related assets from KB Medical Systems, LLC primarily its industry proven, full-spectrum, robust CareClix™ software. The Company estimated the timeframe to develop software would hamper its ability to participate in the projected growth of telemedicine. The Company also estimated the cost of development would be much greater than the $1,900,000 price paid in the asset acquisition. It was very important to the Company to have software that was industry proven in a timely manner in order to reach large clients

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as they respond to the Medicare expansion coming in 2020. The Company was pleased to purchase the software along with other incidental assets from KB Medical Systems, LLC. The Company formed a new corporation, “CareClix, Inc”. The Company has employed the co-founder of KB Medical Systems, LLC, Dr. John Korangy. Dr. Korangy will take the role of CEO of the newly formed subsidiary. Mr Charles Scott, and Josh Flood are both using their unique skills to rapidly expand the capacity and marketing of the Company. Mr Charles Scott has taken the position of Chief Sales Officer. Using his sales experience and expertise, he has began to develop and expand a new reseller team. The Company plans to expand its areas of focus including, but not limited to US Federal Government, Direct-to-consumer, and Home healthcare. The Company has registered with the US Federal Government and began responding to RFPs. We expect to expand sales in this sector as we increase our working capital. The Company plans to launch a direct-to-consumer offering before year end. The Company is also actively involved in completing its Service Organization Control 2 non-financial reporting audit. Our current business plan will require additional working capital to expand our business operations and staff, which we anticipate will require an additional funding event by the end of the 2019 fiscal year. We also plan on continuing our merger and acquisition effort.

 

The Bipartisan Budget Act of 2018, signed into law by the President on February 9, 2018, introduced “the most significant changes ever made to Medicare law to use telehealth,” according to Senator Brian Schatz. "Key elements of the bill include: (1) expanding stroke telemedicine coverage; (2) improving access to telehealth-enabled home dialysis oversight; (3) enabling patients to be provided with free at-home telehealth dialysis technology without the provider violating the Civil Monetary Penalties Law; (4) allowing Medicare Advantage (MA) plans to include delivery of telehealth services in a plan’s basic benefits; and (5) giving Accountable Care Organizations (ACOs) the ability to expand the use of telehealth services." https://www.foley.com/en/insights/publications/2018/02/top-5-ways-telehealth-will-change-under-the-new-fe. We anticipate this change in the reimbursement policy will have a dramatic effect on the telemedicine industry. The Company is aggressively pursuing readiness for this incredible opportunity and the acquisition of the CareClix™ software was an initial step in that process.

 

In April 2019, CMS announced the 2020 Rate Announcement and Final Call Letter that gives Medicare Advantage plans flexibility to offer chronically ill patients a broader range of supplemental telehealth benefits. These changes represent an incredible new opportunity for the Company to increase its business as the industry is projected to grow. “A recent report is projecting that the global telemedicine market will expand from its current $38.3 billion valuation to $130.5 billion by 2025.” https://www.mobihealthnews.com/content/report-global-telemedicine-market-will-hit-130b-2025

 

We cannot give any assurances that we will be able to raise additional funds for our budget as proposed. Further, we believe we need to raise additional funds to support our proposed growth budget. We cannot make any assurances that we will be able to raise such funds or whether we would be able to raise such funds with terms that are favorable to us.

 

Our plan of operations is as follows:

 

MILESTONES

 

3rd Quarter 2019   Recruit and train reseller team. Expand online branding and advertising. Hire key staff. Improve sales and support infrastructure for CareClix, Inc.
     
4th Quarter 2019   Launch Direct-to-Customer offering. Increasing Billing Capacity.  CareClix sales activity within target verticals. Replenish CHII line of credit.
     
1st  Quarter 2020   Expand target areas for CareClix. Relaunch “Panoxol” brand. Aggressively expand marketing to Medicare partnered clients.
     
2nd Quarter 2020   Increase staff,  Increase advertising and product sales,

  

We will need substantial additional capital to support our proposed growth strategy and to continue operations. We have no committed source for any funds as of the date of this filing. No representation is made that any funds will be

3 

available when needed. In the event funds cannot be raised when needed, we may not be able to carry out our business plan, may never achieve sales growth, and could fail in business as a result of these uncertainties.

  

The independent registered public accounting firm’s report on our financial statements as of December 31, 2018, includes a “going concern” explanatory paragraph that describes substantial doubt about our ability to continue as a going concern.

 

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2019 COMPARED TO THE THREE MONTHS ENDED JUNE 30, 2018

 

Revenue

 

We recognized net revenue of $438,842 and $6,599 during the three-month periods ended June 30, 2019 and 2018, respectively. Revenues were from the sales of our nutrition supplement in the three months ended June 30, 2018 and from both supplements sales and telemedicine for the three months ended June 30, 2019. The increase in revenue is attributable to the acquisition of the CareClix™ software and start-up of the new business of CareClix, Inc. in April 2019.

 

Cost of Revenue

 

We recognized cost of revenues of $286,012 and $2,466 during the three-month periods ended June 30, 2019 and 2018, respectively. Cost of revenue consisted of product costs and fulfillment fees for sales through the Internet for nutrition supplement sales and fees to an unrelated medical professional corporation for providing medical doctors for telemedicine consulting services.

 

Gross Profit / (Loss)

 

Gross profit was $152,830 and $4,133 for the three-month periods ended June 30, 2019 and 2018, respectively.

 

General and Administrative Expenses

 

During the three-month period ended June 30, 2019, we incurred $126,790 in general and administrative expenses compared to $1,695 in the three-month period ended June 30, 2018, an increase of $125,095. During the three-month period ended June 30, 2019, we incurred $30,000 in officer compensation, $25,500 in rent and management fees to a related party, $24,000 for services provided by a related party, $26,250 in professional fees, $7,928 in other general and administrative expenses and $46,053 in depreciation and amortization. We also incurred payroll expenses of $107,155, and consulting expenses for marketing, compliance and financial services of $74,845. The increase in expenses was attributable to the salaries and consulting fees paid by the CareClix, Inc. subsidiary after the acquisition of the CareClix™ software and start-up of the new business of CareClix, Inc. in April 2019.

 

By comparison, during the three-month period ended June 30, 2018, we incurred $30,000 in officer compensation, $25,500 in rent and management fees to a related party, $24,000 for services provided by a related party, $31,846 in professional fees, $1,078 in other general and administrative expenses, and $788 in amortization. The increase in professional fees was due to the Company compliance with filing requirements of the SEC, filing of a Form 10 registration statement and undertaking audits of the Company financial statements in the latter half of 2018 and during the three-month period ended March 31, 2019.

 

Operating Loss

 

During the three-month period ended June 30, 2019, we incurred an operating loss of $237,700 compared to an operating loss of $84,907 in the three-month period ended June 30, 2018, an increase of $152,793, due to the factors discussed above.

  

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Interest and Other Income / (Expenses) Net

 

Interest expense was $24,847 and $2,981 for the three-month periods ended June 30, 2019 and 2018, respectively. The increase resulted primarily from the issuance of $1,680,000 in convertible notes in April 2019, with interest accruing at 6 percent annually.

