NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017
NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
–
BlackRidge Technology International, Inc. (the "Company" or, "we", "us", "our" and similar terminology) was incorporated under the laws of the State of Nevada on March 15, 2004 under the name "
Grote Molen, Inc."
The Company develops and markets next generation cyber defense solutions that stop cyber-attacks and block unauthenticated access. The Company's network and server security products are based on patented Transport Access Control technology (the "Blackridge Technology") and are designed to isolate, cloak and protect servers and cloud services and segment networks for regulatory compliance. The Company's products are used in enterprise and government computing environments, the industrial "internet of things" and other cloud service provider and network systems
On September 6, 2016, the Company entered into an agreement and plan of reorganization with BlackRidge Technology International, Inc., a Delaware corporation, and Grote Merger Co., a Delaware corporation providing for the Company's acquisition of BlackRidge in exchange for a controlling number of shares of the Company's preferred and common stock pursuant to the merger of Grote Merger Co. with and into BlackRidge, with BlackRidge continuing as the surviving corporation. The transaction contemplated in the agreement closed on February 22, 2017.
On July 2, 2017, the Company filed a Certificate to Accompany Restated Articles or Amended and Restated Articles with the Secretary of State of Nevada to, among other things, change the Company's name to BlackRidge Technology International, Inc.
On September 22, 2017, the Company formed a new business subsidiary called BlackRidge Secure Blockchain, Inc. to pursue new market opportunities for securing blockchain applications. On August 31, 2018, the Company filed for the dissolution of Blackridge Secure Blockchain Inc. after determining it would not be utilized.
On October 13, 2017, the Company formed a new business subsidiary called BlackRidge Secure Services, Inc. to work with partners on Secure Supervisory Control and Data Acquisition Systems ("SCADA") infrastructure and to design and deliver secure systems using BlackRidge Technology products for use by the utilities industry.
Principles of Consolidation
- The Company and its subsidiaries consist of the following entities, which have been consolidated in the accompanying financial statements:
BlackRidge Technology International, Inc.
BlackRidge Technology Holding, Inc.
BlackRidge Technology, Inc.
BlackRidge Technology Government, Inc.
BlackRidge Secure Services, Inc.
All intercompany balances have been eliminated in consolidation.
Basis of Presentation
– The accompanying consolidated financial statements as of September 30, 2018 and for the three and nine months ended September 30, 2018 and 2017 are unaudited. In the opinion of management, all adjustments have been made, consisting of normal recurring items, that are necessary to present fairly the consolidated financial position as of September 30, 2018 as well as the consolidated results of operations and cash flows for the three and nine months ended September 30, 2018 and 2017 in accordance with U.S. generally accepted accounting principles. The results of operations for any interim period are not necessarily indicative of the results expected for the full year. The interim consolidated financial statements and related notes thereto should be read in conjunction with the audited consolidated financial statements and related notes thereto for the year ended December 31, 2017.
Interim Financial Statements
– The accompanying financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In our opinion, the financial statements include all adjustments (consisting of normal recurring accruals) necessary in order to make the financial statements not misleading. Operating results for the three and nine months ended September 30, 2018 are not necessarily indicative of the final results that may be expected for the year ended December 31, 2018. For more complete financial information, these unaudited financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2017 filed with the SEC.
Use of Estimates
-
The preparation of 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, the disclosures 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 estimated by management.
Concentrations -
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and accounts receivable. The Company minimizes its credit risk associated with cash by periodically evaluating the credit quality of its primary financial institution. The cash balance at times may exceed federally insured limits. Management believes the financial risk associated with these balances is minimal and has not experienced any losses to date. At September 30, 2018 and December 31, 2017, the Company had cash balances in excess of FDIC insured limits of $2,029,987 and $169,751, respectively.
Significant customers are those which represent more than 10% of the Company's revenue for each period presented, or the Company's accounts receivable balance as of each respective balance sheet date. For each significant customer, revenue as a percentage of total revenue and accounts receivable as a percentage of total net accounts receivable are as follows:
|
Revenue
|
|
Accounts Receivable
|
|
|
Nine Months
Ended
September 30,
|
|
September 30,
|
|
Customers
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
Customer A
|
|
|
7
|
%
|
|
|
82
|
%
|
|
|
3
|
%
|
|
|
-
|
%
|
Customer B
|
|
|
77
|
%
|
|
|
-
|
%
|
|
|
35
|
%
|
|
|
-
|
%
|
Customer C
|
|
|
17
|
%
|
|
|
18
|
%
|
|
|
-
|
%
|
|
|
-
|
%
|
|
Revenue
|
|
|
Three Months
Ended September 30,
|
|
Customers
|
2018
|
|
2017
|
|
Customer A
|
|
|
1
|
%
|
|
|
41
|
%
|
Customer B
|
|
|
70
|
%
|
|
|
-
|
%
|
Customer C
|
|
|
29
|
%
|
|
|
59
|
%
|
Customer D
|
|
|
-
|
%
|
|
|
-
|
%
|
Inventory
- Inventory is valued at the lower of cost or market value. Product-related inventories are primarily maintained using the average cost method. When market value is determined to be less than cost, the Company records an allowance for obsolescence. The company's inventory assets at September 30, 2018 and December 31, 2017 consisted primarily of hardware appliances valued as follows:
|
|
As of
September 30,
2018
|
|
|
As of
December 31,
2017
|
|
Inventory
|
|
$
|
391,658
|
|
|
$
|
376,063
|
|
Less: allowance for obsolescence
|
|
|
(335,655
|
)
|
|
|
(335,655
|
)
|
|
|
$
|
56,003
|
|
|
$
|
40,408
|
|
Revenue Recognition
- We account for product revenue in accordance with Accounting Standards Codification 606, Revenue Recognition, and all related interpretations. Revenue is recognized when the following criteria are met:
·
|
Identification of the contract, or contracts, with a customer
|
|
|
·
|
Identification of the performance obligations in the contract
|
|
|
·
|
Determination of the transaction price
|
|
|
·
|
Allocation of the transaction price to the performance obligations in the contract
|
|
|
·
|
Recognition of revenue when, or as, we satisfy performance obligation
|
Revenue generally is recognized net of allowances for returns and any taxes collected from customers and subsequently remitted to governmental authorities.
