SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements that have
been made pursuant to the provisions of the Private Securities Litigation Reform
Act of 1995. These forward-looking statements are based on current expectations,
estimates, and projections about DLT Resolutions' industry, management's
beliefs, and certain assumptions made by management. Forward-looking statements
include our expectations regarding product, services, and maintenance revenue,
annual savings associated with the organizational changes effected in prior
years, and short- and long-term cash needs. In some cases, words such as
"anticipates," "expects," "intends," "plans," "believes," "estimates,"
variations of these words, and similar expressions are intended to identify
forward-looking statements. In addition, statements about the potential effects
of the COVID-19 pandemic on the Company's businesses, results of operations and
financial condition may constitute forward-looking statements. The statements
are not guarantees of future performance and are subject to certain risks,
uncertainties, and assumptions that are difficult to predict; therefore, actual
results may differ materially from those expressed or forecasted in any
forward-looking statements. Risks and uncertainties of our business include
those set forth in our Annual Report on Form 10-K for the year ended December
31, 2019, as filed with the SEC on April 30, 2020, under "Item 1A. Risk Factors"
as well as additional risks described in this Form 10-Q. Unless required by law,
we undertake no obligation to update publicly any forward-looking statements,
whether as a result of new information, future events, or otherwise. However,
readers should carefully review the risk factors set forth in other reports or
documents we file from time to time with the Securities and Exchange Commission,
particularly the Quarterly Reports on Form 10-Q and any Current Reports on Form
8-K.
Overview
DLT Resolution Inc. ("DLT, the "Company", "we" and "our") operates in three
high-tech industry segments: Blockchain Applications; Telecommunications; and
Data Services which includes Image Capture, Data Collection, Data Phone Center
Services, and Payment Processing. The Company offers secure data management,
Information Technology (IT) and other telecommunications services in Canada and
the United States. The Company operates a Health Information Exchange providing
the ability to request and retrieve medical information and records while
meeting all of today's Security & Compliance demands for HIPAA, PIPEDA and
PHIPA. Through our acquisition of Union Strategies, Inc. ("USI"), the Company
operates a business focused on designing, installing and maintaining telephony,
data, video, storage, and LAN/WAN networks. USI's clients encompass K-12 and
higher education institutions, trades industry organizations, and local
government entities having memberships ranging from 100 to 10,000 people that
utilize products and services that USI provides by deploying a variety of
technologies to keep client networks up and running efficiently.
Recent Developments
On January 30, 2020, the Company acquired all the issued and outstanding capital
stock of USI for 2,500,000 shares of the Company's restricted Common Stock (See
Note 2). The acquisition, valued at $4,000,000 resulted in USI becoming a wholly
owned subsidiary of the Company. USI was organized on October 24, 2011 under the
Ontario Business Corporations Act of 1990 and is located in Woodbridge, Ontario,
Canada. USI is focused on designing, installing and maintaining telephony, data,
video, storage, and LAN/WAN networks. USI has clients encompassing K-12 and
higher education institutions, trades industry organizations, and local
government entities having memberships ranging from 100 to 10,000 people that
utilize products and services that USI provides by deploying a variety of
technologies to keep client networks up and running efficiently.
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Results of Operations
Revenues
Revenues for the three months ended September 30, 2021 and 2020 were $342,562
and $599,160, respectively. The decrease resulted primarily from having two of
our operating companies having fewer customers and less revenue per customer in
the quarter ended September 30, 2021.
Revenues for the nine months ended September 30, 2021 and 2020 were $1,197,976
and $1,576,960, respectively. The decrease resulted primarily from having two of
our operating companies having fewer customers and less revenue per customer in
the nine months ended September 30, 2021.
Cost of Revenue
Cost of revenue for the three months ended September 30, 2021 and 2020 were
$276,898 and $317,665, respectively. The dollar decrease resulted primarily from
the reduction in revenue and costs corresponding to that reduced revenue. Cost
of revenue as a percentage of revenue increased in the current three-month
period as compared to the prior year three-month period primarily due to the
lack of reduction in fixed costs associated with producing revenue and those
fixed costs accounting for a greater percentage of revenue in the current
three-month period.
Cost of revenue for the nine months ended September 30, 2021 and 2020 were
$1,010,489 and $820,179, respectively. The increase resulted primarily from
USI's cost of revenue being included for only eight of the nine months ended
September 30, 2020 as a result of our acquiring USI on January 30, 2020. Cost of
revenue as a percentage of revenue increased in the current nine-month period as
compared to the prior year nine-month period primarily due to the lack of
reduction in fixed costs associated with producing revenue and those fixed costs
accounting for a greater percentage of revenue in the current nine-month period.
