INVAP S.A.U. — Audit Report / Information 2019

Oct 17, 2019

BLACK RIVER TECHNOLOGY, INC.

FINANCIAL STATEMENTS June 30, 2019

BLACK RIVER TECHNOLOGY, INC.

FINANCIAL STATEMENTS June 30, 2019

CONTENTS

INDEPENDENT AUDITOR’S REPORT ....................................................................................................	1
FINANCIAL STATEMENTS
BALANCE SHEET ..............................................................................................................................	3
STATEMENT OF OPERATIONS .......................................................................................................	4
STATEMENT OF STOCKHOLDER’S EQUITY ..................................................................................	5
STATEMENT OF CASH FLOWS .......................................................................................................	6
NOTES TO FINANCIAL STATEMENTS ............................................................................................	7

FINANCIAL STATEMENTS

Crowe LLP Independent Member Crowe Global

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INDEPENDENT AUDITOR’S REPORT

To the Board of Directors and Stockholders Black River Technology, Inc. Downers Grove, IL

Qualified Opinion

We have audited the financial statements of Black River Technology, Inc. (the Company), which comprise the balance sheet as at June 30, 2019 and the statement of operations, statement of stockholder’s equity and statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies.

In our opinion, except for the possible effects of the matters described in the Basis for Qualified Opinion section of our report, the accompanying financial statements present fairly, in all material respects, the financial position of the Company at June 30, 2019, and of its financial performance and its cash flows for the year then ended in accordance with US Generally Accepted Accounting Principles (GAAP).

Basis for Qualified Opinion

As described in Note 6, we were unable to observe a transfer pricing study and were unable to satisfy ourselves by other auditing procedures concerning a possible uncertain tax position. As a result of this matter, we were unable to determine whether any adjustments might have been necessary.

As described in Note 2, we were unable to obtain sufficient appropriate audit evidence that management stated inventory at the lower of cost or net realizable value. As a result of this matter, we were unable to determine whether any adjustments to these amounts were necessary.

We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the United States of America, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified opinion.

Emphasis of Matter

The Company has significant transactions and balances with the Company’s sole shareholder, which are described in Note 1, 2 and 3 to the financial statements. Our opinion is not modified with respect to this matter.

Responsibilities of Management and Those Charged with Governance for the Financial Statements

Management is responsible for the preparation and fair presentation of the financial statements in accordance with GAAP, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

(Continued)

In preparing the financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company’s financial reporting process.

Auditor’s Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

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Crowe LLP

Miami, Florida October 8, 2019

BLACK RIVER TECHNOLOGY, INC. BALANCE SHEET June 30, 2019

ASSETS Current assets: Cash Trade receivables: Parent Inventories Inventories in transit Other assets Total current assets Furniture and office equipment, net Deposits Total assets LIABILITIES AND STOCKHOLDER’S EQUITY Current liabilities: Trade payables: Parent Other Other payables and accrued liabilities Income tax payable Total liabilities (all current) Commitments and contingencies (Note 6) Stockholder’s equity: Common stock – $1 par value, 30,000 shares authorized; 25,000 share issued and outstanding Additional paid-in-capital Accumulated deficit Total stockholder’s equity Total liabilities and stockholder’s equity

$ 208,533 345,752 1,618,764 26,727 117,097 2,316,873 889 2,640 $ 2,320,402 $ 1,549,490 209,876 35,924 1,840 1,797,130 25,000 2,042,104 (1,543,832) 523,272 $ 2,320,402

See accompanying notes to financial statements.

BLACK RIVER TECHNOLODY, INC. STATEMENT OF OPERATIONS Year ended June 30, 2019

Sales - Parent Cost of sales Gross profit Operating expenses: Warehouse, selling and administrative expenses Other expenses Total operating expenses Loss from operations Income tax Net loss	$ 1,591,815 1,425,912 165,903 450,405 13,427 463,832 (297,929) - $ (297,929)

See accompanying notes to financial statements.

BLACK RIVER TECHNOLODY, INC. STATEMENT OF STOCKHOLDER’S EQUITY Year ended June 30, 2019

Balances as of July 1, 2018 Debt to equity conversion Net loss Balances as of March 31, 2019	Common Stock $ 5,000 20,000 - $ 25,000	Additional Paid in Capital $ 1,562,104 480,000 - $ 2,042,104	Accumulated Deficit $ (1,245,903) - (297,929) $ (1,543,832)	$	Total Equity 321,201 500,000 (297,929) 523,272
	$			$

See accompanying notes to financial statements.