 

Net Loss

 

During the three-month period ended June 30, 2019, we incurred a net loss of $1,940,207 compared to a net loss of $89,735 in the three-month period ended June 30, 2018, an increase of $1,851,659, due to the factors discussed above and to the accounting charge of $1,680,000 to interest as a result of the premium on the issuance of convertible notes..

 

Provision for Income Tax

 

No provision for income taxes was recorded in either of the three-month periods ended June 30, 2019 or 2018, as we have incurred taxable losses in both periods.

 

RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2019 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2018

 

Revenue

 

We recognized net revenue of $443,193 and $11,517 during the six-month periods ended June 30, 2019 and 2018, respectively. Revenues were from the sales of our nutrition supplement in the six months ended June 30, 2018 and from both supplements sales and telemedicine for the six months ended June 30, 2019. The increase in revenue is attributable to the acquisition of the CareClix™ software and start-up of the new business of CareClix, Inc. in April 2019.

 

Cost of Revenue

 

We recognized cost of revenues of $288,563 and $4,450 during the six-month periods ended June 30, 2019 and 2018, respectively. Cost of revenue consisted of product costs and fulfillment fees for sales through the Internet for nutrition supplement sales and fees to an unrelated medical professional corporation for providing medical doctors for telemedicine consulting services.

 

Gross Profit / (Loss)

 

Gross profit was $154,630 and $7,067 for the six month periods ended June 30, 2019 and 2018, respectively.

 

General and Administrative Expenses

 

During the six month period ended June 30, 2019, we incurred $135,496 in general and administrative expenses compared to $3,561 in the six month period ended June 30, 2018, an increase of $131,935. During the six month period ended June 30, 2019, we incurred $60,000 in officer compensation, $51,000 in rent and management fees to a related party, $48,000 for services provided by a related party, $47,150 in professional fees, and $48,220 in depreciation and amortization expenses. We also incurred payroll expenses of $107,155, and consulting expenses for marketing, compliance and financial services of $114,842. The increase in expenses was attributable to the salaries and consulting fees paid by the CareClix, Inc. subsidiary after the acquisition of the CareClix™ software and start-up of the new business of CareClix, Inc. in April 2019.

 

By comparison, during the six month period ended June 30, 2018, we incurred $60,000 in officer compensation, $51,000 in rent and management fees to a related party, $48,000 for services provided by a related party, $69,749 in professional fees, $1,078 in other general and administrative expenses, and $1,5758 in amortization. The increase in professional fees was due to the Company compliance with filing requirements of the SEC, filing of a Form 10 registration statement and undertaking audits of the Company financial statements in the latter half of 2018 and during the three month period ended March 31, 2019.

5 

 

Operating Loss

 

During the six month period ended June 30, 2019, we incurred an operating loss of $361,013 compared to an operating loss of $177,243 in the six month period ended June 30, 2018, an increase of $183,770, due to the factors discussed above.

  

Interest and Other Income / (Expenses) Net

 

Interest expense was $28,237 and $5,766 for the six month periods ended June 30, 2019 and 2018, respectively. The increase resulted primarily from the issuance of $1,680,000 in convertible notes in April 2019, with interest accruing at 6 percent annually.

 

Net Loss

 

During the six month period ended June 30, 2019, we incurred a net loss of $2,066,910 compared to a net loss of $183,009 in the six month period ended June 30, 2018, an increase of $1,883,901 due to the factors discussed above and to the accounting charge of $1,680,000 to interest as a result of the premium on the issuance of convertible notes.

 

Provision for Income Tax

 

No provision for income taxes was recorded in either of the three-month periods ended June 30, 2019 or 2018, as we have incurred taxable losses in both periods.

 

LIQUIDITY AND CAPITAL RESOURCES

 

We had cash on hand of $385,211 and $5,939 as of June 30, 2019 and 2018, respectively. Other assets consisted of inventory, furniture, fixtures and equipment, the CareClix™ software, patent pending and CareClix™ domain and trademarks, and an intangible asset (website) that is being amortized.

 

Liabilities consisted of accounts payable of $9,490, accrued expenses of $88,790 for contracted medical services incurred in June 2019, accrued expenses to related parties of $1,447,250, and loans from an officer of the Company of $372,195. Most of the accrued expenses are officers’ and related party salaries and accrued rent and management fees for our offices.

 

We have financed operations partially through loans from an officer of the Company. We also raised $1,680,000 in funds from sale of convertible notes in April and May 2019. We are currently seeking to expand the sales of our supplement and possibly other products and to expand our recently initiated telemedicine business. Consequently, we are now dependent on raising additional equity and/or debt to meet our ongoing operating expenses. There is no assurance that we will be able to raise the necessary equity and/or debt that we will need to fund our ongoing operating expenses.

 

It is our current intention to seek to raise debt and/or equity financing to meet ongoing operating expenses and attempt to merge with another entity with experienced management and opportunities for growth in return for shares of our common stock to create value for our shareholders. There is no assurance that this series of events will be satisfactorily completed.

 

Future losses are likely to occur until we are able to expand operations or merge with another entity with experienced management and opportunities for growth in return for shares of our common stock to create value for our shareholders, as current income is not able to meet our operating expenses. As a result of these, among other factors, we received from our registered independent public accountants in their report for the financial statements for the three-month periods ended June 30, 2019 and 2018, an explanatory paragraph stating that there is substantial doubt about our ability to continue as a going concern.

 

 

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Use of Cash:

 

    6 Months Ended
June 30, 2019
  6 Months Ended
June 30, 2018
         
Net Cash Used in Operating Activities   $ (345,985 )   $ (19,488 )
Net Cash Provided (Used In) by Investing Activities     (1,000,000 )     —    
Net Cash Provided by Financing Activities     1,729,820       18,089  
Net Movement in Cash and Cash Equivalents   $ 385,835     $ (1,399 )

 

Operating Activities

 

During the six month period ended June 30, 2019, we incurred a net loss of $2,066,910. This was offset by an increase in related party accruals of $174,750, depreciation and amortization of $46,053, decrease in inventory of $2,936, increase in accounts receivable of $280,151, decrease in accounts payable of $12,980, increase of accrued expenses of $88,790, increase in accrued interest of $21,527, and depreciation/amortization of $46,053. By comparison, during the six-month period ended June 30, 2018, we incurred a net loss of $183,009 offset by an increase in related party accruals of $159,000, decrease in inventory of $2,946, and amortization of $1,575.

  

Investing Activities

 

During the six month periods ended June 30, 2019, we incurred $1,000,000 in investment costs relating to the acquisition of the CareClix™ software assets. We neither generated nor used funds in investing activities during the six month period ended June 30, 2018.

  

Financing Activities

 

During the six month period ended June 30, 2019, we received $1,680,000 in proceeds of the sale of convertible promissory notes, and received $49,820 in loan proceeds from a related party. By comparison during the six month period ended June 30, 2018, we received $18,089 in loans and advances from our controlling shareholder.

