TKLS 10-K/A
Trutankless, Inc. (TKLS)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
Amendment No. 1
For the fiscal year ended
Commission file number
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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 ☐
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 ☐
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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
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. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
☐ | Smaller reporting company | ||
(Do not check if a smaller reporting company) | Emerging growth company | ||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
As of the last business day of the registrant’s most recently completed second fiscal quarter, 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 $
The number of shares of Common Stock, $0.001 par value, outstanding on June 25, 2024 was
DOCUMENTS INCORPORATED BY REFERENCE: None.
EXPLANATORY NOTE
As used in this Annual Report on Form 10-K, unless otherwise indicated, the terms “we,” “us,” “our” and “the Company” refer to Inception Mining, Inc., a Nevada corporation.
On April 2, 2024, the Company received a letter from the Securities and Exchange Commission informing the Company that the Public Accounting Oversight Board has revoked the registration of our auditor, Gries & Associates, LLC (“Gries”). The Board of Directors of Registrant approved the dismissal of Gries and dismissed Gries as the independent certifying accountant for the Registrant.
This Annual Report on Form 10-K/A (“Form 10-K/A”) is being filed as Amendment No. 1 to our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, which was filed with the Securities and Exchange Commission on June 26, 2024 (the “Original Filing”).
This Form 10-K/A is being filed to:
| (a) | The independent certifying accountant report includes the year ended December 31, 2022; |
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| (b) | Restate balances as identified during the audit performed by the newly appointed independent certifying accountant. |
The restatements are being made in accordance with ASC 250, “Accounting Changes and Error Corrections.” The disclosure provision of ASC 250 requires a company that corrects an error to disclose that its previously issued financial statements have been restated, a description of the nature of the error, the effect of the correction on each financial statement line item and any per share amount affected for each prior period presented, and the cumulative effect on retained earnings (deficit) in the statement of financial position as of the beginning of each period presented.
The effects of the adjustments on the Company’s previously issued 2023 and 2022 consolidated financial statement reflect the changes in balances found during the audit process. For more details on this adjustment, please refer to the restatement footnote (Note 12) in the consolidated financial statements.
For the convenience of the reader, this Form 10-K/A sets forth the Original Filing in its entirety. However, this Form 10-K/A only amends and restates the Items described in Note 12, and we have not modified or updated other disclosures presented in our Original Filing, with the exception of a few typographical errors in the original file. Accordingly, this Amendment No. 1 does not reflect events occurring after the filing of our Original Filing and does not modify or update those disclosures affected by subsequent events, except as specifically referenced herein. Information not affected by this restatement is unchanged and reflects the disclosures made at the time of the Original Filing on June 26, 2024.
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TRUTANKLESS, INC.
FOR THE FISCAL YEAR ENDED
DECEMBER 31, 2023
Index to Report on Form 10-K
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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:
| · | our ability to diversify our operations; |
| · | inability to raise additional financing for working capital; |
| · | 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; |
| · | our ability to attract key personnel; |
| · | our ability to operate profitably; |
| · | deterioration in general or regional economic conditions; |
| · | adverse state or federal legislation or regulation that increases the costs of compliance, or adverse findings by a regulator with respect to existing operations; |
| · | changes in U.S. GAAP or in the legal, regulatory and legislative environments in the markets in which we operate; |
| · | the inability of management to effectively implement our strategies and business plan; |
| · | inability to achieve future sales levels or other operating results; |
| · | the unavailability of funds for capital expenditures; |
| · | other risks and uncertainties detailed in this report; |
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.
This summary highlights certain information regarding the Company, including its history, its business objectives, and management team. The words “TRUTANKLESS,” “us,” “we,” the “Company” and any variants thereof used in this summary refer to Trutankless, Inc.
The Company is a reporting company under the rules and regulations of the US Securities and Exchange Commission. The Company’s filings can be reviewed at www.sec.gov.
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PART I
ITEM 1. BUSINESS
Trutankless, 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.
Trutankless is involved in research and development, sales, marketing, of a high quality, whole-house, smart electric tankless water heater that is more energy efficient than conventional products. Management anticipates the Company’s second generation of Trutankless water heaters, with Wi-Fi, Bluetooth, and Zigbee capability. Trutankless’ proprietary app is expected to launch into the iOS and Android store and will augment other products in the home automation space, including company’s leak detection and prevention devices which were in development in the company’s wholly owned subsidiary, Notation Labs, Inc. which was founded in 2020 and subsequently spun-off as of January 24, 2022 to shareholders of record December 10, 2021.
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, however the market is increasingly towards alternatives like tankless water heaters. Many brands are powered by natural gas, while several others use electricity. Almost half of American homes do not have natural gas available and there has been a trend in many markets towards renewable and cleaner energy alternatives to provide the energy to operate water heaters for the residential and commercial markets in North America.
The company’s focus markets favor electric water heaters, of which electric tankless 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. The lack of exhaust, noise, and a need for combustible fuel 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 safety and regulatory requirements. Despite these issues, gas tankless water heaters have historically enjoyed significant growth in North America because of the efficiency and performance they provide.
The company will continue to focus its efforts on developing products that satisfy growing demand in the electric tankless market. Additionally, the company hopes to launch additional products well suited to its key customers in the repair and replacement wholesale market, as well as home builders and companies associated with new construction in the multifamily and commercial markets.
