Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking Statements
This annual report contains certain information that may constitute “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. While we have specifically identified certain information as being forward-looking in the context of its presentation, we caution you that all statements contained in this report that are not clearly historical in nature, including statements regarding anticipated financial performance, management’s plans and objectives for future operations, business prospects, market conditions, and other matters are forward-looking. Forward-looking statements are contained principally in the sections of this report entitled “Business,” “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Without limiting the generality of the preceding sentence, any time we use the words “expects,” “intends,” “will,” “anticipates,” “believes,” “confident,” “continue,” “propose,” “seeks,” “could,” “may,” “should,” “estimates,” “forecasts,” “might,” “goals,” “objectives,” “targets,” “planned,” “projects,” and similar expressions, we intend to clearly express that the information deals with possible future events and is forward-looking in nature. However, the absence of these words or similar expressions does not mean that a statement is not forward-looking. For JMTM, particular uncertainties that could cause our actual results to be materially different than those expressed in our forward-looking statements include, without limitation:
our ability to maintain and grow our existing customer base;
the amount and timing of our cash flows and earnings, which may be impacted by customer, competitive, supplier and other dynamics and conditions;
our ability to maintain or improve margins through business efficiencies;
our ability to launch new product and service offerings that achieve market acceptance with acceptable margins;
changes in law, economic and financial conditions, including tax law changes, changes to privacy requirements, changes to telemarketing, email marketing and similar consumer protection laws, interest and exchange rate volatility, and trade tariffs applicable to the products we sell;
the impact of potential information technology, cybersecurity or data security breaches.
Forward-looking information involves risks, uncertainties, and other factors that could cause actual results to differ materially from those expressed or implied in, or reasonably inferred from, such statements, including without limitation, the risks and uncertainties disclosed above. Therefore, caution should be taken not to place undue reliance on any such forward-looking statements. Much of the information in this report that looks toward future performance of our Company is based on various factors and important assumptions about future events that may or may not actually occur. As a result, our operations and financial results in the future could differ materially and substantially from those we have discussed in the forward-looking statements included in the Annual Report. We assume no obligation (and specifically disclaim any such obligation) to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.
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Business Overview
Sentinel Holdings Ltd operates mainly through its subsidiaries, Gladiator (limited operations) and USS. Gladiator currently has very limited operation, but it had specialized in the distribution of personal protective products, largely through mail-in orders and e-commerce channels. On the other hand, USS offers a combination of professional security personnel services, enhanced by smartphone-based security applications, providing a unique blend of traditional and modern security solutions. The consolidated financial statements were prepared according to U.S. GAAP and SEC regulations. The Company has adopted a December 31 fiscal year-end for financial statement reporting.
The financial statements were prepared with estimates and assumptions that impact the reported amounts of assets and liabilities. These estimates were used for inventories, impairment of long-term assets, and derivatives. The actual results could differ significantly from these estimates. Business combinations were accounted for using the acquisition method. Assets, liabilities, and any remaining non-controlling interests were recognized at fair value on the acquisition date. The excess of the purchase price over the fair value of assets acquired, net of liabilities assumed, and non-controlling interests, was recognized as goodwill. The company considers investments with an original maturity of three months or less at the purchase date as cash and cash equivalents.
Recent Developments
There are several trends that provide opportunities and risks for USS:
The breakdown and underfunding of traditional law enforcement leading to passive response to riots, resulting break-ins, shoplifting, and property destruction on the large scale (See Portland 2020).
The rise of the lawless corollary on the small scale with burgeoning vagrancy, break-ins and theft (e.g., catalytic converters in automobiles, construction materials such as tools and copper conduit).
The refusal of cities to enforce vagrancy laws and suppress the crime associated with chronic criminal trespassing and its detrimental effect on business. This leads to a transfer of burden to business owners who turn to private security companies to mitigate. This applies to all sectors – residential, commercial and municipal.
Finally, the sense of personal physical risk has been heightened in culture leading to the need to provide protection to employees and residents. For example, employees want protection as they come and go to their vehicle in areas of high crime.
Results of Operations
Years ended December 31, 2024 and 2023
Revenue
Revenues decreased 47.79% to $4,605,338 for the year ended December 31, 2024 as compared to $8,820,348 for the year ended December 31, 2023. The primary reason for the decrease was a loss of key customers.