Revenue recognition for multiple-element arrangements requires judgment to determine if multiple elements exist, whether elements can be accounted for as separate units of accounting, and if so, the fair value for each of the elements.
The Company may enter into arrangements that can include various combinations of software, services, and hardware. Where elements are delivered over different periods of time, and when allowed under U.S. GAAP, revenue is allocated to the respective elements based on their relative selling prices at the inception of the arrangement, and revenue is recognized as each element is delivered. We use a hierarchy to determine the fair value to be used for allocating revenue to elements: (i) vendor-specific objective evidence of fair value ("VSOE"), (ii) third-party evidence, and (iii) best estimate of selling price ("ESP"). For software elements, we follow the industry specific software guidance which only allows for the use of VSOE in establishing fair value. Generally, VSOE is the price charged when the deliverable is sold separately, or the price established by management for a product that is not yet sold if it is probable that the price will not change before introduction into the marketplace. ESPs are established as best estimates of what the selling prices would be if the deliverables were sold regularly on a stand-alone basis. Our process for determining ESPs requires judgment and considers multiple factors that may vary over time depending upon the unique facts and circumstances related to each deliverable.
Any revenue received that does not yet meet the above recognition standards is recorded to unearned revenue and held as a liability until recognition occurs.
Earnings (Loss) Per Share
– The basic computation of loss per share is based on the weighted average number of shares outstanding during the period presented in accordance with ASC 260, "Earnings Per Share". The computation of diluted earnings per common share is based on the weighted average number of shares outstanding during the period plus the common stock equivalents which would arise from the exercise of stock options and warrants outstanding using the treasury stock method and the average market price per share during the period. Common stock equivalents are not included in the diluted earnings per share calculation when their effect is antidilutive.
Share-Based Payments and Stock-Based Compensation
– Share-based compensation awards, including stock options and restricted stock awards, are recorded at estimated fair value on the applicable award's grant date, based on estimated number of awards that are expected to vest. The grant date fair value is amortized on a straight-line basis over the time in which the awards are expected to vest, or immediately if no vesting is required. Share-based compensation awards issued to non-employees for services are recorded at either the fair value of the services rendered or the fair value of the share-based payments whichever is more readily determinable. The fair value of restricted stock awards is based on the fair value of the stock underlying the awards on the grant date as there is no exercise price.
Property and Equipment -
Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization is computed on a straight-line basis over the estimated useful lives of the respective assets or, in the case of leasehold improvements, the remaining lease term, if shorter. When assets are retired or otherwise disposed of, the assets and related accumulated depreciation are removed, and the resulting gains or losses are recorded as part of other income or expense in the statements of operations. Repairs and maintenance costs are expensed as incurred.
The estimated useful lives of the property and equipment are as follows:
Property and Equipment
|
Estimated Useful Life
|
Building improvements
|
15 years
|
Furniture, fixtures and equipment
|
7 years
|
Computer equipment
|
5 years
|
Recently Issued Accounting Standards
- From time to time, new accounting pronouncements are issued by FASB that are adopted by the Company as of the specified effective date. If not discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on the Company's financial statements upon adoption.
In February 2016, the FASB issued ASU No. 2016-02,
Leases (Topic 842)
, which supersedes Topic 840,
Leases
("ASU 2016-02"). The guidance in this new standard requires lessees to put most leases on their balance sheets but recognize expenses on their income statements in a manner similar to the current accounting and eliminates the current real estate-specific provisions for all entities. The guidance also modifies the classification criteria and the accounting for sales-type and direct financing leases for lessors. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact of the adoption of ASU 2016-02.
NOTE 2 –GOING CONCERN
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. However, during the nine months ended September 30, 2018, the Company incurred a net loss of $11,841,419 and inception to date losses are equal to $61,737,795. These factors raise substantial doubt about the ability of the Company to continue as a going concern. In this regard, management is proposing to raise any necessary additional funds not provided by operations through investment capital. There is no assurance that the Company will be successful in raising this additional capital or in achieving profitable operations. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.
NOTE 3 – INTANGIBLE ASSETS
During the nine months ended September 30, 2018 and 2017, the Company capitalized $1,683,431 and $1,104,397, respectively, towards the development of software, intellectual property, and patent expenses.
The Company amortizes these costs over their related useful lives (approximately 7 to 20 years), using a straight-line basis. Fair value is determined through various valuation techniques, including market and income approaches as considered necessary. The Company reviews capitalized assets periodically for impairment any time there is a significant change that could lead to impairment, but not less than annually. The Company recorded amortization of $342,107 and $327,869 related to intangible assets during the nine months ended September 30, 2018 and 2017, respectively. The Company recorded amortization of $88,153 and $164,673 related to intangible assets during the three months ended September 30, 2018 and 2017, respectively.
NOTE 4 – NOTES PAYABLE
Short term notes
At September 30, 2018 and December 31, 2017, the Company had outstanding short-term debt totaling $45,232 and $50,232, respectively. These notes bear interest at the rates of between 10% and 12% annually and have maturity dates ranging from January 1, 2012 through December 31, 2014. As some of these notes have exceeded their initial maturity dates, they are subject to the default interest rate of 15% per annum.
The following table summarizes the Company's short-term notes payable for the nine months ended September 30, 2018 and the year ended December 31, 2017:
|
|
September 30,
2018
|
|
|
December 31,
2017
|
|
Beginning Balance
|
|
$
|
50,232
|
|
|
$
|
89,221
|
|
Notes acquired in business acquisition
|
|
|
-
|
|
|
|
208,811
|
|
Repayments – continuing operations
|
|
|
(5,000
|
)
|
|
|
(38,989
|
)
|
Repayments – discontinued operations
|
|
|
-
|
|
|
|
(53,132
|
)
|
Notes divested in disposal of discontinued operations
|
|
|
-
|
|
|
|
(155,679
|
)
|
Ending Balance
|
|
$
|
45,232
|
|
|
$
|
50,232
|
|
Short term notes – related party
On January 31, 2018, the Company's Chief Technology Officer and significant shareholder invested $500,000 via a one year note bearing interest at 8% annually. In conjunction with this note, the Company issued 5 year detachable warrants to purchase 1,562,500 shares of the Company's common stock at $0.50 per share. These warrants were valued at $172,542 using the Black-Scholes pricing model and were recorded as a discount to the note. The note carries a default rate of 18% for any principal not paid by the maturity date. On September 30, 2018, the note along with interest of $29,712 was converted into 2,118,849 shares of the Company's common stock at a rate of $0.25 per share. Additionally, as part of the conversion, additional warrants to purchase 437,500 shares of common stock were issued and all warrants related to this note were repriced to reflect an exercise price of $0.25 per share. The value of these additional warrants and the lowered conversion totaled $58,250 which the Company recorded as a loss on extinguishment of debt.
