Item 2.01 Completion of Acquisition or Disposition of
Assets.
On
November 30, 2020, Sollensys Corp., a Nevada corporation (the
“Company”) entered into a share exchange agreement (the
“Share Exchange Agreement”) with (i) Eagle Lake
Laboratories, Inc., a Florida corporation (“Eagle
Lake”), (ii) each of the shareholders of Eagle Lake (the
“Eagle Lake Shareholders”) and (iii) Donald Beavers as
the representative of the Eagle Lake Shareholders (the
“Shareholders’ Representative”).
Among other conditions to the closing of the transactions
contemplated by the Share Exchange Agreement (the
“Closing”), pursuant to the terms of the
Share Exchange Agreement, the parties agreed that the Company would
acquire 100% of Eagle Lake’s
issued and outstanding capital stock, in exchange for the issuance
to the Eagle Lake Shareholders of a number of shares of the
Company’s common stock, par value $0.001 per share
(“Common Stock”) to be determined at the Closing of the
Share Exchange Agreement.
The Closing of the Share Exchange Agreement occurred on November
30, 2020. Pursuant to the terms of the Share Exchange
Agreement, the Company acquired from the Eagle Lake
Shareholders 10,000,000 shares Eagle
Lake’s common stock, no par value per share, representing
100% of the issued and outstanding capital stock of Eagle Lake, in
exchange for the issuance to the Eagle Lake Shareholders of
95,000,000 shares of the Company’s Common Stock (the
“Share Exchange”).
As a result of the Share Exchange, Eagle Lake became a wholly-owned
subsidiary of the Company and the business of Eagle Lake became the
business of the Company.
The
Share Exchange is intended to be a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the “Code”), and the Share Exchange Agreement
is intended to be a “plan of reorganization” within the
meaning of the regulations promulgated under Section 368(a) of the
Code and for the purpose of qualifying as a tax-free transaction
for federal income tax purposes.
The foregoing description of the Share Exchange Agreement is
qualified in its entirety by reference to the Share Exchange
Agreement filed as Exhibit 10.1 to this Current Report on Form 8-K,
which is incorporated herein by reference.
FORM 10 DISCLOSURES
Immediately prior to the Share Exchange described in detail above
pursuant to which Eagle
Lake, became a wholly owned subsidiary of the Company, the Company
was a “shell company,” as such term is defined in Rule
12b-2 under the Securities Exchange Act of 1934, as amended (the
“Exchange Act”). Item 2.01(f) of Form 8-K states that
if the registrant was a “shell” company, such as the
Company was immediately before the Share Exchange, then the
registrant must disclose on a Current Report on Form 8-K the
information that would be required if the registrant were filing a
general form for registration of securities on Form 10.
Accordingly, this report includes all of the information that would
be included in a Form 10.
BUSINESS
The disclosure in this “Business” section relates
primarily to Eagle Lake, an operating company that became a wholly
owned subsidiary of the Company at the Closing of the Share
Exchange. From September 2013 to on or around the Share Exchange,
the Company did not have any material operations and was a shell
company as such term is defined in Rule 12b-2 of the Exchange
Act.
Organizational History of the Company and Eagle Lake
Sollensys Corp. (“Sollensys” or the
“Company”) was formerly a development stage company,
incorporated in Nevada on September 29, 2010, under the name Health
Directory, Inc. The Company’s initial plans included
organization and incorporation, target market identification,
marketing plans, and capital formation. A substantial portion of
the Company’s efforts involved developing a business plan and
establishing contacts and visibility in the marketplace. The
Company did not, however, generate any revenues from these
efforts.
Effective July 30, 2012, the holder of 3,000,000 shares, or
approximately 79.8% of the Company’s then outstanding voting
securities, executed a written consent in accordance with Section
78.320 of the Nevada Revised Statutes approving an amendment to the
Articles of Incorporation to change the Company’s name to
Sollensys Corp., increase the number of authorized shares of Common
Stock to 1,500,000,000, increase the number of authorized preferred
shares of the Company, par value $0.001 (the “Preferred
Stock”) to 25,000,000, and to split each outstanding share of
Common Stock into 131.69 shares of Common Stock.
Subsequently, beginning September 30, 2012, the Company went
dormant.
On December 27, 2019, the Eighth Judicial District Court of Clark
County, Nevada (the “Court”), pursuant to Case number
A-19-805633-B appointed Custodian Ventures, LLC (“Custodian
Ventures”) as the custodian of Sollensys David Lazar, who
controls Custodian Ventures was subsequently named the only interim
officer and director of the Company.
On June 16, 2020, Custodian Ventures filed a motion with the Court
asking the Court to enter an order concluding and terminating the
custodianship of the Company. On July 20, 2020, the Court entered
an order terminating custodianship and barring non-asserted claims
against the Company.
Effective August 5, 2020, David Lazar, the interim Chief Executive
Officer, President, Secretary, Treasurer, and sole director of the
Company and the beneficial owner, through his ownership of
Custodian Ventures of 19,000,000 shares of Series A Preferred
Stock, representing 100% of the Company’s issued and
outstanding shares of Preferred Stock, entered into a Stock
Purchase Agreement by and among Eagle Lake, the Company, and
Custodian Ventures. The Stock Purchase Agreement is referred to
herein as the “SPA.” Pursuant to the terms of the SPA,
Eagle Lake agreed to purchase, and Custodian Ventures agreed to
sell, 19,000,000 shares of the Company’s Series A Preferred
Stock in exchange for payment by Eagle Lake to Custodian Ventures
of $230,000 (collectively with the other transactions in the SPA,
the “Stock Purchase”). The Stock Purchase closed on
August 5, 2020. The shares of Series A Preferred Stock, par value
$0.001 per share, of the Company are convertible into shares of
Common Stock of the Company at a rate of 50 shares of Common Stock
per share of Series A Preferred Stock, and has voting power on an
as-converted basis (voting with the Common Stock as one class) and
thus represents 65.4% of the voting power of all shares of stock of
the Company.
In connection with the closing of the Stock Purchase, on August 5,
2020, Mr. Lazar, the then-sole member of the Board of Directors
(the “Board”) of the Company, pursuant to the power
granted to the Board in the Company’s bylaws, increased the
size of the Company’s Board to two members. Simultaneously,
Mr. Lazar, as the sole Board member, appointed Donald Beavers as a
director to fill the newly created Board vacancy. At the same time,
Mr. Lazar appointed Donald Beavers as Chief Executive Officer and
Secretary of the Company.
Also on August 5, 2020, following the above officer and director
appointments and effective on the closing of the Stock Purchase,
Mr. Lazar resigned from any and all officer and director positions
with the Company. Mr. Lazar’s resignation is not the result
of a disagreement with the Company on any matter relating to the
Company’s operations, policies, or practices.
On November 30, 2020, pursuant to the Closing of the Share Exchange
Agreement, the Company acquired Eagle Lake, and Eagle Lake
thereafter became a wholly owned subsidiary of the Company, and the
business of Eagle Lake became the business of the Company going
forward.
At the
time of the Closing, Eagle had 10,011,667 shares of its common
stock issued and outstanding, which is 11,667 shares in excess of
the number of shares of common stock authorized pursuant to
Eagle’s Articles of Incorporation. Such over-issued
shares are void under Florida law and are not entitled to any
rights of a stockholder of Eagle Lake. As such, the 10,000,000
shares of Eagle Lake common stock that the Company acquired from
the Eagle Lake Shareholders, represented 100% of the issued and
outstanding capital stock of Eagle Lake of the presence of
over-issued shares.
Overview of the Business of Eagle Lake Laboratories,
Inc.
Any references to “the Company,” “we,”
“us,” “our” or words of similar import in
this “Overview of the Business of Eagle Lake Laboratories,
Inc.,” refer to Eagle Lake Laboratories, Inc.
Eagle
Lake Laboratories, Inc. was incorporated in the State of Florida on
May 8, 2020. Eagle Lake offers
advanced technology products for cybersecurity that ensure a
clients’ data integrity through collection, storage, and
transmission.
Principal Products and Services
Eagle Lake’s primary product is the Blockchain Archive
Server - a turn-key, off-the-shelf, blockchain solution that works
with virtually any hardware and software combinations currently
used in commerce, without the need to replace or eliminate any part
of the client's data security that is being utilized.
The
Blockchain Archive Server encrypts, fragments and distributes data
across thousands of secure nodes every day, which makes it
virtually impossible for hackers to compromise. Using blockchain
technology, the Blockchain Archive Server maintains a redundant,
secure and immutable backup of data. Redundant backups and the
blockchain work together to assure not only the physical security
of the database but also the integrity of the information held
within.
Blockchain
Archive Server protects client data from “ransomware” -
malicious software that infects your computer and displays messages
demanding a fee to be paid in order for your system to work again.
Blockchain technology is a leading-edge tool for data security,
providing an added layer of security against data loss due to all
types of software specifically designed to disrupt, damage, or gain
unauthorized access to a computer system (i.e.
malware).
Uniquely,
the Blockchain Archive Server is a turn-key solution that can stand
alone or seamlessly integrate into an existing data infrastructure
to quickly recover from a cyber-attack. The Blockchain Archive
Server is a server that comes pre-loaded with the
blockchain-powered cybersecurity software, which can be delivered,
installed and integrated into a client’s computer systems
with ease.
On
August 18, 2020, the Blockchain Archive Server was publicly
introduced and demonstrated at Florida Institute of Technology's
CAMID Center to clients and distributors. The event was held to
allow inspection of the working system that currently protects
proprietary research data at the University Center for Advanced
Manufacturing and Innovative Design. Complete installation and
coordination with existing security systems was achieved in less
than one week at the facility.
On
September 15, 2020 the Blockchain Archive Server product won at TV
Worldwide's recent CyberSecurity Shark Fest. The event was produced
live by CyberSecurity TV on the TV Worldwide Network with remote
interviewing and judging via a virtual platform. The contest was
viewed by a worldwide audience of cyber security professionals
seeking improved solutions for data protection. Sollensys also
sponsored the event.
Distribution
Sales Structure
The
Blockchain Archive Server is now available across the United States
and Canada through authorized distributors. Currently, Sollensys is
the only authorized distributor of the Blockchain Archive Server,
pursuant to a Reseller Agreement between Eagle Lake and
Sollensys entered into on August 20,
2020 (the “Reseller Agreement”).
Pursuant to the Reseller Agreement, Eagle Lake appointed Sollensys
as a non-exclusive distributor of Eagle Lake’s products and
services (which, as of the date of this Report, consists solely of
the Blockchain Archive Server). As a distributor for Eagle Lake,
the Sollensys has agreed to, among other things, use its best
efforts to solicit orders from interested parties for Eagle
Lake’s products and services, secure channel partners and
distributors for Eagle Lake’s products and services, and to
resell Eagle Lake’s products and services to for-profit
organizations, non-profit-organizations, government entities,
quasi-governmental agencies, and any other type of organizations in
the United States and abroad. Sollensys also has the right to
engage its own distributors for Eagle Lake’s products. For
all sales, Sollensys is entitled to any profits generated on such
sales, which is the difference between the cost of Sollensys to
acquire the products and/or services from Eagle Lake to sell and
the price at which Sollensys is ultimately able to sell those
products and/or services to customers.
Delivery & Installation
The
Blockchain Archive Server is a turn-key solution that can stand
alone or seamlessly integrate into an existing data infrastructure
to quickly recover from a cyber-attack. Delivery of the Blockchain
Archive Server to a client is accomplished by delivering a server
loaded with Eagle Lake’s blockchain cybersecurity software
(i.e. the Blockchain Archive Server) to a client’s physical
location where such client’s IT systems infrastructure is
accessible. Once physically delivered on-site, the Blockchain
Archive Server is installed and integrated with the client’s
existing IT system servers. The unit remains at the client’s
location to run the software. Sollensys (or its authorized
distributors) handles all delivery and installation of the
Blockchain Server, and provides maintenance as needed.
Planned Products and Services
Eagle
Lake intends to continue to develop products utilizing blockchain
technology in the field of data security management. Eagle Lake
will continue to focus on innovation and development of commercial
blockchain applications that are either complementary to the
Blockchain Archive Server or standalone products and services
related to cybersecurity.
Eagle
Lake is in the process of developing a new blockchain cybersecurity
application – the “Argus
Panoptes RFID System” – and is preparing to file
related patent applications for the product. The Argus
Panoptes RFID System is a developmental stage product that allows
the Blockchain Archive Server to record data from radio-frequency
identification (RFID) sensors.
As of
the date of this Current Report on Form 8-K, this product is still
under development, and has not been launched by Eagle Lake. Eagle
Lake hopes to launch the product before the end of 2021, and is
presently preparing potential patents to be filed for the
technology underlying the Argus Panoptes RFID System, which it
believes is unique.
In the
future, Eagle Lake may decide to expand its product and service
offerings outside of blockchain cybersecurity solutions, and
develop science, technology, and engineering solutions for
companies in fields such as aerospace, chemical engineering,
defense and intelligence. However, as of the date of this Current
Report on Form 8-K, Eagle Lake is focused on blockchain technology
solutions for cybersecurity and data management.