 

Commitments and Contingent Liabilities

 

We issued a total of $1,680,000 in convertible promissory notes due October 31, 2019. The holder of each note has the election after six months to convert the principal and accrued interest into common stock at a discount of 50 percent of the market price at the date of that election. A conversion premium of $1,680,000 has been recorded for the conversion. In addition, the Company is required to issue a total of $900,000 in value of common stock as the balance of the consideration due for the acquisition of the CareClix™ software assets. The shares to be issued will be valued at the five-day trailing market close price at the date of the issuance. We have no other commitments or contingencies. Our office space and management fees are with a related party and on a month-to-month basis pursuant to a one year sublease agreement.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

We are a smaller reporting Company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

 

Item 4. Controls and Procedures

 

Disclosure Controls and Procedures

 

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time period specified in the SEC’s rules and forms. Disclosure controls and procedures include,

 

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without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is accumulated and communicated to management including our principal executive officer/principal financial officer as appropriate, to allow timely decisions regarding required disclosure.

 

Management has carried out an evaluation of the effectiveness of the design and operation of our Company’s disclosure controls and procedures. Due to the lack of personnel and outside directors, management acknowledges that there are deficiencies in these controls and procedures. The Company anticipates that with further resources, the Company will expand both management and the board of directors with additional officers and independent directors in order to provide sufficient disclosure controls and procedures.

 

Changes in Internal Control Over Financial Reporting

 

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) or 15d-15(f)) during the quarter ended June 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

 

PART II - OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

None.

 

ITEM 1A. RISK FACTORS

 

FORWARD LOOKING STATEMENTS

 

THIS DOCUMENT INCLUDES FORWARD-LOOKING STATEMENTS, INCLUDING, WITHOUT LIMITATION, STATEMENTS RELATING TO SOLEI SYSTEM’S PLANS, STRATEGIES, OBJECTIVES, EXPECTATIONS, INTENTIONS AND ADEQUACY OF RESOURCES. THESE FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES, AND OTHER FACTORS THAT MAY CAUSE OUR COMPANY’S ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY THE FORWARD-LOOKING STATEMENTS. THESE FACTORS INCLUDE, AMONG OTHERS, THE FOLLOWING: OUR ABILITY OF TO IMPLEMENT OUR BUSINESS STRATEGY; ABILITY TO OBTAIN ADDITIONAL FINANCING; SOLEI SYSTEMS’S LIMITED OPERATING HISTORY; UNKNOWN LIABILITIES ASSOCIATED WITH FUTURE ACQUISITIONS; ABILITY TO MANAGE GROWTH; SIGNIFICANT COMPETITION; ABILITY TO ATTRACT AND RETAIN TALENTED EMPLOYEES; AND FUTURE GOVERNMENT REGULATIONS; AND OTHER FACTORS DESCRIBED IN THIS FILING OR IN OTHER OF SOLEI SYSTEMS’S FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION. SOLEI SYSTEMS, INC. IS UNDER NO OBLIGATION TO PUBLICLY UPDATE OR REVISE ANY FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE. 

 

RISK FACTORS RELATING TO OUR COMPANY

LIMITED OPERATING HISTORY

 

There can be no assurance that our management will be successful in its attempts to implement our business plan, build the corporate infrastructure required to support operations at the levels called for by our business plan or that we will generate sufficient revenues to meet expenses or to achieve or maintain profitability. We will encounter risks and difficulties that companies at a similar stage of development frequently experience, including the potential failure to:

 

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  Obtain sufficient working capital to support our establishment and expansion;

 

  Find and realize the asset management opportunities required to generate revenue;

 

  Maintain adequate control of our expenses allowing us to realize anticipated income growth; and

 

  Anticipate and adapt to changing conditions in the nutritional supplement industry resulting from changes in government regulations, mergers and acquisitions involving our competitors, technological developments and other significant competitive and market dynamics.

 

OUR MANAGEMENT TEAM HAS MINIMAL EXPERIENCE OPERATING A PUBLIC COMPANY. ANY FAILURE TO COMPLY OR ADEQUATELY COMPLY WITH FEDERAL AND STATE SECURITIES LAWS, RULES OR REGULATIONS COULD SUBJECT US TO FINES OR REGULATORY ACTIONS, WHICH MAY MATERIALLY ADVERSELY AFFECT OUR BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION.

 

Members of our management team have minimal experience managing and operating a public Company and may rely in many instances on the professional experience and advice of third parties including attorneys and accountants. Failure to comply or adequately comply with any federal or state securities laws, rules, or regulations may result in fines or regulatory actions, which may materially adversely affect our business, results of operation, or financial condition and could result in delays in achieving either the effectiveness of a registration statement or the development of an active and liquid trading market for our common stock.

 

OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM HAS EXPRESSED SUBSTANTIAL DOUBT AS TO OUR ABILITY TO CONTINUE AS A GOING CONCERN.

 

The audited financial statements included in this filing have been prepared assuming that we will continue as a going concern and do not include any adjustments that might result if we cease to continue as a going concern. We have incurred significant losses since our inception. We have funded these losses primarily through open account borrowing from our majority shareholder and Chairman.

 

Based on our financial history since inception, in their report on the financial statements for the period ended December 31, 2018 and 2017, our independent registered public accounting firm has expressed substantial doubt as to our ability to continue as a going concern. We are a development stage Company that has not yet generated significant revenue. There is no assurance that any significant revenue will be realized in the future.

 

There can be no assurance that we will have adequate capital resources to fund planned operations or that any additional funds will be available to us when needed or at all, or, if available, will be available on favorable terms or in amounts required by us. If we are unable to obtain adequate capital resources to fund operations, we may be required to delay, scale back or eliminate some or all of our operations, which may have a material adverse effect on our business, results of operations and ability to operate as a going concern.

 

OUR SUCCESS WILL DEPEND, TO A LARGE DEGREE, ON THE EXPERTISE AND EXPERIENCE OF THE MEMBERS OF OUR MANAGEMENT TEAM.

 

Our current directors are also acting as our officers. We will be heavily dependent upon their skills, talents, and abilities, as well as several consultants to us, to implement our business plan, and may, from time to time, find that the inability of the officers, directors and consultants to devote their full-time attention to our business results in a delay in progress toward implementing our business plan. Consultants may be employed on a part-time basis under a contract to be determined.

  

Our directors and officers are, or may become, in their individual capacities, officers, directors, controlling shareholder and/or partners of other entities engaged in a variety of businesses. Thus, our officers and directors may have potential conflicts involving their time and efforts in participation with other business entities. Each officer and director of our business is engaged in business activities outside of our business, and the amount of time they devote as officers and directors to our business will be up to 40 hours per week. Mr. Scott, CEO and director, spends up to 40 hours a week

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on our Company’s business. Mr. Flood, President, spends approximately 40 hours a week on our Company’s business. Because investors will not be able to manage our business, they should critically assess all of the information concerning our officers and directors.