Long term notes
On November 2, 2016, the Company entered into settlement agreements with two holders of convertible debt and other payables in which the Company agreed to issue new long-term debt agreements as settlement of amounts due. Pursuant to these agreements, the Company issued two non-interest bearing $600,000 notes payable in 36 equal monthly installments of $16,667 beginning on January 1, 2017 and maturing on December 1, 2019.
The following table summarizes the Company's long-term notes payable for the nine months ended September 30, 2018 and the year ended December 31, 2017:
|
|
September 30,
2018
|
|
|
December 31,
2017
|
|
Beginning Balance
|
|
$
|
766,658
|
|
|
$
|
1,200,000
|
|
Notes acquired in business acquisition
|
|
|
-
|
|
|
|
136,830
|
|
Repayments – continuing operations
|
|
|
(300,001
|
)
|
|
|
(433,342
|
)
|
Repayments – discontinued operations
|
|
|
-
|
|
|
|
(1,603
|
)
|
Notes divested in disposal of discontinued operations
|
|
|
-
|
|
|
|
(135,227
|
)
|
Ending Balance
|
|
$
|
466,567
|
|
|
$
|
766,658
|
|
Short Term Portion of Long Term Debt
|
|
$
|
400,000
|
|
|
$
|
400,000
|
|
Long Term Debt
|
|
$
|
66,657
|
|
|
$
|
366,658
|
|
NOTE 5 – CONVERTIBLE NOTES
Short term convertible notes
On January 31, 2018, the Company issued a $100,000 convertible note bearing interest at 9% per annum. The note matures on February 28, 2019 and is convertible into the Company's Series B Preferred Stock at a price of $0.32 per share at the holder's request. The Company has determined the note to contain a beneficial conversion feature valued at $46,991 based on the intrinsic per share value of the conversion feature. This beneficial conversion feature is recorded as a discount to the debt agreement. The noteholder was also granted detachable 5 year warrants to purchase an aggregate of 312,500 shares of the Company's common stock at an exercise price of $0.32 per share. The warrants were valued at $46,991 using the Black-Scholes pricing model and were recorded as a discount to the note. At September 30, 2018, the principal balance was still outstanding and is included on the Company's consolidated balance sheets net of discounts at $38,828. The Company had accrued interest for this note in the amount of $5,304, which is included in accrued interest on the Company's consolidated balance sheets.
On February 23, 2018, the Company issued a $1,000,000 convertible note bearing interest at 9% per annum. The note matures on February 29, 2019 and is convertible, as amended, into the Company's Series B Preferred Stock at a price of $0.25 per share at the holder's request. The Company has determined the note to contain a beneficial conversion feature valued at $459,447 based on the intrinsic per share value of the conversion feature. This beneficial conversion feature is recorded as a discount to the debt agreement. The noteholder was also granted detachable 5 year warrants to purchase an aggregate of 3,125,000 shares of the company's common stock at an exercise price of $0.32 per share. The warrants were valued at $540,553 using the Black-Scholes pricing model and were recorded as a discount to the debt agreement. At September 30, 2018, the principal balance was still outstanding and is included on the Company's consolidated balance sheets net of discounts at $9,284. The Company had accrued interest for this note in the amount of $54,000, which is included in accrued interest on the Company's consolidated balance sheets.
On February 27, 2018, the Company issued a $1,000,000 convertible note bearing interest at 9% per annum. The note matures on February 29, 2019 and is convertible, as amended, into the Company's Series B Preferred Stock at a price of $0.25 per share at the holder's request. The Company has determined the note to contain a beneficial conversion feature valued at $458,756 based on the intrinsic per share value of the conversion feature. This beneficial conversion feature is recorded as a discount to the debt agreement. The noteholder was also granted detachable 5 year warrants to purchase an aggregate of 3,125,000 shares of the company's common stock at an exercise price of $0.32 per share. The warrants were valued at $541,244 using the Black-Scholes pricing model and were recorded as a discount to the note. At September 30, 2018, the principal balance was still outstanding and is included on the Company's consolidated balance sheets net of discounts at $8,625. The Company had accrued interest for this note in the amount of $53,014, which is included in accrued interest on the Company's consolidated balance sheets.
On April 18, 2018, the Company issued a $2,000,000 convertible note bearing interest at 9% per annum. The note matures on April 30, 2019 and is convertible, as amended, into the Company's Series B Preferred Stock at a price of $0.25 per share at the holder's request. The Company has determined the note to contain a beneficial conversion feature valued at $915,856 based on the intrinsic per share value of the conversion feature. This beneficial conversion feature is recorded as a discount to the debt agreement. The noteholder was also granted detachable 5 year warrants to purchase an aggregate of 6,250,000 shares of the company's common stock at an exercise price of $0.25 per share. The warrants were valued at $1,084,144 using the Black-Scholes pricing model and were recorded as a discount to the note. As additional consideration for this note, the Company issued an aggregate 4,670,138 shares of the Company's common stock. Because the value of this stock exceeded the net value after the above discounts, the Company recorded the value of the consideration to additional paid in capital. At September 30, 2018, the principal balance was still outstanding and is included on the Company's consolidated balance sheets net of discounts at $2,515. The Company had accrued interest for this note in the amount of $81,370, which is included in accrued interest on the Company's consolidated balance sheets.
