(The accompanying notes are an integral part of these condensed consolidated financial statements)
(The accompanying notes are an integral part of these condensed consolidated financial statements)
(The accompanying notes are an integral part of these condensed consolidated financial statements)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2017 AND 2016
Note 1 Organization and Nature of Operations
MediXall Group, Inc. (formerly Continental Rail Corp.) (the "Company or MediXall) was incorporated on December 21, 1998 under the laws of the State of Nevada under the name of IP Gate, Inc. In 2002, IP Gate, Inc. changed its name to Action Stocks, Inc. and on June 23, 2003, Action Stocks, Inc. changed its name to Specialized Home Medical Services, Inc. Through December 2006 the Company was in the durable medical equipment business through its subsidiary Classic Health, and from January 3, 2006 to June 30, 2009 was in the business of cataloguing and valuing stamps through its South East Stamp Sales subsidiary. On October 29, 2007, Specialized Home Medical Services, Inc. changed its name to IGSM Group, Inc. During 2011 and 2012 the Company focused on researching and identifying potential merger and acquisition opportunities for investment and operating. In December 2012, the Company contracted the services of TBG Holdings Corporation ("TBG") who assisted with restructuring the Company into a short line and regional freight railroad holding company and on July 10, 2013 the Company changed its name to Continental Rail Corp.
On June 19, 2015, the Company entered into an agreement (Agreement) with Continental Rail, LLC (LLC), a Florida limited liability company, and the Series A Preferred Shareholders of the Company. The Company was actively seeking to secure financing for the purchase of the Delta Southern Railroad (Delta), a Class III short-line railroad headquartered in Tallulah, Louisiana. Delta was subsequently purchased by Golden Gate Capital (Golden Gate), a private equity firm in San Francisco, California. Golden Gate decided that it was in its best interest to utilize the railroad operations management skills of certain Preferred Shareholders of the Company to manage the daily operations of Delta (the Manager). By the terms of the Agreement, however the Delta Manager cannot be owned (more than 10%) or controlled by a public company. Consequently, the LLC was organized by the Preferred Shareholders as the vehicle to manage Delta and satisfy the conditions set forth in the agreement. In conjunction with this transaction the Company received a 10% interest in the LLC and the preferred shareholders returned their preferred shares to the Company for cancelation.
On June 24, 2016, the Company entered into a share exchange agreement with TBG where the Company exchanged 100% of its membership interest in the LLC in exchange for 66,667 shares of the Company held by TBG. The exchange of the LLC interest was facilitated for the Companys pursuit of future acquisitions and/or mergers with other public and/or private entities that would expand its opportunities to create value for the Companys shareholders. The 66,667 common shares were cancelled.
On November 22, 2016, the Company a) changed its name from Continental Rail Corp. to MediXall Group, Inc. to reflect a change in our business model to a Healthcare Incubator of development-stage healthcare technology companies; and b) effected a 1 for 15 reverse stock split of the Companys issued and outstanding common stock, reducing the number of common shares outstanding from 38,921,911 to 2,595,379 of which approximately 85% was controlled by related parties. No preferred shares were outstanding at the time of the Merger discussed below.
On December 13, 2016 the Company, completed a
Share Exchange Agreement and Plan of Reorganization (the Merger) with IHL of Florida, Inc., a Florida corporation (IHL) established in April, 2016 and under our common control. Pursuant to the Merger, IHL shareholders transferred to the Company all their issued and outstanding shares of capital stock. In exchange, the Company issued 41,131,000 shares of common stock to IHL shareholders, including 18,599,750 shares issued to common control parties and 264,894 shares of Series A Preferred Stock, all issued to common control parties, and convertible into 24,900,000 shares of common stock. The share issuances represent approximately 94.1% of the total issued and outstanding shares of common stock of the Company post-closing. As a result, the Company (i) became the 100% parent of IHL; (ii) assumed the operations of IHL; and (iii) changed its name from Continental Rail Corp. to MediXall Group, Inc.
Due to the common control of IHL and the Company, pursuant to ASC 805-50-25, Transactions Between Entities Under Common Control and other SEC guidance including for lack of economic substance, the Merger was accounted for as a transfer of the carrying amounts of assets and liabilities under the predecessor value method of accounting. Financial statement presentation under the predecessor values method of accounting as a result of a business combination between entities under common control requires the receiving entity (i.e., the Company) to report the results of operations as if both entities had always been combined. The consolidated financial statements include both entities full results since the inception of IHL in April, 2016.
The Company has wholly-owned subsidiaries; IHL of Florida, Inc. (a Florida corporation),
Medixall Financial Group (a Florida corporation), and Medixaid, Inc. Medixaid, Inc. has a wholly-owned subsidiary, Medixaid Provider Network, Inc.