BLACK RIVER TECHNOLODY, INC. STATEMENT OF CASH FLOWS Year ended June 30, 2019

Cash flows from operating activities Net loss Adjustments to reconcile net loss to net cash from operating activities Depreciation Changes in assets and liabilities Decrease in Parent trade receivables Increase in inventories Increase in other assets Increase in trade and other payables Increase in Parent trade payables Increase in other payables and accrued liabilities Net cash from operating activities Cash flows from investing activities Purchase of furniture and office equipment Net cash from investing activities Net decrease in cash Cash at the beginning of year Cash at the end of year Supplemental non-cash disclosure: Debt to equity conversion

$ (297,929) 127 336,762 (222,596) (94,188) 10,031 173,936 28,933 (64,924) (1,017) (1,017) (65,941) 274,474 $ 208,533 $ 500,000

See accompanying notes to financial statements.

BLACK RIVER TECHNOLOGY, INC. NOTES TO FINANCIAL STATEMENTS June 30, 2019

NOTE 1 – NATURE OF OPERATIONS AND BASIS OF ACCOUNTING

Black River Technology, Inc. (the “company”) is incorporated under the laws of the United States of America. The Company is located in Downers Grove, Illinois and is engaged in buying, selling, distributing and exporting electrical and engineering products to its Parent company INVAP S.E. (“INVAP” or “Parent”). The Company operated on a 12-month period ending June 30, and its functional currency is the US dollar. The Company is wholly-owned by INVAP, an Argentinean entity, which is devoted to the design and construction of complex technological systems. The accompanying financial statements have been prepared under accounting principles generally accepted in the United States of America (US GAAP).

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES

Inventories: Inventories consist of supplies and equipment held for resale and are stated at the lower of cost (first-in, first-out) or net realizable value. The Company has not completed an analysis of slow moving and obsolete inventory sufficient to conclude that inventory is fairly stated in accordance with GAAP. We are unable to determine the amount, if any, of a possible valuation reserve related to inventory. At June 30, 2019, no inventory was pledged as collateral.

Furniture and office equipment: Furniture and office equipment are stated at cost less any accumulated depreciation and impairment losses, when applicable. Depreciation is calculated using the straight-line method. Useful lives of furniture and office equipment range from two to three years.

Management assesses, on an annual basis, or on an interim basis when circumstances indicate that such amounts may not be recoverable from future operations, the carrying value of long-lived assets other than goodwill for impairment. Generally, assets to be held and used are considered impaired if the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. As of June 30, 2019, there were no events or changes in circumstances that indicated to management that the carrying value of its long-lived assets may not be recoverable.

Revenue recognition and accounts receivable: Revenue on product sales is generally recognized when goods are shipped and the following criteria have been met: a sales arrangement exists, products have been shipped and title has transferred, the price of the product is fixed or determinable, and collectability is reasonable assured.

In certain instances, the Company will recognize revenue prior to shipment when the customer requests in writing that the transaction be on a bill and hold basis, the risk of ownership has passed to the customer, the goods are segregated and ready for shipment, and there is a fixed schedule for delivery of the product and no performance obligation exist. No bill and hold arrangements exist as of June 30, 2019.

Management determines an allowance for doubtful accounts by periodically evaluating individual accounts receivable and considering a customer’s financial condition, credit history and current economic conditions. Accounts receivable are written off when deemed uncollectible.

Related party: The Company has significant transactions with the Company’s sole shareholder, INVAP. Transactions involving related parties, such as with INVAP, cannot be presumed to be carried out on an arm’s length basis, as the requisite conditions for competitive, free-market dealings may not exist. INVAP personnel provides some administrative and accounting support to the Company. The Company was not charged a fee for the services for the year ending June 30, 2019.

Shipping and handling fees and costs: The Company records shipping and handling fees and costs billed to customers as revenue, and shipping and handling costs incurred by the Company as cost of goods sold.

(Continued)

BLACK RIVER TECHNOLOGY, INC. NOTES TO FINANCIAL STATEMENTS June 30, 2019

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (Continued)

Taxation: The current provision or benefit for income taxes represents actual or estimated amounts payable or refundable on tax returns filed or to be filed. Deferred tax assets and liabilities are recorded for the estimated future tax effects of temporary differences between the tax basis of assets and liabilities and amounts reported in the balance sheet. The overall change in deferred tax assets and liabilities for the period measures the deferred tax expense (benefit) for the period. Effects of changes in enacted tax laws on deferred tax assets and liabilities are reflected as adjustments to tax expense in the period of enactment. The measurement of deferred tax assets may be reduced by a valuation allowance based on a judgmental assessment of available evidence if deemed more likely than not than some or all of deferred tax assets will not be realized.

The Company assesses the likelihood of the financial statement effect of a tax position that should be recognized when it is more likely than not that the position will be sustained upon examination by a taxing authority based on the technical merits of the tax position, circumstances, and information available as of the reporting date.

