DLTI DLT Resolution Inc (CE)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2022

OR

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

Commission file number 333-148546

(702) 796-6363

(Registrant’s telephone number, including area code)

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

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

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

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

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

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

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

As of August 7, 2023, 25,314,561 shares of the registrant’s Common Stock, $0.001 par value, were issued and 21,499,561 were outstanding.

TABLE OF CONTENTS

FORM 10-Q

QUARTER ENDED JUNE 30, 2022

Item 1: Financial Statements.

DLT RESOLUTION, INC   

Condensed Consolidated Balance Sheets   

(Unaudited)   

See accompanying notes to unaudited condensed consolidated financial statements.

DLT RESOLUTION, INC. 

Unaudited Condensed Consolidated Statements of Comprehensive Loss 

See accompanying notes to unaudited condensed consolidated financial statements.

DLT RESOLUTION, INC

Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity

See accompanying notes to unaudited condensed consolidated financial statements.

DLT RESOLUTION, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

June 30, 2022

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

SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements that have been made pursuant to the provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations, estimates, and projections about DLT Resolutions’ industry, management’s beliefs, and certain assumptions made by management. Forward-looking statements include our expectations regarding product, services, and maintenance revenue, annual savings associated with the organizational changes effected in prior years, and short- and long-term cash needs. In some cases, words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “estimates,” variations of these words, and similar expressions are intended to identify forward-looking statements. The statements are not guarantees of future performance and are subject to certain risks, uncertainties, and assumptions that are difficult to predict; therefore, actual results may differ materially from those expressed or forecasted in any forward-looking statements. Risks and uncertainties of our business include those set forth in our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on March 13, 2023, under “Item 1A. Risk Factors” as well as additional risks described in this Form 10-Q. Unless required by law, we undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise. However, readers should carefully review the risk factors set forth in other reports or documents we file from time to time with the Securities and Exchange Commission, particularly the Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K.

Overview

DLT Resolution Inc. (“DLT, the “Company”, “we” and “our”) operates in blockchain applications and telecommunications in Canada and the United States. The Company operates a Health Information Exchange providing the ability to request and retrieve medical information and records while meeting all of today’s security & compliance demands for HIPAA, PIPEDA and PHIPA.

Recent Developments

In 2022, the Company suspended the operations of USI and has recognized its activities as discontinued operations within the financial statements for 2022 and 2021.  In 2023, the Company sold its 100% ownership of USI to a third party for a nominal payment and the acquirer assumed all of USI’s liabilities on a nonrecourse basis.  In connection with the sale, the Company received 2,000,000 shares of its Common Stock held by an individual who sold USI shares to the Company in January 2020. Following the receipt of the 2,000,000 shares, the Company has 24,926,287 shares outstanding.

On March 15, 2023, the Company sold its 100% ownership of DLT Data Services Inc. to a third party for a nominal purchase price and has recognized its activities as discontinued operations within the accompanying unaudited condensed consolidated financial statements. 

Revenues

Revenues for the three months ended June 30, 2022 and 2021 were $50,418 and $69,504, respectively. The decrease resulted primarily from having our operating company having fewer customers and less revenue per customer.

Revenues for the six months ended June 30, 2022 and 2021 were $106,574 and $160,939, respectively. The decrease resulted primarily from having our operating company having fewer customers and less revenue per customer.

Cost of Revenue

Cost of revenue for the three months ended June 30, 2022 and 2021 were $37,883 and $39,704, respectively. The dollar decrease resulted primarily from the reduction in revenue and costs corresponding to that reduced revenue.

Cost of revenue for the six months ended June 30, 2022 and 2021 were $75,259 and $83,049, respectively. The dollar decrease resulted primarily from the reduction in revenue and costs corresponding to that reduced revenue.

General and Administrative

General and administrative expense, excluding professional fees, was $18,364 and $19,258 for the three months ended June 30, 2022 and 2021, respectively.

General and administrative expense, excluding professional fees, was $67,651 and $41,305 for the six months ended June 30, 2022 and 2021, respectively. The increase resulted primarily from a $35,144 charge to bad debt expense in the quarter ended March 31, 2022 that relates to DLT Resolution Corp.