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Home Automation Overview
Key trends in the home automation space, which is estimated to reach $46.22 Billion worldwide by 2025, have been driven by consumers’ desire for efficiency and lifestyle improvements. Companies like Nest have helped to introduce the Internet of Things to appliances with a direct impact on how users interact with traditional household appliances and have the ability to reduce energy usage. The trend towards integration with voice assistants is also on the rise with key industry leaders like Alexa and Google Assistant playing larger roles in the home automation industry. Insurance and utility companies have joined this trend by partnering with home automation manufacturers by leveraging different devices to build insurance products including discounts and rebates. While home security and safety monitoring are expected to continue to dominate the overall market, management anticipates energy management and HVAC controls and monitors will be one of the fastest growing markets in the U.S. which accounts for 36% of global demand.
Trutankless was designed to replace inefficient tank water heating technology, which is second to HVAC in energy consumption for most homes. Combined with Wi-Fi capabilities, the system could not only save energy it has the ability to inform users and property owners of energy use, water use, and potential issues like leaks or other failures in the plumbing system. Management plans to roll out additional technologies in the future that can integrate with the Company’s trutankless smart apps. Currently, the product has the ability to notify homeowners in the event of water flow while the system is set in away mode. Leak detection, leak damage mitigation, and hot water recirculation for instant hot water at the point of use are becoming major trends in the home automation space. Management believes new products can be introduced into its growing wholesale network to augment trutankless’ momentum and harness growing trends to a fresh audience of plumbing and other home service professionals.
Homebuilders and plumbing companies have begun selling homes with more technology integrations. The company expects to gain market share based on its ability to offer tech forward products in the wholesale market which supplies plumbing, HVAC, and electrical service companies in the future.
Tankless Industry Overview
The U.S. gas tankless water heater market is dominated by several brands; U.S. electric tankless water heater market is dominated by a few smaller companies, and tank manufacturers maintain the largest market share. 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 categories 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.
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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 grown in recent years, and continued growth in the sector is suggestive of increasing awareness of tankless as a viable solution for American homeowners.
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. Trutankless intends to position itself and its brand to capitalize on the shift to more sustainable construction materials and more efficient systems and appliances.
Trutankless® Products
We manufacture and distribute trutankless® water heaters, a line of new, high-quality, highly efficient electric tankless water heaters are in development. Our trutankless® water heaters have been 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 will to be available solely through wholesale plumbing distributors, including Ferguson, Hajoca, WinSupply, Morrison Supply locations, and several regional distributors. A partial listing of wholesalers may be found on our website (www.trutankless.com).
Our trutankless® water heaters were 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 their 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 9 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 patented 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 began generating revenue in the first quarter of 2014. As of the fiscal year ended December 31, 2014, we generated $238,912 in revenue. As of the fiscal year ended December 31, 2015, we generated $265,504 in revenue. As of the fiscal year ended December 31, 2016, we generated $429,582 in revenue. As of the fiscal year ended December 31, 2017, we generated $695,857 in revenue. As of the fiscal year ended December 31, 2018, we generated $1,537,958 in revenue. As of the fiscal year ended December 31, 2019, we generated $1,908,708. As of December 31, 2020, we generated $1,661,278. As of December 31, 2021, we generated $246,032. As of December 31, 2022, we generated $73,009 in revenue. As of December 31, 2023, we generated $3,549 in revenue.
In July of 2014, we launched 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 home.trutankless.com.
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
Trutankless® received the Best of IBS 2014 Award for Best Home Technology Product from the National Association of Home Builders (NAHB) at that 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 homebuilders in the world as well as plumbing and HVAC professionals from top companies in major markets.
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.
Trutankless® received Kitchen and Bath Business Magazine’s 2014 K*BB Product Innovator’s Award Judges Choice Product.
In 2015, Trutankless was named in Buildings Magazine’s 2015 listing of “Money Savings Products” in the Energy Saving Measures category and received a Special Mention in the Architizer A+ Awards.
That same year, Appliance Design Magazine named Trutankless among the winners of their annual Excellence in Design Award, and the editors of Green Builder Magazine named Trutankless as one of their picks as “Hot Product”.
Consumer Reports Magazine featured Trutankless in its Top 5 Remodeling Trends for 2016, and leading home improvement website, houzz.com, honored the company with 4 consecutive “Best of Houzz” honors from 2014 through 2018.
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Customers and Markets
We sell our products to plumbing wholesale distributors and dealers. Approximately, 95% of our sales have been to wholesale plumbing equipment distributors for commercial and residential repair and replace applications. We rely on commissioned manufacturers’ representatives to market our product lines. Additionally, our products are sold to independent dealers throughout the United States.
Manufacturing and Logistics
We have engineering agreements with outside development and production engineers, which is ongoing and currently being executed. In December 2020, we executed a second Manufacturing Services Agreement establishing our pricing and payment terms, warranty, shipping, and delivery terms with a North American manufacturer. Finished products are generally shipped Free on Board (FOB) and are typically shipped using common carriers or freight companies which are selected at the time of shipment based on order volume and the best available rates.
Intellectual Property & Proprietary Rights
We 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 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 successfully building a defensible set of patent claims which have been granted.
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.Trutankless.com).
During the year ended December 31, 2013, our patent agent filed a 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 filed additional patents with additional claims. We have been able to obtain a formal patent for our tankless water heater with a total of 34 individual and dependent claims.
