ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary Statement Concerning Forward-Looking Statements
This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties and are based on the beliefs and assumptions of management and information currently available to management. The use of words such as “believes”, “expects”, “anticipates”, “intends”, “plans”, “estimates”, “should”, “likely” or similar expressions, indicates a forward-looking statement.
The identification in this report of factors that may affect our future performance and the accuracy of forward-looking statements is meant to be illustrative and by no means exhaustive. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty.
Factors that could cause our actual results to differ materially from those expressed or implied by forward-looking statements include, but are not limited to:
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Trends affecting the Company’s financial condition, results of operations, or future prospects;
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The Company’s business and growth strategies;
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The Company’s financing plans and forecasts;
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The factors that we expect to contribute to our success and the Company’s ability to be successful in the future;
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The Company’s business model and strategy for realizing positive results as sales increase;
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Competition, including the Company’s ability to respond to such competition and its expectations regarding continued competition in the market in which the Company competes;
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The Company’s ability to meet its projected operating expenditures and the costs associated with development of new projects;
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The Company’s ability to pay dividends or to pay any specific rate of dividends, if declared;
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The impact of new accounting pronouncements on its financial statements;
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That the Company’s cash flows from operating activities will be sufficient to meet its projected operating expenditures for the next twelve months;
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The Company’s market risk exposure and efforts to minimize risk;
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Development opportunities and its ability to successfully take advantage of such opportunities;
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Regulations, including anticipated taxes, tax credits or tax refunds expected;
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The outcome of various tax audits and assessments, including appeals thereof, timing of resolution of such audits, the Company’s estimates as to the amount of taxes that will ultimately be owed and the impact of these audits on the Company’s financial statements;
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The Company’s overall outlook including all statements under
Management’s Discussion and Analysis or Plan of Operation;
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That estimates and assumptions made in the preparation of financial statements in conformity with US GAAP may differ from actual results; and
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Expectations, plans, beliefs, hopes or intentions regarding the future.
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The following discussion and analysis was prepared to supplement information contained in the accompanying consolidated financial statements and is intended to provide certain details regarding the Company’s financial condition as of April 30, 2018, and the results of operations for the three and nine months ended April 30, 2018. It should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto contained in this report as well as the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal years ended July 31, 2017 and 2016.
Overview
Concrete Leveling Services, Inc. (“we”, “us”, “our” or the “Company”) was incorporated on August 28, 2007 in the State of Nevada. The Company's principal offices are located at 5046 East Boulevard Northwest, Canton, Ohio 44718. In Ohio, the Company does business under the trade name of CLS Fabricating, Inc. CLS has never declared bankruptcy, it has never been in receivership, and it has never been involved in any legal action or proceedings.
On March 24, 2017, we entered into an Equity Purchase Agreement, whereby we acquired all the outstanding common stock of Jericho Associates, Inc. (“Jericho”), a company operating in the gaming, hospitality and entertainment industries, in exchange for 7,151,416 shares of our common stock. The Equity Purchase Agreement provided that by September 24, 2017, if the management of Jericho does not identify at least one entity or business opportunity for acquisition, in order to supplement the Company’s current business operations, the shares issued as part of the agreement shall be returned to the Company. On September 22, 2017, the Company and Jericho mutually agreed to extend the performance requirement until December 24, 2017. On November 9, 2017, the Company and Jericho mutually agreed to extend the performance requirement until March 1, 2018. In July 2017, an additional 481,000 shares were issued to shareholders of Jericho under the same contingencies as the original shares.
On February
25,
2018
,
Jericho identified
the
acquisition of 50%
interests
in
two
LLCs (the “LLCs”).
The
LLCs
have a Term Sheet
agreement to
develop a casino
and
hotel resort
,
and provide certain gaming
equipment
on a shared profit basis
.
The
contemplated
$300mil+
project
is
in the process of
r
egulatory
r
e
view, finalization of closing documents, and completion of
financing
.