Cost of Revenue
Cost of revenues decreased to $4,191,878 for the year ended December 31, 2024 as compared to $6,053,710 for the year ended December 31, 2023. Gross profit was $413,460 and $2,766,638 for the years ended December 31, 2024 and 2023, respectively. Gross profit margins decreased to 9% for the year ended December 31, 2024 from 31% for the year ended December 31, 2023.
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Operating Expenses
Operating expenses increased 77.75% to $7,916,574 for the year ended December 31, 2024 compared to $4,453,653 for the year ended December 31, 2023. The increase was primarily due to general and administrative expenses, stock based compensation, loss on impairment of intangible assets, and payroll.
Other Income/Expenses
The Company's other income (expense) - net increased by $15,488 to $947,438 during the year ended December 31, 2024 as compared to $931,950 in other income (expense) – net for the year ended December 31, 2023. This net increase was primarily due to a decrease in interest expense offset by an increase in the change in fair value of derivative liabilities.
Net Loss Available to Common Stockholders
Net loss available to common stockholders was $8,375,593 for the year ended December 31, 2024 as compared to a net loss of $2,461,851 for the year ended December 31, 2023. This represented an increase in loss of $5,913,742 or 240.22%. See above discussion for components of the net loss.
Liquidity and Capital Resources
For the year ended December 31, 2024, net cash used in operations of $32,707 was the result of a net loss of $8,450,552, depreciation and amortization expense of $37,065, amortization of operating lease of $87,320, amortization of debt of $70,032, bad debt expense $41,939, bad debt expense – related party of $7,400, impairment of intangible assets of $2,088,274, warrants issued for services of $1,138,500, stock based compensation of $2,499,502, non-cash charitable contribution of $17,077, an increase in accounts payable and accrued expenses of $1,858,747 as a result of unpaid payroll tax liabilities, an increase in change in fair value of derivative liability of $79,049. These were offset by a decrease in accounts receivable of $453,469, and a decrease in prepaid expenses of $34,553.
For the year ended December 31, 2023, net cash used in operations of $269,543 was the result of a net loss of $2,618,965, depreciation and amortization expense of $1,191,898, impairment of intangible assets of $911,467, amortization expense of $114,506, stock-based compensation of $63,150, an increase in accounts payable of $586,798, a decrease in change in fair value of derivative liability of $156,354. These were offset by a decrease in accounts receivable of $2,255, a decrease in prepaid expenses of $27,763, decrease in deferred revenue of $400,000 and a decrease in related party of $7,939.
Financing activities in 2024 resulted in a net cash inflow of $209,358. This was mainly due to repayments of notes and loans payable of $944,516 which was offset by proceeds from the issuance of notes payable amounting to $348,874 and proceeds from sale of units of common stock and warrants as well as common stock on a stand-alone basis of $805,000.
Financing activities in 2023 resulted in a net cash outflow of $140,359. This was mainly due to repayments of notes, loans payable and lease liabilities of $514,978 which was offset by proceeds from the issuance of notes payable amounting to $374,619.
Critical Accounting Policies and Estimates
We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America and make estimates and assumptions that affect our reported amounts of assets, liabilities, revenue and expenses, and the related disclosures of contingent liabilities. We base our estimates on historical experience and other assumptions that we believe are reasonable in the circumstances. Actual results may differ from these estimates.
The following critical accounting policies affect our more significant estimates and assumptions used in preparing our consolidated financial statements. Also, see Note 2 to the accompanying consolidated financial statements for a complete discussion of our accounting policies and estimates.
Principles of Consolidation and Non-Controlling Interest
The consolidated financial statements have been prepared in accordance with U.S. GAAP and include the accounts of the Company and its wholly owned subsidiaries. The Company consolidates entities where it has a controlling financial interest, as defined by ASC 810, "Consolidation".
In accordance with ASC 810-10, consolidation applies to:
Entities with more than 50% voting interest, unless control is not with the Company; and
Variable Interest Entities (VIEs), where the Company is the primary beneficiary, possessing both (i) power over significant activities and (ii) the obligation to absorb losses or receive benefits.
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All intercompany transactions and balances are eliminated in consolidation per ASC 810-10-45. The Company continuously evaluates its investments and relationships to assess consolidation requirements.
For entities that are consolidated, but not 100% owned, a portion of the income or loss and corresponding equity is allocated to owners other than the Company. The aggregate of the income or loss and corresponding equity that is not owned by us is included in Non-Controlling Interests in the consolidated financial statements.