On May 4, 2018, the Company issued an aggregate $1,500,000 in convertible notes bearing interest at 9% per annum. These notes mature on May 31, 2019 and are convertible, as amended, into the Company's Series B Preferred Stock at a price of $0.25 per share at the holder's request. The Company has determined the notes to contain a beneficial conversion feature valued at $685,856 based on the intrinsic per share value of the conversion feature. This beneficial conversion feature is recorded as a discount to the note. The noteholders were also granted detachable 5 year warrants to purchase an aggregate of 4,687,500 shares of the company's common stock at an exercise price of $0.25 per share. The warrants were valued at $814,144 using the Black-Scholes pricing model and were recorded as a discount to the debt agreements. At September 30, 2018, the principal balances were still outstanding and is included on the Company's consolidated balance sheets net of discounts at an aggregate $944. The Company had accrued interest for these notes in the amount of $55,110, which is included in accrued interest on the Company's consolidated balance sheets.
On May 9, 2018, the Company issued a $1,028,274 convertible note bearing interest at 9% per annum as replacement for a $1,000,000 note plus accrued interest of $28,274 (see long term convertible notes section of this note). The note matures on May 31, 2019 and is convertible, as amended, into the Company's Series B Preferred Stock at a price of $0.25 per share at the holder's request. The Company has determined the note to contain a beneficial conversion feature valued at $484,684 based on the intrinsic per share value of the conversion feature. This beneficial conversion feature is recorded as a discount to the debt agreement. The noteholder was also granted detachable 5 year warrants to purchase an aggregate of 3,213,356 shares of the company's common stock at an exercise price of $0.25 per share. The warrants were valued at $543,590 using the Black-Scholes pricing model and were recorded as a discount to the note. At September 30, 2018, the principal balance was still outstanding and is included on the Company's consolidated balance sheets net of discounts at $755. The Company had accrued interest for this note in the amount of $36,511, which is included in accrued interest on the Company's consolidated balance sheets.
On July 5, 2018, the Company issued an aggregate $2,000,000 in convertible notes bearing interest at 9% per annum. These notes mature on July 5, 2019 and is convertible, as amended, into the Company's Series B Preferred Stock at a price of $0.25 per share at the holder's request. The Company has determined the notes to contain a beneficial conversion feature valued at $612,962 based on the intrinsic per share value of the conversion feature. This beneficial conversion feature is recorded as a discount to the note. The noteholders were also granted detachable 5 year warrants to purchase an aggregate of 8,000,000 shares of the company's common stock at an exercise price of $0.25 per share. The warrants were valued at $1,386,998 using the Black-Scholes pricing model and were recorded as a discount to the debt agreements. At September 30, 2018, the principal balances were still outstanding and is included on the Company's consolidated balance sheets net of discounts at an aggregate $480. The Company had accrued interest for these notes in the amount of $42,411, which is included in accrued interest on the Company's consolidated balance sheets.
On July 10, 2018, the Company issued a $32,000 in convertible notes bearing interest at 9% per annum. This note matures on July 31, 2019 and is convertible into the Company's Series B Preferred Stock at a price of $0.32 per share at the holder's request. The Company has determined the notes to contain a beneficial conversion feature valued at $9,764 based on the intrinsic per share value of the conversion feature. This beneficial conversion feature is recorded as a discount to the note. The noteholder was also granted detachable 5 year warrants to purchase an aggregate of 128,000 shares of the company's common stock at an exercise price of $0.25 per share. The warrants were valued at $22,226 using the Black-Scholes pricing model and were recorded as a discount to the debt agreements. At September 30, 2018, the principal balance was still outstanding and is included on the Company's consolidated balance sheets net of discounts at an aggregate $63. The Company had accrued interest for these notes in the amount of $647, which is included in accrued interest on the Company's consolidated balance sheets.
On July 13, 2018, the Company issued a $200,000 in convertible notes bearing interest at 9% per annum. This note matures on July 31, 2019 and is convertible into the Company's Series B Preferred Stock at a price of $0.32 per share at the holder's request. The Company has determined the note to contain a beneficial conversion feature valued at $61,220 based on the intrinsic per share value of the conversion feature. This beneficial conversion feature is recorded as a discount to the note. The noteholder was also granted detachable 5 year warrants to purchase an aggregate of 800,000 shares of the company's common stock at an exercise price of $0.25 per share. The warrants were valued at $138,770 using the Black-Scholes pricing model and were recorded as a discount to the debt agreements. At September 30, 2018, the principal balance was still outstanding and is included on the Company's consolidated balance sheets net of discounts at an aggregate $89. The Company had accrued interest for these notes in the amount of $647, which is included in accrued interest on the Company's consolidated balance sheets.
On September 17, 2018, the Company issued a $3,000,000 in convertible notes bearing interest at 9% per annum. This note matures on September 17, 2019 and is convertible into the Company's Series B Preferred Stock at a price of $0.25 per share at the holder's request. The Company has determined the note to contain a beneficial conversion feature valued at $1,334,707 based on the intrinsic per share value of the conversion feature. This beneficial conversion feature is recorded as a discount to the note. The noteholder was also granted detachable 7 year warrants to purchase an aggregate of 12,000,000 shares of the company's common stock at an exercise price of $0.25 per share. The warrants were valued at $1,665,283 using the Black-Scholes pricing model and were recorded as a discount to the debt agreements. Additionally, as further inducement to write this this note, the Company agreed to grant all of the investor's existing notes as well as several other existing noteholders with relationships to the investor the same terms on their existing debt that this debt carries. Because these new terms were required to write this note, the Company has accounted them as a discount on this note, the value of which is included in the beneficial conversion value. At September 30, 2018, the principal balance was still outstanding and is included on the Company's consolidated balance sheets net of discounts at an aggregate $17. The Company had accrued interest for these notes in the amount of $9,616, which is included in accrued interest on the Company's consolidated balance sheets.
Short term convertible notes – related party
On October 31, 2013, the Company agreed to convert balances owed to the Company's corporate counsel in the amount of $183,172 into a 42 month convertible note bearing interest at 12% annually and convertible into 203,525 shares of convertible preferred stock at the rate of $0.90 per share. At September 30, 2018 and December 31, 2017, the principal balance was still outstanding, and the Company had accrued interest for this note in the amount of $171,828 and $136,469, respectively, which is included in accrued interest – related party on the Company's consolidated balance sheets. The note carries a default rate of 18% for any principal not paid by the maturity date.