Industry Overview and Market Opportunity
Cyberattacks have evolved from rudimentary malware into highly
sophisticated, organized and large-scale attacks targeting
consumers, governments, and a broad range of industries. According
to a 2019 Year End Report published by RiskBased Security, during
2019, over 7,000 data breaches were reported, resulting in over 15
billion records being exposed, evidencing that companies have
increasingly greater needs to protect themselves from increasing
cyber-attacks. According to June 2019 White Paper published by IDC
(International Data Corporation), 93% of organizations have been
the victim of cyber-attacks within the past three years, and nearly
half of organizations have suffered at least one unrecoverable data
event within the past three years. One such type of attack are
ransomware attacks, which have generated billions of dollars in
payments to cybercriminals and inflicted significant damage and
expenses for consumers, businesses and governments. According to a
May 2020 report titled “The State of Ransomware 2020”
published by Sophos, 59% of 500 organizations surveyed in the
United States reported a ransomware attack, with a global average
of 51% of companies having been victims of ransomware attacks in
the last year. This report also stated that the average cost to
rectify the impacts of a ransomware attack (considering downtime,
human resources, device cost, network cost, ransom price, etc.) is
$732,520 for organizations that don’t pay the ransom, rising
to US$1,448,458 for organizations that do pay. An October 2020
article published by Security Magazine reported that data from
25,000 small-to-midsize organizations in the United States reveals
ransomware as the top cyber insurance incident in the first half of
the year, with the average ransomware demand increasing 100% from
2019 through Q1 2020
We believe these trends mean there is a significant need for
products like the Blockchain Archive Server in the cybersecurity
market. According to IDC, the
addressable enterprise security market addressed by our solutions
is expected to reach nearly $17.3 billion in 2020, growing at
a CAGR of 6.9% through 2024. The “addressable enterprise
security market” represents revenue from five markets (Web
Security, SIEM, Network Security, Corporate Endpoint, and Data Loss
Protection).
Competition
The market for cybersecurity solutions for organizations (i.e.
enterprises, governments, etc.) is highly competitive and
constantly evolving. Conditions in our market are prone to frequent
and rapid changes in technology, customer requirements and
preferences, and industry standards resulting in frequent new
product and service offerings and improvements and the entrance of
new market participants. As a result we face a broad set of
competitors.
We compete for cybersecurity budgets both with larger
integration providers, such as Symantec (a division of Broadcom),
Palo Alto Networks, Sophos, Microsoft, Trend Micro, and Sentinel
One in the endpoint, networking, and CASB space, as well as with
point solutions focusing on a subset of the cybersecurity market.
These competitors include Crowdstrike, Carbon Black (a division of
VMware), Tanium, and Cylance (a division of BlackBerry) in the
endpoint market, Netskope, and Bitglass in the CASB market, IBM and
Cisco in network intrusion, Forcepoint, and Zscaler in the SWG
market, and IBM, Splunk, Micro Focus, Dell, and LogRhythm in the
security operations market. Products
and services differ from different organization, but are all
considered part of the end user’s cybersecurity
budget.
The
principal competitive factors in the markets for our solutions
include:
●
brand
recognition and reputation;
●
breadth
and integration of product offerings;
●
product
features, reliability, performance, and effectiveness;
●
price
and total cost of ownership;
●
strength
and productivity of sales and marketing efforts;
●
quality
of customer service; and
●
financial
resources and stability.
With respect to our specific Blockchain Archive Server product, we
are not aware of any direct competitors with a product solution
similar to our product. Nonetheless, we face competition for budget
allocations in all of the areas outlined above. We believe we compete favorably in a number of the
above factors – however, our primary competitive advantage we
feel is the compatibility and ease of installation of our
Blockchain Archive Sever, which was designed as a turn-key solution
that can stand alone or seamlessly integrate into an existing data
infrastructure to quickly recover from a
cyber-attack.
However, many of our current competitors and potential competitors
have competitive advantages, such as more extensive operations,
larger product development and strategic acquisition budgets, or
greater financial, technical, sales, or marketing resources than we
do. For additional information about the risks to our business
related to competition, see the “Risk Factors” section
of this Report.
Customers
Eagle Lake does not sell its products or services directly to
customers. It contracts solely with its authorized distributors
that market and sell the Company’s products and services to
end-users of the Blockchain Archive Server. As of the date of this
Report, Eagle Lake has only engaged one distributor, which is
Sollensys As such, technically Sollensys is Eagle Lake’s only
“customer”, and its only source of revenue. However,
Eagle Lake’s agreement with Sollensys is not exclusive, and
therefore, it may engage other distributors to market and sell its
products, or engage with customers directly.
Through Sollensys, the Blockchain Archive Server has been sold to a
number of different companies in a wide array of industries.
Companies that have purchased the Blockchain Archive Server include
SFTF, LLC, which operates 5 Ashley HomeStore Outlets in
Jacksonville Florida. Ashley HomeStore is the #1 furniture and
mattress retailer in America and the #1 selling furniture store
brand in the world. In addition, the Blockchain Archive
Server™ has been purchased and installed for medical data
protection at Ability Plus Therapy Inc., which operates a pediatric
therapy center in Melbourne, Florida and at Island Direct
Primary Care, a concierge medical service in Merritt Island,
Florida. Both firms provide private health care and wellness
services to individuals or companies. At these locations, a special
version of the Blockchain Archive Server designed to meet the
unique HIPAA requirements regarding patient/doctor confidentiality
was delivered to these customers.
The Blockchain Archive Server is available across the United States
and Canada through the newly established network of Sollensys
authorized distributors. Customers to date have been generally
small-to-medium sized businesses.
Eagle Lake is not dependent on any of these customers in particular
for its revenue.
Suppliers and Raw Materials
Eagle Lake purchases the servers used to make the Blockchain
Archive Servers from third-party retailers, such as Amazon. It has
not entered into any agreements with any suppliers for any hardware
or other raw materials.
Sales and Marketing
As described above, Eagle Lake relies on authorized distributors to
market and sell its products. The Company does not market or sell
the Blockchain Archive Server directly to any end-users of the
Blockchain Archive Server.
Government Regulation
Eagle Lake is subject to compliance with a number of regulations,
both United States and internationally, in connection with the
operation of its business. By virtue of the fact that our
Blockchain Archive Server involves processing of personal
information, we are subject to data protection and privacy laws and
regulations, which are evolving and being tested in courts, which
may result in increasing regulatory and public scrutiny and
escalating levels of enforcement and sanctions.
A variety of data protection legislation apply in the United States
at both the federal and state level, including new laws that may
impact our operations. For example, in June 2018, the State of
California enacted the California Consumer Privacy Act of 2018
(“CCPA”), which went into effect on January 1,
2020, with enforcement by the state attorney general beginning
July 1, 2020. The CCPA defines “personal
information” in a broad manner and generally requires
companies that process personal information of California residents
to make new disclosures about their data collection, use, and
sharing practices, allows consumers to opt-out of certain
data sharing with third parties or sale of personal information,
and provides a new cause of action for data breaches.
In 2016, the E.U. adopted the General Data Protection Regulation
(“GDPR”), which took effect on May 25, 2018. data
The GDPR includes more stringent operational requirements on
entities that receive or process personal data (as compared to
existing EU law), along with significant penalties
for non-compliance, more robust obligations on data
processors and data controllers, greater rights for data subjects
(potentially requiring significant changes to both our technology
and operations), and heavier documentation requirements for data
protection compliance programs. Similarly, there are a number of
federal and state level legislative proposals in the United States
that could impose new obligations on us. In addition, some
countries are considering or have passed legislation implementing
more onerous data protection requirements or requiring local
storage and processing of data or other requirements that could
increase the cost and complexity of delivering our services.
Although our sales are currently focused on customers in the United
States and Canada, we may expand into Europe in the future, and
would then be subject to such laws.
Like other U.S.-based IT security products, our products are
subject to U.S. export control laws and regulations, specifically
the Export Administration Regulations, or EAR, U.S. economic and
trade sanctions regulations and applicable foreign government
import, export and use requirements. Certain of our products may be
subject to encryption controls under the EAR due to the nature of
the product and its use or incorporation of encryption
functionality. Under the encryption controls in the EAR, applicable
products may only be exported outside of the United States with
required export authorizations, such as a license, a license
exception or other appropriate government authorizations. In
addition to the restrictions under the EAR, U.S. export control
laws and economic sanctions prohibit the export of products and
services to countries, governments, entities or persons subject to
U.S. embargoes or trade sanctions.
Intellectual Property
Eagle Lake filed an application for a trademark with the United
States Patent and Trademark Office (“USPTO”) on July
14, 2020 under Application Serial No. 90051101 for the Word Mark
“Blockchain Archive Server”. The trademark is currently
pending registration by the USPTO.
Eagle Lake is in the process of preparing multiple patent
applications related to its blockchain technology. Presently, the
Company is treating its unique technology as trade secrets and all
software source code is obfuscated before being distributed. On
August 12, 2020, the Company acquired the intellectual property
rights to certain technology that it intends to utilize in
connection with its planned Argus Panoptes RFID product. A copy of
this agreement is filed herewith as Exhibit 10.2 to this Current
Report of Form 8-K.
Employees
As of November 30, 2020, Eagle Lake employs 14 full-time employees
and no part-time employees. Approximately 5% of our workforce are
independent contractors. We believe that a diverse workforce is
important to our success. We will continue to focus on the hiring,
retention and advancement of women and underrepresented
populations, and to cultivate an inclusive and diverse corporate
culture. In the future, we intend to continue to evaluate our use
of human capital measures or objectives in managing our business
such as the factors we employ or seek to employ in the development,
attraction and retention of personnel and maintenance of diversity
in our workforce.
The success of our business is fundamentally connected to the
well-being of our people. Accordingly, we are committed to the
health, safety and wellness of our employees. We provide our
employees and their families with robust compensation and benefits,
including salaries and health benefits, to help meet the needs of
our employees.
We believe that we maintain a satisfactory working relationship
with our employees and have not experienced any labor
disputes.
Donald Beavers is an employee of Eagle Lake, and serves as its
Chief Executive Officer.
Reports to Security Holders
We intend to furnish our shareholders annual reports containing
financial statements audited by our independent registered public
accounting firm and to make available quarterly reports containing
unaudited financial statements for each of the first three quarters
of each year. We file Quarterly Reports on Form 10-Q, Annual
Reports on Form 10-K and Current Reports on Form 8-K with the
Securities and Exchange Commission in order to meet our timely and
continuous disclosure requirements. We may also file
additional documents with the Commission if they become necessary
in the course of our company’s operations.
The public may read and copy any materials that we file with the
SEC at the SEC's Public Reference Room at 100 F Street, NE,
Washington, D.C. 20549. The public may obtain information on the
operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. The SEC maintains an Internet site that contains
reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC. The
address of that site is www.sec.gov.
RISK FACTORS
In this
“RISK FACTORS” section of this Form 8-K, any references
to “the Company,” “we,” “us,”
“our” or words of similar import, refer to the Company
and Eagle Lake on a combined basis.
YOU SHOULD CAREFULLY CONSIDER THE RISKS AND UNCERTAINTIES DESCRIBED
BELOW AND THE OTHER INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS CURRENT REPORT ON FORM 8-K BEFORE DECIDING
WHETHER TO INVEST IN THE COMPANY’S COMMON STOCK. ADDITIONAL
RISKS AND UNCERTAINTIES NOT PRESENTLY KNOWN TO THE COMPANY OR THAT
THE COMPANY CURRENTLY DEEMS IMMATERIAL MAY ALSO IMPAIR THE
COMPANY’S BUSINESS OPERATIONS. IF ANY OF THE FOLLOWING RISKS
ACTUALLY OCCUR, THE COMPANY’S BUSINESS, FINANCIAL CONDITION
OR OPERATING RESULTS COULD BE MATERIALLY ADVERSELY AFFECTED. IN
SUCH CASE, THE TRADING PRICE OR THE COMPANY’S COMMON STOCK
COULD DECLINE AND YOU MAY LOSE PART OR ALL OF YOUR INVESTMENT. THIS
CURRENT REPORT ON FORM 8-K ALSO CONTAINS FORWARD-LOOKING STATEMENTS
THAT INVOLVE RISKS AND UNCERTAINTIES. PLEASE SEE “CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS”.
Risks Related to Our Business and Industry
We are an early stage company with a limited operating history.
Such limited operating history may not provide an adequate basis to
judge our future prospects and results of operations.
Eagle Lake was incorporated on May 8, 2020. We
have limited experience and a limited operating history in which to
assess our future prospects as a company. In addition, the market
for our products and services is highly competitive. If we fail to
successfully develop and offer our products and services in an
increasingly competitive market, we may not be able to capture the
growth opportunities associated with them or recover our
development costs, and our future results of operations and growth
strategies could be adversely affected. Our limited history may not
provide a meaningful basis for investors to evaluate our business,
financial performance, and prospects.
