TRUTANKLESS, INC.
10-Ks and 10-Qs
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended
December 31, 2014
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number
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0-54219
BOLLENTE COMPANIES INC.
(Exact name of registrant as specified in its charter)
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Nevada
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26-2137574
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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8800 N. Gainey Center Dr., Suite 270
Scottsdale, Arizona 85258
(Address of principal executive offices) (Zip Code)
(480) 275-7572
(Registrant's telephone number, including area code)
Copies of Communications to:
Stoecklein Law Group, LLP
401 West A Street
Suite 1150
San Diego, CA 92101
(619) 704-1310 • Fax (619) 704-1325
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 par value
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
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No
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Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
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No
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
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No
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Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
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No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
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Indicate by check mark whether the registrant a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "small reporting company" in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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(Do not check if a smaller reporting company)
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Smaller reporting company
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
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No
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As of June 30, 2014, the aggregate market value of shares held by non-affiliates of the registrant (computed by reference to the price at which the common equity was last sold) was approximately $16,782,574.
The number of shares of Common Stock, $0.001 par value, outstanding on March 31, 2015 was 17,533,901 shares.
DOCUMENTS INCORPORATED BY REFERENCE: None.
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BOLLENTE COMPANIES INC.
FOR THE FISCAL YEAR ENDED
DECEMBER 31, 2014
Index to Report on Form 10-K
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PART I
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Page
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Item 1.
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Business
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4
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Item 1A.
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Risk Factors
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12
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Item 1B.
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Unresolved Staff Comments
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16
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Item 2.
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Properties
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16
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Item 3.
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Legal Proceedings
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16
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PART II
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Item 5.
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Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
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16
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Item 6.
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Selected Financial Data
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20
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Item 7.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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20
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Item 7A.
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Quantitative and Qualitative Disclosures About Market Risk
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23
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Item 8.
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Financial Statements and Supplementary Data
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24
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Item 9.
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Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
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24
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Item 9A (T)
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Controls and Procedures
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24
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Item 9B.
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Other Information
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PART III
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Item 10.
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Directors, Executive Officers and Corporate Governance
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25
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Item 11.
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Executive Compensation
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28
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Item 12.
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Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
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29
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Item 13.
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Certain Relationships and Related Transactions, and Director Independence
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30
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Item 14
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Principal Accounting Fees and Services
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31
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PART IV
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Item 15.
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Exhibits, Financial Statement Schedules
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31
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FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements and involves risks and uncertainties that could materially affect expected results of operations, liquidity, cash flows, and business prospects. These statements include, among other things, statements regarding:
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our ability to diversify our operations;
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inability to raise additional financing for working capital;
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the fact that our accounting policies and methods are fundamental to how we report our financial condition and results of operations, and they may require our management to make estimates about matters that are inherently uncertain;
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our ability to attract key personnel;
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our ability to operate profitably;
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deterioration in general or regional economic conditions;
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adverse state or federal legislation or regulation that increases the costs of compliance, or adverse findings by a regulator with respect to existing operations;
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changes in U.S. GAAP or in the legal, regulatory and legislative environments in the markets in which we operate;
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the inability of management to effectively implement our strategies and business plan;
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inability to achieve future sales levels or other operating results;
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the unavailability of funds for capital expenditures;
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other risks and uncertainties detailed in this report;
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as well as other statements regarding our future operations, financial condition and prospects, and business strategies. Forward-looking statements may appear throughout this report, including without limitation, the following sections: Item 1 “Business,” Item 1A “Risk Factors,” and Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Forward-looking statements generally can be identified by words such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “projects,” “will be,” “will continue,” “will likely result,” and similar expressions. These forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties, which could cause our actual results to differ materially from those reflected in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this Annual Report on Form 10-K, and in particular, the risks discussed under the caption “Risk Factors” in Item 1A and those discussed in other documents we file with the Securities and Exchange Commission (SEC). We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.
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As used herein, “Bollente,” “BOLC,” “the Company,” “we,” “our,” and similar terms include Bollente Companies Inc. and its subsidiaries, unless the context indicates otherwise.
General
Bollente Companies Inc. was incorporated in the state of Nevada on March 7, 2008. The Company is headquartered in Scottsdale, Arizona and currently operates through its wholly-owned subsidiary, Bollente, Inc., a Nevada corporation incorporated on December 3, 2009. On September 23, 2010, we changed our name from Alcantara Brands Corporation to Bollente Companies Inc.
As a result of the assignment of the engineering services contract, Bollente manufactures and sells a high quality, whole-house, electric tankless water heater that is more energy efficient than conventional products.
Products
Trutankless®
We manufacture and distribute trutankless® water heaters, a line of new, high-quality, highly efficient electric tankless water heaters. Our trutankless® water heaters are engineered to outperform and outlast both its tank and tankless predecessors in energy efficiency, output, and durability. It provides endless hot water on demand for a whole household and it also integrates with home automation systems. We have several features and design innovations which are new to the electric tankless water heater market that we believe will give our products a sustainable competitive advantage over our rivals in the market.
Our trutankless® water heaters are designed to provide an endless hot water supply because they are designed to heat water as it flows through the system. We believe that our products are capable of higher temperature rise than competitive units at given flow rates because of its improved design and greater efficiency. Our trutankless® water heaters can save energy and reduce operating costs compared to tank systems because unlike tanks, if there is no hot water demand, no energy is being used. In addition, we intend to improve life-cycle costs with an improved design conceived not only to increase efficiency, but also the longevity of our products versus competitive units. Generally, a typical tank water heater lasts about 11 years, whereas gas tankless systems may last longer, but requires more routine maintenance. Our product line is designed to last longer than tank water heaters without any routine maintenance required under most conditions.
We created a custom heat exchanger for our trutankless® product line that utilizes our patent pending Velix technology to heat water as it flows through the system, which means customers need not worry about running out of hot water. We believe we’ve selected the best materials available and a collection of exclusive design elements and features to maximize capacity, minimize energy use, and provide a truly maintenance free experience.
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Our trutankless® water heaters were officially launched in the first quarter of 2014 and is sold throughout the wholesale plumbing distribution channel. We recently began generating revenue in the first quarter ended March 31, 2014. As of the fiscal year ended December 31, 2014, we generated $260,612
in revenue.
In July of 2014, we launched MYtankless, a customizable online control panel for our trutankless® line of smart electric water heaters. From the dashboard, residential and commercial users can obtain real-time status reports, adjust unit temperature settings, view up to three years of water usage data, and change notification settings from anywhere in the world, using a computer or web-enabled smart device at www.mytankless.com.
Additionally, service professionals can also use the dashboard to monitor system status on every unit they install, allowing them to proactively contact their customers if a service or warranty appointment is needed.
Our primary markets, Florida, Texas, Arizona, and the rest of the Sunbelt region are centers of growth in the U.S. construction industry with green building at an all-time high, and an unprecedented appliance replacement cycle. We intend to take advantage of these powerful macro-economic trends.
Industry Recognition and Awards
Bollente’s trutankless® received the Best of IBS 2014 Award for Best Home Technology Product from the National Association of Home Builders (NAHB) at this year’s International Builders Show (IBS) in Las Vegas. The IBS is produced by NAHB and is the largest annual light construction show in the world - featuring more than 1,100 exhibitors and attracting 75,000 attendees including high level decision makers from some of the largest home builders in the world as well as plumbing and HVAC professionals from top outfits in major markets.
Bollente’s trutankless® received the Governor's Award of Merit for Energy and Technology Innovation for the trutankless line of electric tankless heaters at Arizona Forward's 2014 Environmental Excellence Awards.
Bollente’s trutankless® received Kitchen and Bath Business Magazine’s 2014 K*BB Product Innovator’s Award Judges Choice Product.
truCirc
truCirc is a high-tech, smart-home water circulation pump. The energy reducing, water-saving truCirc can be used as a standalone product or with our multi-award winning trutankless® electric tankless water heater. truCirc represents the next step in our mission to pioneer forward-thinking technology that changes the way people think about hot water.
A traditional water circulation pump circulates hot water through a home’s pipes, enabling homeowners to have instant, on-demand hot water as soon as they turn on the faucet and saving countless gallons of water that would have been wasted. truCirc takes the traditional pump to the next level with multiple hot water delivery strategies including a self-aware learning mode that tracks water usage in a household and predicts when hot water will be needed-- thereby using energy to keep water hot only when it’s desired. truCirc’s simple, modern, high-tech interface allows homeowners to quickly and easily change delivery modes or choose a zone or fixture to send hot water. Thermostatic shut-off valves can be installed at showerhead points of use throughout a home to further eliminate wasted water.
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Our new product, truCirc, was unveiled on January 20, 2015 at the 2015 International Builders’ Show in Las Vegas.
Intellectual Property & Proprietary Rights
Upon completion of our brand development, we will regard substantial elements of our brands and underlying intellectual property as proprietary and attempt to protect them by relying on trademark, service mark and trade secret laws, restrictions on disclosure and transferring title and other methods.
Our plans are to actively pursue patent and trademark protection for all of newly developed products, both domestically and abroad. We have novel and proprietary technologies related to our product line and the central focus of our patent counsel has been to work with our engineers to build a defensible patent portfolio.
To date, we have filed and received a United States federal trademark registration for trutankless® and our logo design with the help of our outside marketing and branding experts and have acquired several unique domain registrations reflective of our online marketing strategy (www.bollente.com). During the year ended December 31, 2013, our patent agent filed ta provisional patent with the US Patent and Trademark Office with the US Patent and Trademark Office with 37 claims based on our prototype design. Upon completion of our engineered prototype, we expect to file additional patents with additional claims. There is no guarantee that we will be able to obtain a formal patent for our tankless water heater. We will continue to protect our intellectual property through confidentiality agreements with vendors and consultants and trade secret protocols employed by employees, consultants, and contractors.
Growth Strategy
Bollente’s product launched in Q1 2014 and is sold through the wholesale plumbing distribution channel. Gas tankless manufacturers’ support of this sales channel was critical in their ability to quickly capture appreciable market share in the $3.6 billion replacement market. No electric tankless has been available solely through wholesale distribution which has welcomed the arrival of trutankless. Bollente’s sales and service training programs geared towards plumbers and contractors are the primary focal point of the Company’s sales strategy. Bollente is employing several outside manufacturers rep agencies to quickly scale sales and educate distributors, plumbers, builders, and contractors.
The Company is also leveraging online marketing strategies and social media. By continually building an immersive and educational web experience at www.trutankless.com Bollente is efficiently building brand awareness among consumers. Launch efforts are focused in Arizona, Texas, and the Southeast which accounts for over 1,000,000 electric water heater shipments annually. Licensing and co-branding opportunities are being assessed, since strategic partnerships would eliminate the channel conflicts that have historically obstructed previous electric tankless entries in the marketplace. Electric tankless has traditionally not been able to warrant such partnerships because of generally poor quality and product support, but co-branding open up sales of Bollente’s products through big box retailers.
In addition, we have determined that as part of our growth strategy, we will seek to partner with or acquire entities operating in various fields, with a bias towards green and "clean-tech" sectors. Our management has experience in marketing, product launches, business development strategies, and certain other areas specific to the success of growth companies. We will operate with a view towards identifying acquisition candidates as we seek the rights to provide the market with products and services geared toward environmental responsibility.
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We have identified several agents who are well suited to provide consulting to high-growth technology and consumer products companies. We are currently negotiating with several agents possessing technical expertise related to planning, structuring, and capitalizing growth companies in the green and "clean-tech" sectors who will be tasked with creating additional revenues and assist the Company with our own planning, structure, and capitalization.
We have identified several entities that fit our criteria. We are focused on adding value to these companies and acquiring either the entity or its business, maintaining and growing that business, and hiring and utilizing existing management where appropriate. We have begun the design of a website which we believe will help us attract relationships with possible acquisition targets.
Margin Expansion
Cost reduction measures, including outsourcing of key components and certain quality control testing protocols, are currently being undertaken on an expedited basis to rapidly reduce costs and improve manufacturing scalability. Such reductions are expected to take place in stages over the next three quarters and are likely to result in gross sales margins approaching 50-60% which is far higher than other companies in the sector.
Market Outlook
Bollente is entering the market in front of the largest water heater replacement cycle ever at a time when homeowners are seeking ways reduce their carbon footprint without sacrificing comfort. Shares of companies like Whirlpool (WHR) and AO Smith (AOS) have soared — fueled by the unprecedented Consumer Durables replacement cycle — which is an echo of last decade’s building boom. It is estimated that some 57 Million water heaters will need replacement in the next 3 years. Florida, Texas, and Arizona, where electric water heaters dominate the market, were the epicenters of the boom. In the new construction market, builders are increasingly marketing “green” features and trutankless fit well along with other energy saving innovations. In commercial markets, projects with a green designation like LEED or EnergyStar recently became the majority.
Additionally, the Federal Government has mandated that starting in April 2015 standard electric water heaters over 55 gallons may not be sold, effectively forcing the market to use alternative technologies like tankless water heaters.
Bollente has entered the market with a disruptive product that has enjoyed significant tail winds thus far. As a result, we believe BOLC is poised to produce exceptional results. Management expects to announce several key partnerships outside of the wholesale channel for current products and launch several additional lines next year. Management has plans to significantly reduce the cost of goods sold and develop other innovations to supplement existing offerings which will be sold through the existing sales channels and reps to help ensure sustainable growth over the next 3-5 years.
