FDCTECH, INC. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Quarterly Report Form 10-Q contains forward-looking statements. Our actual results could differ materially from those set forth as a result of general economic conditions and changes in the assumptions used in making such forward-looking statements. The following discussion and analysis of our financial condition and results of operations should be read together with the unaudited condensed financial statements and accompanying notes and the other financial information appearing elsewhere in this report. The analysis set forth below is provided pursuant to applicable Securities and Exchange Commission regulations and is not intended to serve as a basis for projections of future events. The Company is building a diversified global financial services company driven by proprietary Condor trading technologies, complementary regulatory licenses, and a proven executive team. The Company plans to acquire, integrate, transform, and scale legacy financial service companies. The Company believes its proprietary technology and software development capabilities allow legacy financial services companies immediate exposure to –forex, stocks, ETFs, commodities, crypto, social/copy trading, and other high-growth fintech markets. From December 2021 onwards, the Company expects to grow from its acquisition strategy, specializing in buying and integrating small to mid-size legacy financial services companies. The Company intends to build a diversified global software-driven financial services company. The Company plans to acquire, integrate, transform, and scale legacy financial service companies. The Company replaces conventional legacy software infrastructure with its regulatory-grade proprietary Condor trading technologies, intending to improve end-user experience, increase client retention, and realize cost synergies. Currently, we have three primary business segments, (1) Wealth Management, (2) Technology and Software Development, and (3) Margin Brokerage Business. The Company has signed a definitive agreement to acquire a controlling interest in the US Brokerage business pending regulatory approval. In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a pandemic that continues throughout the United States. While the outbreak was initially concentrated in China, it spread to several other countries, including Russia and Cyprus, and reported infections globally. Many countries worldwide, including the United States, have implemented significant governmental measures to control the spread of the virus, including temporary closure of businesses, severe restrictions on travel and the movement of people, and other material limitations on our business. These measures have resulted in work stoppages, absenteeism in the Company’s labor workforce, and other disruptions. The extent to which the coronavirus impacts our operations will depend on future developments. These developments are highly uncertain. We cannot predict them with confidence, including the duration and severity of the outbreak and the actions required to contain the coronavirus or treat its impact. In particular, the spread of the coronavirus globally could adversely impact our operations and workforce, including our marketing and sales activities and ability to raise additional capital, which could harm our business, financial condition, and operation results. The geopolitical situation in Eastern Europe intensified on February 24, 2022, with Russia’s invasion of Ukraine. The war between the two countries continues to evolve as military activity continues. The United States and certain European countries have imposed additional sanctions on Russia and specific individuals. By the end of August 2022, the Company closed its technical support and development office in Russia. We relocated our personnel to Turkey, currently considered a neutral zone. No individual associated with the Company is banned or under Special Designated Nationals and Blocked Person list. If the military activities worsen and expand in Europe, we may relocate our office from Turkey to other neutral zones in Asia. If we cannot relocate our technical and development operations to a safer zone, it may impact our software development capabilities and negatively impact the Company’s business plans. As of the date of this report, there has been no disruption in our operations. 