On November 30, 2015, John Hayes, the Company's Chief Technology Officer, Director and significant shareholder invested $101,000 via a one year convertible note bearing interest at 12% annually and convertible into 112,223 shares of Series A convertible preferred stock at the rate of $0.90 per share. On September 1, 2017, $237,000 owed to John Hayes was added to the note. On September 30, 2018, the note along with interest of $89,366 was converted into 1,709,466 shares of the Company's common stock at a rate of $0.25 per share. Additionally, as further inducement to convert the note, the Company issued the note holder 5 year warrants to purchase 1,352,000 shares of the Company's common stock. The Company recognized a loss on extinguishment of debt of $400,126 related to the decrease in conversion price and warrants granted.
On July 6, 2018, the Company issued a $200,000 in convertible notes bearing interest at 9% per annum to John Hayes, the Company's Chief Technology Officer, Director and significant shareholder. This note matures on July 31, 2019 and is convertible into the Company's Series B Preferred Stock at a price of $0.32 per share at the holder's request. The Company has determined the notes to contain a beneficial conversion feature valued at $61,290 based on the intrinsic per share value of the conversion feature. This beneficial conversion feature is recorded as a discount to the note. The noteholder was also granted detachable 5 year warrants to purchase an aggregate of 800,000 shares of the company's common stock at an exercise price of $0.25 per share. The warrants were valued at $138,700 using the Black-Scholes pricing model and were recorded as a discount to the debt agreements. On September 30, 2018, the note along with interest of $4,192 was converted into 816,767 shares of the Company's common stock at a rate of $0.25 per share. The Company recognized a loss on extinguishment of debt of $43,750 related to the decrease in conversion price.
On July 10, 2018, the Company issued a $32,000 in convertible notes bearing interest at 9% per annum to J Allen Kosowsky, a Director and related party. This note matures on July 31, 2019 and is convertible into the Company's Series B Preferred Stock at a price of $0.32 per share at the holder's request. The Company has determined the notes to contain a beneficial conversion feature valued at $9,764 based on the intrinsic per share value of the conversion feature. This beneficial conversion feature is recorded as a discount to the note. The noteholder was also granted detachable 5 year warrants to purchase an aggregate of 128,000 shares of the company's common stock at an exercise price of $0.25 per share. The warrants were valued at $22,226 using the Black-Scholes pricing model and were recorded as a discount to the debt agreements. On September 30, 2018, the note along with interest of $639 was converted into 130,556 shares of the Company's common stock at a rate of $0.25 per share. The Company recognized a loss on extinguishment of debt of $8,960 related to the decrease in conversion price.
Long term convertible notes
On December 21, 2017, the Company issued a $150,000 convertible note bearing interest at 8% per annum. The note matures on December 31, 2019 and is convertible into the Company's Series B Preferred Stock at a price of $0.32 per share at the holder's request. The Company has determined the note to contain a beneficial conversion feature valued at $69,935 based on the intrinsic per share value of the conversion feature. This beneficial conversion feature is recorded as a discount to the debt agreement. The noteholder was also granted detachable 5 year warrants to purchase an aggregate of 468,750 shares of the company's common stock at an exercise price of $0.32 per share. The warrants were valued at $69,935 using the Black-Scholes pricing model and were recorded as a discount to the note. At September 30, 2018 and December 31, 2017, the principal balance was still outstanding and is included on the Company's consolidated balance sheets net of discounts at $28,425 and $10,521, respectively. The Company had accrued interest for this note in the amount of $9,304 and $329, respectively, which is included in accrued interest on the Company's consolidated balance sheets.
On December 22, 2017, the Company issued a $1,000,000 convertible note bearing interest at 8% per annum. The note matures on December 31, 2019 and is convertible into the Company's Series B Preferred Stock at a price of $0.32 per share at the holder's request. The Company has determined the note to contain a beneficial conversion feature valued at $466,230 based on the intrinsic per share value of the conversion feature. This beneficial conversion feature is recorded as a discount to the debt agreement. The noteholder was also granted detachable 5 year warrants to purchase an aggregate of 3,125,000 shares of the company's common stock at an exercise price of $0.32 per share. The warrants were valued at $466,230 using the Black-Scholes pricing model and were recorded as a discount to the note. On May 9, 2018, this note along with $28,274 was renegotiated into a new short term convertible note and the warrants associated with the original note were cancelled. The newly negotiated note included an additional warrant benefit valued at $95,804 which was recorded as a loss on extinguishment of debt.
Long term convertible notes – related party
During 2011 to 2014, the Company's Chief Technology Officer and significant shareholder of the Company loaned a total of $2,673,200 to the Company. On October 1, 2014, all prior notes including accrued interest were combined into a single $3,712,637 convertible note bearing interest at 12% annually and convertible into 4,125,154 shares of Series A preferred stock at the rate of $0.90 per share. On November 9, 2017, the Company converted the note and accrued interest of $1,665,991 into 10,757,254 shares of the Company's common stock at a conversion rate of $0.50 per share. The Company also issued a 5 year warrant to purchase an additional 5,378,627 shares of the Company s common stock at a purchase price of $0.50 per share as further consideration for this conversion. The Company recognized a loss on extinguishment of debt related to this transaction of $913,238.
Convertible debt holders are entitled, at their option, to convert all or part of the principal and accrued interest into shares of the Company's common stock at the conversion prices and terms discussed above. The Company has determined that any embedded conversion options do not possess a beneficial conversion feature, and therefore has not separately accounted for their value.