During the year ended December 31, 2021, our patent counsel filed a provisional patent application with the US Patent and Trademark Office and the patent was granted with 14 claims based on our proprietary flowmeter design. 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.
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During the year ended December 31, 2022, our patent counsel collaborated with our engineering team to augment our research and development efforts related to future products which yielded positive results. By affirming our development path and product road map, we expect to file several new patents for novel technologies which we expect to launch in the future, including next generation electric tankless technologies along which will be designed to work with technologies that are able to employ artificial intelligence to help reduce water and energy consumption. We expect to receive additional benefits from our technology and data collection with cloud-based software as a service and apps which may be adapted for use by insurance companies, utilities, and municipalities.
Growth Strategy
Trutankless’ product launched in the first quarter of 2014 and was 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 replacement market estimated to be larger than $4 Billion nationwide. To our knowledge, no electric tankless has been available solely through wholesale distributors which welcomed the arrival of Trutankless. Trutankless’ sales and service training programs geared towards plumbers and contractors are the primary focal point of the Company’s sales strategy to quickly scale sales and educate distributors, plumbers, builders, and contractors.
The company has also leveraged online marketing strategies and social media. By presenting an immersive and educational web experience at www.trutankless.com. Trutankless intends to continue building brand awareness among consumers efficiently online. Launch efforts are expected to be focused in Arizona, Texas, and the Southeast at first, which account for over 1,000,000 electric water heater shipments annually. Licensing and co-branding opportunities may be assessed, since strategic partnerships would eliminate the channel conflicts that have historically obstructed previous electric tankless entries in the marketplace.
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, innovative technology in the plumbing industry, and home automation technology.
Margin Expansion
Cost reduction measures, including outsourcing of key components and certain quality control testing protocols, will be 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 several quarters, and we believe may result in gross sales margins approaching 50% or more.
Market Outlook
Trutankless entered the market in front of the largest water heater replacement cycle ever at a time when homeowners were seeking ways to reduce their carbon footprint without sacrificing comfort. Many of the heaters which were replaced at that time will need to be replaced, echoing the prior cycle. Statistics have shown a trend towards electric water heating in many markets as part of a trend known as “electrification”. This trend is part of a shift, which some municipalities are making mandatory, away from natural gas and other fossil fuels to sustainable energy sources, namely solar generated electricity among others which we expect to continue their proliferation throughout North America.
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Florida, Texas, and Arizona, and areas where electric water heaters dominate the market, have been epicenters of the residential new construction strength in the US. In the new construction market, builders are increasingly marketing “green” features and trutankless fit well along with other energy saving innovations. In commercial markets, we feel that our commercial line of trutankless products is well suited to thousands of customers in the retail, quick serve and fast casual restaurants, hair salons, and other businesses with moderate hot water use required. In addition to residential new construction and replacement markets, we feel the commercial applications for which our products are appropriate represent a large portion of the commercial water heater market.
In April 2015, the Federal Government mandated that standard electric water heaters over 55 gallons may not be sold (started effectively forcing the market to use alternative technologies like tankless water heaters. The electrification of the overall appliance market has also begun due to the rapid progression of energy generation technologies with more efficient and renewable energy sources seen as a growing and sustainable trend.
Recent Developments
On March 4, 2021, we announced that the Company completed the buildout of a new production laboratory and R&D facility in Scottsdale, Arizona with state-of-the-art research and testing systems for the development of new products.
On September 24, 2021, the Company announced a 1-for-8 reverse stock split of the issued and outstanding common stock (the “Common Stock”) which became effective September 27, 2021.
On November 4, 2021, we announced the plan to spinoff Notation Labs, Inc., a wholly owned subsidiary of Trutankless, Inc. with each holder of common stock as of the distributions date, receiving shares on a 4-to1 ratio, such that every four shares of the Company’s common stock would receive one share of the common stock of Notation Labs, Inc.
On November 24, 2021, the Board of Directors set the record and distribution dates for the spinoff of Notation Labs, Inc. to shareholders of record of December 10, 2021.
On January 21, 2021, the Company received notification from FINRA that it had received the documentation required to complete the spinoff and on January 24, 2022, the Company’s transfer agent distributed common shares of Notation Lab, Inc. to Company shareholders of record as an equity dividend distribution.
On June 15, 2022, we announced that the Company had been granted its first patent related to our next generation of products, specifically related to a “High-Accuracy Response-Curved Flowmeter” (U.S. Serial No. 17/592,993) filed on February 5th, 2022, from the U.S. Patent and Trademark Office (USPTO).
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On August 11, 2022, we relayed information about recent events related to trading the Company’s common shares and announced that the Company had recently secured financing to help sustain its product and technology development and ongoing business operations.
On April 14, 2023, we announced a key product development milestone had been reached with entry into the engineering verification testing phase in the development of its second generation product.
On May 11, 2023, the Company release further information relating to its next generation electric tankless, indicating improved performance over prior models with a completely reinvented mobile app. Further, the Company had engaged sales and marketing consultants with experience building integrated sales systems using the latest technology to incorporate lead generation, sales processes, tracking and forecasting with a proprietary app.
On July 15, 2023, we announced the Company’s intention to spin-off its wholly-owned subsidiary, Tankless365, Inc. whereby each shareholder having common stock as of the distribution date will be entitled to receive shares of the common stock of Tankless365, Inc. pro rata based on a 4:1 ratio. The press release was attached as an exhibit to the Company’s 8-K filed with the SEC on July 19, 2023.
