|
|
|
March
31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Cash
|
|
|
356,512
|
|
|
|
2,103,254
|
|
|
Restricted
deposits
|
|
|
806,466
|
|
|
|
-
|
|
|
Total cash,
cash equivalents and restricted cash in the balance sheet
|
|
|
1,162,978
|
|
|
|
2,103,254
|
|
Revenue
Recognition
Effective
January 1, 2018, the Company adopted ASC Topic 606, Revenue from Contracts with Customers (“ASC Topic 606”). The new
revenue recognition guidance requires that an entity recognize revenue to depict the transfer of promised goods or services to
customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods
or services. The guidance requires an entity to follow a five-step model to (a) identify the contract(s) with a customer, (b)
identify the performance obligations in the contract, (c) determine the transaction price, (d) allocate the transaction price
to the performance obligations in the contract, and (e) recognize revenue when (or as) the entity satisfies a performance obligation.
In determining the transaction price, an entity may include variable consideration only to the extent that it is probable that
a significant reversal in the amount of cumulative revenue recognized would not occur when the uncertainty associated with the
variable consideration is resolved.
Revenues
under Topic 606 are required to be recognized either at a “point in time” or “over time”, depending on
the facts and circumstances of the arrangement, and will be evaluated using a five-step model. The adoption of Topic 606 did not
have a material impact on the financial statements, either at initial implementation nor will it have a material impact on an
ongoing basis.
The
Company principally generates revenue through three operating streams: (1) the sale of MagneGas fuel for metal cutting and through
the sales of other industrial and specialty gases and related products through the Company’s wholly owned subsidiaries,
(2) by providing consulting services and (3) through the sales of the Plasma Arc Flow Systems. The Company’s revenue recognition
policy for the year ended December 31, 2018 is as follows:
|
●
|
Revenue
for metal-working fuel, industrial gases and welding supplies is recognized when performance obligations of the sale are satisfied.
The majority of the Company’s terms of sale have a single performance obligation to transfer products. Accordingly,
the Company recognizes revenue when control has been transferred to the customer, generally at the time of shipment of products.
Under the previous revenue recognition accounting standard, the Company recognized revenue upon transfer of title and risk
of loss, generally upon the delivery of goods.
|
|
|
|
|
●
|
Consulting
Services are earned through various arrangements. The Company applies the five-step process outlined in ASC 606 when recognizing
revenue with regards to the consulting services:
|
|
|
○
|
The
Company enters into a written consulting agreement with a customer to provide professional services and has an enforceable
right to payment for its performance completed to date;
|
|
|
|
|
|
|
○
|
All
of the promised services are identified to determine whether those services represent performance obligations;
|
|
|
|
|
|
|
○
|
In
consideration for the services to be rendered, the Company expects to receive incremental payments during the term of the
agreement;
|
|
|
|
|
|
|
○
|
Payments
are estimated for each performance obligation and allocated in accordance with payment terms; and
|
|
|
|
|
|
|
○
|
The
nature of the consulting services is such that the customer will receive benefits of the Company’s performance only
when the customer receives the professional services. Consequently, the entity recognizes revenue over time by measuring the
progress toward complete satisfaction of the performance obligation.
|
|
●
|
Plasma
Arc Flow Units Revenue generated from sales of each unit is recognized upon delivery and completion of the performance obligation.
Significant deposits are required before production commences. These deposits are classified as customer deposits.
|
Contract
Balances
The
timing of revenue recognition may differ from the timing of payment by customers. The Company records a receivable when revenue
is recognized prior to payment and there is an unconditional right to payment. Alternatively, when payment precedes the provision
of the related services, the Company records deferred revenue until the performance obligations are satisfied. The Company had
deferred revenue of approximately $0 and $0 as of March 31, 2019 and 2018. The Company expects to satisfy its remaining
performance obligations for these services and recognize the deferred revenue and related contract costs over the next twelve
months.
The
following table represents external net sales disaggregated by product category for the quarter ended March 31,
|
|
|
2019
|
|
|
2018
|
|
|
Gas sold
|
|
$
|
2,912,877
|
|
|
$
|
869,829
|
|
|
Equipment rentals
|
|
|
869,574
|
|
|
|
190,309
|
|
|
Equipment sales
|
|
|
1,053,122
|
|
|
|
111,616
|
|
|
Other
|
|
|
77,758
|
|
|
|
-
|
|
|
Total Revenues
from Customers
|
|
|
4,913,332
|
|
|
|
1,171,753
|
|
Preferred
Stock
The
Company applies the accounting standards for distinguishing liabilities from equity under U.S. GAAP when determining the classification
and measurement of its Preferred stock. Preferred shares subject to mandatory redemption are classified as liability instruments
and are measured at fair value. Conditionally redeemable preferred shares (including preferred shares that feature redemption
rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely
within the Company’s control) are classified as temporary equity. At all other times, preferred shares are classified as
permanent equity.
Research
and Development
The
Company expenses research and development costs when incurred. Research and development costs include engineering and laboratory
testing of products and outputs. Research and development expense was $25,173 and $1,152 for the quarters ended March 31, 2019
and 2018, respectively.
Stock-Based
Compensation
The
Company accounts for stock-based compensation costs under the provisions of Accounting Standards Codification 718, “Compensation—Stock
Compensation” (“ASC 718”), which requires the measurement and recognition of compensation expense related to
the fair value of stock-based compensation awards that are ultimately expected to vest. Stock based compensation expense recognized
includes the compensation cost for all stock-based payments granted to employees, officers, and directors based on the grant date
fair value estimated in accordance with the provisions of ASC 718. ASC 718 is also applied to awards modified, repurchased, or
canceled during the periods reported.
The
Company incurred stock-based compensation charges of $1,875,313 and $529,718 for the quarters ended March 31, 2019 and
2018, respectively and has included such amounts in selling, general and administrative expenses in the consolidated statement
of operations.
Basic
and Diluted Net (Loss) per Common Share
Basic
(loss) per common share is computed by dividing the net (loss) by the weighted average number of shares of common stock outstanding
for each period. Diluted (loss) per share is computed by dividing the net (loss) by the weighted average number of shares of common
stock outstanding plus the dilutive effect of shares issuable through the common stock equivalents.
