COMMITMENTS AND CONTINGENCIES

3 Months Ended

Mar. 31, 2025

NOTE 8 - COMMITMENTS AND CONTINGENCIES

Operating Lease Agreements

In accordance with ASC 842, the Company determines whether or not a contract contains a lease based on whether or not it provides the Company with the use of a specifically identified asset for a period of time, as well as both the right to direct the use of that asset and receive the significant economic benefits of the asset. The Company elected the transition relief package of practical expedients, and as a result, we did not assess 1) whether existing or expired contracts contain embedded leases, 2) lease classification for any existing or expired leases, and 3) whether lease origination costs qualified as initial direct costs. We elected the short-term lease practical expedient by establishing an accounting policy to exclude leases with a term of 12 months or less.

During 2018, the Company executed a lease agreement. The lease term is 39 months at a rate of $1,680 per month with 3% increases beginning January 1, 2021 and rent commencing on January 1, 2019. The Company was required to pay a $1,781 security deposit. During the year ending December 31, 2022 the Company agreed to renew the lease through December 31, 2025. During the year ended December 2024, the Company stopped using this space and was looking for a party to sublease the space. In December 2024, the Company was notified by the Landlord that a new tenant had been located and a new lease was signed. The Company was released from the remaining lease as of January 31, 2025.

In January 2023, the Company executed a lease agreement. The lease term is 40 months at a rate of $5,624 per month and rent commencing on September 1, 2023. The Company was required to pay a $12,166 security deposit.

On September 1, 2024, the Company executed a lease agreement. The lease term is 37 months at an initial rate of $2,305 per month with a 5% increase each year with rent commencing on October 1, 2024. The Company was required to pay a $5,000 security deposit.

On February 1, 2025, the Company executed a lease agreement. The lease term is 60 months at an initial rate of $18,962 per month with a 4% increase each year with rent commencing on February 1, 2025. The Company was required to pay a $44,365 security deposit.

The current discount rate utilized for classification and measurement purposes as of the inception date of the lease is based on the Company’s collateralized incremental interest rate to borrow of 18%, as the rate implicit in the lease is not determinable.

Undiscounted Cash Flows

As of March 31, 2025, the right of use asset and lease liability were shown on the consolidated balance sheet at $951,245 and $963,333, respectively. The table below reconciles the fixed component of the undiscounted cash flows and the total remaining years to the operating lease liability recorded on the consolidated balance sheet as of March 31, 2025:

Amounts due as of March 31, 2025	Operating Leases
2025	$	238,654
2026		338,385
2027		268,137
2028		255,130
2029		265,336
2030		22,182
Total minimum lease payments		1,387,824
Less: effect of discounting		(424,491	)
Present value of future minimum lease payments		963,333
Less: current obligations under leases		(172,478	)
Long-term lease obligations	$	790,855

Legal Matters

On July 6, 2020, we received a letter from the staff of the Division of Enforcement of the Securities and Exchange Commission (the “Staff”) that indicated the Company may have violated certain rules and regulations regarding a late filing notification filed by the Company and that the Staff is conducting an informal inquiry into the matter. On April 29, 2021, the Company agreed to pay civil penalties of $25,000 to the Securities and Exchange Commission in settlement of the matter. Payment shall be made in the following four installments: (1) $5,000 within 14 days of entry of the order; (2) $7,500 within 180 days of entry of the order; (3) $6,250 within 270 days of entry of the order; and (4) $6,250 within 360 days of entry of the order. As of September 30, 2024, $20,000 remained due.

On April 6, 2023, the Company was served a Summons for an Amended Complaint filed in the state of Florida with claims for Strict Liability, Negligence and Breach of Implied Warranty. The complaint, filed by an insurance company, stems from its payments for claims filed by a policy holder on two separate occasions. The first insurance claim payment was due to a leak caused by improper installation in which the contractor failed to meet local codes. The second insurance claim payment followed the contractor’s failure to properly repair the improper installation. The complaint states that the contractor failed to follow basic installation guidelines supplied with the product in either incident, resulting in damages. On June 8, 2023, the Court of Duval County, FL entered a default judgement for $38,768. As of September 30, 2024, the Company has not paid any of this balance.

Trutankless, Inc. 10-Q