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Tankless Industry Overview
The U.S. gas tankless, whole-house, water heater market is dominated by five brands; Noritz, Rinnai, Takagi, Aqua Star by Bosch and Rheem by Paloma. The U.S. electric tankless, whole-house, water heater market is dominated by four brands; Seisco by Microtherm, Inc., Stiebel Eltron, Eemax and Power Star by Bosch. Until just a few years ago, there were only a few tankless water heater manufacturers with a presence in the United States, but that is changing. Now, several Japanese and European manufacturers have begun marketing products in the United States, and since 2003, gas tankless products have experienced dramatic growth. Electric tankless systems have not experienced comparable growth due to several factors, primarily product performance, capacity, product quality and electrical power supply and installation issues.
Manufacturers of tank heaters have a competitive advantage due largely to their product category’s long established use, name recognition, established distribution and brand position in the marketplace. Many plumbers and other building industry professionals were opposed to changing brands or to tankless systems because many tankless water heaters have been poorly designed in the past. As a result there is a perception among some contractors that these water heaters are more complicated and generally less dependable than traditional tank heaters. This perception is often passed along to consumers when making buying decisions or inquiring about switching to a tankless water heater. In recent years however, the industry has experienced a contraction in sales of products and services for new building projects. Consequently, higher ticket, higher margin products, such as tankless and solar water heating systems have become a primary growth driver for many plumbers and companies who had traditionally avoided emerging technologies.
While we believe that our products will have superior performance, such as endless hot water, superior longevity, greater efficiency and lower “life-cycle” costs than traditional tank water heaters, the Company’s success will depend to a large degree on the successful conversion of traditional water heater buyers to tankless water heater buyers. The acquisition price of tankless water heaters (both gas and electric) is greater than traditional tank water heaters, but the overall cost of ownership will be less than that of traditional tank technologies under typical circumstances. Although the public’s awareness of tankless systems has not been strong historically, sales growth in the sector is suggestive of increasing awareness.
Our marketing and promotion plans have been developed to increase the awareness of the Company’s brand as the preferred option to traditional tank systems. Bollente intends to position itself and its brand to capitalize on the paradigm shift to green-conscious living and development.
Target Markets
The United States market for residential tank water heaters in 2010 was approximately 7.65 million units according to data released by the Air-Conditioning, Heating, and Refrigeration Institute (AHRI). Almost 50% of those shipments were electric water heaters, and the company has found in comparing those statistics with government data, that over 90% of tank water heaters shipped in 2010 were intended for “replacement” installations.
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Bollente will initially market its products to builders, remodelers and distributors in the southern and western U.S. These areas of the country have been selected because of generally higher ground water temperatures, which improves the effects of the performance and capacity of all brands of tankless water heaters. This area of the country also traditionally has the largest share of population growth and new housing starts, accounting for almost two-thirds of all housing starts in 2010, according to government data. Additionally, the southern U.S., and specifically the southeastern U.S., has the highest usage of electric water heaters.
Overview of Potential Markets and Summary of Marketing Plan
Management intends to focus on the United States residential market initially. For decades Americans have used only tank type water heaters. For most homes, the units hold an average of 40 to 80 gallons of water in a storage tank, are gas or electric fueled and consume excessive energy to keep water hot continuously. In fact, water heaters expend up to 25% of the total energy used by a typical household representing the second largest use of energy in most homes. Depending on household usage, approximately 25 – 50% of the heat created is lost through the walls of the tank and connecting pipes.
There are other problems inherent with traditional tank water heaters:
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Due to the high temperatures and corrosive aspects of water, a typical water heater has a life span of 10.7 years.
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Unless replaced beforehand, more than two thirds of water heaters eventually corrode and leak or burst, often resulting in extensive and costly water and mold related damage.
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Due to the large size and other installation requirements often result in the units being installed in garages and utility rooms on the opposite side of the home from the bathroom fixtures. Because of this, an estimated 10,000 gallons of water per household goes down the drain while users wait on the water to get hot at the faucet.
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Traditional tank water heaters take up to 6 to 9 square feet of floor space, which can be especially valuable in multi-family or commercial applications.
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To reduce operating costs, many people adjust the temperature on their water heaters down. Unfortunately, lower temperatures increase the possibility of unhealthy, water born bacteria growth.
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To increase water heating capacity, many people will adjust the temperature of their water heaters up
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In addition to using more energy, this practice can be dangerous by posing a greater risk of scalding.
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Tankless water heaters are becoming increasingly popular in America because they:
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Produce a continuous, unlimited supply of hot water
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Expend only the energy needed to heat the water used with no “standby” energy loss
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Can last more than twice as long as tank heaters
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Are small and require very little space.
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Are not conducive to bacterial growth
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Are considered very “green” by green conscious builders and consumers.
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Electric tankless water heaters have additional benefits over gas powered models because they can be installed almost anywhere in a home (closets, attics, utility rooms, etc.) where hot water is needed which improves flexibility of floor plan design for builders, architects, and remodelers. In addition, gas tankless water heaters may not be suitable for many applications due to challenges with adequate fuel supply, the need for exhaust vents with specific requirements, and other code-related requirements. In spite of these issues, gas tankless water heaters have enjoyed significant growth in North America because of the efficiency and performance they provide.
Distribution Plan
Initially, we will be distributing our first product line throughout the southern and western U.S. using an existing network of plumbing and electrical wholesalers (distributors), manufacturers’ representatives and dealers. We believe that once the product has been launched, we will be able to partner with major companies in the building and plumbing industries to rapidly expand awareness of Bollente and our products in the water heater market in the U.S and Canada.
Sales will be pursued through the following channels:
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Regional and national plumbing and electrical wholesalers (also called “distributors”);
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Plumbers and electricians on a direct basis, in those areas where wholesalers have not yet been set up; and,
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Builders on a direct basis, in those areas where wholesalers & mechanical contractors have not yet been set up.
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We will expand sales of the product further by marketing the product directly to consumers over the internet with a series of aggressive and ongoing marketing initiatives. We intend to market to industry professionals and end-users through more traditional marketing efforts as well, including print advertising, attendance of select national trade shows, and attendance of select regional consumer shows. We also expect Bollente will be successful in providing education, training, and support to our sales and installer networks as part of our distribution and marketing efforts.
We believe our products will be a differentiating factor for industry professionals and builders as they market to their customers. Additionally, our electric tankless products are expected to provide these professionals and their companies with a mechanism to increase revenue and improve gross margin as compared to more traditional water heating products.
Employees
We currently have four full-time employees, including Robertson James Orr, who is also our sole officer and director, and one part-time employee. We expect to increase the number of employees to expand our sales and technical staff. We are using and will continue to use independent consultants and contractors to perform various professional services. We believe that this use of third-party service providers may enhance our ability to contain operating and general expenses, and capital costs.
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Employment Agreements
Effective January 2014, the Company executed a two year employment agreement with the Vice President of Sales. The employee will receive annual compensation of $125,000 per year. The employee will earn a bonus of $40,000 when the Company sells and receives payment for 1,500 tankless hot water systems during the twelve months ended January 31, 2015. The individual will earn a bonus of $40,000 when the Company sells and receives payment for 3,000 tankless hot water systems during the twelve months ended January 31, 2016. The individual is also eligible for a commission equal to 2% of gross sales of tankless hot water systems. Additionally, pursuant to the agreement, there were 5,000 shares due upon execution of the agreement, 5,000 shares due on July 15, 2014, 5,000 shares due on February 1, 2015, and 5,000 shares due on July 1, 2015.
Effective March 1, 2014, the Company executed an employment agreement with the President and CEO of the Company. The officer will receive annual compensation of $75,000 due monthly. The officer can choose to receive the compensation in cash or in shares of common stock at $1 per share. Additionally, the Company will issue 60,000 shares of common stock upon execution of the agreement and 30,000 shares of common stock per quarter starting from the three months ended May 31, 2014. Effective March 1, 2015, the Company executed a new employment agreement with the President and CEO of the Company. The officer will receive annual compensation of $75,000 due monthly. The officer can choose to receive the compensation in cash or in shares of common stock at $1 per share. Additionally, the Company will issue 60,000 shares of common stock upon execution of the agreement and 30,000 shares of common stock per quarter starting from the three months ended May 31, 2015.
Effective October 1, 2014, the Company executed an employment agreement with the Vice President of Business Development of the Company. The employee will receive annual compensation of $125,000 due monthly. The employee can choose to receive the compensation in cash or in shares of common stock at $1 per share. Additionally, the Company issued 50,000 shares of common stock pursuant to the execution of the agreement.
Consulting Agreements
On September 1, 2014, the Company entered into a Manufacturer Incentive Agreement to sell and distribute trutankless systems in single-family homes, townhomes, and condominiums constructed and sold by Meritage Homes Corporation. The Company agrees to provide Meritage Home Corporation certain favorable pricing, supply terms, and incentives based on the volume of products purchased by Meritage’s subcontractors and suppliers.
On February 3, 2015, the Company entered into a Consulting and Advisory Agreement where an entity who will provide business development and consulting services. The Company has agreed to issue 2,000 shares of common stock for their services over a twelve month period.
Available Information
Our periodic reports filed with the SEC, which include Form 10-K, Form 10-Q, Form 8-K and amendments thereto, may be accessed by the public free of charge from the SEC. Electronic copies of these reports can be accessed at the SEC’s website (
http://www.sec.gov
). Copies of these reports may also be obtained, free of charge, upon written request to: Bollente Companies Inc., 8800 N. Gainey Dr., Suite 270, Scottsdale, Arizona 85258, Attn: Corporate Secretary. The public may read or obtain copies of these reports from the SEC at the SEC’s Public Reference Room at 450 Fifth Street N.W., Washington, D.C. 20549 (1-800-SEC-0330).
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We are a development stage company organized in March 2008 and have recently commenced operations, which makes an evaluation of us extremely difficult. At this stage of our business operations, even with our good faith efforts, we may never become profitable or generate any significant amount of revenues, thus potential investors have a high probability of losing their investment.
We were incorporated in March of 2008 as a Nevada corporation. As a result of our start-up operations we have; (i) generated $238,912 in revenues in the year ended December 31, 2014, (ii) accumulated deficits of $13,506,818 from our inception through the period ended December 31, 2014, and (iii) we have incurred losses of $13,506,818 from our inception through the period ended December 31, 2014. We have been focused on organizational and start-up activities and business plan development. There is nothing at this time on which to base an assumption that our business operations will prove to be successful or that we will ever be able to operate profitably. Our future operating results will depend on many factors, including our ability to raise adequate working capital, demand for our products, the level of our competition and our ability to attract and maintain key management and employees.
If we are unable to attract and retain key personnel, our business could be harmed.
If any of our key employees were to leave, we could face substantial difficulty in hiring qualified successors and could experience a loss in productivity while any successor obtains the necessary training and experience. Our employment relationships are generally at-will. We cannot assure that one or more key employees will not leave in the future. We intend to continue to hire additional highly qualified personnel, but may not be able to attract, assimilate or retain qualified personnel in the future. Any failure to attract, integrate, motivate and retain these employees could harm our business.
We are subject to significant competition from large, well-funded companies.
The industry we compete in is characterized by intense competition and rapid and significant technological advancements. Many companies are working in a number of areas similar to our primary field of interest to develop new products; some of which may be similar and/or competitive to our products.
Most of the companies with which we compete have substantially greater financial, technical, manufacturing, marketing, sales and distribution and other resources than us. If a competitor enters the tankless water heater industry and establishes a greater market share in the direct-selling channel, our business and operating results will be adversely affected.
Our auditors have substantial doubt about our ability to continue as a going concern. Additionally, our auditor’s report reflects that the ability of the Company to continue as a going concern is dependent upon our ability to raise additional capital from the sale of common stock and, ultimately, the achievement of significant operating revenues.
Our financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Our auditor’s report reflects that the ability of the Company to continue as a going concern is dependent upon our ability to raise additional capital from the sale of common stock and, ultimately, the achievement of significant operating revenues. If we are unable to continue as a going concern, stockholders will lose their investment. We will be required to seek additional capital to fund future growth and expansion. No assurance can be given that such financing will be available or, if available, that it will be on commercially favorable terms. Moreover, favorable financing may be dilutive to investors.
12
We will require additional financing in order to implement our business plan. In the event we are unable to acquire additional financing, we may not be able to implement our business plan resulting in a loss of revenues and ultimately the loss of your investment.
Due to our very recent start-up nature, we will have to incur the costs of product development, import expenses, advertising, in addition to hiring new employees and commencing additional marketing activities for product sales and distribution. To fully implement our business plan we will require substantial additional funding.
We will need to raise additional funds to expand our operations. We plan to raise additional funds through private placements, registered offerings, debt financing or other sources to maintain and expand our operations. Adequate funds for this purpose on terms favorable to us may not be available, and if available, on terms significantly more adverse to us than are manageable. Without new funding, we may be only partially successful or completely unsuccessful in implementing our business plan, and our stockholders may lose part or all of their investment.
Our internal controls may be inadequate, which could cause our financial reporting to be unreliable and lead to misinformation being disseminated to the public.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. As defined in Exchange Act Rule 13a-15(f), internal control over financial reporting is a process designed by, or under the supervision of, the principal executive and principal financial officer and effected by the board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that: (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company, and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
Mr. Orr may become involved with other businesses and there can be no assurance that he will continue to provide services to us. Mr. Orr’s limited time devotion to the Company could have the effect on our operations of preventing us from being a successful business operation, which ultimately could cause a loss of stockholder investment.
