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, 2020, as filed with the SEC on May 10, 2021, 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, located in Woodbridge, Ontario, Canada, 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 March 31, 2021 and 2021 were $440,083 and $428,347, respectively. The increase resulted primarily from the inclusion of a full quarter's USI revenue in 2021 compared to the quarter ended March 31, 2020, which includes USI revenue starting on the January 30, 2020 acquisition date.





Cost of Revenue

Cost of revenue for the three months ended March 31, 2021 and 2020 were $363,546 and $196,245, respectively. The increase resulted primarily from the inclusion of a full quarter's USI cost of revenue in 2021 compared to the quarter ended March 31, 2020, which includes USI cost of revenue starting on the January 30, 2020 acquisition date.





General and Administrative

General and administrative expense, excluding professional fees, was $88,514 and $196,245 for the three months ended March 31, 2021 and 2020, respectively. The decrease resulted primarily from the receipt of nearly $46,000 in Canadian government COVID-19 related payroll subsidies in the three months ended March 31, 2021 that reduced our USI payroll costs for the quarter.





Professional Fees

Professional fees were $65,883 and $40,439 for the three months ended March 31, 2021 and 2020, respectively. The increase resulted primarily from the inclusion of a full quarter's USI professional fees in 2021 compared to the quarter ended March 31, 2020, which includes USI professional fees starting on the January 30, 2020 acquisition date.

Depreciation and Amortization

Depreciation and amortization expense was $100,104 and $115,268 for the three months ended March 31, 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 March 31, 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

Our goodwill impairment loss was $0 and $159,187 for the three months ended March 31, 2021 and 2020, respectively. 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 $159,187 in the three months ended March 31, 2020.





Other Expense

The Company had net other expense of $2,339 and $7,424 for the three months ended March 31, 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 $180,303 and $328,902 for the three months ended March 31, 2021 and 2020, respectively. The decrease in net loss in the current year primarily resulted from the aforementioned non-recurring goodwill impairment loss incurred in the period ended March 31, 2020.






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Liquidity and Capital Resources

As of March 31, 2021, we had total current assets of $361,161 and current liabilities of $923,679 creating a working capital deficit of $562,518. As of December 31, 2020, we had working capital deficit of $474,731 with the increase of the deficit attributed to the reduction in our accounts receivable in the quarter ended March 31, 2021 with the proceeds from collections of accounts receivable used to fund our operations.

Net provided by operating activities was $355 during the three months ended March 31, 2021 compared to $19,527 for the same period in 2020.

Net cash used in investing activities was $1,911 during the three months ended March 31, 2021 compared to $0 for the same period in 2020.

During the three months ended March 31, 2021 and 2020, the Company generated $9,218 and $13,722 in cash from financing activities, respectively.





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

None.

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