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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-K

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______, 20 ___, to ______, 20 ___.

Commission File Number 000-56448

Sollensys Corp

(Exact Name of Registrant as Specified in its Charter)

Nevada		80-0651816
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

1470 Treeland Blvd SE Palm Bay, FL		32909
(Address of Principal Executive Offices)		(Zip Code)

(866) 438-7657

(Registrant’s Telephone Number, Including Area Code)

N/A

(Former name or former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
N/A		N/A		N/A

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold as of June 30, 2022 ($1.62 per share), the last business day of the registrant’s most recently completed second fiscal quarter, was $137,684,842.

There were 106,512,827 shares of the registrant’s common stock, $0.001 par value per share, outstanding as of April 17, 2023.

Documents Incorporated by Reference

None

Sollensys Corp

Contents

		Page
Cautionary Statement Regarding Forward-Looking Statements		ii

Part I

Item 1.	Business	1
Item 1A.	Risk Factors	12
Item 1B.	Unresolved Staff Comments	22
Item 2.	Properties	23
Item 3.	Legal Proceedings	24
Item 4.	Mine Safety Disclosures	24

Part II

Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	25
Item 6.	[Reserved]	26
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	34
Item 8.	Financial Statements and Supplementary Data	34
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	34
Item 9A.	Controls and Procedures	34
Item 9B.	Other Information	36
Item 9C.	Disclosure Regarding Foreign Jurisdictions that Prevent Inspections	36

Part III

Item 10.	Directors, Executive Officers and Corporate Governance	37
Item 11.	Executive Compensation	40
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	45
Item 13.	Certain Relationships and Related Transactions, and Director Independence	47
Item 14.	Principal Accounting Fees and Services	48

Part IV

Item 15.	Exhibits, Financial Statement Schedules	49
Item 16.	Form 10-K Summary	50
	Signatures	51

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K and the documents incorporated herein by reference contain forward-looking statements. Such forward-looking statements are based on current expectations, estimates and projections about Sollensys Corp’s industry, management beliefs, and assumptions made by management. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict; therefore, actual results and outcomes may differ materially from what is expressed or forecasted in any such forward-looking statements. Although we believe the expectations reflected in our forward-looking statements are based upon reasonable assumptions, it is not possible to foresee or identify all factors that could have a material effect on the future financial performance of the Company. The forward-looking statements in this Annual Report on Form 10-K are made on the basis of management’s assumptions and analyses, as of the time the statements are made, in light of their experience and perception of historical conditions, expected future developments and other factors believed to be appropriate under the circumstances. Except as otherwise required by the federal securities laws, we disclaim any obligation or undertaking to publicly release any updates or revisions to any forward-looking statement contained in this Annual Report on Form 10-K and the information incorporated by reference in this Annual Report on Form 10-K to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any statement is based.

PART I

ITEM 1. BUSINESS

Unless the context indicates otherwise, the “Company,” “we,” “our,” “ours” or “us” refer to Sollensys Corp, a Nevada corporation, and its wholly owned subsidiary, Eagle Lake Laboratories, Inc. (“Eagle Lake”)

Overview

Our primary product is the Blockchain Archive Server—a turn-key, off-the-shelf, blockchain solution that works with virtually any hardware and software combinations currently used in commerce, without the need to replace or eliminate any part of the client’s data security that is being utilized. The Blockchain Archive Server encrypts, fragments, and distributes data across thousands of secure nodes every day, which makes it virtually impossible for hackers to compromise. Using blockchain technology, the Blockchain Archive Server maintains a redundant, secure, and immutable backup of data. Redundant backups and the blockchain work together to assure not only the physical security of the database but also the integrity of the information held within.

Blockchain Archive Server protects client data from “ransomware”—malicious software that infects your computer and displays messages demanding a fee to be paid in order for your system to work again. Blockchain technology is a leading-edge tool for data security, providing an added layer of security against data loss due to all types of software specifically designed to disrupt, damage, or gain unauthorized access to a computer system (i.e., malware).

Uniquely, the Blockchain Archive Server is a turn-key solution that can stand alone or seamlessly integrate into an existing data infrastructure to quickly recover from a cyber-attack. The Blockchain Archive Server is a server that comes pre-loaded with the blockchain-powered cybersecurity software, which can be delivered, installed, and integrated into a client’s computer systems with ease.

In December 2020, we made our second product offering—the Regional Service Center—available on a limited test market basis. The Regional Service Center was added to our standard product line effective January 1, 2021. A Regional Service Center is a single unit system of 32 Blockchain Archive Servers capable of servicing up to 2,580 individual small accounts, and is marketed to existing IT service providers with established accounts. The Regional Service Center offers small businesses the same state of the art technology previously available only to large or very well-funded companies. Sollensys believes that smaller companies, and even certain individuals, will find the Regional Service Center affordable, paying only for the actual space they use.

In connection with the closing of the Stock Purchase, on August 5, 2020, Mr. Lazar, the then-sole member of the Board of Directors (the “Board”) of Sollensys, pursuant to the power granted to the Board in Sollensys’ bylaws, increased the size of Sollensys’ Board to two members. Simultaneously, Mr. Lazar, as the sole Board member, appointed Donald Beavers as a director to fill the newly created Board vacancy. At the same time, Mr. Lazar appointed Donald Beavers as Chief Executive Officer and Secretary of Sollensys.

Also on August 5, 2020, following the above officer and director appointments and effective on the closing of the Stock Purchase, Mr. Lazar resigned from any and all officer and director positions with Sollensys.

Eagle Lake Share Exchange Agreement

On November 30, 2020, Sollensys entered into a share exchange agreement (the “Share Exchange Agreement”) with (i) Eagle Lake, (ii) each of the shareholders of Eagle Lake (the “Eagle Lake Shareholders”) and (iii) Mr. Beavers as the representative of the Eagle Lake Shareholders. Among other conditions to the closing of the transactions contemplated by the Share Exchange Agreement (the “SEA Closing”), pursuant to the terms of the Share Exchange Agreement, the parties agreed that Sollensys 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 Sollensys common stock to be determined at the SEA Closing.

The SEA Closing occurred on November 30, 2020. Pursuant to the terms of the Share Exchange Agreement, Sollensys acquired from the Eagle Lake Shareholders 10,000,000 shares Eagle Lake’s common stock, no par value per share, representing 100% of the issued and outstanding capital stock of Eagle Lake, in exchange for the issuance to the Eagle Lake Shareholders of 95,000,000 shares of Sollensys common stock (the “Share Exchange”). At the time of the SEA Closing, Eagle Lake had 10,011,667 shares of its common stock issued and outstanding, which was 11,667 shares in excess of the number of shares of common stock authorized pursuant to Eagle Lake’s articles of incorporation. Such over-issued shares are void under Florida law and are not entitled to any rights of a stockholder of Eagle Lake. As such, the 10,000,000 shares of Eagle Lake common stock that Sollensys acquired from the Eagle Lake Shareholders, represented 100% of the issued and outstanding capital stock of Eagle Lake of the presence of over-issued shares.

As a result of the Share Exchange, Eagle Lake became a wholly owned subsidiary of Sollensys and the business of Eagle Lake became the business of Sollensys.

Eagle Lake was incorporated in the State of Florida on May 8, 2020. Eagle Lake offers advanced technology products for cybersecurity that ensure a clients’ data integrity through collection, storage, and transmission.

Headquarters Property

On September 8, 2021, the Company closed on the purchase of a commercial building, land, and fixtures in Palm Bay, Florida, as a location for the Company’s new headquarters. On November 3, 2022, the Company entered into a Commercial Contract (the “Sale Agreement”), by and between the Company and EML Realty Partners, LLC (“EML”), pursuant to which the Company agreed to sell, and EML agreed to purchase, upon the terms and conditions set forth in the Sale Agreement, the Company’s headquarters property at 1470 Treeland Boulevard SE, Palm Bay, Florida (the “Property”). Pursuant to the terms of the Sale Agreement, EML agreed to pay to the Company $3,850,000 in exchange for the Property. The Sale Agreement was subject to a 30-day due diligence period and contained customary representations, warranties, and conditions.

The sale of the Property closed on December 30, 2022.

In connection with the sale of the Property, the parties also agreed to enter into a five-year office lease (“Lease”) after closing, pursuant to which EML agreed to lease to the Company the office building on the Property. In exchange, the Company agreed to pay to EML base rent as follows:

Months	Annual Base Rent		Monthly Base Rent
1-12	$	308,000.00	$	25,666.67
13-24	$	317,240.00	$	26,436.67
25-36	$	326,757.20	$	27,229.77
37-48	$	336,559.92	$	28,046.66
49-60	$	346,656.72	$	28,888.06

The Company and EML entered into the Lease on December 30, 2022. In connection with entry into the Lease, and pursuant to the terms thereof, the Company delivered to EML a personal guaranty by Donald Beavers, the Company’s Chief Executive Officer and a member of the Company’s Board of Directors.

Abstract Media

On October 15, 2021, the Company entered into that certain Membership Interest Exchange Agreement (the “Agreement”), dated as of October 15, 2021, by and among (i) the Company; (ii) Abstract Media, LLC (“Abstract Media”), (iii) each of the members of Abstract Media (collectively, the “Abstract Media Members”); and (iv) Andrew Baker as the representative of the Abstract Media Members (the “Members’ Representative”).

Pursuant to the terms of the Agreement, the Company agreed to acquire from the Abstract Media Members all of the membership interests of Abstract Media held by the Abstract Media Members, representing 100% of the membership interests of Abstract Media, in exchange for the issuance by the Company to the Abstract Media Members of (i) shares of the Company’s common stock equal to $605,000 based on the trading price of the Company’s common stock minus the Debt Repayment Amount (as hereinafter defined), divided by the VWAP (as defined in the Agreement) as of the closing date, plus (ii) $15,000, plus (iii) $15,000 to be paid solely to John Swain as additional consideration for Mr. Swain’s membership interests (the “Acquisition”). The “Debt Repayment Amount” means the debt owned by the Company to Mr. Swain pursuant to a promissory note dated as of August 15, 2017, which debt the parties agree is approximately $80,000, but which shall be finally calculated on the closing date.

The Acquisition closed on December 6, 2021. Pursuant to the terms of the Agreement, on December 6, 2021, the Abstract Media Members assigned their respective membership interests in Abstract Media to the Company, and Abstract Media became a wholly owned subsidiary of the Company. In exchange therefor, on December 6, 2021, the Company issued to the Abstract Media Members an aggregate of 73,244 shares of the Company’s common stock, plus (ii) $15,000 paid to members, plus (iii) $15,000 paid solely to John Swain as additional consideration for Mr. Swain’s membership interests.

On November 4, 2022, the Company sold 100% of its membership interest in Abstract Media, LLC to Tech Edge Services for $1,000. Additional terms are as follows:

(a)

The parties acknowledged and agreed that Abstract Media is currently the lessee pursuant to a lease for the premises located at 33136 Magnolia Circle, Suite F, Magnolia, Texas 77354 (the “Lease”). Following the closing, the Seller will continue to pay the rent payable pursuant to the Lease for the months of November 2022 and December 2022. Tech Edge will thereafter be responsible for rent payments in the Lease commencing on January 1, 2023.

(b)

The Company will pay, and will be responsible for, all outstanding liabilities of Abstract Media related to any and all contracts of Abstract Media as of the closing date.

(c)

Following the closing and for a period of 24 months thereafter (the “Earn-Out Period”), Tech Edge Services will pay to the Company an amount equal to 5% of the gross proceeds received by the Company with respect to contracts and agreements in place with Abstract Media as of the closing date. Such payments shall be made within seven days of each calendar month during the Earn-Out Period.

10% Convertible Promissory Note

On October 13, 2022, the Company issued a promissory note to AJB Capital Investments, LLC (“AJB”) an unrelated thirty party lender, in the principal amount of $600,000 (“AJB Note”). Pursuant to the terms of the AJB Note, the Company agreed to pay to AJB the principal amount of the AJB Note, together with guaranteed interest on the principal balance in the amount of 10% per calendar year. The AJB Note matured on April 13, 2023 (the “Maturity Date”); provided, however, that the Maturity Date may be extended at the Company’s sole discretion up to six months following the original Maturity Date. If the Maturity Date is extended, the interest rate will be 15% per annum for any period following the original Maturity Date, payable monthly. The AJB Note has an original issue discount of $60,000. Accordingly, the gross proceeds of the AJB Note was $540,000. Any amount of principal or interest on the AJB Note that is not paid when due will bear interest at the rate of the lesser of (i) 18%, and (ii) the maximum amount permitted under law from the due date thereof until the same is paid.

The AJB Note is convertible, subject to a 4.99% equity blocker, in the event of a default, as provided in the AJB Note, into common stock at a conversion price (the “Conversion Price”) equal to the Variable Weighted Average Price (“VWAP”) (i) during the previous 10 trading day period ending on the date of issuance of the AJB Note, or (ii) during the previous 10 trading day period ending on the conversion date, whichever is lower. If the common stock is not deliverable electronically by the Depository Trust Company (“DWAC”), an additional 10% discount will apply for all future conversions until DWAC delivery becomes available. If the common stock is “chilled” for deposit into the DTC system and only eligible for clearing deposit, an additional 15% discount will apply for all future conversions until such chill is lifted. Additionally, if the Company ceases to be a reporting company pursuant to the Exchange Act, or if the AJB Note cannot be converted into free trading shares after 181 days from the issue date (other than as a result of AJB’s status as an affiliate of the Company), an additional 15% discount will be attributed to the conversion price.

While the AJB Note is outstanding, each time any third party has the right to convert monies owed to that third party into common stock (or receive shares pursuant to a settlement or otherwise), at a discount to market greater than the Conversion Price in effect at that time (prior to all other applicable adjustments in the AJB Note), then AJB, in its sole discretion, may utilize such greater discount percentage (prior to all applicable adjustments in this AJB Note) until the AJB Note is no longer outstanding. While the AJB Note is outstanding, each time any third party has a look back period greater than the look back period in effect under the AJB Note at that time, then AJB, in its sole discretion, may utilize such greater number of look back days until the AJB Note is no longer outstanding.

Upon the occurrence of certain events of default specified in the AJB Note, including, but not limited to, a failure to honor a conversion request, failure to maintain the Company’s quotation, or the Company’s failure to comply with its obligations under Exchange Act, all amounts owed to AJB under the AJB Note, including default interest if any, shall then become due and payable. Further, if the Company fail to maintain its quotation, fails to comply with its obligations under the Exchange Act, or loses the “bid” price for its common stock for a period of five days after written notice thereof to the Company, after the nine-month anniversary of the AJB Note, then the principal amount of the AJB Note will increase by $15,000 and AJB will be entitled to use the lowest trading price during the delinquency period as a base price for the conversion and the Conversion Price will be redefined to mean 40% multiplied by the Conversion Price, subject to adjustment as provided in the AJB Note.

Additionally, in connection with the issuance of the AJB note the Company issued 5,125,000 shares of restricted common stock valued at $530,000.

Common Stock Purchase Warrant

Pursuant to the terms of the Warrant, AJB may purchase up to 1,000,000 shares of common stock at an exercise price per share of $0.15, subject to adjustment as set forth in the Warrant, for a period ending on October 13, 2027. Exercises are subject to a 4.99% equity blocker.

The Company also agreed to include the shares exercisable upon exercise of the Warrant in a registration statement filed by the Company with respect to a public offering of the Company’s securities. If no such registration statement is filed or if the Company fails to include such shares in the registration statement, then no later than the date that is 90 days after October 13, 2022, the Company will file a registration statement including all shares issuable upon exercise of the Warrant and will cause the registration statement to be declared effective within 180 days after October 13, 2022.

Security Agreement

In connection with entry into the SPA and issuance of the AJB Note, on October 13, 2022, the Company entered into a Security Agreement, dated as of October 13, 2022, by and between the Company and AJB (the “Security Agreement”). Pursuant to the terms of the Security Agreement, the Company agreed to grant to AJB an unconditional and continuing first priority security interest in all of the assets and property of the Company to secure the prompt payment, performance and discharge in full of all of the Company’s obligations under the AJB Note, the SPA and the other documents executed in connection with the SPA.

The Security Agreement contains customary representations, warranties, covenants and indemnification obligations of the Company.

Celerit Rescission Agreement

As previously disclosed, pursuant to the Amended and Restated Merger Agreement dated as of April 7, 2022 (the “Merger Agreement”), by and among S-CC Merger Sub, Inc. (“S-CC Merger Sub”), a previously a wholly owned subsidiary of the Company; Ssolutions Merger Sub, Inc., a previously a wholly owned subsidiary of Sollensys (“S-Solutions Merger Sub”); SCARE Holdings, LLC, a wholly owned subsidiary of Sollensys (“SCARE”); (iii) Celerit Corporation, a wholly owned subsidiary of Sollensys (“Celerit”); (iv) Celerit Solutions Corporation, a wholly owned subsidiary of Sollensys (“Celerit Solutions”); (v) Terry Rothwell; and (vi) CRE Holdings, LLC (“CRE”), the parties to the Merger Agreement undertook certain transactions, including the merger of Celerit with and into S-CC Merger Sub, with Celerit surviving, and the merger of Celerit Solutions with and into S-Solutions Merger Sub, with Celerit Solutions surviving, in which transactions Ms. Rothwell received certain consideration as set forth in the Merger Agreement, and in connection with which the parties entered into certain other agreements and certain other transactions. Subsequent to entry into the Merger Agreement, the parties determined that they would unwind the transactions as set forth in the Merger Agreement and in the other agreements entered into in connection therewith.

Accordingly, on August 22, 2022, the Company entered into the Rescission, Termination and Release Agreement (the “Rescission Agreement”) by and among (i) the Company, (ii) SCARE; (iii) Celerit; (iv) Celerit Solutions; (v) Ms. Rothwell; (vi) Ron Harmon; and (vii) CRE. Pursuant to the terms of the Rescission Agreement, the parties agreed to unwind the transactions as set forth in the Merger Agreement and in the other agreements entered into in connection therewith, so as to place each of the parties to the Merger Agreement in the position that they were as of immediately prior to the closing of the transactions as set forth in and as contemplated by the Merger Agreement and the related agreements. As a result, on August 26, 2022, the following agreements were terminated, except as set forth in the Rescission Agreement: (i) the Rothwell Employment Agreement, (ii) the Harmon Employment Agreement, (iii) the Blockchain Archive Server Agreement, (iv) the Rothwell Note, (v) the Banking Agreement, and (vi) the Real Estate Purchase Agreement.

Pursuant to the terms of the Rescission Agreement, among other things, the parties agreed as follows:

(i)

Sollensys agreed to transfer to Ms. Rothwell one share of Celerit common stock;

(ii)

Sollensys agreed to transfer to Ms. Rothwell one share of Celerit Solutions common stock;

(iii)

Ms. Rothwell agreed to transfer to Sollensys 4,000,000 shares of Sollensys common stock;

(iv)

Ms. Rothwell agreed to resign from any and all positions with Sollensys, including as a member of Sollensys’ board of directors;

(v)

Donald Beavers agreed to resign as a director and officer of Celerit and Celerit Solutions;

(vi)

Anthony Nolte agreed to resign as a director and officer of Celerit and Celerit Solutions; and

(vii)

Sollensys agreed, in connection with its withdrawal from Celerit of an aggregate of $605,000 following the closing of the Merger Agreement, to issue to Celerit a promissory note in the principal amount of $605,000, accruing interest at the rate of 7% per annum and due on September 30, 2022 (the “Celerit Note”). As of the date of this Report, this Note remains unpaid and in default. Celerit has initiated a collection action on this Note.

In addition, pursuant to the terms of the Rescission Agreement, the parties agreed to terminate:

(i)

The Executive Employment Agreement, dated as of April 7, 2022, by and between Sollensys and Ms. Rothwell (the “Rothwell Employment Agreement”), except as set forth in the Rescission Agreement;

(ii)

The Executive Employment Agreement, dated as of April 7, 2022, by and between Sollensys and Mr. Harmon (the “Harmon Employment Agreement”), except as set forth in the Rescission Agreement;

(iii)

The Rothwell Sollensys Blockchain Archive Server Distributive Data Center Agreement (2 Units), dated as of April 7, 2022, by and among Sollensys, Ms. Rothwell and George Benjamin Rothwell (the “Blockchain Archive Server Agreement”);

(iv)

The Promissory Note issued by Sollensys to Ms. Rothwell on April 7, 2022 (the “Rothwell Note”);

(v)

The Banking and Credit Union Services Agreement, dated as of April 7, 2022, by and between Sollensys and Celerit (the “Banking Agreement”);

(vi)

The Real Estate Purchase Agreement, dated as of March 24, 2022, by and among Sollensys, SCARE, CRE, Ms. Rothwell and Mr. Rothwell (the “Real Estate Purchase Agreement”).

As a result of the recission the Company recorded a loss of $11,998,500 from discontinued operations for the year ended December 31, 2022.

Promissory Note

On August 22, 2022, Sollensys issued a Promissory Note, in the principal amount of $605,000, to Celerit. The Celerit Note bears simple interest at a rate of 7% per annum to the maturity date, September 30, 2022, or such earlier date as the Celerit Note may be paid pursuant to the terms of the Celerit Note. There is no penalty or premium for prepayment. In the Event of Default (as defined in the Celerit Note), Celerit may, at its option, declare the entire indebtedness under the Celerit Note immediately due and payable. As of the date of this Report, this Note remains unpaid and in default. Celerit has initiated a collection action on this Note.