As compared to many other public companies, we do not have the depth of managerial or technical personnel. Mr. Orr is currently involved in other businesses, which have not, and are not expected in the future to interfere with Mr. Orr’s ability to work on behalf of our Company. Mr. Orr may in the future be involved with other businesses and there can be no assurance that he will continue to provide services to us. Mr. Orr will devote only a portion of his time to our activities.
13
We depend on certain key employees, and believe the loss of any of them would have a material adverse effect on our business.
We will be dependent on the continued services of our management team, as well as our outside consultants. While we have no assurance that our current management will produce successful operations, the loss of such personnel could have an adverse effect on meeting our production and financial performance objectives. We have no assurance that we will not lose the services of these or other key personnel and may not be able to timely replace any personnel if we do lose their services.
Our ability to attract qualified sales and marketing personnel is critical to our future success, and any inability to attract such personnel could harm our business.
Our future success may also depend on our ability to attract and retain additional qualified design and sales and marketing personnel. We face competition for these individuals and may not be able to attract or retain these employees, which could have a material adverse effect on our results of operations and financial condition.
RISKS RELATED TO OUR INTELLECTUAL PROPERTY AND TECHNOLOGY
If we fail to secure or protect our intellectual property rights, our products and competitors may be able to use our designs, each of which could harm our reputation, reduce our revenues and increase our costs.
We will rely on intellectual property laws to protect our proprietary rights with respect to our trademarks and pending patent. We are susceptible to injury from patent infringement, which may harm our reputation for producing high-quality products or force us to incur additional expense in enforcing our rights. It is difficult and expensive to detect and prevent patent infringement. Despite our efforts to protect our intellectual property, some may attempt to violate our intellectual property rights by using our trademarks and imitating our products, which could potentially harm our brand, reputation and financial condition.
We may face significant expenses and liability in connection with the protection of our intellectual property rights. Infringement claims and lawsuits likely would be expensive to resolve and would require substantial management time and resources. Any adverse determination in litigation could subject us to the loss of our rights to a particular trademark, which could prevent us from manufacturing, selling or using certain aspects of our products or could subject us to substantial liability, any of which would harm our results of operations. Aside from infringement claims against us, if we fail to secure or protect our intellectual property rights, our competitors may be able to use our designs. If we are unable to successfully protect our intellectual property rights or resolve any conflicts, our results of operations may be harmed.
Our reliance on intellectual property and other proprietary information subjects us to the risk that these key ingredients of our business could be copied by competitors.
14
Our success depends, in significant part, on the proprietary nature of our technology. If a competitor is able to reproduce or otherwise capitalize on our technology, despite the safeguards we have in place, it may be difficult, expensive or impossible for us to obtain necessary legal protection. In addition to patent protection of intellectual property rights, we consider elements of our product designs and processes to be proprietary and confidential. We rely upon employee, consultant and vendor non-disclosure agreements and contractual provisions and a system of internal safeguards to protect our proprietary information. However, any of our registered or unregistered intellectual property rights may be challenged or exploited by others in the industry, which might harm our operating results.
RISKS RELATING TO OUR COMMON STOCK
Because our common stock could remain under $5.00 per share, it could continue to be deemed a low-priced “Penny” stock, an investment in our common stock should be considered high risk and subject to marketability restrictions.
Since our common stock is currently under $5.00 per share, it is considered a penny stock, as defined in Rule 3a51-1 under the Securities Exchange Act, it will be more difficult for investors to liquidate their investment even if and when a market develops for the common stock. If the trading price of the common stock stays below $5.00 per share, trading in the common stock is subject to the penny stock rules of the Securities Exchange Act specified in rules 15g-1 through 15g-10. Those rules require broker-dealers, before effecting transactions in any penny stock, to:
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·
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Deliver to the customer, and obtain a written receipt for, a disclosure document;
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|
·
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Disclose certain price information about the stock;
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|
·
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Disclose the amount of compensation received by the broker-dealer or any associated person of the broker-dealer;
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·
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Send monthly statements to customers with market and price information about the penny stock; and
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·
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In some circumstances, approve the purchaser’s account under certain standards and deliver written statements to the customer with information specified in the rules.
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Consequently, the penny stock rules may restrict the ability or willingness of broker-dealers to accept the common stock for deposit into an account or, if accepted for deposit, to sell the common stock and these restrictions may affect the ability of holders to sell their common stock in the secondary market and the price at which such holders can sell any such securities. These additional procedures could also limit our ability to raise additional capital in the future.
FINRA sales practice requirements may also limit a stockholder's ability to buy and sell our stock.
In addition to the “penny stock” rules described above, the Financial Industry Regulatory Authority (FINRA) has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer's financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.
15
We have one individual performing the functions of all officers and directors. Mr. Orr, our president, has developed our internal control procedures and is responsible for monitoring and ensuring compliance with those procedures. As a result, our internal controls may be inadequate or ineffective, which could cause our financial reporting to be unreliable and lead to misinformation being disseminated to the public. Investors relying upon this misinformation may make an uninformed investment decision.
None.
We currently maintain an executive office 8800 N. Gainey Center Dr. Suite 270 Scottsdale AZ 85253, which consists of approximately 1,577 square feet. Our monthly rent for this office is $3,500. In January 2014, we signed a sublease with Perigon Companies, LLC, a Delaware limited liability company (“Perigon”). The lease term was one year at a rate of $4,000 per month. The lease is currently month-to-month at the same rate of $4,000 per month.
Additionally, we maintain an industrial/commercial building located at 15720 N Greenway-Hayden Loop, Unit 2, Scottsdale, AZ 85254, which consists of approximately 1,924 square feet. Our monthly rent for this building was $2,158.33 commencing on March 3, 2014 through December 31, 2014. On January 1, 2015, we signed a new lease for 12 months at a rate of $2,800 per month.
We are not a party to any material legal proceedings.
Market Information
Our common stock is traded in the OTCQB under the symbol “BOLC”. Our common stock has traded sporadically on the OTCQB, which limits our ability to locate accurate high and low bid prices for each quarter within the last two fiscal years. Therefore, the following table lists the available quotations for the high and low bid prices for the fiscal years ended December 31, 2013 and 2014.
The following table sets forth, the average high and low bid prices of our common stock as reported by Yahoo Finance. These quotations reflect inter-dealer prices, without retail mark-up, markdown or commission, and may not necessarily represent actual transactions
16
|
Year Ending
December 31, 2013
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Year Ending
December 31, 2014
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|||||||||||
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AVERAGE BID PRICES
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AVERAGE BID PRICES
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|||||||||||
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High
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Low
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High
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Low
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|||||||||
|
1
st
Quarter
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$
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2.36
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$
|
0.80
|
$
|
4.02
|
$
|
2.47
|
||||
|
2
nd
Quarter
|
$
|
0.95
|
$
|
0.95
|
$
|
3.24
|
$
|
1.95
|
||||
|
3
rd
Quarter
|
$
|
2.36
|
$
|
1.21
|
$
|
3.31
|
$
|
2.12
|
||||
|
4
th
Quarter
|
$
|
3.38
|
$
|
1.70
|
$
|
3.07
|
$
|
2.16
|
||||
Holders of Common Stock
As of March 24, 2015, there were approximately 231 stockholders of record of our common stock. This number does not include shares held by brokerage clearing houses, depositories or others in unregistered form.
Dividends
The payment of dividends is subject to the discretion of our Board of Directors and will depend, among other things, upon our earnings, our capital requirements, our financial condition, and other relevant factors. We have not paid or declared any dividends upon our common stock since our inception and, by reason of our present financial status and our contemplated financial requirements, do not anticipate paying any dividends upon our common stock in the foreseeable future.
We have never declared or paid any cash dividends. We currently do not intend to pay cash dividends in the foreseeable future on the shares of common stock. We intend to reinvest any earnings in the development and expansion of our business. Any cash dividends in the future to common stockholders will be payable when, as and if declared by our Board of Directors, based upon the Board’s assessment of:
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·
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our financial condition;
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·
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earnings;
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·
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need for funds;
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|
·
|
capital requirements;
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|
·
|
prior claims of preferred stock to the extent issued and outstanding; and
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|
·
|
other factors, including any applicable laws.
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Therefore, there can be no assurance that any dividends on the common stock will ever be paid.
Recent Sales of Unregistered Securities
On October 7, 2014, the Company issued a total of 40,000 shares of common stock for cash received of $40,000.
On October 7, 2014, the Company issued a total of 30,000 shares of common stock owed to an employee of the Company as part of their employment agreement totaling $30,000.
17
On October 14, 2014, the Company sold 10,000 shares of common stock to an investor for cash totaling $10,000 and are recorded to stock payable. The shares were issued on March 4, 2015.
On November 4, 2014, the Company issued a total of 135,000 shares of common stock for cash received of $135,000.
On November 4, 2014, the Company issued a total of 50,000 shares of common stock owed an employee of the Company as part of their employment agreement totaling $50,000.
On November 4, 2014, the Company issued 350,000 shares of common stock for consulting services totaling $350,000 to be performed over a period of one year. The shares were valued according to the fair value of the common stock, based on recent sales in a PPM at $1.00 and not based on the stock price on the market at the time which ranged from $2.53 to $3.71.
On November 4, 2014, the Company issued 50,000 shares of common stock for consulting services totaling $50,000. The shares were valued according to the fair value of the common stock, based on recent sales in a PPM at $1.00 and not based on the stock price on the market at the time which ranged from $2.53 to $3.71.
On November 30, 2014, the Company recorded a stock payable totaling $30,000 for 30,000 shares of common stock sold and 10,000 shares of common stock owed to an employee of the Company as part of their employment agreement. The shares were issued on March 4, 2015.
On December 1, 2014, the Company issued a total of 254,000 shares of common stock for cash received of $254,000.
On December 1, 2014, the Company issued a total of 50,000 shares of common stock owed an employee of the Company as part of their employment agreement totaling $50,000.
On December 1, 2014, the Company issued 500,000 shares of common stock for consulting services totaling $500,000. The shares were valued according to the fair value of the common stock, based on recent sales in a PPM at $1.00 and not based on the stock price on the market at the time which ranged from $2.53 to $3.71.
On December 17, 2014, the Company issued a total of 50,000 shares of common stock for cash received of $50,000.
On December 17, 2014, the Company issued a total of 7,000 shares of common stock to employees of the Company as a bonus totaling $7,000.
On December 19, 2014, the Company sold 15,000 shares of common stock to an investor for cash totaling $15,000 and are recorded to stock payable. The shares were issued on February 4, 2015.
On December 24, 2014, the Company sold 100,000 shares of common stock to an investor for cash totaling $100,000 and are recorded to stock payable. The shares were issued on February 4, 2015.
On December 31, 2014, the Company recorded a stock payable totaling $9,375 for 9,375 shares of common stock earned by eight consultants. The shares were valued according to the fair value of the common stock, based on recent sales in a PPM at $1.00 and not based on the stock price on the market at the time which ranged from $2.53 to $3.71.
18
We believe that the issuance and sale of the above securities was exempt from the registration and prospectus delivery requirements of the
Securities Act of 1933
by virtue of Section 4(2) and Regulation D Rule. The securities were sold directly by us and did not involve a public offering or general solicitation. The recipients of the securities were afforded an opportunity for effective access to files and records of the Registrant that contained the relevant information needed to make their investment decision, including the financial statements and
34 Act reports
. We reasonably believed that the recipients, immediately prior to the sale of the securities, were accredited investors and had such knowledge and experience in our financial and business matters that they were capable of evaluating the merits and risks of their investment. The management of the recipients had the opportunity to speak with our management on several occasions prior to their investment decision. There were no commissions paid on the issuance and sale of the securities.
Subsequent Sales & issuances of Unregistered Securities
On January 12, 2015, the Company sold 10,000 shares of common stock to an investor for cash totaling $10,000. As of the date of this filing, the shares have not been issued and are recorded to stock payable.
On February 2, 2015, the Company issued 235,000 shares of common stock for cash received of $235,000, of which $115,000 of the funds were received during December 2014 and recorded as stock payable.
On February 2, 2015, the Company issued 184,600 shares of common stock for services totaling $184,600.
On February 2, 2015, the Company issued 30,000 shares of common stock owed to an employee of the Company as part of their employment agreement totaling $30,000.
On March 4, 2015, the Company issued 175,000 shares of common stock for cash received of $175,000, of which $10,000 of the funds were received during December 2014 and recorded as stock payable.
On March 4, 2015, the Company issued 15,000 shares of common stock for services totaling $15,000.
On March 23, 2014, the Company issued a total of 35,000 shares of common stock for cash received of $35,000.
On March 23, 2015, the Company issued 20,000 shares of common stock for services totaling $20,000.
On March 23, 2015, the Company issued 100,000 shares of common stock owed to employees of the Company as part of their employment agreement totaling $100,000.