For the year ended December 31, 2024 and December 31, 2023, the Company’s allocation to the non-controlling interest represents ownership of 87% of Gladiator Solutions, Inc. The following table sets for the changes in non-controlling interest for the years ended December 31, 2024 and 2023:
Non-Controlling
Interest
Balance at December 31, 2022
Net loss attributable to non-controlling interest
Balance at December 31, 2023
Net loss attributable to non-controlling interest
Balance at December 31, 2024
Business Segments and Expense Disclosure
The Company follows ASC 280, Segment Reporting, which requires public entities to report financial and descriptive information about their reportable operating segments.
ASC 280-10-50-1 states that an operating segment is a component of a public entity that:
Engages in business activities from which it may earn revenues and incur expenses;
Has operating results that are regularly reviewed by the Chief Operating Decision Maker (CODM), who is the Company’s Chief Executive Officer, to make decisions about resource allocation and performance assessment; and
Has discrete financial information available.
Under ASC 280-10-50-5, a public entity is required to report separately only those operating segments that meet certain quantitative thresholds. However, as specified in ASC 280-10-50-11, if a company’s business activities are managed as a single operating segment and reviewed on a basis, the company may report as a single segment. The Company has determined that it operates as one reportable segment, as its CODM reviews the business as a whole rather than by distinct business components.
Customers in the United States accounted for 100% of our revenues. We do not have any property or equipment outside of the United States.
Application of ASU 2023-07 – Segment Expense Disclosure Requirements
In October 2023, the FASB issued ASU 2023-07, which enhances segment reporting by requiring public entities to disclose significant segment expenses that are regularly reviewed by the CODM. However, under ASC 280-10-50-31, these requirements apply only to entities with multiple reportable segments. Since the Company operates as a single reportable segment, it is not required to disclose segment expenses separately.
Although ASC 280-10-50-32 allows entities to voluntarily disclose additional segment-related information, including a breakdown of expenses, the Company is not required to present individual expense categories, and has not done so, because its operations are reviewed and managed as a single segment.
Use of Estimates and Assumptions
The preparation of financial statements in conformity with U.S. Generally Accepted Accounting Principles (GAAP) requires management 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 recognition of revenues and expenses during the reporting period. Actual results may differ from these estimates, and such differences could be material.
In accordance with ASC 250-10-50-4, changes in estimates are recorded in the period in which they become known and are accounted for prospectively. The Company bases its estimates on historical experience, industry trends, and other relevant factors, incorporating both quantitative and qualitative assessments that it believes are reasonable under the circumstances.
Significant estimates for the years ended December 31, 2024 and 2023 include:
Allowance for doubtful accounts and other receivables
Valuation of loss contingencies
Valuation of stock-based compensation
Estimated useful lives of property and equipment
Impairment of intangible assets
Implicit interest rate in right-of-use operating leases
Uncertain tax positions
Valuation allowance on deferred tax assets
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Fair Value of Financial Instruments
The Company accounts for financial instruments in accordance with Financial Accounting Standards Board (FASB) ASC 820, Fair Value Measurements, which establishes a framework for measuring fair value and requires related disclosures. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the Company’s principal market or, if none exists, the most advantageous market for the asset or liability.
Fair Value Hierarchy
ASC 820 requires the use of observable inputs whenever available and establishes a three-tier hierarchy for measuring fair value:
Level 1 – Quoted market prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 – Observable inputs other than quoted prices in active markets, such as quoted prices for similar assets and liabilities or inputs that are directly or indirectly observable.
Level 3 – Unobservable inputs that require significant judgment, including management assumptions and estimates based on available market data.
The classification of an asset or liability within the hierarchy is based on the lowest level of input that is significant to the fair value measurement. Level 3 valuations generally require more judgment and complexity, often involving a combination of cost, market, or income approaches, as well as assumptions about market conditions, pricing, and other factors.
Fair Value Determination and Use of External Advisors
The Company assesses the fair value of its financial instruments and, where appropriate, may engage external valuation specialists to assist in determining fair value. While management believes that recorded fair values are reasonable, they may not necessarily reflect net realizable values or future fair values.
Financial Instruments Carried at Historical Cost
The Company’s financial instruments—including cash, accounts receivable, accounts payable, and accrued expenses (including related party balances)—are recorded at historical cost. As of December 31, 2024 and 2023, respectively, the carrying amounts of these instruments approximated their fair values due to their short-term maturities.