Board Resignations

Pursuant to the terms of the Rescission Agreement, effective August 22, 2022, Ms. Rothwell resigned as a member of Sollensys’ board of directors. Effective August 23, 2022, Anthony Nolte resigned as a member of Sollensys’ board of directors. Ms. Rothwell’s and Mr. Nolte’s resignations are not because of a disagreement with Sollensys on any matter relating to Sollensys’ operations, policies or practices.

Future Product and Service Offerings

In the future, we may decide to expand our product and service offerings outside of blockchain cybersecurity solutions, and develop science, technology, and engineering solutions for companies in fields such as aerospace, chemical engineering, defense and intelligence, but as of December 31, 2022, we focus exclusively on blockchain technology solutions for cybersecurity and data management. We focus on innovation and development of commercial blockchain applications that are either complementary to the Blockchain Archive Server or standalone products and services related to cybersecurity.

Distribution

Sales Structure

The Blockchain Archive Server is now available across the United States and Canada through authorized distributors. Currently, Sollensys Corp is the only authorized distributor of the Blockchain Archive Server, pursuant to a Reseller Agreement between Eagle Lake and Sollensys entered into on August 20, 2020 (the “Reseller Agreement”).

Pursuant to the terms of the Reseller Agreement, Eagle Lake appointed Sollensys as a non-exclusive distributor of Eagle Lake’s products and services. As a distributor for Eagle Lake, Sollensys has agreed to, among other things, use its best efforts to solicit orders from interested parties for Eagle Lake’s products and services, secure channel partners and distributors for Eagle Lake’s products and services, and to resell Eagle Lake’s products and services to for-profit organizations, non-profit-organizations, government entities, quasi-governmental agencies, and any other type of organizations in the United States and abroad. Sollensys also has the right to engage its own distributors for Eagle Lake’s products. For all sales, Sollensys is entitled to any profits generated on such sales, which is the difference between the cost of Sollensys to acquire the products and/or services from Eagle Lake to sell and the price at which Sollensys is ultimately able to sell those products and/or services to customers.

Delivery & Installation

The Blockchain Archive Server is a turn-key solution that can stand alone or seamlessly integrate into an existing data infrastructure to quickly recover from a cyber-attack. Delivery of the Blockchain Archive Server to a client is accomplished by delivering a server loaded with Eagle Lake’s blockchain cybersecurity software (i.e., the Blockchain Archive Server) to a client’s physical location where such client’s information technology (“IT”) systems infrastructure is accessible. Once physically delivered on-site, the Blockchain Archive Server is installed and integrated with the client’s existing IT system servers. The unit remains at the client’s location to run the software. Sollensys (or its authorized distributors) handles all delivery and installation of the Blockchain Server, and provides maintenance as needed.

Industry Overview and Market Opportunity

Cyberattacks have evolved from rudimentary malware into highly sophisticated, organized, and large-scale attacks. A broad range of industries are affected by these attacks, consumers to governments, no one is safe.

According to a 2019 Year End Report published by RiskBased Security, over 7,000 data breaches were reported in 2019 alone, resulting in over 15 billion records being exposed that show companies have an expanding need to protect themselves from persistent cyber-attacks.

Ransomware attacks have generated billions of dollars in payments to cybercriminals and inflicted significant damage and expenses for consumers, businesses, and governments. Sophos publish a report in May 2020 titled “The State of Ransomware 2020”. This showed 59% of 500 U.S. organizations surveyed, experienced a ransomware attack, with a global average of 51% of companies having been victims of ransomware attacks in the last year. This report also stated that the average cost to rectify the impacts of a ransomware attack (considering downtime, human resources, device cost, network cost, ransom price, etc.) was $732,520 for organizations that do not pay the ransom. The price tag for organizations that do pay rises to $1,448,458. As of October 1, 2021, the U.S. Department of Treasury warns that paying a ransom my violate U.S. law.

An October 2020 article published by Security Magazine reported that data from 25,000 small-to-midsize organizations in the United States reveal ransomware as the top cyber insurance incident in the first half of the year. The average ransomware demand increased 100% from 2019 through the first quarter of 2020. Additionally, 10% of small businesses were put out of business in 2019 due to cyber-attacks according to DarkReading.com.

These trends provide significant data demonstrating the need for Sollensys’ Blockchain Archive Server in the cybersecurity market. According to the International Data Corporation (IDC), the “addressable enterprise security market” benefiting from Sollensys solutions is expected to reach nearly $17.3 billion in 2020, growing at a CAGR of 6.9% through 2024. The “addressable enterprise security market” represents revenue from five markets (web security, security information and event management, network security, corporate endpoint, and data loss protection).

Competition

The market for cybersecurity solutions for organizations (i.e., enterprises, governments, etc.) is highly competitive and constantly evolving. Conditions in our market are prone to frequent and rapid changes in technology, customer requirements and preferences, and industry standards resulting in frequent new product and service offerings and improvements and the entrance of new market participants. As a result, we face a broad set of competitors.

We compete for cybersecurity budgets both with larger integration providers, such as Symantec (a division of Broadcom), Palo Alto Networks, Sophos, Microsoft, Trend Micro, and Sentinel One in the endpoint, networking, and cloud access security broker (“CASB”) space, as well as with point solutions focusing on a subset of the cybersecurity market. These competitors include Crowdstrike, Carbon Black (a division of Vmware), Tanium, and Cylance (a division of BlackBerry) in the endpoint market, Netskope, and Bitglass in the CASB market, IBM and Cisco in network intrusion, Forcepoint, and Zscaler in the secure web gateways market, and IBM, Splunk, Micro Focus, Dell, and LogRhythm in the security operations market. Products and services differ depending on the organization, but are all considered part of the end user’s cybersecurity budget.

The principle competitive factors in the markets for our solutions include:

●

brand recognition and reputation;

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breadth and integration of product offerings;

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product features, reliability, performance, and effectiveness;

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price and total cost of ownership;

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strength and productivity of sales and marketing efforts;

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quality of customer service; and

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financial resources and stability.

We are not aware of any direct competitors with a product solution similar to the Blockchain Archive Server. Nonetheless, we face competition for budget allocations in all of the areas outlined above. We believe we compete favorably in a number of the above factors; however, we believe that our primary competitive advantage is the compatibility and ease of installation of our Blockchain Archive Server, which was designed as a turn-key solution that can stand alone or seamlessly integrate into an existing data infrastructure to quickly recover from a cyber-attack.

However, many of our current competitors and potential competitors have competitive advantages, such as more extensive operations, larger product development and strategic acquisition budgets, or greater financial, technical, sales, or marketing resources than we do. For additional information about the risks to our business related to competition, see the “Risk Factors” section of this Annual Report on Form 10-K.

Customers, Sales and Marketing

We sell our products or services directly to customers. In addition, in the future, we may contract with third party distributors on an exclusive or non-exclusive basis to sell our products and services.

We have sold the Blockchain Archive Server to a number of different companies in a wide array of industries. Companies that have purchased the Blockchain Archive Server include SFTF, LLC, which operates five Ashley HomeStore Outlets in Jacksonville, Florida. Ashley HomeStore is the number one furniture and mattress retailer in America and the number one selling furniture store brand in the world. In addition, the Blockchain Archive Server has been purchased and installed for medical data protection at Ability Plus Therapy Inc., which operates a pediatric therapy center in Melbourne, Florida and at Island Direct Primary Care, a concierge medical service in Merritt Island, Florida. Both firms provide private health care and wellness services to individuals or companies. At these locations, a special version of the Blockchain Archive Server designed to meet the unique requirements under the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) regarding patient/doctor confidentiality was delivered to these customers.

The Blockchain Archive Server is available across the United States and Canada. To date, most customers have been small-to-medium sized businesses. We are dependent on any of these individual customers.

Suppliers and Raw Materials

We purchase the servers used to make the Blockchain Archive Servers from third-party retailers, such as Amazon. We have not entered into any agreements with suppliers for any hardware or other raw materials.

Government Regulation

We are subject to compliance with a number of regulations, in the United States and internationally, in connection with the operation of our business. By virtue of the fact that our Blockchain Archive Server involves processing of personal information, we are subject to data protection and privacy laws and regulations, which are evolving and being tested in courts, which may result in increasing regulatory and public scrutiny and escalating levels of enforcement and sanctions.

A variety of data protection legislation apply in the U.S. at both the federal and state level, including new laws that may impact our operations. For example, in 2018, the State of California enacted the California Consumer Privacy Act of 2018 (“CCPA”), which went into effect on January 1, 2020, with enforcement by the state attorney general beginning July 1, 2020. The CCPA defines “personal information” in a broad manner and generally requires companies that process personal information of California residents to make new disclosures about their data collection, use, and sharing practices, allows consumers to opt-out of certain data sharing with third parties or sale of personal information, and provides a new cause of action for data breaches.

In 2016, the European Union (the “E.U.”) adopted the General Data Protection Regulation (“GDPR”), which took effect in 2018. The GDPR includes more stringent operational requirements on entities that receive or process personal data (as compared to existing E.U. law), along with significant penalties for non-compliance, more robust obligations on data processors and data controllers, greater rights for data subjects (potentially requiring significant changes to both our technology and operations), and heavier documentation requirements for data protection compliance programs. Similarly, there are a number of federal and state level legislative proposals in the U.S. that could impose new obligations on us. In addition, some countries are considering or have passed legislation implementing more onerous data protection requirements or requiring local storage and processing of data or other requirements that could increase the cost and complexity of delivering our services. Although our sales are currently focused on customers in the U.S. and Canada, we may expand into Europe in the future, and would then be subject to such laws.

Like other U.S.-based IT security products, our products are subject to U.S. export control laws and regulations, specifically the Export Administration Regulations (“EAR”), U.S. economic and trade sanctions regulations and applicable foreign government import, export and use requirements. Certain of our products may be subject to encryption controls under the EAR due to the nature of the product and its use or incorporation of encryption functionality. Under the encryption controls in the EAR, applicable products may only be exported outside of the U.S. with required export authorizations, such as a license, a license exception or other appropriate government authorizations. In addition to the restrictions under the EAR, U.S. export control laws and economic sanctions prohibit the export of products and services to countries, governments, entities or persons subject to U.S. embargoes or trade sanctions.

Intellectual Property

We filed an application for a trademark with the United States Patent and Trademark Office (“USPTO”) on July 14, 2020 under Application Serial No. 90051101 for the Word Mark “Blockchain Archive Server”. The trademark is currently pending registration by the USPTO.

Employees

As of December 31, 2022, we employ three full-time employees and no part-time employees. We will continue to focus on the hiring, retention and advancement of women and underrepresented populations, and to cultivate an inclusive and diverse corporate culture. In the future, we intend to continue to evaluate our use of human capital measures or objectives in managing our business such as the factors we employ or seek to employ in the development, attraction and retention of personnel and maintenance of diversity in our workforce.

The success of our business is fundamentally connected to the well-being of our people. Accordingly, we are committed to the health, safety and wellness of our employees. We provide our employees and their families with robust compensation and benefits, including salaries and health benefits, to help meet the needs of our employees.

We believe that we maintain a satisfactory working relationship with our employees and have not experienced any labor disputes.

Corporate History

Sollensys Corp was formerly a development stage company, incorporated in Nevada on September 29, 2010, under the name Health Directory, Inc. The Company’s initial plans included organization and incorporation, target market identification, marketing plans, and capital formation. A substantial portion of the Company’s efforts involved developing a business plan and establishing contacts and visibility in the marketplace. The Company did not, however, generate any revenues from these efforts.

Effective July 30, 2012, the holder of 3,000,000 shares, or approximately 79.8% of the Company’s then outstanding voting securities, executed a written consent approving an amendment to the Articles of Incorporation to change the Company’s name to Sollensys Corp, to increase the number of authorized shares of common stock to 1,500,000,000, increase the number of authorized preferred shares to 25,000,000, and to split each outstanding share of common stock into 131.69 shares of common stock.

Subsequently, beginning September 30, 2012, the Company went dormant.

On December 27, 2019, the Eighth Judicial District Court of Clark County, Nevada (the “Court”), pursuant to Case number A-19-805633-B appointed Custodian Ventures, LLC (“Custodian Ventures”) as the custodian of Sollensys Corp David Lazar, who controls Custodian Ventures, was subsequently named the only interim officer and director of the Company.

On June 16, 2020, Custodian Ventures filed a motion with the Court asking the Court to enter an order concluding and terminating the custodianship of the Company. On July 20, 2020, the Court entered an order terminating custodianship and barring non-asserted claims against the Company.

Effective August 5, 2020, Mr. Lazar, the interim Chief Executive Officer, President, Secretary, Treasurer, and sole director of the Company and the beneficial owner, through his ownership of Custodian Ventures of 19,000,000 shares of Series A preferred stock, representing 100% of the Company’s issued and outstanding shares of preferred stock, entered into a Stock Purchase Agreement (the “SPA”) by and among Eagle Lake, Sollensys Corp, and Custodian Ventures. Pursuant to the terms of the SPA, Eagle Lake agreed to purchase, and Custodian Ventures agreed to sell, 19,000,000 shares of the Company’s Series A preferred stock in exchange for payment by Eagle Lake to Custodian Ventures of $230,000 (collectively with the other transactions in the SPA, the “Stock Purchase”). The Stock Purchase closed on August 5, 2020. The shares of Series A preferred stock are convertible into shares of common stock at a rate of 50 shares of common stock per share of Series A preferred stock, and has voting power on an as-converted basis (voting with the common stock as one class), and thus represents 65.4% of the voting power of all shares of stock of the Company.

In connection with the closing of the Stock Purchase, on August 5, 2020, Mr. Lazar, the then-sole member of the Board of Directors (the “Board”) of the Company, pursuant to the power granted to the Board in the Company’s bylaws, increased the size of the Company’s Board to two members. Simultaneously, Mr. Lazar, as the sole Board member, appointed Donald Beavers as a director to fill the newly created Board vacancy. At the same time, Mr. Lazar appointed Mr. Beavers as Chief Executive Officer and Secretary of the Company.

Also on August 5, 2020, following Mr. Beaver’s appointment and effective on the closing of the Stock Purchase, Mr. Lazar resigned from any and all officer and director positions with the Company. Mr. Lazar’s resignation was not the result of a disagreement with the Company on any matter relating to the Company’s operations, policies, or practices.

On November 30, 2020, Sollensys Corp entered into a share exchange agreement (the “Share Exchange Agreement”) with (i) Eagle Lake, (ii) each of the shareholders of Eagle Lake (the “Eagle Lake Shareholders”) and (iii) Mr. 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 “SEA Closing”), pursuant to the terms of the Share Exchange Agreement, the parties agreed that Sollensys Corp 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 Sollensys Corp’s common stock to be determined at the SEA Closing.

The SEA Closing occurred on November 30, 2020. Pursuant to the terms of the Share Exchange Agreement, Sollensys Corp acquired from the Eagle Lake Shareholders 10,000,000 shares Eagle Lake’s common stock, no par value per share, representing 100% of the issued and outstanding capital stock of Eagle Lake, in exchange for the issuance to the Eagle Lake Shareholders of 95,000,000 shares of Sollensys common stock (the “Share Exchange”). At the time of the SEA Closing, Eagle Lake had 10,011,667 shares of its common stock issued and outstanding, which was 11,667 shares in excess of the number of shares of common stock authorized pursuant to Eagle Lake’s articles of incorporation. Such over-issued shares are void under Florida law and are not entitled to any rights of a stockholder of Eagle Lake. As such, the 10,000,000 shares of Eagle Lake common stock that Sollensys Corp acquired from the Eagle Lake Shareholders, represented 100% of the issued and outstanding capital stock of Eagle Lake of the presence of over-issued shares.

As a result of the Share Exchange, Eagle Lake became a wholly owned subsidiary of Sollensys Corp and the business of Eagle Lake became the business of Sollensys Corp.

The Share Exchange is intended to be a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”), and the Share Exchange Agreement is intended to be a “plan of reorganization” within the meaning of the regulations promulgated under Section 368(a) of the Code and for the purpose of qualifying as a tax-free transaction for federal income tax purposes.

Available Information

We maintain a website at www.sollensys.com. The information on the Company’s website is not incorporated herein by reference. The Company will make available, free of charge on its website, the most recent annual report on Form 10-K and subsequently filed quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after the Company files such material with, or furnishes it to, the SEC.

The public may also read and copy any materials the Company files with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549 or by calling the SEC at 1-800-SEC-0330. The SEC maintains, free of charge, an Internet site (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

ITEM 1A. RISK FACTORS

Investment in our securities involves a number of substantial risks. You should not invest in our securities unless you are able to bear the complete loss of your investment. In addition to the risks and investment considerations discussed elsewhere in this Annual Report on Form 10-K, the following factors should be carefully considered by anyone purchasing our securities. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations. If any of the following risks actually occur, our business could be harmed.

Risks Related to Our Business and Industry

We are an early stage company with a limited operating history. Such limited operating history may not provide an adequate basis to judge our future prospects and results of operations.

Eagle Lake was incorporated on May 8, 2020. We have limited experience and a limited operating history in which to assess our future prospects as a company. In addition, the market for our products and services is highly competitive. If we fail to successfully develop and offer our products and services in an increasingly competitive market, we may not be able to capture the growth opportunities associated with them or recover our development costs, and our future results of operations and growth strategies could be adversely affected. Our limited history may not provide a meaningful basis for investors to evaluate our business, financial performance, and prospects.

We may fail to successfully execute our business plan.

Our shareholders may lose their entire investment if we fail to execute our business plan. Our prospects must be considered in light of the following risks and uncertainties, including but not limited to, competition, the erosion of ongoing revenue streams, the ability to retain experienced personnel and general economic conditions. We cannot guarantee that we will be successful in executing our business plan. If we fail to successfully execute our business plan, we may be forced to cease operations, in which case our shareholders may lose their entire investment.

The cybersecurity market is rapidly evolving and becoming increasingly competitive in response to continually evolving cybersecurity threats from a variety of increasingly sophisticated cyberattackers. If we fail to anticipate changing customer requirements or industry and market developments, or we fail to adapt our business model to keep pace with evolving market trends, our financial performance will suffer.

The cybersecurity market is characterized by continual changes in customer preferences and requirements, frequent and rapid technological developments and continually evolving market trends. We must continually address the challenges of dynamic, and accelerating market trends, such as the emergence of new cybersecurity threats, the continued decline in the sale of new personal computers, and the rise of mobility and cloud-based solutions, all of which make satisfying our customers’ diverse and evolving needs more challenging. In addition, many of our target enterprise customers operate in industries characterized by rapidly changing technologies and business plans, which require them to adapt quickly to increasingly complex cybersecurity requirements. We may be unable to develop new technologies to keep pace with evolving threats therefore fail to meet customer expectations, which could lead to our competitive position, business, and financial results being harmed.

The introduction of new products or services by competitors and market acceptance of products or services based on emerging or alternative technologies could each render our existing solutions obsolete or make it easier for other products or services to compete with our solutions. In addition, modern cyberattackers are skilled at adapting to new technologies and developing new methods of breaching customers. For example, ransomware attacks have increased in frequency and complexity, and the costs associated with successful ransomware attacks have increased. We must continuously work to ensure our solutions protect against the increased volume and complexity of the cybersecurity threat landscape, or our business could suffer.

We cannot be sure that we will accurately predict how the cybersecurity markets in which we compete or intend to compete will evolve. Failure on our part to anticipate changes in our markets and to develop solutions and enhancements that meet the demands of those markets will significantly impair our business, financial condition, results of operations, and cash flows.

We operate in a highly competitive environment, and we expect competitive pressures to increase in the future, which could cause us to lose market share.

The markets for our solutions are highly competitive, and we expect both the requirements and pricing competition to increase, particularly given the increasingly sophisticated attacks, changing customer preferences and requirements, current economic pressures, and market consolidation. Competitive pressures in these markets may result in price reductions, reduced margins, loss of market share and inability to gain market share, and a decline in sales, any one of which could seriously impact our business, financial condition, results of operations, and cash flows.

Our business depends substantially on our ability to retain customers, through continued quality service and/or new product offerings. If we are unable to retain our customers or to expand our product offerings, our future results of operations will be harmed.

While we receive revenues from the sale of the Blockchain Archive Server software and hardware “units”, or secondary revenue stream may come from the annual maintenance fees associated with each “unit” that a customer purchases. Such fees, over time, will eclipse the revenues that we receive from the initial sale of our products, and therefore customer retention is important to our Company.

Retention rates may decline or fluctuate as a result of a number of factors, including but not limited to the level of our customers’ satisfaction or dissatisfaction with our solutions, our prices and the prices of competing products or services, new technologies, changes in our customers’ spending levels, and changes in how our customers perceive the cybersecurity threats. Any of the above factors could lead to a loss of customers, which would have negative impact on our financial condition and operating results. Further, our customers have no obligation to renew their contracts with us upon their expiration, which increases the risk that we may suffer from customer attrition.

Further, while it is important that we retain existing customers, it is also important that our customers expand their use of our solutions. Our ability to improve our results of operations partly depends on our ability to increase sales of and cross-sell new solutions to existing customers. At present, we do not have any other product offerings apart from the Blockchain Archive Server to offer to our existing customers. Any new products that we develop to offer to customers are therefore untested, and may be unsuccessful. Our failure to sell additional solutions to our existing and new customers could adversely affect our ability to grow our business.