4 Wealth Management On December 22, 2021, the Company entered into a Share Exchange Agreement (the “Agreement”) with AD Financial Services Pty Ltd ACN 628 331 117 of Level 38/71 Eagle St, Brisbane, Queensland, Australia, 4000 (“ADFP” or “Target”). According to the Agreement, the Company acquired 51% of ADFP’s issued and outstanding shares of capital stock in exchange for 45,000,000 (the “Consideration”) newly issued “restricted” common shares. The operating and licensed entity of ADFP is AD Advisory Services Pty Ltd. ADFP owns one hundred percent (100%) equity interest in AD Advisory Services Pty Ltd (“ADS”). As a result, the Company is 51% owner of ADS. Our wealth management business, AD Advisory Services (ADS), is subject to enhanced regulatory scrutiny and is regulated by multiple regulators in Australia. The Australian Securities and Investments Commission (ASIC) administers a licensing regime for financial services providers. ADS holds an Australian Financial Services License (AFSL) and meets various compliance, conduct, and disclosure obligations. AD Advisory Services Pty Ltd. (ADS) is an Australian-regulated wealth management company with 20 offices, 28 advisors, and $530+ million in funds under advice. ADS provides licensing solutions for financial advisers & accountants in Australia. ADS offers financial planners different licensing, compliance, and education solutions to meet their practice’s specific needs. Wealth Management Revenue & Gross Margins: Fiscal year ended March 31, 2023 (Audited) Fiscal year ended March 31, 2022 (Audited) Revenue, $ 1,372,437 1,473,622 Cost of sales, $ 1,230,114 1,314,956 Gross Profit (loss), $ 142,323 158,666 Technology & Software Development – Condor Trading Technology The Company has three sources of revenue. ● Technology Solutions – The Company licenses its proprietary and sometimes resells third-party technologies to customers. Our proprietary technology includes but is not limited to Condor Risk Management Back Office (“Condor Risk Management”), Condor Pro Multi-Asset Trading Platform (previously known as Condor FX Pro Trading Terminal), Condor Pricing Engine, Crypto Web Trader Platform, and other cryptocurrency-related solutions. ● Customized Software Development – The Company develops software for Customers with unique requirements outlined in the Software Development Agreement (“Agreement”). ● Consulting Services – The Company’s turnkey business solutions - Start-Your-Own-Brokerage (“SYOB”), Start-Your-Own-Prime Brokerage (“SYOPB”), Start-Your-Own-Crypto Exchange (“SYOC”), FX/OTC liquidity solutions, and lead generations. The Company has completed the Condor Pro Multi-Asset Trading Platform, previously known as the Condor FX Trading Platform. The Condor Pro Multi-Asset Trading Platform is a regulatory-grade trading platform targeted at day traders and retail investors. The industry characterized such platforms by their ease of use and helpful features, such as the simplified front-end (user interface/user experience), back-end (reporting system), news feeds, and charting system. The Condor Pro Multi-Asset Trading Platform includes risk management (dealing desk, alert system, margin calls, etc.), a pricing engine (best bid/ask), and connectivity to multiple liquidity providers or market makers. We have tailored the Condor Pro Multi-Asset Trading Platform to markets such as forex, stocks, commodities, cryptocurrencies, and other financial products. 5 The Company released, marketed, and distributed its Condor Pro Multi-Asset Trading Platform in the second quarter of the fiscal year, December 31, 2019. The Company has developed the Condor Back Office API to integrate third-party CRM and banking systems into Condor Back Office. The Company has thirteen (13) licensing agreements for its Condor Pro Multi-Asset Trading Platform. The Company continuously negotiates additional licensing agreements with several retail online brokers to use the Condor Pro Multi-Asset Trading Platform. Condor Pro Multi-Asset Trading Platform is available in desktop, web, and mobile versions. The Company’s upgraded Condor Back Office (Risk Management) meets various jurisdictions’ regulatory requirements. Condor Back Office meets the directives under the Markets in Financial Instruments Directive (MiFID II/MiFIR), legislation by European Securities and Market Authority (ESMA) implemented across the European Union on January 3, 2018. The Company is developing the Condor Investing & Trading App, a simplified trading platform for traders with varied experiences in trading stocks, ETFs, and other financial markets from their mobile phones. The Company expects to commercialize the Condor Investing & Trading App by the end of the second quarter of the fiscal year ending December 31, 2023. The Company had developed NFT Marketplace, a decentralized NFT marketplace, a multichain platform with a lazy minting option to reduce and limit unnecessary blockchain usage fees, also known as gas fees. The Company has no plans to commercialize the NFT Marketplace in the fiscal year ending December 31, 2023, as the market for NFT has slowed considerably. The Company and its subsidiary, ADS, intend to develop a digital wealth management company, initially including a Robo Advice Platform catering to Australia’s wealth management industry. The Company expects to commercialize the Robo Advice Platform by the fiscal year ending December 31, 2023. Technology & Software Development Revenue & Gross Margins: Fiscal year ended March 31, 2023 (Audited) Fiscal year