Fair Value Option Under ASC 825
ASC 825-10, Financial Instruments, permits entities to elect the fair value option for certain financial assets and liabilities. This election is made on an instrument-by-instrument basis and is irrevocable unless a new election date occurs. If elected, unrealized gains and losses are recognized in earnings at each reporting date. The Company has not elected the fair value option for any of its outstanding financial instruments.
Accounts Receivable
The Company accounts for accounts receivable in accordance with FASB ASC 310, Receivables. Receivables are recorded at their net realizable value, which represents the amount management expects to collect from outstanding customer balances (ASC 310-10-35-7).
The Company extends credit to customers based on an evaluation of their financial condition and other factors. The Company does not require collateral, and interest is not accrued on overdue accounts receivable (ASC 310-10-45-4).
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Allowance for Doubtful Accounts
Management periodically assesses the collectability of accounts receivable and establishes an allowance for doubtful accounts as needed. The allowance is determined based on:
A review of outstanding accounts,
Historical collection experience, and
Current economic conditions (ASC 310-10-35-9).
Accounts deemed uncollectible are written off against the allowance when determined to be uncollectible (ASC 310-10-35-10).
Concentrations
The Company evaluates and discloses significant concentrations of risk in accordance with FASB ASC 275-10, Risks and Uncertainties. These risks may arise from customer concentrations, vendor reliance, geographic dependence, or other economic factors that could materially impact the Company’s financial position, results of operations, and cash flows.
A concentration exists when a single customer, supplier, or market accounts for a significant portion (typically greater than 10%) of the Company’s total revenues, accounts receivable, or vendor purchases (ASC 275-10-50-16).
Customer and Sales Concentrations
The Company’s revenue stream may be dependent on a limited number of key customers. A loss of any significant customer, a decline in demand from such customers, or a deterioration in their financial condition could negatively impact the Company’s future revenues and profitability.
Accounts Receivable Concentrations
The Company extends credit to customers based on their financial strength, payment history, and other relevant factors. A significant concentration of accounts receivable from a limited number of customers could expose the Company to credit risk and potential collection issues. The Company regularly evaluates the creditworthiness of its customers and may require advance payments, letters of credit, or other credit enhancements to mitigate risks.
Impairment of Long-lived Assets
Management evaluates the recoverability of the Company’s identifiable intangible assets and other long-lived assets when events or circumstances indicate a potential impairment exists, in accordance with the provisions of ASC 360-10-35-15 “Impairment or Disposal of Long-Lived Assets.” Events and circumstances considered by the Company in determining whether the carrying value of identifiable intangible assets and other long-lived assets may not be recoverable include but are not limited to significant changes in performance relative to expected operating results; significant changes in the use of the assets; significant negative industry or economic trends; and changes in the Company’s business strategy.
In determining if impairment exists, the Company estimates the undiscounted cash flows to be generated from the use and ultimate disposition of these assets.
If impairment is indicated based on a comparison of the assets’ carrying values and the undiscounted cash flows, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets.
For the years ended December 31, 2024 and 2023, the Company recorded impairment losses of $2,088,274 and $911,467, respectively.
Derivative Liabilities
The Company evaluates financial instruments containing characteristics of both liabilities and equity in accordance with FASB ASC 480, Distinguishing Liabilities from Equity, and FASB ASC 815, Derivatives and Hedging.
Accounting for Derivative Liabilities
Derivative liabilities are revalued at fair value at each reporting period, with changes in fair value recognized in the results of operations as a gain or loss on derivative remeasurement (ASC 815-40-35-4). The Company uses a binomial pricing model to determine the fair value of these instruments.
Conversion and Extinguishment of Derivative Liabilities
When a debt instrument with an embedded conversion option (e.g., convertible debt or warrants) is converted into shares of common stock or repaid, the Company:
Records the newly issued shares at fair value;
Derecognizes all related debt, derivative liabilities, and unamortized debt discounts; and
Recognizes a gain or loss on debt extinguishment, if applicable (ASC 470-50-40-2).
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For equity-based derivative liabilities (e.g., warrants) that are extinguished, any remaining liability balance is reclassified to additional paid-in capital (ASC 815-40-35-9).