We may fail to successfully execute our business plan.
Our shareholders may lose their entire investment if we fail to
execute our business plan. Our prospects must be considered in
light of the following risks and uncertainties, including but not
limited to, competition, the erosion of ongoing revenue streams,
the ability to retain experienced personnel and general economic
conditions. We cannot guarantee that we will be successful in
executing our business plan. If we fail to successfully execute our
business plan, we may be forced to cease operations, in which case
our shareholders may lose their entire investment.
The cybersecurity market is rapidly evolving and becoming
increasingly competitive in response to continually evolving
cybersecurity threats from a variety of increasingly sophisticated
cyberattackers. If we fail to anticipate changing customer
requirements or industry and market developments, or we fail to
adapt our business model to keep pace with evolving market trends,
our financial performance will suffer.
The cybersecurity market is characterized by continual changes in
customer preferences and requirements, frequent and rapid
technological developments and continually evolving market trends.
We must continually address the challenges of dynamic, and
accelerating market trends, such as the emergence of new
cybersecurity threats, the continued decline in the sale of new
personal computers, and the rise of mobility and cloud-based
solutions, all of which make satisfying our customers’
diverse and evolving needs more challenging. In addition, many of
our target enterprise customers operate in industries characterized
by rapidly changing technologies and business plans, which require
them to adapt quickly to increasingly complex cybersecurity
requirements. We may be unable to develop new technologies to keep
pace with evolving threats therefore fail to meet customer
expectations, which could lead to our competitive position,
business, and financial results being harmed.
The introduction of new products or services by competitors and
market acceptance of products or services based on emerging or
alternative technologies could each render our existing solutions
obsolete or make it easier for other products or services to
compete with our solutions. In addition, modern cyberattackers are
skilled at adapting to new technologies and developing new methods
of breaching customers. For example, ransomware attacks have
increased in frequency and complexity, and the costs associated
with successful ransomware attacks have increased. We must
continuously work to ensure our solutions protect against the
increased volume and complexity of the cybersecurity threat
landscape, or our business could suffer.
We cannot be sure that we will accurately predict how the
cybersecurity markets in which we compete or intend to compete will
evolve. Failure on our part to anticipate changes in our markets
and to develop solutions and enhancements that meet the demands of
those markets will significantly impair our business, financial
condition, results of operations, and cash flows.
We operate in a highly competitive environment, and we expect
competitive pressures to increase in the future, which could cause
us to lose market share.
The markets for our solutions are highly competitive, and we expect
both the requirements and pricing competition to increase,
particularly given the increasingly sophisticated attacks, changing
customer preferences and requirements, current economic pressures,
and market consolidation. Competitive pressures in these markets
may result in price reductions, reduced margins, loss of market
share and inability to gain market share, and a decline in sales,
any one of which could seriously impact our business, financial
condition, results of operations, and cash flows.
Our business depends substantially on our ability to retain
customers, through continued quality service and/or new product
offerings. If we are unable to retain our customers or to expand
our product offerings, our future results of operations will be
harmed.
While we receive revenues from the sale of the Blockchain Archive
Server software and hardware “units”, or secondary
revenue stream comes from the annual maintenance fees associated
with each “unit” that a customer purchases. Such fees,
over time, will eclipse the revenues that we receive from the
initial sale of our products, and therefore customer retention is
important to our Company.
Retention rates may decline or fluctuate as a result of a number of
factors, including but not limited to the level of our
customers’ satisfaction or dissatisfaction with our
solutions, our prices and the prices of competing products or
services, new technologies, changes in our customers’
spending levels, and changes in how our customers perceive the
cybersecurity threats. Any of the above factors could lead to a
loss of customers, which would have negative impact on our
financial condition and operating results. Further, our customers
have no obligation to renew their contracts with us upon their
expiration, which increases the risk that we may suffer from
customer attrition.
Further, while it is important that we retain existing customers,
it is also important that our customers expand their use of our
solutions. Our ability improve our results of operations partly
depends on our ability to increase sales of and cross-sell new
solutions to existing customers. At present, we do not have any
other product offerings apart from the Blockchain Archive Server to
offer to our existing customers. Any new products that we develop
to offer to customers are therefore untested, and may be
unsuccessful. Our failure to sell additional solutions to our
existing and new customers could adversely affect our ability to
grow our business.
We rely significantly on third-party partners to facilitate the
sale of our products and solutions.
We do not directly sell our products to end-users. Sales of our
solutions is achieved solely through third-party intermediaries,
which we refer to as “distributors”. Currently, our
only distributor is Sollensys. If we lost Sollensys as our
distributor, our results of operations could be significantly
harmed, and there is no guarantee that we would be able to find
another company that could effectively replace Sollensys as our
distributor.
Further, Sollensys is authorized to offer the Blockchain Archive
Server directly to customers, or offer it through its own
third-party distributor partners, which is Sollensys’ primary
mode of selling our products. As such, we depend upon these
distributors to generate sales opportunities and to independently
manage the sales process for opportunities with which they are
involved. Sales by such distributors vary significantly from period
to period. Our agreements with our distributors are generally
nonexclusive and may be terminated at any time without cause.
Furthermore, our distributors frequently market and distribute
competing products and may, from time to time, place greater
emphasis on the sale of these products due to pricing, promotions,
and other terms offered by our competitors. Some of our
distributors may also experience financial difficulties, which
could adversely impact our collection of the related accounts
receivable. These factors can make it difficult for us to forecast
our financial results accurately and can cause our financial
results to fluctuate unpredictably.
If we
fail to manage our growing distribution channels successfully,
these channels may fail to perform as we anticipate, which could
reduce our sales, increase our expenses, and weaken our reputation
and competitive position.
We may need to change our pricing models to compete
successfully.
The intense competition we face in the cybersecurity market, in
addition to general economic and business conditions (including the
economic downturn resulting from the COVID-19 pandemic),
can result in downward pressure on the prices of our solutions. If
our competitors offer significant discounts on competing products
or services, or develop products or services that our customers
believe are more valuable or cost-effective, we may be required to
decrease our prices or offer other sales incentives in order to
compete successfully. Additionally, if we increase prices for our
solutions, demand for our solutions could decline as customers
adopt less expensive competing products and our market share could
suffer. If we do not adapt our pricing models to reflect changes in
customer use of our products or changes in customer demand, our
revenues could decrease.
Our solutions may have defects, errors, or vulnerabilities, and may
fail to detect, prevent, or block cyberattacks, which our
reputation and our brand could suffer, which would adversely impact
our business, financial condition, results of operations, and cash
flows.
Cybersecurity is a complex area of operation. Our current solutions
(i.e. Blockchain Archive Server) and/or future solutions may
contain design defects, vulnerabilities, or errors that are not yet
detected. Such defects of our solutions could cause our solutions
to be vulnerable to cybersecurity attacks, cause them to fail to
perform the intended operation, or temporarily interrupt the
operations of our customers. In addition, since the techniques used
by adversaries change frequently and generally are not recognized
until widely applied, there is a risk that our solutions would not
be able to address certain attacks. Moreover, our solutions and
infrastructure technology systems could be targeted by bad actors
and attacks specifically designed to disrupt our business and
undermine the perception that our solutions are capable of
providing their intended benefits, which, in turn, could have a
serious impact on our reputation.
The failure, perceived or real, of any of our solutions to detect
or prevent malware, viruses, worms, or similar threats for any
number of reasons, including our failure to enhance and expand our
solutions to reflect market trends and new attack methods, new
technologies and new operating environments, the complexity of our
customers’ environment and the sophistication and
coordination of threat actors launching malware, ransomware,
viruses, intrusion devices, and other threats could cause our
reputation and business could be harmed.
We may also incur significant costs and operational consequences of
investigating, remediating, eliminating, and putting in place
additional tools and devices designed to prevent actual or
perceived security breaches and other incidents, as well as the
costs to comply with any notification obligations resulting from
any security incidents.
Our investments in new or enhanced solutions may not yield the
benefits we anticipate.
The success of our business depends on our ability to develop new
technologies and solutions, to anticipate future customer
requirements and applicable industry standards, and to respond to
the changing needs of our customers, competitive technological
developments, and industry changes. As of the date of this Report,
we only have one product developed, which is the Blockchain Archive
Server. We will need to continue to develop products and services
in order to grow, or even maintain, our current levels of
operations.
The process of developing new technologies is time consuming,
complex, and uncertain, and requires the commitment of significant
resources well in advance of being able to fully determine market
requirements and industry standards. Furthermore, we may not be
able to timely execute new technical product or solution
initiatives for a variety of reasons such as errors in planning or
timing, technical difficulties that we cannot timely resolve, or a
lack of appropriate resources. Complex solutions like ours may
contain undetected errors or compatibility problems, particularly
when first released, which could delay or adversely impact market
acceptance. We may also experience delays or unforeseen costs
related to integrating products we acquire with products we
develop, because we may be unfamiliar with errors or compatibility
issues of products we did not develop ourselves. Any of these
development challenges, or the failure to appropriately adjust
our go-to-market strategy to accommodate new offerings,
may result in delays in the commercial release of new solutions or
may cause us to terminate development of new solutions prior to
commercial release. Any such challenges could result in competitors
bringing products or services to market before we do and a related
decrease in our market segment share and net revenue. Our inability
to introduce new solutions and enhancements in a timely and
cost-effective manner, or the failure of these new solutions or
enhancements to achieve market acceptance and comply with industry
standards and governmental regulation, could seriously harm our
business, financial condition, results of operations, and cash
flows.
If we are unable to attract, train, motivate, and retain senior
management and other qualified personnel, our business could
suffer.
Our success depends in large part on our ability to attract and
retain senior management personnel, as well as technically
qualified and highly skilled sales, consulting, technical, finance,
and marketing personnel. It could be difficult, time consuming, and
expensive to identify, recruit, and onboard any key management
member or other critical personnel. Competition for highly skilled
personnel is often intense, particularly in the markets in which we
operate including Silicon Valley. If we are unable to attract and
retain qualified individuals, our ability to compete in the markets
for our products could be adversely affected, which would have a
negative impact on our business and financial results. Our
competitors may be successful in recruiting and hiring members of
our management team or other key employees, including key employees
obtained through our acquisitions, and it may be difficult for us
to find suitable replacements on a timely basis, on competitive
terms or at all.
Changes in management or other critical personnel may be disruptive
to our business and might also result in our loss of unique skills,
loss of knowledge about our business, and may result in the
departure of other existing employees, customers or partners. We
have experienced recent turnover in our senior management team, and
further turnover in the future could adversely affect our
business.
We operate in an industry with an overall shortage of skilled and
experienced talent that generally experiences high employee
attrition. We have experienced significant turnover over the last
few years and expect that may continue. The loss of one or more of
our key employees could seriously harm our business. If we are
unable to attract, integrate, or retain the qualified and highly
skilled personnel required to fulfill our current or future needs,
our business, financial condition, results of operations, and cash
flows could be harmed.
Effective succession planning is also important to the long-term
success of our business. If we fail to ensure effective transfer of
knowledge and smooth transitions involving key employees could
hinder our strategic planning and execution. The loss of senior
management or any ineffective transitions in management, especially
in our sales organization, could significantly delay or prevent the
achievement of our development and strategic objectives, which
could adversely affect our business, financial condition, results
of operations, and cash flows.
If we are unable to increase sales of our solutions to new
customers, our future results of operations may be
harmed.
An important part of our growth strategy involves continued
investment in direct marketing efforts, distributor relationships,
our sales force, and infrastructure to add new customers. The
number and rate at which new
customers may purchase our
products and services depends on a number of factors, including
those outside of our control, such as customers’ perceived
need for our solutions, competition, general economic conditions,
market transitions, product obsolescence, technological change,
shifts in buying patterns, the timing and duration of hardware
refresh cycles, financial difficulties and budget constraints of
our current and potential customers, public awareness of security
threats to IT systems, and other factors. These new customers, if
any, may renew their contracts with us and purchase additional
solutions at lower rates than we have experienced in the past,
which could affect our financial results.
Our ability to maintain customer satisfaction depends in part on
the quality of our technical support services, and increased
demands on those services may adversely affect our relationships
with our customers and negatively impact our financial
results.
We offer technical support services with many of our solutions. We
may be unable to respond quickly enough to accommodate short-term
increases in customer demand for support services. We also may be
unable to modify the format of our support services to compete with
changes in support services provided by competitors or to
successfully integrate support for our customers. Further customer
demand for these services, without corresponding revenue, could
increase costs and adversely affect our results of
operations.
If we fail to provide at an acceptable level of customer service,
relationships with our customers could be materially
harmed.
We rely on third-party manufacturers to manufacture and produce
hardware used as part of our products, which subjects us to supply
risks.