As
of March 31, 2019, and 2018 the Company’s common stock equivalents outstanding were as follows:
|
|
|
March
31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Options
|
|
|
11,553
|
|
|
|
10,304
|
|
|
Common Stock Warrants
|
|
|
12,819,028
|
|
|
|
11,111
|
|
|
Convertible preferred
stock
|
|
|
-
|
|
|
|
3,546
|
|
|
Total common
stock equivalents outstanding
|
|
|
12,830,581
|
|
|
|
24,961
|
|
Reclassification
Certain
accounts in the prior year’s consolidated financial statements have been reclassified for comparative purposes to conform
to the presentation in the current year’s consolidated financial statements. These reclassifications have no effect on previously
reported earnings.
Subsequent
Events
The
Company evaluates events that have occurred after the balance sheet date, but prior to the date the financial statements are issued.
Based upon the evaluation, the Company did not identify any recognized or non-recognized subsequent events that would have required
adjustment or disclosure in the consolidated financial statements, except as disclosed in Note 8.
Recent
Accounting Standards
In
August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
No. 2018-13, Fair Value Measurement. ASU 2018-13 modifies the disclosure requirements for fair value measurements by removing,
modifying, or adding certain disclosures. The amendments in ASU 2018-13 will be effective for fiscal years beginning after December
15, 2019. Early adoption is permitted. An entity is permitted to early adopt any removed or modified disclosures upon issuance
of ASU No. 2018-13 and delay adoption of the additional disclosures until their effective date. The Company is currently evaluating
the potential impact of adopting this guidance on its consolidated financial statements.
NOTE
4 – ACQUISITIONS
January
Stock Purchase:
On
January 16, 2019, the Company entered into a Securities Purchase Agreement (“SPA”) with Melvin Ruyle Family Living
Trust (the “Seller”) and Tyler Welders Supply, Inc., a Texas corporation (“TWS”) for the purchase of all
of the issued and outstanding capital stock of TWS by the Company (“Transaction”). Under the terms of the SPA, the
Company purchased one hundred percent (100%) of TWS’s issued and outstanding capital stock for the gross purchase price
of $2,500,000 (“TWS Stock”). Effective at closing, the Company will assume business operations at its new location
in Texas.
The
preliminary allocation of the consideration transferred is as follows:
|
Cash
|
|
$
|
2,500,000
|
|
|
Total purchase
price
|
|
$
|
2,500,000
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
572,264
|
|
|
Cash
|
|
|
43,394
|
|
|
Inventory
|
|
|
571,699
|
|
|
Customer relationships
|
|
|
250,000
|
|
|
Cylinders and trucks
|
|
|
182,549
|
|
|
Accounts payable assumed
|
|
|
(652,578
|
)
|
|
Total
purchase price allocation
|
|
$
|
967,327
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
1,532,673
|
|
February
Stock Purchase:
On
February 15, 2019, the Company entered into a Securities Purchase Agreement (“SPA”) with Melvin Ruyle, Jered Ruyle
and Janson Ruyle (collectively, the “Seller”) and Cylinder Solutions, Inc., a Texas corporation (“CS”)
for the purchase of all of the issued and outstanding capital stock of CS by the Company (“Transaction”). Under the
terms of the SPA, the Company purchased one hundred percent (100%) of CS’s issued and outstanding capital stock for the
gross purchase price of $1,500,000 (“CS Stock”). Effective at closing, the Company assumed business operations at
its new location in East Texas.
The
preliminary allocation of the consideration transferred is as follows:
|
Cash
|
|
$
|
1,500,000
|
|
|
Total purchase
price
|
|
$
|
1,500,000
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
13,902
|
|
|
Cash
|
|
|
25,931
|
|
|
Cylinders and trucks
|
|
|
336,081
|
|
|
Accounts payable assumed
|
|
|
(40,911
|
)
|
|
Total
purchase price allocation
|
|
$
|
335,004
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
1,164,996
|
|
February
Asset Purchase:
On
February 22, 2019, Taronis Technologies, Inc. (the “Company”) entered into an Asset Purchase Agreement (“Agreement”)
with Complete Cutting and Welding Supplies, Inc., a California corporation (the “Seller”) for the purchase of substantially
all of the Seller’s tangible and intangible business assets (“Transaction”). Under the terms of the Agreement,
the Company purchased from the Seller substantially all of the Seller’s right, title an interest to the Seller’s business
assets and certain other assumed liabilities. The total purchase price paid was $2,500,000 cash. The Agreement includes certain
other terms and conditions which are typical in asset purchase agreements.
The
allocation of the consideration transferred is as follows:
|
Cash
|
|
$
|
2,500,000
|
|
|
Total purchase
price
|
|
$
|
2,500,000
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
455,705
|
|
|
Customer relationships
|
|
|
250,000
|
|
|
Cylinders and trucks
|
|
|
377,655
|
|
|
Accounts payable
assumed
|
|
|
(316,333
|
)
|
|
Total
purchase price allocation
|
|
$
|
767,027
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
1,732,973
|
|
All
goodwill recorded as part of the purchase price allocations is currently anticipated to be tax deductible.
The
following unaudited proforma financial information presents the consolidated results of operations of the Company with NG Enterprises
Acquisition, LLC, MWS Green Arc Acquisition, LLC, Trico Welding Supplies, Inc., Paris Oxygen Company, Latex Welding Supply, Inc.,
United Welding Specialties of Longview, Inc., Tyler Welders Supply, Cylinder Solutions and Complete Cutting and Welding Supplies
for the three months ended March 31, 2019 and 2018, as if the above discussed acquisitions had occurred on January 1, 2018
instead of January 19, 2018, February 16, 2018, April 3, 2018, October 17, 2018, October 22, 2018, October 26, 2018, January
16, 2019, February 15, 2019 and February 22, 2019, respectively. The proforma information does not necessarily reflect the results
of operations that would have occurred had the entities been a single company during those periods.
|
|
|
For
the three months ended March 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Revenues
|
|
|
5,511,277
|
|
|
|
5,610,443
|
|
|
Gross Profit
|
|
|
2,602,899
|
|
|
|
2,133,753
|
|
|
Operating Loss
|
|
|
(8,270,649
|
)
|
|
|
(3,625,901
|
)
|
|
Net Loss
|
|
|
(8,299,952
|
)
|
|
|
(3,780,891
|
)
|
|
Weighted Average Common Stock Outstanding
|
|
|
15,389,825
|
|
|
|
317,535
|
|
|
Loss per Common Share – Basic
and Diluted
|
|
|
(0.54
|
)
|
|
|
(11.91
|
)
|
NOTE
5 – NOTES PAYABLE
On
February 22, 2019, the Company entered into a Cylinder Purchase Agreement with Guillermo Gallardo to purchase 10,000 gas cylinders.