 

We do not know of any reason other than outside business interests that would prevent them from devoting full-time to our Company when the business may demand such full-time participation.

 

WE WILL BE DEPENDENT UPON KEY PERSONNEL FOR THE FORESEEABLE FUTURE.

 

We will be dependent on several key members of our management and operations teams for the foreseeable future. In particular, we are dependent on Charles O. Scott as our CEO and Joshua Flood as our President and Chief Financial Officer, as well as Dr. John Korangy, MD as President of our CareClix, Inc. subsidiary. The loss of the services of any executive could have a material adverse effect on our operations and prospects. At this time, we have no employment agreements with any of these individuals, though it is contemplated that the Company may enter into such agreements with certain of its key employees on terms and conditions usual and customary for its industry. We do not currently have any "key man" life insurance on any employees or officers.

 

WE WILL INCUR SIGNIFICANT COSTS TO BE A PUBLIC COMPANY AND TO ENSURE COMPLIANCE WITH U.S. CORPORATE GOVERNANCE AND ACCOUNTING REQUIREMENTS AND WE MAY NOT BE ABLE TO ABSORB SUCH COSTS.

 

We may incur significant costs associated with our public company reporting requirements, costs associated with newly applicable corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002 and other rules implemented by the Securities and Exchange Commission. We expect these costs to be approximately $125,000-$150,000 per year. We expect all of these applicable rules and regulations to significantly increase our legal and financial compliance costs and to make some activities more time consuming and costly. We also expect that these applicable rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our board of directors or as executive officers. We are currently evaluating and monitoring developments with respect to these newly applicable rules, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs. In addition, we may not be able to absorb these costs of being a public Company which will negatively affect our business operations.

 

WE ARE AN “EMERGING GROWTH COMPANY,” AND ANY DECISION ON OUR PART TO COMPLY ONLY WITH CERTAIN REDUCED DISCLOSURE REQUIREMENTS APPLICABLE TO “EMERGING GROWTH COMPANIES” COULD MAKE OUR COMMON STOCK LESS ATTRACTIVE TO INVESTORS.

 

We are an “emerging growth Company,” as defined in the JOBS Act, and, for as long as we continue to be an “emerging growth company,” we expect and fully intend to take advantage of exemptions from various reporting requirements applicable to other public companies but not to “emerging growth companies,” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We could be an “emerging growth company” for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our annual gross revenues exceed $1 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year period.

 

In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)2(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to opt in to the extended

10 

transition period for complying with the revised accounting standards. We have elected to rely on these exemptions and reduced disclosure requirements applicable to “emerging growth companies” and expect to continue to do so.

  

WE MAY NOT BE ABLE TO MEET THE FILING AND INTERNAL CONTROL REPORTING REQUIREMENTS IMPOSED BY THE SEC WHICH MAY RESULT IN A DECLINE IN THE PRICE OF OUR COMMON SHARES AND AN INABILITY TO OBTAIN FUTURE FINANCING.

 

As directed by Section 404 of the Sarbanes-Oxley Act, as amended by SEC Release No. 33-8934 on June 26, 2008, the SEC adopted rules requiring each public company to include a report of management on the company’s internal controls over financial reporting in its annual reports. In addition, the independent registered public accounting firm auditing a company’s financial statements may have to also attest to and report on management’s assessment of the effectiveness of the Company’s internal controls over financial reporting. We may be required to include a report of management on its internal control over financial reporting. The internal control report must include a statement

 

  Of management’s responsibility for establishing and maintaining adequate internal control over its financial reporting;

 

  Of management’s assessment of the effectiveness of its internal control over financial reporting as of year-end; and

 

  Of the framework used by management to evaluate the effectiveness of our internal control over financial reporting.

 

Furthermore, our independent registered public accounting firm may be required to file its attestation on whether it believes that we have maintained, in all material respects, effective internal control over financial reporting.

 

While we expect to expend significant resources in developing the necessary documentation and testing procedures required by Section 404 of the Sarbanes-Oxley Act, there is a risk that we may not be able to comply timely with all of the requirements imposed by this rule. In the event that we are unable to receive a positive attestation from our independent registered public accounting firm when that becomes required with respect to our internal controls, investors and others may lose confidence in the reliability of our financial statements and our stock price and ability to obtain equity or debt financing as needed could suffer.

  

In addition, in the event that our independent registered public accounting firm is unable to rely on our internal controls in connection with its audit of our financial statements, and in the further event that it is unable to devise alternative procedures in order to satisfy itself as to the material accuracy of our financial statements and related disclosures, it is possible that we would be unable to file our Annual Report on Form 10-K with the SEC, which could also adversely affect the market price of our common stock and our ability to secure additional financing as needed.

 

REPORTING REQUIREMENTS UNDER THE EXCHANGE ACT AND COMPLIANCE WITH THE SARBANES-OXLEY ACT OF 2002, INCLUDING ESTABLISHING AND MAINTAINING ACCEPTABLE INTERNAL CONTROLS OVER FINANCIAL REPORTING, ARE COSTLY AND MAY INCREASE SUBSTANTIALLY.

 

The rules and regulations of the SEC require a public Company to prepare and file periodic reports under the Exchange Act, which will require that the Company engage legal, accounting, auditing and other professional services. The engagement of such services is costly. Additionally, the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) requires, among other things, that we design, implement and maintain adequate internal controls and procedures over financial reporting. The costs of complying with the Sarbanes-Oxley Act and the limited technically qualified personnel we have may make it difficult for us to design, implement and maintain adequate internal controls over financial reporting. In the event that we fail to maintain an effective system of internal controls or discover material weaknesses in our internal controls, we may not be able to produce reliable financial reports or report fraud, which may harm our overall financial condition and result in loss of investor confidence and a decline in our share price.

 

As a public company, we will be subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Act of 2010 and other applicable securities rules and regulations. Despite recent reforms made

11 

possible by the JOBS Act, compliance with these rules and regulations will nonetheless increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources, particularly after we are no longer an “emerging growth Company.” The Exchange Act requires, among other things, that we file annual, quarterly, and current reports with respect to our business and operating results.

  

We are working with our legal, accounting and financial advisors to identify those areas in which changes should be made to our financial and management control systems to manage our growth and our obligations as a public Company. These areas include corporate governance, corporate control, disclosure controls and procedures and financial reporting and accounting systems. We have made, and will continue to make, changes in these and other areas. However, we anticipate that the expenses that will be required in order to adequately prepare for being a public Company could be material. We estimate that the aggregate cost of increased legal services; accounting and audit functions; personnel, such as a chief financial officer familiar with the obligations of public Company reporting; consultants to design and implement internal controls; and financial printing alone will be a few hundred thousand dollars per year and could be several hundred thousand dollars per year. In addition, if and when we retain independent directors and/or additional members of senior management, we may incur additional expenses related to director compensation and/or premiums for directors’ and officers’ liability insurance, the costs of which we cannot estimate at this time. We may also incur additional expenses associated with investor relations and similar functions, the cost of which we also cannot estimate at this time. However, these additional expenses individually, or in the aggregate, may also be material.