On August 28, 2023 the Company filed a PRE 14C Preliminary Information Statement with the SEC, as amended in a PRER14C filed on August 30, 2023, to disclose the terms of the spinoff transaction announced in the July 15, 2023 press release and subsequent 8-K report.
On September 12, 2023, the Company filed its’ DEF 14C Definitive Information Statement which was mailed to the Company’s shareholders of record with further disclosures giving notice to shareholder further describing the corporate actions including the terms of the spinoff and a name change authorized by the Company’s Board of Directors.
Target Markets
The United States market for residential tank water heaters in 2022 was approximately 8.7 million units according to data released by the Air-Conditioning, Heating, and Refrigeration Institute (AHRI). 52.5% of those shipments were electric storage water heater heaters, representing a 2.9% gain in market share versus gas storage water heaters in the prior year. We feel this is a good indicator that there is growing demand for electric solutions in the water heater market, which we expect will impact future sales for the Company’s electric tankless water heaters.
Trutankless is initially marketing its products to contractors, home 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 2019, according to recent data. Additionally, the southern U.S., and specifically the southeastern U.S., has the highest usage of electric water heaters.
Distribution Plan
Initially, we will be distributing our primary product lines throughout the southern and western U.S. using an existing network of plumbing and electrical wholesalers (distributors), manufacturers’ representatives and dealers. We believe that we will continue to build on existing relationships with major companies in the building and plumbing industries to rapidly expand awareness of Trutankless and our products in the water heater market in the U.S and Canada.
Sales will continue to be pursued through the following channels:
| 1. | Regional and national plumbing, HVAC, and electrical wholesalers (also called “distributors”); |
| 2. | Plumbers and electricians on a direct basis, in those areas where wholesalers have not yet been set up; and, |
| 3. | Builders on a direct basis, in those areas where wholesalers & mechanical contractors have not yet been set up. |
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 Trutankless will be successful in providing education, training, and support to our sales and installer networks as part of our distribution and marketing efforts.
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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 employees, including our CEO and part-time employees. We expect to increase the number of employees to expand our sales and technical staff. We will continue to rely on 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, general expenses and capital costs.
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: Trutankless Inc., 15900 North 78th Street, Suite 200, Scottsdale, Arizona 85260, 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 N.W., Washington, D.C. 20549 (1-800-SEC-0330).
ITEM 1A. RISK FACTORS
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.
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There is substantial doubt about our ability to continue as a going concern. If we do not continue as a going concern, investors will lose their entire investment.
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. 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 within one year of the date the financial statements are issued. 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.
The outbreak of the recent coronavirus, COVID-19, or an outbreak of another highly infectious or contagious disease, could adversely affect our business, financial condition, results of operations and cash flow, and limit our ability to obtain additional financing.
The Company is not able to predict the ultimate impact that COVID -19 will have on its business. However, if the current economic conditions continue, the pandemic could have an adverse impact on the economies and financial markets of many countries, including the geographical area in which the Company plans to operate.
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.
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We have two individuals performing the functions of all officers and directors. Mr. Newman, our president and CEO, and Mr. Orr, our secretary and treasurer, have developed our internal control procedures and are 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.
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.
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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.
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 $4.00 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 $4.00 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:
| · | Deliver to the customer, and obtain a written receipt for, a disclosure document; |
| · | Disclose certain price information about the stock; |
| · | Disclose the amount of compensation received by the broker-dealer or any associated person of the broker-dealer; |
| · | Send monthly statements to customers with market and price information about the penny stock; and |
| · | In some circumstances, approve the purchaser’s account under certain standards and deliver written statements to the customer with information specified in the rules. |
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.
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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.
Rule 15c2-11 as amended, effective on September 28, 2021, may also limit a stockholder’s ability to buy and sell our stock.
Our common stock trades on the Expert Market Tier of OTC Markets Group, Inc. under the symbol “TKLS” and is labeled as “Delinquent SEC Reporting.” The OTC Market is a network of security dealers who buy and sell stock. The dealers are connected by a computer network that provides information on current “bids” and “asks,” as well as volume information. Stock on the Expert Market is not eligible for proprietary broker-dealer quotations. All quotes in stock on the Expert Market reflect unsolicited customer orders. Unsolicited-Only stocks, such as ours, have a higher risk of wider spreads between bid and asked quotations, increased volatility, and price dislocations. Investors may have difficulty selling our stock. An initial review by a broker-dealer under SEC Rule15c2-11 is required for brokers to publish competing quotes and provide continuous market making in our stock. The Expert Market serves broker-dealer pricing and investor best execution needs. Quotations in Expert Market securities are restricted from public viewing. OTC Markets Group designates securities for quoting on the Expert Market when the issuer has not disclosed its financial information for a period of slightly in excess of six months or is otherwise not making current information publicly available under SEC Rule 15c2-11, or when the security is otherwise restricted from public quoting. This designation by the OTC Markets Group severely limits the number of investors that might purchase shares of our common stock and effectively prevents the development of an active trading market in shares of our common stock. As a result, there currently is no established public trading market for the shares of our common stock. The common stock previously traded on the Pink Tier of OTC Markets Group, Inc.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
During the period ended December 31, 2023 we maintained an executive office 15900 N.78th Street, Suite 200, Scottsdale, Arizona 85260, which consists of approximately 2,818 square feet and maintain a research, development, and test lab with office space 15953 N. Greenway Hayden Loop, Suite J, Scottsdale Arizona 85260, which consists of approximately 1,680 square feet.