Notwithstanding
the
identification
of the bus
i
ness opportunity
the
shares
issued
to
Jericho remain con
tingen
t upon
the
regulatory review, the
finalization of closing documentation
,
and
th
e
completion of financing arrangements for the project.
Also, upon the regulatory review, the finalization of closing documentation, and the completion of financing arrangements for the project, the Company’s President will cancel all shares of common stock held (879,167 shares as of April 30, 2018), the Company’s Chief Executive Officer will cancel all but 523,000 shares of its common stock held (2,951,667 shares as of April 30, 2018), subject to an 18-month non-dilution right in order to maintain an ownership percentage of 4.99% in the Company, and the Company’s Secretary will cancel all but 45,000 shares of common stock held (185,000 shares as of April 30, 2018).
Due to the merger, the Company will now operate two business divisions, which will be operated simultaneously and consist of the following:
The concrete leveling division of the business will fabricate and market a concrete leveling service unit utilized in the concrete leveling industry. This unit secures to the back of a truck and consists of a mixing device to mix lime with water and a pumping device capable of pumping the mixture under pressure into pre-drilled holes in order to raise the level of any flat concrete surface.
The gaming and hospitality division of the business will focus on casino gaming, hospitality, entertainment and leisure time industries, and will pursue opportunities in the tribal and commercial casino gaming industries, both in California and Nevada. The Company will also operate in the casino gaming technology industry, and is seeking opportunities to partner, joint venture, or acquire companies developing casino games that combine traditional casino games with the challenge of video games and the playability of social games, meaning games that pit the player’s skill against the skill of another player as opposed to the casino itself.
For the Three and Nine Months Ended April 30, 2018 Compared to the Three and Nine Months Ended April 30, 2017
The Company generated $600 in revenue for the three-month period ended April 30, 2018, which compares to revenue of $263 for the three-month period ended April 30, 2017. Our revenues increased during the three-month period ended April 30, 2018 due to increased sales of our concrete leveling equipment and parts.
The Company generated $2,610 in revenue for the nine-month period ended April 30, 2018, which compares to revenue of $650 for the nine-month period ended April 30, 2017. Our revenues increased during the nine-month period ended April 30, 2018 due to increased sales of our concrete leveling equipment and parts.
Cost of sales for the three-month period ended April 30, 2018 was $211, which compares to cost of sales of $90 for the three-month period ended April 30, 2017. Our revenues increased during the three months ended April 30, 2018, which resulted in a similar adjustment to our cost of sales during the period.
Cost of sales for the nine-month period ended April 30, 2018 was $1,671 which compares to cost of sales of $200 for the nine-month period ended April 30, 2017. Our revenues increased during the nine months ended April 30, 2018, which resulted in a similar adjustment to our cost of sales during the period.
Operating expenses, which consisted of selling, general and administrative expenses for the three-month period ended April 30, 2018, were $2,613. This compares with operating expenses for the three-month period ended April 30, 2017 of $4,569. Our operating expenses decreased during the three-month period ended April 30, 2018 due to a decrease in our professional fees.
Operating expenses for the nine-month period ended April 30, 2018, were $35,868. This compares with operating expenses for the nine-month period ended April 30, 2017 of $30,529. Our operating expenses increased during the nine-month period ended April 30, 2018 due to an increase in our professional fees and advertising expenses.
As a result of the foregoing, we had a net loss of $2,478 for the three-month period ended April 30, 2018. This compares with a net loss of $4,247 for the three-month period ended April 30, 2017. Net loss was $34,980 for the nine months ended April 30, 2018, compared to a net loss of $29,627 for the nine months ended April 30, 2017
In its audited financial statements as of July 31, 2017, the Company was issued an opinion by its auditors that raised substantial doubt about the ability to continue as a going concern based on the Company's current financial position. Our ability to achieve and maintain profitability and positive cash flow is dependent upon our ability to successfully develop and market our products and our ability to generate revenues.
Liquidity and Capital Resources
As of April 30, 2018, we had cash or cash equivalents of $332. As of July 31, 2017, we had cash or cash equivalents of $0.