ended March 31, 2022 (Audited) Revenue, $ 173,250 67,500 Cost of sales, $ 19,032 60,494 Gross Profit (loss), $ 154,218 7,006 Gross Margins, % 89.01 % 10.38 % For the three months ended March 31, 2023, and 2022, the Company had thirteen (13) and four (4) active customers. The increase in customers increased Technology & Software Development Revenue for the three months ending March 31, 2023, compared to the previous period. Margin Brokerage (Europe and the Middle East) – NSFX Ltd. On December 31, 2022, the Company announced the sales purchase agreement (“Agreement”) under which the Company acquired a 50.10% equity interest in New Star Capital Trading Ltd., a British Virgin Island company (“New Star”) and its operating subsidiary NSFX Ltd (“NSFX”). NSFX is an online trading brokerage firm regulated by the Malta Financial Services Authority (MFSA). The Company will assume a business acquisition loan liability of $350,000 to purchase the controlling interest in NSFX. The Company amended the Agreement to February 28, 2023, to comply with the BVI Companies Act requirement for the change of ownership. The Company expects to consolidate the fair value of NSFX’s assets and liabilities on or after February 28, 2023, but no later than June 30, 2023. NSFX is authorized to deal with its account (market maker) as a Category 3 licensed entity by the MFSA, receive and transmit orders for retail and professional clients, and hold and control clients’ money and assets. NSFX trading platform services in the English, French, German, Italian, and Arabic-speaking markets, whereby customers can trade in currency, commodity, equity, and cryptocurrency-linked derivatives in real-time. US Brokerage – CIM Securities, LLC On July 19, 2022, the Company signed a non-binding letter of intent to acquire fifty-one percent (51%) equity interest in CIM Securities, LLC (“CIM Securities”), a FINRA and SIPC member firm. On September 30, 2022, the Company signed a definitive agreement pending regulatory approval, paid a $20,000 non-refundable deposit, and transferred $180,000 to the escrow account to complete the transaction. The Company filed the CMA form with FINRA in February 2023. Once the Company receives approval from FINRA and pays the balance of $180,000, it will start consolidating income statements and balance sheets as it holds the controlling interest in CIM Securities. Consolidated Financial Summary The Company has prepared consolidated financial statements on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the ordinary business course. The Company generated $10,242,852 in revenues from January 21, 2016 (inception) to March 31, 2023. For the three months ending March 31, 2023, and 2022, the Company generated $1,545,687 and $1,541,122 in revenues. At March 31, 2023, the Company had a cash balance of $139,844 and an accumulated deficit of $4,572,228. 6 Financial Condition at March 31, 2023 On March 31, 2023, the accumulated deficit, cash balance, and working capital deficit were $4,572,228, $139,844, and $201,099, respectively. On January 25, 2023, the Company issued 115,000,000 restricted common shares for cash valued at $550,000. On March 28, 2023, the Company issued 2,000,000 restricted common shares for cash valued at $20,000. The Company intends to continue its efforts to enhance its revenue from its diversified portfolio of technological solutions, become cash flow positive, and raise funds through private placement offerings and debt financing. As the Company increases its customer base globally, it intends to acquire long-lived assets that will provide a future economic benefit beyond fiscal 2023. Financial Condition at December 31, 2022 On December 31, 2022, the accumulated deficit, cash balance, and working capital deficit were $4,335,053, $264,829, and 550,098, respectively. On January 27, 2022, the Company signed a promissory note (‘AJB Note’) with AJB Capital Investments, LLC (‘AJB Capital’), a Delaware limited liability company, for the principal amount of $550,000 with a maturity date of July 27, 2022, and a coupon of 10%. The parties extended the AJB Note maturity date by another six months till January 23, 2023. As part of the AJB Note, the Company entered into a securities purchase agreement, where AJB Capital will receive equity equal to US $155,000 of the Company’s common stock. The Company issued 2,214,286 common stock valued at $71,521 upon issuance of the Note (the “Shares”) and 1,000,000 3-year cash warrants (‘Warrants’) priced at $0.30. The Warrants and the Shares, collectively known as the ‘Incentive Fee,’ are issued upon execution of the agreement. The Company executed five “Purchase Notice Rights” under an Investment Agreement with White Lion and received a net of $72,420 after deducting financing costs associated with the Investment Agreement for the nine months ended September 30, 2022. On September 30, 2022, the Company issued 30,000,000 restricted common shares for cash valued at $300,000. We do not believe that our cash balance is sufficient to fund our operations and growth; as a result, the Company plans to raise additional capital as disclosed in Subsequent Events. The Company intends to continue its efforts to enhance its revenue from its diversified portfolio of technological solutions, become cash flow positive, and raise funds through private placement offerings and debt financing. As the Company increases its customer base globally, it intends to acquire long-lived assets that will provide a future economic benefit beyond fiscal 2023. 