NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE
1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
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.
On November 30,
2020, Sollensys entered into a share exchange agreement (the
“Share Exchange Agreement”) with (i) Eagle Lake a
Florida corporation, (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.
Eagle Lake is a
Florida-based science, technology, and engineering solutions
corporation offering products that ensure their clients' data
integrity through the collection, storage, and transmission. The
Company expects to generate revenue with Eagle’s innovative
flagship product, the Blockchain Archive Server™ that
can be utilized to protect client data from ransomware. Blockchain
technology is a leading-edge tool for data security, providing an
added layer of security against data loss due to
malware.
On December 29,
2020, the Company’s Board approved the change in the
Company’s fiscal year-end from March 31 to December
31.
Common Control Accounting Treatment
Sollensys
Corporation and Eagle Lake Laboratories were under the common
control of the CEO before and after the date of transfer. As a
result, the Company adopted the guidance in ASC 805-50-05-5 for the
transfer of net assets between entities under common control to
apply a method similar to the pooling-of-interests-method. Under
the method, the financial statements of the Company shall report
results of operations for the period in which the transfer occurs
as though the transfer of the net assets had occurred at the
beginning of the period. Results of operations for the period will
thus comprise both those of the previously separate entities
combined from the beginning of the period to the date the transfer
is completed and those of the combined operations from that date to
the end of the period. Similarly, the Company shall present the
statements of financial position and other financial information
presented as of the beginning of the period as though the assets
and liabilities had been transferred at that date. Financial
statements and financial information presented for prior years also
shall be retrospectively adjusted to furnish comparative
information.
Reverse Stock Split
On October 14,
2020, the Company filed with the Secretary of State of Nevada a
Certificate of Amendment to its Articles of Incorporation (the
“Amendment”) to effect a 1-for-120 reverse stock split
(the “Reverse Split”) of the Company’s issued and
outstanding common stock, par value $0.001 per share (“Common
Stock”). Pursuant to the Amendment, effective as of October
30, 2020, every one hundred and twenty (120) shares of the issued
and outstanding Common Stock will be converted into one share of
Common Stock, without any change in the par value per
share.
The 1 for 120
Reverse Split became effective on November 2, 2020. Following the
effectiveness of the Reverse Split, on November 2, 2020, the number
of authorized shares of common stock was reduced from
12,000,000,000 shares to 300,000,000. Additionally, following the
Reverse Split, Eagle’s 11,400,000,000 common shares was
adjusted to 95,000,000 shares and they continued to maintain 95.8%
of the total of 99,193,962 common shares outstanding.
No fractional
shares of common stock were issued in connection with the Reverse
Split. If, as a result of the Reverse Split, a shareholder would
otherwise hold a fractional share, the shareholder received,
instead of the issuance of such fractional share, one whole share
of common stock. As a result, 143,585 additional shares were issued
due to the rounding up fractional shares.
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation
The accompanying
consolidated financial statements have been prepared in accordance
with the Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”), which is the
source of authoritative accounting principles recognized by the
FASB to be applied by nongovernmental entities in the preparation
of financial statements in conformity with generally accepted
accounting principles (“GAAP”) in the United
States. The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiary, Eagle
Lake. All intercompany accounts and transactions are eliminated in
consolidation.
Going Concern
The accompanying
consolidated financial statements have been prepared assuming the
Company 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. The Company has
incurred significant operating losses since its inception. As of
March 31, 2021, the Company had a working capital deficit of
$155,481 and an accumulated deficit of $3,966,550.
The Company expect
to generate operating cash flow that will be sufficient to fund
presently anticipated operations although there can be no
assurance. This raises substantial doubt about the Company’s
ability to continue as a going concern. Therefore, the Company will
need to raise additional funds and is currently exploring
alternative sources of financing to supplement expected cash flow.
Historically, the Company has raised capital through private
placements, as an interim measure to finance working capital needs
and may continue to raise additional capital through the sale of
common stock or other securities and obtaining some short-term
loans. The Company will be required to continue to do so until its
operations become profitable.
The Company may
attempt to raise capital in the near future through the sale of
equity or debt financing; however, there can be assurances the
Company will be successful in doing so. There can be no assurance
that such additional financing will be available to the Company on
acceptable terms or at all.
Use of Estimates
The preparation of
financial statements in conformity with GAAP requires management to
make estimates and assumptions that affect the reported amounts of
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amount of
expenses during the reporting period. The most significant
estimates relate to income taxes and contingencies. The Company
bases its estimates on historical experience, known or expected
trends, and various other assumptions that are believed to be
reasonable given the quality of information available as of the
date of these consolidated financial statements. The results of
these assumptions provide the basis for making estimates about the
carrying amounts of assets and liabilities that are not readily
apparent from other sources. Actual results could differ from these
estimates.
Management’s Representation of Interim Financial
Statements
The accompanying unaudited condensed consolidated financial
statements have been prepared by the Company without audit pursuant
to the rules and regulations of the Securities and Exchange
Commission (“SEC”). The Company uses the same
accounting policies in preparing quarterly and annual financial
statements. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with
accounting principles generally accepted in the United States
(“GAAP”) have been condensed or omitted as allowed by
such rules and regulations, and management believes that the
disclosures are adequate to make the information presented not
misleading. These condensed consolidated financial statements
include all of the adjustments, which in the opinion of management
are necessary to a fair presentation of financial position and
results of operations. All such adjustments are of a normal and
recurring nature. Interim results are not necessarily indicative of
results for a full year. These condensed consolidated financial
statements should be read in conjunction with the audited
consolidated financial statements and notes thereto at December 31,
2020, as presented in the Company’s Annual Report on Form
10-KT filed on March 31, 2021, with the SEC.