We may need to change our pricing models to compete successfully.

The intense competition we face in the cybersecurity market, in addition to general economic and business conditions (including the economic downturn resulting from the COVID-19 pandemic), can result in downward pressure on the prices of our solutions. If our competitors offer significant discounts on competing products or services, or develop products or services that our customers believe are more valuable or cost-effective, we may be required to decrease our prices or offer other sales incentives in order to compete successfully. Additionally, if we increase prices for our solutions, demand for our solutions could decline as customers adopt less expensive competing products and our market share could suffer. If we do not adapt our pricing models to reflect changes in customer use of our products or changes in customer demand, our revenues could decrease.

Our solutions may have defects, errors, or vulnerabilities, and may fail to detect, prevent, or block cyberattacks, which our reputation and our brand could suffer, which would adversely impact our business, financial condition, results of operations, and cash flows.

Cybersecurity is a complex area of operation. The Blockchain Archive Server and/or future products may contain design defects, vulnerabilities, or errors that are not yet detected. Such defects of our solutions could cause our solutions to be vulnerable to cybersecurity attacks, cause them to fail to perform the intended operation, or temporarily interrupt the operations of our customers. In addition, since the techniques used by adversaries change frequently and generally are not recognized until widely applied, there is a risk that our solutions would not be able to address certain attacks. Moreover, our solutions and infrastructure technology systems could be targeted by bad actors and attacks specifically designed to disrupt our business and undermine the perception that our solutions are capable of providing their intended benefits, which, in turn, could have a serious impact on our reputation.

The failure, perceived or real, of any of our solutions to detect or prevent malware, viruses, worms, or similar threats for any number of reasons, including our failure to enhance and expand our solutions to reflect market trends and new attack methods, new technologies and new operating environments, the complexity of our customers’ environment and the sophistication and coordination of threat actors launching malware, ransomware, viruses, intrusion devices, and other threats could cause our reputation and business could be harmed.

We may also incur significant costs and operational consequences of investigating, remediating, eliminating, and putting in place additional tools and devices designed to prevent actual or perceived security breaches and other incidents, as well as the costs to comply with any notification obligations resulting from any security incidents.

Our investments in new or enhanced solutions may not yield the benefits we anticipate.

The success of our business depends on our ability to develop new technologies and solutions, to anticipate future customer requirements and applicable industry standards, and to respond to the changing needs of our customers, competitive technological developments, and industry changes. We currently only have two products. We will need to continue to develop products and services in order to grow, or even maintain, our current levels of operations.

The process of developing new technologies is time consuming, complex, and uncertain, and requires the commitment of significant resources well in advance of being able to fully determine market requirements and industry standards. Furthermore, we may not be able to timely execute new technical product or solution initiatives for a variety of reasons such as errors in planning or timing, technical difficulties that we cannot timely resolve, or a lack of appropriate resources. Complex solutions like ours may contain undetected errors or compatibility problems, particularly when first released, which could delay or adversely impact market acceptance. We may also experience delays or unforeseen costs related to integrating products we acquire with products we develop, because we may be unfamiliar with errors or compatibility issues of products we did not develop ourselves. Any of these development challenges, or the failure to appropriately adjust our go-to-market strategy to accommodate new offerings, may result in delays in the commercial release of new solutions or may cause us to terminate development of new solutions prior to commercial release. Any such challenges could result in competitors bringing products or services to market before we do and a related decrease in our market segment share and net revenue. Our inability to introduce new solutions and enhancements in a timely and cost-effective manner, or the failure of these new solutions or enhancements to achieve market acceptance and comply with industry standards and governmental regulation, could seriously harm our business, financial condition, results of operations, and cash flows.

If we are unable to attract, train, motivate, and retain senior management and other qualified personnel, our business could suffer.

Our success depends in large part on our ability to attract and retain senior management personnel, as well as technically qualified and highly skilled sales, consulting, technical, finance, and marketing personnel. It could be difficult, time consuming, and expensive to identify, recruit, and onboard any key management member or other critical personnel. Competition for highly skilled personnel is often intense, particularly in the markets in which we operate, including Silicon Valley. If we are unable to attract and retain qualified individuals, our ability to compete in the markets for our products could be adversely affected, which would have a negative impact on our business and financial results. Our competitors may be successful in recruiting and hiring members of our management team or other key employees, including key employees obtained through our acquisitions, and it may be difficult for us to find suitable replacements on a timely basis, on competitive terms or at all.

Changes in management or other critical personnel may be disruptive to our business and might also result in our loss of unique skills, loss of knowledge about our business, and may result in the departure of other existing employees, customers or partners. We have experienced recent turnover in our senior management team, and further turnover in the future could adversely affect our business.

We operate in an industry with an overall shortage of skilled and experienced talent that generally experiences high employee attrition. We have experienced significant turnover over the last few years and expect that may continue. The loss of one or more of our key employees could seriously harm our business. If we are unable to attract, integrate, or retain the qualified and highly skilled personnel required to fulfill our current or future needs, our business, financial condition, results of operations, and cash flows could be harmed.

Effective succession planning is also important to the long-term success of our business. If we fail to ensure effective transfer of knowledge and smooth transitions involving key employees could hinder our strategic planning and execution. The loss of senior management or any ineffective transitions in management, especially in our sales organization, could significantly delay or prevent the achievement of our development and strategic objectives, which could adversely affect our business, financial condition, results of operations, and cash flows.

If we are unable to increase sales of our solutions to new customers, our future results of operations may be harmed.

An important part of our growth strategy involves continued investment in direct marketing efforts, distributor relationships, our sales force, and infrastructure to add new customers. The number and rate at which new customers may purchase our products and services depends on a number of factors, including those outside of our control, such as customers’ perceived need for our solutions, competition, general economic conditions, market transitions, product obsolescence, technological change, shifts in buying patterns, the timing and duration of hardware refresh cycles, financial difficulties and budget constraints of our current and potential customers, public awareness of security threats to IT systems, and other factors. These new customers, if any, may renew their contracts with us and purchase additional solutions at lower rates than we have experienced in the past, which could affect our financial results.

Our ability to maintain customer satisfaction depends in part on the quality of our technical support services, and increased demands on those services may adversely affect our relationships with our customers and negatively impact our financial results.

We offer technical support services with many of our solutions. We may be unable to respond quickly enough to accommodate short-term increases in customer demand for support services. We also may be unable to modify the format of our support services to compete with changes in support services provided by competitors or to successfully integrate support for our customers. Further customer demand for these services, without corresponding revenue, could increase costs and adversely affect our results of operations.

If we fail to provide at an acceptable level of customer service, relationships with our customers could be materially harmed.

We rely on third-party manufacturers to manufacture and produce hardware used as part of our products, which subjects us to supply risks.

We rely on third parties to manufacture the hardware-portion of our Blockchain Archive Server. This reliance on third parties involves a number of risks that could have a negative impact on our business and financial results. Our reliance on these third-party manufacturers reduces our control over the manufacturing process and exposes us to risks, including reduced control over quality assurance, product costs, product supply, timing, and transportation risk. If we lose, terminate, or fail to effectively manage our manufacturing partner relationships, or if any of our manufacturing partners experience production interruptions or shut-downs, including those caused by a natural disaster, epidemic, pandemic (such as the COVID-19 pandemic), capacity shortage, or quality-control problem, it would negatively affect sales of our product lines manufactured by that manufacturing partner and adversely affect our business and results of operations.

Our failure to adequately maintain and protect personal information of our customers or our employees in compliance with evolving legal requirements could have a material adverse effect on our business.

We collect, use, store, disclose, or transfer (collectively, “process”) personal information, including from employees and customers, in connection with the operation of our business. A wide variety of local and international laws and regulations apply to the processing of personal information. Data protection and privacy laws and regulations are evolving and being tested in courts and may result in increasing regulatory and public scrutiny and escalating levels of enforcement and sanctions.

A variety of data protection legislation apply in the U.S. at both the federal and state level, including new laws that may impact our operations. For example, in 2018, the State of California enacted the CCPA, which went into effect on January 1, 2020, with enforcement by the state attorney general beginning July 1, 2020. The CCPA defines “personal information” in a broad manner and generally requires companies that process personal information of California residents to make new disclosures about their data collection, use, and sharing practices, allows consumers to opt-out of certain data sharing with third parties or sale of personal information, and provides a new cause of action for data breaches. Moreover, a new privacy law, the California Privacy Rights Act (“CPRA”) was approved by California voters in November 2020, significantly modifying the CCPA, and potentially resulting in further uncertainty and requiring us to incur additional expenditures to comply. Additionally, the Federal Trade Commission, and many state attorneys general are interpreting federal and state consumer protection laws to impose standards for the online collection, use, dissemination, and security of data. The burdens imposed by the CCPA and other similar laws that have been or may be enacted at the federal and state level may require us to modify our data processing practices and policies and to incur substantial expenditures in order to comply.

Our actual or alleged failure to comply with any applicable laws and regulations or privacy-related contractual obligations, or to protect such data that we process, could result in litigation, regulatory investigations, and enforcement actions against us, including fines, orders, public censure, claims for damages by employees, customers, and other affected individuals, public statements against us by consumer advocacy groups, damage to our reputation and competitive position, and loss of goodwill (both in relation to existing customers and prospective customers), any of which could have a material adverse effect on our business, financial condition, results of operations, and cash flows. Evolving and changing definitions of personal information, personal data, and similar concepts within the U.S., Canada, and elsewhere, especially relating to classification of IP addresses, device identifiers, location data, household data, and other information we may collect, may limit or inhibit our ability to operate or expand our business, including limiting strategic partnerships that may involve the sharing of data. Additionally, if third parties that we work with, such as vendors or developers, violate applicable laws or our policies, such violations may also place personal information at risk and have an adverse effect on our business. Even the perception of privacy concerns, whether or not valid, may harm our reputation, subject us to regulatory scrutiny and investigations, and inhibit adoption of our products by existing and potential customers.

Our products are currently being used by medical facilities, which subjects us to increased compliance obligations with certain regulations.

The Blockchain Archive Server has been sold to medical facilities. For medical facilities, our Blockchain Archive Server must be compliant with HIPPA and its implementing regulations, establish privacy and security standards that limit the use and disclosure of Protected Health Information (“PHI”) and require the implementation of administrative, physical, and technical safeguards to ensure the confidentiality, integrity, and availability of individually identifiable health information in electronic form. The Health Information Technology for Economic and Clinical Health Act (“HITECH”) which became effective on February 17, 2010, and an implementing regulation known as the Omnibus Final Rule, which became effective on September 23, 2013, significantly expanded HIPAA’s privacy and security requirements. Among other things, HITECH and the Omnibus Final Rule make HIPAA’s privacy and security standards directly applicable to “business associates,” which are independent contractors or agents of covered entities that create, receive, maintain, or transmit PHI in connection with providing a service for or on behalf of a covered entity. Under HIPAA and our contractual agreements with our customers, we are considered a “business associate” to our customers and thus are directly subject to HIPAA’s privacy and security standards. If we do not comply with these standards and regulations, we could be subject to liabilities, penalties, and fines.

Since inception, we have experienced losses, and may have to further reduce our costs by curtailing future operations to continue as a business.

Since our inception on May 8, 2020, we have had operating losses and our cash flow has been inadequate to support our ongoing operations. Our ability to fund our capital requirements out of our available cash and cash generated from our operations depends on a number of factors, including our ability to gain interest in our products and services and continue growing our existing operations and our ability to raise funds as needed. If we cannot continue to generate positive cash flow from operations, we will have to reduce our costs and try to raise working capital from other sources. These measures could materially and adversely affect our ability to execute our operations and expand our business.

Our auditors have indicated that there is substantial doubt about our ability to continue as a going concern.

The accompanying consolidated financial statements have been prepared assuming that we will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business. As reflected in the accompanying consolidated financial statements, we had a net loss of $16,768,111 for the year ended December 31, 2022. These factors among others raise substantial doubt about our ability to continue as a going concern. While we are attempting to commence operations and generate revenues, our cash position may not be significant enough to support our daily operations. Management intends to raise additional funds by way of a public or private offering. Management believes that the actions presently being taken to further implement its business plan and generate revenues provide the opportunity for us to continue as a going concern. While we believe in the viability of its strategy to generate revenues and in its ability to raise additional funds, there can be no assurances to that effect. Our ability to continue as a going concern is dependent upon our ability to further implement our business plan and generate revenues. The consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern. For further discussion about our ability to continue as a going concern and our plan for future liquidity, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Further, as of December 31, 2022, we had a working capital deficit of $2,301,249 and an accumulated deficit of $24,781,735. Our ability to continue as a going concern ultimately is dependent on the management’s ability to obtain equity or debt financing, attain further operating efficiencies, and achieve profitable operations.

The Company may suffer from lack of availability of additional funds.

We expect to have ongoing needs for working capital in order to fund operations and to continue to expand our operations. To that end, we will be required to raise additional funds through equity or debt financing. However, there can be no assurance that we will be successful in securing additional capital on favorable terms, if at all. If we are successful, whether the terms are favorable or unfavorable, there is a potential that we will fail to comply with the terms of such financing, which could result in severe liability for our Company. If we are unsuccessful, we may need to (a) initiate cost reductions; (b) forego business development opportunities; (c) seek extensions of time to fund liabilities, or (d) seek protection from creditors. In addition, any future sale of our equity securities would dilute the ownership and control of your shares and could be at prices substantially below prices at which our shares currently trade. Our inability to raise capital could require us to significantly curtail or terminate our operations altogether. We may seek to increase our cash reserves through the sale of additional equity or debt securities. The sale of convertible debt securities or additional equity securities could result in additional and potentially substantial dilution to our shareholders. The incurrence of indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations and liquidity. In addition, our ability to obtain additional capital on acceptable terms is subject to a variety of uncertainties.

In addition, if we are unable to generate adequate cash from operations, and if we are unable to find sources of funding, it may be necessary for us to sell all or a portion of our assets, enter into a business combination, or reduce or eliminate operations. These possibilities, to the extent available, may be on terms that result in significant dilution to our shareholders or that result in our shareholders losing all of their investment in our Company.

The ability of our Chief Executive Officer, Donald Beavers, to control our business may limit or eliminate minority shareholders’ ability to influence corporate affairs.

Mr. Beavers, our Chief Executive Officer and our largest stockholder, holds 15.5% of the voting power of our company. Because of this voting control, he is in a position to influence membership of our board of directors, as well as all other matters requiring stockholder approval. The interests of our Chief Executive Officer may differ from the interests of other shareholders with respect to the issuance of shares, business transactions with or sales to other companies, selection of other officers and directors and other business decisions. The minority shareholders have no way of overriding decisions made by our Chief Executive Officer.

We rely on technology, such as our information systems, to conduct our business. Failure to protect our technology against breakdowns and security breaches could adversely affect our business.

We rely on technology, such as our information systems and servers, to conduct our business. This technology is vulnerable to service interruptions and security breaches from inadvertent or intentional actions by our employees, partners and vendors, or from attacks by malicious third parties. Such attacks are of ever-increasing levels of sophistication and are made by groups and individuals with a wide range of motives and expertise, including organized criminal groups, “hacktivists,” nation states and others. The techniques used to breach security safeguards evolve rapidly, and they may be difficult to detect for an extended period of time, and the measures we take to safeguard our technology may not adequately prevent such incidents.

While we have taken steps to protect our confidential and personal information and invested in information technology, there can be no assurance that our efforts will prevent service interruptions or security breaches in our systems or the unauthorized or inadvertent wrongful use or disclosure of confidential information. Such incidents could adversely affect our business operations, reputation and client relationships. Any such breach would require us to expend significant resources to mitigate the breach of security and to address matters related to any such breach, including the payment of fines. Although we maintain an insurance policy that covers data security, privacy liability and cyber-attacks, our insurance may not be adequate to cover losses arising from breaches or attacks on our systems. We also may be required to notify regulators about any actual or perceived personal data breach as well as the individuals who are affected by the incident within strict time periods.

The commercial success of our products is dependent, in part, on factors outside our control.

The commercial success of our products is dependent upon unpredictable and volatile factors beyond our control, such as the success of our competitors’ products. Our failure to attract market acceptance and a sustainable competitive advantage over our competitors would materially harm our business.

We may be unable to scale our operations successfully.

Our growth strategy will place significant demands on our management and financial, administrative and other resources. Operating results will depend substantially on the ability of our officers and key employees to manage changing business conditions and to implement and improve our financial, administrative and other resources. If the Company is unable to respond to and manage changing business conditions, or the scale of its operations, then the quality of its services, its ability to retain key personnel, and its business could be harmed.

The COVID-19 pandemic is having widespread, rapidly evolving, and unpredictable impacts on global society, economies, financial markets, and business practices. Federal, state and foreign governments have implemented measures to contain the virus, including social distancing, travel restrictions, border closures, limitations on public gatherings, work from home, and closure of non-essential businesses. To protect the health and well-being of our employees, partners, and third-party service providers, we have implemented work-from-home requirements, made substantial modifications to employee travel policies, and cancelled or shifted marketing and other corporate events to virtual-only formats for the foreseeable future. While we continue to monitor the situation and may adjust our current policies as more information and public health guidance become available, such precautionary measures could negatively affect our customer success efforts, sales and marketing efforts, delay and lengthen our sales cycles, or create operational or other challenges, any of which could harm our business and results of operations. In addition, the COVID-19 pandemic has disrupted the operations of our current enterprise customers, as well as many potential enterprise customers, and may continue to disrupt their operations, for an indefinite period of time, including as a result of travel restrictions and/or business shutdowns, uncertainty in the financial markets, or other harm to their businesses and financial results, resulting in delayed purchasing decisions, extended payment terms, and postponed or cancelled projects, all of which could negatively impact our business and results of operations, including our revenue and cash flows.

Beginning in March 2020, the U.S. and global economies have reacted negatively in response to worldwide concerns due to the economic impacts of the COVID-19 pandemic. These factors also may adversely impact enterprise and government spending on technology as well as such customers’ ability to pay for our products and services on an ongoing basis. For example, some businesses in industries particularly impacted by the COVID-19 pandemic, such as travel, hospitality, retail, and oil and gas, have significantly cut or eliminated capital expenditures. A prolonged economic downturn could adversely affect technology spending, demand for our offerings, which could have a negative impact on our financial condition, results of operations and cash flows. Any resulting instability in the financial markets could also adversely affect the value of our Common Stock, our ability to refinance our indebtedness, and our access to capital.

The ultimate duration and extent of the impact from the COVID-19 pandemic depends on future developments that cannot be accurately forecasted at this time, such as the severity and transmission rate of the disease, the actions of governments, businesses and individuals in response to the pandemic, the extent and effectiveness of containment actions, the impact on economic activity and the impact of these and other factors on our employees, partners, and third-party service providers. These uncertainties may increase variability in our future results of operations and adversely impact our ability to accurately forecast changes in our business performance and financial condition in future periods. If we are not able to respond to and manage the impact of such events effectively or if global economic conditions do not improve, or deteriorate further, our business, financial condition, results of operations, and cash flows could be adversely affected.

Economic conditions or changing consumer preferences could adversely impact our business.

A downturn in economic conditions in one or more of the Company’s markets could have a material adverse effect on our results of operations, financial condition, business and prospects. Although we attempt to stay informed of government and customer trends, any sustained failure to identify and respond to trends could have a material adverse effect on our results of operations, financial condition, business and prospects.

The requirements of remaining a public company may strain our resources and distract our management, which could make it difficult to manage our business.

We are required to comply with various regulatory and reporting requirements, including those required by the SEC. Complying with these reporting and other regulatory requirements are time-consuming and expensive and could have a negative effect on our business, results of operations and financial condition.

Our intellectual property rights are valuable, and if we are unable to protect them or are subject to intellectual property rights claims, our business may be harmed.

The Blockchain Archive Server technology and name are important products to our business. We do not hold any patents or trademarks protecting our intellectual property. While we have filed both a patent and a trademark application for the Blockchain Archive Server, there is no guarantee that these applications will result in the requested trademark and patent being issued to us. Without such protections, our technology is more vulnerable to being copied and used by competitors. Various events outside of our control pose a threat to our intellectual property rights as well as to our business. Regardless of the merits of the claims, any intellectual property claims could be time-consuming and expensive to litigate or settle. In addition, if any claims against us are successful, we may have to pay substantial monetary damages or discontinue any of our practices that are found to be in violation of another party’s rights. We also may have to seek a license to continue such practices, which may significantly increase our operating expenses or may not be available to us at all. Also, the efforts we have taken to protect our proprietary rights may not be sufficient or effective. Any significant impairment of our intellectual property rights could harm our business or our ability to compete.

We are required to comply with certain provisions of Section 404 of the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”), and if we fail to continue to comply, our business could be harmed, and the price of our securities could decline.

Rules adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act require an annual assessment of internal control over financial reporting, and for certain issuers an attestation of this assessment by the issuer’s independent registered public accounting firm. The standards that must be met for management to assess the internal control over financial reporting as effective are evolving and complex, and require significant documentation, testing, and possible remediation to meet the detailed standards. We expect to incur significant expenses and to devote resources to Section 404 compliance on an ongoing basis. It is difficult for us to predict how long it will take or costly it will be to complete the assessment of the effectiveness of our internal control over financial reporting for each year and to remediate any deficiencies in our internal control over financial reporting. As a result, we may not be able to complete the assessment and remediation process on a timely basis. In the event that our Chief Executive Officer or Chief Financial Officer determines that our internal control over financial reporting is not effective as defined under Section 404, we cannot predict how regulators will react or how the market prices of our securities will be affected; however, we believe that there is a risk that investor confidence and the market value of our securities may be negatively affected.