The Company made an initial purchase of 1,000 cylinders on October 18, 2018 for $300,000. The Company purchased an additional
2,334 cylinders upon execution of this agreement for $700,200. The Company agreed to purchase the remaining 6,666 cylinders for
$1,999,800 over a period of two years. There is no interest associated with this agreement.
NOTE
6 - STOCKHOLDERS’ EQUITY
Reverse
Stock Splits
On
January 30, 2019, the Company filed an amendment to the Certificate of Incorporation to effect a one-for-twenty reverse split
of the Company’s issued and outstanding common stock which was effectuated on January 30, 2019.
The
reverse stock splits did not modify the rights or preferences of the common stock. Proportional adjustments have been made to
the conversion and exercise prices of the Company’s outstanding common stock warrants, convertible notes, common stock options.
The number of shares of common stock issuable under the Company’s equity compensation plan was not impacted by the reverse
split. The Company did not issue any fractional shares in connection with the reverse stock splits or change the par value per
share. Fractional shares issuable entitle shareholders, to receive a cash payment in lieu of the fractional shares without interest.
All share and per share amounts for the common stock have been retroactively restated to give effect to the reverse splits.
Common
Shares Issued for Cash
January
Securities Purchase Agreement
On
January 11, 2019, the Company entered into a Securities Purchase Agreement (“SPA”) with one or more investors identified
on the signature pages thereto (“Investors”). Under the terms of the SPA, the Company issued an aggregate of 1,550,000
shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”) and warrants to purchase
up to 1,550,000 shares of Common Stock (“Warrants”) (collectively, the “Transaction Securities”) as set
forth on the Purchaser Signature Page attached to the SPA, for a total gross purchase price of $4,340,000 (exclusive of the exercise
of the Warrants) (the “Offering”). We received aggregate net proceeds of approximately $4,029,600. The sale
of the Common Stock at a price of $2.80 per share is was made pursuant to a prospectus supplement, which was filed with the Securities
and Exchange Commission (the “SEC”) on or about January 11, 2019, and accompanying base prospectus relating to the
Company’s shelf registration statement on Form S-3 (File No. 333-207928), which was declared effective by the SEC on June
15, 2016.
February
Underwriting Agreement
On
February 8, 2019, the Company entered into an Underwriting Agreement (the “Underwriting Agreement”) with Maxim Group
LLC (the “Underwriter”) to issue and sell an aggregate of 10,800,000 shares (the “Shares”) of the Company’s
common stock, par value $0.001 per share (“Common Stock”) and warrants to purchase an aggregate of up to 8,100,000
shares of Common Stock (the “Warrants”), in an underwritten public offering, for a total gross purchase price of
$13,500,000. The combined price to the public in the offering for each Share and accompanying Warrant to purchase 0.75 shares
of Common stock is $1.25. The Shares and the Warrants can only be purchased together but will be issued separately and will be
immediately separable upon issuance. In addition, the Company granted the Underwriter an option to purchase, for a period of 30
days, up to an additional 1,120,000 Shares and/or 840,000 Warrants (the “Option”). Net proceeds from the Offering
were approximately $12,731,250, after deducting underwriting discounts and estimated offering expenses and assuming no
exercise of the Option. The offering was made pursuant to the Company’s registration statement on Form S-3 (Registration
Statement No. 333-207928), previously filed with the Securities and Exchange Commission (the “Commission”) and declared
effective by the Commission on June 15, 2016, and a prospectus supplement thereunder.
During
the three months ended March 31, 2019, the Company received total proceeds of $17,840,000 and issued 12,350,000 common shares.
Common
Shares Issued for Services
During
the three months ended March 31, 2019, the Company issued 520,000 shares of common stock to consultants. The total fair value
of these issuances during the three months ended March 31, 2019 was $990,498 which was recognized as stock-based compensation
during three months ended March 31, 2019.
NOTE
7 – PREFERRED STOCK
On
March 8, 2019, the Company entered into a Purchase and Conversion Agreement (the “Agreement”) with an institutional
investor for (a) the repurchase by the Company of 499 shares of its Series C Preferred Stock (the “Series C Preferred”)
and 31,765 shares of its Series E Preferred Stock (the “Series E Preferred”) from the investor, in exchange for an
aggregate cash payment of $3,500,000, and (b) the conversion by the investor of 5,000 shares of Series E Preferred into 500,000
shares of common stock of the Company, par value $0.001 per share (collectively, the “Transaction”).
Effective
at closing, the classes of Series C Preferred and the Series E Preferred were cancelled and the Company no longer has any preferred
shares of any class issued and outstanding.
NOTE
8 – COMMON STOCK WARRANTS
On
January 11, 2019, in conjunction with that certain Securities Purchase Agreement (“SPA”) entered into on the same
date, the Company granted certain institutional investors warrants to purchase up to 1,550,000 shares of Common Stock at an exercise
price of $4.64 per warrant share.
On
February 8, 2019, in conjunction with that certain Underwriting Agreement entered into on the same date, the Company granted certain
investors warrants to purchase an aggregate of up to 8,100,000 shares of Common Stock in an underwritten public offering. The
exercise price of the warrants is $1.25 per warrant share.
NOTE
9 – SUBSEQUENT EVENTS
Securities
Purchase Agreement
On
May 3, 2019, the Company entered into a Securities Purchase Agreement (“
SPA
”) with one or more investors identified
on the signature pages thereto (“
Investors
”). Under the terms of the SPA, the Company issued an aggregate of
$500,000 of shares of the Company’s common stock, par value $0.001 per share (the “
Common Stock
”) and
an aggregate of $1,500,000 convertible debentures (“
Debentures
”) (collectively, the “
Transaction Securities
”)
as set forth on the Purchaser Signature Page attached to the SPA, for a total gross purchase price of $2,000,000 (the “
Offering
”).