The following table summarizes the Company's convertible notes payable for the nine months ended September 30, 2018 and the year ended December 31, 2017:
|
|
September 30,
2018
|
|
|
December 31,
2017
|
|
Beginning Balance
|
|
$
|
601,576
|
|
|
$
|
3,996,810
|
|
Proceeds from issuance of convertible notes, net of issuance discounts
|
|
|
6,148
|
|
|
|
146,669
|
|
Proceeds from issuance of convertible notes – related party
|
|
|
-
|
|
|
|
237,000
|
|
Repayments
|
|
|
-
|
|
|
|
(100,000
|
)
|
Restructuring of debt
|
|
|
(112,017
|
)
|
|
|
-
|
|
Conversion of notes payable into common stock
|
|
|
(570,000
|
)
|
|
|
(3,712,638
|
)
|
Amortization of discounts
|
|
|
347,480
|
|
|
|
33,735
|
|
Ending Balance
|
|
$
|
273,187
|
|
|
$
|
601,576
|
|
Convertible notes, short term
|
|
$
|
11,860,274
|
|
|
$
|
-
|
|
Convertible notes, long term
|
|
$
|
150,000
|
|
|
$
|
1,150,000
|
|
Convertible notes, short term – related party
|
|
$
|
183,172
|
|
|
$
|
521,172
|
|
Debt discounts
|
|
$
|
(11,920,259
|
)
|
|
$
|
1,069,596
|
|
NOTE 6 – COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases approximately 7,579 square feet of office space under a 62 month operating lease which expires during April 2023. The amounts reflected in the table below are for the aggregate future minimum lease payments under the non-cancelable facility operating leases. Under lease agreements that contain escalating rent provisions, lease expense is recorded on a straight-line basis over the lease term.
The Company also leases office space under a 23 month operating lease which expires during August 2019. The amounts reflected in the table below are for the aggregate future minimum lease payments under the non-cancelable facility operating leases. Under lease agreements that contain escalating rent provisions, lease expense is recorded on a straight-line basis over the lease term.
The Company also leases approximately 202 square feet of office space under a 12 month operating lease which originally expired in 2016. The lease was renewed to May 2019, and is renewable at the Company's option annually at a flat monthly amount of $400. The amounts reflected in the table below are for the aggregate future minimum lease payments under the non-cancelable facility operating leases.
Rent expense was $230,211 and $136,134 for the nine months ended September 30, 2018 and 2017, respectively.
As of September 30, 2018, future minimum lease payments are as follows:
Year Ending December 31,
|
|
|
|
2018 (three months)
|
|
$
|
74,364
|
|
2019
|
|
|
259,851
|
|
2021
|
|
|
209,559
|
|
2021
|
|
|
214,107
|
|
2022
|
|
|
218,654
|
|
2023 and thereafter
|
|
|
18,569
|
|
Total minimum lease payments
|
|
$
|
995,104
|
|
On August 1, 2017, the Company entered into a 36 month lease of computer equipment. The lease carries a monthly payment of $2,871 with the option to purchase the equipment at its fair market value at the end of the lease.
Restricted Stock Commitments
The Company has committed to settling a significant portion of its current accounts payable balances through the future issuance of restricted stock units. While the terms of these agreements have not yet been formalized with employees and outside contractors, they could have a potentially dilutive effect to current shareholders.
Contingent Liability
On October 15, 2011, the Company entered into an agreement with a consultant by which the consultant's invoices for the previous four months would be accrued as a liability to be paid out upon (a) the Company's successful raising of $10,000,000 in capital funding, or (b) the Company reaching total revenues of $10,000,000. The Company has a balance due under this agreement of $37,500 at September 30, 2018 and December 31, 2017, respectively.
Legal Proceedings
On December 2, 2016, AltEnergy Cyber, LLC ("Plaintiff") instituted a legal action in Connecticut against the Company and Robert Zahm. The complaint alleged that (i) the Company improperly extended the maturity date of the Plaintiff's convertible note in the amount of $1,500,000 and (ii) improperly converted the loan into the Company's stock. The Complaint alleges that the Company is liable to the Plaintiff for $4,500,000 plus interest. This litigation is still ongoing. During the year ended December 31, 2017, Robert Zahm was dismissed from the proceedings for lack of personal jurisdiction. On March 29, 2018, the AltEnergy Cyber, LLC's legal action was dismissed through a motion for summary judgement. As of the date of this filing, the appeal period has expired and it is the Company's belief that this matter is fully resolved through the dismissal.
NOTE 7 ‑ RELATED PARTY TRANSACTIONS
During the nine months ended September 30, 2018, the Company incurred interest expense on notes to related parties in the aggregate amount of $126,619 (see Note 4 – Short term notes – related party & Note 5 – Convertible Notes).
Accounts payable related party
At September 30, 2018 and December 31, 2017, the Company had a balance in related party accounts payable of $56,649 and $68,060, respectively, which consisted of the following:
|
|
|
|
September 30,
|
|
|
December 31,
|
|
Party Name:
|
Relationship:
|
Nature of transactions:
|
|
2018
|
|
|
2017
|
|
John Hayes
|
Chief Technology Officer
|
Expense reimbursement
|
|
$
|
53,149
|
|
|
$
|
55,254
|
|
Robert Graham
|
Chairman and Chief Executive Officer
|
Expense reimbursement
|
|
|
-
|
|
|
|
6,806
|
|
Robert Graham
|
Chairman and Chief Executive Officer
|
Rent
|
|
|
3,500
|
|
|
|
6,000
|
|
|
|
|
|
$
|
56,649
|
|
|
$
|
68,060
|
|
Advances related party
During the nine months ended September 30, 2018, the Company received advances of $50,000 from Mag Ventures, a company controlled by Tom Bruderman, a director and shareholder. These advances are included in Advances – related party on the Company's balance sheet.
During the nine months ended September 30, 2018, the Company received advances of $25,000 from J. Allen Kosowsky, a director and shareholder. These advances were converted into 78,125 shares of the Company's common stock at a price of $0.32 per share on September 13, 2018.
At September 30, 2018 and December 31, 2017, the Company had a balance in related party advances of $115,000 and $65,000, respectively, which consisted of the following:
|
|
|
September 30,
|
|
|
December 31,
|
|
Party Name:
|
Relationship:
|
|
2018
|
|
|
2017
|
|
J Allen Kosowsky
|
Director
|
|
$
|
-
|
|
|
$
|
-
|
|
Thomas Bruderman
|
Director and significant shareholder
|
|
|
115,000
|
|
|
|
65,000
|
|
|
|
|
$
|
115,000
|
|
|
$
|
65,000
|
|
Related Party Notes
On January 31, 2018, the Company's Chief Technology Officer and significant shareholder invested $500,000 via a one year note bearing interest at 8% annually. In conjunction with this note, the Company issued 5 year detachable warrants to purchase 1,562,500 shares of the Company's common stock at $0.50 per share. These warrants were valued at $172,542 using the Black-Scholes pricing model and were recorded as a discount to the note. The note carries a default rate of 18% for any principal not paid by the maturity date. On September 30, 2018, the note along with interest of $29,712 was converted into 2,118,849 shares of the Company's common stock at a rate of $0.25 per share. Additionally, as part of the conversion, additional warrants to purchase 437,500 shares of common stock were issued and all warrants related to this note were repriced to reflect an exercise price of $0.25 per share. The value of these additional warrants and the lowered conversion totaled $58,250 which the Company recorded as a loss on extinguishment of debt.