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ITEM 3. LEGAL PROCEEDINGS
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.
On July 6, 2020, we received a letter from the staff of the Division of Enforcement of the Securities and Exchange Commission (the “Staff”) that indicated the Company may have violated certain rules and regulations regarding a late filing notification filed by the Company and that the Staff would conduct an informal inquiry into the matter. On April 29, 2021, the Company agreed to pay civil penalties of $25,000 to the Securities and Exchange Commission in settlement of the matter. As of December 31, 2023 $20,000 remained due.
On April 6, 2023, the Company was served a Summons for an Amended Complaint filed in the state of Florida with claims for Strict Liability, Negligence and Breach of Implied Warranty. The complaint, filed by an insurance company, stems from its payments for claims filed by a policy holder on two separate occasions. The first insurance claim payment was due to a leak caused by improper installation in which the contractor failed to meet local codes. The second insurance claim payment followed the contractor’s failure to properly repair the improper installation. The complaint states that the contractor failed to follow basic installation guidelines supplied with the product in either incident, resulting in damages. On June 8, 2023, the Court of Duval County, FL entered a default judgement for $38,768. As of December 31, 2023, the Company has not paid any of this balance.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASE OF EQUITY SECURITIES
Market Information
From February 13, 2009, through approximately August 8, 2022, shares of our common stock traded on the OTC pink tier of the over-the counter market operated by OTC Markets Group, Inc. under the symbol “TKLS”. On or about August 9, 2022, trading in shares of our common stock was downgraded on the OTC Pink tier of the over-the counter market operated by OTC Markets Group continuing under the symbol “TKLS”.
On September 28, 2021, upon the effective date of amendments to Rule 15c2-11 under the Exchange Act, trading in shares of our common stock became eligible only for unsolicited quotes on the Expert Market of the OTC Markets Group. Quotations in Expert Market securities are restricted from public viewing. This designation by the OTC Markets Group severely limits the number of investors that might purchase shares of our common stock and effectively prevents the development of an active trading market in shares of our common stock. As a result, there currently is no established public trading market for the shares of our common stock.
Over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not necessarily reflect actual transactions.
Even if upon or subsequent to filing this Form 10-K we are deemed current in filing financial and other information, there can be no assurance as to whether OTC Markets Group will enable shares of our common stock to be quoted on a retail tier or that the shares of our common stock can successfully be traded on other trading platforms.
Holders of Common Stock
As of December 31, 2023 there were approximately 448 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:
| · | our financial condition; |
| · | earnings; |
| · | need for funds; |
| · | capital requirements; |
| · | prior claims of preferred stock to the extent issued and outstanding; and |
| · | other factors, including any applicable laws. |
Therefore, there can be no assurance that any dividends on the common stock will ever be paid.
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Recent Sales of Unregistered Securities
On November 30, 2022 the Company agreed to issue 115,973 shares of common stock valued at $27 to extend a certain note payable dated November 12, 2021. The shares were issued on March 29, 2023
On December 15, 2022 the Company agreed to issue 90,000 shares of common stock valued at $23 to settle $18,000 of accrued interest owed to a note holder. The shares were issued on March 29, 2023
On May 3, 2023 the Company issued 84,400 shares of the Company’s common stock as an incentive for a certain convertible note dated July 18, 2022.
On May 3, 2023 the Company issued 2,200,000 of the Company’s common stock for services.
On July 24, 2023 the Company issued 7,793,319 of the Company’s common stock valued at $152,967 to settle certain notes.
On July 24, 2023 the Company issued 100,000 of the Company’s common stock valued at $120 for services.
On August 7, 2023 the Company issued 1,885,031 of the Company’s common stock valued at $282,754 to settle certain notes.
On August 7, 2023, the Company issued 1,200,000 of the Company’s common stock valued at $1,440 for services.
On August 9, 2023 the Company issued 1,200,954 of the Company’s common stock valued at $180,143 to settle certain notes.
On August 16, 2023, the Company issued 1,675,000 of the Company’s common stock valued at $2,010 for services.
On August 16, 2023, the Company issued 824,676 shares of the Company’s common stock valued at $100,000 to settle debt.
On August 16, 2023 the Company issued 242,500 of the Company’s common stock valued at $116,152, of which $116,000 was recorded in the prior year in Stock payable as an incentive to enter into a certain note payable.
On August 17, 2023, the Company issued 300,000 of the Company’s common stock valued at $360 for services.
On August 25, 2023 the Company issued 62,500 of the Company’s common stock valued at $75 as an incentive to enter into a certain note payable.
On August 29, 2023 the Company issued 331,400 of the Company’s common stock valued at $398 as an incentive to for a certain note holder to transfer the note.
On August 29, 2023, the Company issued 300,000 of the Company’s common stock valued at $360 for services.
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.
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Subsequent Sales & Issuances of Unregistered Securities
On January 18, 2024, the Company issued 1,050,000 shares pursuant to amendments to a related party promissory note which were made on October 20, 2021
On March 15, 2024, the Company issued 3,000,000 shares for a notice of conversion of a promissory note dated January 19, 2024.
On March 15, 2024, the Company issued 750,000 shares for services.