19
We believe that the issuance and sale of the securities was exempt from the registration and prospectus delivery requirements of the
Securities Act of 1933
by virtue of Section 4(2) and Regulation D Rule. The securities were sold directly by us and did not involve a public offering or general solicitation. The recipients of the securities were afforded an opportunity for effective access to files and records of the Registrant that contained the relevant information needed to make their investment decision, including the financial statements and
34 Act reports
. We reasonably believed that the recipients, immediately prior to the sale of the securities, were accredited investors and had such knowledge and experience in our financial and business matters that they were capable of evaluating the merits and risks of their investment. The management of the recipients had the opportunity to speak with our management on several occasions prior to their investment decision. There were no commissions paid on the issuance and sale of the securities.
Issuer Purchases of Equity Securities
The Company did not repurchase any of its equity securities during the fourth quarter ended December 31, 2014.
This item is not applicable, as we are considered a smaller reporting company.
Background
Bollente Companies Inc. was incorporated in the state of Nevada on March 7, 2008. The Company is headquartered in Scottsdale, Arizona and currently operates through its wholly-owned subsidiary, Bollente, Inc., a Nevada corporation incorporated on December 3, 2009.
Bollente manufactures and sells a high quality, whole-house, electric tankless water heater that is more energy efficient than conventional products. See “Item 1. Business.”
RESULTS OF OPERATIONS
Revenues
In the year ended December 31, 2014 we generated $238,912 in revenues, as compared to $0 revenues in the prior year. Cost of goods sold was $440,330, as compared to $0 in the prior year.
Expenses
Operating expenses totaled $6,010,406 during the year ended December 31, 2014 as compared to $3,161,609 in the prior year. In the year ended December 31, 2014, our expenses primarily consisted of General and Administrative of $1,557,015, Executive Compensation of $208,850, Research and Development of $876,777, and Professional fees of $3,367,764.
General and administrative fees increased $1,427,221, from the year ended December 31, 2013 to the year ended December 31, 2014. This increase was primarily due to an increase in wages and marketing in 2014.
20
Executive Compensation increased $82,250 from the year ended December 31, 2013 to the year ended December 31, 2014. Executive Compensation increased due to an increase in cash and stock based compensation to the President of the Company.
Research and development increased $574,976 from the year ended December 31, 2013 to the year ended December 31, 2014. This increase is attributed primarily to the Company spending more towards developing its technology.
Professional fees increased $793,950 from the year ended December 31, 2013 to the year ended December 31, 2014. Professional fees increased due to an increase in consulting fees associated with business development.
Other Income and Expenses
Other income increased $7,182 in the year ended December 31, 2014 from $0 for the year ended December 31, 2013. The increase was the result of an increase in sublease income.
Interest expense – related party decreased $35,317 to $9,085 in the year ended December 31, 2014 from $44,402 for the year ended December 31, 2013. The decrease was the result of a decrease in notes payable with interest accruals.
Interest expense decreased $53 to $205 in the year ended December 31, 2014 from $258 for the year ended December 31, 2013. The decrease was the result of a decrease in notes payable with interest accruals.
Net Loss
In the year ended December 31, 2014, we generated a net loss of $7,217,939, an increase of $4,011,670 from $3,206,269 for the year ended December 31, 2013. This increase was attributable to increased payroll and marketing costs.
In the year ended December 31, 2014, we generated a net loss from continuing operations of $7,038,932, an increase of $3,843,163 from $3,195,769 for the year ended December 31, 2013. This increase was attributable to increased payroll and marketing costs.
In the year ended December 31, 2014, we generated a net loss from discontinued operations of $179,007, an increase of $168,507 from $10,500 for the year ended December 31, 2013. This increase was attributable to increased legal fees.
Going Concern
The financial statements included in this filing have been prepared in conformity with generally accepted accounting principles that contemplate the continuance of the Company as a going concern. The Company may not have a sufficient amount of cash required to pay all of the costs associated with operating and marketing of its products. Management intends to use borrowings and security sales to mitigate the effects of cash flow deficits; however, no assurance can be given that debt or equity financing, if and when required, will be available. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets and classification of liabilities that might be necessary should the Company be unable to continue existence.
21
Liquidity and Capital Resources
As of December 31, 2014, we had $40,446 in cash, $54,477 in accounts receivable, $174,132 in inventory, $30,399 in prepaid expenses and $530,000 in prepaid stock compensation. The following table provides detailed information about our net cash flow for all financial statement periods presented in this Annual Report. To date, we have financed our operations through the issuance of stock and borrowings.
The following table sets forth a summary of our cash flows for the years ended December 31, 2014 and 2013:
|
Year ended
December 31,
|
||||||||
|
2014
|
2013
|
|||||||
|
Net cash used in operating activities – continuing operations
|
$ | (2,647,194 | ) | $ | (448,060 | ) | ||
|
Net cash used in operating activities – discontinued operations
|
(85,647 | ) | (10,500 | ) | ||||
|
Net cash used in operating activities
|
(2,732,841 | ) | (458,560 | ) | ||||
|
Net cash used in investing activities – continuing operations
|
(12,324 | ) | (55,098 | ) | ||||
|
Net cash used in investing activities
|
(12,324 | ) | (55,098 | ) | ||||
|
Net cash provided by financing activities – continuing operations
|
2,695,635 | 514,115 | ||||||
|
Net cash provided by financing activities – discontinued operations
|
86,013 | - | ||||||
|
Net cash provided by financing activities
|
2,781,648 | 514,115 | ||||||
|
Net increase in Cash
|
36,483 | 457 | ||||||
|
Cash, beginning
|
4,329 | 3,872 | ||||||
|
Cash, ending
|
40,812 | $ | 4,329 | |||||
|
Less: Cash, discontinued operations
|
366 | 3,000 | ||||||
|
Cash, continuing operations
|
$ | 40,446 | $ | 1,329 | ||||
Operating activities
Net cash used in operating activities – continuing operations was $2,647,194 for the year ended December 31, 2014, as compared to $448,060 used in operating activities for the same period in 2013. The increase in net cash used in operating activities – continuing operations was primarily due to an increase in payroll, marketing, research and development and consulting contract cost.
Net cash used in operating activities – discontinued operations was $85,647 for the year ended December 31, 2014, as compared to $10,500 used in operating activities for the same period in 2013. The increase in net cash used in operating activities – discontinued operations was primarily due to an increase in legal fees.
Investing activities
Net cash used in investing activities was $12,324 for the year ended December 31, 2014, as compared to $55,098 used in investing activities for the same period in 2013. The decrease in net cash used in investing activities was primarily due to the website development in 2013 and no further development in 2014.
22
Financing activities
Net cash provided by financing activities – continuing operations for the year ended December 31, 2014 was $2,695,635, as compared to $514,115 for the same period of 2013. The increase of net cash provided by financing activities – continuing operations was mainly attributable to more equity financing from the sale of common stock and borrowings.
Net cash provided by financing activities – discontinued operations for the year ended December 31, 2014 was $86,013, as compared to $0 for the same period of 2013. The increase of net cash provided by financing activities was mainly attributable to more financing from borrowings.
As of December 31, 2014, we continue to use traditional and/or debt financing to provide the capital we need to run the business.
Since inception, we have financed our cash flow requirements through issuance of common stock and debt financing. As we expand our activities, we may, and most likely will, continue to experience net negative cash flows from operations, pending receipt of substantial product sales. Additionally, we anticipate obtaining additional financing to fund operations through common stock offerings, to the extent available, or to obtain additional financing to the extent necessary to augment our working capital. In the future we need to generate sufficient revenues from product sales in order to eliminate or reduce the need to sell additional stock or obtain additional loans. There can be no assurance we will be successful in raising the necessary funds to execute our business plan.
On March 3, 2015, the Company received $200,000 as a loan from a shareholder of the Company. The interest rate is 12% that is to be paid on a monthly basis. The term of the note is for two years beginning March 3, 2015 and ending on March 2, 2017.
We anticipate that we will incur operating losses in the next twelve months. Our lack of operating history makes predictions of future operating results difficult to ascertain. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in their early stage of development. Such risks for us include, but are not limited to, an evolving and unpredictable business model and the management of growth. To address these risks, we must, among other things, obtain a customer base, implement and successfully execute our business and marketing strategy, continually develop our line of products, respond to competitive developments, and attract, retain and motivate qualified personnel. There can be no assurance that we will be successful in addressing such risks, and the failure to do so can have a material adverse effect on our business prospects, financial condition and results of operations.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
This item in not applicable as we are currently considered a smaller reporting company.
23
See Index to Financial Statements and Financial Statement Schedules appearing on page 34 of this Form 10-K.
We have had no disagreements with our independent auditors on accounting or financial disclosures.
Evaluation of Disclosure Controls and Procedures
Our Principal Executive Officer and Principal Financial Officer, Robertson James Orr, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Report. Based on his evaluation, Mr. Orr concluded that our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control, as is defined in the Securities Exchange Act of 1934. These internal controls are designed to provide reasonable assurance that the reported financial information is presented fairly, that disclosures are adequate and that the judgments inherent in the preparation of financial statements are reasonable. There are inherent limitations in the effectiveness of any system of internal controls, including the possibility of human error and overriding of controls. Consequently, an effective internal control system can only provide reasonable, not absolute, assurance with respect to reporting financial information.
Our internal control over financial reporting includes policies and procedures that: (i) pertain to maintaining records that in reasonable detail accurately and fairly reflect our transactions; (ii) provide reasonable assurance that transactions are recorded as necessary for preparation of our financial statements in accordance with generally accepted accounting principles and the receipts and expenditures of company assets are made and in accordance with our management and directors authorization; and (iii) provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on our financial statements.
Management has undertaken an assessment of the effectiveness of our internal control over financial reporting based on the framework and criteria established in the Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based upon this evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2014.
24
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to the temporary rules of the Securities and Exchange Commission that permit the company to provide only management’s report in this annual report.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or reasonably likely to materially affect, our internal control over financial reporting.
None.
The members of our board of directors serve for one year terms and are elected at the next annual meeting of stockholders, or until their successors have been elected. The officers serve at the pleasure of the board of directors.
Information as to our current directors and executive officers is as follows:
|
Name
|
Age
|
Title
|
Since
|
|
Robertson James Orr
|
40
|
Chief Executive Officer, President, Secretary, Treasurer, & Director
|
May 12, 2010
|
Duties, Responsibilities and Experience
Robertson James Orr
,
has been our Chief Executive Officer, President, Treasurer, Secretary, and a Director since May 12, 2010. Mr. Orr attended Arizona State University and graduated with a BA in Business Management. In 1998, Mr. Orr assisted in the founding of bluemedia, Inc., a successful large format digital printing company based in Tempe, Arizona. Mr. Orr led bluemedia to profitability 9 years ago while overseeing the company's sales department and business development, and since then the company has continued to grow by more than 28% annually. In 2005, Mr. Orr and his Partners in bluemedia started a non-traditional ad agency called Blind Society, which is responsible for the direct to consumer marketing efforts of companies like AT&T, K-Swiss, and Activision. In addition to his entrepreneurial successes, Mr. Orr has been involved with supporting numerous local charitable causes through his work with the Boys & Girls Clubs of Phoenix, St. Joseph the Worker, the MDA and the ADA. He is also on the Board of Directors for the Tempe Chamber of Commerce and is active in the Phoenix 40.
Indemnification of Directors and Officers
Our Articles of Incorporation and Bylaws both provide for the indemnification of our officers and directors to the fullest extent permitted by Nevada law.
25
Limitation of Liability of Directors
Pursuant to the Nevada General Corporation Law, our Articles of Incorporation exclude personal liability for our Directors for monetary damages based upon any violation of their fiduciary duties as Directors, except as to liability for any breach of the duty of loyalty, acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, or any transaction from which a Director receives an improper personal benefit. This exclusion of liability does not limit any right which a Director may have to be indemnified and does not affect any Director’s liability under federal or applicable state securities laws. We have agreed to indemnify our directors against expenses, judgments, and amounts paid in settlement in connection with any claim against a Director if he acted in good faith and in a manner he believed to be in our best interests.
Election of Directors and Officers
Directors are elected to serve until the next annual meeting of stockholders and until their successors have been elected and qualified. Officers are appointed to serve until the meeting of the Board of Directors following the next annual meeting of stockholders and until their successors have been elected and qualified.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), requires our executive officers and directors, and persons who beneficially own more than ten percent of our common stock, to file initial reports of ownership and reports of changes in ownership with the SEC. Executive officers, directors and greater-than-ten-percent beneficial owners are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. Based upon a review of the copies of such forms furnished to us and written representations from our executive officers and directors, we believe that as of the date of this filing they were current in their filings.
Code of Ethics
A code of ethics relates to written standards that are reasonably designed to deter wrongdoing and to promote:
|
1.
|
Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;
|
|
2.
|
Full, fair, accurate, timely and understandable disclosure in reports and documents that are filed with, or submitted to, the Commission and in other public communications made by an issuer;
|
|
3.
|
Compliance with applicable governmental laws, rules and regulations;
|
|
4.
|
The prompt internal reporting of violations of the code to an appropriate person or persons identified in the code; and
|
|
5.
|
Accountability for adherence to the code.
|
We have not adopted a corporate code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions.
26
Our decision to not adopt such a code of ethics results from our having a small management for the Company. We believe that the limited interaction which occurs having such a small management structure for the Company eliminates the current need for such a code, in that violations of such a code would be reported to the party generating the violation.
Corporate Governance
We currently do not have standing audit, nominating and compensation committees of the board of directors, or committees performing similar functions. Until formal committees are established, our entire board of directors, perform the same functions as an audit, nominating and compensation committee.