Risks Related to Our Common Stock

Our common stock currently trades on the OTCQB tier of OTC Markets.

Our common stock currently trades on the OTCQB tier of OTC Market Group LLC’s Marketplace under the symbol “SOLS.” The OTC Market is a network of security dealers who buy and sell stock. The dealers are connected by a computer network that provides information on current “bids” and “asks,” as well as volume information. The trading of securities on OTC Markets is often sporadic and investors may have difficulty buying and selling our shares or obtaining market quotations for them, which may have a negative effect on the market price of our common stock.

Our common stock is subject to risks arising from restrictions on reliance on Rule 144 by shell companies or former shell companies.

Under a regulation of the SEC known as Rule 144, a person who beneficially owns restricted securities of an issuer and who is not an affiliate of that issuer may sell them without registration under the Securities Act provided that certain conditions have been met. One of these conditions is that such person has held the restricted securities for a prescribed period, which will be six months for the common stock. However, Rule 144 is unavailable for the resale of securities issued by an issuer that is a shell company (other than a business combination related shell company) or, unless certain conditions are met, that has been at any time previously a shell company.

The SEC defines a shell company as a company that has (a) no or nominal operations and (b) either (i) no or nominal assets, (ii) assets consisting solely of cash and cash equivalents; or (iii) assets consisting of any amount of cash and cash equivalents and nominal other assets.

As a result of the Share Exchange, we ceased being a shell company as such term is defined in Rule 12b-2 under the Exchange Act. While we believe that as a result of the Share Exchange, we ceased to be a shell company, the SEC and others whose approval is required in order for shares to be sold under Rule 144 might take a different view.

Rule 144 is available for the resale of securities of former shell companies if and for as long as the following conditions are met:

(i)

the issuer of the securities that was formerly a shell company has ceased to be a shell company;

(ii)

the issuer of the securities is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act;

(iii)

the issuer of the securities has filed all Exchange Act reports and material required to be filed, as applicable, during the preceding 12 months (or such shorter period that the issuer was required to file such reports and materials), other than Current Reports on Form 8-K; and

(iv)

at least one year has elapsed from the time that the issuer filed current comprehensive disclosure with the SEC reflecting its status as an entity that is not a shell company known as “Form 10 Information.”

Although we previously filed Form 10 Information with the SEC, shareholders who receive our restricted securities will not be able to sell them pursuant to Rule 144 without registration until we have met the other conditions to this exception and then for only as long as we continue to meet the condition described in subparagraph (iii), above, and we are not a shell company. No assurance can be given that we will meet these conditions or that, if we have met them, we will continue to do so, or that we will not again be a shell company.

Our common stock constitutes restricted securities and is subject to limited transferability.

All of our common stock should be considered a long-term, illiquid investment. In addition, our common stock is not registered under any state securities laws that would permit its transfer. Because of these restrictions and the absence of an active trading market for our securities, a shareholder will likely be unable to liquidate an investment even though other personal financial circumstances would dictate such liquidation.

Our common stock price may decrease due to factors beyond our control.

The stock market from time to time has experienced extreme price and volume fluctuations, which have particularly affected the market prices for early-stage companies and which often have been unrelated to the operating performance of the companies. These broad market fluctuations may adversely affect the market price of our stock, if a trading market for our stock ever develops. If our shareholders sell substantial amounts of their stock in the public market, the price of our stock could fall. These sales also might make it more difficult for us to sell equity, or equity-related securities, in the future at a price we deem appropriate.

The market price of our stock may also fluctuate significantly in response to the following factors, most of which are beyond our control:

●

variations in our quarterly operating results;

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changes in general economic conditions;

●

changes in market valuations of similar companies;

●

announcements by us or our competitors of significant acquisitions, strategic partnerships or joint ventures, or capital commitments;

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poor reviews;

●

loss of a major customer, partner or joint venture participant; and

●

the addition or loss of key managerial and collaborative personnel.

Any such fluctuations may adversely affect the market price or value of our common stock, regardless of our actual operating performance. As a result, shareholders may be unable to sell their shares, or may be forced to sell them at a loss.

Our common stock has been in the past, and may be in the future, subject to the application of the “penny stock” rules, which could adversely affect the market price of our common stock and increase transaction costs to sell those shares.

The SEC has adopted rule 3a51-1 which establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, Rule 15g-9 requires:

●

that a broker or dealer approve a person’s account for transactions in penny stocks; and

●

the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.

In order to approve a person’s account for transactions in penny stocks, the broker or dealer must:

●

obtain financial information and investment experience objectives of the person, and

●

make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.

The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form:

●

sets forth the basis on which the broker or dealer made the suitability determination and

●

that the broker or dealer received a signed, written agreement from the investor prior to the transaction.

Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. If our common stock falls below $5.00, it may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.

The market price for our common stock is particularly volatile which could lead to wide fluctuations in our share price. You may be unable to sell your common stock at or above your purchase price, or at all, which may result in substantial losses to you.

The market for our common stock is characterized by significant price volatility when compared to seasoned issuers, and we expect that our share price will continue to be more volatile than a seasoned issuer for the indefinite future. As a consequence of this enhanced risk, more risk-adverse investors may, under the fear of losing all or most of their investment in the event of negative news or lack of progress, be more inclined to sell their shares on the market more quickly and at greater discounts than would be the case with the stock of a seasoned issuer. Many of these factors are beyond our control and may decrease the market price of our common shares, regardless of our operating performance. We cannot make any predictions or projections as to what the prevailing market price for our common stock will be at any time, or if our common stock will ever be able to trade, or as to what effect the sale of shares or the availability of common stock for sale at any time will have on the prevailing market price.

The sale and issuance of additional shares of our common stock could cause dilution as well as the value of our common stock to decline.

Investors’ interests in us will be diluted and investors may suffer dilution in their net book value per share when we issue additional shares. We are authorized to issue 300,000,000 shares of common stock. We anticipate that all or at least some of our future funding, if any, will be in the form of equity financing from the sale of our common stock. If we do sell or issue more common stock, any investors’ investment in the Company will be diluted. Dilution is the difference between what you pay for your stock and the net tangible book value per share immediately after the additional shares are sold by us. If dilution occurs, any investment in our common stock could seriously decline in value.

FINRA sales practice requirements may also limit a shareholder’s ability to buy and sell our stock.

In addition to the “penny stock” rules described above, FINRA has adopted Rule 2111 that requires a broker-dealer to have reasonable grounds for believing that an investment is suitable for a customer before recommending the investment. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low-priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.

We do not intend to pay dividends for the foreseeable future.

We have never declared or paid any cash dividends on our stock and do not intend to pay any cash dividends in the foreseeable future. We anticipate that we will retain all of our future earnings for use in the development of our business and for general corporate purposes. Any determination to pay dividends in the future will be at the discretion of our Board.

If we are unable to comply with the financial reporting requirements mandated by the SEC’s regulations, investors may lose confidence in our financial reporting and the price of our common stock, if a market ever does develop for it, could decline.

If we fail to maintain effective internal controls over financial reporting, our ability to produce timely, accurate and reliable periodic financial statements could be impaired. If we do not maintain adequate internal control over financial reporting, investors could lose confidence in the accuracy of our periodic reports filed under the Exchange Act. Additionally, our ability to obtain additional financing could be impaired or a lack of investor confidence in the reliability and accuracy of our public reporting could cause our stock price to decline.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

Effective January 3, 2022, our principal executive office with approximately 35,000 square feet of office space became located at 1470 Treeland Blvd SE, Palm Bay, FL 32909. The Company owned this property until December 30, 2022.

On November 3, 2022, we entered into a Commercial Contract (the “Sale Agreement”), by and between the Company and EML Realty Partners, LLC (“EML”), pursuant to which we agreed to sell, and EML agreed to purchase, upon the terms and conditions set forth in the Sale Agreement, our headquarters property at 1470 Treeland Boulevard SE, Palm Bay, Florida (the “Property”). Pursuant to the terms of the Sale Agreement, EML agreed to pay to the Company $3,850,000 in exchange for the Property. The Sale Agreement was subject to a 30-day due diligence period and contained customary representations, warranties, and conditions. The Company recorded a profit of $988,155 from the sale of the building.

The sale of the Property closed on December 30, 2022.

Months	Annual Base Rent		Monthly Base Rent
1-12	$	308,000.00	$	25,666.67
13-24	$	317,240.00	$	26,436.67
25-36	$	326,757.20	$	27,229.77
37-48	$	336,559.92	$	28,046.66
49-60	$	346,656.72	$	28,888.06

Prior to January 3, 2022, we maintained our principal offices at 2475 Palm Bay Road NE, Palm Bay, Florida 32905 where we leased four separate suites. These leases all have an expiration date of February 28, 2026:

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Suite #120, which is approximately 3,100 square feet of office space, and a lease term that expires on February 28, 2026;

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Suite #7, which is approximately 1,885 square feet of office space, and has a lease term that expires on February 28, 2026;

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Suite #2, which is approximately 2,007 square feet of office space, and has a lease term that expires on February 28, 2026; and

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Suite #110, which is approximately 2,808 square feet, and has a lease term that expires on February 28, 2026.

Terms of the four office leases provide for an aggregate base rent payment of $12,756 per month and are subject to annual 3% escalation charges. Two of these suites are currently vacant. We have sublet two of these suites for $3,642 for a one year period commencing on January 1, 2022 and are actively seeking to sublet the other two suites.

ITEM 3. LEGAL PROCEEDINGS

As of the date of Annual Report on Form 10-K, Celerit Note for $605,000 remains unpaid and in default. Celerit has initiated a collection action on this Note.

None of our officers, directors, affiliates or 5% stockholders (or any associates thereof) is a party adverse to us, or has a material interest adverse to us, in any material proceeding.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Our common stock is quoted on the OTCQB tier of the OTC Markets Group under the symbol, “SOLS.” The OTC Market is a computer network that provides information on current “bids” and “asks,” as well as volume information.

The following table sets forth the range of high and low closing bid quotations for our common stock for each of the periods indicated as reported by the OTC Markets. These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

	High		Low
2023
First Quarter (January 1 – March 31)⁽¹⁾	$	0.20	$	0.02

2022
First Quarter (January 1 – March 31)	$	8.00	$	2.49
Second Quarter (April 1 – June 30)	$	4.99	$	1.11
Third Quarter (July 1 – September 30)	$	1.61	$	0.06
Fourth Quarter (October 1 – December 31)	$	0.30	$	0.06

2021
First Quarter (January 1 – March 31)	$	8.90	$	3.00
Second Quarter (April 1 – June 30)	$	9.00	$	3.24
Third Quarter (July 1 – September 30)	$	9.00	$	4.00
Fourth Quarter (October 1 – December 31)	$	10.50	$	6.14

(1)

Reflects transactions through March 31, 2023.

Holders

On April 10, 2023, the closing bid price of our common stock as reported on the OTCQB was $0.022 and there were approximately 220 shareholders of record. The number of record holders does not include beneficial owners of common stock whose shares are held in the names of banks, brokers, nominees or other fiduciaries.

Dividends

We have not declared any dividends since inception and we do not anticipate paying any dividends in the foreseeable future on our common stock. The payment of dividends is within the discretion of the Board of Directors and will depend on our earnings, capital requirements, financial condition, and other relevant factors. There are no restrictions that currently limit our ability to pay dividends on our common stock other than those generally imposed by applicable state law.

Securities Authorized for Issuance Under Equity Compensation Plans

None.

Recent Sales of Unregistered Securities

During the year ended December 31, 2022, the Company recorded the following sales of unregistered securities:

●

292,083 shares of common stock were sold in private placements for proceeds of $530,000

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Issued 4,000,000 shares pursuant to the acquisition of Celerit and Celerit Solutions. These shares were valued at $3.20 per share. These shares were returned and retired due to the recission of the Celerit transaction on August 22, 2022. The shares were returned at a fair value of $0.20 per share

●

5,125,000 shares of common stock were issued as a financing fee in connection with the funding of a $600,000 promissory note from AJB Capital. These shares were valued at $461,250.

●

380,008 shares of common stock were issued as stock- based compensation valued at $542,163

The above issuances and sales were made pursuant to an exemption from registration as set forth in Rule 506 of Regulation D and Section 4(a)(2) of the Securities Act.

ITEM 6. [RESERVED]

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of the financial condition and results of operations of Sollensys Corp (the “Company” or “Sollensys”) should be read in conjunction with our consolidated financial statements and the accompanying notes thereto included elsewhere in this Annual Report on Form 10-K. References in this Management’s Discussion and Analysis of Financial Condition and Results of Operations to “us,” “we,” “our,” and similar terms refer to the Company. This Annual Report on Form 10-K includes forward-looking statements, as that term is defined in the federal securities laws, based upon current expectations that involve risks and uncertainties, such as plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors. Words such as “anticipate,” “estimate,” “plan,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions are used to identify forward-looking statements. We caution you that these statements are not guarantees of future performance or events and are subject to a number of uncertainties, risks and other influences, many of which are beyond our control, which may influence the accuracy of the statements and the projections upon which the statements are based. Reference is made to “Risk Factors,” which are included elsewhere in this Annual Report on Form 10-K.

Overview

Business Overview

Recent Developments

Rescission Agreement

As previously disclosed, pursuant to the Amended and Restated Merger Agreement dated as of April 7, 2022 (the “Merger Agreement”), by and among S-CC Merger Sub, Inc. (“S-CC Merger Sub”), a previously a wholly owned subsidiary of Sollensys Corp (“Sollensys”); Ssolutions Merger Sub, Inc., a previously a wholly owned subsidiary of Sollensys (“S-Solutions Merger Sub”); SCARE Holdings, LLC, a wholly owned subsidiary of Sollensys (“SCARE”); (iii) Celerit Corporation, a wholly owned subsidiary of Sollensys (“Celerit”); (iv) Celerit Solutions Corporation, a wholly owned subsidiary of Sollensys (“Celerit Solutions”); (v) Terry Rothwell; and (vi) CRE Holdings, LLC (“CRE”), the parties to the Merger Agreement undertook certain transactions, including the merger of Celerit with and into S-CC Merger Sub, with Celerit surviving, and the merger of Celerit Solutions with and into S-Solutions Merger Sub, with Celerit Solutions surviving, in which transactions Ms. Rothwell received certain consideration as set forth in the Merger Agreement, and in connection with which the parties entered into certain other agreements and certain other transactions. Subsequent to entry into the Merger Agreement, the parties determined that they would unwind the transactions as set forth in the Merger Agreement and in the other agreements entered into in connection therewith.

Pursuant to the terms of the Rescission Agreement, among other things, the parties agreed as follows:

(viii)

Sollensys agreed to transfer to Ms. Rothwell one share of Celerit common stock;

(ix)

Sollensys agreed to transfer to Ms. Rothwell one share of Celerit Solutions common stock;

(x)

Ms. Rothwell agreed to transfer to Sollensys 4,000,000 shares of Sollensys common stock;

(xi)

Ms. Rothwell agreed to resign from any and all positions with Sollensys, including as a member of Sollensys’ board of directors;

(xii)

Donald Beavers agreed to resign as a director and officer of Celerit and Celerit Solutions;

(xiii)

Anthony Nolte agreed to resign as a director and officer of Celerit and Celerit Solutions; and

(xiv)

In addition, pursuant to the terms of the Rescission Agreement, the parties agreed to terminate:

(vii)

The Executive Employment Agreement, dated as of April 7, 2022, by and between Sollensys and Ms. Rothwell (the “Rothwell Employment Agreement”), except as set forth in the Rescission Agreement;

(viii)

The Executive Employment Agreement, dated as of April 7, 2022, by and between Sollensys and Mr. Harmon (the “Harmon Employment Agreement”), except as set forth in the Rescission Agreement;

(ix)

(x)

The Promissory Note issued by Sollensys to Ms. Rothwell on April 7, 2022 (the “Rothwell Note”);

(xi)

The Banking and Credit Union Services Agreement, dated as of April 7, 2022, by and between Sollensys and Celerit (the “Banking Agreement”);

(xii)

The Real Estate Purchase Agreement, dated as of March 24, 2022, by and among Sollensys, SCARE, CRE, Ms. Rothwell and Mr. Rothwell (the “Real Estate Purchase Agreement”).

Promissory Note

Board Resignations

Abstract Media

We acquired Abstract Media, LLC (“Abstract Media”) in December 2021. Abstract Media was formed in October 2011 with the goal of improving user engagement using visualization tools, and has evolved into an interactive media and software development company to optimize effective corporate learning, operational workflow and communication using technology in the augmented reality or virtual reality space. Abstract Media conducts its operations from its office location in Houston, Texas.

On November 4, 2022, the Company sold 100% of its membership interest in Abstract Media, LLC to Tech Edge Services for $1,000. Additional terms are as follows:

(a)

The Parties acknowledge and agree that Abstract Media is currently the lessee pursuant to a lease for the premises located at 33136 Magnolia Circle, Suite F, Magnolia, Texas 77354 (the “Lease”). Following the Closing, the Seller shall continue to pay the rent payable pursuant to the Lease for the months of November 2022 and December 2022. Buyer shall thereafter be responsible for rent payments in the Lease commencing on January 1, 2023.

(b)

The Company shall pay, and shall be responsible for, all outstanding liabilities of Abstract Media related to any and all contracts of Abstract Media as of the Closing Date.

(c)

Following the Closing and for a period of 24 months thereafter (the “Earn-Out Period”), Buyer shall pay to the Company an amount equal to 5% of the gross proceeds received by the Company with respect to contracts and agreements in place with Abstract Media as of the Closing Date. Such payments shall be made within 7 days of each calendar month during the Earn-Out Period.

As a result of the sale, Abstract Media became a discontinued operation and the Company recorded a loss from discontinued operations amounting to $606,383 for the year ended December 31, 2022.

Sale of Headquarters Property

On November 3, 2022, the Company entered into a Commercial Contract (the “Sale Agreement”), by and between the Company and EML Realty Partners, LLC (“EML”), pursuant to which the Company agreed to sell, and EML agreed to purchase, upon the terms and conditions set forth in the Sale Agreement, the Company’s headquarters property at 1470 Treeland Boulevard SE, Palm Bay, Florida (the “Property”). Pursuant to the terms of the Sale Agreement, EML agreed to pay to the Company $3,850,000 in exchange for the Property. The Sale Agreement was subject to a 30-day due diligence period and contained customary representations, warranties, and conditions.

The sale of the Property closed on December 30, 2022.

Months	Annual Base Rent		Monthly Base Rent
1-12	$	308,000.00	$	25,666.67
13-24	$	317,240.00	$	26,436.67
25-36	$	326,757.20	$	27,229.77
37-48	$	336,559.92	$	28,046.66
49-60	$	346,656.72	$	28,888.06

Results of Operations for the Twelve Months Ended December 31, 2022 Compared to the Twelve Months Ended December 31, 2021

See “—Overview—Recent Developments” regarding the unwinding of all of the Celerit transactions and the sale of Abstract Media. The results from discontinued operations are excluded from management’s discussion of operation below, and from the Liquidity analysis.

Revenue

For the year ended December 31, 2022, we recorded $344,467 in revenue compared to $181,071 in revenue for the year ended December 31, 2021. The increase is attributable to the execution of our blockchain archive server agreements. We are in the process of developing our strategic business plan going forward and, therefore, revenue may vary from period to period.

Cost of sales

Cost of sales was $857,911 for the year ended December 31, 2022, compared to cost of sales of $339,430 for the year ended December 31, 2021. The significant increase in cost of sales is attributable to higher sales, and the buildout of our infrastructure in in anticipation of higher sales levels in 2022.

Operating expenses

Operating expenses for the year ended December 31, 2022 were $4,150,541 compared to $4,233,858 for the year ended December 31, 2021. The decrease in operating expenses in the year ended December 31, 2022, compared to the same period in 2021 is due to the buildout of the infrastructure at the Company in 2021 to support higher levels of activity and revenue generation in 2022 that didn’t materialize. Prospectively the Company is attempting to continue to reduce its level of operating expenses because its anticipated revenue ramp-up has not occurred. There can be no assurance that the Company can reduce expenses and that the levels of revenue will increase in the future.

Key components of the Company’s operating expenses for the year ended December 31, 2022 include approximately $1,287,000 in legal and professional fees, approximately $2,677,000 in payroll and benefits (which includes $610,000 in non cash, stock -based compensation), and approximately $194,000 in rent expense.

Liquidity and Capital Resources

We had $799,496 in cash and cash equivalents on hand as of December 31, 2022.

The analysis below of the Company’s liquidity excludes any discussion of the impact on cash flows from discontinued operations.

Net cash used in operating activities for continuing operations was $3,592,516 for the year ended December 31, 2022, compared to $3,710,457 in cash used for continuing operations for the year ended December 31, 2021. The slight decrease in cash used in operating activities during the period ended December 31, 2022 was primarily due to a decrease in the operating loss in the December 31, 2022 year compared to the same period ended December 31, 2021.

