ITEM 1. BUSINESS
In this transition report, unless the context indicates otherwise,
the “Company,” “we,” “our,”
“ours” or “us” refer to Sollensys Corp, a
Nevada corporation, and Eagle Lake Laboratories, Inc. (“Eagle
Lake”), its wholly owned subsidiary.
Overview
Eagle
Lake 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.
Change in Fiscal Year-End
On
December 29, 2020, the Board of Directors of Sollensys Corp
approved the change in our fiscal year end from March 31 to
December 31. As required, the Company is filing this transition
report on Form 10-K covering the transition period from March 31,
2020 to December 31, 2020.
Products and Services
Blockchain Archive Server
The
Company’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 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. The Company also
sponsored the event.
Regional Service Centers
In
December 2020, we made our second product offering—the
Regional Service Center—available on a limited test market
basis. The Regional Service Center was added to our standard
product line effective January 1, 2021. A Regional Service Center
is a single unit system of 32 Blockchain Archive Servers capable of
servicing up to 2,580 individual small accounts, and is marketed to
existing IT service providers with established accounts. The
Regional Service Center offers small businesses the same state of
the art technology previously available only to large or very
well-funded companies. We believe that smaller companies, and even
certain individuals, will find the Regional Service Center
affordable, paying only for the actual space they use.
In
December 2020, we entered into Regional Service Center contracts
representing an aggregate of $2.25 million in potential gross sales
over the term of the five year contract. In connection with these
contracts, we recorded an aggregate of $45,000 in revenue in
December 2020.
Future Product and Service Offerings
In the
future, we may decide to expand our 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, but
as of December 31, 2020, we focus exclusively on blockchain
technology solutions for cybersecurity and data management. We
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.
We are
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 December 31, 2020, the Argus Panoptes RFID System is
still under development, but we hope to launch before the end of
2021. We are preparing potential patents to be filed for the
technology underlying the Argus Panoptes RFID System, which we
believe to be unique.
Distribution
Sales Structure
The
Blockchain Archive Server is now available across the United States
and Canada through authorized distributors. Currently, Sollensys
Corp 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 terms of the Reseller Agreement, Eagle Lake appointed
Sollensys as a non-exclusive distributor of Eagle Lake’s
products and services (which, as of December 31, 2020, consist
solely of the Blockchain Archive Server). As a distributor for
Eagle Lake, 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 information technology
(“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.
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 a June 2019 white paper published by International
Data Corporation (“IDC”), 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 category
of attacks is 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 do not
pay the ransom, rising to $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 reveal ransomware as the top cyber insurance incident in the
first half of the year, with the average ransomware demand
increasing 100% from 2019 through the first quarter of
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, security information and event management, 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 cloud access security broker
(“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 secure web gateways
market, and IBM, Splunk, Micro Focus, Dell, and LogRhythm in the
security operations market. Products and services differ
depending on the 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.
We are
not aware of any direct competitors with a product solution similar
to the Blockchain Archive Server. 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, we believe that our primary competitive advantage is the
compatibility and ease of installation of our Blockchain Archive
Server, 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
transition report.
Customers, Sales and Marketing
We
sell our products or services directly to customers. In addition,
in the future, we may contract with third party distributors on an
exclusive or non-exclusive basis to sell our products and
services.
We
have sold the Blockchain Archive Server 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 five Ashley HomeStore Outlets in Jacksonville, Florida.
Ashley HomeStore is the number one furniture and mattress retailer
in America and the number one 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
requirements under the Health Insurance Portability and
Accountability Act of 1996 (“HIPAA”) regarding
patient/doctor confidentiality was delivered to these
customers.
The
Blockchain Archive Server is available across the United States and
Canada. To date, most customers have been small-to-medium sized
businesses. We are dependent on any of these individual
customers.
Suppliers and Raw Materials
We
purchase the servers used to make the Blockchain Archive Servers
from third-party retailers, such as Amazon. We have not entered
into any agreements with suppliers for any hardware or other raw
materials.
Government Regulation
We are
subject to compliance with a number of regulations, in the United
States and internationally, in connection with the operation of our
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 U.S. at both
the federal and state level, including new laws that may impact our
operations. For example, in 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 European Union (the “E.U.”) adopted the
General Data Protection Regulation (“GDPR”), which took
effect in 2018. The GDPR includes more stringent operational
requirements on entities that receive or process personal data (as
compared to existing E.U. 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 U.S. 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 U.S. 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 (“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 U.S. 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
We
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.
We are
in the process of preparing multiple patent applications related to
our blockchain technology. We treat our unique technology as trade
secrets and all software source code is obfuscated before being
distributed. On August 12, 2020, we acquired the intellectual
property rights to certain technology that we intend to utilize in
connection with the Argus Panoptes RFID System.
Employees
As of
December 31, 2020, we employ 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.