Reclassification of Equity Instruments to Liabilities
Equity instruments initially classified as equity may be reclassified as liabilities if they no longer meet equity classification criteria under ASC 815-40-25. In such cases, they are remeasured at fair value on the date of reclassification, with changes recognized in earnings (ASC 815-40-35-8).
Derivative Liability Balances
As of December 31, 2024 and 2023, the Company’s derivative liabilities were $338,061 and $175,045, respectively.
Revenue Recognition
Under Accounting Standards Update (“ASU”) No. 2014-09 (Topic 606) “Revenue from Contracts with Customers”, revenue from contracts with customers is measured based on the consideration specified in the contract with the customer, and excludes any sales incentives, discounts, rebates, and amounts collected on behalf of third parties.
A performance obligation is a promise in a contract to transfer a distinct good or service to a customer and is the unit of account under Topic 606. The Company’s contracts with its customers do not include multiple performance obligations. The Company recognizes revenue when a performance obligation is satisfied by transferring control over a product or service to a customer. The amount of revenue recognized reflects the consideration the Company expects to be entitled to in exchange for such products or services.
The following represents the analysis management has considered in determining its revenue recognition policy:
Identify the contract with a customer
A contract with a customer exists when (i) the Company enters into an enforceable contract with a customer that defines each party’s rights regarding the services to be transferred and identifies the payment terms related to these services, (ii) the contract has commercial substance and, (iii) the Company determines that collection of substantially all consideration for services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration. The Company applies judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors including the customer’s historical payment experience or, in the case of a new customer, published credit and financial information pertaining to the customer.
Identify the performance obligations in the contract
Performance obligations promised in a contract are identified based on the services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the service either on its own or together with other resources that are readily available from third parties or from the Company, and are distinct in the context of the contract, whereby the transfer of the services is separately identifiable from other promises in the contract. To the extent a contract includes multiple promised services, the Company must apply judgment to determine whether promised services are capable of being distinct and distinct in the context of the contract. If these criteria are not met the promised services are accounted for as a combined performance obligation.
Determine the transaction price
The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring services to the customer. To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing either the expected value method or the most likely amount method depending on the nature of the variable consideration. Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur.
None of the Company’s contracts contain a significant financing component.
Allocate the transaction price to performance obligations in the contract
If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. However, if a series of distinct services that are substantially the same qualifies as a single performance obligation in a contract with variable consideration, the Company must determine if the variable consideration is attributable to the entire contract or to a specific part of the contract. For example, a bonus or penalty may be associated with one or more, but not all, distinct services promised in a series of distinct services that forms part of a single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price basis unless the transaction price is variable and meets the criteria to be allocated entirely to a performance obligation or to a distinct service that forms part of a single performance obligation. The Company determines standalone selling price based on the price at which the performance obligation is sold separately.
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If the standalone selling price is not observable through past transactions, the Company estimates the standalone selling price taking into account available information such as market conditions and internally approved pricing guidelines related to the performance obligations.
The Company’s contracts have a distinct single performance obligation and there are no contracts with variable consideration.
Recognize revenue when or as the Company satisfies a performance obligation
Revenue is recognized at the time the related performance obligation is satisfied by transferring a promised service to a customer.
USS
Net revenues from USS primarily consist of security services provided to large residential, industrial, construction and government clients. Contracts with customers contain no incentives or discounts that could cause revenue to be allocated or adjusted over time. The Company does offer discounts, but historically the discounts have been insignificant. The Company satisfies the performance obligation for the agreed-upon period of time and location and records revenues after completion. There are no services that would be considered fulfilled over an extended period of time and necessitate different accounting treatment.
Our typical services contract for the guard business is for one month at the start of the engagement of services and then goes month-to-month thereafter. Revenues are net 30 after the services are provided for any 30-day period. We often times use a factoring bank on receivables due to the requirement that we front the guard expenses for the initial 30 days. There is no required revenue recognition after the completion of the initial 30-day contract.
Gladiator
Net revenues from Gladiator primarily consisted of sales of personal protective products, including armor, plates, helmets, shields, and accessories shipped directly to customers. All revenue transactions for Gladiator comprise a single performance obligation, which consists of the sale of products to customers either through wholesale, intermediary, or direct-to-consumer channels. The company satisfies the performance obligation and records revenues when transfer of control has passed to the customer, based on the terms of sale. In all of the Companies revenue channels, transfer of control takes place at the point of sale upon shipment to customer.