On November 30, 2015, John Hayes, the Company's Chief Technology Officer, Director and significant shareholder invested $101,000 via a one year convertible note bearing interest at 12% annually and convertible into 112,223 shares of Series A convertible preferred stock at the rate of $0.90 per share. On September 1, 2017, $237,000 owed to John Hayes was added to the note. On September 30, 2018, the note along with interest of $89,366 was converted into 1,709,466 shares of the Company's common stock at a rate of $0.25 per share. Additionally, as further inducement to convert the note, the Company issued the note holder 5 year warrants to purchase 1,352,000 shares of the Company's common stock. The Company recognized a loss on extinguishment of debt of $400,126 related to the decrease in conversion price and warrants granted.
On July 6, 2018, the Company issued $200,000 in convertible notes bearing interest at 9% per annum to John Hayes, the Company's Chief Technology Officer, Director and significant shareholder. This note matures on July 31, 2019 and is convertible into the Company's Series B Preferred Stock at a price of $0.32 per share at the holder's request. The Company has determined the notes to contain a beneficial conversion feature valued at $61,290 based on the intrinsic per share value of the conversion feature. This beneficial conversion feature is recorded as a discount to the note. The noteholder was also granted detachable 5 year warrants to purchase an aggregate of 800,000 shares of the company's common stock at an exercise price of $0.25 per share. The warrants were valued at $138,700 using the Black-Scholes pricing model and were recorded as a discount to the debt agreements. On September 30, 2018, the note along with interest of $4,192 was converted into 816,767 shares of the Company's common stock at a rate of $0.25 per share. The Company recognized a loss on extinguishment of debt of $43,750 related to the decrease in conversion price.
On July 10, 2018, the Company issued $32,000 in convertible notes bearing interest at 9% per annum to J Allen Kosowsky, a Director and related party. This note matures on July 31, 2019 and is convertible into the Company's Series B Preferred Stock at a price of $0.32 per share at the holder's request. The Company has determined the notes to contain a beneficial conversion feature valued at $9,764 based on the intrinsic per share value of the conversion feature. This beneficial conversion feature is recorded as a discount to the note. The noteholder was also granted detachable 5 year warrants to purchase an aggregate of 128,000 shares of the company's common stock at an exercise price of $0.25 per share. The warrants were valued at $22,226 using the Black-Scholes pricing model and were recorded as a discount to the debt agreements. On September 30, 2018, the note along with interest of $639 was converted into 130,556 shares of the Company's common stock at a rate of $0.25 per share. The Company recognized a loss on extinguishment of debt of $8,960 related to the decrease in conversion price.
NOTE 8 ‑ STOCKHOLDERS' EQUITY
The Company is authorized to issue 200 million shares of common stock, par value $0.001 per share, and 10 million shares of preferred stock, par value $0.001 per share. Each share of the Company's preferred stock was originally convertible into 10 shares of common stock, subject to adjustment, has voting rights equal to its common stock equivalent, 7% cumulative dividend rights, and has liquidation rights that entitle the recipient to the receipt of net assets on a pro-rata basis. The Company has 91,107,627 and 77,063,171 common shares issued and outstanding and 3,594,610 and 3,639,783 Series A preferred shares issued and outstanding as of September 30, 2018 and December 31, 2017, respectively.
During the nine months ended September 30, 2018, the Company issued an aggregate 1,049,166 shares of the Company's common stock pursuant to consulting contracts valued at $533,670, or an average of $0.51 per share.
During the nine months ended September 30, 2018, the Company converted an aggregate 45,173 shares of the Company's Series A preferred stock into 535,565 shares of the Company's common stock after receiving conversion exercises from multiple preferred stockholders.
On March 30, 2018, a contractor rescinded a provision in its contract for common stock payments, and returned 300,000 shares previously issued to it during 2017. The Company retired the returned shares and recaptured the original $240,000 expensed when the shares were issued.
On June 11, 2018, the Company issued 300,000 shares of the Company's common stock valued at $120,000 as a signing bonus to an employee.
On June 13, 2018, the Company converted a $25,000 advance from related party and Director J Allen Kosowsky into 78,125, shares of the Company's common stock at a price of $0.32 per share (see Note 7 – Related Party Transactions).
On September 30, 2018, the Company issued an aggregate 2,935,818 shares of the Company's common stock to satisfy $1,027,535 in wages payable at the rate of $0.35 per share. The stock contains a 6 month non-forfeitable vesting restriction.
On September 30, 2018, The Company converted notes payable and interest valued at an aggregate $1,161,271 and due to the Company's Chief Technology Officer and Director, John Hayes, into 4,645,082 shares of the Company's common stock at a price of $0.25 per share (see Note 7 – Related Party Transactions).
On September 30, 2018, The Company converted notes payable and interest valued at $32,639 and due to the Company's Director, J Allen Kosowsky, into 130,556 shares of the Company's common stock at a price of $0.25 per share (see Note 7 – Related Party Transactions).
NOTE 9 – SHARE BASED COMPENSATION
During the year ended December 31, 2017, the Company issued 5-year options to purchase 5,570,000 shares of common stock to employees and directors under the 2017 Stock Incentive Plan. The options were valued at $1,557,089 using the Black-Scholes pricing model. During the nine months ended September 30, 2018, the Company issued 5-year options to purchase 4,740,200 shares of common stock to an employee under the 2017 Stock Incentive Plan and cancelled 277,173 unvested options. The issued options were valued at $1,127,292 using the Black-Scholes pricing model. As of September 30, 2018, the total unrecognized expense for unvested share based compensation was $1,835,557. The 2017 Stock Incentive Plan allows for a maximum 25,000,000 shares to be issued, of which 14,966,973 shares remain available for issuance as of September 30, 2018.