On March 25, 2024, the Company settled a certain $385,000 convertible note and accrued interest dated February 22, 2022 for $250,000.
On April 5, 2024, the Company issued 36,893,398 shares to convert certain related party convertible notes dated July 26, 2022, June 15, 2023 and July 25, 2023.
On April 11, 2024, the Company issued 3,857,143 share pursuant to a promissory note amendment and conversion dated April 3, 2024.
On April 11, 2024 the Company issued 1,000,000 to for services.
On April 22, 2024, the Company entered into a consulting agreement with an individual for a six-month period. As compensation, the Company will issue 300,000 shares of common stock to Mr. Jacques immediately upon signing the agreement.
On May 7, 2024, the Company issued 100,000 shares of common stock valued at $47,835, which was recorded in the prior year in Stock payable as an incentive to enter into a certain note payable.
On May 9, 2024, the Company issued 7,002,740 shares of common stock for the conversion of $350,000 in principal and $140,192 in accrued interest on a convertible note.
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, 2023.
Rule 15c2-11 as amended
As noted in our risk factors above, effective on September 28, 2021, may limit a stockholder’s ability to buy and sell our stock.
ITEM 6. SELECTED FINANCIAL DATA
This item is not applicable, as we are considered a smaller reporting company.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Background
Trutankless 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.
Trutankless is involved in sales, marketing, research and development of a high quality, whole-house, smart electric tankless water heater that is more energy efficient than conventional products. See “Item 1. Business.”
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RESULTS OF OPERATIONS
Revenues
In the year ended December 31, 2023 we generated $3,549 in revenues, as compared to $73,008 in revenues in the prior year. The decrease in sales was attributable to less sales of our trutankless® residential and light commercial products. Cost of goods sold was $0, as compared to $466,937 in the prior year.
To the knowledge of management, the Company is unaware of any trends or uncertainties in the sales or costs of our products and services for the periods discussed.
Expenses
Operating expenses totaled $1,345,917 during the year ended December 31, 2023 as compared to $3,766,160 in the prior year. In the year ended December 31, 2023, our expenses primarily consisted of General and Administrative of $463,720, Research and Development of $432,631 and Professional fees of $449,566.
General and administrative fees decreased by $2,860,864 from the year ended December 31, 2022 to the year ended December 31, 2023. General and administrative fees decreased due to a decrease in consulting fees associated with business development of $2,394,014 and a decrease in expenses for a change in accounting estimation policy of $623,220.
Research and Development increased by $177,543 from the year ended December 31, 2022 to the year ended December 31, 2023. Research and Development fees increased due to increased consulting fees associated with the Company’s research and development efforts.
Professional fees increased $263,078 from the year ended December 31, 2022 to the year ended December 31, 2023. Professional fees increased due to an increase in legal and accounting fees associated with the normal operations of the business.
Other Expenses
Other expense increased by $210,679 to $808,106 in the year ended December 31, 2023 from $597,427 for the year ended December 31, 2022. The increase was the result of an increase in interest expense and a settlement expense during the year.
Net Loss
In the year ended December 31, 2023, we generated a net loss of $2,150,474, a decrease of $2,607,402 from $4,757 516 for the year ended December 31, 2022. This decrease was attributable to the factors discussed above.
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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.
Management evaluated all relevant conditions and events that are reasonably known or reasonably knowable, in the aggregate, as of the date the consolidated financial statements are issued and determined that substantial doubt exists about the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent on the Company’s ability to generate revenues and raise capital. The Company has not generated sufficient revenues from product sales to provide sufficient cash flows to enable the Company to finance its operations internally. As of December 31, 2023 and 2022, the Company had $21,452 and $85,804 cash on hand, respectively. At December 31, 2023 and 2022, the Company has an accumulated deficit of $66,915,867 and $64,765,393, respectively. For the years ended December 31, 2023 and 2022, the Company had a net loss of $2,150,474 and $4,757,516, and cash used in operations of $1,990,470 and $1,706,849, respectively. These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year from the date of filing.
Over the next twelve months management plans to raise additional capital and to invest its working capital resources in sales and marketing in order to increase the distribution and demand for its products. However, there is no guarantee the Company will generate sufficient revenues or raise capital to continue operations. If the Company fails to generate sufficient revenue and obtain additional capital to continue at its expected level of operations, the Company may be forced to scale back or discontinue its sales and marketing efforts. The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Liquidity and Capital Resources
At December 31, 2023, we had an accumulated deficit of $66,915,867 and a working capital deficiency of $7,499,731. As of December 31, 2023, we had 21,452 in cash.
Cash Flows from Operating, Investing and Financing Activities
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.
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The following table sets forth a summary of our cash flows for the years ended December 31, 2023 and 2022:
|
| Year ended December 31, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Net cash used in operating activities |
| $ | 1,990,470 | ) |
| $ | (1,706,849 | ) |
Net cash used in investing activities |
|
| - |
|
|
| (204,517 | ) |
Net cash provided by financing activities |
|
| 1,926,118 |
|
|
| 1,937,444 |
|
Net increase/(decrease) in Cash |
|
| (654,352 | ) |
|
| 26,078 |
|
Cash, beginning |
|
| 85,804 |
|
|
| 59,726 |
|
Cash, ending |
| $ | 21,452 |
|
| $ | 85,804 |
|
Operating activities
Net cash used in operating activities was $1,990,470 for the year ended December 31, 2023, as compared to $1,706,849 used in operating activities for the same period in 2022. The decrease in net cash used in operating activities was primarily due to the decrease in net loss during the year ended December 31, 2023.