Income Taxes
The Company accounts for income taxes using the asset and liability method prescribed by FASB ASC 740, Income Taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences of differences between the financial reporting and tax bases of assets and liabilities. These amounts are measured using enacted tax rates expected to apply in the periods when temporary differences reverse (ASC 740-10-30-8).
The effect of a change in tax rates on deferred tax balances is recognized as income or expense in the period that includes the enactment date (ASC 740-10-45-4).
Uncertain Tax Positions
The Company evaluates uncertain tax positions in accordance with ASC 740-10-25, which requires that a tax position be recognized in the financial statements only if it is more likely than not (greater than 50% likelihood) to be sustained upon examination by tax authorities.
As of December 31, 2024 and 2023, respectively, the Company had no uncertain tax positions that qualified for recognition or disclosure in the financial statements (ASC 740-10-50-15).
The Company also recognizes interest and penalties related to uncertain tax positions in other expense in the consolidated statement of operations (ASC 740-10-45-25). No interest and penalties were recorded for the years ended December 31, 2024 and 2023, respectively.
Valuation of Deferred Tax Assets
The Company’s deferred tax assets include certain future tax benefits, such as net operating losses (NOLs), tax credits, and deductible temporary differences. Under ASC 740-10-30-5, a valuation allowance is required if it is more likely than not that some portion, or all, of the deferred tax assets will not be realized.
The Company reviews the realizability of deferred tax assets on a quarterly basis, or more frequently if circumstances warrant, considering both positive and negative evidence (ASC 740-10-30-16).
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Factors Considered in Valuation Allowance Assessment
The Company evaluates multiple factors in determining whether a valuation allowance is necessary, including:
Historical earnings trends (cumulative pre-tax income or losses in the most recent three-year period)
Future financial projections, including expected taxable income based on long-term estimates of business performance and market conditions
Statutory carryforward periods for net operating losses and other deferred tax assets
Prudent and feasible tax planning strategies that could impact the realization of deferred tax assets
Nature and predictability of temporary differences and the timing of their reversal
Sensitivity of financial forecasts to external factors such as commodity prices, market demand, and operational risks
While cumulative three-year losses are a strong indicator that a valuation allowance may be needed, ASC 740-10-30-23 states that a valuation allowance determination is not solely based on past losses—all available positive and negative evidence must be considered.
Valuation Allowance Determination
As of December 31, 2024 and 2023, respectively, the Company recorded a full valuation allowance against its deferred tax assets, resulting in a net carrying amount of $0. This determination was based on cumulative losses in recent years and the lack of sufficient positive evidence to support the realization of deferred tax assets in the near term (ASC 740-10-30-24).
The Company will continue to evaluate its valuation allowance each reporting period and will recognize deferred tax assets in the future if sufficient positive evidence emerges to support their realization.
Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with ASC 718, "Compensation – Stock Compensation," using the fair value-based method. Under this guidance, compensation cost is measured at the grant date based on the fair value of the award and is recognized over the requisite service period, typically the vesting period.
ASC 718 establishes accounting standards for transactions in which an entity exchanges its equity instruments for goods or services. It also applies to transactions where an entity incurs liabilities based on the fair value of its equity instruments or liabilities that may be settled using equity instruments.
In compliance with ASU 2018-07, the Company applies the fair value method for equity instruments granted to both employees and non-employees, aligning non-employee share-based payment accounting with that of employees. The fair value of stock-based compensation is determined as of the grant date or the measurement date (i.e., when the performance obligation is completed) and is recognized over the vesting period in accordance with ASC 718.
The Company determines the fair value of stock options using the Black-Scholes option pricing model, considering the following key assumptions:
Exercise price – The agreed-upon price at which the option can be exercised.
Expected dividends – The anticipated dividend yield over the expected life of the option.
Expected volatility – Based on historical stock price fluctuations.
Risk-free interest rate – Derived from U.S. Treasury securities with similar maturities.
Expected life of the option – Estimated based on historical exercise patterns and contractual terms.
Additionally, the Company follows the guidance under ASU 2016-09, which introduced amendments to simplify certain accounting aspects of share-based compensation, including:
The treatment of tax benefits and tax deficiencies in income tax reporting.
The option to recognize forfeitures as they occur rather than estimating them upfront.
Cash flow classification for certain tax-related transactions.