4
MEDIXALL GROUP, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2017 AND 2016
Note 2 Going Concern
The Company began generating revenue through its Medixall Financial Group subsidiary in the third quarter. The Company has not generated any revenue during 2016. The Company has an accumulated deficit of $6,803,647 as of September 30, 2017, and does not have sufficient operating cash flows. The accompanying condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America, which contemplates continuation of the Company as a going concern, which is dependent upon the Companys ability to establish itself as a profitable business.
In its report with respect to the Companys financial statements for the years ended December 31, 2016 and 2015, the Companys independent auditors expressed substantial doubt about the Companys ability to continue as a going concern. Because the Company has not yet generated revenues from its planned operations, its ability to continue as a going concern is wholly dependent upon its ability to obtain additional financing. Since inception, the Company has funded operations through short-term borrowings, related party loans, and the proceeds from equity sales in order to meet its strategic objectives. The Company's future operations are dependent upon its ability to generate revenues along with additional external funding as needed. However, there can be no assurance that the Company will be able to obtain sufficient funds to continue the development of its business plan.
In view of these conditions, the ability of the Company to continue as a going concern is in substantial doubt and dependent upon achieving a profitable level of operations and on the ability of the Company to obtain necessary financing to fund ongoing operations. These consolidated financial statements do not give effect to any adjustments which will be necessary should the Company be unable to continue as a going concern and therefore be required to realize its assets and discharge its liabilities in other than the normal course of business and at amounts different from those reflected in the accompanying consolidated financial statements.
Note 3 Summary of Significant Accounting Policies
Principles of Consolidation
These condensed consolidated financial statements presented are those of the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated.
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 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.
Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate could change in the near term due to one or more future non-conforming events. Accordingly, the actual results could differ significantly from estimates.
Risks and Uncertainties
The Company's operations are subject to significant risks and uncertainties including financial, operational and regulatory risks, including the potential risk of business failure.
Cash and Cash Equivalents
The Company maintains a cash balance at one financial institution. Cash and cash equivalents includes highly liquid investments with original maturities of three months or less.
5
MEDIXALL GROUP, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2017 AND 2016
Furniture and equipment, net
Furniture and equipment are carried at cost, less accumulated depreciation and amortization. Major improvements are capitalized, while repair and maintenance are expensed when incurred. Renewals and betterments that materially extend the life of the assets are capitalized. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in income for the period.
Depreciation is computed for financial statement purposes on a straight-line basis over estimated useful lives of the related assets. The estimated useful lives of depreciable assets are:
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|
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|
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|
Estimated
|
|
|
|
Useful Lives
|
|
|
|
|
|
Equipment
|
|
5-10 years
|
|
Furniture
|
|
5 - 7 years
|
|
For federal income tax purposes, depreciation is computed under the modified accelerated cost recovery system. For book purposes, depreciation is computed under the straight-line method.
The furniture and equipment were purchased at the end of the quarter, therefore no depreciation has been recorded for the nine months ended September 30. 2017.
Fair Value Measurement
The Company measures fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The Company utilizes a three-tier hierarchy which prioritizes the inputs used in the valuation methodologies in measuring fair value:
Level 1. Valuations based on quoted prices in active markets for identical assets or liabilities that an entity has the ability to access. The Company has no assets or liabilities valued with Level 1 inputs.
Level 2. Valuations based on quoted prices for similar assets or liabilities, quoted prices for identical assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities. The Company has no assets or liabilities valued with Level 2 inputs.
Level 3. Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The Company has no assets or liabilities valued with Level 3 inputs.
Fair Value of Financial Instruments
The carrying value of cash and cash equivalents, accounts payable and accrued expenses approximate their fair value because of the short-term nature of these instruments and their liquidity. Management is of the opinion that the Company is not exposed to significant interest or credit risks arising from these financial instruments.
6
MEDIXALL GROUP, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2017 AND 2016
Basis of Presentation
The unaudited financial statements of Medixall Group, Inc. (the Company) as of September 30, 2017, and for the nine months ended September 30, 2017 and 2016, have been prepared in accordance with generally accepted accounting principles (GAAP) in the United States for interim financial reporting and include the Companys wholly-owned subsidiaries, IHL of Florida, Inc., Medixall Financial Group (a Florida corporation), and Medixaid, Inc. Medixaid, Inc. has a wholly-owned subsidiary, Medixaid Provider Network, Inc. Accordingly, they do not include all of the disclosures required by accounting principles generally accepted in the United States for complete financial statements and should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2016, as filed with the Securities and Exchange Commission (the SEC) as part of the Companys Form 10-K. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of the interim financial information have been included. The Company did not record an income tax provision during the periods presented due to net taxable losses. The results of operations for any interim period are not necessarily indicative of the results of operations for the entire year.
