NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Period Ended September 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 year to date ended September 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 April 2019, the Company acquired 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 CareClix® operating
systems for telemedicine providers. 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. The Company relocated the acquired assets to its
location in Virginia. Although undertaken as an asset acquisition, in the accompanying financial statements the acquisition has
been treated as a business combination under ASC 805. See, Business Combination.
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 CEO of the CareClix, Inc. subsidiary.
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 September 30, 2019 and December 31, 2018 and the Statements of Operations,
Statements of Shareholders’ Deficits and Statements of Cash Flows for the three and nine month periods ended September 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 period ended September 30,
2019, any 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.
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 September 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 September 30, 2019 and 2018, respectively.
Inventory as of September 30, 2019 and December
31, 2018 was $36,749 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 Fourth Quarter in shares of unregistered common stock
of the Company valued at $900,000, 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.
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. 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 other 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 from the SEC accounting staff. and has allocated the total purchase price based on 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 filed audited financial
statements for KB Medical Systems, LLC 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 nine-month
periods ended September 30, 2019 and 2018 were $99,413 and $2,363, 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 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; however, the Company 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 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 $1,736
and $20 for the three-month periods ended September 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 September 2019, the Company was billed a total of $91,815
for these services by CareClix Network, LLC in October 2019, and the Company recorded the
total amount as a cost of sales for September 2019 and recorded accrued expense of $91,815.
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 September 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 September 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 one year after issue.
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 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. The notes bear interests at 6 percent per annum and any accrued interest may also be
converted into common stock, at the election of the holder, and at the same premium. No premium interest has been accrued on the
potential interest conversion, but will be accrued as additional expense as and when each note is converted and the election is
made to convert the interest as well.
None
of the notes were convertible, or converted, during the quarter ended September 30, 2019; however, a number of the notes have been
converted into common stock subsequent to September 30. See, Subsequent Events.
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. Total product sales for the three and nine months ended September 30,2019 was $3,861 and $11,191, respectively.
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 is 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. Total revenues from SaaS for the three and nine months ended September 30,2019 was $216,470 and $394,797,
respectively.
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 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. Total telemedicine for the three and nine months ended September 30,2019 was $311,506
and $568,122, respectively.
Approximately 58 percent of the Company revenues
for the nine months ended September 30, 2019 were derived from three customers, in the amounts of 34, 12 and 12 percent.
Since the CareClix, Inc. telemedicine operation
commenced in mid-April, 2019, the accounts receivable of the subsidiary are less than 100 days old and there do not appear to be
any uncollectible accounts as of September 30, 2019. Accordingly, no allowance for bad debts has been established and will not
be established until the subsidiary has more experience with its receivables collections. A detailed analysis of all accounts receivable
will be undertaken at the end of the fiscal year.
ADVERTISING
The Company follows the policy of charging
the costs of advertising to expense as incurred. Advertising expense for the three-month periods ended September 30, 2019 and 2018
was $575 and $20, respectively.
DEVELOPMENT COSTS
CareClix, Inc. engages in regular and continuing
development and refining of its proprietary CareClix™ operating software. All of the related development costs are expensed
as incurred and are not capitalized in generally accepted accounting rules. For the three and nine month periods ended September
30, 2019, CareClix incurred approximately $63,000 and $80,000 in development costs.
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
losses of $2,623,702 in the nine months ended September 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.
The Company has commenced a second private
offering of convertible debt in October 2019 for up to $1,000,000 in additional working capital funds. There have been no sales
of any notes under this new offering as of the date of this report.
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.
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 September 21, 2019, the Court entered final 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. The accompanying financial statements have been prepared on the basis of the revised
number of common shares outstanding.
At September 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, or in October, 2019. See, 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.
In April 2019, the Company entered into a marketing
agreement with a marketing expert to assist in the growth of the Company. Included in the total compensation for the marketing,
the Company has agreed to issue $5,000 in dollar value of stock for each month of the five-month term of the agreement. A total
of $25,000 has been accrued as stock compensation issuable, but no stock has yet been issued.
The Company has authorized 50,000,000 shares
of $0.001 par value preferred stock. As of September 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 September 30,
2019, respectively. As of September 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 nine 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.
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 September
30, 2019 and December 31, 2018 are as follows:
|
|
September 30,
|
|
December 31,
|
|
|
2019
|
|
2018
|
Net operating loss carryforward
|
|
$
|
1,397,904
|
|
|
$
|
372,223
|
|
Valuation allowance
|
|
|
(1,397,904
|
)
|
|
|
(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:
|
|
September 30,
|
|
December 31,
|
|
|
2019
|
|
2018
|
Tax at statutory rate (21%)
|
|
$
|
293,560
|
|
|
$
|
84,558
|
|
Valuation allowance
|
|
|
(293,560
|
)
|
|
|
(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 September 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 leaseterm 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 September 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 September 30, 2019 and 2018 was $25,500 and $25,500, respectively,
and for the nine months ended September 30, 2019 and 2018 was $76,500 and $76,500, respectively. The balance due to Eagles United
Financial was $484,500 and $408,000 as of September 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 September 30, 2019. Funds advanced
to the Company through the LOC were $200,262 and $200,406 as of September 30, 2019 and December 31, 2018, respectively.
