Item
4.02 Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review.
On
April 10, 2021, the Audit Committee of the Board of Directors of Taronis Fuels, Inc. (the “Company”), in consultation
with management, concluded that the Company’s previously issued financial statements for the year ended December 31, 2019
and for each of the interim quarterly periods in fiscal 2020 should not be relied upon.
On
April 9, 2021, Edward J. Fred, who was then serving as the Company’s Chief Financial Officer and Treasurer and interim Chief
Executive Officer and President, informed members of the Board of Directors that certain revenues and gross profit in the third
quarter of fiscal 2020 were recognized prematurely or inaccurately due to an incorrect application of generally accepted accounting
principles, and that previously reported revenue and gross profit were likely overstated and the related net loss was likely understated.
In addition, retained earnings are believed to be overstated.
On
April 10, 2021, the Board of Directors commenced an investigation of the Company’s previously issued accounting results
and internal controls, to be overseen by the Company’s Audit Committee. Also on April 10, 2021, the Board of Directors appointed
Mary Pat Thompson as Chief Financial Officer and Treasurer in place of Mr. Fred and authorized the retention of forensic accountants
and external counsel to assist in the investigation of the Company’s previously issued financial statements.
Based
on a preliminary assessment of the information provided by Mr. Fred and discussions with Ms. Thompson, the Audit Committee determined
that the Company’s previously issued financial statements may contain errors relating to, among other things, (i) recognition
of revenue from contracts with customers and international sales, (ii) entries between the Company and Taronis Technologies, Inc.,
the Company’s former parent, possibly dating back to the Company’s spin-off from Taronis Technologies, Inc., (iii) financial
reporting of the Company’s acquisition of Tech-Gas Solutions, LLC in May 2020, and (iv) underreporting of cost of goods
sold, and the overreporting of gross income, in the second and third quarters of fiscal 2020. As a result, the Audit Committee
determined that the Company’s previously issued financial statements for the year ended December 31, 2019 and for each of
the interim quarterly periods in fiscal 2020 should not be relied upon.
The
Company’s investigation is ongoing and the Company may identify further errors. The Company does not expect to file its
Annual Report on Form 10-K for the year ended December 31, 2020 on a timely basis. The investigation is in its early stages and
the Company cannot predict its duration or outcome.
No
member of the Audit Committee, as reconstituted on April 10, 2021, or executive officer of the Company, each of which was appointed
on April 10, 2021, has discussed the matters disclosed in this Item 4.02 with the Company’s independent registered public
accounting firm, Marcum LLP.
Forward
Looking Statements
This
Current Report on Form 8-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform
Act of 1995, including with respect to the investigation of the Company’s previously issued accounting results and
internal controls and the results of such investigation. Such forward-looking statements are subject to certain risks and
uncertainties and are based on assumptions about many important factors which could cause actual results to differ materially
from those in the forward-looking statements, including without limitation, developments in connection with the
investigation, including developments that would expand the scope of the investigation or require the correction of
additional misstatements in the previously issued financial statements; future actions of governmental authorities, including
the Securities and Exchange Commission; and other risks identified in the Company’s most recent Annual Report on Form
10-K and other filings with the Securities and Exchange Commission. The Company does not undertake to update forward-looking
statements unless otherwise required by applicable law.