Involvement in Certain Legal Proceedings
To the best of our knowledge, none of our directors or executive officers has, during the past five years:
|
·
|
been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offences);
|
|
·
|
had any bankruptcy petition filed by or against the business or property of the person, or of any partnership, corporation or business association of which he was a general partner or executive officer, either at the time of the bankruptcy filing or within two years prior to that time;
|
|
·
|
been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or federal or state authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting, his involvement in any type of business, securities, futures, commodities, investment, banking, savings and loan, or insurance activities, or to be associated with persons engaged in any such activity;
|
|
·
|
been found by a court of competent jurisdiction in a civil action or by the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;
|
|
·
|
been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated (not including any settlement of a civil proceeding among private litigants), relating to an alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
|
|
·
|
been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.
|
27
Overview of Compensation Program
We currently have not appointed members to serve on the Compensation Committee of the Board of Directors. Until a formal committee is established, our entire Board of Directors has responsibility for establishing, implementing and continually monitoring adherence with the Company’s compensation philosophy. The Board of Directors ensures that the total compensation paid to the executives is fair, reasonable and competitive.
Compensation Philosophy and Objectives
The Board of Directors believes that the most effective executive compensation program is one that is designed to reward the achievement of specific annual, long-term and strategic goals by the Company and that aligns executives’ interests with those of the stockholders by rewarding performance above established goals, with the ultimate objective of improving stockholder value. As a result of the size of the Company and only having one officer, the Board evaluates both performance and compensation on an informal basis. Upon hiring additional executives, the Board intends to establish a Compensation Committee to evaluate both performance and compensation to ensure that the Company maintains its ability to attract and retain superior employees in key positions and that compensation provided to key employees remains competitive relative to the compensation paid to similarly-situated executives of peer companies. To that end, the Board believes executive compensation packages provided by the Company to its executives, including the named executive officers, should include both cash and stock-based compensation that reward performance as measured against established goals.
Role of Executive Officers in Compensation Decisions
The Board of Directors makes all compensation decisions for, and approves recommendations regarding equity awards to, the executive officers and Directors of the Company. Decisions regarding the non-equity compensation of other employees of the Company are made by management.
On March 1, 2014, the Company executed an employment agreement with Mr. Orr, President of the Company. Mr. Orr will receive annual compensation of $75,000 due monthly. Mr. Orr can choose to receive the compensation in cash or in shares of common stock at $1 per share. Additionally, the Company will issue 60,000 shares of common stock upon execution of the agreement and 30,000 shares of common stock per quarter starting from the three months ended May 31, 2014.
On March 1, 2015, the Company executed a Personal Service Agreement with Mr. Orr, the President of the Company. Mr. Orr will receive annual compensation of $75,000 due monthly. Mr. Orr can choose to receive the compensation in cash or in shares of common stock at $1 per share. Additionally, the Company will issue 60,000 shares of common stock upon execution of the agreement and 30,000 shares of common stock per quarter starting from the three months ended May 31, 2015.
28
Summary Compensation Table
The table below summarizes the total compensation paid to or earned by our current Executive Officers for the fiscal years ended December 31, 2014, 2013 and 2012
.
|
SUMMARY COMPENSATION TABLE
|
|||||||||
|
Name and Principal Positions
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock Awards
($)
|
Option Awards
($)
|
Non-Equity Incentive Plan Compen-sation
($)
|
Non-qualified Deferred Compensation Earnings
($)
|
All Other Compen-sation
($)
|
Total
($)
|
|
Robertson James Orr
(1)
,
|
2014
|
64,500
|
-0-
|
165,000
(2)
|
-0-
|
-0-
|
-0-
|
-0-
|
229,500
|
|
President, Secretary,
|
2013
|
12,000
|
-0-
|
111,600
(3)
|
-0-
|
-0-
|
-0-
|
-0-
|
123,600
|
|
Treasurer & Director
|
2012
|
17,000
|
-0-
|
126,100
(4)
|
-0-
|
-0-
|
-0-
|
-0-
|
143,100
|
|
(1)
|
Mr. Orr was appointed President, Secretary, Treasurer, and Director of the Company on May 12, 2010.
|
|
(2)
|
Amount represents the fair market value of 165,000 shares of common stock issued for services as an employee.
|
|
(3)
|
Amount represents the fair market value of 45,000 shares of common stock issued for services as an employee.
|
|
(4)
|
Amount represents the fair market value of 95,000 shares of common stock issued for services as an employee.
|
Termination of Employment
There are no compensatory plans or arrangements, including payments to be received from the Company, with respect to any person which would in any way result in payments to any such person because of his resignation, retirement, or other termination of such person’s employment with the Company or its subsidiaries, or any change in control of the Company, or a change in the person’s responsibilities following a change in control of the Company, except with respect to a breach of contract on the part of the Company.
Option Grants in Last Fiscal Year
During the years ended December 31, 2014 and 2013, we did not grant any options to our officers and directors.
The following table sets forth information, to the best of our knowledge, about the beneficial ownership of our common stock on March 24, 2015 relating to the beneficial ownership of our common stock by those persons known to beneficially own more than 5% of our capital stock and by our directors and executive officers. The percentage of beneficial ownership for the following table is based on 17,533,901 shares of common stock outstanding.
Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and does not necessarily indicate beneficial ownership for any other purpose. Under these rules, beneficial ownership includes those shares of common stock over which the stockholder has sole or shared voting or investment power. It also includes shares of common stock that the stockholder has a right to acquire within 60 days after March 24, 2015 pursuant to options, warrants, conversion privileges or other right. The percentage ownership of the outstanding common stock, however, is based on the assumption, expressly required by the rules of the Securities and Exchange Commission, that only the person or entity whose ownership is being reported has converted options or warrants into shares of our common stock.
29
Security Ownership of Management, Directors and Certain Beneficial Owners
|
Title of Class
|
Name of Beneficial Owner
(1)
|
Number
Of Shares
|
Percent
Beneficially
Owned
|
|
Common
|
Robertson James Orr – Sole Officer and Director
(2)
|
596,327
|
3.4%
|
|
Common
|
Jim Burns & Lynn Burns JT TEN
|
1,100,000
|
6.2%
|
|
All Directors, Officers and Principal Stockholders as a Group
|
1,696,327
|
9.6%
|
|
1.
|
As used in this table, “beneficial ownership” means the sole or shared power to vote, or to direct the voting of, a security, or the sole or shared investment power with respect to Common Stock (i.e., the power to dispose of, or to direct the disposition of, a security).
|
|
2.
|
Robertson James Orr is a natural person directly holding 100% voting power over the shares. Mr. Orr’s address is located at 312 West Macaw Drive, Chandler, AZ 85255.
|
|
3.
|
Jim & Lynn Burns are natural persons directly holding 100% voting power over the shares. Mr. and Mrs.’s Burns address is located at 146101 W Meadow Ln, Maricopa, AZ 85139
|
Changes in Control
There are no arrangements, known to the Company, including any pledge by any person of securities of the Company, the operation of which may at a subsequent date result in a change in control of the Company.
Transactions with Related Persons
As of December 31, 2013, the Company had a note payable totaling $500,000 due to a stockholder of the Company. The note payable is unsecured and was due on February 2014. In February 2014, the Company and the lender agreed to extend the due date of the loan for $500,000 for an additional year and would be due in February 2015. In June 2014 the note was paid off in full.
In January 2014, the Company executed a sublease agreement with Perigon Companies, LLC, a related party. The lease term was one year at a rate of $4,000 per month. The Company paid a refundable security deposit of $1,500. The lease is currently month-to-month at the same rate of $4,000 per month.
On March 3, 2015, the Company received $200,000 as a loan from a shareholder of the Company. The interest rate is 12% that is to be paid on a monthly basis. The term of the note is for two years beginning March 3, 2015 and ending on March 2, 2017.
Promoters and Certain Control Persons
We did not have any promoters at any time since our inception in March 2008.
Director Independence
We currently do not have any independent directors, as the term “independent” is defined in Section 803A of the NYSE Amex LLC Company Guide. Since the OTCQB does not have rules regarding director independence, the Board makes its determination as to director independence based on the definition of “independence” as defined under the rules of the New York Stock Exchange (“NYSE”) and American Stock Exchange (“Amex”).
30
AUDIT FEES
Audit and Non-Audit Fees
The aggregate fees billed for professional services rendered by De Joya Griffith, for the audit of our annual financial statements and review of the financial statements included in our Form 10-Q or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for fiscal years 2014 and 2013 was $33,800 and $16,500, respectively.
In March 2015, we engaged Seale and Beers, CPAs to serve as the Registrant’s independent registered public accountants. The aggregate fees billed for professional services rendered by Seale and Beers, CPAs for the audit of our annual financial statements for the fiscal year 2014 was $15,000.
(2) AUDIT-RELATED FEES
None.
(3) TAX FEES
See table above.
(4) ALL OTHER FEES
None.
(5) AUDIT COMMITTEE POLICIES AND PROCEDURES
We do not have an audit committee.
(6) If greater than 50 percent, disclose the percentage of hours expended on the principal accountant's engagement to audit the registrant's financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant's full-time, permanent employees.
Not applicable.
We have filed the following documents as part of this Annual Report on Form 10-K:
|
1.
|
The financial statements listed in the "Index to Consolidated Financial Statements" on page 34 are filed as part of this report.
|
|
2.
|
Financial statement schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.
|
|
3.
|
Exhibits included or incorporated herein: See index to Exhibits.
|
31
Exhibit Index
|
Incorporated by reference
|
|||||||||
|
Exhibit
Number
|
Exhibit Description
|
Filed
herewith
|
Form
|
Period
ending
|
Exhibit
|
Filing date
|
|||
|
31.1
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act
|
X
|
|||||||
|
32.1
|
Certification pursuant to Section 906 of the Sarbanes-Oxley Act
|
X
|
|||||||
|
101.INS**
|
XBRL Instance Document
|
X
|
|||||||
|
101.SCG**
|
XBRL Taxonomy Extension Schema
|
X
|
|||||||
|
101.CAL**
|
XBRL Taxonomy Extension Calculation Linkbase
|
X
|
|||||||
|
101.DEF
|
XBRL Taxonomy Extension Definition Linkbase
|
X
|
|||||||
|
101.LAB**
|
XBRL Taxonomy Extension Label Linkbase
|
X
|
|||||||
|
101.PRE**
|
XBRL Taxonomy Extension Presentation Linkbase
|
X
|
|||||||
|
**
|
XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
|
||||||||
32
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
BOLLENTE COMPANIES INC.
By: /s/ Robertson James Orr
Robertson James Orr, President
Date: March 31, 2015
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
|
Signature
|
Title
|
Date
|
| /s/ Roberston James Orr |
Chairman of the Board of Directors,
|
March 31, 2015
|
|
Robertson James Orr
|
Chief Executive Officer (Principal Executive Officer)
|
|
|
and Principal Financial Officer
|
||
33
BOLLENTE COMPANIES INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
|
PAGES
|
|
|
REPORT OF FORMER INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
35
|
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
36
|
|
CONSOLIDATED BALANCE SHEETS
|
37
|
|
CONSOLIDATED STATEMENTS OF OPERATIONS
|
38
|
|
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
|
39
|
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
40
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
41
|
34
SEAL & BEERS, CPAs
Certified Public Accountants
PCAOB Registered Auditors – www.sealebeers.com
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Bollente Companies, Inc.
We have audited the accompanying balance sheets of Bollente Companies, Inc. as of December 31, 2014, and the related statements of income, stockholders’ equity (deficit), and cash flows for the year ended December 31, 2014. Bollente Companies, Inc’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Bollente Companies, Inc as of December 31, 2014, and the related statements of income, stockholders’ equity (deficit), and cash flows for each of the years in the year ended December 31, 2014 in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has limited revenues, has incurred recurring losses and recurring negative cash flow from operating activities, and has an accumulated deficit which raises substantial doubt about its ability to continue as a going concern. Management’s plans concerning these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Seale and Beers, CPAs
Seale and Beers, CPAs
Las Vegas, Nevada
March 31, 2014
35
DE JOYA GRIFFITH
Certified Public Accountants and Consultants
Office Locations
Las Vegas, NV
New York, NY
Pune, India
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Bollente Companies, Inc.
We have audited the accompanying consolidated balance sheets of Bollente Companies, Inc. (A Development Stage Company) (the "Company") and subsidiaries as of December 31, 2013 and 2012 and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for the years then ended and for the period from inception (March 7, 2008) to December 31, 2013. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over the financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Bollente Companies, Inc. and subsidiaries as of December 31, 2013 and 2012 and the result of its operations and its cash flows for the years then ended and from inception (March 7, 2008) to December 31, 2013, in conformity with U.S. generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered recurring losses from operations, which raise substantial doubt about its ability to continue as a going concern. Management’s plans regarding these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ De Joya Griffith, LLC
Henderson, Nevada
April 8, 2014.