We rely on third parties to manufacture the hardware-portion of our
Blockchain Archive Server. This reliance on third parties involves
a number of risks that could have a negative impact on our business
and financial results. Our reliance on these third-party manufacturers
reduces our control over the manufacturing process and exposes us
to risks, including reduced control over quality assurance, product
costs, product supply, timing, and transportation risk. If we lose,
terminate, or fail to effectively manage our manufacturing partner
relationships, or if any of our manufacturing partners experience
production interruptions or shut-downs, including those caused by a
natural disaster, epidemic, pandemic (such as
the COVID-19 pandemic), capacity shortage, or
quality-control problem, it would negatively affect sales of our
product lines manufactured by that manufacturing partner and
adversely affect our business and results of
operations.
Our failure to adequately maintain and protect personal information
of our customers or our employees in compliance with evolving legal
requirements could have a material adverse effect on our
business.
We collect, use, store, disclose, or transfer (collectively,
“process”) personal information, including from
employees and customers, in connection with the operation of our
business. A wide variety of local and international laws and
regulations apply to the processing of personal information. Data
protection and privacy laws and regulations are evolving and being
tested in courts and may result in increasing regulatory and public
scrutiny and escalating levels of enforcement and
sanctions.
A variety of data protection legislation apply in the United States
at both the federal and state level, including new laws that may
impact our operations. For example, in June 2018, the State of
California enacted the California Consumer Privacy Act of 2018
(“CCPA”), which went into effect on January 1,
2020, with enforcement by the state attorney general beginning
July 1, 2020. The CCPA defines “personal
information” in a broad manner and generally requires
companies that process personal information of California residents
to make new disclosures about their data collection, use, and
sharing practices, allows consumers to opt-out of certain
data sharing with third parties or sale of personal information,
and provides a new cause of action for data breaches. Moreover, a
new privacy
law, the California Privacy Rights Act (“CPRA”) was
recently certified by the California Secretary of State to appear
on the ballot for the upcoming election on November 3, 2020.
If this initiative is approved by California voters, the CPRA would
significantly modify the CCPA, potentially resulting in further
uncertainty and requiring us to incur additional expenditures to
comply. Additionally, the Federal Trade Commission, and many state
attorneys general are interpreting federal and state consumer
protection laws to impose standards for the online collection, use,
dissemination, and security of data. The burdens imposed by the
CCPA and other similar laws that have been or may be enacted at the
federal and state level may require us to modify our data
processing practices and policies and to incur substantial
expenditures in order to comply.
Our actual or alleged failure to comply with any applicable laws
and regulations or privacy-related contractual obligations, or to
protect such data that we process, could result in litigation,
regulatory investigations, and enforcement actions against us,
including fines, orders, public censure, claims for damages by
employees, customers, and other affected individuals, public
statements against us by consumer advocacy groups, damage to our
reputation and competitive position, and loss of goodwill (both in
relation to existing customers and prospective customers), any of
which could have a material adverse effect on our business,
financial condition, results of operations, and cash flows.
Evolving and changing definitions of personal information, personal
data, and similar concepts within the United States, Canada, and
elsewhere, especially relating to classification of IP addresses,
device identifiers, location data, household data, and other
information we may collect, may limit or inhibit our ability to
operate or expand our business, including limiting strategic
partnerships that may involve the sharing of data. Additionally, if
third parties that we work with, such as vendors or developers,
violate applicable laws or our policies, such violations may also
place personal information at risk and have an adverse effect on
our business. Even the perception of privacy concerns, whether or
not valid, may harm our reputation, subject us to regulatory
scrutiny and investigations, and inhibit adoption of our products
by existing and potential customers.
Our products are currently being used by medical facilities, which
subjects us to increased compliance obligations with certain
regulations.
The Blockchain Archive Server has been sold to medical
facilities. For medical facilities, our Blockchain Archive
Server must be compliant with Health Insurance Portability and
Accountability Act of 1996 (“HIPPA”), as amended, and
its implementing regulations, establish privacy and security
standards that limit the use and disclosure of Protected Health
Information (“PHI”) and require the implementation of
administrative, physical, and technical safeguards to ensure the
confidentiality, integrity, and availability of individually
identifiable health information in electronic form. The Health
Information Technology for Economic and Clinical Health Act
(“HITECH”) which became effective on February 17, 2010,
and an implementing regulation known as the Omnibus Final Rule,
which became effective on September 23, 2013, significantly
expanded HIPAA’s privacy and security requirements. Among
other things, HITECH and the Omnibus Final Rule make HIPAA’s
privacy and security standards directly applicable to
“business associates,” which are independent
contractors or agents of covered entities that create, receive,
maintain, or transmit PHI in connection with providing a service
for or on behalf of a covered entity. Under HIPAA and our
contractual agreements with our customers, we are considered a
“business associate” to our customers and thus are
directly subject to HIPAA’s privacy and security standards.
If we do not comply with these standards and regulations, we could
be subject to liabilities, penalties, and fines.
Since inception, we have experienced losses, and may have to
further reduce our costs by curtailing future operations to
continue as a business.
Since
our inception on May 8, 2020, we have had operating losses and our
cash flow has been inadequate to support our ongoing operations.
Our ability to fund our capital requirements out of our available
cash and cash generated from our operations depends on a number of
factors, including our ability to gain interest in our products and
services and continue growing our existing operations and our
ability to raise funds as needed. If we cannot continue to generate
positive cash flow from operations, we will have to reduce our
costs and try to raise working capital from other sources. These
measures could materially and adversely affect our ability to
execute our operations and expand our business.
Our auditors have indicated that there is substantial doubt about
our ability to continue as a going concern.
The
accompanying financial statements for Eagle Lake included elsewhere
in this Current Report on Form 8-K have been prepared assuming that
Eagle Lake will continue as a going concern, which contemplates
continuity of operations, realization of assets, and liquidation of
liabilities in the normal course of business. As reflected in the
accompanying financial statements, Eagle Lake had a net loss of
$399,852 for the period from inception (May 8, 2020) to September
30, 2020. These factors among others raise substantial doubt about
Eagle Lake’s ability to continue as a going concern. While
Eagle Lake is attempting to commence operations and generate
revenues, Eagle Lake’s cash position may not be significant
enough to support its daily operations. Management intends to raise
additional funds by way of a public or private offering. Management
believes that the actions presently being taken to further
implement its business plan and generate revenues provide the
opportunity for Eagle Lake to continue as a going concern. While we
believe in the viability of its strategy to generate revenues and
in its ability to raise additional funds, there can be no
assurances to that effect. The ability of Eagle Lake to continue as
a going concern is dependent upon its ability to further implement
its business plan and generate revenues. The financial statements
do not include any adjustments that might be necessary if Eagle
Lake is unable to continue as a going concern. For further
discussion about our ability to continue as a going concern and our
plan for future liquidity, see “Management’s Discussion
and Analysis of Financial Condition and Results of
Operations.” Further, as of September 30, 2020, the Company
had a working capital surplus of $485 and negative retained
earnings of $2,449,033. The Company’s ability to continue as
a going concern ultimately is dependent on the management’s
ability to obtain equity or debt financing, attain further
operating efficiencies, and achieve profitable
operations.
The Company may suffer from lack of availability of additional
funds.
We expect to have ongoing needs for working capital in order to
fund operations and to continue to expand our operations. To that
end, we will be required to raise additional funds through equity
or debt financing. However, there can be no assurance that we will
be successful in securing additional capital on favorable terms, if
at all. If we are successful, whether the terms are favorable or
unfavorable, there is a potential that we will fail to comply with
the terms of such financing, which could result in severe liability
for our Company. If we are unsuccessful, we may need to (a)
initiate cost reductions; (b) forego business development
opportunities; (c) seek extensions of time to fund liabilities, or
(d) seek protection from creditors. In addition, any future sale of
our equity securities would dilute the ownership and control of
your shares and could be at prices substantially below prices at
which our shares currently trade. Our inability to raise capital
could require us to significantly curtail or terminate our
operations altogether. We may seek to increase our cash reserves
through the sale of additional equity or debt securities. The sale
of convertible debt securities or additional equity securities
could result in additional and potentially substantial dilution to
our shareholders. The incurrence of indebtedness would result in
increased debt service obligations and could result in operating
and financing covenants that would restrict our operations and
liquidity. In addition, our ability to obtain additional capital on
acceptable terms is subject to a variety of
uncertainties.
In addition, if we are unable to generate adequate cash from
operations, and if we are unable to find sources of funding, it may
be necessary for us to sell all or a portion of our assets, enter
into a business combination, or reduce or eliminate operations.
These possibilities, to the extent available, may be on terms that
result in significant dilution to our shareholders or that result
in our shareholders losing all of their investment in our
Company.
The ability of our Chief Executive Officer, Donald Beavers, to
control our business may limit or eliminate minority
shareholders’ ability to influence corporate
affairs.
17.09% of the voting power of the Company is now held by our Chief
Executive Officer, Donald Beavers, who is the largest stockholder
of the Company. Because of this voting control, he is in a position
to influence membership of our board of directors, as well as all
other matters requiring stockholder approval. The interests of our
Chief Executive Officer may differ from the interests of other
shareholders with respect to the issuance of shares, business
transactions with or sales to other companies, selection of other
officers and directors and other business decisions. The minority
shareholders have no way of overriding decisions made by our Chief
Executive Officer.
We rely on technology, such as our information systems, to conduct
our business. Failure to protect our technology against breakdowns
and security breaches could adversely affect our
business.
We rely on technology, such as our information systems and servers,
to conduct our business. This technology is vulnerable to service
interruptions and security breaches from inadvertent or intentional
actions by our employees, partners and vendors, or from attacks by
malicious third parties. Such attacks are of ever-increasing levels
of sophistication and are made by groups and individuals with a
wide range of motives and expertise, including organized criminal
groups, “hacktivists,” nation states and others. The
techniques used to breach security safeguards evolve rapidly, and
they may be difficult to detect for an extended period of time, and
the measures we take to safeguard our technology may not adequately
prevent such incidents.
While we have taken steps to protect our confidential and personal
information and invested in information technology, there can be no
assurance that our efforts will prevent service interruptions or
security breaches in our systems or the unauthorized or inadvertent
wrongful use or disclosure of confidential information. Such
incidents could adversely affect our business operations,
reputation and client relationships. Any such breach would require
us to expend significant resources to mitigate the breach of
security and to address matters related to any such breach,
including the payment of fines. Although we maintain an insurance
policy that covers data security, privacy liability and
cyber-attacks, our insurance may not be adequate to cover losses
arising from breaches or attacks on our systems. We also may be
required to notify regulators about any actual or perceived
personal data breach as well as the individuals who are affected by
the incident within strict time periods.
The commercial
success of our products is dependent, in part, on factors outside
our control.
The commercial success of our products is dependent upon
unpredictable and volatile factors beyond our control, such as the
success of our competitors’ products. Our failure to attract
market acceptance and a sustainable competitive advantage over our
competitors would materially harm our business.
We may be unable to scale our operations successfully.
Our
growth strategy will place significant demands on our management
and financial, administrative and other resources. Operating
results will depend substantially on the ability of our officers
and key employees to manage changing business conditions and to
implement and improve our financial, administrative and other
resources. If the Company is unable to respond to and manage
changing business conditions, or the scale of its operations, then
the quality of its services, its ability to retain key personnel,
and its business could be harmed.
The COVID-19 pandemic has affected how we are operating
our business, and the duration and extent to which this will impact
our future results of operations and overall financial performance
remains uncertain.
The COVID-19 pandemic is having widespread, rapidly
evolving, and unpredictable impacts on global society, economies,
financial markets, and business practices. Federal, state and
foreign governments have implemented measures to contain the virus,
including social distancing, travel restrictions, border closures,
limitations on public gatherings, work from home, and closure
of non-essential businesses. To protect the health and
well-being of our employees, partners, and third-party service
providers, we have implemented work-from-home requirements, made
substantial modifications to employee travel policies, and
cancelled or shifted marketing and other corporate events to
virtual-only formats for the foreseeable future. While we continue
to monitor the situation and may adjust our current policies as
more information and public health guidance become available, such
precautionary measures could negatively affect our customer success
efforts, sales and marketing efforts, delay and lengthen our sales
cycles, or create operational or other challenges, any of which
could harm our business and results of operations. In addition,
the COVID-19 pandemic has disrupted the operations of our
current enterprise customers, as well as many of potential
enterprise customers, and may continue to disrupt their operations,
for an indefinite period of time, including as a result of travel
restrictions and/or business shutdowns, uncertainty in the
financial markets, or other harm to their businesses and financial
results, resulting in delayed purchasing decisions, extended
payment terms, and postponed or cancelled projects, all of which
could negatively impact our business and results of operations,
including our revenue and cash flows.
Beginning
in March 2020, the U.S. and global economies have reacted
negatively in response to worldwide concerns due to the economic
impacts of the COVID-19 pandemic. These factors also may
adversely impact enterprise and government spending on technology
as well as such customers’ ability to pay for our products
and services on an ongoing basis. For example, some businesses in
industries particularly impacted by
the COVID-19 pandemic, such as travel, hospitality,
retail, and oil and gas, have significantly cut or eliminated
capital expenditures at this time. A prolonged economic downturn
could adversely affect technology spending, demand for our
offerings, which could have a negative impact on our financial
condition, results of operations and cash flows. Any resulting
instability in the financial markets could also adversely affect
the value of our Common Stock, our ability to refinance our
indebtedness, and our access to capital.