The Company received aggregate net proceeds of approximately $1,920,000. The Offering closed on May 3, 2019.
The
sale of the Common Stock at a price of $0.46 per share is being made pursuant to a prospectus supplement, which was filed with
the Securities and Exchange Commission (the “SEC”) on or about May 3, 2019, and accompanying base prospectus relating
to the Company’s shelf registration statement on Form S-3 (File No. 333-230854), which was declared effective by the SEC
on April 24, 2019. Additionally, the sale of the Debentures was made pursuant to an exemption from registration under Section
4(a)(2) of the Securities Act of 1933, as amended.
For the period of April 1, 2019 through May 20, 2019, the Company issued 1,387,237 shares of common stock
for services rendered with a fair value of $691,000.
NOTE
10 - COMMITMENTS AND CONTINGENCIES
Litigation
Certain
conditions may exist as of the date the consolidated financial statements are issued which may result in a loss to the Company,
but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities,
and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings
that are pending against the Company, or unasserted claims that may result in such proceedings, the Company evaluates the perceived
merits of any legal proceedings or unasserted claims, as well as the perceived merits of the amount of relief sought or expected
to be sought therein.
If
the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability
can be estimated, then the estimated liability would be accrued in the Company’s consolidated financial statements. If the
assessment indicates that a potentially material loss contingency is not probable, but is reasonably possible, or is probable
but cannot be estimated, then the nature of the contingent liability and an estimate of the range of possible losses, if determinable
and material, would be disclosed.
Loss
contingencies considered remote are generally not disclosed, unless they involve guarantees, in which case the guarantees would
be disclosed. There can be no assurance that such matters will not materially and adversely affect the Company’s business,
financial position, and results of operations or cash flows.
It
is possible that we may be subject to litigation or claims for indemnification in connection with the sale of our common stock
in inadvertent unregistered transactions that occurred in 2018. The SEC may determine to investigate the unregistered transactions
in our common stock, which could subject us to potential enforcement actions by the SEC under Section 5 of the Securities Act
of 1933, as amended (the “Securities Act”) and may result in injunctive relief or the imposition of fines. In addition,
it is possible that we had other unregistered offers or sales of our common stock, other than the aforementioned inadvertent unregistered
transactions that occurred in 2018, and we may be subject to litigation or claims for indemnification in connection with any such
offers or sales. If any such claims were to succeed, we might not have sufficient funds to pay the resulting damages. There can
be no assurance that the insurance coverage we maintain would cover any such expenses or be sufficient to cover any claims against
us. In addition to the monetary value of any claim, any litigation, regulatory action or governmental proceeding to which we are
a party could adversely affect us by harming our reputation, diverting the time and attention of management, and causing the Company
to incur significant litigation expenses, which would all materially and adversely affect our business.
In
addition, we may be a party to litigation matters involving our business, which operates within a highly regulated industry. On
September 4, 2018, we received notice that a law firm representing the estate of an individual who sustained life-ending injuries
while working for an end user of our products had made a claim to our insurance carrier. The matter is under investigation by
the U.S. Department of Transportation and the Occupational Health and Safety Administration. The Company is still investigating
the cause of the accident and there have been no conclusive findings as of this time. It is unknown whether the final cause of
the accident will be determined and whether those findings will negatively impact Company operations or sales. The Company continues
to be fully operational and transparent with all regulatory agencies.
In
addition, on April 15, 2019, we received notice that a class action lawsuit was filed on behalf of our shareholders who purchased
shares of the Company, f/k/a MagneGas Applied Technology Solutions, Inc. from January 28, 2019 through February 12, 2019, inclusive.
The lawsuit seeks to recover damages for the Company’s investors under the federal securities laws. The litigation is in
the early stages and it is unknown whether it will have a financial impact on the Company.
As
of March 31, 2019, the Company has not accrued for any litigation contingency.
NOTE
11 – LEASES
The
Company currently has seventeen office leases. The first operating lease is for its welding supply store in Clearwater, FL, effective
September 1, 2018, for ten years. The initial lease rate was $6,728 per month with escalating payments. The second
operating lease is for its welding supply store in Spring Hill, FL. This lease was effective May 1, 2018 and will end on April
30, 2019. The current lease rate is $1,338 per month. The third operating lease is for its welding supply store in Lakeland, FL,
from March 31, 2016 through March 31, 2020. The initial lease rate was $2,100 per month with escalating payments. The
fourth operating lease is for its welding supply store in Sarasota, FL, from August 1, 2016 through July 31, 2021. The current
lease rate is $1,700 per month. The fifth operating lease is for its welding supply store in Sulphur Springs, TX, from February
1, 2019 through January 31, 2020. The current lease rate is $2,000 per month. The sixth operating lease is for its welding supply
store in Woodland, CA, from April 4, 2018 through April 3, 2019. The current lease rate is $14,000 per month. The seventh operating
lease is for its gas fill plant in Flint, TX, from August 24, 2015 through August 23, 2020. The current lease rate is $900 per
month. The eighth operating lease is for its storage facility in Flint, TX, from August 1, 2016 through August 23, 2020. The current
lease rate is $5,500 per month. The ninth operating lease is for its welding supply store in Shreveport, LA, from December 1,
2015 through May 31, 2021. The initial lease rate was $2,846 per month with escalating payments. The tenth operating lease is
for its welding supply store in Palestine, TX, from August 13, 2015 through August 12, 2020. The current lease rate is $1,800
per month. The eleventh operating lease is for its welding supply store in Paris, TX, from October 18, 2018 through October 17,
2020. The current lease rate is $3,000 per month. The twelfth operating lease is for its welding supply store in Longview, TX,
from October 27, 2018 through October 26, 2020. The current lease rate is $2,000 per month. The thirteenth operating lease is
for its cylinder repair shop in Tyler, TX, from February 16, 2019 through February 15, 2020. The current lease rate is $2,500
per month. The fourteenth operating lease is for its welding supply store in Tyler, TX, from January 17, 2019 through January
16, 2020. The current lease rate is $6,500 per month. The fifteenth operating lease is for its welding supply store in Compton,
CA, from February 22, 2019 through October 31, 2026. The current lease rate is $29,400 per month. The sixteenth operating lease
is for its welding supply store in Pomona, CA, from February 22, 2019 through October 31, 2026. The current lease rate is $11,200
per month. The seventeenth operating lease is for its welding supply store in Oxnard, CA, from February 22, 2019 through February
1, 2020. The initial lease rate was $3,394 per month with escalating payments. The Company has no other operating with terms greater
than 12 months.