36
|
BOLLENTE COMPANIES, INC.
|
||||||||
|
|
||||||||
|
(audited)
|
||||||||
|
December 31,
|
December 31,
|
|||||||
|
2014
|
2013
|
|||||||
|
ASSETS
|
||||||||
|
Current assets:
|
||||||||
|
Cash
|
$ | 40,446 | $ | 4,329 | ||||
|
Accounts receivable, net
|
54,477 | - | ||||||
|
Inventory
|
174,132 | - | ||||||
|
Prepaid expenses
|
30,399 | 24,761 | ||||||
|
Prepaid stock compensation
|
530,000 | 1,228,201 | ||||||
|
Total current assets
|
829,454 | 1,257,291 | ||||||
|
Fixed assets, net
|
8,768 | - | ||||||
|
Other assets:
|
||||||||
|
Security deposits
|
1,500 | 1,500 | ||||||
|
Trademarks
|
825 | 550 | ||||||
|
Prepaid stock compensation - long term portion
|
16,667 | - | ||||||
|
Website, net
|
40,693 | 58,598 | ||||||
|
Total other assets
|
59,685 | 60,648 | ||||||
|
Total assets
|
$ | 897,907 | $ | 1,317,939 | ||||
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
||||||||
|
Current liabilities:
|
||||||||
|
Accounts payable
|
$ | 338,651 | $ | 76,769 | ||||
|
Credit cards
|
2,387 | - | ||||||
|
Customer deposits
|
600 | - | ||||||
|
Accrued salaries - related party
|
15,278 | 10,869 | ||||||
|
Accrued payroll taxes
|
12,505 | 11,891 | ||||||
|
Notes payable - related party
|
128,637 | 500,450 | ||||||
|
Accrued interest payable
|
4 | - | ||||||
|
Accrued interest payable - related party
|
- | 1,599 | ||||||
|
Line of credit - related party
|
- | 49,051 | ||||||
|
Notes payable, net of unamortized debt discount of $0
|
- | 30,250 | ||||||
|
Total current liabilities
|
498,062 | 680,879 | ||||||
|
Total liabilities
|
498,062 | 680,879 | ||||||
|
Stockholders' equity:
|
||||||||
|
Preferred stock, $0.001 par value, 10,000,000 shares
|
||||||||
|
authorized, no shares issued and outstanding
|
||||||||
|
as of December 31, 2014 and December 31, 2013, respectively
|
- | - | ||||||
|
Common stock, $0.001 par value, 100,000,000 shares
|
||||||||
|
authorized, 16,934,301 and 10,242,460 shares issued and outstanding
|
||||||||
|
as of December 31, 2014 and December 31, 2013, respectively
|
16,935 | 10,243 | ||||||
|
Additional paid-in capital
|
13,725,353 | 7,010,353 | ||||||
|
Subscriptions payable
|
164,375 | 94,850 | ||||||
|
Accumulated deficit
|
(13,506,818 | ) | (6,478,386 | ) | ||||
|
Total stockholders' equity
|
399,845 | 637,060 | ||||||
|
Total liabilities and stockholders' equity
|
$ | 897,907 | $ | 1,317,939 | ||||
See accompanying notes to consolidated financial statements.
37
|
BOLLENTE COMPANIES, INC.
|
||||||||
|
|
||||||||
|
(audited)
|
||||||||
|
For the years ended
|
||||||||
|
December 31,
|
||||||||
|
2014
|
2013
|
|||||||
|
Revenue
|
$ | 238,912 | $ | - | ||||
|
Cost of goods sold
|
(440,330 | ) | - | |||||
|
Gross profit
|
(201,418 | ) | - | |||||
|
Operating expenses:
|
||||||||
|
General and administrative
|
1,557,015 | 129,794 | ||||||
|
General and administrative - related party
|
- | 22,100 | ||||||
|
Executive compensation
|
208,850 | 123,600 | ||||||
|
Research and development
|
876,777 | 301,801 | ||||||
|
Professional fees
|
3,367,764 | 2,573,814 | ||||||
|
Total operating expenses
|
6,010,406 | 3,161,609 | ||||||
|
Other income(expenses):
|
||||||||
|
Other income
|
7,182 | - | ||||||
|
Interest expense - related party
|
(9,085 | ) | (44,402 | ) | ||||
|
Interest expense
|
(205 | ) | (258 | ) | ||||
|
Loss on debt conversion
|
(825,000 | ) | - | |||||
|
Total other expenses
|
(827,108 | ) | (44,660 | ) | ||||
|
Net loss from continuing operations
|
(7,038,932 | ) | (3,195,769 | ) | ||||
|
Net loss from discontinued operations
|
(179,007 | ) | (10,500 | ) | ||||
|
Net loss
|
$ | (7,217,939 | ) | $ | (3,206,269 | ) | ||
|
Basic earnings per share
|
||||||||
|
Loss from continuing operations
|
$ | (0.50 | ) | $ | (0.38 | ) | ||
|
Loss from discontinued operations
|
(0.01 | ) | - | |||||
|
Net loss per common share - basic
|
$ | (0.51 | ) | $ | (0.38 | ) | ||
|
Weighted average number of common shares
|
14,231,198 | 8,406,764 | ||||||
|
outstanding - basic
|
||||||||
See accompanying notes to consolidated financial statements.
38
|
BOLLENTE COMPANIES, INC.
|
||||||||||||||||||||||||||||||||||||
|
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
|
||||||||||||||||||||||||||||||||||||
|
(audited)
|
||||||||||||||||||||||||||||||||||||
|
Additional
|
Total
|
|||||||||||||||||||||||||||||||||||
|
Preferred Shares
|
Common Shares
|
Paid-In
|
Subscriptions
|
Subscriptions
|
Accumulated
|
Stockholders'
|
||||||||||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Receivable
|
Payable
|
Deficit
|
Equity (Deficit)
|
||||||||||||||||||||||||||||
|
Balance, December 31, 2012
|
- | $ | - | 8,152,456 | $ | 8,153 | $ | 3,916,077 | $ | - | $ | 7,500 | $ | (3,272,117 | ) | $ | 659,613 | |||||||||||||||||||
|
December 31, 2013
|
||||||||||||||||||||||||||||||||||||
|
Issuance for cash
|
590,000 | 590 | 351,910 | 42,500 | 395,000 | |||||||||||||||||||||||||||||||
|
December 31, 2013
|
||||||||||||||||||||||||||||||||||||
|
Issuance for employment agreement
|
45,000 | 45 | 66,705 | 44,850 | 111,600 | |||||||||||||||||||||||||||||||
|
December 31, 2013
|
||||||||||||||||||||||||||||||||||||
|
Issuance for consulting services
|
1,195,000 | 1,195 | 2,532,655 | 2,533,850 | ||||||||||||||||||||||||||||||||
|
December 31, 2013
|
||||||||||||||||||||||||||||||||||||
|
Issuance for debt conversion
|
260,000 | 260 | 130,281 | 130,541 | ||||||||||||||||||||||||||||||||
|
Prior period adjustment
|
12,725 | 12,725 | ||||||||||||||||||||||||||||||||||
|
December 31, 2013
|
||||||||||||||||||||||||||||||||||||
|
Net loss
|
(3,206,269 | ) | (3,206,269 | ) | ||||||||||||||||||||||||||||||||
|
Balance, December 31, 2013
|
- | $ | - | 10,242,456 | $ | 10,243 | $ | 7,010,353 | $ | - | $ | 94,850 | $ | (6,478,386 | ) | $ | 637,060 | |||||||||||||||||||
|
Spin-off of Nuvola, Inc.
|
||||||||||||||||||||||||||||||||||||
|
November 24, 2014
|
189,507 | 190,078 | ||||||||||||||||||||||||||||||||||
|
December 31, 2014
|
||||||||||||||||||||||||||||||||||||
|
Issuance for cash
|
2,817,999 | 2,818 | 2,815,181 | - | 75,000 | 2,892,999 | ||||||||||||||||||||||||||||||
|
December 31, 2014
|
||||||||||||||||||||||||||||||||||||
|
Issuance for employment agreement
|
527,000 | 527 | 556,323 | (14,850 | ) | 542,000 | ||||||||||||||||||||||||||||||
|
December 31, 2014
|
||||||||||||||||||||||||||||||||||||
|
Issuance for consulting services
|
2,231,592 | 2,232 | 2,229,360 | 9,375 | 2,240,967 | |||||||||||||||||||||||||||||||
|
December 31, 2014
|
||||||||||||||||||||||||||||||||||||
|
Issuance for debt conversion
|
1,115,250 | 1,115 | 1,114,135 | 1,115,250 | ||||||||||||||||||||||||||||||||
|
December 31, 2014
|
||||||||||||||||||||||||||||||||||||
|
Net loss
|
(7,217,939 | ) | (7,217,939 | ) | ||||||||||||||||||||||||||||||||
|
Balance, December 31, 2014
|
- | $ | - | 16,934,297 | $ | 16,935 | $ | 13,725,353 | $ | - | $ | 164,375 | $ | (13,506,818 | ) | $ | 399,845 | |||||||||||||||||||
See accompanying notes to consolidated financial statements.
39
|
BOLLENTE COMPANIES, INC.
|
||||||||
|
|
||||||||
|
(audited)
|
||||||||
|
For the years ended
|
||||||||
|
December 31,
|
||||||||
|
2014
|
2013
|
|||||||
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
||||||||
|
Net loss
|
$ | (7,217,939 | ) | $ | (3,206,269 | ) | ||
|
Less: Loss from discontinued operations
|
179,007 | 10,500 | ||||||
|
Loss from continuing operations
|
(7,038,932 | ) | (3,195,769 | ) | ||||
|
Adjustments to reconcile net loss
|
||||||||
|
to net cash used in operating activities:
|
||||||||
|
Shares issued for services
|
980,966 | 2,471,649 | ||||||
|
Depreciation
|
3,282 | - | ||||||
|
Shares issued for employment agreement
|
409,500 | 111,600 | ||||||
|
Shares issued for prepaid stock compensation
|
2,079,034 | - | ||||||
|
Loss on debt conversion
|
825,000 | - | ||||||
|
Amortization of website costs
|
17,905 | - | ||||||
|
Accrued rent expense - related party line of credit
|
42,000 | 42,000 | ||||||
|
Changes in operating assets and liabilities:
|
- | |||||||
|
(Increase) decrease in accounts receivable
|
(54,477 | ) | - | |||||
|
(Increase) decrease in inventory
|
(174,132 | ) | - | |||||
|
(Increase) decrease in prepaid expenses
|
(5,638 | ) | 75,601 | |||||
|
Increase in accounts payable
|
258,006 | 48,172 | ||||||
|
Increase in credit card
|
2,387 | - | ||||||
|
Increase in accounts payable - related party
|
3,876 | - | ||||||
|
Increase in customer deposits
|
600 | - | ||||||
|
Increase in accrued salaries - related party
|
4,409 | 1,700 | ||||||
|
Increase in accrued payroll taxes
|
614 | - | ||||||
|
Increase in accrued interest payable
|
4 | - | ||||||
|
Increase in accrued interest payable - related party
|
(1,599 | ) | (3,013 | ) | ||||
|
Net cash used in operating activities – continuing operations
|
(2,647,194 | ) | (448,060 | ) | ||||
|
Net cash used in operating activities – discontinued operations
|
(85,647 | ) | (10,500 | ) | ||||
|
Net cash used in operating activities
|
(2,732,841 | ) | (458,560 | ) | ||||
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
||||||||
|
Purchase trademarks
|
(275 | ) | - | |||||
|
Purchase website costs
|
- | (55,098 | ) | |||||
|
Purchase of fixed assets
|
(12,049 | ) | ||||||
|
Net cash used in investing activities – continuing operations
|
(12,324 | ) | (55,098 | ) | ||||
|
Net cash used in investing activities
|
(12,324 | ) | (55,098 | ) | ||||
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
||||||||
|
Spin off
|
189,507 | - | ||||||
|
Proceeds from notes payable
|
17,000 | - | ||||||
|
Repayments for notes payable
|
(17,000 | ) | - | |||||
|
Proceeds from notes payable - related party
|
152,687 | 131,500 | ||||||
|
Repayments of notes payable - related party
|
(254,000 | ) | (1,500 | ) | ||||
|
Proceeds from line of credit - related party
|
(91,051 | ) | 46,200 | |||||
|
Repayments of line of credit - related party
|
- | (57,085 | ) | |||||
|
Proceeds from sale of common stock, net of offering costs
|
2,887,999 | 395,000 | ||||||
|
Net cash provided by financing activities – continuing operations
|
2,695,635 | 514,115 | ||||||
|
Net cash provided by financing activities – discontinued operations
|
86,013 | - | ||||||
|
Net cash provided by financing activities
|
2,781,648 | 514,115 | ||||||
|
NET CHANGE IN CASH
|
36,483 | 457 | ||||||
|
CASH AT BEGINNING OF YEAR
|
4,329 | 3,872 | ||||||
|
CASH AT END OF YEAR
|
||||||||
|
Less: CASH OF DISCONTINUED OPERATIONS AT END OF YEAR
|
366 | 3,000 | ||||||
|
CASH OF CONTINUING OPERATIONS AT END OF YEAR
|
$ | 40,446 | $ | 4,329 | ||||
|
SUPPLEMENTAL INFORMATION:
|
||||||||
|
Interest paid
|
$ | - | $ | - | ||||
|
Income taxes paid
|
$ | - | $ | - | ||||
|
Non-cash investing and financing activities:
|
||||||||
|
Shares issued to settle notes payable
|
$ | 290,250 | $ | - | ||||
|
Shares issued as settlement of accounts payable
|
$ | 37,681 | $ | - | ||||
|
Shares issued for prepaid stock compensation
|
$ | 1,432,500 | $ | 1,228,201 | ||||
See accompanying notes to consolidated financial statements.