The Company continues to evaluate and apply the latest Accounting Standards Updates (ASUs) and interpretive releases related to stock-based compensation to ensure compliance with evolving financial reporting requirements.
Stock Warrants
In connection with certain financing transactions (debt or equity), consulting arrangements, or strategic partnerships, the Company may issue warrants to purchase shares of its common stock. These standalone warrants are not puttable or mandatorily redeemable by the holder and are classified as equity instruments in accordance with ASC 480, “Distinguishing Liabilities from Equity.”
The fair value of warrants issued for compensation purposes is measured using the Black-Scholes option pricing model, consistent with the guidance in ASC 718-10-30. However, if warrants meet the definition of derivative liabilities under ASC 815, “Derivatives and Hedging,” fair value is determined using a binomial pricing model or other appropriate valuation techniques, as required by ASC 815-40-15.
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Accounting Treatment of Warrants
Warrants issued in conjunction with common stock issuance are initially recorded at fair value as a reduction in Additional Paid-In Capital (APIC), in accordance with ASC 815-40-25.
Warrants issued for services are recorded at fair value and expensed over the requisite service period or immediately upon issuance if no service period exists, as per ASC 718-10-25.
Warrants classified as liabilities due to settlement features or pricing adjustments are remeasured at fair value each reporting period, with changes recognized in earnings, following ASC 815-40-35.
Basic and Diluted Earnings (Loss) per Share
The Company computes earnings per share (“EPS”) in accordance with ASC 260, "Earnings Per Share." The calculation of basic EPS follows the two-class method and is determined by dividing net earnings available to common shareholders by the weighted average number of common shares outstanding, including certain other shares committed to be issued.
Basic Earnings Per Share (EPS)
Basic EPS is calculated using the two-class method, as prescribed by ASC 260-10-45-60, and is computed as follows:
Net earnings available to common shareholders represent net earnings to common shareholders, adjusted for the allocation of earnings to participating securities.
Losses are not allocated to participating securities in accordance with ASC 260-10-45-61.
The denominator includes common shares outstanding and certain other shares committed to be issued, such as restricted stock and restricted stock units (“RSUs”), for which no future service is required.
Diluted Earnings Per Share (EPS)
Diluted EPS is calculated under both the two-class method and the treasury stock method, and the more dilutive result is reported, as required by ASC 260-10-45-45.
Diluted EPS is computed by taking the sum of:
Net earnings available to common shareholders
Dividends on preferred shares
Dividends on dilutive mandatorily redeemable convertible preferred shares
Divided by the weighted average number of common shares outstanding and certain other shares committed to be issued, plus all dilutive common stock equivalents during the period, such as:
Stock options
Warrants
Convertible preferred stock
Convertible debt
Preferred shares and unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) qualify as participating securities under the two-class method, per ASC 260-10-45-62.
Net Loss Per Share Considerations
In computing net loss per share, unvested shares of common stock are excluded from the denominator, as required by ASC 260-10-45-48.
Participating Securities & Share-Based Compensation
Restricted stock and RSUs granted as part of share-based compensation contain nonforfeitable rights to dividends and dividend equivalents, respectively. Therefore:
Before the requisite service is rendered for the right to retain the award, these instruments meet the definition of a participating security under ASC 260-10-45-59.
RSUs granted under an executive compensation plan, however, are not considered participating securities because the rights to dividend equivalents are forfeitable (ASC 718-10-25).
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Related Parties
The Company defines related parties in accordance with ASC 850, "Related Party Disclosures," and SEC Regulation S-X, Rule 4-08(k). Related parties include entities and individuals that, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company.
Related parties include, but are not limited to:
Principal owners of the Company.
Members of management (including directors, executive officers, and key employees).
Immediate family members of principal owners and members of management.
Entities affiliated with principal owners or management through direct or indirect ownership.
Entities with which the Company has significant transactions, where one party has the ability to exercise control or significant influence over the management or operating policies of the other.
A party is considered related if it has the ability to control or significantly influence the management or operating policies of the Company in a manner that could prevent either party from fully pursuing its own separate economic interests.
The Company discloses all material related party transactions, including:
The nature of the relationship between the parties.
A description of the transaction(s), including terms and amounts involved.
Any amounts due to or from related parties as of the reporting date.
Any other elements necessary for a clear understanding of the transactions' effects on the financial statements.