The
ultimate duration and extent of the impact from
the COVID-19 pandemic depends on future developments that
cannot be accurately forecasted at this time, such as the severity
and transmission rate of the disease, the actions of governments,
businesses and individuals in response to the pandemic, the extent
and effectiveness of containment actions, the impact on economic
activity and the impact of these and other factors on our
employees, partners, and third-party service providers. These
uncertainties may increase variability in our future results of
operations and adversely impact our ability to accurately forecast
changes in our business performance and financial condition in
future periods. If we are not able to respond to and manage the
impact of such events effectively or if global economic conditions
do not improve, or deteriorate further, our business, financial
condition, results of operations, and cash flows could be adversely
affected.
Economic conditions or changing consumer preferences could
adversely impact our business.
A
downturn in economic conditions in one or more of the
Company’s markets could have a material adverse effect on our
results of operations, financial condition, business and prospects.
Although we attempt to stay informed of government and customer
trends, any sustained failure to identify and respond to trends
could have a material adverse effect on our results of operations,
financial condition, business and prospects.
The requirements of remaining a public company may strain our
resources and distract our management, which could make it
difficult to manage our business.
We
are required to comply with various regulatory and reporting
requirements, including those required by the SEC. Complying with
these reporting and other regulatory requirements are
time-consuming and expensive and could have a negative effect on
our business, results of operations and financial
condition.
Our intellectual property rights are valuable, and if we are unable
to protect them or are subject to intellectual property rights
claims, our business may be harmed.
The
“Blockchain Archive Server” technology and name are
important products to our business. We do not hold any patents or
trademarks protecting our intellectual property. While we have
filed both a patent and a trademark application for the Blockchain
Archive Server, there is no guarantee that these applications will
result in the requested trademark and patent being issued to us.
Without such protections, our technology is more vulnerable to
being copied and used by competitors. Various events outside of our
control pose a threat to our intellectual property rights as well
as to our business. Regardless of the merits of the claims, any
intellectual property claims could be time-consuming and expensive
to litigate or settle. In addition, if any claims against us are
successful, we may have to pay substantial monetary damages or
discontinue any of our practices that are found to be in violation
of another party’s rights. We also may have to seek a license
to continue such practices, which may significantly increase our
operating expenses or may not be available to us at all. Also, the
efforts we have taken to protect our proprietary rights may not be
sufficient or effective. Any significant impairment of our
intellectual property rights could harm our business or our ability
to compete.
We are required to comply with certain provisions of Section 404 of
the Sarbanes-Oxley Act of 2002, as amended (the
“Sarbanes-Oxley Act”) and if we fail to continue to
comply, our business could be harmed, and the price of our
securities could decline.
Rules
adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley
Act require an annual assessment of internal control over financial
reporting, and for certain issuers an attestation of this
assessment by the issuer’s independent registered public
accounting firm. The standards that must be met for management to
assess the internal control over financial reporting as effective
are evolving and complex, and require significant documentation,
testing, and possible remediation to meet the detailed standards.
We expect to incur significant expenses and to devote resources to
Section 404 compliance on an ongoing basis. It is difficult for us
to predict how long it will take or costly it will be to complete
the assessment of the effectiveness of our internal control over
financial reporting for each year and to remediate any deficiencies
in our internal control over financial reporting. As a result, we
may not be able to complete the assessment and remediation process
on a timely basis. In the event that our Chief Executive Officer or
Chief Financial Officer determines that our internal control over
financial reporting is not effective as defined under Section 404,
we cannot predict how regulators will react or how the market
prices of our securities will be affected; however, we believe that
there is a risk that investor confidence and the market value of
our securities may be negatively affected.
Risks Related to Our Common Stock
Our Common Stock Currently Trades on the Pink Tier of OTC Markets
and is Labeled as a “Shell Risk.”
Our
Common Stock Currently Trades on the Pink Tier of OTC Market Group
LLC’s Marketplace under the symbol “SOLS” and the
Company is currently labeled as a “Shell Risk” at this
time. The OTC Market is a network of security dealers who buy and
sell stock. The dealers are connected by a computer network that
provides information on current “bids” and
“asks,” as well as volume information. The trading of
securities on the OTC Pink is often sporadic and investors may have
difficulty buying and selling our shares or obtaining market
quotations for them, which may have a negative effect on the market
price of our Common Stock.
Our Common Stock is subject to risks arising from restrictions on
reliance on Rule 144 by shell companies or former shell
companies.
Under a regulation of the SEC known as “Rule 144,” a
person who beneficially owns restricted securities of an issuer and
who is not an affiliate of that issuer may sell them without
registration under the Securities Act provided that certain
conditions have been met. One of these conditions is that such
person has held the restricted securities for a prescribed period,
which will be 6 months for the Common Stock. However, Rule 144 is
unavailable for the resale of securities issued by an issuer that
is a shell company (other than a business combination related shell
company) or, unless certain conditions are met, that has been at
any time previously a shell company.
The SEC defines a shell company as a company that has (a) no or
nominal operations and (b) either (i) no or nominal assets, (ii)
assets consisting solely of cash and cash equivalents; or (iii)
assets consisting of any amount of cash and cash equivalents and
nominal other assets.
As a result of the Share Exchange as described in Items 1.01 and
2.01, the Company ceased being a shell company as such term is
defined in Rule 12b-2 under the Exchange Act.
While we believe that as a result of the Share Exchange, the
Company ceased to be a shell company, the SEC and others whose
approval is required in order for shares to be sold under Rule 144
might take a different view.
Rule 144 is available for the resale of securities of former shell
companies if and for as long as the following conditions are
met:
(i) the issuer of the securities that was formerly a shell company
has ceased to be a shell company,
(ii) the issuer of the securities is subject to the reporting
requirements of Section 13 or 15(d) of the Exchange
Act,
(iii) the issuer of the securities has filed all Exchange Act
reports and material required to be filed, as applicable, during
the preceding 12 months (or such shorter period that the issuer was
required to file such reports and materials), other than Current
Reports on Form 8-K; and
(iv) at least one year has elapsed from the time that the issuer
filed current comprehensive disclosure with the SEC reflecting its
status as an entity that is not a shell company known as
“Form 10 Information.”
Although the Company is filing Form 10 Information with the SEC on
this Form 8-K, shareholders who receive the Company’s
restricted securities will not be able to sell them pursuant to
Rule 144 without registration until the Company has met the other
conditions to this exception and then for only as long as the
Company continues to meet the condition described in subparagraph
(iii), above, and is not a shell company. No assurance can be given
that the Company will meet these conditions or that, if it has met
them, it will continue to do so, or that it will not again be a
shell company.
Our Common Stock constitutes restricted securities and is subject
to limited transferability.
All of
our Common Stock shares, should be considered a long-term, illiquid
investment. Common. In addition, our Common Stock, is not
registered under any state securities laws that would permit their
transfer. Because of these restrictions and the absence of an
active trading market for our securities, a shareholder will likely
be unable to liquidate an investment even though other personal
financial circumstances would dictate such
liquidation.
Our Common Stock price may decrease due to factors beyond our
control.
The
stock market from time to time has experienced extreme price and
volume fluctuations, which have particularly affected the market
prices for early stage companies and which often have been
unrelated to the operating performance of the companies. These
broad market fluctuations may adversely affect the market price of
our stock, if a trading market for our stock ever develops. If our
shareholders sell substantial amounts of their stock in the public
market, the price of our stock could fall. These sales also might
make it more difficult for us to sell equity, or equity-related
securities, in the future at a price we deem
appropriate.
The
market price of our stock may also fluctuate significantly in
response to the following factors, most of which are beyond our
control:
●
variations in our
quarterly operating results,
●
changes in general
economic conditions,
●
changes in market
valuations of similar companies,
●
announcements by us
or our competitors of significant acquisitions, strategic
partnerships or joint ventures, or capital
commitments,
●
loss of a major
customer, partner or joint venture participant; and
●
the addition or
loss of key managerial and collaborative personnel.
Any
such fluctuations may adversely affect the market price or value of
our Common Stock, regardless of our actual operating performance.
As a result, shareholders may be unable to sell their shares, or
may be forced to sell them at a loss.
Our Common Stock is subject to the application of the “penny
stock” rules which could adversely affect the market price of
our Common Stock and increase transaction costs to sell those
shares.
The SEC
has adopted rule 3a51-1 which establishes the definition of a
“penny stock,” for the purposes relevant to us, as any
equity security that has a market price of less than $5.00 per
share or with an exercise price of less than $5.00 per share,
subject to certain exceptions. For any transaction involving a
penny stock, unless exempt, Rule 15g-9 requires:
●
that a broker or
dealer approve a person’s account for transactions in penny
stocks, and
●
the broker or
dealer receive from the investor a written agreement to the
transaction, setting forth the identity and quantity of the penny
stock to be purchased.
In
order to approve a person’s account for transactions in penny
stocks, the broker or dealer must:
●
obtain financial
information and investment experience objectives of the person,
and
●
make a reasonable
determination that the transactions in penny stocks are suitable
for that person and the person has sufficient knowledge and
experience in financial matters to be capable of evaluating the
risks of transactions in penny stocks.
The
broker or dealer must also deliver, prior to any transaction in a
penny stock, a disclosure schedule prescribed by the SEC relating
to the penny stock market, which, in highlight form:
●
sets forth the
basis on which the broker or dealer made the suitability
determination and
●
that the broker or
dealer received a signed, written agreement from the investor prior
to the transaction.
Generally,
brokers may be less willing to execute transactions in securities
subject to the “penny stock” rules. This may make it
more difficult for investors to dispose of our Common Stock and
cause a decline in the market value of our stock.
The market price for our Common Stocks is particularly volatile
which could lead to wide fluctuations in our share price. You may
be unable to sell your Common Stock shares at or above your
purchase price, or at all, which may result in substantial losses
to you.
The
market for our Common Stock is characterized by significant price
volatility when compared to seasoned issuers, and we expect that
our share price will continue to be more volatile than a seasoned
issuer for the indefinite future. As a consequence of this enhanced
risk, more risk-adverse investors may, under the fear of losing all
or most of their investment in the event of negative news or lack
of progress, be more inclined to sell their shares on the market
more quickly and at greater discounts than would be the case with
the stock of a seasoned issuer. Many of these factors are beyond
our control and may decrease the market price of our common shares,
regardless of our operating performance. We cannot make any
predictions or projections as to what the prevailing market price
for our Common Stock shares will be at any time, or if our Common
Stock shares will ever be able to trade, or as to what effect the
sale of shares or the availability of Common Stock shares for sale
at any time will have on the prevailing market price.
The sale and issuance of additional shares of our Common Stock
could cause dilution as well as the value of our Common Stock to
decline.
Investors’
interests in the Company will be diluted and investors may suffer
dilution in their net book value per share when we issue additional
shares. We are authorized to issue 300,000,000 shares of Common
Stock. We anticipate that all or at least some of our future
funding, if any, will be in the form of equity financing from the
sale of our Common Stock. If we do sell or issue more Common Stock,
any investors’ investment in the Company will be diluted.
Dilution is the difference between what you pay for your stock and
the net tangible book value per share immediately after the
additional shares are sold by us. If dilution occurs, any
investment in the Company’s Common Stock could seriously
decline in value.
FINRA sales practice requirements may also limit a
shareholder’s ability to buy and sell our stock.
In
addition to the “penny stock” rules described above,
FINRA has adopted Rule 2111 that requires a broker-dealer to have
reasonable grounds for believing that an investment is suitable for
a customer before recommending the investment. Prior to
recommending speculative low-priced securities to their
non-institutional customers, broker-dealers must make reasonable
efforts to obtain information about the customer’s financial
status, tax status, investment objectives and other information.
Under interpretations of these rules, FINRA believes that there is
a high probability that speculative low-priced securities will not
be suitable for at least some customers. The FINRA requirements
make it more difficult for broker-dealers to recommend that their
customers buy our Common Stock, which may limit your ability to buy
and sell our stock and have an adverse effect on the market for our
shares.
We do not intend to pay dividends for the foreseeable
future.
We have
never declared or paid any cash dividends on our stock and do not
intend to pay any cash dividends in the foreseeable future. We
anticipate that we will retain all of our future earnings for use
in the development of our business and for general corporate
purposes. Any determination to pay dividends in the future will be
at the discretion of our Board.
If we are unable to comply with the financial reporting
requirements mandated by the SEC’s regulations, investors may
lose confidence in our financial reporting and the price of our
Common Stock, if a market ever does develop for it, could
decline.
If we fail to maintain effective internal controls over financial
reporting, our ability to produce timely, accurate and reliable
periodic financial statements could be impaired. If we do not
maintain adequate internal control over financial reporting,
investors could lose confidence in the accuracy of our periodic
reports filed under the Exchange Act. Additionally, our
ability to obtain additional financing could be impaired or a lack
of investor confidence in the reliability and accuracy of our
public reporting could cause our stock price to
decline.