40
BOLLENTE COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AUDITED)
Organization
The Company was incorporated on March 7, 2008 under the laws of the State of Nevada, as Alcantara Brands Corporation. On October 5, 2010, the Company amended its articles of incorporation and changed its name to Bollente Companies, Inc.
Nature of operations
The Company is involved in research and development of a new high quality, whole-house, electric tankless water heater that is more energy efficient than conventional products.
Principles of consolidation
The consolidated financial statements include the accounts of Bollente Companies, Inc. and its wholly owned subsidiaries. On May 16, 2010, the Company acquired 100% of the outstanding stock of Bollente, Inc. On the date of acquisition, Bollente, Inc. was 2.78% owned and controlled 100% by Robertson J. Orr, a majority shareholder and officer and director of Bollente Companies, Inc. and the acquisition was accounted for by means of a pooling of the entities from the date of inception of Bollente Companies, Inc. on March 7, 2008 because the entities were under common control. On November 21, 2013, the Company formed a wholly owned subsidiary, Nuvola, Inc. All significant inter-company transactions and balances have been eliminated.
On November 24, 2014, the Company completed the spin-off of its cloud-based technology business, Nuvola, Inc. Shareholders of the Company will receive one restricted share of Nuvola, Inc. for every twenty shares held. As a result of the spin-off, all current and prior year amounts have been adjusted to reflect Nuvola, Inc. as a discontinuted operation.
Use of estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ significantly from those estimates.
Cash and cash equivalents
For the purpose of the statements of cash flows, all highly liquid investments with an original maturity of three months or less are considered to be cash equivalents. The carrying value of these investments approximates fair value.
Website
The Company capitalizes the costs associated with the development of the Company’s website pursuant to ASC Topic 350. Other costs related to the maintenance of the website are expensed as incurred. Amortization is provided over the estimated useful lives of 3 years using the straight-line method for financial statement purposes. The Company plans to commence amortization upon completion and release of the Company’s fully operational website.
41
BOLLENTE COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AUDITED)
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Stock-based compensation
The Company records stock based compensation in accordance with the guidance in ASC Topic 505 and 718 which requires the Company to recognize expenses related to the fair value of its employee stock option awards. This eliminates accounting for share-based compensation transactions using intrinsic value and requires instead that such transactions be accounted for using a fair-value-based method. The Company recognizes the cost of all share-based awards on a graded vesting basis over the vesting period of the award.
The Company accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with FASB ASC 718-10 and the conclusions reached by the FASB ASC 505-50. Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration other than employee services is determined on the earliest of a performance commitment or completion of performance by the provider of goods or services as defined by FASB ASC 505-50.
Earnings per share
The Company follows ASC Topic 260 to account for the earnings per share. Basic earning per common share (“EPS”) calculations are determined by dividing net income by the weighted average number of shares of common stock outstanding during the year. Diluted earning per common share calculations are determined by dividing net income by the weighted average number of common shares and dilutive common share equivalents outstanding. During periods when common stock equivalents, if any, are anti-dilutive they are not considered in the computation.
Inventory
Inventories are stated at the lower of cost (average cost) or market (net realizable value).
Revenue recognition
The Company records revenue when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable and collectability is probable. The Company records revenue from the sale of product upon shipment or delivery of the products to the customer. The Company also records the shipping income when the products are sent to the customer.
Fair value of financial instruments
Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of December 31, 2014. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values. These financial instruments include cash and accounts payable. Fair values were assumed to approximate carrying values for cash and payables because they are short term in nature and their carrying amounts approximate fair values or they are payable on demand.
Level 1:
The preferred inputs to valuation efforts are “quoted prices in active markets for identical assets or liabilities,” with the caveat that the reporting entity must have access to that market. Information at this level is based on direct observations of transactions involving the same assets and liabilities, not assumptions, and thus offers superior reliability. However, relatively few items, especially physical assets, actually trade in active markets.
Level 2
:
FASB acknowledged that active markets for identical assets and liabilities are relatively uncommon and, even when they do exist, they may be too thin to provide reliable information. To deal with this shortage of direct data, the board provided a second level of inputs that can be applied in three situations.
Level 3: If inputs from levels 1 and 2 are not available, FASB acknowledges that fair value measures of many assets and liabilities are less precise. The board describes Level 3 inputs as “unobservable,” and limits their use by saying they “shall be used to measure fair value to the extent that observable inputs are not available.” This category allows “for situations in which there is little, if any, market activity for the asset or liability at the measurement date”. Earlier in the standard, FASB explains that “observable inputs” are gathered from sources other than the reporting company and that they are expected to reflect assumptions made by market participants.
42
BOLLENTE COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AUDITED)
Reclassifications
During the fourth quarter of 2014, assets related to Nuvola, Inc. met the criteria for classification as Discontinued Operations. The results of operations related to Nuvola, Inc. are included in the consolidated statements of operations as “Net loss from discontinued operations.” The cash flows of this business is also presented separately in our consolidated statements of cash flows.
Recent pronouncements
In April 2014, the FASB issued ASU 2014-08, "Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity," which changes the criteria for determining which disposals can be presented as discontinued operations and modifies the related disclosure requirements. This guidance should be applied prospectively to new disposals and new classifications of disposal groups as held for sale after the effective date which is fiscal years beginning on or after December 15, 2014, and interim periods within those annual periods. The Company chose to early adopt the provisions of this guidance in the fourth quarter of 2014.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the recoverability of assets and the satisfaction of liabilities in the normal course of business. As a result, the Company incurred accumulated net losses for the year ended December 31, 2014 of ($13,506,818). In addition, the Company’s development activities since inception have been financially sustained through debt and equity financing.
The ability of the Company to continue as a going concern is dependent upon its ability to raise additional capital from the sale of common stock and, ultimately, the achievement of significant operating revenues. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might result from this uncertainty.
Inventories consist of the following at:
|
December 31,
2014
|
December 31, 2013
|
|||||||
|
Raw materials
|
$ | 174,132 | $ | - | ||||
|
Total
|
$ | 174,132 | $ | - | ||||
Website consists of the following at:
|
December 31,
2014
|
December 31, 2013
|
|||||||
|
Website
|
$ | 58,598 | $ | 58,598 | ||||
|
Less: Accumulated amortization
|
(17,905 | ) | - | |||||
|
Website, net
|
$ | 40,693 | $ | 58,598 | ||||
Amortization expense for the years ended December 31, 2014 and 2013 was $17,905 and $0, respectively.
43
BOLLENTE COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AUDITED)
Notes payable consist of the following at:
|
December 31,
2014
|
December 31, 2013
|
|||||||
|
Note payable to an officer, director and shareholder, unsecured, 0% interest, due upon demand
|
$ | 450 | $ | 450 | ||||
|
Note payable with a shareholder, unsecured, 5% interest, due February 2015
|
- | 500,000 | ||||||
|
Note payable to a related entity, unsecured, 0% interest, due upon demand
|
127,615 | - | ||||||
|
Notes Payable – Current
|
$ | 128,065 | $ | 500,450 | ||||
|
December 31,
2014
|
December 31, 2013
|
|||||||
|
Line of credit for up to $150,000, from a shareholder, unsecured, 5% interest, due December 2014
|
$ | - | $ | 49,051 | ||||
|
Line of credit – Current
|
$ | - | $ | 49,051 | ||||
Interest expense from continuing operations for the years ended December 31, 2014 and 2013 was $9,085 and $44,402, respectively.
|
December 31,
2014
|
December 31, 2013
|
|||||||
|
Note payable to an unrelated third party, unsecured, due May 2012, in default as of March 31, 2014
|
$ | - | $ | 30,250 | ||||
|
Notes Payable – Current
|
$ | - | $ | 30,250 | ||||
During April 2014, the Company converted $15,250 of the principal balance into 15,250 shares of common stock
Interest expense from continuing operations, including the amortization of the debt discount and the amortization of the deferred financing cost for the years ended December 31, 2014 and 2013 was $205 and $258, respectively.
Interest expense from discontinued operations, including the amortization of the debt discount and the amortization of the deferred financing cost for the years ended December 31, 2014 and 2013 was $7,134 and $0, respectively.
44
BOLLENTE COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AUDITED)
On November 24, 2014, the Company completed the spin-off of its cloud-based technology business, Nuvola, Inc. Shareholders of the Company will receive one restricted share of Nuvola, Inc. for every twenty shares held. As a result of the spin-off, all current and prior year amounts have been adjusted to reflect Nuvola, Inc. as a discontinuted operation.
During the fourth quarter of 2014, assets related to Nuvola, Inc. met the criteria for classification as Discountinued Operations. The results of operations related to Nuvola, Inc. are included in the consolidated statements of operations as “Net loss from discontinued operations.” The cash flows of this business is also presented separately in our consolidated statements of cash flows.
The Company is authorized to issue 10,000,000 shares of it $0.001 par value preferred stock and 100,000,000 shares of its $0.001 par value common stock.
Common stock
On January 22, 2014, the Company issued a total of 105,000 of common stock for cash received of $105,000, of which $50,000 of the funds were received as of December 31, 2013 and recorded as stock payable.
On January 22, 2014, the Company issued 68,911 shares of common stock for consulting services totaling $68,911. The shares were valued according to the fair value of the common stock, based on recent sales in a PPM at $1.00 and not based on the stock price on the market at the time which ranged from $2.53 to $3.71.
On January 23, 2014, the Company issued a total of 40,000 of common stock for cash received of $40,000, of which $15,000 of the funds were received as of December 31, 2013 and recorded as stock payable.
On February 11, 2014, the Company issued a total of 210,000 of common stock for cash received of $210,000.
On February 11, 2014, the Company issued 40,000 shares of common stock for funds not yet received. The shares were then retired on November 20, 2014.
On February 25, 2014, the Company issued a total of 470,999 of common stock for cash received of $470,999.
On March 11, 2014, the Company issued 200,000 shares of common stock for consulting services totaling $200,000 to be performed over a period of two years. The shares were valued according to the fair value of the common stock, based on recent sales in a PPM at $1.00 and not based on the stock price on the market at the time which ranged from $2.53 to $3.71.
On March 11, 2014, the Company issued a total of 583,000 of common stock for cash received of $583,000.
On March 11, 2014, the Company issued a total of 20,000 of common stock for cash received of $20,000 on April 14, 2014.
On April 2, 2014, the Company issued a total of 229,000 of common stock for cash received of $229,000.
On April 2, 2014, the Company issued a total of 350,000 shares of common stock owed to employees of the Company as part of their employment agreement totaling $350,000.
On April 2, 2014, the Company issued 15,250 shares of common stock in exchange for a settlement of debt for $15,250 with a related party. Since the settlement of debt was with a related party, the Company treated this as a capital transaction and no gain on the debt settlement was recorded.
45
BOLLENTE COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AUDITED)
NOTE 8 – STOCKHOLDERS’ EQUITY (CONTINUED)
Common stock
On April 2, 2014, the Company issued 1,100,000 shares of common stock in exchange for a settlement of debt with a related party. The related party is a shareholder of the Company. The Company recognized a loss on debt settlement of $825,000.
On April 2, 2014, the Company issued 250,000 shares of common stock for consulting services totaling $250,000 to be performed over a period of five and a half months. The shares were valued according to the fair value of the common stock, based on recent sales in a PPM at $1.00 and not based on the stock price on the market at the time which ranged from $2.53 to $3.71.
On April 2, 2014, the Company issued 120,000 shares of common stock for consulting services totaling $120,000. The shares were valued according to the fair value of the common stock, based on recent sales in a PPM at $1.00 and not based on the stock price on the market at the time which ranged from $2.53 to $3.71.
On April 2, 2014, the Company issued 100,000 shares of common stock for consulting services totaling $100,000 to be performed over a period of one year. The shares were valued according to the fair value of the common stock, based on recent sales in a PPM at $1.00 and not based on the stock price on the market at the time which ranged from $2.53 to $3.71.
On May 2, 2014, the Company issued a total of 240,000 of common stock for cash received of $240,000.
On May 2, 2014, the Company issued a total of 35,000 shares of common stock owed to employees of the Company as part of their employment agreement totaling $35,000.
On May 2, 2014, the Company issued 35,000 shares of common stock for consulting services totaling $35,000. The shares were valued according to the fair value of the common stock, based on recent sales in a PPM at $1.00 and not based on the stock price on the market at the time which ranged from $2.53 to $3.71.
On May 2, 2014, the Company issued 250,000 shares of common stock for consulting services totaling $250,000 to be performed over a period of five and a half months. The shares were valued according to the fair value of the common stock, based on recent sales in a PPM at $1.00 and not based on the stock price on the market at the time which ranged from $2.53 to $3.71.
On May 2, 2014, the Company issued 50,000 shares of common stock for consulting services totaling $50,000 to be performed over a period of fifteen months. The shares were valued according to the fair value of the common stock, based on recent sales in a PPM at $1.00 and not based on the stock price on the market at the time which ranged from $2.53 to $3.71.
On July 15, 2014, the Company issued a total of 227,000 of common stock for cash received of $227,000.