Income Taxes
The Company accounts for income taxes using the liability method prescribed by ASC 740, "Income Taxes". Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the year in which the differences are expected to reverse. The Company records a valuation allowance to offset deferred tax assets if based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized as income or loss in the period that includes the enactment date.
Pursuant to accounting standards related to the accounting for uncertainty in income taxes, the evaluation of a tax position is a two-step process. The first step is to determine whether it is more likely than not that a tax position will be sustained upon examination, including the resolution of any related appeals or litigation based on the technical merits of that position. The second step is to measure a tax position that meets the more- likely-than-not threshold to determine the amount of benefit to be recognized in the financial statements. A tax position is measured at the largest amount of benefit that is greater than 50% likelihood of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than -not recognition threshold should be recognized in the first subsequent period in which the threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not criteria should be de- recognized in the first subsequent financial reporting period in which the threshold is no longer met. The accounting standard also provides guidance on de- recognition, classification, interest and penalties, accounting in interim periods, disclosures, and transition.
Revenue Recognition
The Company follows the guidance of the Securities and Exchange Commission's Staff Accounting Bulletin No. 104 for revenue recognition.
The Company records revenue when all of the following have occurred; (1) persuasive evidence of an arrangement exists, (2) service delivery has occurred, (3) the sales price to the customer is fixed or determinable, and (4) collectability is reasonably assured.
Revenue is recognized at point of sale, with no further obligations.
Share Based Payment Arrangements
The Company applies the fair value method of ASC 718
"Share Based Payment",
in accounting for its stock based compensation. This standard states that compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. The Company values the stock based compensation at the market price for the Company's stock as of the date of issuance.
7
MEDIXALL GROUP, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2017 AND 2016
Net Loss Per Share
The computation of basic earnings per share (EPS) is based on the weighted average number of shares that were outstanding during the period, including shares of common stock that are issuable at the end of the reporting period. The computation of diluted EPS is based on the number of basic weighted-average shares outstanding plus the number of common shares that would be issued assuming the exercise of all potentially dilutive common shares outstanding using the treasury stock method. The computation of diluted net income per share does not assume conversion, exercise or contingent issuance of securities that would have an antidilutive effect on earnings per share. Therefore, when calculating EPS if the Company experienced a loss, there is no inclusion of dilutive securities as their inclusion in the EPS calculation is antidilutive. Furthermore, options and warrants will have a dilutive effect under the treasury stock method only when the average market price of the common stock during the period exceeds the exercise price of the options or warrants (they are in the money).
Following is the computation of basic and diluted net loss per share for the nine months ended September 30, 2017 and 2016:
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Nine Months Ended
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September 30,
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2017
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2016
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Basic and Diluted EPS Computation
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Numerator:
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Loss available to common stockholders'
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$
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(1,108,673
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)
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$
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(422,560
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)
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Denominator:
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Weighted average number of common shares outstanding
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52,098,529
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2,595,379
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Basic and diluted EPS
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$
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(0.02
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)
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$
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(0.16
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)
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Applicable Accounting Guidance
The Company reviews new accounting standards as issued. Although some of these accounting standards issued or effective after the end of the Companys previous fiscal year may be applicable, the Company has not identified any standards that the Company believes merit discussion. The Company believes that none of the new standards will have a significant impact on the financial statements.
Note 4 Website and Development Costs
In accordance with ASC 350-40 Intangibles Goodwill and other Internal-use Software, internal and external costs incurred to develop, the internal-use computer software during the application and development stage shall be capitalized subsequent to the preliminary project stage and when it is probable that the project will be completed. As of September 30, 2017, the Company has met the capitalization standards of ASC 350-40 and has incurred $100,694 in costs related to the development of the Medixaid platform. The Company is currently conducting early beta test procedures with and expected launch date of December 2017.
8
MEDIXALL GROUP, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2017 AND 2016
Note 5
Stockholders Equity (Deficit)
During the nine months ended September30, 2017, we entered into the following securities related transactions:
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·
|
retired 66,667 shares of common stock that were returned to the Company and retired in exchange for the Company
’
s 10% ownership in Continental Rail, LLC (previously included in common stock payable);
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·
|
issued 7,811,250 shares of restricted common stock payable valued at $781,125 from 2016 (previously included in common stock payable);
|
·
|
issued 34,761,000 shares of common stock in connection with the Share Exchange Agreement and Plan of Reorganization (the
“
Merger
”
) with IHL of Florida, Inc., a Florida corporation (IHL) which was established in April, 2016 and under common control. Pursuant to the Merger, IHL shareholders transferred to the Company all their issued and outstanding shares of capital stock. In exchange, the Company agreed to issue 41,131,000 (of which 6,370,000 shares were included in the restricted shares payable at December 31, 2016) of common stock to IHL shareholders, including 18,599,750 shares issued to common control parties and 264,894 shares of Series A Preferred Stock, all issued to common control parties, and convertible into 24,900,000 shares of common stock. The share issuances represented approximately 94.1% of the total issued and outstanding shares of common stock of the Company post-closing at the time of the transaction.