Financing leases were deemed immaterial.
The
Company adopted ASC Topic 842, Leases (“ASC Topic 842”) effective January 1, 2019 using the prospective approach.
In addition, the Company elected not to apply ASC Topic 842 to arrangements with lease terms of 12 months or less. On January
1, 2019, upon adoption of ASC Topic 842, the Company recorded right-of-use asset of $3,824,919, lease liability of $3,824,919
and eliminated deferred rent of $0. The Company determined the lease liability using the Company’s estimated incremental
borrowing rate of 8.0% to estimate the present value of the remaining monthly lease payments.
Right-of-use
assets is summarized below:
|
|
|
March
31, 2019
|
|
|
Clearwater, FL Store
|
|
$
|
545,933
|
|
|
Spring Hill, FL Store
|
|
|
5,297
|
|
|
Lakeland, FL Store
|
|
|
31,914
|
|
|
Sarasota, FL Store
|
|
|
47,785
|
|
|
Sulphur Springs, TX Store
|
|
|
23,145
|
|
|
Flint, TX Fill Plant
|
|
|
16,911
|
|
|
Flint, TX Store
|
|
|
104,286
|
|
|
Shreveport, LA Storage
|
|
|
106,352
|
|
|
Palestine, TX Store
|
|
|
33,823
|
|
|
Paris, TX Store
|
|
|
61,607
|
|
|
Longview, TX Store
|
|
|
41,071
|
|
|
Tyler, TX Repair Shop
|
|
|
31,239
|
|
|
Tyler, TX Store
|
|
|
81,223
|
|
|
Compton, CA Store
|
|
|
2,046,331
|
|
|
Pomona, CA Store
|
|
|
779,555
|
|
|
Oxnard, CA Store
|
|
|
39,277
|
|
|
Woodland, CA Store
|
|
|
41,722
|
|
|
Less accumulated
amortization
|
|
|
(212,553
|
)
|
|
Right-of-use
asset, net
|
|
$
|
3,824,919
|
|
During
the three months ended March 31, 2019, the Company recorded $153,631 as rent expense to the right-of-use assets. The weighted
average remaining life is 6.15 years.
Lease
liability is summarized below:
|
|
|
March
31, 2019
|
|
|
Total lease liability
|
|
$
|
3,824,919
|
|
|
Less: short
term portion
|
|
|
(641,587
|
)
|
|
Long term
portion
|
|
$
|
3,183,332
|
|
Maturity
analysis under the lease agreement is as follows:
|
Nine months ending December 31, 2019
|
|
$
|
747,527
|
|
|
Year ending December 31, 2020
|
|
|
773,317
|
|
|
Year ending December 31, 2021
|
|
|
600,171
|
|
|
Year ending December 31, 2022
|
|
|
567,941
|
|
|
Year ending December 31, 2023
|
|
|
567,941
|
|
|
Year ending December 31, 2024
|
|
|
567,941
|
|
|
Year ending December 31, 2025
|
|
|
567,941
|
|
|
Year ending December 31, 2026
|
|
|
486,741
|
|
|
Year ending December 31, 2027
|
|
|
80,741
|
|
|
Year ending December 31, 2028
|
|
|
53,827
|
|
|
Total
|
|
$
|
5,014,086
|
|
|
Less: Present
value discount
|
|
|
(1,189,168
|
)
|
|
Lease liability
|
|
$
|
3,824,919
|
|
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The
following is a “safe harbor” statement under the Private Securities Litigation Reform Act of 1995. Statements contained
in this document that are not based on historical facts are “forward-looking statements.” This Management’s
Discussion and Analysis of Financial Condition and Results of Operations and other sections of this Form 10-Q contain forward-looking
statements. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performance
and underlying assumptions that are not statements of historical facts. This document and any other written or oral statements
made by us or on our behalf may include forward-looking statements, which reflect our current views with respect to future events
and financial performance. We may, in some cases, use words such as “project,” “believe,” “anticipate,”
“plan,” “expect,” “estimate,” “intend,” “continue,” “should,”
“would,” “could,” “potentially,” “will,” “may” or similar words and
expressions that convey uncertainty of future events or outcomes to identify these forward-looking statements.
The
forward-looking statements in this document are based upon various assumptions, many of which are based on management’s
discussion and analysis or plan of operations and elsewhere in this Report. Although we believe that these assumptions were reasonable
when made, these statements are not guarantees of future performance and are subject to certain risks and uncertainties, some
of which are beyond our control, and are difficult to predict. Actual results could differ materially from those expressed in
forward-looking statements. Readers are cautioned not to place undue reliance on any forward-looking statements, which reflect
management’s view only as of the date of this Report.
Overview
We
are a technology-based company that is focused on addressing the global constraints on natural resources, including fuel and water.
Our two core technology applications – renewable fuel gasification and water decontamination/sterilization –
are derived from our patented and proprietary Plasma Arc Flow System. The Plasma Arc Flow System works by generating a combination
of electric current, heat, ultraviolet light and ozone, that affects the feedstock run through the system to create a chosen outcome,
depending on whether the system is in “gasification mode” or “sterilization mode”. We use our Plasma Arc
Flow System to make MagneGas, but it has the ability to gasify many forms of liquids and liquid waste such as used vegetable,
soybean or motor oils, certain types of liquified biomass, ethylene glycol and can be used to sterilize bio-contaminants in waste
and decontaminate water.
Gasification
Mode – MagneGas Cutting Fuel
When
the Plasma Arc Flow System is in “gasification mode” and the appropriate feedstock is passed through the system in
a closed loop with constant recirculation (to achieve the maximum possible gasification rates), it creates a renewable, hydrogen-based
synthetic fuel we call “MagneGas”. We sell MagneGas as a metal cutting fuel as an alternative product to acetylene,
which is the most commonly used metal fuel globally, but also happens to be a non-renewable fossil fuel-based metal cutting fuel.