7 RESULTS OF OPERATIONS Three Months Ended March 31, 2023, compared with Three Months Ended March 31, 2022 For the three months ended March 31, 2023, and 2022, the Company had thirteen (13) and four (4) active customers. Revenues generated from the top three (3) customers represented approximately 61.20% and 95.42% of Technology and Software revenue for the three months ended March 31, 2023, and 2022. The consolidated revenues for the three months ended March 31, 2023, and 2022 were $1,545,687 and $1,541,122, respectively. During the three months ended March 31, 2023, and 2022, the Company incurred a net loss of $237,175 and $389,196. The total revenue breakdown for the three months ended March 31, 2023, and 2022 is below: Three Months Ended March 31, 2023 March 31, 2022 Revenue Description % of Total % of Total Wealth Management 88.68 % 95.74 % Technology Solutions 5.51 % 2.79 % Software Development 5.82 % 1.47 % Total 100.00 % 100.00 % During the three months ended March 31, 2023, and 2022, the Company incurred general and administrative costs (“g and a”) of $494,689 and $389,054 (excluding amortization expenses), respectively. The increase in g and a costs for the three months ended March 31, 2023, is due to the rise in legal and professional fees, financing costs, and ADS’ g and a. The g and a expenses were 32.00% and 25.24% of the revenue for the three months ended March 31, 2023, and 2022, respectively. Amortization expense was $19,032 and $60,494 for the three months ended March 31, 2023, and 2022 respectively, included in the Cost of sales. The amortization expense for the three months ended March 31, 2023, are due to the cumulative amortization expense of Condor Web Trader and Condor Mobile Trader. The amortization expense for the three months ended March 31, 2022, due to the cumulative amortization expense of Condor Pro Multi-Asset Trading Platform (Desktop), Condor Web Trader, and Condor Mobile Trader. The rental expense was $6,195 and $7,421 for the three months ended March 31, 2023, and 2022, respectively. Effective October 29, 2019, the Company rents its servers, computers, and data center from an unrelated third party. Under the rent Agreement, the lessor provides furniture and fixtures and any leasehold improvements at 200 Spectrum Drive, Suite 300, Irvine, CA 92618, as discussed in Note 2. Effective February 2019, the Company leases office space at Suite 205, Building 9, Potamos Germasogeia, 4047, Limassol District, Cyprus, from an unrelated party for a year. The Company uses the office for sales and marketing in Europe and Asia. The office’s monthly rent payment is $1,750; we have included in the General and administrative expenses. From February 2020, the Company extended the one-year agreement to $1,750 monthly. Effective April 2019, the Company leases office space at Suite 512, 83 Plan, Chelyabinsk, Russia, from an unrelated party for an eleven-month term. The office’s rent payment is $500 monthly, including the General and administrative expenses. From March 2020, this agreement continues month-to-month until the Company or the lessor chooses to terminate the agreement’s terms by giving thirty days’ notice. The Company uses the office for software development and technical support. Effective August 2022, the Company closed its offices in Russia and relocated its team to Turkey. The Company incurred $30,005 and $169,393 in sales, marketing, and advertising costs (“sales and marketing”) for the three months ended March 31, 2023, and 2022. The sales and marketing costs mainly included travel costs for tradeshows, customer meetings, online marketing on industry websites, press releases, and public relations activities. The sales, marketing, and advertising expenses represented 1.94% and 10.99% of the sales for the fiscal year ending March 31, 2023, and 2022, respectively. 