Corporate History
Organizational History of the Company and Eagle Lake
Sollensys
Corp 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 approving an amendment to the Articles
of Incorporation to change the Company’s name to Sollensys
Corp, to increase the number of authorized shares of common stock
to 1,500,000,000, increase the number of authorized preferred
shares 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 Corp 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, Mr. 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
(the “SPA”) by and among Eagle Lake, Sollensys Corp,
and Custodian Ventures. 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 are convertible
into shares of common stock 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 Mr. Beavers as Chief Executive Officer and
Secretary of the Company.
Also
on August 5, 2020, following Mr. Beaver’s appointment 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 was 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, Sollensys Corp entered into a share exchange
agreement (the “Share Exchange Agreement”) with (i)
Eagle Lake, (ii) each of the shareholders of Eagle Lake (the
“Eagle Lake Shareholders”) and (iii) Mr. 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 “SEA Closing”),
pursuant to the terms of the Share Exchange Agreement, the parties
agreed that Sollensys Corp 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 Sollensys
Corp’s common stock to be determined at the
SEA Closing.
The
SEA Closing occurred on November 30, 2020. Pursuant to the terms of
the Share Exchange Agreement, Sollensys Corp 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
Sollensys common stock (the “Share Exchange”). At the
time of the SEA Closing, Eagle Lake had 10,011,667 shares of its
common stock issued and outstanding, which was 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 Sollensys Corp 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.
As a
result of the Share Exchange, Eagle Lake became a wholly owned
subsidiary of Sollensys Corp and the business of Eagle Lake became
the business of Sollensys Corp.
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.
Available Information
We
maintain a website at www.sollensys.com. The information on the
Company’s website is not incorporated herein by reference.
The Company will make available, free of charge on its website, the
most recent annual report on Form 10-K and subsequently filed
quarterly reports on Form 10-Q, current reports on Form 8-K and
amendments to those reports filed or furnished pursuant to Section
13(a) or 15(d) of the Exchange Act as soon as reasonably
practicable after the Company files such material with, or
furnishes it to, the SEC.
The
public may also read and copy any materials the Company files with
the SEC at the SEC's Public Reference Room at 100 F Street, NE,
Washington, DC 20549 or by calling the SEC at 1-800-SEC-0330. The
SEC maintains, free of charge, an Internet site (www.sec.gov) that
contains reports, proxy and information statements, and other
information regarding issuers that file electronically with the
SEC.
ITEM 1A. RISK FACTORS
Investment in our securities involves a number of substantial
risks. You should not invest in our securities unless you are able
to bear the complete loss of your investment. In addition to the
risks and investment considerations discussed elsewhere in this
transition report on Form 10-K, the following factors should be
carefully considered by anyone purchasing our securities. The risks
and uncertainties described below are not the only ones we face.
Additional risks and uncertainties not presently known to us or
that we currently deem immaterial also may impair our business
operations. If any of the following risks actually occur, our
business could be harmed.
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 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. The Blockchain Archive Server
and/or future products 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. We currently only have two
products. 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 U.S. at both
the federal and state level, including new laws that may impact our
operations. For example, in 2018, the State of California enacted
the 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 approved by California
voters in November 2020, significantly modifying the CCPA, and
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 U.S., 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 HIPPA 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 have been prepared assuming that
we 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, we had a net loss of
$2,828,132 for the
period ended December 31,
2020. These factors among others raise substantial doubt
about our ability to continue as a going concern. While we are
attempting to commence operations and generate revenues, our cash
position may not be significant enough to support our 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 us 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. Our ability to continue
as a going concern is dependent upon our ability to further
implement our business plan and generate revenues. The financial
statements do not include any adjustments that might be necessary
if we are 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 December 31, 2020, we had a
working capital surplus of $120,347 and
an accumulated
deficit of $3,422,078. Our 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.
Mr.
Beavers, our Chief Executive Officer and our largest stockholder,
holds 17.07% of the voting power of our 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 six
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, we 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, we 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
we previously filed Form 10 Information with the SEC, shareholders
who receive our restricted securities will not be able to sell them
pursuant to Rule 144 without registration until we have met the
other conditions to this exception and then for only as long as we
continue to meet the condition described in subparagraph (iii),
above, and we are not a shell company. No assurance can be given
that we will meet these conditions or that, if we have met them, we
will continue to do so, or that we will not again be a shell
company.
Our common stock constitutes restricted securities and is subject
to limited transferability.
All of
our common stock, should be considered a long-term, illiquid
investment. In addition, our common stock is not registered under
any state securities laws that would permit its 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 stock is particularly volatile
which could lead to wide fluctuations in our share price. You may
be unable to sell your common stock 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 will be at any time, or if our common stock
will ever be able to trade, or as to what effect the sale of shares
or the availability of common stock 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 us 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 our 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.