Net cash provided by investing activities from continuing operations during the year ended December 31, 2022 was $3,615,804 compared to $413,533 cash used in investing activities from continuing operations for the year ended December 31, 2021. The increase in cash provided by investing activities during the period ended December 31, 2022 was primarily due to the net proceeds of $3,626,330 from the sale of the Company’s headquarters in 2022, and a decrease of $403,007 in capital expenditure during the 2022 period compared to 2021.

Net cash provided by investing activities from continuing operations was $698,532 for the year ended December 31, 2022, compared to $4,602,399 for the year ended December 31, 2021. The decrease in cash provided by investing activities during the 2022 period compared to 2021 was primarily due to proceeds from notes payable and related party loans of $2,773,175 in the 2022 period compared to $-0- in the 2021 period, payments on notes payable of $2,504,934 in the 2022 period compared to $-0- in 2021 period; offset by $4,603,399 in proceeds from the sale of common stock in the 2021 period compared to $530,001 in the 2022 period .

Since we have been incurring losses from operations, we have relied on ongoing sales of unregistered securities, short term promissory notes from third parties and related parties, the personal guarantees of Mr. Beavers, our Chief Executive Officer.

There can be no assurance that we will be able to continue to raise capital from the sale of our securities, or use our securities to make acquisitions. Additionally, there can be no assurances that Mr. Beavers will continue to provide his personal guaranty on financing transactions to help raise capital.

Financial Impact of COVID-19

The COVID-19 pandemic has affected how we are operating our business, and the duration and extent to which this will impact our future results of operations and overall financial performance remains uncertain. The COVID-19 pandemic is having widespread, rapidly evolving, and unpredictable impacts on global society, economies, financial markets, and business practices. Federal, state and foreign governments have implemented measures to contain the virus, including social distancing, travel restrictions, border closures, limitations on public gatherings, work from home, and closure of non-essential businesses. To protect the health and well-being of our employees, partners, and third-party service providers, we have implemented work-from-home requirements, made substantial modifications to employee travel policies, and cancelled or shifted marketing and other corporate events to virtual-only formats for the foreseeable future. While we continue to monitor the situation and may adjust our current policies as more information and public health guidance become available, such precautionary measures could negatively affect our customer success efforts, sales and marketing efforts, delay and lengthen our sales cycles, or create operational or other challenges, any of which could harm our business and results of operations. In addition, the COVID-19 pandemic has disrupted the operations of our current enterprise customers, as well as many potential enterprise customers, and may continue to disrupt their operations, for an indefinite period of time, including as a result of travel restrictions and/or business shutdowns, uncertainty in the financial markets, or other harm to their businesses and financial results, resulting in delayed purchasing decisions, extended payment terms, and postponed or cancelled projects, all of which could negatively impact our business and results of operations, including our revenue and cash flows.

Beginning in March 2020, the U.S. and global economies have reacted negatively in response to worldwide concerns due to the economic impacts of the COVID-19 pandemic. These factors also may adversely impact enterprise and government spending on technology as well as such customers’ ability to pay for our products and services on an ongoing basis. For example, some businesses in industries particularly impacted by the COVID-19 pandemic, such as travel, hospitality, retail, and oil and gas, have significantly cut or eliminated capital expenditures. A prolonged economic downturn could adversely affect technology spending, demand for our offerings, which could have a negative impact on our financial condition, results of operations and cash flows. Any resulting instability in the financial markets could also adversely affect the value of our common stock, our ability to refinance our indebtedness, and our access to capital.

Off-Balance Sheet Arrangements

We do not have any 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 investors.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

We believe that the following critical policies affect our more significant judgments and estimates used in preparation of our consolidated financial statements.

Going Concern

The Company expects 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.

Revenue Recognition

Revenues are accounted for in accordance with the FASB’s Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606).

The Company derives revenue from two sources. The Company’s primary product is the Blockchain Archive Server—a turn-key, off-the-shelf, blockchain solution that works with virtually any hardware and software combinations currently used in commerce, without the need to replace or eliminate any part of the client’s data security that is being utilized.

The second product offering is called the “Regional Service Center” which is a single unit system of 32 Blockchain Archive Servers capable of servicing up to 2,580 individual small accounts, and is marketed to existing IT service providers with established accounts. The service is delivered over the Internet and is considered software as a service “SaaS”.

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:

Identify the contract with the customer;

Identify the performance obligations in the contract;

Determine the transaction price;

Allocate the transaction price to performance obligations in the contract, and

Recognize revenue when or as the Company satisfies a performance obligation.

The Company recognizes revenue when the control of the Blockchain Archive Server 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. For the SaaS software, which typically involves a significant customer deposit with services provided by the Company over a 60 month period, the Company recognizes revenue ratably as service is provided over the contract period.

Goodwill and Intangible Assets

Goodwill represents the future economic benefit arising from other assets acquired that could not be individually identified and separately recognized. The goodwill arising from the Company’s acquisition is attributable to the value of the potential expanded market opportunity with new customers. Intangible assets have either an identifiable or indefinite useful life. Intangible assets with identifiable useful lives are amortized on a straight-line basis over their economic or legal life, whichever is shorter. The Company’s amortizable intangible assets consist primarily of customer relationships. The useful life of these customer relationships is estimated to be three years.

Goodwill is not amortized, but is subject to annual impairment testing unless circumstances dictate more frequent assessments. The Company performs an annual impairment assessment for goodwill during the fourth quarter of each year and more frequently whenever events or changes in circumstances indicate that the fair value of the asset may be less than the carrying amount. Goodwill impairment testing compares the fair value of the reporting unit to its carrying amount. The fair value of the reporting unit is determined by considering both the income approach and market approaches. The fair values calculated under the income approach and market approaches are weighted based on circumstances surrounding the reporting unit. Under the income approach, the Company determines fair value based on estimated future cash flows of the reporting unit, which are discounted to the present value using discount factors that consider the timing and risk of cash flows. For the discount rate, the Company relies on the capital asset pricing model approach, which includes an assessment of the risk-free interest rate, the rate of return from publicly traded stocks, the Company’s risk relative to the overall market, the Company’s size and industry and other Company specific risks. Other significant assumptions used in the income approach include the terminal value, growth rates, future capital expenditures and changes in future working capital requirements. The market approaches use key multiples from guideline businesses that are comparable and are traded on a public market. If the fair value of the reporting unit is greater than its carrying amount, there is no impairment. If the reporting unit’s carrying amount exceeds its fair value, then an impairment loss is recognized in an amount equal to the excess.

Recently Adopted Pronouncements

The Company currently follows the guidance in ASC 840 “Leases,” which requires us to evaluate the lease agreements the Company enters into to determine whether they represent operating or capital leases at the inception of the lease.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which establishes a new lease accounting model for lessees. The updated guidance requires an entity to recognize assets and liabilities arising from financing and operating leases, along with additional qualitative and quantitative disclosures. The amended guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, with early adoption permitted. In March 2019, the FASB issued ASU 2019-01, Codification Improvements, which clarifies certain aspects of the new lease standard. The FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases in July 2018. Also in 2018, the FASB issued ASU 2018-11, Leases (Topic 842) Targeted Improvements, which provides an optional transition method whereby the new lease standard is applied at the adoption date and recognized as an adjustment to retained earnings. The amendments have the same effective date and transition requirements as the new lease standard. On November 15, 2019, the FASB issued ASU 2019-10, which amends the effective dates for three major accounting standards. The ASU defers the effective dates for the credit losses, derivatives, and lease standards for certain companies.

In the first quarter of fiscal 2022, the Company adopted ASU 2016-02 using the “Comparatives Under 840 Option” approach to transition. Under this method, financial information related to periods prior to adoption will be as originally reported under the previous standard – ASC 840, Leases. The effects of adopting the new standard (ASC 842, Leases) in fiscal 2022 were recognized as a cumulative-effect adjustment to accumulated deficit as of the beginning of the fiscal first quarter. We elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allows us to carry forward the historical lease classification as operating or capital leases. We also elected to combine lease and non-lease components and to exclude short-term leases from our consolidated balance sheets.

The most significant impact of adoption was the recognition of right-of-use operating lease assets and right-of-use operating lease liabilities of $496,000 and $541,000, respectively. The cumulative impact of these changes increased the accumulated deficit by approximately $46,000. We expect the impact of adoption to be immaterial to our consolidated statements of operations and consolidated statements of cash flows on an ongoing basis. As part of our adoption, we also modified our control procedures and processes, none of which materially affected our internal control over financial reporting. See Note 9 Leases, for additional information regarding our accounting policy for leases and additional disclosures.

Except for the adoption of ASC 842, management does not believe that any recently issued, but not yet effective, accounting standards could have a material effect on the accompanying financial statements. As new accounting pronouncements are issued, we will adopt those that are applicable under the circumstances.

Recent accounting pronouncements issued by the FASB, the American Institute of Certified Public Accountants and the SEC did not have, or are not believed by management to have, a material effect on the Company’s financial statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Reference is made to pages F-1 through F-20 comprising a portion of this Annual Report on Form 10-K.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.

ITEM 9A. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

The Company’s principal executive officer and principal financial officer have evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2022. Based upon such evaluation, the principal executive officer and principal financial officer have concluded that, as of December 31, 2022, the Company’s disclosure controls and procedures were not effective as required under Rules 13a-15(e) and 15d-15(e) under the Exchange Act.

Management’s Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rue 13a-15(f) and 15d-15(f) of the Exchange Act) of the Company. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.

Management, under the supervision of the Company’s principal executive officer and principal financial officer, conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework in 2013 Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that the Company’s internal control over financial reporting was not effective as of December 31, 2022 under the criteria set forth in the 2013 Internal Control – Integrated Framework.

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. Management has determined that a material weakness exists due for the following reasons:

●

The Company has an ineffective control environment due to a lack of the necessary corporate accounting resources with SEC financial reporting experience to ensure consistent, complete and accurate financial reporting, as well as disclosure controls and procedures.

●

The Company has limited resources to ensure that necessary internal controls are implemented and followed throughout the Company. The limited resources result in inadequate internal controls relating to the authorization, recognition, capture, and review of transactions, facts, circumstances and events that could have a material impact on the Company’s financial reporting process.

The Company is addressing the ineffective controls by searching for a full-time Chief Financial Officer.

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the year ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None.

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

Not applicable.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Set forth below is certain information concerning the directors and executive officers of the Company.

Name	Age	Position
Donald Beavers	59	Chief Executive Officer, Secretary and Director
Anthony Motto	63	Former Director and Chief Operating Officer

Biographies

Donald Beavers. Mr. Beavers is our Chief Executive Officer, Secretary, and sole Director. Mr. Beavers also acts as our principal financial officer and principal accounting officer. Mr. Beavers is the founder and President of Probability and Statistics, Inc., a math and science company headquartered in Florida’s Space Coast. Founded in 2017, Probability and Statistics, Inc. develops integrated solutions powered by the latest technologies in blockchain development, artificial intelligence, additive manufacturing, multi-physics computations & specialized software application development for the public sector and private industry. Under Mr. Beavers’ leadership, the company has been awarded government contracts, and has received awards and certifications including a spot in GrowFL’s “Company to Watch” list in 2019. Prior to founding Probability and Statistics, Donald Beavers was the Education Director at SpaceCoast FabLab from 2015 to 2017. SpaceCoast FabLab is a learning center affiliated with MIT’s Center for Bits and Atoms. Mr. Beavers also founded Eagle Lake in May 2020. A database programmer by trade, Mr. Beavers has 20 years of experience rescuing high-profile databases around the world, and brings a wealth of technical and business experience to the Company.

Anthony Motto. Mr. Motto was our former Chief Operating Officer and Director. He resigned on August 23, 2022. Since 2014, Mr. Motto has also served as VMware Global Staff Technical Account Manager for the Walt Disney Company. In this role, Mr. Motto was responsible for helping Disney align business goals with IT strategy and maximizing the return on investment on their VMware software investment.

Advisory Board

The Company has an Advisory Board consisting of eight members with expertise in finance, software, manufacturing, and sales that provide guidance to the Company in these areas.

Involvement in Certain Legal Proceedings

No director, executive officer, significant employee or control person of the Company has been involved in any legal or regulatory proceeding listed in Item 401(f) of Regulation S-K in the past 10 years.

Board Composition

Our business and affairs are managed under the direction of our Board of Directors. The number of directors is fixed by our Board of Directors, subject to our articles of incorporation and our bylaws. Currently, our Board of Directors consists of three directors, with two vacancies. We do not have a standing audit, compensation or nominating committee. Rather, our full board of directors performs the functions of these committees. We do not believe it is necessary for our board of directors to appoint such committees because the volume of matters that come before our board of directors for consideration permits the directors to give sufficient time and attention to such matters to be involved in all decision making. Additionally, because our common stock is not listed for trading or quotation on a national securities exchange, we are not required to have such committees.

Director Independence

Our Board of Directors has undertaken a review of the independence of each director. Based on information provided by each director concerning his or her background, employment and affiliations, our Board of Directors has determined that Mr. Beavers, our sole director, is not “independent” as that term is defined under the listing standards of The Nasdaq Stock Market.

Board Leadership Structure and Board’s Role in Risk Oversight

Our Board of Directors has a Chairman, Mr. Beavers. The Chairman has authority, among other things, to preside over Board meetings and set the agenda for Board meetings. Accordingly, the Chairman has substantial ability to shape the work of our Board of Directors. We believe that separation of the roles of Chairman and Chief Executive Officer is not necessary at this time to ensure appropriate oversight by the Board of Directors of our business and affairs. However, no single leadership model is right for all companies and at all times. The Board of Directors recognizes that depending on the circumstances, other leadership models, such as the appointment of a lead independent director, might be appropriate. Accordingly, the Board of Directors may periodically review its leadership structure.

Our Board of Directors is generally responsible for the oversight of corporate risk in its review and deliberations relating to our activities. Our principal source of risk falls into two categories, financial and product commercialization. The audit committee will oversee management of financial risks; our Board of Directors regularly reviews information regarding our cash position, liquidity and operations, as well as the risks associated with each. The Board of Directors regularly reviews plans, results and potential risks related to our product development and commercialization efforts.

Procedures for Contacting the Board

The Board has established a process for stockholders and other interested parties to send written communications to the Board or to individual directors, as applicable. Such communications should be sent by U.S. mail addressed to:

Sollensys Corp Board of Directors

c/o Sollensys Corp

Attention: Corporate Secretary

1470 Treeland Blvd SE

Palm Bay, FL 32909

The Board has instructed the Corporate Secretary to promptly forward all communications so received to the full Board or the individual Board member(s) specifically addressed in the communication. Comments or questions regarding our accounting, internal controls or auditing matters, our compensation and benefit programs, or the nomination of directors and other corporate governance matters will remain with the full Board.

Depending on the subject matter, the Company’s Corporate Secretary will:

	●	Forward the communication to the director or directors to whom it is addressed;

	●	Attempt to handle the inquiry directly, for example, where it is a request for information about our Company or if it is a stock-related matter; or

	●	Not forward the communication if it is primarily commercial in nature or if it relates to a topic that is not relevant to the Board or a particular committee or is otherwise improper.

Procedures for Recommending, Nominating and Evaluating Director Candidates

Recommending Director Candidates for Nomination by the Board

The Board will consider director candidates recommended by stockholders. A stockholder who wishes to recommend a director candidate for nomination by the Board at an annual meeting of stockholders or for vacancies of the Board that arise between annual meetings must provide the Board with sufficient written documentation to permit a determination by the Board whether such candidate meets the required and desired director selection criteria set forth in our bylaws. Such documentation and the name of the director candidate should be sent by U.S. mail to:

Sollensys Corp Board of Directors

c/o Sollensys Corp

Attention: Corporate Secretary

1470 Treeland Blvd SE

Palm Bay, FL 32909

Nominating Director Candidates

For director nominations to be properly brought before an annual meeting of stockholders by a stockholder, the stockholder must give timely notice in proper written form to the Secretary, consistent with the Company’s bylaws.

Evaluating Director Candidates

The Board has no formal guidelines or policy with regard to the consideration of any director candidates recommended by shareholders. The Board will consider several factors when evaluating the appropriate characteristics of candidates for service as a director. The Board initially evaluates a prospective nominee based on his or her resume and other background information that has been provided to the Board. At a minimum, director candidates must demonstrate high standards of ethics, integrity, independence, sound judgment, strength of character, and meaningful experience and skills in business or other appropriate endeavors. In addition to these minimum qualifications, the Board considers other factors it deems appropriate based on the current needs and desires of the Board, including specific business and professional experience that is relevant to the Board’s needs, including, but not limited to, Board diversity. A member of the Board will contact, for further review, those candidates who the committee believes are qualified, who may fulfill a specific Board need and who would otherwise best make a contribution to the Board. The Board is responsible for conducting, with the assistance of the Corporate Secretary, and subject to applicable law, any inquiries into the background and qualifications of the candidate. Based on the information the Board learns during this process, it determines which nominee(s) to submit for election. The Board uses a comparable process for evaluating all director candidates, regardless of the source of the recommendation.

The Board is authorized to use, as it deems appropriate or necessary, an outside consultant to identify and screen potential director candidates. No outside consultants were used during the fiscal year ended December 31, 2022 to identify or screen potential director candidates. The Board will reassess the qualifications of a current director, including the director’s attendance and contributions at Board meetings, prior to recommending a director for reelection.

CODE OF ETHICS

We have adopted a code of ethics meeting the requirements of Section 406 of the Sarbanes-Oxley Act of 2002. We believe our code of ethics is reasonably designed to deter wrongdoing and promote honest and ethical conduct; provide full, fair, accurate, timely and understandable disclosure in public reports; comply with applicable laws; ensure prompt internal reporting of violations; and provide accountability for adherence to the provisions of the code of ethics. The code of ethics is applicable to all of our directors, officers and employees and is available on our corporate website, www.sollensys.com. We intend to disclose any amendments to our code of ethics, or waivers of its requirements, on our website or in filings under the Exchange Act to the extent required by applicable rules and exchange requirements.

ITEM 11. EXECUTIVE COMPENSATION

The following table summarizes all compensation earned by Messrs. Beavers and Motto (together, our “Named Executive Officers”).

2022 SUMMARY COMPENSATION TABLE

Name and Principal Position	Fiscal Year	Salary		Bonus		Stock Awards		Option Awards		All Other Compensation		Total
Donald Beavers	2022	$	250,961	$	-	$	-	$	-	$	41,058	$	292,019
Chief Executive Officer	2021	$	176,236	$	-	$	-	$	-	$	45,816	$	220,052

Anthony Motto⁽¹⁾	2022	$	86,615	$	-	$	-	$	-	$	31,198	$	117,813
Former Chief Operating Officer	2021	$	145,388	$	-	$	-	$	-	$	11,708	$	157,096

(1)

Mr. Motto resigned as an officer and director and on August 23, 2022

Employment Agreements

We are not currently a party to any employment agreements with any of our executive officers.

Outstanding Equity Awards at Fiscal Year-End

None of the named executive officers had any outstanding equity awards at the 2022 fiscal year-end.

Sollensys Corp 2021 Equity Incentive Plan

On April 14, 2021, the Board and stockholders holding a majority of the Company’s outstanding common stock approved the Sollensys Corp 2021 Equity Incentive Plan (the “2021 Plan”).

Authorized Shares

A total of 1,000,000 shares of the Company’s common stock are authorized for issuance pursuant to the 2021 Plan. Subject to adjustment as provided in the 2021 Plan, the maximum aggregate number of shares that may be issued under the 2021 Plan will be cumulatively increased on January 1, 2022 and on each subsequent January 1 through and including January 1, 2023, by a number of shares equal to the smaller of (i) 3% of the number of shares of common stock issued and outstanding on the immediately preceding December 31, or (ii) an amount determined by the Board.

Additionally, if any award issued pursuant to the 2021 Plan expires or becomes unexercisable without having been exercised in full, is surrendered pursuant to an exchange program, as provided in the 2021 Plan, or, with respect to restricted stock, restricted stock units (“RSUs”), performance units or performance shares, is forfeited to or repurchased by the Company due to the failure to vest, the unpurchased shares (or for awards other than stock options or stock appreciation rights the forfeited or repurchased shares) which were subject thereto will become available for future grant or sale under the 2021 Plan (unless the 2021 Plan has terminated). With respect to stock appreciation rights, only shares actually issued pursuant to a stock appreciation right will cease to be available under the 2021 Plan; all remaining shares under stock appreciation rights will remain available for future grant or sale under the 2021 Plan (unless the 2021 Plan has terminated). Shares that have actually been issued under the 2021 Plan under any award will not be returned to the 2021 Plan and will not become available for future distribution under the 2021 Plan; provided, however, that if shares issued pursuant to awards of restricted stock, restricted stock units, performance shares or performance units are repurchased by the Company or are forfeited to the Company due to the failure to vest, such shares will become available for future grant under the 2021 Plan. Shares used to pay the exercise price of an award or to satisfy the tax withholdings related to an award will become available for future grant or sale under the 2021 Plan. To the extent an award under the 2021 Plan is paid out in cash rather than shares, such cash payment will not result in reducing the number of shares available for issuance under the 2021 Plan.

Notwithstanding the foregoing and, subject to adjustment as provided in the 2021 Plan, the maximum number of shares that may be issued upon the exercise of incentive stock options will equal the aggregate share number stated above, plus, to the extent allowable under Section 422 of the Internal Revenue Code of 1986, as amended, and regulations promulgated thereunder, any shares that become available for issuance under the 2021 Plan in accordance with the foregoing.