Professional Fees

Professional fees were $80,985 and $11,470 for the three months ended June 30, 2022 and 2021, respectively. The increase resulted primarily from the use of outside professionals to perform work previously done by employees.

Professional fees were $86,101 and $22,698 for the six months ended June 30, 2022 and 2021, respectively. The increase resulted primarily from the use of outside professionals to perform work previously done by employees.

Depreciation and Amortization

Depreciation and amortization expense was $15,991 and $27,467 for the three months ended June 30, 2022 and 2021, respectively. The decrease resulted primarily from the lower level of amortization expense from intangible assets that were fully depreciated after March 31, 2021.

Depreciation and amortization expense was $32,721 and $53,918 for the six months ended June 30, 2022 and 2021, respectively. The decrease resulted primarily from the lower level of amortization expense from intangible assets that were fully depreciated after March 31, 2021.

Other Expense

The Company had net other expense of $5,221 and $1,839 for the three months ended June 30, 2022 and 2021. The increase is due to an increase in the outstanding balance of our interest-bearing obligations.

The Company had net other expense of $8,880 and $3,728 for the six months ended June 30, 2022 and 2021. The increase is due to an increase in the outstanding balance of our interest-bearing obligations.

Net Loss

The Company had a net loss of $131,415 and $185,406 for the three months ended June 30, 2022 and 2021. The decrease in net loss in the current year primarily resulted from the $131,779 decrease in the loss from discontinued operations in the three months ended June 30, 2022 as compared to the three months ended June 30, 2021, which was partially offset by the $115,127 increase in the operating loss for comparable periods.

The Company had a net loss of $1,123,947 and $365,709 for the six months ended June 30, 2022 and 2021. The increase in net loss in the current year primarily resulted from the $637,959 increase in the loss from discontinued operations in the six months ended June 30, 2022 as compared to the six months ended June 30, 2021.

Liquidity and Capital Resources

As of June 30, 2022, we had total current assets of $80,893 and current liabilities of $1,247,380 creating a working capital deficit of $1,247,380. As of December 31, 2021, we had $29,783 of cash, total current assets of $78,912 and current liabilities of $1,223,181 creating a working capital deficit of $1,144,269.

Net cash used in operating activities was $170,346 during the six months ended June 30, 2022 compared to $12,448 for the same period in 2021. The increase in cash used in operations resulted primarily from the $115,127 increase in the operating loss for the comparable periods.

No cash was used in investing activities during the six months ended June 30, 2022 and 2021, respectively.

During the six months ended June 30, 2022, the Company provided $184,577 cash from financing activities as a result of selling shares of common stock to investors. During the six months ended June 30, 2021, the Company generated $16,197 of cash from financing activities by over drafting its DLT Resolution Corp. bank account.

Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has suffered recurring losses from operations and has a significant accumulated deficit. In addition, the Company continues to experience negative cash flow from operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Management’s plans in regards to this matter include raising additional equity financing and borrowing funds under a private credit facility and/or other credit sources.

Off-Balance Sheet Arrangements

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.

Item 4. Controls and Procedures.

Disclosure Controls and Procedures

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

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

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

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

Changes in Internal Control over Financial Reporting

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

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

Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2021. In assessing the effectiveness of our internal control over financial reporting as of December 31, 2021, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on its assessment, management concluded that our internal control over financial reporting as of December 31, 2021 was not effective in the specific areas described in the “Disclosure Controls and Procedures” section above and as specifically described in the paragraphs below.

As of December 31, 2021, the Principal Executive Officer/Principal Financial Officer identified the following specific material weaknesses in the Company’s internal controls over its financial reporting processes:

There have been no changes in our internal control over financial reporting that occurred during the six months ended June 30, 2022 that have materially affected, or are reasonable likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

None.

Item 1A. Risk Factors.

Not required under Regulation S-K for smaller reporting companies.

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

On May 20, 2021, the Company issued 1,000,000 shares of its restricted Common Stock to the former shareholders of USI as additional compensation for acquiring all of USI’s issued and outstanding common shares.

During the three months ended June 30, 2022, the Company sold 388,274 shares of restricted Common stock to third parties and received $184,577 in proceeds.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

None.

Item 5. Other Information.

None.

Item 6. Exhibits.

The following exhibits are attached hereto:

SIGNATURES

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