We believe that with our existing cash flows, we do not have sufficient cash to meet our operating requirements for the next twelve months. We believe that with the addition of our gaming and hospitality business, we will begin to generate increased revenue over the 2018 fiscal year. However, if our revenue is not sufficient to allow us to meet our cash requirements during the next twelve months, the Company may need to raise additional funds through the sale of debt or equity securities. We cannot guarantee that we will be successful in generating sufficient revenues or other funds in the future to cover these operating costs. Failure to generate sufficient revenues or additional financing when needed could cause us to go out of business.
Net cash used in operating activities for the nine months ended April 30, 2018 was $67,550. This compares to net cash used in operating activities of $26,480 for the nine months ended April 30, 2017. This change is primarily due to a decrease in our accounts payable.
Cash flows from investing activities were $0 for the nine-month period ended April 30, 2018 and $498 for the nine-month period ended April 30, 2017. The change in cash flows from investing activities was primarily due to decreases in payments on notes receivable. We do not anticipate significant cash outlays for investing activities over the next twelve months.
Cash flows provided by financing activities was $67,902 for the nine-month period ended April 30, 2018 which compares to cash flows provided by financing activities of $26,200 for the nine-month period ended April 30, 2017. The change in cash flows provided by financing activities is due to an increase in advances from stockholders during the nine-month period ended April 30, 2018. We anticipate significant increases in cash flows provided by financing activities during the next 12 months, as we intend to raise capital through either debt or equity securities to fund both divisions of our business.
As of April 30, 2018, our total assets were $24,393 and our total liabilities were $288,793. As of July 31, 2017, our total assets were $26,766 and our total liabilities were $291,672.
Critical Accounting Policies and Estimates
We believe that the following critical policies affect our more significant judgments and estimates used in preparation of our financial statements.
We disclose those accounting policies that we consider to be significant in determining the amounts to be utilized for communicating our consolidated financial position, results of operations and cash flows in the first note to our consolidated financial statements included elsewhere herein. Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of financial statements in conformity with these principles requires management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Actual results are likely to differ from these estimates, but management does not believe such differences will materially affect our financial position or results of operations.
Fair value estimates used in preparation of the financial statements are based upon certain market assumptions and pertinent information available to our management. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values. These financial instruments include cash, accounts receivable, accounts payable, accrued liabilities. Fair values were assumed to approximate carrying values for these financial instruments since they are short-term in nature and their carrying amounts approximate fair values or they are receivable or payable on demand.
We believe that the following accounting policies are the most critical because they have the greatest impact on the presentation of our financial condition and results of operations.
Use of Estimates
The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America 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 period. Actual results could differ from those estimates.
Going Concern
The Company was formed on August 28, 2007 and was in the development stage through July 31, 2009. The year ended July 31, 2010 was the first year during which it was considered an operating company. The Company has sustained substantial operating losses since its inception. In addition, the Company has used substantial amounts of working capital in its operations. Further, at April 30, 2018, our liabilities exceed our assets by $264,400.
The Company is of the opinion that funds being received from installment sales of its service units will provide a certain level of cash flow. Success will be dependent upon management’s ability to obtain future financing and liquidity, and success of its future operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. These financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Foreign Currency Transactions
None.
ITEM 3. – QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide this information
ITEM 4 – CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We maintain “disclosure controls and procedures”, as that term is defined in Rule 13a-15(e), promulgated by the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our company’s reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
As required by paragraph (b) of Rules 13a-15 under the Securities Exchange Act of 1934, our management, with the participation of our principal executive officer and our principal financial officer, evaluated our company’s disclosure controls and procedures as of the end of the period covered by this quarterly report on Form 10-Q. Based on this evaluation, our management concluded that as of the end of the period covered by this quarterly report on Form 10-Q, our disclosure controls and procedures were not effective.