Revenue Recognition
Revenues are
accounted for in accordance with the Financial Accounting Standards
Board issued ASU 2014-09 (Revenue from Contracts with Customers
(Topic 606).
The amount of
revenue recognized reflects the consideration which the Company
expects to be entitled to receive in exchange for the products
and/or services. To achieve this principle, the Company applies the
following five steps:
1. Identify the
contract with the customer;
2. Identify the
performance obligations in the contract;
3. Determine the
transaction price;
4. Allocate the
transaction price to performance obligations in the contract,
and
5. Recognize
revenue when or as the Company satisfies a performance
obligation.
The Company
recognizes revenue when the control of the products is transferred
to the Company’s customer, in an amount that reflects the
consideration the Company expects to be entitled to in exchange for
these products. Control is generally transferred when products are
delivered. The Company’s revenue contracts generally
represent a single performance obligation to sell its products to
customers. Additionally, the Company recognizes revenue when a
service is completed thereby completing a performance
obligation.
Customer Deposits
Under the terms of
these existing Regional Service Center contracts the Company
requires a substantial deposit in advance of the support work
required to be performed by the Company. All deposits that have not
been deemed earned by the Company following the guidelines of ASC
606 are considered to be liabilities on the Company’s balance
sheet. As of March 31, 2021 the current balance of deposits was
$71,429 and the long-term balance was $210,000 , compared to
$17,143 and $72,857, for the period ended March 31, 2020,
respectively.
Cash and cash equivalents
The Company
considers all highly liquid temporary cash investments with an
original maturity of three months or less to be cash equivalents.
On March 31, 2020, and December 31, 2020, the Company’s cash
equivalents totaled $22,151 and $129,624,
respectively.
Stock-based Compensation
The Company
accounts for stock-based compensation using the fair value method
following the guidance outlined in Section 718-10 of the FASB ASC
for disclosure about stock-based compensation. This section
requires a public entity to measure the cost of employee and
non-employee services received in exchange for an award of equity
instruments based on the grant-date fair value of the award (with
limited exceptions). That cost will be recognized over the period
during which service is provided. No compensation cost is
recognized for equity instruments for which service is not provided
or rendered.
Related party transactions
The Company follows
ASC 850, Related Party
Disclosures, for the identification of related parties and
disclosure of related party transactions. In accordance with ASC
850, the Company’s financial statements include disclosures
of material related party transactions, other than compensation
arrangements, expense allowances, and other similar items in the
ordinary course of business, as well as transactions that are
eliminated in the preparation of financial statements.
Net Loss per Share
Net loss per common
share is computed by dividing net loss by the weighted average
common shares outstanding during the period as defined by ASC Topic
260, “Earnings per Share.” Basic earnings per common
share calculations are determined by dividing net income (loss) by
the weighted average number of shares of common stock outstanding
during the year. Diluted earnings per common share calculations are
determined by dividing net income (loss) by the weighted average
number of common shares and dilutive common share equivalents
outstanding. As of March 31, 2021 there were no common stock
equivalents.
NOTE
3 – ACCRUED EXPENSES
As of March 31,
2021, and December 31, 2020, the balances of accrued expenses were
$117,695 and $46,134 respectively. The accrued expenses as of March
31, 2020, were comprised of $23,452 in credit card payables, 47,143
liabilities associated with maintaining the company’s
servers, and $47,100 in miscellaneous liabilities.
NOTE
4 – STOCKHOLDERS’ EQUITY
Series A Preferred Stock
On March 21, 2020,
the Company filed a Certificate of Designation to authorize
25,000,000 shares of Series A preferred stock at a par value of
$0.001. Among other rights, the holders of Series A preferred stock
have the right to convert each share of Series A preferred stock
into 50 shares of common stock. On April 1, 2020, the Company
issued 19,000,000 shares of Series A preferred stock to the
Company’s Chief Executive Officer, David Lazar. The fair
value of the issuance was estimated at $1,900,000 and recorded as
stock-based compensation.
Common Stock
The Company has
authorized 300,000,000 shares of $0.001 common stock. As of March
31, 2021, and December 31, 2020, respectively, there were
99,391,119 and 99,327,547 shares of common stock issued and
outstanding.
During the three
months ended March 31, 2021, the Company raised $111,501 from sale
of 36,572 shares to four investors.
At March 31, 2021,
and December 31, 2020, there were 10,000,000 shares of Preferred
Series A stock authorized, with -0- shares issued and outstanding
at both periods, respectively.
NOTE
5 – SUBSEQUENT EVENTS
In
accordance with ASC 855-10 management has performed an
evaluation of subsequent events from March 31, 2021 through the
date the financial statements were available to be issued and noted
no subsequent events requiring disclosure except as
follows:
The
Company sold 111,429 shares of common stock to 12 investors and
raised $373,501 in proceeds. Additionally the Company awarded
44,365 shares to various service provers and employees. These share
were valued at $232,916.