The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax positions as a component of income tax expense. As of June 30, 2019, the Company did not have any accrued interest or penalties associated with any unrecognized tax positions, not was any interest expense recognized during the year ended June 30, 2019.

The Company is subject to U.S. federal income tax as well as income tax in the State of Illinois. The Company is no longer subject to examination by taxing authorities for years prior to 2016.

Use of estimates: The preparation of the financial statement 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 balance sheet date and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Subsequent events: The Company evaluated subsequent events through October 8, 2019, the date that the Company’s financial statements were available to be issued, for consideration of subsequent events to be included in its June 30, 2019 financial statements.

NOTE 3 – ADVANCES, PARENT (Australia Branch)

As of July 1, 2018, The Company owed INVAP Australia (a branch of INVAP) $500,000 for advances made to the Company on behalf of INVAP during fiscal year 2017. These advances were unsecured, non-interest bearing and were due on demand. In February of 2019, the Company and INVAP agreed to convert the related party debt into equity. The transaction involved converting $500,000 of debt to 20,000 shares of common stock of the Company at $25 per share.

BLACK RIVER TECHNOLOGY, INC. NOTES TO FINANCIAL STATEMENTS June 30, 2019

NOTE 4 – INCOME TAXES

Income tax expense for the year ending June 30, 2019 consists of the following:

Current expense: Federal State Total current expense Deferred benefit: Federal State Valuation allowance Total deferred benefit Total tax expense	$ - - - 54,000 27,000 (81,000) - $ -

A valuation allowance has been established against the deferred tax assets of the Company. It has been determined that it is more likely than not that the deferred tax assets will not be realized. Total valuation allowance at June 30, 2019 was estimated to be $254,000, which reflects the total deferred tax asset balance as of the same period.

The difference between the statutory federal income tax rate and the effective tax rate is primarily due to the state taxes and permanent differences

The primary component of the Company’s deferred tax asset at June 30, 2019, represents net operating loss carryforwards available to offset future income. . The company has available at June 30, 2019, federal and state net operating loss carryforwards of approximately $797,000 and $1,042,000, respectively, of which approximately $511,000 and $756,000 start expiring in 2037 and 2029 respectively. The Tax Cuts and Jobs Act made significant changes to net operating loss rules for tax years beginning in 2018. Net operating losses may now be carried forward indefinitely until the loss if fully recovered, but they are limited to 80% of the taxable income in any one tax period. Federal and state net operating loss carryforward available at June 30, 2019 with no expiration amount to approximately $286,000 and $286,000, respectively.

NOTE 5 – OPERATING LEASES

The Company leases office and warehouse space under an operating lease that requires monthly payments of $2,458, which expired in August 2019 and renewed for an additional year at approximately the same amount. Under the terms of the lease agreement, the Company is responsible for its pro-rata share of taxes, insurance and operating costs. In addition, the Company leases a vehicle for an officer. The lease is classified as an operating lease and requires monthly payments of approximately $369 through February 2020. Total rent expense under these leases was approximately $29,600 for the year ended June 30, 2019

BLACK RIVER TECHNOLOGY, INC. NOTES TO FINANCIAL STATEMENTS June 30, 2019

NOTE 5 – OPERATING LEASES (Continued)

Non-cancelable operating lease obligations are approximately as follows:

g lease obligations are approximately as follows:
Fiscal years ending June 30 2020	$	Amount 7,900
	$	7,900

NOTE 6 – CONTINGENCY

On December 9, 2014, the Company received a Grand Jury Subpoena requesting the Company to produce documents to the U.S. Federal Bureau of Investigation (“FBI”). BRT produced non-privileged documents that were responsive to the Subpoena requests to the FBI on January 16, 2015. The Company has not been informed of the Government’s position as to whether the Company is a target, subject, or witness in this investigation. The Company has also communicated with an investigator from the United States Nuclear Regulatory Commission related to an investigation into certain Company shipments. On October 30, 2018, INVAP received an email from their attorneys explaining that the FBI is closing the investigation.

The Company is in the process of obtaining a transfer pricing study related to transactions with the Parent. We are unable to determine the amount, if any, of a possible uncertain tax position related to intercompany transactions which are described in Note 1, 2 and 3 of the financial statements.

NOTE 7 – MANAGEMENT’S PLANS (Unaudited)

Management assesses, considering both quantitative and qualitative factors, whether there are conditions and events that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are available to be issued. Due to reduction of sales to Parent, the Company has experienced a continuous reduction in its revenues resulting in significant losses. The Company has restructured its operations and significantly decreased its overhead costs, with focus to maintain its operational efficiency. The Company has a financial support commitment from its Parent for at least a year from issuance of the financial statements to help it implement its strategic plans.