The fair values at the commitment date for the options were based upon the following management assumptions as of September 30, 2018:
|
|
Commitment
Date
|
|
Expected dividends
|
|
|
0
|
%
|
Expected term
|
|
5 years
|
|
Risk free rate
|
|
|
1.73 – 2.80
|
%
|
The activity of options granted to during the nine months ended September 30, 2018 is as follows:
|
|
Employee
and Director
Options
Outstanding
|
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Life
|
|
Weighted
Average
Grant
Date Fair
Value
|
|
Intrinsic Value
|
|
Beginning Balance – December 31, 2017
|
|
|
5,570,000
|
|
|
$
|
0.60
|
|
5 years
|
|
$
|
0.28
|
|
|
|
Granted
|
|
|
4,740,200
|
|
|
$
|
0.60
|
|
5 years
|
|
$
|
0.24
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(277,173
|
)
|
|
$
|
0.60
|
|
4.33 years
|
|
$
|
0.28
|
|
|
|
Ending Balance – September 30, 2018
|
|
|
10,033,027
|
|
|
$
|
0.60
|
|
3.76 years
|
|
$
|
0.26
|
|
|
$
|
-
|
|
Exercisable options
|
|
|
3,127,420
|
|
|
$
|
0.60
|
|
3.76 years
|
|
$
|
0.26
|
|
|
$
|
-
|
|
The weighted average fair value per option issued during the nine months ended September 30, 2018 and the year ended December 31, 2017 was $0.23 and $0.28, respectively.
The following table summarizes non-vested option activity during the nine months ended September 30, 2018:
|
|
Non-Vested
Options
|
|
|
Weighted
Average
Grant Date
Fair Value
|
|
Beginning Balance – December 31, 2017
|
|
|
5,177,042
|
|
|
$
|
0.28
|
|
Granted
|
|
|
4,740,200
|
|
|
$
|
0.10
|
|
Vested
|
|
|
(3,127,420
|
)
|
|
|
|
|
Forfeited
|
|
|
(277,173
|
)
|
|
|
|
|
Ending Balance – September 30, 2018
|
|
|
6,905,607
|
|
|
$
|
0.25
|
|
NOTE 10 – BUSINESS ACQUISITION
On September 6, 2016, the Company and BlackRidge Technology International, Inc., a Delaware corporation entered into an Agreement and Plan of Reorganization (the "Reorganization Agreement") originally dated as of September 6, 2016, and amended on February 22, 2017 to update the number of common shares, warrants, and options granted and outstanding as of the closing date.
On February 22, 2017, we, through our wholly-owned subsidiary, completed the actions contemplated by the Reorganization Agreement pursuant to which our wholly-owned subsidiary merged with and into BlackRidge Technology International, Inc. ("BlackRidge-DE") with BlackRidge-DE continuing as the surviving corporation ("Reorganization"). Upon completion of the Reorganization, we issued 3,783,791 shares of our newly designated Series A preferred stock and 12,825,683 shares of common stock to the stockholders of BlackRidge-DE in exchange for all the issued and outstanding shares of Series A Preferred Stock and common stock of BlackRidge. Additionally, certain stockholders of BlackRidge returned for cancellation a total of 16,284,330 shares of our common stock. Upon the completion of the Reorganization, BlackRidge-DE became a wholly-owned subsidiary of the Company and the Company had a total of 3,783,791 shares of Series A preferred stock and 21,790,683 shares of common stock outstanding, with the former BlackRidge-DE stockholders owning 3,783,791 shares or 100% of Series A preferred stock and 12,825,683 shares or approximately 58.9% of common stock. Upon completion of the Reorganization, we also had outstanding warrants entitling the holders to acquire a total of 18,541,579 shares of the Company's common stock at an average exercise price of $0.46 per share. The Reorganization resulted in a change of control of the Company. For accounting purposes, BlackRidge-DE was treated as the acquirer and the historical financial statements of BlackRidge-DE became the Company's historical financial statements. The acquisition is intended to constitute a tax-free reorganization pursuant to the applicable provisions of the Internal Revenue Code of 1986, as amended.
NOTE 11 – DISCONTINUED OPERATIONS
On March 31, 2017, the Company completed the sale of substantially all the assets, other than cash, used in or connection with the Company's home grain mill and kitchen mixer business to John Hofman and Bruce Crane, former officers and directors of the Company, in consideration for the assumption by such persons of substantially all the liabilities incurred by the Company in connection with such business. The assets divested consisted of the non-cybersecurity assets of the Company and included accounts receivable, inventory, deposits, property and equipment and intangible assets. The liabilities divested included the non-cybersecurity liabilities of the Company and included accounts payable and accrued expenses and long and short-term notes payable and accrued interest thereon. Upon completion of the divestiture, the Company recognized a $484,927 loss on disposal. Additionally, during the period from February 22, 2017 through March 31, 2017, the Company incurred a loss from discontinued operations of $8,737.
The following table shows the value of assets and liabilities divested:
Assets
|
|
|
|
Accounts receivable
|
|
$
|
40,044
|
|
Deposits and prepaid expenses
|
|
|
90,559
|
|
Inventory
|
|
|
1,157,555
|
|
Property and equipment
|
|
|
117,254
|
|
Intangible assets
|
|
|
62,820
|
|
Total Assets
|
|
|
1,468,232
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Accounts payable and accrued expenses
|
|
|
692,399
|
|
Notes payable – short term
|
|
|
64,000
|
|
Notes payable – short term, related party
|
|
|
91,679
|
|
Line of credit
|
|
|
135,227
|
|
Total Liabilities
|
|
|
983,305
|
|
|
|
|
|
|
Loss on disposal
|
|
$
|
484,927
|
|
NOTE 12 - SUBSEQUENT EVENTS
We have evaluated all events that occurred after the balance sheet date through the date when our financial statements were issued to determine if they must be reported. Management has determined that there were no additional reportable subsequent events to be disclosed.