DESCRIPTION OF PROPERTY
Eagle Lake lease offices at 2475 Palm Bay Road NE Palm Bay, Florida
32905 in three separate suites:
●
Suite
#120, which is approximately 3,100 square feet of office space, and
a lease term that expires January 1, 2023
●
Suite
#7, which is approximately 1,885 square feet of office space, and
has a lease term that expires February 28, 2026
●
Suite
# 2, which is approximately 2,007 square feet of office space, and
has a lease term that expires August 1, 2025.
Each of the above leases were assigned
and transferred to the Company by Probability and Statistics, Inc.,
a Florida corporation owned by Donald Beavers. Suites #7 and #2
serve as Eagle Lake’s headquarters.
Sollensys occupies Suite #120, which serves as its headquarters.
Eagle Lake allows Sollensys to use these premises without any
formal agreement, and does not impose a rent obligation on
Sollensys for its use of these premises.
We believe that these facilities are adequate to support the
Company’s existing operations and that we will be able to
obtain appropriate additional facilities or alternative facilities
on commercially reasonable terms if and when necessary. Sollensys
does not have a formal lease pursuant to which it uses these
offices and does not have a monthly rent obligation for use of
these premises.
LEGAL PROCEEDINGS
From time to time, we are involved in various claims and legal
actions arising in the ordinary course of business. To the
knowledge of our management, there are no legal proceedings
currently pending against us which we believe would have a material
effect on our business, financial position or results of operations
and, to the best of our knowledge, there are no such legal
proceedings contemplated or threatened.
Custodianship
On December 27, 2019, the Eighth Judicial District Court of Clark
County, Nevada (the “Court”), pursuant to Case number
A-19-805633-B appointed Custodian Ventures, LLC (“Custodian
Ventures”) as the custodian of Sollensys David Lazar, who
controls Custodian Ventures was subsequently named the only interim
officer and director of the Company.
On June 16, 2020, Custodian Ventures filed a motion with the Court
asking the Court to enter an order concluding and terminating the
custodianship of the Company. On July 20, 2020, the Court entered
an order terminating custodianship and barring non-asserted claims
against the Company.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Please refer to Item 4.01 of this Form 8-K for this information,
which is incorporated by reference herein.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND PLAN OF OPERATIONS
The following discussion and analysis of the results of operations
and financial condition of Eagle Lake and Sollensys on a
consolidated basis for the period from Eagle Lake’s inception
(May 8, 2020) to the period ended September 30, 2020 should be read
in conjunction with the other sections of this Report, including
“Risk Factors,” “Description of Business”
and the Financial Statements and notes filed herewith as Exhibit
99.1 and the pro forma financials and notes thereto are filed
herewith as Exhibit 99.2. The various sections of this discussion
contain forward-looking statements, all of which are based on our
current expectations and could be affected by the uncertainties and
risk factors described throughout this Report as well as other
matters over which we have no control. See “Cautionary Note
Regarding Forward-Looking Statements.” Our actual results may
differ materially. The Company does not undertake any obligation to
update forward-looking statements to reflect events or
circumstances occurring after the date of this Report, other than
as required by law. In this section, Sollensys and Eagle Lake are
referred on a consolidated basis as “we”,
“us”, “our” and the
“Company”
Organizational History of Sollensys and Eagle Lake
Sollensys Corp. was formerly a development stage company,
incorporated in Nevada on September 29, 2010, under the name Health
Directory, Inc. Sollensys’ initial plans included
organization and incorporation, target market identification,
marketing plans, and capital formation. A substantial portion of
Sollensys’ efforts involved developing a business plan and
establishing contacts and visibility in the marketplace. Sollensys
did not, however, generate any revenues from these
efforts.
Effective July 30, 2012, the holder of 3,000,000 shares, or
approximately 79.8% of Sollensys’ then outstanding voting
securities, executed a written consent in accordance with Section
78.320 of the Nevada Revised Statutes approving an amendment to the
Articles of Incorporation to change Sollensys’ name to
Sollensys, increase the number of authorized shares of Common Stock
to 1,500,000,000, increase the number of authorized preferred
shares of Sollensys, par value $0.001 (the “Preferred
Stock”) to 25,000,000, and to split each outstanding share of
Common Stock into 131.69 shares of Common Stock.
Subsequently, beginning September 30, 2012, Sollensys went
dormant.
On December 27, 2019, the Eighth Judicial District Court of Clark
County, Nevada (the “Court”), pursuant to Case number
A-19-805633-B appointed Custodian Ventures, LLC (“Custodian
Ventures”) as the custodian of Sollensys David Lazar, who
controls Custodian Ventures was subsequently named the only interim
officer and director of Sollensys.
On June 16, 2020, Custodian Ventures filed a motion with the Court
asking the Court to enter an order concluding and terminating the
custodianship of Sollensys. On July 20, 2020, the Court entered an
order terminating custodianship and barring non-asserted claims
against Sollensys.
Effective August 5, 2020, David Lazar, the interim Chief Executive
Officer, President, Secretary, Treasurer, and sole director of
Sollensys and the beneficial owner, through his ownership of
Custodian Ventures of 19,000,000 shares of Series A Preferred
Stock, representing 100% of Sollensys’ issued and outstanding
shares of preferred stock, entered into a Stock Purchase Agreement
by and among Eagle Lake, Sollensys, and Custodian Ventures. The
Stock Purchase Agreement is referred to herein as the
“SPA.” Pursuant to the terms of the SPA, Eagle Lake
agreed to purchase, and Custodian Ventures agreed to sell,
19,000,000 shares of Sollensys’ Series A Preferred Stock in
exchange for payment by Eagle Lake to Custodian Ventures of
$230,000 (collectively with the other transactions in the SPA, the
“Stock Purchase”). The Stock Purchase closed on August
5, 2020. The shares of Series A Preferred Stock, par value $0.001
per share, of Sollensys are convertible into shares of Common Stock
of Sollensys at a rate of 50 shares of Common Stock per share of
Series A Preferred Stock, and has voting power on an as-converted
basis (voting with the Common Stock as one class) and thus
represents 65.4% of the voting power of all shares of stock of
Sollensys.
In connection with the closing of the Stock Purchase, on August 5,
2020, Mr. Lazar, the then-sole member of the Board of Directors
(the “Board”) of Sollensys, pursuant to the power
granted to the Board in Sollensys’ bylaws, increased the size
of Sollensys’ Board to two members. Simultaneously, Mr.
Lazar, as the sole Board member, appointed Donald Beavers as a
director to fill the newly created Board vacancy. At the same time,
Mr. Lazar appointed Donald Beavers as Chief Executive Officer and
Secretary of Sollensys.
Also on August 5, 2020, following the above officer and director
appointments and effective on the closing of the Stock Purchase,
Mr. Lazar resigned from any and all officer and director positions
with Sollensys. Mr. Lazar’s resignation is not the result of
a disagreement with Sollensys on any matter relating to
Sollensys’ operations, policies, or practices.
On November 30, 2020, pursuant to the Closing of the Share Exchange
Agreement, Sollensys acquired Eagle Lake, and Eagle Lake thereafter
became a wholly owned subsidiary of Sollensys, and the business of
Eagle Lake became the business of the Company going forward.
At the time of the Closing, Eagle Lake had 10,011,667 shares of its
common stock issued and outstanding, which is 11,667 shares in
excess of the number of shares of common stock authorized pursuant
to Eagle Lake’s Articles of Incorporation. Such
over-issued shares are void under Florida law and are not entitled
to any rights of a stockholder of Eagle Lake. As such, the
10,000,000 shares of Eagle Lake common stock that the Company
acquired from the Eagle Lake Shareholders, represented 100% of the
issued and outstanding capital stock of Eagle Lake of the presence
of over-issued shares.
Eagle
Lake Laboratories, Inc. was incorporated in the State of Florida on
May 8, 2020. Eagle Lake offers
advanced technology products for cybersecurity that ensure a
clients’ data integrity through collection, storage, and
transmission.
Plan of Operations
Over the next 12 months, the Company expects to achieve the
following milestones:
●
In the
4th
quarter of 2020, we expect to increase staffing for our internal
operations. We estimate a minimum increase of $10,000 in monthly
salaries from this increase.
●
In the
1st
quarter of 2021 we expect to increase our inventory levels due to
planned expansion of our marketing efforts, which we hope will lead
to increased demand for our products. Inventory investment may
increase by up to approximately $125,000 to manage potential large
scale users – particularly if we gain customers in the
government sector.
●
In the
2nd
quarter of 2021 we expect to hire additional personnel to service
our expanded client base (assuming our marketing efforts are
successful). We anticipate a need to grow our customer service, and
anticipate that we may need an additional three (3) tech support
workers, which could add roughly $9,000 to our monthly
overhead.
●
In the
3rd
quarter of 2021 we expect increase staff further to prepare for the
launch of a new product - the “Argus Panoptes RFID
System” – which require additional expenditures on
inventory for the hardware needed to produce these
products.
●
In the
4th
quarter of 2021, we plan to launch the Argus Panoptes RFID System,
and will expend additional funds on marketing this product. The
planned launch of this product will also require the addition of
installation teams and support personnel, and could require
expenditures of approximately $40,000 or more, depending on our
needs.
We
expect to generate cash flows from the sale of our products,
however, the amount of profit we generate may not enable us to
fully execute our plan of operations. We may in the future attempt
to obtain approximately $500,000 to $1,000,000 in funds that may
become necessary from various forms of capital raises, including
potentially through private placements or our Common Stock or the
issuance and sales of convertible notes, as well as potentially
through a registration statement or an offering statement filed
with the SEC.
Additionally, as of the date of this Current Report on Form 8-K, we
intend to engage in what we believe to be synergistic acquisitions
or joint ventures with a company or companies that we believe will
enhance our business plan. One of the benefits to our being a
reporting and publicly traded company, is to allow us to utilize
our securities as consideration for some, or all of the purchase
price of these potential acquisitions.
There can be no assurance that we will be able to obtain the
necessary funds for our foregoing operations on terms that are
acceptable to us or at all, nor can there be assurances any we will
be able to consummate any acquisitions using our securities as
consideration, or at all. Finally, there can be no assurance that
our plan of operations can be
Results of Operations
Revenue
During
the period from inception to September 30, 2020, the Company
generated $135,000 in revenue from the sale of three Blockchain
Archive Servers.
Gross Profit
The
Company’s gross profit on revenue was $112,500 for the period
from inception to September 30, 2020, due cost of sales of $22,500,
which was the result of inter-Company sales (i.e. Sollensys
purchasing the Blockchain Archive Servers from Eagle Lake) which
were later sold to third-parties.
Operating Expenses
Operating
expenses for the period from inception to September 30, 2020 were
$512,360. Operating expenses were primarily comprised of $90,000 in
sales commissions on the Blockchain Archive Servers to
related-party distributors of the Company, $50,810 in advertising
and marketing expenses related to the Blockchain Archive Servers,
approximately $51,000 in payroll expense, and $315,814 in legal
expenses, which includes the $230,000 Eagle Lake spent to purchase 19,000,000 shares of
Sollensys’ Series A Preferred Stock pursuant to the SPA on
August 5, 2020.
Net Loss
As a result of the foregoing, the Company had a net loss of
$399,852 the period from inception to September 30,
2020.
Liquidity and Capital Resources
As of
September 30, 2020, we had $496,460 in cash and cash equivalents.
Net cash used in operating activities was $454,401 for the period
from inception to September 30, 2020.
Net
cash provided by financing activities of $950,861 for the period
from inception to September 30, 2020. This was primarily
attributable to the sale of 646,167 shares of Eagle Lake’s
common stock for $945,550 in proceeds pursuant to an offering
pursuant to 506(b) of Regulation D conducted by Eagle Lake that
commenced in March 2020, and shareholder contributions of $5,311 to
Eagle Lake.
We may have ongoing needs for working capital to fund operations
and to continue to expand our operations. To that end, we would be
required to raise additional funds through equity or debt
financing. However, there can be no assurance that we will be
successful in securing additional capital on favorable terms, if at
all. Our inability to raise capital could require us to
significantly curtail or terminate our operations
altogether.
Going Concern
The
accompanying consolidated financial statements have been prepared
assuming we will continue as a going concern, which contemplates
the realization of assets and the satisfaction of liabilities in
the normal course of business for the twelve-months following the
date of these consolidated financial statements. We have incurred
significant operating losses since inception. Because we do not
expect that existing operational cash flow will be sufficient to
fund presently anticipated operations, this raises substantial
doubt about our ability to continue as a going concern. Therefore,
we will need to raise additional funds and are currently exploring
sources of financing. Historically, we have raised capital through
private offerings of debt and equity and officer loans to finance
working capital needs. There can be no assurances that we will be
able to continue to raise additional capital through the sale of
Common Stock or other securities or obtain short-term
loans.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Contractual Obligations
As a
“smaller reporting company”, we are not required to
provide tabular disclosure obligations.