 

In addition, being a public company could make it more difficult or more costly for us to obtain certain types of insurance, including directors’ and officers’ liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these events could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers.

 

The increased costs associated with operating as a public company may decrease our net income or increase our net loss and may cause us to reduce costs in other areas of our business or increase the prices of our products or services to offset the effect of such increased costs. Additionally, if these requirements divert our management’s attention from other business concerns, they could have a material adverse effect on our business, financial condition and results of operations.

 

THE JOBS ACT ALLOWS US TO DELAY THE ADOPTION OF NEW OR REVISED ACCOUNTING STANDARDS THAT HAVE DIFFERENT EFFECTIVE DATES FOR PUBLIC AND PRIVATE COMPANIES.

 

Since, we have elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act, this election allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. As a result of this election, our financial statements may not be comparable to companies that comply with public Company effective dates.

 

OUR ARTICLES OF INCORPORATION PROVIDE FOR INDEMNIFICATION OF OFFICERS AND DIRECTORS AT OUR EXPENSE AND LIMIT THEIR LIABILITY WHICH MAY RESULT IN A MAJOR COST TO US AND HURT THE INTERESTS OF OUR SHAREHOLDERS BECAUSE CORPORATE RESOURCES MAY BE EXPENDED FOR THE BENEFIT OF OFFICERS AND/OR DIRECTORS.

 

Our By-Laws include provisions that eliminate the personal liability of the directors of the Company for monetary damages to the fullest extent possible under the laws of the State of Florida or other applicable law. These provisions eliminate the liability of directors to the Company and its stockholders for monetary damages arising out of any violation of a director of his fiduciary duty of due care. Under Florida law, however, such provisions do not eliminate the personal liability of a director for (i) breach of the director’s duty of loyalty, (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violation of law, (iii) payment of dividends or repurchases of stock other than from lawfully available funds, or (iv) any transaction from which the director derived an improper benefit. These provisions do not affect a director’s liabilities under the federal securities laws or the recovery of damages by third parties. The position of the SEC with regard to such indemnification and limitation provisions is that they are contrary to the intent of the federal securities laws and are not enforceable as written.

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RISK FACTORS RELATING TO OUR BUSINESS

 

WE HAVE INCURRED SIGNIFICANT LOSSES AND ANTICIPATE FUTURE LOSSES.

 

As of June 30, 2019, we had an accumulated deficit of $3,839,402.

  

As a result of this, among other factors, we received from our registered independent public accountants in their report for the financial statements for the years ended December 31, 2018 and 2017, an explanatory paragraph stating that there is substantial doubt about our ability to continue as a going concern.

 

OUR EXISTING FINANCIAL RESOURCES ARE INSUFFICIENT TO MEET OUR ONGOING OPERATING EXPENSES.

 

We have limited sources of income at this time and insufficient assets to meet our ongoing operating expenses. In the short term, unless we are able to raise additional debt and/or equity, we may be unable to meet our ongoing operating expenses.

 

BECAUSE OUR CEO AND CHAIRMAN CONTROLS OUR ACTIVITIES, THAT MAY CAUSE US TO ACT IN A MANNER THAT IS MOST BENEFICIAL TO HIM AND NOT TO OUTSIDE SHAREHOLDERS WHICH COULD CAUSE US NOT TO TAKE ACTIONS THAT OUTSIDE INVESTORS MIGHT VIEW FAVORABLY

 

Our Chief Executive Officer and Chairman also is the majority shareholder of our issued and outstanding common stock and beneficially owns approximately 55% of our issued and outstanding common stock. As a result, he effectively controls all matters requiring director and stockholder approval, including the election of directors, and the approval of significant corporate transactions, such as mergers and related party transactions. This insider also has the ability to delay or perhaps even block, by his ownership of our stock, an unsolicited tender offer. This concentration of ownership could have the effect of delaying, deterring or preventing a change in control of our Company that you might view favorably.

 

WE MAY DEPEND UPON OUTSIDE ADVISORS, WHO MAY NOT BE AVAILABLE ON REASONABLE TERMS AND AS NEEDED.

 

To supplement the business experience of our officers and directors, we may be required to employ accountants, technical experts, appraisers, attorneys, or other consultants or advisors. Our Board without any input from stockholders will make the selection of any such advisors. Furthermore, it is anticipated that such persons may be engaged on an "as needed" basis without a continuing fiduciary or other obligation to us. In the event we consider it necessary to hire outside advisors, we may elect to hire persons who are affiliates, if they are able to provide the required services.

 

WE MAY FACE DIFFICULTIES ESTABLISHING A NEW BRAND

 

Our principal business strategy is to develop the new brand name Vasanoxol® to replace the Panoxol brand name as a respected brand associated with the highest quality nutritional supplements. The marketing of consumer goods such as high-quality, premium nutritional supplements is highly dependent on creating favorable consumer perception through well-orchestrated advertising and public relations. We will be expending a significant percentage of the proceeds of any future cash raises for advertising and promotional activities. Our Company has little advertising experience, having spent only minimal amounts on such activities to-date. Our Company’s competitors have significantly greater advertising resources and experience and enjoy well-established brand names. There can be no assurance that our initial advertising and promotional activities will be successful in creating the desired consumer perception.

 

OUR COMPETITION IS MUCH LARGER AND HAS BEEN IN THE MARKETPLACE MUCH LONGER

 

Several large, well-financed competitors with long-standing brand recognition, successful histories of new product introductions and long-standing relationships dominate the market for the distribution of nutritional supplements. We compete with well-established companies for sales to distributors and to consumers. While we believe that the rapidly

13 

expanding market for sales of nutritional supplements has created room for new competitors to achieve substantial sales and profits, there can be no assurance that we can compete successfully on price or in obtaining raw materials, building facilities and attracting and keeping skilled labor, which could result in material adverse effects on our business.

 

WE MAY BE SUBJECT TO LITIGATION IN THE FUTURE WHICH COULD IMPACT THE FINANCIAL HEALTH OF THE COMPANY.

 

Currently there are no legal proceedings threatened against our Company. However, from time to time, we may become involved in various lawsuits and legal proceedings that arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.

   

WE SELL OUR PRODUCTS AND SERVICES IN HIGHLY COMPETITIVE MARKETS, WHICH RESULTS IN PRESSURE ON OUR PROFIT MARGINS AND LIMITS OUR ABILITY TO MAINTAIN OR INCREASE THE MARKET SHARE OF OUR SERVICES.

 

The nutritional supplement industry is subject to significant competition and pricing pressures. The telemedicine market is a relatively new and rapidly growing market with many competitors. We will experience significant competitive pricing pressures as well as competitive products. Several significant competitors offer products with prices that may match or are lower than ours. We believe that the products we offer are generally competitive with those offered by other supplement companies. It is possible that one or more of our competitors could develop a significant advantage over us that allows them to provide superior products or pricing, which could put us at a competitive disadvantage. Continued pricing pressure or improvements in raw materials and shifts in customer preferences away from supplement products could adversely impact our customer base or pricing structure and have a material and adverse effect on our business, financial condition, results of operations and cash flows.