8 LIQUIDITY AND CAPITAL RESOURCES On March 31, 2023, and December 31, 2022, we had a cash balance of $139,844 and $264,829, respectively. In the next twelve (12) months, the Company will continue investing in sales, marketing, product development, new technology solutions, and existing technology support to serve our customers. We expect capital expenditures to increase to $500,000 in the next twelve (12) months to support the growth, including working capital, software development, sales & marketing, and purchasing computers and servers. We expect the combination of existing cash, cash equivalents, cash flows from operations, and access to private equity and capital markets to be sufficient for at least twelve (12) months. The availability of funds will fund our operating activities to meet the need for investing and financing, such as debt maturities and material capital expenditures. However, we may need additional funds to achieve a sustainable sales level to fund our ongoing operations out of revenues. There is no assurance that any additional financing will be available or, if available, on terms that will be acceptable to us. Should we require additional capital, the Company’s operations are insufficient to fund its capital requirements. The Company may attempt to restructure Notes, refinance existing Notes with financial institutions, or raise capital by selling additional capital stock or debt issuance. The Company intends to continue growing its operations and raising funds through private equity and debt financing. Between February 22, 2016, and April 24, 2017, the Company borrowed $1,000,000 from FRH Group, a founder and principal shareholder. Effective June 1, 2017, we raised $98,000 through our common stock’s private placement to our officers, directors, friends, relatives, and business associates. Between February 22, 2016, and April 24, 2017, the Company borrowed $1,000,000 from FRH Group, a founder and principal shareholder (“FRH”). The Company executed Convertible Promissory Notes, due between February 28, 2018, and April 24, 2019. The Notes were convertible into common stock initially at $0.10 per share but may be discounted under certain circumstances. In no event will the conversion price be less than $0.05 per share with a maximum of 20,000,000 shares. From January 29, 2019, to February 15, 2019, the Company issued 33,000 registered shares under the Securities Act of 1933 for a cash amount of $4,950. The Company closed its offering effective February 26, 2019. On February 22, 2021, the Company entered into an Assignment of Debt Agreement (the “Agreement”) with FRH and FRH Group Corporation. The Company eliminated all four FRH Group convertible notes, including interest, of $1,256,908, in return for the issuance of 12,569,080 of unregistered common stock of the Company (the “Shares”) to FRH. Following the Agreement, FRH assigned the Shares to FRH Group Corporation, also owned by Mr. Hong. On May 01, 2020, the Company received proceeds of Fifty-Thousand Six Hundred and Thirty-Two ($50,632) from the Promissory Note (“PPP Note”) under the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). On May 22, 2020, the Company received proceeds of one hundred and forty-four thousand nine hundred and 00/100 Dollars ($144,900.00). On July 15, 2020, the Company engaged Kingswood Capital Markets, a Benchmark Investments division, Inc., as its exclusive general financial advisor for strategic corporate planning and investment banking services. On August 25, 2020, the Company and Broker-Dealer terminated all obligations other than maintaining confidentiality with no fees to the Broker-Dealer. The Broker-Dealer agreed to return the 2,745,053 shares of the Company’s common stock. On September 02, 2020, the Company engaged Garden State Securities Inc. (GSS) as its exclusive advisor for the private placement of debt or equity securities to fulfill the Company’s business plan and an offering of debt securities to assist in the Company’s acquisition strategy. On October 05, 2021, the Company and GSS terminated all obligations other than maintaining confidentiality, with no fees to the GSS. The Broker-Dealer agreed to return the 1,750,000 shares of the Company’s common stock. On September 27, 2021, the Company engaged EF Hutton, a division of Benchmark Investments, LLC (“EF Hutton”). EF Hutton will act as lead underwriter, deal manager, and investment banker for the proposed firm commitment public offering and uplisting (“Offering”) by the Company in connection with the offering of the Company’s equity, debt, or equity derivative instruments (the “Securities”). The Company engagement expired as of December 31, 2022. On October 04, 2021, the Company filed a prospectus that relates to the resale of up to 22,670,000 shares of our Common Stock issued or issuable to selling shareholders for up to $2,200,000, including (i) up to 2,000,000 shares issued to AD Securities America, LLC, (ii) up to 20,000,000 issuable to White Lion Capital, LLC (“White Lion”), according to a “Purchase Notice Right” under an Investment Agreement and (iii) 670,000 shares issued to White Lion as a commitment fee associated with the Investment Agreement. 