General and Administrative
General and administrative expense, excluding professional fees, was $128,039
and $245,005 for the three months ended September 30, 2021 and 2020,
respectively. The decrease resulted primarily from the increased benefit of
Canadian government provided payroll subsidies in the three months ended
September 30, 2021.
General and administrative expense, excluding professional fees, was $358,862
and $613,893 for the nine months ended September 30, 2021 and 2020,
respectively. The decrease resulted primarily from the benefit of Canadian
government provided payroll subsidies in the nine months ended September 30,
2021 that were not available in the nine months ended September 30, 2020, which
was partially offset by USI's general and administrative expense being included
for only eight of the nine months ended September 30, 2020 as a result of our
acquiring USI on January 30, 2020.
Professional Fees
Professional fees were $46,154 and $29,060 for the three months ended September
30, 2021 and 2020, respectively. Professional fees increased primarily due to
the increased use of outside professionals.
Professional fees were $91,942 and $93,481 for the nine months ended September
30, 2021 and 2020, respectively.
Depreciation and Amortization
Depreciation and amortization expense was $63,228 and $1,288 for the three
months ended September 30, 2021 and 2020, respectively. The decrease resulted
primarily from the lower level of amortization expense related to intangible
assets acquired in the USI acquisition. Our amortization expense in the quarter
ended September 30, 2020 was based on an estimated purchase price allocation
that we revised in the quarter ended September 30, 2020 following a purchase
price allocation analysis performed by a third party that resulted in less
amortization expense that quarter and each quarter thereafter.
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Depreciation and amortization expense was $269,064 and $268,321 for the nine
months ended September 30, 2021 and 2020, respectively.
Goodwill Impairment Loss
Due to a sustained decline in the market capitalization of our common stock
during the first quarter of 2020, we performed an interim goodwill impairment
test. Management considered that, along with other possible factors affecting
the assessment of the Company's reporting unit for the purposes of performing a
goodwill impairment assessment, including management assumptions about expected
future revenue forecasts and discount rates, changes in the overall economy,
trends in the stock price, estimated control premium, other operating
conditions, and the effect of changes in estimates and assumptions that could
materially affect the determination of fair value and goodwill. As a result of
the significant decline in the current market capitalization despite any of the
other positive factors contemplated and relatively little change in our ongoing
business operations, the outcome of this goodwill impairment test resulted in a
charge for the impairment of goodwill of $160,594 in the nine months ended
September 30, 2020.
Other Expense
The Company had net other expense of $3,442 and $11,902for the three months
ended September 30, 2021 and September 30, 2020. The decrease is due to a
reduction in the outstanding balance of our interest-bearing obligations.
The Company had net other expense of $8,627 and $30,808 for the nine months
ended September 30, 2021 and 2020, respectively. The decrease is due to a
reduction in the outstanding balance of our interest-bearing obligations.
Net Loss
The Company had a net loss of $175,299 and $11,935 for the three months ended
September 30, 2021 and 2020. The increase in net loss in the current year
primarily resulted from the decreases in revenue and gross profit in the three
months ended September 30, 2021.
The Company had a net loss of $541,008 and $410,316 for the nine months ended
September 30, 2021 and 2020. The increase in net loss in the current year
primarily resulted from the decreases in revenue and gross profit in the nine
months ended September 30, 2021, which was partially offset by the inclusion of
the goodwill impairment loss in the nine months ended September 30, 2020.
Liquidity and Capital Resources
As of September 30, 2021, we had total current assets of $266,552 and current
liabilities of $1,013,309 creating a working capital deficit of $746,757. As of
December 31, 2020, we had $7,666 of cash, total current assets of $465,755 and
current liabilities of $940,486 creating a working capital deficit of $474,731.
Net cash used in operating activities was $13,977 during the nine months ended
September 30, 2021 compared to $121,863 for the same period in 2020.
Net cash used in investing activities was $1,493 during the nine months ended
September 30, 2021 compared to $766 for the same period in 2020.
During the nine months ended September 30, 2021, the Company generated $16,293
cash from financing activities. During the nine months ended September 30, 2020,
the Company generated $119,720 of cash from financing activities that was
primarily from the proceeds of Canadian government loans and sales of our common
stock.
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Going Concern
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has suffered recurring
losses from operations and has a significant accumulated deficit. In addition,
the Company continues to experience negative cash flow from operations. These
factors raise substantial doubt about the Company's ability to continue as a
going concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty. Management's plans in regards
to this matter include raising additional equity financing and borrowing funds
under a private credit facility and/or other credit sources.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to
have a current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources that is material to stockholders.
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