Plan Administration

The Board or one or more committees appointed by the Board will administer the 2021 Plan. In addition, if the Company determines it is desirable to qualify transactions under the 2021 Plan as exempt under Rule 16b-3 of the Securities Exchange Act of 1934, as amended, such transactions will be structured with the intent that they satisfy the requirements for exemption under Rule 16b-3. Subject to the provisions of the 2021 Plan, the administrator has the power to administer the 2021 Plan and make all determinations deemed necessary or advisable for administering the 2021 Plan, including the power to determine the fair market value of the Company’s common stock, select the service providers to whom awards may be granted, determine the number of shares covered by each award, approve forms of award agreements for use under the 2021 Plan, determine the terms and conditions of awards (including the exercise price, the time or times at which the awards may be exercised, any vesting acceleration or waiver or forfeiture restrictions and any restriction or limitation regarding any award or the shares relating thereto), construe and interpret the terms of the 2021 Plan and awards granted under it, prescribe, amend and rescind rules relating to the 2021 Plan, including creating sub-plans and modify or amend each award, including the discretionary authority to extend the post-termination exercisability period of awards (provided that no option or stock appreciation right will be extended past its original maximum term), and to allow a participant to defer the receipt of payment of cash or the delivery of shares that would otherwise be due to such participant under an award. The administrator also has the authority to allow participants the opportunity to transfer outstanding awards to a financial institution or other person or entity selected by the administrator and to institute an exchange program by which outstanding awards may be surrendered or cancelled in exchange for awards of the same type which may have a higher or lower exercise price or different terms, awards of a different type or cash, or by which the exercise price of an outstanding award is increased or reduced. The administrator’s decisions, interpretations and other actions are final and binding on all participants.

Eligibility

Awards under the 2021 Plan, other than incentive stock options, may be granted to employees (including officers) of the Company or a subsidiary, members of the Company’s Board, or consultants engaged to render bona fide services to the Company or a subsidiary. Incentive stock options may be granted only to employees of the Company or a subsidiary.

Stock Options

Stock options may be granted under the 2021 Plan. The exercise price of options granted under the 2021 Plan generally must at least be equal to the fair market value of the Company’s common stock on the date of grant. The term of each option will be as stated in the applicable award agreement; provided, however, that the term may be no more than 10 years from the date of grant. The administrator will determine the methods of payment of the exercise price of an option, which may include cash, shares or other property acceptable to the administrator, as well as other types of consideration permitted by applicable law. After the termination of service of an employee, director or consultant, they may exercise their option for the period of time stated in their option agreement. In the absence of a specified time in an award agreement, if termination is due to death or disability, the option will remain exercisable for 12 months. In all other cases, in the absence of a specified time in an award agreement, the option will remain exercisable for three months following the termination of service. An option may not be exercised later than the expiration of its term. Subject to the provisions of the 2021 Plan, the administrator determines the other terms of options.

Notwithstanding any other provision of the 2021 Plan to the contrary, the aggregate grant date fair value of all awards granted, under the 2021 Plan, to any director who is not an employee, during any fiscal year of the Company, taken together with any cash compensation paid to such director during such fiscal year, shall not exceed $300,000.

Stock Appreciation Rights

Stock appreciation rights may be granted under the 2021 Plan. Stock appreciation rights allow the recipient to receive the appreciation in the fair market value of the Company’s common stock between the exercise date and the date of grant. Stock appreciation rights may not have a term exceeding 10 years. After the termination of service of an employee, director or consultant, they may exercise their stock appreciation right for the period of time stated in their stock appreciation right agreement. In the absence of a specified time in an award agreement, if termination is due to death or disability, the stock appreciation rights will remain exercisable for 12 months. In all other cases, in the absence of a specified time in an award agreement, the stock appreciation rights will remain exercisable for three months following the termination of service. However, in no event may a stock appreciation right be exercised later than the expiration of its term. Subject to the provisions of the 2021 Plan, the administrator determines the other terms of stock appreciation rights, including when such rights become exercisable and whether to pay any increased appreciation in cash or with shares of the Company’s common stock, or a combination thereof, except that the per share exercise price for the shares to be issued pursuant to the exercise of a stock appreciation right will be no less than 100% of the fair market value per share on the date of grant.

Restricted Stock

Restricted stock may be granted under the 2021 Plan. Restricted stock awards are grants of shares of the Company’s common stock that vest in accordance with terms and conditions established by the administrator. The administrator will determine the number of shares of restricted stock granted to any employee, director or consultant and, subject to the provisions of the 2021 Plan, will determine the terms and conditions of such awards. The administrator may impose whatever conditions to vesting it determines to be appropriate (for example, the administrator may set restrictions based on the achievement of specific performance goals or continued service to the Company); provided, however, that the administrator, in its sole discretion, may accelerate the time at which any restrictions will lapse or be removed. Recipients of restricted stock awards generally will have voting and dividend rights with respect to such shares upon grant without regard to vesting, unless the administrator provides otherwise. Shares of restricted stock that do not vest are subject to the Company’s right of repurchase or forfeiture.

Restricted Stock Units

RSUs may be granted under the 2021 Plan. RSUs are bookkeeping entries representing an amount equal to the fair market value of one share of the Company’s common stock. Subject to the provisions of the 2021 Plan, the administrator determines the terms and conditions of RSUs, including the vesting criteria and the form and timing of payment. The administrator may set vesting criteria based upon the achievement of Company-wide, divisional, business unit or individual goals (including continued employment or service), applicable federal or state securities laws or any other basis determined by the administrator in its discretion. The administrator, in its sole discretion, may pay earned RSUs in the form of cash, in shares of the Company’s common stock or in some combination thereof. Notwithstanding the foregoing, the administrator, in its sole discretion, may accelerate the time at which any vesting requirements will be deemed satisfied.

Performance Units and Performance Shares

Performance units and performance shares may be granted under the 2021 Plan. Performance units and performance shares are awards that will result in a payment to a participant only if performance goals established by the administrator are achieved or the awards otherwise vest. The administrator will establish performance objectives or other vesting criteria in its discretion, which, depending on the extent to which they are met, will determine the number or the value of performance units and performance shares to be paid out to participants. The administrator may set performance objectives based on the achievement of Company-wide, divisional, business unit or individual goals (including continued employment or service), applicable federal or state securities laws or any other basis determined by the administrator in its discretion. After the grant of a performance unit or performance share, the administrator, in its sole discretion, may reduce or waive any performance criteria or other vesting provisions for such performance units or performance shares. Performance units shall have an initial dollar value established by the administrator on or prior to the grant date. Performance shares shall have an initial value equal to the fair market value of the Company’s common stock on the grant date. The administrator, in its sole discretion, may pay earned performance units or performance shares in the form of cash, in shares or in some combination thereof.

Non-Employee Directors

The 2021 Plan provides that all non-employee directors will be eligible to receive all types of awards (except for incentive stock options) under the 2021 Plan. The 2021 Plan includes a maximum limit of $750,000 of equity awards that may be granted to a non-employee director in any fiscal year, increased to $1,500,000 in connection with his or her initial service. For purposes of this limitation, the value of equity awards is based on the grant date fair value (determined in accordance with accounting principles generally accepted in the United States). Any equity awards granted to a person for their services as an employee, or for their services as a consultant (other than as a non-employee director), will not count for purposes of the limitation. The maximum limit does not reflect the intended size of any potential compensation or equity awards to the Company’s non-employee directors.

Non-transferability of Awards

Unless the administrator provides otherwise, the 2021 Plan generally does not allow for the transfer of awards and only the recipient of an award may exercise an award during their lifetime. If the administrator makes an award transferrable, such award will contain such additional terms and conditions as the administrator deems appropriate.

Certain Adjustments

In the event of certain changes in the Company’s capitalization, to prevent diminution or enlargement of the benefits or potential benefits available under the 2021 Plan, the administrator will adjust the number and class of shares that may be delivered under the 2021 Plan or the number, and price of shares covered by each outstanding award and the numerical share limits set forth in the 2021 Plan.

Dissolution or Liquidation

In the event of the Company’s proposed liquidation or dissolution, the administrator will notify participants as soon as practicable and all awards will terminate immediately prior to the consummation of such proposed transaction.

Merger or Change in Control

The 2021 Plan provides that in the event of the Company’s merger with or into another corporation or entity or a “change in control” (as defined in the 2021 Plan), each outstanding award will be treated as the administrator determines, including, without limitation, that (i) awards will be assumed, or substantially equivalent awards will be substituted, by the acquiring or succeeding corporation (or an affiliate thereof) with appropriate adjustments as to the number and kind of shares and prices; (ii) upon written notice to a participant, that the participant’s awards will terminate upon or immediately prior to the consummation of such merger or change in control; (iii) outstanding awards will vest and become exercisable, realizable or payable, or restrictions applicable to an award will lapse, in whole or in part, prior to or upon consummation of such merger or change in control and, to the extent the administrator determines, terminate upon or immediately prior to the effectiveness of such merger or change in control; (iv) (A) the termination of an award in exchange for an amount of cash or property, if any, equal to the amount that would have been attained upon the exercise of such award or realization of the participant’s rights as of the date of the occurrence of the transaction (and, for the avoidance of doubt, if as of the date of the occurrence of the transaction the administrator determines in good faith that no amount would have been attained upon the exercise of such award or realization of the participant’s rights, then such award may be terminated by the Company without payment) or (B) the replacement of such award with other rights or property selected by the administrator in its sole discretion; or (v) any combination of the foregoing. The administrator will not be obligated to treat all awards, all awards a participant holds, or all awards of the same type, similarly. In the event that awards (or portion thereof) are not assumed or substituted for in the event of a merger or change in control, the participant will fully vest in and have the right to exercise all of their outstanding options and stock appreciation rights, including shares as to which such awards would not otherwise be vested or exercisable, all restrictions on restricted stock and RSUs will lapse and, with respect to awards with performance-based vesting, all performance goals or other vesting criteria will be deemed achieved at 100% of target levels and all other terms and conditions met, in all cases, unless specifically provided otherwise under the applicable award agreement or other written agreement between the participant and the Company or any of the Company’s subsidiaries or parents, as applicable. If an option or stock appreciation right is not assumed or substituted in the event of a merger or change in control, the administrator will notify the participant in writing or electronically that the option or stock appreciation right will be exercisable for a period of time determined by the administrator in its sole discretion and the vested option or stock appreciation right will terminate upon the expiration of such period.

For awards granted to an outside director, the outside director will fully vest in and have the right to exercise all of their outstanding options and stock appreciation rights, all restrictions on restricted stock and RSUs will lapse and, for awards with performance-based vesting, unless specifically provided for in the award agreement, all performance goals or other vesting criteria will be deemed achieved at 100% of target levels and all other terms and conditions met.

Clawback

Awards will be subject to any Company clawback policy that the Company is required to adopt pursuant to the listing standards of any national securities exchange or association on which the Company’s securities are listed or as is otherwise required by the Dodd-Frank Wall Street Reform and Consumer Protection Act or other applicable laws. The administrator also may specify in an award agreement that the participant’s rights, payments or benefits with respect to an award will be subject to reduction, cancellation, forfeiture or recoupment upon the occurrence of certain specified events. The Board may require a participant to forfeit, return or reimburse the Company all or a portion of the award or shares issued under the award, any amounts paid under the award and any payments or proceeds paid or provided upon disposition of the shares issued under the award in order to comply with such clawback policy or applicable laws.

Amendment and Termination

The administrator has the authority to amend, suspend or terminate the 2021 Plan provided such action does not impair the existing rights of any participant. The 2021 Plan automatically will terminate on April 14, 2031, unless it is terminated sooner.

Director Compensation

Historically, our directors have not received compensation for their services, and we have no plans to compensate directors in the near future.

Executive Compensation Philosophy

Our Board determines the compensation given to our executive officers in their sole determination. Our Board reserves the right to pay our executives or any future executives a salary, and/or issue them shares of stock issued in consideration for services rendered and/or to award incentive bonuses which are linked to our performance, as well as to the individual executive officer’s performance. This package may also include long-term stock-based compensation to certain executives, which is intended to align the performance of our executives with our long-term business strategies. Additionally, the Board reserves the right to grant performance base stock options in the future, if the Board in its sole determination believes such grants would be in the best interests of the Company.

Incentive Bonus

The Board has not, but may grant incentive bonuses to our executive officers and/or future executive officers in its sole discretion, if the Board believes such bonuses are in the Company’s best interest, after analyzing our current business objectives and growth, if any, and the amount of revenue and profits we are able to generate each month, both of which are a direct result of the actions and ability of such executives.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth as of December 31, 2022 certain information with respect to the beneficial ownership of the Company’s common stock by:

	●	Each of the directors and the Named Executive Officer;

	●	All executive officers and directors as a group; and

	●	Each person known by the Company to beneficially own more than 5% of the Company’s common stock based on certain filings made under Section 13 of the Exchange Act.

All such information provided by the stockholders who are not executive officers or directors reflects their beneficial ownership as of the dates specified in the relevant footnotes to the table. The percent of shares beneficially owned is based on 106,512,827 shares issued and outstanding as of March 1, 2022. Unless otherwise indicated, the owners have sole voting and investment power with respect to their respective shares.

Name and Address of Beneficial Owner	Number of Shares Beneficially Owned		Percentage of Outstanding Common Stock Owned
Named Executive Officers and Directors:
Donald Beavers		(1)		15.5	%
Anthony Motto -former officer and director		(2)		3.3	%
All directors and executive officers as a group (2 persons)				18.7	%

*	Less than 1%.
(1)	Represents (i) 16,456,920 shares held by Mr. Beavers directly; and (ii) 500,756 shares held by children of Mr. Beavers, over which Mr. Beavers has voting and dispositive power.
(2)	Represents (i) 3,578,494 shares held by Mr. Motto directly; and (ii) 3,500,259 shares held by Mr. Motto’s spouse.

EXISTING EQUITY COMPENSATION PLAN INFORMATION

The table below shows information with respect to all our equity compensation plans as of December 31, 2022.

Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)		Weighted- average exercise price of outstanding options, warrants and rights (b)		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by security holders⁽¹⁾		-	$	N/A			(2)
Equity compensation plans not approved by security holders		-	$	N/A		-

(1)

On April 14, 2021, the Board and stockholders holding a majority of the Company’s outstanding common stock approved the 2021 Plan. A total of 1,000,000 shares of the Company’s common stock are authorized for issuance pursuant to the 2021 Plan. Subject to adjustment as provided in the 2021 Plan, the maximum aggregate number of shares that may be issued under the 2021 Plan will be cumulatively increased on January 1, 2022 and on each subsequent January 1 through and including January 1, 2023, by a number of shares equal to the smaller of (i) 3% of the number of shares of common stock issued and outstanding on the immediately preceding December 31, or (ii) an amount determined by the Board. The Board did not increase the number of shares authorized for issuance under the 2021 Plan as of January 1, 2022 or January 1, 2023.

(2)

As of December 31, 2022, no shares of common stock had been issued under the 2021 Plan. No other securities have been issued under the 2021 Plan as of December 31, 2022.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The following is a description of each transaction since January 1, 2021 and each currently proposed transaction in which:

	●	We and any of our subsidiaries have been or will be a participant;

	●	The amount involved exceeds the lesser of $120,000 or 1% of the average of our total assets at year-end for the last two completed fiscal years; and

	●	Any of our directors, executive officers or beneficial owners of more than 5% of our capital stock, or any immediate family member of, or person sharing the household with, any of these individuals, had or will have a direct or indirect material interest.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

HoganTaylor LLP (“HoganTaylor”) has served as the Company’s independent registered public accounting firm since December 2, 2021. Prior to that time, MaloneBailey, LLP (“MaloneBailey”) served as the Company’s independent registered accounting firm.

The following table shows the fees that were billed for the audit and other services provided by HoganTaylor LLP for the fiscal years ended December 31, 2022 and 2021.

	HoganTaylor LLP
	Fiscal Year Ended December 31,
	2022		2021
Audit fees (1)	$	180,000	$	92,000
Audit-related fees (2)		78,435		87,500
Tax fees (3)		-		-
All other fees (4)		-		-
Total	$	258,435	$	179,500

	(1)	Audit Fees—This category includes the audit of our annual financial statements, review of financial statements included in our Quarterly Reports on Form 10-Q and services that are normally provided by the independent registered public accounting firm in connection with engagements for those fiscal years. This category also includes advice on audit and accounting matters that arose during, or as a result of, the audit or the review of interim financial statements.
	(2)	Audit-Related Fees—This category consists of assurance and related services by the independent registered public accounting firm that are reasonably related to the performance of the audit or review of our financial statements and are not reported above under “Audit Fees.” The services for the fees disclosed under this category include historical audits of the businesses acquired, consultation regarding our correspondence with the SEC, other accounting consulting and other audit services.
	(3)	Tax Fees—This category consists of professional services rendered by our independent registered public accounting firm for tax compliance and tax advice. The services for the fees disclosed under this category include tax return preparation and technical tax advice.
	(4)	All Other Fees—This category consists of fees for other miscellaneous items.

Board of Directors Pre-Approval Process, Policies and Procedures

All audit and permissible non-audit services provided by our independent registered public accounting firm must be pre-approved. These services may include audit services, audit-related services, tax services and other services. Pre-approval is generally provided for up to one year and any pre-approval is detailed as to the particular service or category of service. The independent registered public accounting firm and management periodically report to the board of directors regarding the extent of services provided by the independent registered public accounting firm. Consistent with the board of directors’ policy, all audit and permissible non-audit services provided by our independent registered public accounting firm were pre-approved by our board of directors.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

Exhibit No.		Document
2.1		Share Exchange Agreement dated November 30, 2020 by and between Sollensys Corp, Eagle Lake Laboratories, Inc., the Eagle Lake Shareholders and Donald Beavers as the representative of the Eagle Lake Shareholders (incorporated by reference to Exhibit 2.1 to the registrant’s Current Report of Form 8-K filed with the Commission on November 30, 2020).
2.2		Membership Interest Exchange Agreement, dated as of October 15, 2021, by and among (i) the Company; (ii) Abstract Media, LLC, (iii) each of the members of Abstract Media, LLC; and (iv) Andrew Baker as the representative of the members of Abstract Media, LLC (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed with the Commission on October 19, 2021).
2.3		Merger Agreement, dated as of October 26, 2021, by and among (i) the Company; (ii) S-CC Merger Sub, Inc.; (iii) S-Solutions Merger Sub, Inc.; (iv) Celerit Corporation; (v) Celerit Solutions Corporation; and (vi) Terry Rothwell (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed with the Commission on October 29, 2021).
2.4		Amendment to Merger Agreement, dated as of January 28, 2022, by and among the registrant, S-CC Merger Sub, Inc., S-Solutions Merger Sub, Inc.; Celerit Corporation; Celerit Solutions Corporation; and Terry Rothwell (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed with the Commission on February 3, 2022).
3.1		Amended and Restated Bylaws of Sollensys Corp (incorporated by reference to Exhibit 3.1 to the registrant’s Current Report on Form 8-K filed with the Commission on August 11, 2020).
3.2		Certificate of Change to Articles of Incorporation, effective as of September 18, 2020 (incorporated by reference to Exhibit 3.1 to the registrant’s Current Report on Form 8-K filed with the Commission on August 14, 2020).
3.3		Certificate of Correction filed with the Secretary of State of Nevada on October 8, 2020 (incorporated by reference to Exhibit 3.1 to the registrant’s Current Report on Form 8-K filed with the Commission on October 13, 2020).
3.4		Certificate of Amendment filed with the Secretary of State of Nevada on October 8, 2020 (incorporated by reference to Exhibit 3.2 to the registrant’s Current Report on Form 8-K filed with the Commission on October 13, 2020).
3.5		Certificate of Designations filed with the Secretary of State of Nevada on October 8, 2020 (incorporated by reference to Exhibit 3.3 to the registrant’s Current Report on Form 8-K filed with the Commission on October 13, 2020).
3.6		Certificate of Withdrawal for Series A Preferred Stock Designation Filed October 14, 2020 (incorporated by reference to Exhibit 3.1 to the registrant’s Current Report on Form 8-K filed with the Commission on October 19, 2020).
3.7		Certificate of Amendment filed with the Secretary of State of Nevada on October 14, 2020 (incorporated by reference to Exhibit 3.2 to the registrant’s Current Report on Form 8-K filed with the Commission on October 19, 2020).
10.1		Reseller Agreement between the registrant and Eagle Lake Laboratories, Inc. dated August 20, 2020 (incorporated by reference to Exhibit 3.2 to the registrant’s Current Report on Form 8-K filed with the Commission on October 22, 2020).
10.2		Argus RFID IP Purchase and Assignment Agreement dated August 12, 2020 (incorporated by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K filed with the Commission on November 30, 2020).
10.3†		Sollensys Corp 2021 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed with the Commission on April 20, 2021).
10.4		Commercial Contract, entered into on April 2, 2021 by and between the registrant and MRIGlobal (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed with the Commission on April 28, 2021).
10.5		Addendum to Contract, entered into on April 27, 2021, by and between the registrant and MRIGlobal (incorporated by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K filed with the Commission on April 28, 2021).