9 On January 27, 2022, the Company signed a promissory note (‘AJB Note’) with AJB Capital Investments, LLC (‘AJB Capital’), a Delaware limited liability company, for the principal amount of $550,000 with a maturity date of July 27, 2022, and a coupon of 10%. The parties extended the AJB Note maturity date by another six months till January 23, 2023. As part of the AJB Note, the Company entered into a securities purchase agreement, where AJB Capital will receive equity equal to US $155,000 of the Company’s common stock. The Company issued 2,214,286 common stock valued at $71,521 upon issuance of the Note (the “Shares”) and 1,000,000 3-year cash warrants (‘Warrants’) priced at $0.30. The Warrants and the Shares, collectively known as the ‘Incentive Fee,’ are issued upon execution of the agreement. In April 2022, the Company engaged CIM Securities, LLC as its private placement agent to raise capital. The Company did not raise any funds. The Company executed five “Purchase Notice Rights” under an Investment Agreement with White Lion and received a net of $72,420 after deducting financing costs associated with the Investment Agreement for the nine months ended September 30, 2022. On September 30, 2022, the Company issued 30,000,000 restricted common shares for cash valued at $300,000. On January 25, 2023, the Company issued 5,309,179 restricted common shares to AJB to compensate for consideration shares related to the AJB Note valued at $60,525. On January 25, 2023, the Company issued 115,000,000 restricted common shares for cash valued at $550,000. On March 28, 2023, the Company issued 2,000,000 restricted common shares for cash valued at $20,000. GOING CONCERN CONSIDERATION We have yet to generate significant revenues and operating income from inception to March 31, 2023, to cover our operating costs. As of March 31, 2023, and December 31, 2022, the Company accumulated deficits of $4,572,228 and $4,335,053, respectively. Our independent auditors included an explanatory paragraph in their report on the audited financial statements for the fiscal year ended December 31, 2022, and 2021, and the period from January 21, 2016 (inception) to December 31, 2016, regarding concerns about our ability to continue as a going concern. Our financial statements contain additional note disclosures describing the circumstances that led to this disclosure by our independent auditors. Our financial statements do not include any adjustments related to the recoverability or classification of asset-carrying amounts or the amounts and classifications of liabilities that may result in the company being unable to continue as a going concern. Critical Accounting Policies and Significant Judgments and Estimates We have based our management’s discussion and analysis of our financial condition and results of operations on our financial statements, which we have prepared following the U.S. generally accepted accounting principles. In preparing our financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Our actual results could differ from these estimates, and such differences could be material and uncertain in the current economic environment due to COVID-19. In more detail, we have described significant accounting policies in Note 2 of our annual financial statements included in our 10-K for the fiscal year ended December 31, 2020, filed with the SEC on April 6, 2020. We evaluate our critical accounting estimates and judgments required by our policies on an ongoing basis and update them as appropriate based on changing conditions. JOBS Act Accounting Election We are an “ emerging growth company ,” as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued after the enactment of the JOBS Act until those standards apply to private companies. As an emerging growth company, we have applied for an exemption; as a result, the Company may delay the adoption of certain accounting standards until the standards would otherwise apply to private companies. Off-Balance Sheet Arrangements and Contractual Obligations We have not engaged in any off-balance sheet arrangements as defined in Item 303(c) of the SEC’s Regulation S-B. We did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities that would have been established to facilitate off-balance sheet arrangements or other contractually narrow or limited purposes. Recent Accounting Pronouncements The amendments in the ASU are effective for fiscal years beginning after December 15, 2019, including interim periods therein. Early adoption of the standard is permitted, including adoption in interim or annual periods for which financial statements have not yet been issued. We have adopted this ASU as of March 31, 2020 for ASC 606, Revenue Recognition and Amended ASU 2016-02, Leases (Topic 840). The ASU is currently not expected to have a material impact on our consolidated financial statements. While we have described significant accounting policies in more details in Note 2 of our annual financial statements included in our 10-K for the fiscal year ended December 31, 2020, filed with the SEC on April 6, 2020, we believe the accounting policies as described in Note 2 to be critical to the judgments and estimates used in the preparation of our financial statements. 10 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS. Not Applicable.