On July 15, 2014, the Company issued 30,000 shares of common stock for consulting services totaling $30,000. The shares were valued according to the fair value of the common stock, based on recent sales in a PPM at $1.00 and not based on the stock price on the market at the time which ranged from $2.53 to $3.71.
On July 22, 2014, the Company issued 32,881 shares of common stock for consulting services totaling $32,881. The shares were valued according to the fair value of the common stock, based on recent sales in a PPM at $1.00 and not based on the stock price on the market at the time which ranged from $2.53 to $3.71.
On August 18, 2014, the Company issued a total of 7,000 of common stock for cash received of $7,000.
46
BOLLENTE COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AUDITED)
NOTE 8 – STOCKHOLDERS’ EQUITY (CONTINUED)
Common stock
On August 18, 2014, the Company issued 10,000 shares of common stock for consulting services totaling $10,000 to be performed over a period of one year. The shares were valued according to the fair value of the common stock, based on recent sales in a PPM at $1.00 and not based on the stock price on the market at the time which ranged from $2.53 to $3.71.
On August 20, 2014, the Company issued 10,000 shares of common stock for consulting services totaling $10,000 to be performed over a period of one year. The shares were valued according to the fair value of the common stock, based on recent sales in a PPM at $1.00 and not based on the stock price on the market at the time which ranged from $2.53 to $3.71.
On August 20, 2014, the Company issued 50,000 shares of common stock for consulting services totaling $50,000. The shares were valued according to the fair value of the common stock, based on recent sales in a PPM at $1.00 and not based on the stock price on the market at the time which ranged from $2.53 to $3.71.
On August 28, 2014, the Company issued 25,000 shares of common stock for consulting services totaling $25,000. The shares were valued according to the fair value of the common stock, based on recent sales in a PPM at $1.00 and not based on the stock price on the market at the time which ranged from $2.53 to $3.71.
On August 28, 2014, the Company issued a total of 70,000 of common stock for cash received of $70,000.
On August 20, 2014, the Company issued 10,000 shares of common stock for consulting services totaling $10,000 to be performed over a period of one year. The shares were valued according to the fair value of the common stock, based on recent sales in a PPM at $1.00 and not based on the stock price on the market at the time which ranged from $2.53 to $3.71.
On September 30, 2014, the Company issued a total of 137,000 of common stock for cash received of $137,000.
On September 30, 2014, the Company issued 5,000 shares of common stock for consulting services totaling $5,000 to be performed over a period of one year. The shares were valued according to the fair value of the common stock, based on recent sales in a PPM at $1.00 and not based on the stock price on the market at the time which ranged from $2.53 to $3.71.
On September 30, 2014, the Company issued 84,800 shares of common stock for consulting services totaling $84,800. The shares were valued according to the fair value of the common stock, based on recent sales in a PPM at $1.00 and not based on the stock price on the market at the time which ranged from $2.53 to $3.71.
On September 30, 2014, the Company issued a total of 5,000 shares of common stock owed an employee of the Company as part of their employment agreement totaling $5,000.
On October 7, 2014, the Company issued a total of 40,000 shares of common stock for cash received of $40,000.
On October 7, 2014, the Company issued a total of 30,000 shares of common stock owed to an employee of the Company as part of their employment agreement totaling $30,000.
On October 14, 2014, the Company sold 10,000 shares of common stock to an investor for cash totaling $10,000 and are recorded to stock payable. The shares were issued on March 4, 2015.
On November 4, 2014, the Company issued a total of 135,000 shares of common stock for cash received of $135,000.
47
BOLLENTE COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AUDITED)
Common stock
On November 4, 2014, the Company issued a total of 50,000 shares of common stock owed an employee of the Company as part of their employment agreement totaling $50,000.
On November 4, 2014, the Company issued 350,000 shares of common stock for consulting services totaling $350,000 to be performed over a period of one year. The shares were valued according to the fair value of the common stock, based on recent sales in a PPM at $1.00 and not based on the stock price on the market at the time which ranged from $2.53 to $3.71.
On November 4, 2014, the Company issued 50,000 shares of common stock for consulting services totaling $50,000. The shares were valued according to the fair value of the common stock, based on recent sales in a PPM at $1.00 and not based on the stock price on the market at the time which ranged from $2.53 to $3.71.
On November 30, 2014, the Company recorded a stock payable totaling $30,000 for 30,000 shares of common stock sold 10,000 shares of common stock owed to an employee of the Company as part of their employment agreement. The shares were issued on March 4, 2015.
On December 1, 2014, the Company issued a total of 254,000 shares of common stock for cash received of $254,000.
On December 1, 2014, the Company issued a total of 50,000 shares of common stock owed an employee of the Company as part of their employment agreement totaling $50,000.
On December 1, 2014, the Company issued 500,000 shares of common stock for consulting services totaling $500,000. The shares were valued according to the fair value of the common stock, based on recent sales in a PPM at $1.00 and not based on the stock price on the market at the time which ranged from $2.53 to $3.71.
On December 17, 2014, the Company issued a total of 50,000 shares of common stock for cash received of $50,000.
On December 17, 2014, the Company issued a total of 7,000 shares of common stock to employees of the Company as a bonus totaling $7,000.
On December 19, 2014, the Company sold 15,000 shares of common stock to an investor for cash totaling $15,000 and are recorded to stock payable. The shares were issued on February 4, 2015.
On December 24, 2014, the Company sold 100,000 shares of common stock to an investor for cash totaling $100,000 and are recorded to stock payable. The shares were issued on February 4, 2015.
On December 31, 2014, the Company recorded a stock payable totaling $9,375 for 9,375 shares of common stock earned by eight consultants. The shares were valued according to the fair value of the common stock, based on recent sales in a PPM at $1.00 and not based on the stock price on the market at the time which ranged from $2.53 to $3.71.
During the year ended December 31, 2014, the Company issued a total of 250,000 shares of common stock as part of a consulting agreement totaling $250,000. The shares were valued according to the fair value of the common stock, based on recent sales in a PPM at $1.00 and not based on the stock price on the market at the time which ranged from $2.53 to $3.71. The value of the shares was recorded as prepaid expense and is being amortized over five and a half months which is the related service period of the agreement.
48
BOLLENTE COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AUDITED)
During the year ended December 31, 2014, the Company issued a total of 275,000 shares of common stock as part of an employment agreement totaling $275,000. The shares were valued according to the fair value of the common stock, based on recent sales in a PPM at $1.00 and not based on the stock price on the market at the time which ranged from $2.53 to $3.71. The value of the shares was recorded as prepaid expense and is being amortized over six months which is the related service period of the agreement.
During the year ended December 31, 2014, the Company issued a total of 750,000 shares of common stock as part of nine consulting agreements totaling $750,000. The shares were valued according to the fair value of the common stock, based on recent sales in a PPM at $1.00 and not based on the stock price on the market at the time which ranged from $2.53 to $3.71. The value of the shares was recorded as prepaid expense and is being amortized over one year which is the related service period of the respective agreements.
During the year ended December 31, 2014, the Company issued a total of 50,000 shares of common stock as part of a consulting agreement totaling $50,000. The shares were valued according to the fair value of the common stock, based on recent sales in a PPM at $1.00 and not based on the stock price on the market at the time which ranged from $2.53 to $3.71. The value of the shares was recorded as prepaid expense and is being amortized over fifteen months which is the related service period of the agreement.
During the year ended December 31, 2014, the Company issued a total of 200,000 shares of common stock as part of two consulting agreements totaling $200,000. The shares were valued according to the fair value of the common stock, based on recent sales in a PPM at $1.00 and not based on the stock price on the market at the time which ranged from $2.53 to $3.71. The value of the shares was recorded as prepaid expense and is being amortized over two years which is the related service period of the respective agreements.
For the year ended December 31, 2014, the Company expensed $2,206,117 as professional fees with a remaining prepaid expense amount totaling $546,667 at December 31, 2014.
Lease agreement
In January 2014, the Company executed a sublease agreement with Perigon Companies, LLC, a related party. The lease term is one year at a rate of $3,500 per month. The Company paid a refundable security deposit of $1,500. Rent expense for the three months ended September 30, 2014 and 2013 was $10,500 and $10,500, respectively. Rent expense for the nine months ended September 30, 2014 and 2013 was $31,500 and $31,500, respectively.
Employment agreement
Effective January 2014, the Company executed a two year employment agreement with the Vice President of Sales. The individual will receive annual compensation of $125,000 per year. The individual will earn a bonus of $40,000 when the Company sells and receives payment for 1,500 tankless hot water systems during the twelve months ended January 31, 2015. The individual will earn a bonus of $40,000 when the Company sells and receives payment for 3,000 tankless hot water systems during the twelve months ended January 31, 2016. The individual is also eligible for a commission equal to 2% of gross sales of tankless hot water systems.
Additionally, there were 5,000 shares due upon execution of the agreement, 5,000 shares due on July 15, 2014, 5,000 shares due on February 1, 2015, and 5,000 shares due on July 1, 2015.
Effective March 1, 2014, the Company executed an employment agreement with the President of the Company. The officer will receive annual compensation of $75,000 due monthly. The officer can choose to receive the compensation in cash or in shares of common stock at $1 per share. Additionally, the Company will issue 60,000 shares of common stock upon execution of the agreement and 30,000 shares of common stock per quarter starting from the three months ended May 31, 2014.
49
BOLLENTE COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AUDITED)
Effective October 1, 2014, the Company executed an employment agreement with the Vice President of the Company. The officer will receive annual compensation of $125,000 due monthly. The officer can choose to receive the compensation in cash or in shares of common stock at $1 per share. Additionally, the Company will issue 50,000 shares of common stock upon execution of the agreement.
Manufacturer Incentive Agreement
On September 1, 2014 the Company entered into a Manufacturer Incentive Agreement to sell and distribute trutankless systems in single-family homes, townhomes, and condominiums constructed and sold by Meritage Homes Corporation. The Company agrees to provide Meritage Home Corporation certain favorable pricing, supply terms, and incentives based on the volume of products purchased by Meritage’s subcontractors and suppliers.
On January 12, 2015, the Company sold 10,000 shares of common stock to an investor for cash totaling $10,000. As of the date of this filing, the shares have not been issued and are recorded to stock payable.
On January 27, 2015, the Company sold 5,000 shares of common stock to an investor for cash totaling $5,000. As of the date of this filing, the shares have not been issued and are recorded to stock payable.
On February 2, 2015, the Company issued 230,000 shares of common stock for cash received of $230,000, of which $115,000 of the funds were received during December 2014 and recorded as stock payable.
On February 2, 2015, the Company issued 184,600 shares of common stock for services totaling $184,600.
On February 2, 2015, the Company issued 30,000 shares of common stock owed to an employee of the Company as part of their employment agreement totaling $30,000.
On February 3, 2015, the Company entered into a Consulting and Advisory Agreement where Haywire Electric LLC will provide business development and consulting services. The Company has agreed to issue 2,000 shares of common stock for their services over a twelve month period.
Effective March 1, 2015, the Company executed a Personal Service Agreement with the President of the Company. The officer will receive annual compensation of $75,000 due monthly. The officer can choose to receive the compensation in cash or in shares of common stock at $1 per share. Additionally, the Company will issue 60,000 shares of common stock upon execution of the agreement and 30,000 shares of common stock per quarter starting from the three months ended May 31, 2016.
On March 3, 2015, the Company received $200,000 as a loan from a related party. The interest rate is 12% that is to be paid on a monthly basis. The term of the note is for two years beginning March 3, 2015 and ending on March 2, 2017.
On March 4, 2015, the Company sold 175,000 shares of common stock for cash received of $175,000. As of the date of this filing, the shares have not been issued and are recorded to stock payable.
On March 4, 2015, the Company owed 15,000 shares of common stock for services totaling $15,000 to a consultant. As of the date of this filing, the shares have not been issued and are recorded to stock payable.
On March 23, 2015, the Company issued a total of 35,000 shares of common stock for cash received of $35,000.
On March 23, 2015, the Company issued 20,000 shares of common stock for services totaling $20,000.
On March 23, 2015, the Company issued 100,000 shares of common stock owed to employees of the Company as part of their employment agreement totaling $100,000.
50
TABLE OF CONTENTS
Part IItem 1. BusinessItem 1A. Risk FactorsItem 1B. Unresolved Staff CommentsItem 2. PropertiesItem 3. Legal ProceedingsPart IIItem 5. Market For Common Equity and Related Stockholder Matters and Small Business Issuer Purchase Of Equity SecuritiesItem 6. Selected Financial DataItem 7. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 7A. Quantitative and Qualitative Disclosures About Market RiskItem 8. Financial Statements and Supplementary DataItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A (t) Controls and ProceduresItem 9B. Other InformationPart IIIItem 10. Directors, Executive Officers and Corporate GovernanceItem 11. Executive CompensationItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13. Certain Relationships and Related Transactions, and Director IndepndenceItem 14. Principal Accounting Fees and ServicesItem 15. Exhibits, Financial Statement SchedulesNote 1 Summary Of Significant Accounting PoliciesNote 1 Summary Of Significant Accounting Policies (continued)Note 2 Going ConcernNote 3 InventoryNote 4 WebsiteNote 5 Notes Payable Related PartyNote 6 Notes PayableNote 7 Discontinued OperationsNote 8 Stockholders EquityNote 8 Stockholders Equity (continued)Note 9 Prepaid Stock CompensationNote 10 AgreementsNote 11 Subsequent Events