21.1*		List of Subsidiaries.
23.1*		Consent of independent registered public accounting firm.
31.1*		Certification of Principal Executive Officer pursuant to Exchange Act Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification of Principal Financial Officer pursuant to Exchange Act Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**		Certification of Principal Executive Officer and Principal Financial Officer pursuant to Exchange Act Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

101.INS*		Inline XBRL Instance Document.
101.SCH*		Inline XBRL Taxonomy Extension Schema.
101.CAL*		Inline XBRL Taxonomy Extension Calculation Linkbase.
101.LAB*		Inline XBRL Taxonomy Extension Label Linkbase.
101.PRE*		Inline XBRL Taxonomy Extension Presentation Linkbase.
101.DEF*		Inline XBRL Taxonomy Extension Definition Document.
104*		Cover Page Interactive Data File (embedded within the Inline XBRL document).

*	Filed herewith.
**	Furnished herewith.
†	Management contract or compensatory plan or arrangement.

Item 16. Form 10–K Summary.

Not applicable.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	SOLLENSYS CORP

Dated: April 17, 2023	By:	/s/ Donald Beavers
		Donald Beavers
		Chief Executive Officer
		(principal executive officer, principal financial officer and principal accounting officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Dated: April 17, 2023	By:	/s/ Donald Beavers
		Donald Beavers
		Chief Executive Officer and Director
		(principal executive officer, principal financial officer and principal accounting officer)

SOLLENSYS CORP

Consolidated Financial Statements

Contents

		Page
Financial Statements:

Report of Independent Registered Public Accounting Firm – HoganTaylor LLP (PCAOB ID #483)		F-2

Consolidated Balance Sheets as of December 31, 2022 and 2021		F-3

Consolidated Statements of Operations for the Years Ended December 31, 2022 and 2021		F-4

Consolidated Statement of Changes in Stockholders’ Equity (Deficit) for the Years Ended December 31, 2022 and 2021		F-5

Consolidated Statements of Cash Flows for the Years Ended December 31, 2022 and 2021		F-6

Notes to Consolidated Financial Statements		F-7

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors

Sollensys Corp

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Sollensys Corp and its subsidiaries (the Company) as of December 31, 2022 and 2021, and the related consolidated statements of operations, changes in stockholders’ equity (deficit), and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Going Concern Matter

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered recurring losses from operations, has a significant working capital deficiency, and needs to raise additional funds to meet its obligations and sustain its operations. This raises substantial doubt about the Company’s ability to continue as a going concern. Managements’ plans in regard to these matters also are described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purposes of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ HoganTaylor LLP

We have served as the Company’s auditor since 2021.

Tulsa, Oklahoma

April 17, 2023

F-2

SOLLENSYS CORP.

Consolidated Balance Sheets


	December 31,			December 31,
	2022			2021
ASSETS
Current assets:
Cash and cash equivalents	$	799,496		$	586,869
Accounts receivable		286,894			-
Inventory		12,000			78,000
Prepaid expenses		42,376			40,991
Current assets of discontinued operations		-			27,140
Total current assets		1,140,766			733,000
Property, plant and equipment, net		195,627			2,929,363
Right-of-use assets		1,626,521			-
Other assets		321,694			17,994
Non-current assets of discontinued operations		-			410,305
Total assets	$	3,284,608		$	4,090,661

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$	253,637		$	61,512
Accrued expenses		241,863			106,516
Deferred revenue		122,704			423,715
Lease liabilities - current portion		361,559			-
Related party loans-short term		1,396,975			-
Notes payable-short term, net of debt issuance costs		1,045,196			2,505,553
Current liabilities of discontinued operations		20,082			107,845
Total current liabilities		3,442,015			3,205,141
Notes payable - long term		12,760			19,137
Lease liabilities - long term		1,362,365			-
Deferred revenue - long term		941,251			205,714
Total liabilities		5,758,391			3,429,992

Commitments and contingencies (Note 12)		-			-

Stockholders’ Equity (Deficit)
Preferred stock, Series A, $0.001 par value, 10,000,000 shares authorized, no shares issued and outstanding as of December 31, 2022 and December 31, 2021		-			-
Common stock, $0.001 par value, 300,000,000 shares authorized; 106,512,827 and 100,715,736 shares issued and outstanding as of December 31, 2022 and December 31, 2021, respectively		106,512			100,716
Additional paid-in capital		22,201,440			8,527,616
Accumulated deficit		(24,781,735	)		(7,967,663	)
Total stockholders’ equity (deficit)		(2,473,783	)		660,669
Total liabilities and stockholders’ equity (deficit)	$	3,284,608		$	4,090,661

Note: Amounts may not foot due to rounding.

The accompanying notes are an integral part of the consolidated financial statements.

F-3

SOLLENSYS CORP.

Consolidated Statements of Operations


	December 31,			December 31,
	2022			2021
Revenue	$	344,467		$	181,071
Cost of sales		857,911			339,430
Gross margin		(513,444	)		(158,359	)

Operating expenses:
General and administrative expense		4,150,541			4,233,858
Total operating expenses		4,150,541			4,233,858
Loss from operations		(4,663,985	)		(4,392,218	)
Other income (expense)
Other income		12,995			-
Gain on the sale of building		988,155			-
Interest expense		(500,391	)		(69,123	)
Total other income (expense)		500,758			(69,123	)
Loss from continuing operations before income taxes		(4,163,228	)		(4,461,341	)
Provision (benefit) for income taxes		-			-
Loss from continuing operations after income taxes		(4,163,228	)		(4,461,341	)
Loss from discontinued operations, net of tax		(12,604,883	)		(64,244	)
Net loss	$	(16,768,111	)	$	(4,525,585	)

Basic and diluted loss per common share:
Loss from continuing operations	$	(0.04	)	$	(0.05	)
Loss from discontinued operations	$	(0.12	)	$	(0.00	)
Basic and diluted loss per share	$	(0.16	)	$	(0.06	)

Weighted-average number of common shares outstanding:
Basic and diluted		103,640,868			99,719,004

Note: Amounts may not foot due to rounding.

The accompanying notes are an integral part of the consolidated financial statements.

F-4

SOLLENSYS CORP.

Statements of Changes in Stockholder’s Equity (Deficit)


	Preferred Stock Series A				Common stock				Additional Paid-in		Accumulated			Total Stockholders’
	Shares		Value		Shares		Value		Capital		(Deficit)			Equity
Balance, December 31, 2020		-	$	-		99,354,547	$	99,355	$	3,390,213	$	(3,442,078	)	$	47,490

Stock based compensation						56,365		56		241,753					241,809

Private placement of common shares						1,231,580		1,232		4,602,747					4,603,979

Shares issued in connection with the acquisition of Abstract				-		73,244		73		292,903					292,976

Net loss												(4,525,585	)		(4,525,585	)

Balance, December 31, 2021		-	$	-		100,715,736	$	100,716	$	8,527,616	$	(7,967,663	)	$	660,669

	Preferred Stock Series A				Common stock						Additional Paid-in			Accumulated			Total Stockholders’ Equity
	Shares		Value		Shares			Value			Capital			(Deficit)			(Deficit)
Balance, December 31, 2021		-	$	-		100,715,736		$	100,716		$	8,527,616		$	(7,967,663	)	$	660,669

Impact of the adoption of ASC 842															(45,961	)		(45,961	)

Issuance of common stock to purchase Celerit						4,000,000			4,000			12,796,500						12,800,500

Return of common stock for Celerit recission						(4,000,000	)		(4,000	)		(808,000	)					(812,000	)

Common stock issued as financing fee						5,125,000			5,125			456,125						461,250

Private placement of common shares						292,083			292			529,708						530,001

Stock based compensation				-		380,008			380			610,022						610,402

Issuance of warrants associated with debt issuance costs												89,469						89,469

Net loss															(16,768,111	)		(16,768,111	)

Balance, December 31, 2022		-	$	-		106,512,827		$	106,512		$	22,201,440		$	(24,781,735	)	$	(2,473,783	)

Note: Amounts may not foot due to rounding.

The accompanying notes are an integral part of the consolidated financial statements.

F-5

SOLLENSYS CORP.

Consolidated Statements of Cash Flows


	December 31,			December 31,
	2022			2021
Cash flows from operating activities
Net loss	$	(16,768,111	)	$	(4,589,529	)
Net loss from discontinued operations		(12,604,883	)		(64,244	)
Net loss from continuing operations		(4,163,228	)		(4,525,585	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Stock-based compensation		610,402			241,809
Depreciation and amortization		99,755			10,440
Amortization of debt discount		312,427			-
Gain on the sale of the building		(988,155	)		-
Write down inventory to net realizable value		66,000			-
Changes in operating assets and liabilities:
Accounts receivable		(73,612)			-
ROU Leases		51,442			-
Prepaid expenses		18,373			(60,749	)
Inventory		-			(24,000	)
Other assets		(308,000	)		(13,694	)
Accounts payable		192,123			61,514
Accrued expenses		155,431			60,380
Deferred revenues		434,526			539,429
Net cash used in operating activities - continuing operations		(3,592,516	)		(3,710,457	)
Net cash provided by (used in) operating activities - discontinued operations		2,188,652			(6,580	)
Net cash used in operating activities		(1,403,864	)		(3,717,037	)

Cash flows from investing activities
Proceeds from the sale of building		3,626,330			-
Purchase of property, plant and equipment		(10,526	)		(413,533	)
Net cash provided by (used in) investing activities-continuing operations		3,615,804			(413,533	)
Net cash used in investing activities-discontinued operations		(2,351,425	)		(8,920	)
Net cash used in investing activities		1,264,379			(422,453	)

Cash flows from financing activities:
Proceeds from notes payable		1,355,000			-
Payments on notes payable		(2,504,934	)		(1,580	)
Proceeds from related party loans		1,418,175			-
Payments on related party notes		(21,200	)		-
Debt issuance costs		(78,510	)		-
Proceeds from the sale of common stock		530,001			4,603,399
Net cash provided by investing activities-continuing operations		698,532			4,602,399
Net cash used in investing activities -discontinued operations		(352,084	)		-
Net cash provided by investing activities		346,448			4,602,399

Net increase in cash and cash equivalents		206,962			462,909
Cash and cash equivalents at beginning of period		592,534			129,624
Cash and cash equivalents at end of period	$	799,496		$	592,534

Supplemental disclosure of cash flow information:
Cash paid for interest	$	135,869		$	61,623

Supplemental disclosure of non-cash activities
Common stock issued for the acquisition of a business	$	-		$	292,976
Common stock and warrants issued as debt issuance costs	$	550,719		$	-
Acquisition of property and equipment with debt	$	-		$	2,526,270

Note: Amounts may not foot due to rounding.

The accompanying notes are an integral part of the unaudited consolidated financial statements.

F-6

SOLLENSYS CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

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. The Company’s wholly owned subsidiary Eagle Lake Laboratories, Inc (“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 generates 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.

Abstract Media

On October 15, 2021, the Company entered into a Membership Interest Exchange Agreement (the “Agreement”), dated as of October 15, 2021, by and among (i) the Company; (ii) Abstract Media, LLC (“Abstract Media”), (iii) each of the members of Abstract Media (collectively, the “Abstract Media Members”); and (iv) Andrew Baker as the representative of the Abstract Media Members (the “Members’ Representative”). The Acquisition closed on December 6, 2021. Abstract Media is a Texas limited liability company formed in October 2011, with the goal of improving user engagement using visualization tools. The Company has evolved into an interactive media and software development company to optimize effective corporate learning, operational workflow and communication using technology in the augmented reality or virtual reality space. Abstract Media conducts its operations from its office location in Houston, Texas. On November 4, 2022 the Company entered into a Membership Interest Purchase Agreement with TechEdge Services, a Texas corporation, to sell 100% of its ownership interest in Abstract Media. As a result, Abstract Media became a discontinued operation. See Note 5. “Discontinued Operations”.

Celerit Merger and Rescission

On April 7, 2022, the Company completed a Merger Agreement (“Merger Agreement”) by and among (i) the Company; (ii) S-CC Merger Sub, Inc., a wholly owned subsidiary of the Company (“S-CC Merger Sub”); (iii) S-Solutions Merger Sub, Inc., a wholly owned subsidiary of the Company (“S-Solutions Merger Sub”); (iv) Celerit Corporation (“Celerit”); (v) Celerit Solutions Corporation (“Celerit Solutions”); and (vi) Terry Rothwell (collectively, (i)-(v), the “Merger Parties”). On August 22, 2022 the Company entered into Recission Agreement with the Merger Parties. As a result of the Recission Agreement Celerit and Celerit Solutions became discontinued operations. See Note 5. “Discontinued Operations”.

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with the Financial Accounting Standard Board (FASB)’s Accounting Standard 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 of Sollensys include its wholly-owned subsidiary, Eagle Lake Laboratories, Inc. (“Eagle Lake”). The operations of the Company’s former Celerit division, and Abstract Media division have both been presented as discontinued operations for all periods presented. See Note–6 - “Discontinued Operations” for further information. Unless otherwise noted, amounts and disclosures throughout these Notes to Consolidated Financial Statements relate solely to continuing operations and exclude all discontinued operations. All intercompany accounts and transactions have been eliminated in the consolidated financial statements.

F-7

SOLLENSYS CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

NOTE 2 – GOING CONCERN

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 are available. The Company has incurred significant operating losses since its inception. As of December 31, 2022, the Company had a working capital deficit of $2,301,249 and an accumulated deficit of $24,781,735.

The Company expects to generate operating cash flows 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 short-term loans. The Company will be required to continue to do so until its revenues support its operations.

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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 consolidated financial statements and the reported amount of expenses during the reporting period. The most significant estimates relate to right of use assets and liabilities, fair value of warrants and stock awards, 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.

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. The Company maintains accounts at financial institutions which are insured by the Federal Deposit Insurance Corporation (FDIC). Cash balances at times are in excess of FDIC insurance limits.

Business Combinations

Under the acquisition method of accounting, we allocate the fair value of the total consideration transferred to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values on the date of acquisition. The fair values assigned, defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants, are based on estimates and assumptions determined by management. These valuations require us to make significant estimates and assumptions, especially with respect to intangible assets. We record the excess consideration over the aggregate fair value of tangible and intangible assets, net of liabilities assumed, as goodwill.

If the initial accounting for a business combination is incomplete by the end of a reporting period that falls within the measurement period, we report provisional amounts in our consolidated financial statements. During the measurement period, we adjust the provisional amounts recognized at the acquisition date to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date and we record those adjustments to our consolidated financial statements.

F-8

SOLLENSYS CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

Goodwill and Intangible Assets

On November 4, 2022 the Company entered into a Membership Interest Purchase Agreement with TechEdge Services, a Texas corporation, to sell all of its ownership interest in Abstract Media. As a result, the Company recorded an impairment charge on its intangible assets including goodwill of $344,787 on its Consolidated Statement of Operations during the year ended December 31, 2022 prior to its disposal. See Note 5 – Discontinued Operations.

Fair Value Measurements

The FASB ASC 820 “Fair Value Measurements and Disclosures” (“ASC 820”) defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level–1 - Quoted prices in active markets for identical assets or liabilities.

Level–2 - Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable.

Level–3 - Unobservable inputs that are supported by little or no market activity, therefore requiring an entity to develop its own assumptions about the assumptions that market participants would use in pricing.

Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management. We use the market approach to measure fair value for its Level 1 financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The respective carrying value of certain balance sheet financial instruments approximates its fair value. These financial instruments include cash and cash equivalents, trade receivables, related party payables, accounts payable, accrued liabilities and short-term borrowings. Fair values were estimated to approximate carrying values for these financial instruments since they are short term in nature, and they are receivable or payable on demand.

The estimated fair value of assets and liabilities acquired in business combinations and reporting units and long-lived assets used in the related asset impairment tests utilize inputs classified as Level 3 in the fair value hierarchy.

F-9

SOLLENSYS CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

Revenue Recognition

Revenues are accounted for in accordance with the FASB’s Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606 or ASC 606).

Identify the contract with the customer;

Identify the performance obligations in the contract;

Determine the transaction price;

Allocate the transaction price to performance obligations in the contract, and

Recognize revenue when or as the Company satisfies a performance obligation.

The Company derives revenue from numerous sources. One of the Company’s products is the Blockchain Archive Server—a turn-key, off-the-shelf, blockchain solution that works with virtually any hardware and software combinations currently used in commerce, without the need to replace or eliminate any part of the client’s data security that is being utilized.

The Company accounts for a contract with a customer when it has written approval, the contract is committed, the rights of the parties, including payment terms, are identified, the contract has commercial substance and consideration is probable of collection. Binding contracts or agreements with customers together with agreement to the Company’s terms and conditions are considered the contract with a customer. The Company considers collection of the contract to be probable at the onset of the arrangement.

Under the terms of the Company’s 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 the ASC 606 are considered to be contract liabilities and are classified as deferred revenue on the Company’s consolidated balance sheets. As of December 31, 2022, the current balance of deferred revenue was $122,704 and the long-term balance was $941,251 compared to $423,715 and $205,714 respectively at December 31, 2021.

Under the guidelines of ASC 606, the Company disaggregates its revenues from contracts with customers by service types, as the Company believes it best depicts how the nature, amount, timing and uncertainty of the revenue and cash flows are affected by economic factors. Management has determined that this level of disaggregation is beneficial to the users of the Company’s consolidated financial statements. As of December 31, 2022 and 2021, all of the revenue was earned from the Company’s Blockchain Archive Servers and SaaS.

F-10

SOLLENSYS CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

Net Income (Loss) Per Share

Net income (loss) per common share is computed by dividing net income (loss) by the weighted average common shares outstanding during the period as defined by ASC 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 period. 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 December 31, 2021, there were no instruments which would have a dilutive effect. As of December 31, 2022, the Company excluded the convertible notes and warrants from dilutive earnings per share as its effect is antidilutive.

Leases

Accounts receivable

The Company extends credit to its customers in the normal course of business. The Company performs ongoing credit evaluations and generally does not require collateral. The Company uses the allowance method to estimate for uncollectible receivables and maintains reserves, when necessary, for potential credit losses. An allowance for doubtful accounts, when necessary, is based upon a review of outstanding receivables, historical collection information, and existing economic conditions. Accounts receivable are ordinarily due 30 days after the issuance of an invoice. Accounts more than 120 days past due are considered delinquent and are written off after all collection attempts have been exhausted. As of December 31, 2022 and December 31, 2021, the balance of accounts receivable was $286,894 and $-0-, respectively. Management determined that an allowance for doubtful accounts was not necessary for either period.

F-11

SOLLENSYS CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

NOTE 4 – NOTES PAYABLE AND RELATED PARTY LOANS

As of December 31, 2022 and December 31, 2021, the Company had the following notes payable, and related party loans outstanding:


	December 31,		December 31,
	2022		2021
Related party loans^(a)	$	1,396,975	$	-
Notes payable - short term less debt issuance costs^(b)	$	1,045,196	$	2,505,553
Notes payable - long term^(c)	$	12,760	$	19,137

(a)	Related party loans are comprised of the following:

	(i)	As of December 31, 2022, David Beavers, a related party, loaned the Company on an unsecured basis, $168,903 at 6% with a maturity date of September 30, 2023, and Donald Beavers, the Company’s CEO had loaned the Company $15,372 on an interest free basis with a maturity of date of August 30, 2023.
	(ii)	The Company had one interest free demand loan, and four 6% loans from various related parties in the amount of $13,800, $468,900, $150,000, $350,000, and 230,000, respectively. These notes mature on March 31, 2023, December 31, 2023, April 10, 2023, May 4, 2023 and August 11, 2023, respectively. The $468,900, $150,000, $350,000 and $230,000 notes are unsecured. The $13,800 note is secured by a personal guarantee from the Company’s CEO.

(b)	Notes payable - short term are comprised of the following:

(i)

On October 18, 2022 the Company entered into a six month maturity $600,000 Note Agreement at 10% interest with AJB Capital Investments, LLC (“AJB”). The loan agreement was issued with an original issue discount of $60,000 which is being amortized to interest expense over the term of the loan. Additionally, the Company issued 5,125,000 shares of restricted common stock valued at $530,000 and 1,000,000 warrants with a strike price of $0.15 and a five year maturity in October 2027. These warrants were recorded at its fair value of $89,469 using Black Scholes methodology with a volatility of 292.40% and a one-year Treasury bill rate of 4.51%. The restricted common stock and warrants were also amortized to interest expense over the term of the loan. The unamortized note discount as of December 31, 2022 amounted to $339,560 and during the year ended December 31, 2022 the Company recorded $271,160 in interest expense on this Note. The AJB Note is convertible, subject to a 4.99% equity blocker, in the event of a default, as provided in the AJB Note, into common stock at a conversion price (the “Conversion Price”) equal to the Variable Weighted Average Price (“VWAP”) (i) during the previous 10 trading day period ending on the date of issuance of the AJB Note, or (ii) during the previous 10 trading day period ending on the conversion date, whichever is lower. If the common stock is not deliverable electronically by the Depository Trust Company (“DWAC”), an additional 10% discount will apply for all future conversions until DWAC delivery becomes available. If the common stock is “chilled” for deposit into the DTC system and only eligible for clearing deposit, an additional 15% discount will apply for all future conversions until such chill is lifted. Additionally, if the Company ceases to be a reporting company pursuant to the Exchange Act, or if the AJB Note cannot be converted into free trading shares after 181 days from the issue date (other than as a result of AJB’s status as an affiliate of the Company), an additional 15% discount will be attributed to the conversion price.