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·
|
Received proceeds of $1,779,135 pursuant to a Private Placement Memorandum and for which 11,844,000 shares of restricted common stock were issued.
|
During the year ended December 31, 2016, we entered into the following securities related transactions:
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·
|
recorded a $25,000 equity receivable for 66,667 shares of common stock to be returned to the Company and retired in exchange for the Company
’
s 10% ownership in Continental Rail, LLC (subsequently retired);
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·
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effected a one-for-fifteen reverse stock split reducing the number of common shares outstanding from 38,921,911 to 2,595,379;
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·
|
Received proceeds of $781,125 of proceeds pursuant to a Private Placement Memorandum and for which 7,811,250 shares (valued at $.10 per share) of restricted common stock are payable (subsequently issued).
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·
|
On December 13, 2016, in connection with the Merger, the company issued 264,894 shares of Series A Convertible Preferred stock, convertible into 24,900,000 shares of common stock, in equal amounts to each of Timothy Hart our CFO, Neil Swartz, our Interim President and Noel Guillama our Chairman.
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Note 6 Related Party Transactions
Pursuant to an agreement dated June 2013, TBG Holdings Corp., of which Timothy Hart our Chief Financial Officer and Neil Swartz our Interim Chief Executive Officer are principals, was engaged to provide business advisory services, manage and direct our public relations, provide recruiting services, develop and maintain material for market makers and investment bankers, provide general administrative services, and respond to incoming investor relations calls. Under this agreement, we agreed to pay TBG a first months fee of $25,000 and thereafter a monthly fee of $10,000. Additionally, TBG was providing similar services to IHL of Florida, Inc. prior to the Merger at a rate of $25,000 per month. The original agreement was suspended and the agreement with IHL of Florida, Inc. remains in effect. During the nine months ended September 30, 2017 and 2016, the Company expensed $230,000 and $240,000, respectively, of related party management fees related to this agreement. Additionally, TBG has provided working capital to the Company to cover operating expenses. As of September 30, 2017, and December 31, 2016, the Company owed TBG approximately $ $294,000 and $431,000, respectively. Its been determined that the amount of related party fees are in accordance with the fair market value of like kind services. These amounts are included on the balance sheet under Accounts payable and accrued expenses - related party.
On December 13, 2016, in connection with the Merger, the company issued 264,894 shares of Series A Convertible Preferred stock, convertible into 24,900,000 shares of common stock, in equal amounts to each of Timothy Hart, CFO; Neil Swartz, Interim CEO; and Noel Guillama, Chairman. Additionally, the Company agreed to issue 17,599,750 to TBG Holdings and 1,000,000 shares of common stock to Noel Guillama, respectively, as part of the Merger which were ultimately issued subsequent to December 31, 2016.
9
MEDIXALL GROUP, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2017 AND 2016
R3 Accounting LLC, owned by Mr. Hart our Chief Financial officer, provides accounting, tax and bookkeeping services to the Company. During the nine months ended September 30, 2017 and 2016, R3 Accounting provided $60,000 and $10,965, respectively, of services. At September 30, 2017 and December 31, 2016, we owed R3 Accounting $72,031 and $117,530, respectively, and it is included on the balance sheet under Accounts payable and accrued expenses - related party.
Note 7 Pending Legal Matters
In January 2014 the Company was named as a co-defendant in a civil law proceeding in Broward County Florida. The complaint alleges a contract dispute between the Company's major shareholders' and various parties that are unrelated to the Company. The plaintiffs alleged the Company engaged in a breach of fiduciary duty, tortious interference with business relations and a fraudulent transfer of assets. The management plans a vigorous defense and it believes there is no basis for these allegations. Management is also exploring possible counterclaims against the plaintiffs. The Company's legal counsel has opined that an unfavorable outcome of this case is deemed remote and any possible loss is deemed immaterial. No adjustment has been reflected on the financial statements regarding this matter.
As of September 30, 2017 there has been no new development in this matter.
Note 8 Subsequent Events
Subsequent to September 30, 2017 the Company has issued 851,500 shares of common stock pursuant to a Private Placement Memorandum for $130,000.
Management has reviewed material events subsequent to the quarterly period ended September 30, 2017 and prior to the filing of financial statements in accordance with FASB ASC 855 Subsequent Events. There were no additional disclosures deemed necessary.
10
ITEM 2.