  

OUR FUTURE GROWTH IS LARGELY DEPENDENT UPON OUR ABILITY TO SUCCESSFULLY COMPETE WITH NEW AND EXISTING COMPETITORS BY DEVELOPING PRODUCTS THAT ACHIEVE MARKET ACCEPTANCE WITH ACCEPTABLE MARGINS.

 

Our business operates in markets that are characterized by legal and regulatory pressures and evolving industry standards. If similar high-end supplement companies gain market acceptance, our ability to grow our business could be materially and adversely affected. Accordingly, our future success depends upon a number of factors, including our ability to accomplish the following: identify emerging trends in our target end-markets; develop and maintain competitive products; enhance our products by increasing the associated brand reputation that differentiate us from our competitors; and develop and bring products to market quickly and cost-effectively. Our ability to develop new products can affect our competitive position and requires the investment of significant resources. These development efforts divert resources from other potential investments in our businesses, and they may not lead to the development of new products on a timely basis. New or enhanced products may not satisfy consumer preferences and potential product failures may cause consumers to reject these products. As a result, these products may not achieve market acceptance and our brand image could suffer. In addition, our competitors may introduce superior products or business strategies, impairing our brand and the desirability of our products, which may cause consumers to defer or forego purchases of our products or services. Also, the markets for our products and services may not develop or grow as we anticipate. The failure of our products to gain market acceptance, the potential for lawsuits, or the obsolescence of our products could significantly reduce our revenue, increase our operating costs or otherwise adversely affect our business, financial condition, results of operations or cash flows.

 

ADVERSE PUBLICITY OR CONSUMER PERCEPTION OF OUR PRODUCTS AND ANY SIMILAR PRODUCTS DISTRIBUTED BY OTHERS COULD HARM OUR REPUTATION AND ADVERSELY AFFECT OUR SALES AND REVENUES.

 

We believe we are highly dependent upon positive consumer perceptions of the quality of our products and services as well as similar products and services distributed by other supplement companies or telemedicine providers. Consumer perception of nutritional supplement products can be substantially influenced by scientific research or findings, national media attention and other publicity about product use. Adverse publicity from these sources regarding the safety or quality of our products could harm our reputation and results of operations. The mere

14 

publication of news articles or reports asserting that such products may be harmful could have a material adverse effect on our business, financial condition and results of operations, regardless of whether such news articles or reports are scientifically supported.

 

DEPENDENCE UPON TRADEMARKS AND PROPRIETARY RIGHTS, FAILURE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS.

 

Our future success depends significantly on our ability to protect our current and future brands and products and to defend our intellectual property rights to the CareClix™ software. We have trademark registrations covering our brands and products, and expect to continue to file, trademark applications seeking to protect newly developed brands and products. We cannot be sure that trademark registrations will be issued with respect to any of our trademark applications. There is also a risk that we could, by omission, fail to timely renew or protect a trademark or that our competitors will challenge, invalidate or circumvent any existing or future trademarks issued to or licensed by us. In addition, we face additional risks related to the potential failure to protect the intellectual property rights covered by our license to market Panoxol and the risk of patent infringement claims being filed against us due to our license to market Panoxol.

  

OUR INSURANCE COVERAGE OR THIRD-PARTY INDEMNIFICATION RIGHTS MAY NOT BE SUFFICIENT TO COVER OUR LEGAL CLAIMS OR OTHER LOSSES THAT WE MAY INCUR IN THE FUTURE.

 

In the future, insurance coverage may not be available at adequate levels or on adequate terms to cover potential losses, including on terms that meet our customer’s requirements. If insurance coverage is inadequate or unavailable, we may face claims that exceed coverage limits or that are not covered, which could increase our costs and adversely affect our operating results.

 

IF DEVELOPED, OUR BRANDS MAY BECOME VALUABLE, AND ANY INABILITY TO PROTECT THEM COULD REDUCE THE VALUE OF OUR PRODUCTS AND BRAND.

 

We may invest significant resources to build and protect our brands. However, we may be unable or unwilling to strictly enforce our rights, including our trademarks, from infringement. Our failure to enforce our intellectual property rights could diminish the value of our brands and product offerings and harm our business and future growth prospects.

  

AN INCREASE IN PRODUCT RETURNS COULD NEGATIVELY IMPACT OUR OPERATING RESULTS AND PROFITABILITY.

 

We will permit the return of damaged or defective products and accept limited amounts of product returns in certain instances. While such returns are expected to be nominal and within management’s expectations and the provisions established, future return rates may increase more than anticipated. Any significant increase in damaged or defective products or expected returns could have a material adverse effect on our operating results for the period or periods in which such returns materialize.

 

WE HAVE NO MANUFACTURING CAPACITY AND ANTICIPATE CONTINUED RELIANCE ON THIRD-PARTY MANUFACTURERS FOR THE DEVELOPMENT OF OUR PRODUCTS.

 

We do not currently operate manufacturing facilities for production of our products. We lack the resources and the capabilities to manufacture our products. We do not intend to develop facilities for the manufacture of products in the foreseeable future. We will rely on third-party manufacturers to produce bulk products required to meet our sales needs. We plan to continue to rely upon contract manufacturers to manufacture commercial quantities of our products. All of our supplement products are manufactured in the United States and, while we rely primarily on one manufacturer for our product, multiple other US manufacturers are available that we can employ as needed.

 

Our contract manufacturers’ failure to achieve and maintain high manufacturing standards, in accordance with applicable regulatory requirements, or the incidence of manufacturing errors, could result in consumer injury or death, product shortages, product recalls or withdrawals, delays or failures in product testing or delivery, cost overruns or other problems that could seriously harm our business. Contract manufacturers often encounter difficulties involving

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production yields, quality control and quality assurance, as well as shortages of qualified personnel. Our existing manufacturers and any future contract manufacturers may not perform as agreed or may not remain in the contract manufacturing business. In the event of a natural disaster, business failure, strike or other difficulty, we may be unable to replace a third-party manufacturer in a timely manner and the production of our products would be interrupted, resulting in delays, additional costs and reduced revenues.

 

A SHORTAGE IN THE SUPPLY OF KEY RAW MATERIALS COULD INCREASE OUR COSTS OR ADVERSELY AFFECT OUR SALES AND REVENUES.

 

All of the raw materials for our products are obtained from third-party suppliers. Shortages in certain ingredients could result in materially higher raw material prices or adversely affect our ability to have a product manufactured. Price increases from a supplier would directly affect our profitability if we are not able to pass price increases on to customers. Our inability to obtain adequate supplies of raw materials in a timely manner or a material increase in the price of our raw materials could have a material adverse effect on our business, financial condition and results of operations.

  

DAMAGE TO OUR REPUTATION.

