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 June 30, 2021 and 2020 were $451,331 and $549,453, respectively. The decrease resulted primarily from having two of our operating companies having fewer customers and less revenue per customer in the quarter ended June 30, 2021.

Revenues for the six months ended June 30, 2021 and 2020 were $855,414 and $977,800, respectively. The decrease resulted primarily from having two of our operating companies having fewer customers and less revenue per customer in the three months ended June 30, 2021, which was partially offset by USI's revenue being included for only five of the six months ended June 30, 2020 as a result of our acquiring USI on January 30, 2020.





Cost of Revenue

Cost of revenue for the three months ended June 30, 2021 and 2020 were $370,405 and $263,828, respectively. The increase resulted primarily from the inclusion of USI's $224,396 cost of revenue in the current quarter following its acquisition on January 30, 2020.

Cost of revenue for the six months ended June 30, 2021 and 2020 were $733,591 and $502,514, respectively. The increase resulted primarily from USI's cost of revenue being included for only five of the six months ended June 30, 2020 as a result of our acquiring USI on January 30, 2020.





General and Administrative

General and administrative expense, excluding professional fees, was $142,309 and $172,643 for the three months ended June 30, 2021 and 2020, respectively. The decrease resulted primarily from the benefit of Canadian government provided payroll subsidies in the three months ended June 30, 2021 that were not available in the three months ended June 30, 2020.

General and administrative expense, excluding professional fees, was $230,823 and $368,888 for the six months ended June 30, 2021 and 2020, respectively. The decrease resulted primarily from the benefit of Canadian government provided payroll subsidies in the six months ended June 30, 2021 that were not available in the three months ended June 30, 2020, which was partially offset by USI's general and administrative expense being included for only five of the six months ended June 30, 2020 as a result of our acquiring USI on January 30, 2020.





Professional Fees

Professional fees were $(20,095) and $31,336 for the three months ended June 30, 2021 and 2020, respectively. Professional fees decreased primarily due to the change in classification of $24,458 in costs to general and administrative expense in the three month ended June 30, 2021 that had been reported as professional fees in the three months ended March 31, 2021.

Professional fees were $45,788 and $71,775 for the six months ended June 30, 2021 and 2020, respectively. The decrease resulted primarily from the decreased usage of consultants in the six months ended June 30, 2021 that resulted in a $22,440 expense reduction as compared to the six months ended June 30, 2020.

Depreciation and Amortization

Depreciation and amortization expense was $105,632 and $151,765 for the three months ended June 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 June 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 each quarter thereafter.






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Depreciation and amortization expense was $205,736 and $267,033 for the six months ended June 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 June 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 each quarter thereafter.





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 $154,419 in the six months ended June 30, 2020.





Other Expense

The Company had net other expense of $2,846 for the three months ended June 30, 2021 and other income of $11,485 for the three months ended June 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 $5,185 and $18,809 for the six months ended June 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 $185,406 and $76,836 for the three months ended June 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 June 30, 2021.

The Company had a net loss of $365,709 and $405,738 for the six months ended June 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 six months ended June 30, 2021, which was partially offset by the inclusion of the goodwill impairment loss and higher depreciation and amortization expense in the six months ended June 30, 2020.

Liquidity and Capital Resources

As of June 30, 2021, we had total current assets of $313,094 and current liabilities of $971,039 creating a working capital deficit of $657,945. 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 $2,823 during the six months ended June 30, 2021 compared to $27,199 for the same period in 2020.

Net cash used in investing activities was $0 during the six months ended June 30, 2021 compared to $749 for the same period in 2020.

During the six months ended June 30, 2021, the Company generated $9,420 cash from financing activities. During the six months ended June 30, 2020, the Company generated $51,321 of cash from financing activities that was primarily from the proceeds of advances from related parties, net of repayments.






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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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