SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements that have been made pursuant to the provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations, estimates, and projections about DLT Resolutions' industry, management's beliefs, and certain assumptions made by management. Forward-looking statements include our expectations regarding product, services, and maintenance revenue, annual savings associated with the organizational changes effected in prior years, and short- and long-term cash needs. In some cases, words such as "anticipates," "expects," "intends," "plans," "believes," "estimates," variations of these words, and similar expressions are intended to identify forward-looking statements. In addition, statements about the potential effects of the COVID-19 pandemic on the Company's businesses, results of operations and financial condition may constitute forward-looking statements. The statements are not guarantees of future performance and are subject to certain risks, uncertainties, and assumptions that are difficult to predict; therefore, actual results may differ materially from those expressed or forecasted in any forward-looking statements. Risks and uncertainties of our business include those set forth in our Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the SEC on April 30, 2020, under "Item 1A. Risk Factors" as well as additional risks described in this Form 10-Q. Unless required by law, we undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise. However, readers should carefully review the risk factors set forth in other reports or documents we file from time to time with the Securities and Exchange Commission, particularly the Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K.





Overview

DLT Resolution Inc. ("DLT, the "Company", "we" and "our") operates in three high-tech industry segments: Blockchain Applications; Telecommunications; and Data Services which includes Image Capture, Data Collection, Data Phone Center Services, and Payment Processing. The Company offers secure data management, Information Technology (IT) and other telecommunications services in Canada and the United States. The Company operates a Health Information Exchange providing the ability to request and retrieve medical information and records while meeting all of today's Security & Compliance demands for HIPAA, PIPEDA and PHIPA. Through our acquisition of Union Strategies, Inc. ("USI"), the Company operates a business focused on designing, installing and maintaining telephony, data, video, storage, and LAN/WAN networks. USI's clients encompass K-12 and higher education institutions, trades industry organizations, and local government entities having memberships ranging from 100 to 10,000 people that utilize products and services that USI provides by deploying a variety of technologies to keep client networks up and running efficiently.





Recent Developments

On January 30, 2020, the Company acquired all the issued and outstanding capital stock of USI for 1,500,000 shares of the Company's restricted Common Stock with the potential issuance of an additional 1,000,000 shares should USI achieve financial performance targets (See Note 2). The acquisition, valued at $4,000,000 resulted in USI becoming a wholly owned subsidiary of the Company. USI was organized on October 24, 2011 under the Ontario Business Corporations Act of 1990 and is located in Woodbridge, Ontario, Canada. USI is focused on designing, installing and maintaining telephony, data, video, storage, and LAN/WAN networks. USI has clients encompassing K-12 and higher education institutions, trades industry organizations, and local government entities having memberships ranging from 100 to 10,000 people that utilize products and services that USI provides by deploying a variety of technologies to keep client networks up and running efficiently.






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Results of Operations



Revenues

Revenues for the three months ended March 31, 2020 and 2019 were $428,347 and $122,009, respectively. The increase resulted primarily from the inclusion of USI's $325,571 in revenue from the acquisition on January 30, 2020 to March 31, 2020.





Cost of Revenue

Cost of revenue for the three months ended March 31, 2020 and 2019 were $238,686 and $33,674, respectively. The increase resulted primarily from the inclusion of USI's $199,776 in cost of revenue from the acquisition on January 30, 2020 to March 31, 2020.





General and Administrative

General and administrative expense, excluding professional fees, was $196,245 and $59,354 for the three months ended March 31, 2020 and 2019, respectively. The increase resulted primarily from the inclusion of USI's $85,382 in general and administrative expense from the acquisition on January 30, 2020 to March 31, 2020.





Professional Fees

Professional fees were $40,439 and $32,571 for the three months ended March 31, 2020 and 2019, respectively. The increase resulted primarily from the inclusion of USI's $9,450 in professional fees from the acquisition on January 30, 2020 to March 31, 2020.

Depreciation and Amortization

Depreciation and amortization expense was $115,268 and $25,655 for the three months ended March 31, 2020 and 2019, respectively. The increase resulted primarily from the inclusion of USI's $89,777 in depreciation and amortization expense from the acquisition on January 30, 2020 to March 31, 2020 that relates to USI's intangible assets and property, plant and equipment.





Goodwill Impairment Loss

Due to a sustained decline in the market capitalization of our common stock during the first quarter of 2020, we performed an interim goodwill impairment test. Management considered that, along with other possible factors affecting the assessment of the Company's reporting unit for the purposes of performing a goodwill impairment assessment, including management assumptions about expected future revenue forecasts and discount rates, changes in the overall economy, trends in the stock price, estimated control premium, other operating conditions, and the effect of changes in estimates and assumptions that could materially affect the determination of fair value and goodwill. As a result of the significant decline in the current market capitalization despite any of the other positive factors contemplated and relatively little change in our ongoing business operations, the outcome of this goodwill impairment test resulted in a charge for the impairment of goodwill of $159,187 in the three months ended March 31, 2020.





Other Expense

The Company had net other expense of $7,424 and $854,796 for the three months ended March 31, 2020 and 2019, respectively. The large change is due to the 2019 disposition of the investment in A.J.D. Data Services and the 2019 loss from a change in the fair market liability of a derivative liability that existed at that time.





Net Loss

The Company had a net loss of $328,902 and $884,041 for the three months ended March 31, 2020 and 2019. The decrease in net loss in the current year primarily resulted from the decrease in other expense, which was partially offset by the inclusion of USI's net result following the acquisition on January 30, 2020 through March 31, 2020.






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Liquidity and Capital Resources

As of March 31, 2020, we had total current assets of $171,396 and current liabilities of $656,256 creating a working capital deficit of $484,860. As of December 31, 2019, we had $13,140 of cash, total current assets of $47,771 and current liabilities of $267,553 creating a working capital deficit of $219,782.

Net cash used in operating activities was $19,527 during the three months ended March 31, 2020 compared to $112,979 for the same period in 2019.

Net cash used in investing activities was $1,911 during the three months ended March 31,, 2020 compared to $0 for the same period in 2019.

During the three months ended March 31, 2020, the Company generated $9,466 cash from financing activities. During the three months ended March 31, 2019, the Company generated $146,407 of cash from financing activities that was the proceeds of advances from related parties, net of repayments.





Going Concern

We had an accumulated deficit of $4,653,230 and a working capital deficit of $219,782 as of December 31, 2019. These matters raise substantial doubt about our ability to continue as a going concern. Continuation of our existence depends upon our ability to obtain additional capital. Our plans in regards to this matter include raising additional equity financing and borrowing funds under a private credit facility and/or other credit sources. Issuances of additional shares will dilute the ownership of our existing shareholders. There is no assurance that we will achieve any additional sales of our equity securities or arrange for debt or other financing to fund our planned operations.

Our unaudited condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles applicable to a going concern. This contemplates the realization of assets and the liquidation of liabilities in the normal course of business. Currently, we have limited cash, and an accumulated deficit of $4,653,230. These factors raise substantial doubt about our ability to continue as a going concern. We will be dependent upon the raising of additional capital through placement of our common stock in order to implement its business plan, or merge with an operating company. There can be no assurance that we will be successful in either situation in order to continue as a going concern. Our officers and directors have demonstrated a willingness to advance funds to us to be used to pay certain of our operating costs.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.

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