Disclosures are made in accordance with ASC 850-10-50-1 through 50-6 and SEC Regulation S-X, Rule 4-08(k), which requires registrants to disclose material related party transactions and their effects on the financial position and results of operations.
Recent Accounting Standards
ASU 2022-02 – Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures
In March 2022, the FASB issued ASU 2022-02, which:
Eliminates the troubled debt restructuring (TDR) model for creditors under ASC 310, "Receivables."
Requires enhanced vintage disclosures related to credit losses, including gross write-offs by year of origination.
Updates the accounting guidance under ASC 326, "Financial Instruments – Credit Losses," to enhance disclosures regarding loan refinancings and restructurings for borrowers experiencing financial difficulty.
The Company adopted ASU 2022-02 on January 1, 2023. The adoption did not have a material impact on the Company's consolidated financial statements.
ASU 2023-07 – Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures
In November 2023, the FASB issued ASU 2023-07, which enhances disclosure requirements for reportable segments by:
Requiring enhanced disclosures of significant segment expenses.
Aligning segment reporting requirements with information regularly reviewed by management.
The Company adopted ASU 2023-07 on January 1, 2024. The adoption did not have a material impact on the Company's consolidated financial statements.
Recently Issued Accounting Standards Not Yet Adopted
ASU 2023-09 – Income Taxes (Topic 740): Improvements to Income Tax Disclosures
In December 2023, the FASB issued ASU 2023-09, which enhances income tax disclosure requirements by:
Standardizing and disaggregating rate reconciliation categories.
Requiring disclosure of income taxes paid by jurisdiction.
This ASU is effective for annual periods beginning after December 15, 2024, and may be applied on a prospective or retrospective basis. Early adoption is permitted.
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The Company is currently assessing the impact of ASU 2023-09 on its income tax disclosures and reporting requirements.
Other Accounting Standards Updates
The FASB has issued various technical corrections and industry-specific updates that are not expected to have a material impact on the Company’s consolidated financial position, results of operations, or cash flows.
Other Recent Updates
Various other ASUs have been issued that primarily contain technical corrections or industry-specific guidance. These updates are not expected to have a material impact on the Company’s consolidated financial position, results of operations, or cash flows.
Liquidity and Going Concern
As reflected in the accompanying consolidated financial statements, for the year ended December 31, 2024, the Company had:
Net loss of $8,450,552; and
Net cash used in operations was $32,707
Additionally, at December 31, 2024, the Company had:
Accumulated deficit of $22,291,520
Stockholders’ deficit of $4,330,672; and
Working capital deficit of $4,419,731
The Company anticipates that it will need to raise additional capital immediately in order to continue to fund its operations. The Company has relied on related parties for debt-based funding of its operations. There is no assurance that the Company will be able to obtain funds on commercially acceptable terms, if at all. There is also no assurance that the amount of funds the Company might raise will enable the Company to complete its initiatives or attain profitable operations.
The Company’s operating needs include the planned costs to operate its business, including amounts required to fund working capital and capital expenditures. The Company’s future capital requirements and the adequacy of its available funds will depend on many factors, including the Company’s ability to successfully expand to new markets, competition, and the need to enter into collaborations with other companies or acquire other companies to enhance or complement its product and service offerings.
There can be no assurances that financing will be available on terms which are favorable, or at all. If the Company is unable to raise additional funding to meet its working capital needs in the future, it will be forced to delay, reduce, or cease its operations.
We manage liquidity risk by reviewing, on an ongoing basis, our sources of liquidity and capital requirements. The Company had cash on hand of $222,202 at December 31, 2024.
The Company has historically incurred significant losses since inception and has not demonstrated an ability to generate sufficient revenues from the sales of its products and services to achieve profitable operations. In making this assessment we performed a comprehensive analysis of our current circumstances including: our financial position, our cash flows and cash usage forecasts for the twelve months ended December 31, 2025, and our current capital structure including equity-based instruments and our obligations and debts.
These factors create substantial doubt about the Company’s ability to continue as a going concern within the twelve-month period subsequent to the date that these financial statements are issued.
The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. Accordingly, the financial statements have been prepared on a basis that assumes the Company will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business.
Management’s strategic plans include the following:
Expand into new and existing markets,
Obtain additional debt and/or equity-based financing,
Collaborations with other operating businesses for strategic opportunities; and
Acquire other businesses to enhance or complement our current business model while accelerating our growth.
Off-Balance Sheet Transactions
None.