 

Maintaining a good reputation is critical to selling our branded products and telemedicine services. Product contamination or tampering or the failure to maintain our standards for product quality, safety and integrity, including with respect to raw materials, naturally occurring compounds, packaging materials or product components obtained from suppliers, may reduce demand for our products or cause production and delivery disruptions. Although our producer/distributors maintain standards for the materials and product components received from suppliers, it is possible that a supplier may not provide materials or product components that meet the required standards or may falsify documentation associated with the fulfillment of those requirements. If any of our products becomes unsafe or unfit for consumption, is misbranded or causes injury, we may have to engage in a product recall and/or be subject to liability and incur additional costs. A widespread product recall, multiple product recalls, or a significant product liability judgment could cause our products to be unavailable for a period of time, which could further reduce consumer demand and brand equity. Our reputation could be impacted negatively by public perception, adverse publicity (whether or not valid), negative comments in social media, or our responses relating to:

 

  · a perceived failure to maintain high ethical, social and environmental standards for all of our operations and activities;

 

  · a perceived failure to address concerns relating to the quality, safety or integrity of our products and services;

 

  · our environmental impact, including use of agricultural materials, packaging, water and energy use, and waste management; or

 

  · effects that are perceived as insufficient to promote the responsible use of our products.

 

Failure to comply with local laws and regulations, to maintain an effective system of internal controls, to provide accurate and timely financial statement information, or to protect our information systems against service interruptions, misappropriation of data or breaches of security, could also hurt our reputation. Damage to our reputation or loss of consumer confidence in our products for any of these or other reasons could result in decreased demand for our products and could have a material adverse effect on our business, financial condition and results of operations, as well as require additional resources to rebuild our reputation, competitive position and brand equity.

 

CONTAMINATION.

 

The success of our brands depends upon the positive image that consumers have of those brands. Contamination, whether arising accidentally or through deliberate third-party action, or other events that harm the integrity or consumer support for our brands, could adversely affect their sales. Contaminants in raw materials, packaging materials or product components purchased from third parties and used in the production of our products or defects in the process could lead to low quality as well as illness among, or injury to, consumers of our products and may result in reduced sales of the affected brand or all of our brands

 

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RISKS RELATING TO OWNERSHIP OF

SOLEI SYSTEMS, INC. COMMON STOCK

 

NO ACTIVE PUBLIC MARKET EXISTS FOR OUR COMMON STOCK AT THIS TIME, AND THERE IS NO ASSURANCE OF A FUTURE MARKET. SOLI CURRENTLY TRADES ON THE “GREY MARKET” WITH APPROXIMATELY 565 SHAREHOLDERS.

 

There is a no active public market for our common stock, although recently reported activity on the grey market has resulted in an increase in the average trading price of our stock, trading under the symbol SOLI, and in the volume of daily trades. No assurance can be given that a market will develop or that a shareholder ever will be able to liquidate his investment without considerable delay, if at all. If a market should develop, the price may be highly volatile. Factors such as those discussed in the “Risk Factors” section may have a significant impact upon the market price of the shares. Due to the low price of our securities, many brokerage firms may not be willing to effect transactions in our securities. Even if a purchaser finds a broker willing to effect a transaction in our shares, the combination of brokerage commissions, state transfer taxes, if any, and any other selling costs may exceed the selling price. Further, many lending institutions will not permit the use of our shares as collateral for any loans.

 

We have determined to seek listing of our common stock on the OTC Markets and have sought to convince a market maker to file a Form 15©-211 to allow transactions on the OTC Markets. There can be no assurance that such a filing will be accomplished or that, if filed, the application will be granted.

  

OUR STOCK WILL, IN ALL LIKELIHOOD, BE THINLY TRADED AND AS A RESULT YOU MAY BE UNABLE TO SELL AT OR NEAR ASK PRICES OR AT ALL IF YOU NEED TO LIQUIDATE YOUR SHARES.

 

The shares of our common stock may be thinly-traded. We are a small Company which is relatively unknown to stock analysts, stock brokers, institutional stockholders and others in the investment community that generate or influence sales volume, so that even if we came to the attention of such persons, they tend to be risk-averse and would be reluctant to follow an unproven, early stage Company such as ours or purchase or recommend the purchase of any of our securities until such time as we became more seasoned and viable. As a consequence, there may be periods of several days or more when trading activity in our securities is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on Securities price. We cannot give you any assurance that a broader or more active public trading market for our common securities will develop or be sustained, or that any trading levels will be sustained. Due to these conditions, we can give stockholders no assurance that they will be able to sell their shares at or near ask prices or at all if they need money or otherwise desire to liquidate their securities.

 

OUR COMMON STOCK MAY BE VOLATILE, WHICH SUBSTANTIALLY INCREASES THE RISK THAT YOU MAY NOT BE ABLE TO SELL YOUR SECURITIES AT OR ABOVE THE PRICE THAT YOU MAY PAY FOR THE SECURITY.

 

Because of the possible price volatility, you may not be able to sell your shares of common stock when you desire to do so. The inability to sell your securities in a rapidly declining market may substantially increase your risk of loss because of such illiquidity and because the price for our securities may suffer greater declines because of our price volatility.

 

The price of our common stock that will prevail in the market, if ever available for trading, may be higher or lower than the price you may pay. Certain factors, some of which are beyond our control, that may cause our share price to fluctuate significantly include, but are not limited to the following:

 

  · Variations in our quarterly operating results;

 

  · Loss of a key relationship or failure to complete significant transactions;

 

  · Additions or departures of key personnel;

 

  · Fluctuations in stock market price and volume;

 

  · Changes to the industry; and

 

  · Regulatory developments, particularly those affecting the supplement market.
17 

 

Additionally, in recent years the stock market in general, has experienced extreme price and volume fluctuations. In some cases, these fluctuations are unrelated or disproportionate to the operating performance of the underlying Company. These market and industry factors may materially and adversely affect our stock price, regardless of our operating performance. In the past, class action litigation often has been brought against companies following periods of volatility in the market price of those Company’s common stock. If we become involved in this type of litigation in the future, it could result in substantial costs and diversion of management attention and resources, which could have a further negative effect on your investment in our stock.

  

THE REGULATION OF PENNY STOCKS BY THE SEC AND FINRA MAY DISCOURAGE THE TRADABILITY OF OUR SECURITIES.

 

We are a “penny stock” Company, as our stock price is less than $5.00 per share. None of our securities currently trade in any market other than the grey market and, if ever available for trading, will be subject to a Securities and Exchange Commission rule that imposes special sales practice requirements upon broker-dealers who sell such securities to persons other than established customers or accredited stockholders. For purposes of the rule, the phrase “accredited stockholders” means, in general terms, institutions with assets in excess of $5,000,000, or individuals having a net worth in excess of $1,000,000 or having an annual income that exceeds $200,000 (or that, when combined with a spouse’s income, exceeds $300,000). For transactions covered by the rule, the broker-dealer must make a special suitability determination for the purchaser and receive the purchaser’s written agreement to the transaction prior to the sale. Effectively, this discourages broker-dealers from executing trades in penny stocks. Consequently, the rule will affect the ability of purchasers in this offering to sell their securities in any market that might develop therefore because it imposes additional regulatory burdens on penny stock transactions.