Critical Accounting Estimates
Our consolidated financial statements and accompanying notes have
been prepared in accordance with GAAP. The preparation of these
consolidated financial statements requires management to make
estimates, judgments, and assumptions that affect reported amounts
of assets, liabilities, revenues, and expenses. We continually
evaluate the accounting policies and estimates used to prepare the
consolidated financial statements. The estimates are based on
historical experience and assumptions believed to be reasonable
under current facts and circumstances. Actual amounts and results
could differ from these estimates made by management. Certain
accounting policies that require significant management estimates
and are deemed critical to our results of operations or financial
position. Our critical accounting estimates are more fully
discussed in Note 2, “Summary of Significant Accounting
Policies,” to our consolidated financial statements contained
herein.
Effects of Coronavirus on the Company
If the current outbreak of the coronavirus continues to grow, the
effects of such a widespread infectious disease and epidemic may
inhibit our ability to conduct our business and operations and
could materially harm our Company. The effect of the novel
coronavirus pandemic (“COVID-19”) on our
business, operations, and financial results is dependent upon
future developments, including the duration of the pandemic and the
related length of its impact on the global economy, which are
unknown at this time. Shutdowns of businesses could impact our
ability to produce our products (i.e. the Blockchain Archive
Server), and the negative impact on the economy could reduce demand
for cybersecurity products, putting downward pressure on our
prices. The continued
coronavirus outbreak may also restrict our ability to raise funding
when needed, and may cause an overall decline in the economy as a
whole. The specific and actual effects of the spread of coronavirus
are difficult to assess at this time as the actual effects will
depend on many factors beyond the control and knowledge of the
Company. However, the spread of the coronavirus, if it continues,
may cause an overall decline in the economy as a whole and also may
materially harm our Company.
The
Company provides for income taxes under ASC 740,
“Income Taxes.”
Under the asset and liability method of ASC 740, deferred tax
assets and liabilities are recorded based on the differences
between the financial statement and tax basis of assets and
liabilities and the tax rates in effect when these differences are
expected to reverse. A valuation allowance is provided for certain
deferred tax assets if it is more likely than not that the Company
will not realize tax assets through future operations.
The
components of the Company’s deferred tax asset and
reconciliation of income taxes computed at the statutory rate to
the income tax amount recorded as of September 30, 2020, are as
follows:
|
Net operating loss
carryforward
|
$399,852
|
|
Tax
rate
|
21%
|
|
Deferred tax
asset
|
83,969
|
|
Less:
Allowance
|
(83,969)
|
|
Deferred tax
asset
|
$-
|
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the name and position of our current
executive officers and directors as of the date of this Current
Report on Form 8-K.
|
Name
|
|
Age
|
|
Position
|
|
Donald
Beavers (1)
|
|
57
|
|
Chief
Executive Officer, Secretary and Director
|
|
Anthony
Nolte
|
|
56
|
|
Director
|
|
Stamatlos
Hadoulias
|
|
69
|
|
Director
(Independent)
|
|
|
|
|
|
|
(1)
In
connection with the closing of the SPA, on August 5, 2020, Mr.
Lazar, the then-sole member of the Board of Directors (the
“Board”) of the Company appointed Donald Beavers as a
director and as Chief Executive Officer and Secretary of the
Company.
The Company intends to appoint additional officers and directors in
the near future.
Donald Beavers, Chief Executive Officer, Secretary and
Director
Donald Beavers is the Chief Executive Officer, Secretary, and a
Director of Sollensys Corp. Donald Beavers is the founder and
President of Probability and Statistics, Inc., a math and science
company headquartered in Florida’s Space Coast. Founded in
2017, Probability and Statistics, Inc. develops integrated
solutions powered by the latest technologies in blockchain
development, artificial intelligence, additive manufacturing,
multi-physics computations & specialized software application
development for the public sector and private industry. Under Mr.
Beavers’ leadership, the company has grown to 16 employees
since its inception, has been awarded government contracts, and has
received awards and certifications including a spot in
GrowFL’s “Company to Watch” list in 2019. Prior
to founding Probability and Statistics, Donald Beavers was the
Education Director at SpaceCoast FabLab from 2015 to 2017.
SpaceCoast FabLab is a learning center affiliated with MIT’s
Center for Bits and Atoms. A database programmer by trade, Mr.
Beavers has 20 years of experience rescuing high-profile databases
around the world, and brings a wealth of technical and business
experience to the Company.
Donald Beavers founded Eagle Lake Laboratories, Inc. in May of
2020, where he currently also acts as Chief Executive
Officer.
Anthony Nolte, Director
Anthony Nolte joined the Company as a Director in November 2020.
Mr. Nolte has 30 years of experience in both the finance and legal
disciplines to help companies grow and founders reach their goals.
From 1989 to 2017, Mr. Nolte held a number of senior positions at
Shell Oil Company, where he structured business deals, oversaw
corporate consolidation teams, and provided financial planning,
analysis, and risk management services. His experience includes
working with CPG, SaaS, subscription retail, manufacturing and
service companies, and over 20 years with Shell in a wide variety
of finance and legal roles. From 2018 to 2019, Mr. Nolte served as
the Head of Finance, Treasurer, Secretary and Corporate Counsel to
NBGHome, a private equity-owned manufacturer, distributor and
importer/exporter of consumer goods. From 2019 to present, Mr.
Nolte has been the Chief Financial Officer and General Counsel of
Open Mortgage, LLC, a multi-channel mortgage lender that serves
thousands of clients annually.
Mr. Nolte’s brings experience to the Company from holding a
number of positions in his career, including CFO, Treasurer,
Controller, FP&A Manager, M&A Consultant and Attorney. His
capital optimization experience includes cash management, general
debt financing, factoring, asset backed loans, revolvers,
commercial paper programs and other forms of raising money. Along
with his capital markets knowledge, he has expertise in business
plan generation, forecasting, accounting and financial planning and
analysis.
Mr. Nolte holds a JD (Magna Cum Laude) from South Texas College of
Law, an MBA (Finance) from Eastern Kentucky and a BBA (Industrial
Administration) from the University of Kentucky. He also completed
the Shell Executive Leadership Program at Wharton Business
School.
Stamatlos (Tom) Hadoulias, Director
Stamatlos (Tom) Hadoulias joined the Company as a Director in
November 2020. Mr., Hadoulias has 34 years of experience working in
defense aeronautics and space systems. He was a Design Engineer
with Rockwell International until 1987, and was a Reliability and
Material Review Engineer with Lockheed, United
Space Alliance and NASA until 1996. From there, he went on to be a
Quality and Reliability Engineer at Kennedy Space Center, until he
retired in 2005.
Currently, Mr. Hadoulias serves as the Director of Inductive
Engineering Technology (IET), a collective of professional
engineers and programs managers that have come together to develop
a wide range of energy efficient products for residential
commercial or industrial applications utilizing IET’s
patented technology. The members of IET conceptualize and design
heating products for an energy efficient world using the
performance of our magnetic induction technology. Mr. Hadoulias
joined IET in 2016.
Mr. Hadoulias studied Aircraft Systems at George T. Baker Aviation
School where he received his Airframe and Power Plant
Certification. He also studied engineering at the University of
Miami and received his BSME from Northrup Institute of Technology,
Inglewood California. He is a certified in material review as a
Quality and Reliability Engineer.
Mr. Hadoulias also served in the US Army as a communications and
intelligence operator during the Vietnam era and is a veteran of
Southeast Asia during the early 1970's.
Advisory Board
The
Company has an Advisory Board consisting of 8 members with
expertise in finance, software, manufacturing, and sales that
provide guidance to the Company in these areas.
Committees
We do not have a standing nominating, compensation or audit
committee. Rather, our full board of directors performs the
functions of these committees. We do not believe it is necessary
for our board of directors to appoint such committees because the
volume of matters that come before our board of directors for
consideration permits the directors to give sufficient time and
attention to such matters to be involved in all decision making.
Additionally, because our Common Stock is not listed for trading or
quotation on a national securities exchange, we are not required to
have such committees.
Director Independence
We have one independent director, as such term is defined in the
listing standards of The NASDAQ Stock Market, at this time. The
Company is not quoted on any exchange that has director
independence requirements.
Code of Ethics
We have not yet adopted a code of ethics that applies to all of our
employees, officers and directors, including those officers
responsible for financial reporting. We expect that we will adopt a
code of ethics in the near future.
Family Relationships
None.
Involvement in Certain Legal Proceedings
No executive officer, member of the board of directors or control
person of our Company has been involved in any legal proceeding
listed in Item 401(f) of Regulation S-K in the past 10
years.
EXECUTIVE COMPENSATION
No executive compensation was paid during the fiscal years ended
March 31, 2019 and 2018 to the officers and directors of Sollensys
Corp. Sollensys Corp. has no employment agreements with any of its
officers and directors.
Eagle Lake Laboratories was incorporated on May 8, 2020. While
it’s officers and directors are not employed pursuant to
formal employment agreements, the Company has paid its executive
officers compensation as follows:
●
Donald
Beavers, Chief Executive Officer: Approximately $30,400 as of the
date of this Current Report on Form 8-K, based on an annual salary
of $99,000, which Mr. Beavers began earning in August
2020.
●
Anthony
Motto, Chief Operating Officer: Approximately $30,400 as of the
date of this Current Report on Form 8-K, based on an annual salary
of $99,000, which Mr. Motto began earning in August
2020.
Employment Agreements
None.
Outstanding Equity Awards at Fiscal Year-End
None of the Named Executive Officers had any outstanding equity
awards at the 2019 fiscal year-end.
Compensation Plans
We have
not adopted any compensation plan to provide for future
compensation of any of our directors or executive
officers.
Director Compensation
Historically,
the Company’s directors have not received compensation for
their services, and the Company has no plans to compensate
directors of the Company at this time.
Executive Compensation Philosophy
Our Board determines the compensation given to our executive
officers in their sole determination. Our Board reserves the right
to pay our executives or any future executives a salary, and/or
issue them shares of stock issued in consideration for services
rendered and/or to award incentive bonuses which are linked to our
performance, as well as to the individual executive officer’s
performance. This package may also include long-term stock-based
compensation to certain executives, which is intended to align the
performance of our executives with our long-term business
strategies. Additionally, the Board reserves the right to grant
performance base stock options in the future, if the Board in its
sole determination believes such grants would be in the best
interests of the Company.
Incentive Bonus
The Board has not, but may grant incentive bonuses to our executive
officers and/or future executive officers in its sole discretion,
if the Board believes such bonuses are in the Company’s best
interest, after analyzing our current business objectives and
growth, if any, and the amount of revenue and profits we are able
to generate each month, both of which are a direct result of the
actions and ability of such executives.
Long-Term, Stock Based Compensation
In order to attract, retain and motivate executive talent necessary
to support the Company’s long-term business strategy we may
award our executives and any future executives with long-term,
stock-based compensation in the future, at the sole discretion of
our Board, which we do not currently have any immediate plans to
award.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The following includes a summary of transactions since the
beginning of the 2019 fiscal year, or any currently proposed
transaction, in which Eagle Lake or the Company were or are to be a
participant and the amount involved exceeded or exceeds the lesser
of $120,000 or one percent of the average of their total assets at
year-end for the last two completed fiscal years, and in which any
related person had or will have a direct or indirect material
interest (other than compensation described under “Executive
Compensation”). We believe the terms obtained or
consideration that we paid or received, as applicable, in
connection with the transactions described below were comparable to
terms available or the amounts that would be paid or received, as
applicable, in arm’s-length transactions.
Related Party Transactions of Sollensys Corp.
Share Exchange Agreement
On
November 30, 2020, the Company entered the Share Exchange Agreement
with Eagle Lake Laboratories, Inc., each of the shareholders of
Eagle Lake and Donald Beavers as the representative of the Eagle
Lake Shareholders.
Among other conditions to the closing of the transactions
contemplated by the Share Exchange Agreement (the
“Closing”), pursuant to the terms of the
Share Exchange Agreement, the parties agreed that the Company would
acquire 100% of Eagle Lake’s
issued and outstanding capital stock, in exchange for the issuance
to the Eagle Lake Shareholders of a number of shares of the
Company’s Common Stock to be determined at the Closing of the
Share Exchange Agreement.
The Closing of the Share Exchange Agreement occurred on November
30, 2020. Pursuant to the terms of the Share Exchange
Agreement, the Company acquired from the Eagle Lake
Shareholders 10,000,000 shares Eagle
Lake’s common stock, no par value per share, representing
100% of the issued and outstanding capital stock of Eagle Lake, in
exchange for the issuance to the Eagle Lake Shareholders of
95,000,000 shares of the Company’s Common Stock (the
“Share Exchange”). As a result of the Share Exchange,
Eagle Lake became a wholly-owned subsidiary of the Company and the
business of Eagle Lake became the business of the
Company.
The
Share Exchange is intended to be a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the “Code”), and the Share Exchange Agreement
is intended to be a “plan of reorganization” within the
meaning of the regulations promulgated under Section 368(a) of the
Code and for the purpose of qualifying as a tax-free transaction
for federal income tax purposes.