Management Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over the Company's financial reporting. In order to evaluate the effectiveness of internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act of 2002. Our management, with the participation of our principal executive officer and principal financial officer have conducted an assessment, including testing, using the criteria in Internal Control – Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission ("
COSO
") (2013). Our system of internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. This assessment included review of the documentation of controls, evaluation of the design effectiveness of controls, testing of the operating effectiveness of controls and a conclusion on this evaluation. Based on this evaluation, management concluded that our internal control over financial reporting was not effective as of April 30, 2018. The ineffectiveness of the Company's internal control over financial reporting was due to the following material weaknesses, which are indicative of many small companies with small staff:
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(i)
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inadequate segregation of duties consistent with control objectives;
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(ii)
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lack of a code of ethics;
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(iii)
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lack of a whistleblower policy;
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(iv)
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lack of an independent board of directors or board committees related to financial reporting; and
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(iv)
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lack of multiple levels of supervision and review.
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We believe that the weaknesses identified above have not had any material effect on our financial results. While not being legally obligated to have an audit committee, it is our management’s view that such a committee, including an independent financial expert member, is an utmost important entity level control over the Company’s financial statements. Currently, the board of directors acts in the capacity of the audit committee. However, we are currently reviewing our disclosure controls and procedures related to these material weaknesses and expect to implement changes in the 2017 and 2018 fiscal years, including identifying specific areas within our governance, accounting and financial reporting processes to add adequate resources to potentially mitigate these material weaknesses.
Our management will continue to monitor and evaluate the effectiveness of our internal controls and procedures and our internal controls over financial reporting on an ongoing basis and is committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow.
Because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. 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 or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Management's Remediation Plan
The weaknesses and their related risks are not uncommon in a company of our size because of the limitations in the size and number of staff. Due to our size and nature, segregation of all conflicting duties has not always been possible and may not be economically feasible.
However, we plan to take steps to enhance and improve the design of our internal control over financial reporting. During the period covered by this quarterly report on Form 10-Q, we have not been able to remediate the material weaknesses identified above. To remediate such weaknesses, we plan to implement the following changes in the current fiscal year as resources allow:
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(i)
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appoint additional qualified personnel to address inadequate segregation of duties and implement modifications to our financial controls to address such inadequacies; and
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(ii)
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adopt a written whistleblower policy and code of ethics; and
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(iii)
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appoint an independent board of directors, including board committees related to financial controls and reporting.
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The remediation efforts set out herein will be implemented in the 2017 and 2018 fiscal years. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake.
Management believes that despite our material weaknesses set forth above, our financial statements for the three month period ended April 30, 2018 are fairly stated, in all material respects, in accordance with U.S. GAAP.
Changes in Internal Control Over Financial Reporting
There were no changes to our internal control over financial reporting during the nine month period ended April 30, 2018.
PART II – OTHER INFORMATION
ITEM 1 – LEGAL PROCEEDINGS
To the best of the Company’s knowledge and belief, no legal proceedings are currently pending or threatened.
ITEM 1A.
–
RISK FACTORS.
We are not required to provide this information as we are a Smaller Reporting Company.
ITEM 2
–
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
There were no unregistered sales of equity securities during this quarter.
ITEM 3
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DEFAULTS UPON SENIOR SECURITIES
There are no defaults upon any senior securities.
ITEM 4
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MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5
–
OTHER INFORMATION
None.
ITEM 6 – EXHIBITS
31.1
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Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Edward A. Barth.
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31.2
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Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Suzanne I. Barth.
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32
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Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Edward A. Barth. and Suzanne I. Barth.
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101.INS*
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XBRL Instance Document
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101.SCH*
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XBRL Taxonomy Schema
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101.CAL*
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XBRL Taxonomy Calculation Linkbase
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101.DEF*
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XBRL Taxonomy Definition Linkbase
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101.LAB*
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XBRL Taxonomy Label Linkbase
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101.PRE*
|
XBRL Taxonomy Presentation Linkbase
|
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*
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Furnished herewith. XBRL (eXtensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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CONCRETE LEVELING SYSTEMS, INC.
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Date: June 12, 2018
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By: /s/ Edward A. Barth
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Edward A. Barth, Principal Executive Officer
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Date: June 12, 2018
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By: /s/ Suzanne I. Barth
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Suzanne I. Barth, Principal Financial Officer
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