Additional funds advanced by Mr. Scott were
$172,976 and $123,156 as of September 30, 2019 and December 31, 2018, respectively.
Officer compensation to Josh Flood, President,
for the three months ended September 30, 2019 and 2018 was $30,000 and $30,000, respectively and for the nine months ended September
30, 2019 and 2018 was $90,000 and $90,000, 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 $570,000 and $480,000 as of September 30, 2019 and December 31, 2018, respectively.
Related party compensation to Avril
James, an associate of Mr. Scott, for the three months ended September 30, 2019 and 2018 was $24,000 and $24,000,
respectively and for the nine months ended September 30, 2019 and 2018 was $72,000 and $72,000, 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 $456,000
and $384,000 as of September 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 September 30, 2019, and December 31,
2018, the Company owed officers and affiliates $1,898,945 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
Conversions of Notes: Commencing October
1, 2019 (the first permitted conversion date for the convertible notes issued during the second and third quarters of 2019) through
November 19, 2019, the holders of a total of $770,000 in total principal value of convertible notes plus accrued interest, elected
to convert into common stock of the Company. As a result of the conversion elections, a total of 5,957,002 common shares have been
issued based on an average conversion price of $0.129 per share.
New Note Offering: The Company commended
a new convertible note offering in October 2019. If issued, the convertible notes will bear interest at 10 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 80 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 will mature one year after issue.
Each
of the convertible notes, if and when issued, will settle 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 the holder
receives at settlement does not vary with the value of the Company’s equity shares, the settlement provision will not be
considered a conversion option for financial accounting purposes; rather, these notes will be recognized as share-settled debt
at fair value.
Employment Agreement: On October 15,
2019, CareClix, Inc. entered into an employment agreement with Dr. John Korangy, one of the developers of the CareClix software
and President of CareClix. The agreement provides that Dr. Korangy will receive a total of $250,000 in Base Salary for the first two
years of the contract period, with the compensation for the first year payable in common stock of Solei in value of Solei common
stock. The stock to be issued will be issuable on the normal payroll payment dates for all other employees of CareClix, and shall
be issued quarterly at the average trading price of the last five days of the quarter, with the number of shares being reduced
to cover the cost of any required payroll taxes payable on the compensation. In addition, a stock award of 24,534,188 common shares
of Solei will be issued within 30 days after the effective date of the agreement, vesting as follows: six million five hundred
thirty four thousand one hundred eighty eight (6,534,188) shares of Solei common stock shall vest as of the Date of Execution without
regard as to Executive's continued employment with the Company. An additional six million (6,000,000) shares of Solei common stock
shall vest upon the Company's trailing 12-month gross revenue reaching Fifty Million Dollars ($50,000,000). An additional six million
(6,000,000) shares of Solei common stock shall vest upon the Company's trailing 12-month gross revenue reaching One Hundred Million
Dollars ($100,000,000). An additional six million (6,000,000) shares of Solei common stock shall vest upon the Company's trailing
l2-month gross revenue reaching Two Hundred Million Dollars ($200,000,000). Notwithstanding the foregoing, any unvested portion
of the Stock Award shall vest no later than April 16, 2021, without regard as to Executive's continued employment with the Company
and without regard to the Company's achievement of gross revenue in excess of the above-referenced thresholds.
In addition to the Annual Base Salary,
Dr. Korangy shall be entitled to receive a “Target Bonus" based upon the Company's trailing l2-month gross revenue
reaching Fifteen Million Dollars ($15,000,000) ("Bonus Target mount"). Within 30 days after the Bonus Date, the
Company shall issue to Executive a Target Bonus consisting of: (i) that number of shares of Solei common stock having a fair
market value (as of the Bonus Date) equal to three percent (3%) of the Bonus Target Amount (the "Stock Bonus"); and
(ii) cash in an amount equal to the greater of the following: (1) two percent (2%) of the Bonus Target Amount; or (2) the
fair market value of seven and one-half percent (75%) of the Stock Award shares of Solei common stock that vested during the
calendar year in which the Bonus Target Amount was achieved under Section 2(b), valued as of the Bonus Date. The shares
issuable under Section 2(c)(i) shall be issued at the closing market price of Solei common stock as of the close of business
on the date which immediately precedes the Bonus Date and shall vest immediately.
In October 2019, the Company issued a total
of 2,694,612 common shares at an average price of $0.335 per share, as the final payment of $900,000 for the acquisition of the
CareClix™ assets