Investing activities
Net cash used in investing activities for the year ended December 31, 2023 was $0, as compared to $204,517 for the same period of 2022. The decrease of net cash used in investing activities was mainly from the cash held by the subsidiary spun-off during the year ended December 31, 2022.
Financing activities
Net cash provided by financing activities for the year ended December 31, 2023 was $1,926,118, as compared to $1,937,444 for the same period of 2022. The decrease of net cash provided by financing activities was mainly to a decrease in debt financing during the year ended December 31, 2023.
Ongoing Funding Requirements
As of December 31, 2023, we continue to use traditional and/or debt financing to provide the capital we need to run the business. It is possible that we may need additional funding to enable us to fund our operating expenses and capital expenditures requirement s.
Until such time, if ever, as we can generate substantial product revenues, we intend to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements. There can be no assurance that any of those sources of funding will be available when needed on acceptable terms or at all. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of existing stockholders. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise funds through collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us.
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If we are unable to raise additional funds through equity or debt financings or relationships with third parties when needed or on acceptable terms, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts; abandon our business strategy of growth through acquisitions; or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
Critical Accounting Polices
In December 2001, the SEC requested that all registrants list their most “critical accounting polices” in the Management Discussion and Analysis. The SEC indicated that a “critical accounting policy” is one which is both important to the portrayal of a company’s financial condition and results, and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Our critical accounting policies are disclosed in Note 1 of our audited consolidated financial statements included in the Form 10-K filed with the SEC.
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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This item in not applicable as we are currently considered a smaller reporting company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements and Financial Statement Schedules appearing on page 37 of this Form 10-K.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
We have had no disagreements with our independent auditors on accounting or financial disclosures.
ITEM 9A (T) CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our Principal Executive Officer and Principal Financial Officer, Guy Newman, 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. Newman 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 Annual 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.
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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 not effective as of December 31, 2023.
Our management identified the following material weaknesses in our internal control over financial reporting, which are indicative of many small companies with limited personnel:
| · | inadequate controls over maintenance of records |
| · | deficiencies in the period-end reporting process and accounting policies; |
| · | inadequate internal controls relating to the authorization, recognition, capture, and review of transactions, facts, circumstances, and events that could have a material impact on the Company’s financial reporting process |
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.
ITEM 9B. OTHER INFORMATION
On May 25, 2021, with an effective date of May 25, 2021, Trutankless filed with the Secretary of State of the State of Nevada, a Certificate of Amendment to the Articles of Incorporation to increase the Company’s authorized shares of common stock from 100,000,000 to 150,000,000 shares.
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
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 |
| 50 |
| Secretary, Treasurer & Director |
| May 12, 2010 |
Guy Newman |
| 59 |
| Chief Executive Officer, President and Director |
| April 2, 2024 |
Duties, Responsibilities and Experience
Robertson James Orr, (50) has been our Treasurer, Secretary and a Director since May 12, 2010. Mr. Orr is also a director of Notation Labs, Inc., a former subsidiary of the Company. Mr. Orr attended Arizona State University. In 1998, Mr. Orr assisted in the founding of bluemedia, Inc., a successful large format digital printing company based in Tempe, Arizona. Mr. Orr has been instrumental in growing bluemedia to be one of the premier companies in its vertical with some of the largest companies, projects and events in their portfolio. Most notably, Mr. Orr has lead bluemedia’s relationship with the NFL and has successfully overseen the graphics production, installation and removal for the last seven Super Bowls. Other notable clients include the NBA, NHL, MLB, Kansas City Chiefs, Verizon, InBev, GMR Marketing, Petsmart, and Pepsi. 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 has sat on the Board of Directors for the Tempe Chamber of Commerce as well as other entrepreneurial organizations. He is currently on the Board of Directors for Project Sebastian, a rare disease research nonprofit, as well as he sits on the Sports Advisory Board for the Colangelo College of Business at Grand Canyon University.
Guy Newman, (59) has been our Chief Executive Officer, President and a Director since April 2, 2024. Mr. Newman has been a consultant to the Company for several years prior to his appointment to CEO. Mr. Newman was serving as the CEO of TruTankless 365, Inc., a wholly-owned subsidiary of the Company, at the time of his appointment as CEO. Mr. Newman is also the CEO of Notation Labs, Inc., a former subsidiary of the Company. Mr. Newman grew up in England and came to the US in 1985 to pursue a career in the financial markets. He worked in various retail brokerage firms in the 90's and 2000's and retired from the Brokerage Industry in 2011 to pursue management roles in a range of start-up ventures in the Boating and Construction industries. He has two adult sons.
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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.
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. |
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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.
Our decision not to 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. |
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ITEM 11. EXECUTIVE COMPENSATION
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 two officers, 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.
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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, 2023 and 2022.