Alternatively, MagneGas is a cleaner, renewable fuel alternative that creates a flame up to 85% hotter than acetylene and cuts
metal up to 38% faster than acetylene, while maintaining a comparable price. The use of MagneGas is nearly identical to acetylene
(it merely requires a different welding tip and a regulator) making it easy for end-users to adopt our product with limited training.
After production, the MagneGas is stored in hydrogen cylinders which are then sold to market on a rotating basis.
Over
the last several years we have acquired and maintain a retail distribution network, which allows us to sell and transport MagneGas
to customers in various metalworking industries. Since 2017, we have doubled the range we are able to distribute MagneGas and
are now able to more efficiently address markets within a 500-mile radius of our production hubs in Florida and Texas. Within
the next two years, we plan to create two production hubs in California to serve the western United States. Finally, we have and
intend to continue to acquire complementary gas and welding supply distribution businesses in order to expand the distribution
and use of MagneGas, other industrial gases and related equipment. We have sold to over 30,000 customers in the public and private
sectors.
Sterilization
Mode
When
the Plasma Arc Flow System is in “sterilization mode”, the system may process any number of liquified waste streams.
In most cases we pass the selected waste stream through the system a limited number of times to achieve the maximum sterilization/decontamination
effect on the waste stream. Sterilization mode also produces modest amounts of gas as a byproduct. Our proprietary combination
of electric current, heat, ultraviolet light and ozone has shown an ability to eliminate up to 99.9% of EPA and USDA regulated
pathogens such as e-coli and fecal coliform. We also believe our technology has the capability to eliminate cyanobacteria commonly
referred to as “blue-green algae” and are currently conducting tests to verify that capability.
The
Plasma Arc Flow System forces a high-volume flow of liquid waste through a submerged plasma arc existing between carbon electrodes,
a process which sterilizes the bio-contaminants within the waste without requiring any chemical disinfecting agents. The Plasma
Arc Flow System also releases a clean burning fuel as a byproduct of the decontamination and sterilization process, which can
be used to offset some energy consumption. Because our Plasma Arc Flow Systems are available in various sizes from 50kW to 500kW,
they are applicable to a broad array of end-users, including: (i) large consumers of cutting fuels (construction companies, shipbuilders,
heavy industry) who desire a safer, renewable, and efficient alternative to acetylene and propane, (ii) producers of contaminated
waste streams (commercial manufacturers, farming operations, chemical producers, etc.) who either desire to or are mandated by
law to treat agricultural, pharmaceutical, industrial or manufacturing waste streams prior to release into the ecosystem and (iii)
local, state or federal governments, desirous of decontaminating water sources or reclaiming waste water that is otherwise unusable.
During
2019 and 2018, as part of our retail growth strategy, we acquired a number of businesses with large customer bases through which
we now offer our proprietary MagneGas product in addition to other gases and welding supplies. The majority of our retail locations
are in Texas and California, which we believe are the two top markets for consumption of metal cutting fuels and related supplies.
We also have locations in Florida and Louisiana. We also market, for sale and licensure, our proprietary plasma arc technology
for gasification and the processing of liquid waste and have developed a global network of brokers to sell the Plasma Arc Flow
System.
Subsequent
Events
On
May 3, 2019, the Company entered into a Securities Purchase Agreement (“
SPA
”) with one or more investors identified
on the signature pages thereto (“
Investors
”). Under the terms of the SPA, the Company issued an aggregate of
$500,000 of shares of the Company’s common stock, par value $0.001 per share (the “
Common Stock
”) and
an aggregate of $1,500,000 convertible debentures (“
Debentures
”) (collectively, the “
Transaction Securities
”)
as set forth on the Purchaser Signature Page attached to the SPA, for a total gross purchase price of $2,000,000 (the “
Offering
”).
The Company received aggregate net proceeds of approximately $1,920,000. The Offering closed on May 3, 2019.
The
sale of the Common Stock at a price of $0.46 per share is being made pursuant to a prospectus supplement, which was filed with
the Securities and Exchange Commission (the “SEC”) on or about May 3, 2019, and accompanying base prospectus relating
to the Company’s shelf registration statement on Form S-3 (File No. 333-230854), which was declared effective by the SEC
on April 24, 2019. Additionally, the sale of the Debentures was made pursuant to an exemption from registration under Section
4(a)(2) of the Securities Act of 1933, as amended.
For the period of April 1, 2019 through May 20, 2019, the Company issued 1,387,237
shares of common stock for services rendered with a fair value of $691,000.
Results
of Operations
Comparison
for the three months ended March 31, 2019 and 2018
Revenues
For
the three months ended March 31, 2019 and 2018 we generated revenues of $4,913,332 and $1,171,753, respectively. The 319% increase
in revenue was due primarily to acquisitions completed in the past year and organic sales growth in the area of pre-existing operations.
The Company expanded through acquisition into the markets in California. This expansion contributed $1,754,476 in revenue during
the period. The Company also expanded through acquisition into the Texas/Louisiana markets. This expansion contributed $2,243,982
in revenue during the period.
For
the three months ended March 31, 2019 and 2018 cost of revenues were $2,680,815 compared to $757,874, respectively. For the three
months ended March 31, 2019 and 2018, we generated a gross profit of $2,232,517 compared to $413,879. Gross margins for the three
months ended March 31, 2019 and 2018 were 45% and 35%, respectively. The incline in gross margins was primarily due to
improved buying power and economies of scale gained through recent acquisitions.
Operating
Expenses
Operating
costs for the three months ended March 31, 2019 and 2018 were $8,396,281 and $3,314,357, respectively. The increase in
our operating costs in 2019 was primarily attributable to significant capital markets activity and acquisitions completed during
the period. The Company incurred significant legal, accounting, consulting and other advisory expenses related to both capital
raising and acquisitions during the period. In additions, during the three months ended March 31, 2019 we recognized a non-cash
charge of $809,862 in stock-based compensation for employees, compared to $117,019 in the comparable three months ended March
31, 2018, common stock issued for services of $1,065,451 for the three months ended March 31, 2019, compared to $412,699
in the comparable three months ended March 31, 2018. Other non-cash operating expenses were due to depreciation and amortization
charges of $432,050 for the three-month period ended March 31, 2019, compared to $159,211 for the three months ended March 31,
2018.