  

In addition, the Securities and Exchange Commission has adopted a number of rules to regulate “penny stocks". Such rules include Rules 3a51-1, 15g-1, 15g-2, 15g-3, 15g-4, 15g-5, 15g-6, 15g-7, and 15g-9 under the Securities and Exchange Act of 1934, as amended. Because our securities constitute “penny stocks” within the meaning of the rules, the rules would apply to us and to our securities. The rules will further affect the ability of owners of shares to sell our securities in any market that might develop for them because it imposes additional regulatory burdens on penny stock transactions.

 

Stockholders should be aware that, according to the Securities and Exchange Commission, the market for penny stocks has suffered in recent years from patterns of fraud and abuse. Such patterns include (i) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; (ii) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; (iii) “boiler room” practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; (iv) excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and (v) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired consequent investor losses. Our management is aware of the abuses that have occurred historically in the penny stock market. Although we do not expect to be in a position to dictate the behavior of the market or of broker-dealers who participate in the market, management will strive within the confines of practical limitations to prevent the described patterns from being established with respect to our securities.

 

Investors in penny stocks have limited remedies in the event of violations of penny stock rules. While the courts are always available to seek remedies for fraud against us, most, if not all, brokerages require their customers to sign mandatory arbitration agreements in conjunctions with opening trading accounts. Such arbitration may be through an independent arbiter. Stockholders may file a complaint with FINRA against the broker allegedly at fault, and FINRA may be the arbiter, under FINRA rules. Arbitration rules generally limit discovery and provide more expedient adjudication, but also provide limited remedies in damages usually only the actual economic loss in the account. Stockholders should understand that if a fraud case is filed an against a Company in the courts it may be vigorously defended and may take years and great legal expenses and costs to pursue, which may not be economically feasible for small stockholders.

 

Absent arbitration agreements, specific legal remedies available to stockholders of penny stocks which include the following:

 

18 

If a penny stock is sold to the investor in violation of the requirements listed above, or other federal or states securities laws, the investor may be able to cancel the purchase and receive a refund of the investment.

 

If a penny stock is sold to the investor in a fraudulent manner, the investor may be able to sue the persons and firms that committed the fraud for damages.

 

The fact that we are a penny stock Company will cause many brokers to refuse to handle transactions in the stocks, and may discourage trading activity and volume, or result in wide disparities between bid and ask prices. These may cause stockholders significant illiquidity of the stock at a price at which they may wish to sell or in the opportunity to complete a sale. Stockholders will have no effective legal remedies for these illiquidity issues.

  

WE WILL PAY NO DIVIDENDS IN THE FORESEEABLE FUTURE.

 

We have not paid dividends on our common stock and do not anticipate paying such dividends in the foreseeable future. Stockholders whose investment criteria are dependent on dividends should not invest in our common stock.

  

RULE 144 SALES IN THE FUTURE MAY HAVE A DEPRESSIVE EFFECT ON OUR STOCK PRICE.

 

The majority of our outstanding shares of common stock are held by our present officers, directors, and affiliate stockholders as "restricted securities" within the meaning of Rule 144 under the Securities Act of 1933, as amended. As restricted shares, these shares may be resold only pursuant to an effective registration statement or under the requirements of Rule 144 or other applicable exemptions from registration under the Act and as required under applicable state securities laws. Rule 144 provides in essence that a person who has held restricted securities for six months may, under certain conditions, sell every three months, in brokerage transactions, a number of shares that does not exceed the greater of 1.0% of a Company's outstanding common stock or the average weekly trading volume during the four calendar weeks prior to the sale. There is no limit on the amount of restricted securities that may be sold by a non-affiliate after the owner has held the restricted securities for a period of one year. A sale under Rule 144 or under any other exemption from the Act, if available, or pursuant to subsequent registration of shares of common stock of present stockholders, may have a depressive effect upon the price of the common stock in any market that may develop.

 

OUR STOCKHOLDERS MAY SUFFER DILUTION DUE TO ISSUANCES OF SECURITIES IN CONVERSION OF OUTSTANDING PROMISSORY NOTES

 

In April and May, 2019, we issued $1,680,000 in face amount convertible promissory notes, which may be converted after six months, at the election of the holder, into our common stock at a 50 percent discount to market. Any conversions under these notes will result in dilution to our current shareholders by the issuance of discounted common stock.

   

OUR STOCKHOLDERS MAY SUFFER FUTURE DILUTION DUE TO ISSUANCES OF SECURITIES FOR VARIOUS CONSIDERATIONS IN THE FUTURE.

 

There may be substantial dilution to Solei Systems, Inc. stockholders as a result of future decisions of the Board to issue shares without shareholder approval for cash, services, or acquisitions. The current pending private offering of up to $3,000,000 in principal amount of convertible notes will, if issued, also result in substantial potential dilution in our common stock, as the terms of conversion contained in the convertible notes allows a holder to elect to convert all or part of the principal amount of each note, plus interest accrued at 6 percent per annum, to be converted into common stock at any time after an initial six month holding period and thereafter up to maturity, at a conversion price equal to of the lowest three (3) Trading Prices for the Common Stock during the ten (10) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date of any such election. As of the date of this Report, we have closed on the sale of $1,680,000 in principal amount of the convertible notes, which were issued in April and May 2019.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None during the Quarter ended June 30, 2019, except for the private offer and sale of $1,680,000 in face amount

19 

convertible promissory notes.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURE

 

Not Applicable.

 

ITEM 5. OTHER INFORMATION

 

None.

 

ITEM 6. EXHIBITS

 

Exhibits. The following is a complete list of exhibits filed as part of this Form 10-Q. Exhibit numbers correspond to the numbers in the Exhibit Table of Item 601 of Regulation S-K.

 

31.1 Certification of Chief Executive Officer Pursuant to Rule 13a–14(a) or 15d-14(a) of the Securities Exchange Act of 1934
31.2 Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934
32.1 Certification of Chief Executive Officer under Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certification of Chief Financial Officer under Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS XBRL Instance Document (1)
101.SCH XBRL Taxonomy Extension Schema Document (1)
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document (1)
101.DEF XBRL Taxonomy Extension Definition Linkbase Document (1)
101.LAB XBRL Taxonomy Extension Label Linkbase Document (1)
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document (1)

 

  (1) Pursuant to Rule 406T of Regulation S-T, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  SOLEI SYSTEMS, INC.
  (Registrant)
     
Dated: September 12, 2019 By:   /s/ Charles O. Scott
    Charles O. Scott
    (Chief Executive Officer, Principal Executive
    Officer)
     
Dated: September 12, 2019 By:   /s/ Joshua Flood
    Joshua Flood
    (Chief Financial Officer, Principal Financial Officer, Principal Accounting Officer)

 

20 

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