F-12

SOLLENSYS CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

Security Agreement

In connection with the issuance of the AJB Note, on October 13, 2022, the Company entered into a Security Agreement, dated as of October 13, 2022, by and between the Company and AJB (the “Security Agreement”). Pursuant to the terms of the Security Agreement, the Company agreed to grant to AJB an unconditional and continuing first priority security interest in all of the assets and property of the Company to secure the prompt payment, performance and discharge in full of all of the Company’s obligations under the AJB Note, and the other documents executed in connection with its agreements with AJB.

	(ii)	The Company has a vehicle loan which requires monthly payments of principal and interest in the amount of $710. The loan matures August 2025, bears interest at 13.1%, and is secured by the specific vehicle. As of December 31, 2022 the short term portion of this note amounted to $6,996.
	(iii)	On September 20, 2022 the Company entered into a twelve percent (12%) $172,760 promissory note including $18,510 of Original Issue discount with 1800 Diagonal Lending LLC (“Diagonal) with a maturity date of December 31, 2023. Accrued interest, and outstanding principal shall be repaid in ten payments each in the amount of $19,349. In the event of a default, as defined in the note payable agreement, the loan is convertible at the discretion of the lender into common stock at 75% of the lowest ten day trading price prior to the conversion date multiplied by the amount outstanding.
	(iv)	As part of the Celerit recission the Company agreed to a promissory note payable to Celerit for $605,000 accruing interest at 7% and maturing on September 30, 2022. As of the date of this Report, this Note remains unpaid and in default. Celerit has initiated a collection action on this Note.

(c)	The notes payable – long term balance of $12,760 is the long term portion of the vehicle loan noted above in b (ii).

At December 31, 2022, the aggregate maturities of notes payable and related party loans for the next three years are as follows:

Schedule of maturities of notes payable
Year 2023	$	2,781,731
Year 2024		7,245
Year 2025		5,515
		2,794,491
Less debt issuance costs		339,560
Total notes payable and related party notes payable	$	2,454,931

F-13

SOLLENSYS CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

NOTE 5 – DISCONTINUED OPERATIONS

The loss from discontinued operations was $12,604,883 and $64,244, for the periods ended December 31, 2022 and December 31, 2021, respectively. The losses arose from two transactions which occurred in 2022 as follows:

ABSTRACT MEDIA

Pursuant to the terms of the Agreement, on December 6, 2021, the Abstract Media Members assigned their respective membership interests in Abstract Media to the Company, and Abstract Media became a wholly owned subsidiary of the Company. In exchange therefor, on December 6, 2021, the Company issued to the Abstract Media Members an aggregate of 73,244 shares of the Company’s restricted common stock.

For the acquisition of Abstract Media, the following table summarizes the acquisition date fair value of the consideration paid, identifiable assets acquired and liabilities assumed:

Consideration paid


Cash and cash equivalents	$	30,000
Common stock, 73,244 shares of the Company restricted common stock valued at $4.00 per share		292,976
Net liabilities assumed		77,422
Fair value of total consideration paid	$	400,398

Net assets acquired and liabilities assumed


Cash and cash equivalents	$	21,080
Accounts receivable		39,345
Other current assets		19,758
Fixed assets, net		15,467
Total assets	$	95,650

Accounts payable		69,724
Accrued liabilities		103,348
Total liabilities		173,072

Net liabilities assumed	$	77,422

F-14

SOLLENSYS CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

The Company allocated the fair value of the total consideration paid of $400,398 to goodwill of $200,199 and the same amount of $200,199 to intangible assets with a life of three years. The value of goodwill represented Abstract Media’s ability to generate profitable operations going forward. Management estimated the provisional fair values of the intangible assets and goodwill on December 31, 2021.

Following the closing and for a period of 24 months thereafter (the “Earn-Out Period”), Tech Edge Services will pay to the Company an amount equal to 5% of the gross proceeds received with respect to contracts and agreements in place with Abstract Media as of the closing date. Such payments shall be made within seven days of each calendar month during the Earn-Out Period. The Company estimated the total proceeds of this contingent consideration to be $0 as of December 31, 2022.

The Company recorded the following loss on disposal and loss from discontinued operations related to Abstract Media:


Assets transferred:
Cash	$	3,445
Prepaids and other assets		4,300
Property and equipment, net		17,766
Total assets		25,511

Liabilities assumed:
Accounts payable		1,444
Accrued expenses		36,861
Total liabilities assumed		38,305
Net loss on disposal of Abstract Media		63,816


	Year Ended December 31,
	2022			2021
Revenue	$	439,980			1,250
Costs of sales and operating expenses		982,547			65,494
Loss from discontinued operations		(542,567	)		(64,244	)
Loss on disposal		(63,816	)		-
Discontinued operations, net of tax	$	(606,383	)	$	(64,244	)

	2022		2021
Assets:
Cash	$	-	$	5,565
Receivables		-		1,717
Prepaids and other assets		-		19,858
Current assets of discontinued operations				27,140
Property and equipment, net		-		15,467
Intangible assets, net		-		194,638
Goodwill		-		200,199
Noncurrent assets of discontinued operations		-	$	410,304

Liabilities:		-
Accounts payable		-		4,756
Accrued expenses		20,082		89,073
Deferred revenue		-		14,016
Current liabilities of discontinued operations	$	20,082	$	107,845

CELERIT

On April 7, 2022, the Company closed on a Merger Agreement (“Merger Agreement”) by and among (i) the Company; (ii) S-CC Merger Sub, Inc., a wholly owned subsidiary of the Company (“S-CC Merger Sub”); (iii) S-Solutions Merger Sub, Inc., a wholly owned subsidiary of the Company (“S-Solutions Merger Sub”); (iv) Celerit Corporation (“Celerit”); (v) Celerit Solutions Corporation (“Celerit Solutions”); and (vi) Terry Rothwell (collectively, (i)-(v), the “Merger Parties”).

Aggregate consideration for the Mergers consisted of (i) $2,695,000, subject to certain adjustments set forth in the Merger Agreement, as amended (the “Cash Consideration”), and (ii) 4,000,000 shares of Sollensys common stock (the “Sollensys Shares”). The Cash Consideration was paid to Terry Rothwell via the issuance to Terry Rothwell at the closing of a promissory note of Sollensys (the “Rothwell Note”). Additional consideration of $10,000 was paid to Terry Rothwell. The Rothwell Note has a principal amount of $2,695,000, bears simple interest at a rate of 0.0001% to the maturity date, December 31, 2022, and, if not paid at maturity, the Rothwell Note accrued simple interest at 6% per year until paid. There was no penalty or premium for prepayment. In the event of a default, Sollensys agreed to pay Terry Rothwell’s reasonable legal fees and costs of collection.

For the acquisition of Celerit and Celerit Solutions, the following table summarizes the acquisition date fair value of consideration paid, identifiable assets acquired and liabilities assumed:

F-15

SOLLENSYS CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

Consideration paid


Cash and cash equivalents	$	10,000
Common stock, 4,000,000 shares of the Company restricted common stock valued at $3.20 per share		12,800,500
Issuance of promissory note		2,695,000
Fair value of total consideration paid	$	15,505,500

Net assets acquired and liabilities assumed


Cash and cash equivalents	$	222,064
Accounts receivable		1,156,146
Prepaid expenses		319,895
Other current assets		276,913
Property, plant and equipment		481,817
Intangible assets (provisional)		2,736,378
Goodwill		10,945,515
Total assets	$	16,138,728

Accounts payable		23,443
Accrued expenses		609,785
Total liabilities assumed		633,228

Net purchase price	$	15,505,500

The Company allocated the fair value of the total consideration paid to goodwill of $10,945,515 and $2,736,378 to intangible assets with a life of three years. The value of goodwill represents Celerit and Celerit Solutions’ ability to generate profitable operations going forward. Management estimated the provisional fair values of the intangible assets and goodwill prior to its disposal. The Company’s accounting for the acquisition of Celerit was based upon estimates of the allocation between goodwill and intangible assets.

Subsequent to entry into the Merger Agreement, the parties determined that they would unwind the transactions as set forth in the Merger Agreement and in the other agreements entered into in connection therewith.

Rescission Agreement

On August 22, 2022, the Company entered into the Rescission, Termination and Release Agreement (the “Rescission Agreement”) by and among (i) the Company, (ii) SCARE Holdings LLC, a wholly-owned subsidiary of Sollensys, (“SCARE”); (iii) Celerit; (iv) Celerit Solutions; (v) Ms. Rothwell; (vi) Ron Harmon; and (vii) CRE. Pursuant to the terms of the Rescission Agreement, the parties agreed to unwind the transactions as set forth in the Merger Agreement and in the other agreements entered into in connection therewith, so as to place each of the parties to the Merger Agreement in the position that they were as of immediately prior to the closing of the transactions as set forth in and as contemplated by the Merger Agreement and the related agreements. As a result, on August 26, 2022, the following agreements were terminated, except as set forth in the Rescission Agreement: (i) the Rothwell Employment Agreement, (ii) the Harmon Employment Agreement, (iii) the Blockchain Archive Server Agreement, (iv) the Rothwell Note, (v) the Banking Agreement, and (vi) the Real Estate Purchase Agreement.

F-16

SOLLENSYS CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

Pursuant to the terms of the Rescission Agreement, among other things, the parties agreed as follows:

(i)

Sollensys agreed to transfer to Ms. Rothwell one share of Celerit common stock;

(ii)

Sollensys agreed to transfer to Ms. Rothwell one share of Celerit Solutions common stock;

(iii)

Ms. Rothwell agreed to transfer to Sollensys 4,000,000 shares of Sollensys common stock;

(iv)

Ms. Rothwell agreed to resign from any and all positions with Sollensys, including as a member of Sollensys’ board of directors;

(v)

Donald Beavers agreed to resign as a director and officer of Celerit and Celerit Solutions;

(vi)

Anthony Nolte agreed to resign as a director and officer of Celerit and Celerit Solutions; and

(vii)

In addition, pursuant to the terms of the Rescission Agreement, the parties agreed to terminate:

(i)

The Executive Employment Agreement, dated as of April 7, 2022, by and between Sollensys and Ms. Rothwell;

(ii)

The Executive Employment Agreement, dated as of April 7, 2022, by and between Sollensys and Mr. Harmon;

(iii)

The Rothwell Sollensys Blockchain Archive Server Distributive Data Center Agreement (2 Units);

(iv)

The Promissory Note issued by Sollensys to Ms. Rothwell on April 7, 2022;

(v)

The Banking and Credit Union Services Agreement, dated as of April 7, 2022; and

(vi)

The Real Estate Purchase Agreement, dated as of March 24, 2022.

F-17

SOLLENSYS CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

As a result of the recission the Company recorded the following loss from discontinued operations:


Assets transferred:
Cash	$	2,560,058
Accounts receivable		942,862
Other accounts receivable		629,086
Prepaids and other assets		107,109
Property and equipment, net		449,520
Goodwill		10,945,115
Intangibles		2,394,238
Total assets		18,027,988
Liabilities transferred:
Accounts payable		(56,715	)
Accrued expenses		(166,579	)
Total liabilities		(223,294	)

Net assets transferred		17,804,694

Consideration received, 4,000,000 shares returned to treasury		(812,000	)
Extinguishment of promissory note		(2,342,916	)
Loss from disposal of Celerit and Celerit Solutions	$	(14,649,778	)

The loss from discontinued operations is follows:


	Year Ended December 31,
	2022			2021
Revenue	$	7,245,182		$	-
Cost of sales and operating expenses		4,593,904			-
Income from discontinued operations		2,651,278			-
Loss on disposal of Celerit and Celerit Solutions		(14,649,778	)		-
Discontinued operations, net of tax	$	(11,998,500	)	$	-

F-18

SOLLENSYS CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

NOTE 6 – GOODWILL AND INTANGIBLE ASSETS

As of December 31, 2022, the balance of goodwill and intangible assets was $-0- and $-0-, respectively.

NOTE 7 – RELATED PARTY TRANSACTIONS

During the year ended December 31, 2022 and 2021, the Company received a number of related party loans, See Note 4 – “Notes Payable And Related Party Loans” for a detail of these transactions.

During 2021, the Company entered into a contract with a member of management to provide blockchain service to them. For that service, the member of management paid a deposit of $90,000, which is currently reflected as deferred revenue at December 31, 2022 and December 31, 2021.

NOTE 8 – STOCK-BASED COMPENSATION

During 2022, the Company issued 380,008 common shares to various consultants in lieu of cash payment. The awards were valued at the market price on the date of grant. The shares were valued at $542,163 and are amortized and vest ratably over the requisite service period that the consultants provided service over. In some cases these shares vest immediately. During the year ended December 31, 2022, the Company expensed $542,163. Of the common shares issued in 2022 all have vested.

During the year ended December 31, 2021, the Company issued 56,365, free trading common shares to various consultants in lieu of cash payment. The awards were valued at the market price on the date of grant. The shares were valued at $310,048 and are amortized and vest ratably over the one year service period that the consultants provided service over. As of December 31, 2021 the Company expensed $241,809 of the value of the shares issued, and expensed the remaining amount of $68,239 during 2022. Of the 56,365 shares issued, 45,274 have vested during 2021, and 11,091 vested during 2022.

NOTE 9 – LEASES

The majority of our lease obligations are real estate operating leases from which we conduct our business. For any lease with an initial term in excess of 12 months, the related lease assets and liabilities are recognized on the Consolidated Balance Sheets as either operating or finance leases at the inception of an agreement where it is determined that a lease exists. Leases with an initial term of 12 months or less are not recorded on our Consolidated Balance Sheets; we recognize lease expense for these leases on a straight-line basis over the lease term.

Leases with an initial term of 12 months or less, or that are on a month-to-month basis are not recorded on our Consolidated Balance Sheets; we recognize lease expense for these leases on a straight-line basis over the lease term.

Operating lease assets represent the right-to-use an underlying asset for the lease term, and operating lease liabilities represent the obligation to make lease payments arising from the lease. These assets and liabilities are recognized based on the present value of future payments over the lease term at commencement date. We use a collateralized incremental borrowing rate based on the information available at commencement date, including lease term, in determining the present value of future payments. Our lease terms generally do not include options to extend or terminate the lease unless it is reasonably certain that the option will be exercised. Fixed payments may contain predetermined fixed rent escalations. We recognize the related rent expense on a straight-line basis from the commencement date to the end of the lease term.

F-19

SOLLENSYS CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

During 2022, the Company sold its building and subsequently entered into a non-cancellable five-year lease agreement for which it recorded a right-of-use asset and liability based on the present value of the lease payments in the amount of $1,227,955, using a term of one hundred eighty (62) months and a discount rate of 12.00%.

The weighted average remaining lease term is 3.77 years and the weighted average discount rate is 12%. Operating lease expense for the year ended December 31, 2022 is approximately $193,639. Future lease payments under our non-cancellable leases as of December 31, 2022 were as follows:

Schedule of lease payment
Year 2023	$	540,544
Year 2024		474,305
Year 2025		488,534
Year 2026		364,332
Year 2027		346,657
Total		2,214,372
Imputed interest		490,448
Lease liability	$	1,723,924

The Company’s minimum annual future obligations under all existing operating leases at December 31, 2021 and accounted for under previous lease guidance as follows:


2022	$	180,905
2023		171,631
2024		157,065
2025		161,777
2026		27,772
Total	$	699,150

F-20

SOLLENSYS CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

NOTE 10 – INCOME TAXES

The Company provides for income taxes under ASC 740, “Income Taxes.” Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax basis of assets and liabilities, and the tax rates in effect when these differences are expected to reverse. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations.


	December 31,			December 31,
Rate Reconciliation	2022			2021
Pretax Book Income (Loss)	$	(16,768,111	)	$	(4,525,585	)
Add: Stock Valuation Losses Related to Abstract Sale & Celerit Recission		12,281,476			-
Pretax Book Loss Net of Stock Valuation Losses		(4,486,635	)		(4,525,585	)
Provision at Statutory Rate		(1,167,000	)		(1,177,000	)
Permanent Differences		111,000			63,000
Change in Valuation Allowance		1,056,000			1,114,000
Provision for income taxes	$	-		$	-

Net deferred tax assets consist of the following:


Deferred Tax Assets	12/31/2022			12/31/2021
Deferred Tax Assets by Jurisdiction
Federal	$	1,781,600		$	962,300
State		508,400			271,700
Valuation Allowance		(2,290,000	)		(1,234,000	)
Net Deferred Tax Assets	$	-		$	-

Deferred Tax Assets by Components
Intangible Assets	$	-		$	4,800
Net Operating Loss		2,290,000			1,229,200
Valuation Allowance		(2,290,000	)		(1,234,000	)
Net Deferred Tax Assets	$	-		$	-

As of December 31, 2022, the Company had federal, state and foreign net operating loss carryforwards of approximately $8,930,000, with no expiration date to use these credits, that are available to offset future liabilities for income taxes. The Company has generally established a valuation allowance against these carryforwards based on an assessment that it is more likely than not that these benefits will not be realized in future years. The Company has reviewed the scheduled reversals of the deferred tax assets and its projected taxable income in conjunction with the changes in tax laws enacted and determined a valuation allowance is required at December 31, 2022 and 2021. The December 31, 2022 and 2021, results of operations include an increase in our valuation allowance of $1,056,000 and $1,114,000, respectively. We established the valuation allowance based on the weight of available evidence, both positive and negative, including results of recent and current operations and our estimates of future taxable income or loss by jurisdiction in which we operate. In order to determine the amount of deferred tax assets or liabilities, as well as the valuation allowances, we must make estimates and assumptions regarding future taxable income, and other business considerations. Changes in these estimates and assumptions, including changes in tax laws and other changes impacting our ability to recognize the underlying deferred tax assets, could require us to adjust the valuation allowances. The Company has not undertaken an analysis of Section IRS Section 382 and cannot determine at this time whether the NOL will be subject to limitations due to a change in control. The Company will continue to evaluate the realizability of its deferred tax assets based on its expectation of future taxable income and other relevant factors.

F-21

SOLLENSYS CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

NOTE 11 – STOCKHOLDERS’ EQUITY

Preferred Stock

On December 31, 2022, and December 31, 2021, there were 25,000,000 shares of preferred stock authorized, with -0- shares issued and outstanding at both years ended, respectively.

Common Stock

The Company has authorized 300,000,000 shares of common stock, $0.001 par value per share. As of December 31, 2022 and December 31, 2021, respectively, there were 106,512,827 and 100,715,734 shares of common stock issued and outstanding.

During the year ended December 31, 2022, the Company:

●

292,083 shares of common stock were sold in private placements for proceeds of $530,000

●

5,125,000 shares of common stock were issued as a financing fee in connection with the funding of a $600,000 promissory note from AJB Capital. These shares were valued at $461,250

●

380,008 shares of common stock were issued as stock- based compensation valued at $542,163 pursuant to the Sollensys Corp 2021 Equity Incentive Plan to numerous consultants.

During the year ended December 31, 2021, the Company:

●

Raised $4,603,979 from the sale of 1,231,580 common shares to investors

●

Issued 73,244 shares valued at $292,976 in connection with the acquisition of Abstract Media

●

Issued an aggregate of 56,365 shares of common stock, valued at $310,048 pursuant to the Sollensys Corp 2021 Equity Incentive Plan to numerous consultants.

F-22

SOLLENSYS CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

NOTE 12 – COMMITMENTS AND CONTINGENCIES

The Company is subject to litigation, claims and other commitments and contingencies arising in the ordinary course of business. Although the asserted value of these matters may be significant, the Company currently does not expect that the ultimate resolution of any open matters will have a material adverse effect on its consolidated financial position or results of operations. See Note 4, with respect to the Company’s note payable with Celerit, and its subsequent collection action initiated against the Company.

NOTE 13 – PROPERTY AND EQUIPMENT

At December 31, 2022 and 2021, property and equipment is comprised of the following:

Schedule of property and equipment
	2022			2021
Land	$	-		$	484,197
Buildings		-			1,946,586
Building improvements		-			270,472
Furniture and fixtures		113,398			113,398
Equipment		104,054			93,627
Vehicles		31,223			31,223
Subtotal		248,675			2,939,503
Less: accumulated depreciation		(53,048	)		(10,140	)
Total	$	195,627		$	2,929,363

Depreciation expense for the years ended December 31, 2022 and 2021, was $99,755 and $10,140, respectively.

On September 8, 2021, the Company acquired a building in Palm Bay, Florida with approximately 36,810 square feet of office space for $2,430,762 excluding closing costs. During 2022, the Company occupied the building and commenced operations from this facility. During December 2022, the Company sold the building for $3,850,000 less closing costs and recognized a gain in the amount of $988,155. In conjunction with the sale, the Company entered into a 5 year lease. See Note 9 Leases.

NOTE 14 – SUBSEQUENT EVENTS

On April 6, 2023 the Company issued 10,000,000 pre-funded common stock warrants to AJB Capital Investments, LLC with a nominal exercise price of $0.00001 and an unlimited exercise term, in lieu of past due interest payments on AJB’s $600,000 promissory note.

The AJB $600,000 Promissory Note along with accrued interest was due to be paid on April 13, 2023. The Company did not make payment at that time. Under the terms of the Promissory Note the Company exercised its right to extend the maturity date of the Note up to six months from the original maturity date of April 13, 2023. As a result of the extension of the maturity date, the interest rate shall equal fifteen percent (15%) per annum for any period following April 13, 2023, payable monthly.

F-23

SOLLENSYS CORP. 10-K