In
the current quarter, as in prior quarters, we selectively used common stock as a method of payment for certain services, primarily
the advertising and promotion of the technology to increase investor and customer awareness and as incentive to its key employees
and consultants. We expect to continue these arrangements, though due to a stronger operating position, this method of payment
may become limited to employees.
Net
Loss
Our
operating results for the three months ended March 31, 2019 have recognized losses in the amount of $6,162,398 compared
to $3,019,441 for the three months ended March 31, 2018. The increase in our loss was primarily attributable to
acquisition and integration expenses along with the repurchase of the Preferred classes of stock. Going forward, the Company
does not anticipate such expenses, as there is no convertible preferred equity, and all remaining convertible securities have
clearly defined repayment terms that avoid such expenses in the future.
Liquidity
and Capital Resources
As
of March 31, 2019, the Company had cash of $356,512 and has reported a net loss of $6,162,398 and has used cash in operations
of $3,577,328 for the quarter ended March 31, 2019. Partly offsetting our negative cash flows, as of March 31, 2019 the
Company had a positive working capital position of $204,651, and a stockholder’s equity balance of $32,622,820. As
a result of the Company’s negative cash flow generation, there is substantial doubt about the Company’s ability to
continue as a going concern within one year from the issuance date of the financial statements.
The
ability of the Company to continue as a going concern is dependent upon its ability to further implement its business plan and
generate sufficient revenue and its ability to raise additional funds by way of public or private offerings or through the use
of indebtedness.
Historically,
the Company has financed its operations through equity and debt financing transactions and expects to continue incurring operating
losses for the foreseeable future. The Company’s plans and expectations for the next 12 months may include raising
additional capital to help fund commercial operations, make select acquisitions, and new product development. The Company utilizes
cash in its operations of approximately $1,190,000 per month.
The Company has recently
gained sufficient scale in revenues and gross income that are expected to significantly improve its ability to funds it operations.
Management believes that the Company will be increasingly able to independently support its growth without reliance on additional
outside capital, but may be required from time to time to raise additional capital through either equity offering or indebtedness.
If
these sources do not provide the capital necessary to fund our operations during the next twelve months from the date of this
report, we may need to curtail certain aspects of our operations or expansion activities, consider the sale of our assets or consider
other means of financing. We can give no assurance that we will be successful in implementing our business plan and obtaining
financing on terms advantageous to us or that any such additional financing would be available to us.
Cash
Flows from Operations
Cash
flows from continuing operations for operating, financing and investing activities for the three months ended March 31, 2019 and
2018 are summarized in the following table:
|
|
|
Three
Months Ended March 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
(unaudited)
|
|
|
Operating activities
|
|
$
|
(3,577,328
|
)
|
|
$
|
(2,394,909
|
)
|
|
Investing activities
|
|
|
(11,311,851
|
)
|
|
|
(3,382,901
|
)
|
|
Financing activities
|
|
|
13,646,955
|
|
|
|
7,294,240
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(decrease) increase in cash from continuing operations
|
|
$
|
(1,242,225
|
)
|
|
$
|
1,516,430
|
|
For
the three months ended March 31, 2019, we used cash of $3,577,328 in operations in 2019 and used cash of $2,394,909 in
operations in 2018. Our cash use for 2019 was primarily attributable to cash used to reduce vendor balances, accrued expenses
and other short-term liabilities. Our cash use for 2018 was primarily attributable to general corporate needs, acquisitions, the
overhaul of our capital structure, and organic growth initiatives. During the three months ended March 31, 2019, cash used by
investing activities consisted of $11,311,851 primarily due to the acquisition of all of the stock of two companies and
the assets of another company and purchases of property and equipment. During the three months ended March 31, 2018, cash used
by investing activities consisted of $3,382,901. Cash provided by financing activities for the three months ended March 31, 2019
was $13,646,955 as compared to cash provided by financing activities for the three months ended March 31, 2018 of $7,294,240.
Our cash provided for 2019 was primarily attributable to the Securities Purchase Agreement completed January 11, 2019 and the
Underwriting Agreement completed February 8, 2019. The net decrease in cash during the three months ended March 31, 2019 was
$1,242,225 as compared to a net increase in cash of $1,516,430 for the three months ended March 31, 2018.
Recent
Accounting Standards
Included
in the Note 3 to Financial Statements.
Critical
Accounting Policies
Our
significant accounting policies are presented in this Report in our Notes to financial statements, which are contained in this
Quarterly Report. The significant accounting policies that are most critical and aid in fully understanding and evaluating the
reported financial results include the following:
We
prepare our financial statements in conformity with U.S. GAAP. These principles require management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses during the reporting period. Management believes that
these estimates are reasonable and have been discussed with our Board of Directors (the “Board”); however, actual
results could differ from those estimates.
We
issue restricted stock to consultants for various services. Cost for these transactions are measured at the fair value of the
consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The value of
the common stock is measured at the earlier of (i) the date at which a firm commitment for performance by the counterparty to
earn the equity instruments is reached or (ii) the date at which the counterparty’s performance is complete.
Long-lived
assets such as property, equipment and identifiable intangibles are reviewed for impairment whenever facts and circumstances indicate
that the carrying value may not be recoverable. When required, impairment losses on assets to be held and used are recognized
based on the fair value of the asset. The fair value is determined based on estimates of future cash flows, market value of similar
assets, if available, or independent appraisals, if required. If the carrying amount of the long-lived asset is not recoverable
from its undiscounted cash flows, an impairment loss is recognized for the difference between the carrying amount and fair value
of the asset. When fair values are not available, we estimate fair value using the expected future cash flows discounted at a
rate commensurate with the risk associated with the recovery of the assets.
The
Company adopted ASC 606 effective January 1, 2018 using the modified retrospective method which would require a cumulative effect
adjustment for initially applying the new revenue standard as an adjustment to the opening balance of retained earnings and the
comparative information would not require to be restated and continue to be reported under the accounting standards in effect
for those periods.
Based
on the Company’s analysis, the Company did not identify a cumulative effect adjustment for initially applying the new revenue
standards.
The
Company principally generates revenue through three processes: (1) the sale of MagneGas fuel for metal cutting and through the
sales of other industrial and specialty gases and related products through our wholly owned subsidiaries, (2) by providing consulting
services and (3) through the sales of our Plasma Arc Flow Systems. The Company’s revenue recognition policy for the year
ending December 31, 2018 is as follows:
|
|
●
|
Revenue
for metal-working fuel, industrial gases and welding supplies is recognized when performance obligations of the sale are satisfied.
