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 1,500,000 shares of the Company's restricted Common Stock with
the potential issuance of an additional 1,000,000 shares should USI achieve
financial performance targets (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, 2020 and 2019 were $599,160
and $128,482, respectively. The increase resulted primarily from the inclusion
of USI's $467,049 revenue in the current quarter following its acquisition on
January 30, 2020.
Revenues for the nine months ended September 30, 2020 and 2019 were $1,576,960
and $363,849, respectively. The increase resulted primarily from the inclusion
of USI's $1,257,172 revenue from the acquisition on January 30, 2020 to
September 30, 2020.
Cost of Revenue
Cost of revenue for the three months ended September 30, 2020 and 2019 were
$317,665 and $42,264, respectively. The increase resulted primarily from the
inclusion of USI's $270,766 cost of revenue in the current quarter following its
acquisition on January 30, 2020.
Cost of revenue for the nine months ended September 30, 2020 and 2019 were
$820,179 and $114,676, respectively. The increase resulted primarily from the
inclusion of USI's $694,938 in cost of revenue from the acquisition on January
30, 2020 to September 30, 2020.
General and Administrative
General and administrative expense, excluding professional fees, was $245,005
and $74,842 for the three months ended September 30, 2020 and 2019,
respectively. The increase resulted primarily from the inclusion of USI's
$163,006 in general and administrative expense in the current quarter following
its acquisition on January 30, 2020.
General and administrative expense, excluding professional fees, was $613,893
and $194,852 for the nine months ended September 30, 2020 and 2019,
respectively. The increase resulted primarily from the inclusion of USI's
$419,904 in general and administrative expense from the acquisition on January
30, 2020 to September 30, 2020.
Professional Fees
Professional fees were $29,060 and $55,421 for the three months ended September
30, 2020 and 2019, respectively. Professional fees decreased despite the
inclusion of USI's $4,790 in professional fees in the current quarter following
its acquisition on January 30, 2020.
Professional fees were $93,481 and $119,842 for the three months ended September
30, 2020 and 2019, respectively. The increase resulted primarily from the
inclusion of USI's $21,412 in professional fees from the acquisition on January
30, 2020 to September 30, 2020.
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Depreciation and Amortization
Depreciation and amortization expense was $1,288 and $25,768 for the three
months ended September 30, 2020 and 2019, respectively. The decrease resulted
primarily from a one-time reduction of USI's amortization expense in the current
quarter that resulted from management adopting the results of an independent
third party's valuation of USI as of the January 30, 2020 acquisition date. The
valuation reduced the estimated value of the consideration paid and payable to
USI's former owners and determined the allocation of the consideration to USI's
intangible assets and goodwill.
Depreciation and amortization expense was $268,321 and $76,980 for the nine
months ended September 30, 2020 and 2019, respectively. The increase resulted
primarily from the inclusion of USI's $191,437 in depreciation and amortization
expense from the acquisition on January 30, 2020 to September 30, 2020 that
relates to USI's intangible assets and property, plant and equipment.
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 $11,902 for the three months ended
September 30, 2020 and other income of $265,762 for the three months ended
September 30, 2019. The change is due to a $267,602 gain from revaluing a stock
based liability that existed in the quarter ended September 30, 2019, but had
been extinguished later in 2019.
The Company had net other expense of $30,808 and $559,741 for the nine months
ended September 30, 2020 and 2019, respectively. The large change is due to the
2019 disposition of the investment in A.J.D. Data Services and the 2019 loss
from a change in the stock based liability that existed at that time.
Net Loss
The Company had a net loss of $11,935 and net income of $195,949 for the three
months ended September 30, 2020 and 2019. The decrease in net result in the
current quarter compared to the prior's year's quarter primarily resulted from
the $267,602 gain on a stock based liability in the quarter ended September 30,
2019 as compared to $0 gain in the quarter ended September 30, 2020
The Company had a net loss of $410,316 and $702,242 for the nine months ended
September 30, 2020 and 2019. The decrease in net loss in the current year
primarily resulted from the decrease in other expense, which was partially
offset by the increase in amortization expense from intangible assets purchased
in the USI acquisition.
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Liquidity and Capital Resources
As of September 30, 2020, we had total current assets of $385,043 and current
liabilities of $769,162 creating a working capital deficit of $384,119. As of
December 31, 2019, we had $13,140 of cash, total current assets of $47,771 and
current liabilities of $267,553 creating a working capital deficit of $219,782.
Net cash used in operating activities was $65,357 during the nine months ended
September 30, 2020 compared to $162,663 for the same period in 2019.
Net cash used in investing activities was $766 during the nine months ended
September 30, 2020 compared to $0 for the same period in 2019.
During the nine months ended September 30, 2020, the Company generated $63,214
cash from financing activities. During the nine months ended September 30, 2019,
the Company generated $175,855 of cash from financing activities that was the
proceeds of advances from related parties, net of repayments and $25,000in
proceeds from a sale of our Common Stock.
Going Concern
We had an accumulated deficit of $4,653,230 and a working capital deficit of
$219,782 as of December 31, 2019. These matters raise substantial doubt about
our ability to continue as a going concern. Continuation of our existence
depends upon our ability to obtain additional capital. Our plans in regards to
this matter include raising additional equity financing and borrowing funds
under a private credit facility and/or other credit sources. Issuances of
additional shares will dilute the ownership of our existing shareholders. There
is no assurance that we will achieve any additional sales of our equity
securities or arrange for debt or other financing to fund our planned
operations.
Our unaudited condensed consolidated financial statements are prepared in
accordance with generally accepted accounting principles applicable to a going
concern. This contemplates the realization of assets and the liquidation of
liabilities in the normal course of business. Currently, we have limited cash,
and an accumulated deficit of $5,045,546. These factors raise substantial doubt
about our ability to continue as a going concern. We will be dependent upon the
raising of additional capital through placement of our common stock in order to
implement its business plan, or merge with an operating company. There can be no
assurance that we will be successful in either situation in order to continue as
a going concern. Our officers and directors have demonstrated a willingness to
advance funds to us to be used to pay certain of our operating costs.
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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