Reseller Agreement
On August 20, 2020, Sollensys Corp. entered into a Reseller
Agreement (the “Reseller Agreement”) with Eagle Lake.
At the time, Eagle Lake was the holder of 11,400,000,000 shares of
Common Stock of the Company, which represented 95.8% of the voting
power of the Company. The Chief Executive Officer of the Company,
Donald Beavers, is also the Chief Executive Officer of Eagle
Lake.
Pursuant to the Reseller Agreement, Eagle Lake appointed the
Company as a non-exclusive distributor of Eagle Lake’s
products and services. As a distributor for Eagle Lake, the Company
has agreed to, among other things, use its best efforts to solicit
orders from interested parties for Eagle Lake’s products and
services, secure channel partners and distributors for Eagle
Lake’s products and services, and to resell Eagle
Lake’s products and services to industry, government
entities, quasi-governmental agencies, nonprofit organizations, and
non-governmental organizations in the United States and abroad. For
all sales, the Company will be entitled to any profits generated on
such sales, which will be the difference between the cost of the
Company to acquire the products and/or services from Eagle Lake to
sell and the price at which the Company is ultimately able to sell
those products and/or services to customers.
The Company may terminate this agreement for any reason upon 30
days’ written notice to Eagle Lake. Eagle Lake may terminate
the agreement upon 120 days’ notice to the Company, but only
in the case of a material breach of the Reseller Agreement by the
Company. The Reseller Agreement does not have any specified term or
termination date.
The Reseller Agreement contains confidentiality provisions, and
each of the Company and Eagle Lake have agreed to use reasonable
best efforts to protect all non-public information and know-how
received from each other during the term of the Reseller Agreement.
If the Reseller Agreement is terminated by either party, for any
reason, the Company has agreed to not compete in any way with Eagle
Lake on its existing products and services.
The foregoing description of the Reseller Agreement is qualified by
the description of the Reseller Agreement contained in the
Company’s Current Report on Form 8-K filed October 22, 2020,
as well as the terms of the Reseller Agreement itself, incorporated
by reference into this Current Report on Form 8-K as Exhibit
10.1
As stated above in the “Description of Property”
section,, Eagle Lake has granted Sollensys Corp. the right
to use its premises without any rent obligation.
A
related party donated $5,311 capital to the Company during the
period from inception through September 30, 2020.
Related Party Transactions of Eagle Lake Labs, Inc.
In
2019, Eagle Lake purchased thirteen computer servers (used to make
Blockchain Archive Servers) from Probability and Statistics, Inc,
an entity owned by Donald Beavers, the CEO of Eagle Lake and
Sollensys Corp. Each server was purchased for $6,000. Eagle Lake
subsequently sold three of these computer servers to Sollensys Corp
during the period from inception to September 30, 2020, which
Sollensys then sold to unrelated third parties for $45,000 each.
For each of these sales, $30,000 in commission expense was paid to
distributor-entity that is owned by an employee of the
Company.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table provides the names and addresses of each person
known to us to own more than 5% of our outstanding shares of
capital stock as of the date of this Current Report on Form 8-K,
and by the officers and directors, individually and as a group.
Except as otherwise indicated, all shares are owned directly and
the shareholders listed possesses sole voting and investment power
with respect to the shares shown. Unless otherwise indicated, the
address for the beneficial owners listed below is 2475 Palm Bay Rd
NE, Suite 120 Palm Bay, FL 32905.
|
Name and Address of
Beneficial Owner
|
|
Positions with the Company
|
|
Title of Class
|
|
Amount and
Nature
of Beneficial
Ownership (1)
|
|
Percent of
Class (2)
|
|
Officers and Directors
|
|
|
|
|
|
|
|
|
|
|
|
Donald
Beavers
|
|
Chief
Executive Officer, Secretary, Director
|
|
Common
Stock
|
|
16,978,498
|
|
17.09%
|
|
Stamatlos
Hadoulias
|
|
Director
|
|
Common
Stock
|
|
0
|
|
0%
|
|
Anthony
Nolte
|
|
Director
|
|
Common
Stock
|
|
165,244
|
|
0.17%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All
current directors and officers as a group (3 persons)
|
|
|
|
|
|
17,143,742
|
|
17.26%
|
|
5% or more Shareholders
|
|
None.
|
|
|
|
N/A
|
|
N/A
|
|
N/A
|
(1) Beneficial ownership is determined in accordance with the rules
of the SEC and generally includes voting or investment power with
respect to securities. Pursuant to Rules 13d-3 and 13d-5 of the
Exchange Act, beneficial ownership includes any shares as to which
a shareholder has sole or shared voting power or investment power,
and also any shares which the shareholder has the right to acquire
within 60 days, including upon exercise of common shares purchase
options or warrants.
(2) Based on 99,326,819 shares of the Company’s Common Stock
issued and outstanding as of the date of this Current Report on
Form 8-K.
DESCRIPTION OF SECURITIES
General
Our authorized capital stock consists of 300,000,000 shares of
Common Stock, par value $0.001 per share and 25,000,000 shares of
Preferred Stock, $0.001 par value per share. As of the date of this
Current Report on Form 8-K, there are 99,326,819 shares of common
stock outstanding and no shares of preferred stock
outstanding.
Common Stock
Each holder of our Common Stock is entitled to one vote for each
share owned of record on all matters voted upon by shareholders,
and a majority vote is required for actions to be taken by
shareholders. The Common Stock has no preemptive rights, no
cumulative voting rights and no redemption, sinking fund or
conversion provisions.
Preferred Stock
The Company’s Board of Directors is authorized to establish,
from the authorized shares of preferred stock, one or more classes
or series of shares, to designate each such class and series, and
fix the rights and preferences of each such class of preferred
stock, which shall have voting powers, preferences, participating,
optional or other special rights, qualifications and limitations or
restrictions as adopted by the Board of Directors prior to the
issuance of any such preferred shares.
The voting rights of the holders of the preferred stock are
identical to the voting rights of the holders of the Common Stock,
and the preferred shareholders will vote together with the common
shareholders on all matters submitted to the shareholders of the
Company for a vote.
Warrants
There are currently no outstanding warrants of the
Company.
Options
There are currently no options outstanding.
Anti-Takeover Effects of Certain Provisions of Our
Bylaws
Provisions
of our Bylaws could make it more difficult to acquire us by means
of a merger, tender offer, proxy contest, open market purchases,
removal of incumbent directors and otherwise. These provisions,
which are summarized below, are expected to discourage types of
coercive takeover practices and inadequate takeover bids and to
encourage persons seeking to acquire control of us to first
negotiate with us. We believe that the benefits of increased
protection of our potential ability to negotiate with the proponent
of an unfriendly or unsolicited proposal to acquire or restructure
us outweigh the disadvantages of discouraging takeover or
acquisition proposals because negotiation of these proposals could
result in an improvement of their terms.
Calling of Special Meetings of Shareholders. Our Bylaws
provide that special meetings of the shareholders may be called may
be called by the Chief Executive Officer of the Company or
Secretary on written request of any or more Director with at least
10 days’ notice.
Amendment of Bylaws. Our Bylaws
may be altered or repealed at any annual meeting or special meeting
of the shareholders by the affirmative vote of a majority of the
voting power of the capital stock issued and outstanding and
entitled to vote, or by the affirmative vote of a majority of the
Board at any regular meeting or special meeting of the Board.
Allowing the Board to amend our Bylaws without stockholder approval
enhances Board control over our Bylaws.
Committees. Our Board of
Directors may, by resolution(s) passed by a majority of the whole
Board, designate one or more committees, each committee to consist
of one (1) or more of the directors of the Company. Any such
committee shall have and may exercise all the powers and authority
of the Board in the management of the business and affairs of the
Company, but no such committee has any rights with respect to
amending the Articles, adopting an agreement of merger or
consolidation, recommending to the shareholders the sale, lease or
exchange of all or substantially all of the Company’s
property and assets, or recommending to the shareholders a
dissolution of the Company or a revocation of a
dissolution.
MARKET PRICE OF AND DIVIDENDS ON OUR COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
Our Common Stock Currently Trades on the Pink Tier of OTC Market
Group LLC’s Marketplace under the symbol “SOLS”,
where the Company is currently labeled as a “shell” at
this time.
The OTC Market is a network of security dealers who buy and sell
stock. The dealers are connected by a computer network that
provides information on current “bids” and
“asks,” as well as volume information. The trading of
securities on the OTC Pink is often sporadic and investors may have
difficulty buying and selling our shares or obtaining market
quotations for them, which may have a negative effect on the market
price of our Common Stock. The closing price of our Common Stock on
the OTC Pink on November 27, 2020 was $7.00
The
following table sets forth, for the periods indicated the high and
low bid quotations for our Common Stock. These quotations represent
inter-dealer quotations, without adjustment for retail markup,
markdown, or commission and may not represent actual
transactions.
|
Period
|
|
|
|
Fiscal
Year 2020
|
|
|
|
First Quarter
(January 1, 2020 – March 31, 2020)
|
$7.68
|
$2.69
|
|
Second Quarter
(April 1, 2020 –June 30, 2020)
|
$8.64
|
$2.44
|
|
Third Quarter (July
1, 2020 – September 30, 2020)
|
$619.22
|
$6.19
|
|
Fourth Quarter
(October 1, 2020 – December 31, 2020)*
|
$25.20
|
$3.73
|
|
Period
|
|
|
|
Fiscal
Year 2019
|
|
|
|
First Quarter
(January 1, 2019 – March 31, 2019)
|
$1.00
|
$0.57
|
|
Second Quarter
(April 1, 2019 – June 30, 2019)
|
$3.88
|
$0.54
|
|
Third Quarter (July
1, 2019 – September 30, 2019)
|
$2.30
|
$0.79
|
|
Fourth Quarter
(October 1, 2019 – December 31, 2019)
|
$10.22
|
$0.86
|
|
|
|
|
*Through November 27,
2020.
Dividends
Dividends on Common Stock
The Company has not declared any dividends since inception and does
not anticipate paying any dividends in the foreseeable future on
its Common Stock. The payment of dividends is within the discretion
of the Board of Directors and will depend on the Company’s
earnings, capital requirements, financial condition, and other
relevant factors. There are no restrictions that currently limit
the Company’s ability to pay dividends on its Common Stock
other than those generally imposed by applicable state
law.
Equity Compensation Plans
None.
Holders
As of November 30, 2020, we had 99,326,819 shares of our Common
Stock par value, $0.001 issued and outstanding. There were
approximately 126 record owners
of our Common Stock.
Transfer Agent and Registrar
Our stock transfer agent is Globex Transfer, LLC located at 780
Deltona Blvd. Suite 202, Deltona, Florida, 32725, telephone number
(813) 344-4490.
RECENT SALES OF UNREGISTERED SECURITIES
Reference is made to Item 3.02 of this Current Report on Form
8-K for a description of additional recent sales of unregistered
securities, which is hereby incorporated by reference.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Our Bylaws provide for the indemnification of our officers and
directors to the fullest extent permitted by the laws of the State
of Nevada and may, if and to the extent authorized by our board of
directors, so indemnify our officers and any other person whom we
have the power to indemnify against liability, reasonable expense
or other matter. This indemnification policy could result in
substantial expenditure by us, which we may be unable to
recoup.
Our Bylaws provide that none of our directors shall be personally
liable to us or our shareholders for monetary damages for a breach
of fiduciary duty as a director or officer provided, however, that
the foregoing provisions shall not eliminate or limit the liability
of a director or officer for acts or omissions which involve
intentional misconduct, fraud or knowing violation of law, or the
unlawful payment of dividends. Limitations on liability provided
for in our Articles of Incorporation do not restrict the
availability of non-monetary remedies and do not affect a
director’s responsibility under any other law, such as the
federal securities laws or state or federal environmental
laws.
We believe that these provisions will assist us in attracting and
retaining qualified individuals to serve as executive officers and
directors. The inclusion of these provisions in our Articles of
Incorporation may have the effect of reducing a likelihood of
derivative litigation against our directors and may discourage or
deter shareholders or management from bringing a lawsuit against
directors for breach of their duty of care, even though such an
action, if successful, might otherwise have benefited us or our
shareholders.
Insofar as indemnification by us for liabilities arising under the
Exchange Act may be permitted to our directors, officers and
controlling persons pursuant to provisions of the Articles of
Incorporation and bylaws, or otherwise, we have been advised that
in the opinion of the SEC, such indemnification is against public
policy and is, therefore, unenforceable. In the event that a claim
for indemnification by such director, officer or controlling person
of us in the successful defense of any action, suit or proceeding
is asserted by such director, officer or controlling person in
connection with the securities being offered, we will, unless in
the opinion of our counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by us is
against public policy as expressed in the Exchange Act and will be
governed by the final adjudication of such issue.
At the present time, there is no pending litigation or proceeding
involving a director, officer, employee or other agent of ours in
which indemnification would be required or permitted. We are not
aware of any threatened litigation or proceeding which may result
in a claim for such indemnification.