The majority of the Company’s terms of sale have a single performance obligation to transfer products. Accordingly,
the Company recognizes revenue when control has been transferred to the customer, generally at the time of shipment of products.
Under the previous revenue recognition accounting standard, the Company recognized revenue upon transfer of title and risk
of loss, generally upon the delivery of goods.
|
|
|
|
|
|
|
●
|
The
Company applies the five-step process outlined in ASC 606 when recognizing revenue with regards to consulting services:
|
|
|
○
|
The
Company enters into a written consulting agreement with a customer to provide professional services and has an enforceable
right to payment for its performance completed to date;
|
|
|
|
|
|
|
○
|
All
of the promised services are identified to determine whether those services represent performance obligations;
|
|
|
|
|
|
|
○
|
In
consideration for the services to be rendered, the Company expects to receive incremental payments during the term of the
agreement;
|
|
|
|
|
|
|
○
|
Payments
are estimated for each performance obligation and allocated in accordance with payment terms; and
|
|
|
|
|
|
|
○
|
Typically,
consulting services contracts will follow a similar pattern of recognition as legacy GAAP. The nature of the consulting services
is such that the customer will receive benefits of the Company’s performance only when the customer receives the professional
services. Consequently, the entity recognizes revenue over time by measuring the progress toward complete satisfaction of
the performance obligation.
|
|
|
●
|
Revenue
generated from sales of each Plasma Arc Flow Unit is recognized upon delivery. Significant deposits are required before production
commences. These deposits are classified as customer deposits.
|
The
fair value of an embedded conversion option that is convertible into a variable amount of shares and warrants that include price
protection reset provision features are deemed to be “down-round protection” and, therefore, do not meet the scope
exception for treatment as a derivative under Accounting Standards Codification (“ASC”) ASC 815 “Derivatives
and Hedging”, since “down-round protection” is not an input into the calculation of the fair value of the conversion
option and warrants and cannot be considered “indexed to the Company’s own stock” which is a requirement for
the scope exception as outlined under ASC 815. The accounting treatment of derivative financial instruments requires that we record
the embedded conversion option and warrants at their fair values as of the inception date of the agreement and at fair value as
of each subsequent balance sheet date. Any change in fair value is recorded as non-operating, non-cash income or expense for each
reporting period at each balance sheet date.
We
reassess the classification of our derivative instruments at each balance sheet date. If the classification changes as a result
of events during the period, the contract is reclassified as of the date of the event that caused the reclassification. As a result
of entering into a convertible credit facility for which such instruments contained a variable conversion feature with no floor,
we have adopted a sequencing policy in accordance with ASC 815-40-35-12 whereby all future instruments may be classified as a
derivative liability with the exception of instruments related to share-based compensation issued to employees.
The
Black-Scholes option valuation model was used to estimate the fair value of the warrants and conversion options. The model includes
subjective input assumptions that can materially affect the fair value estimates. We determined the fair value of the Binomial
Lattice Model and the Black-Scholes Valuation Model to be materially the same. The expected volatility is estimated based on the
most recent historical period of time equal to the weighted average life of the warrants. Conversion options are recorded as debt
discount and are amortized as interest expense over the life of the underlying debt instrument.
Goodwill
and Indefinite-lived Assets
We
have recorded goodwill and other indefinite-lived assets in connection with our acquisitions. Goodwill, which represents the excess
of acquisition cost over the fair value of the net tangible and intangible assets of the acquired company, is not amortized. Indefinite-lived
intangible assets are stated at fair value as of the date acquired in a business combination. The recoverability of goodwill is
evaluated at least annually and when events or changes in circumstances indicate that the carrying amount may not be recoverable.
We
analyze goodwill first to assess qualitative factors to determine whether it is more likely than not that the fair value of a
reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform a detailed goodwill
impairment test as required. The more-likely-than-not threshold is defined as having a likelihood of more than 50%.
Events
and circumstances for an entity to consider in conducting the qualitative assessment are:
|
|
●
|
Macroeconomic
conditions such as a deterioration in general economic conditions, limitations on accessing capital, fluctuations in foreign
exchange rates, or other developments in equity and credit markets.
|
|
|
|
|
|
|
●
|
Industry
and market considerations such as a deterioration in the environment in which an entity operates, an increased competitive
environment, a decline in market-dependent multiples or metrics (considered in both absolute terms and relative to peers),
a change in the market for an entity’s products or services, or a regulatory or political development.
|
|
|
|
|
|
|
●
|
Cost
factors such as increases in raw materials, labor, or other costs that have a negative effect on earnings and cash flows.
|
|
|
|
|
|
|
●
|
Overall
financial performance such as negative or declining cash flows or a decline in actual or planned revenue or earnings compared
with actual and projected results of relevant prior periods.
|
|
|
|
|
|
|
●
|
Other
relevant entity-specific events such as changes in management, key personnel, strategy, or customers, contemplation of bankruptcy,
or litigation.
|
|
|
|
|
|
|
●
|
Events
affecting a reporting unit such as a change in the composition or carrying amount of its net assets, a more-likely-than-not
expectation of selling or disposing of all, or a portion, of a reporting unit, the testing for recoverability of a significant
asset group within a reporting unit, or recognition of a goodwill impairment loss in the financial statements of a subsidiary
that is a component of a reporting unit.
|
|
|
|
|
|
|
●
|
If
applicable, a sustained decrease in share price (considered in both absolute terms and relative to peers).
|
Management
has evaluated goodwill currently carried on the balance sheet and has evaluated the outlook for profitability and the ability
for the recently acquired businesses to support the value of the goodwill on a go forward basis. Management completed this evaluation
using two distinct business units, the water decontamination business and the fuel business. The water decontamination business
operates at a loss and has no goodwill. The fuel business, which includes all of the welding supply stores, operates at a profit
and has all of the goodwill. The Company believes that the business prospects and financial outlook for the businesses with the
associated goodwill, adequately supports the carried value of the goodwill at this time. Management will continue to evaluate
goodwill for potential impairment in subsequent periods.
Off-balance
Sheet Arrangements
We
have no off-balance sheet arrangements.