SUMMARY COMPENSATION TABLE
Name and Principal Positions |
| Year |
| Salary ($) |
|
| Bonus ($) |
|
| Stock Awards ($) |
|
| Option Awards ($) |
|
| Non- Equity Incentive Plan Compensation ($) |
|
| Non- Qualified Deferred Compensation Earnings ($) |
|
| All Other Compensation ($) |
|
| Total ($) |
| ||||||||
Robertson James Orr |
| 2023 |
| $ | 75,000 |
|
| $ | - |
|
| $ | 10 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 75,010 |
|
Former President, Former CEO, Secretary, Treasurer & Director |
| 2022 |
| $ | 75,000 |
|
| $ | - |
|
| $ | 582,000 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 657,000 |
|
Michael Stebbins |
| 2023 |
| $ | 157,500 |
|
| $ | - |
|
| $ | 410 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 157,910 |
|
Former President & Former Director |
| 2022 |
| $ | 210,000 |
|
| $ | - |
|
| $ | 447,010 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 657,010 |
|
Guy Newman |
| 2023 |
| $ | 24,052 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
CEO, President & Director |
| 2022 |
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
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, 2023 and 2022, we did not grant any options to our officers and directors.
Employment Agreements
The Company has an employment agreement with the President/CEO to perform duties and responsibilities as may be assigned. The base salary is in the amount of $225,000 per annum plus a bonus of 1,000,000 shares of common stock upon execution of the agreement commencing on April 2, 2024 and ending April 2, 2025 with an option renewal on April 1, 2025.
The Company has a services agreement with the Chairman to perform duties and responsibilities as may be required. The Base salary is in the amount of $75,000 per annum plus a bonus of 200,000 shares of common stock upon execution of the agreement, and an additional 200,000 shares every 90 days thereafter commencing on February 1, 2024.
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| Table of Contents |
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth information, to the best of our knowledge, about the beneficial ownership of our common stock on June 20, 2024 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 92,426,511 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 June 20, 2024, pursuant to options, warrants, conversion privileges or other rights. 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.
Security Ownership of Management, Directors and Certain Beneficial Owners
Title of Class |
| Name of Beneficial Owner |
| Number of Shares |
|
| Percent Beneficially Owned |
| ||
Common |
| Robertson James Orr - Secretary, Treasurer and Director |
|
| 1,765,541 |
|
|
| 1.91 | % |
Common |
| Guy Newman - CEO, President and Director |
|
| 1,600,000 | (3) |
|
| 1.73 | % |
Common |
| Rodney J. Cullum |
|
| 46,769,231 | (4) |
|
| 50.60 | % |
Common |
| James A. Burns, Jr. and Lynn B. Burns |
|
| 6,151,504 |
|
|
| 6.66 | % |
Common |
| Mark A. Langlois |
|
| 7,377,740 | (5) |
|
| 7.98 | % |
|
| All Directors, Officers and Principal Stockholders as a Group |
|
| 63,664,016 |
|
|
| 68.88 | % |
(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) | The address of each Officer and Director is c/o Trutankless, Inc., 15900 North 78th Street, Suite 200, Scottsdale, AZ 85260. |
|
|
(3) | Of the total shares of Common Stock owned or controlled by Mr. Newman, 1,000,000 shares are held by Guy Newman and 600,000 shares are held by RH Trust Co. LLC., which is controlled by Mr. Newman's domestic partner. |
|
|
(4) | Of the total shares of Common Stock owned or controlled by Mr. Cullum, 33,750 are controlled by Mr. Cullum and 46,735,481 are owned directly by Built Right Holdings, LLC, an Arizona limited liability company, and Rodney Cullum may be deemed to have an indirect interest in these securities as the manager of Built Right Holdings, LLC. |
|
|
(5) | Of the total shares of Common Stock owned or controlled by Mr. Langlois, 362,500 shares are held by Mr. Langlois and 7,015,240 shares are held by Mark A. Langlois Revocable Trust. |
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.
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| Table of Contents |
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Transactions with Related Persons
Accounts payable and accrued liabilities – related party
Notes payable - related party consist of the following at:
|
| December 31, 2023 |
|
| December 31, 2022 |
| ||
Note payable, secured, 5% interest, due on demand |
| $ | 19,450 |
|
| $ | 19,450 |
|
Note payable, secured, 12% interest, due April 26, 2024 |
|
| 60,000 |
|
|
| 60,000 |
|
Note payable, secured, 12% interest, due April 30, 2026 |
|
| 122,500 |
|
|
| 122,500 |
|
Note payable, secured, 30% interest, due August 31, 2025 |
|
| 125,000 |
|
|
| - |
|
Note payable, secured, 18% interest, due July 25, 2024 |
|
| 40,000 |
|
|
| - |
|
Total Notes Payable - related party |
|
| 366,950 |
|
|
| 201,950 |
|
Less unamortized debt discounts |
|
| - |
|
|
| - |
|
Total Notes Payable |
|
| 366,950 |
|
|
| 201,950 |
|
Less current portion |
|
| (119,450 | ) |
|
| (19,450 | ) |
Total Notes Payable - long term |
| $ | 247,500 |
|
| $ | 182,500 |
|
During the year ending December 31, 2023 the Company received $25,000 under a note payable from a director of the Company and made repayment of $25,000 under the same note. As of December 31, 2023 and 2022, the Company had one note payable due to a director of the Company in the amount of $19,450 and $19,450, respectively. The note has an interest rate of 5% and is due on demand.
As of December 31, 2023 and 2022, the Company had one note payable due to an officer of the Company in the amount of $60,000 and $60,000, respectively. As of the period ended December 31, 2022, the Company has received advances under the note of $125,500 and made repayment of $65,500. The note has an interest rate of 12% and is due April 26, 2024.
On April 30, 2021, the Company entered into a $150,000, 12% grid note payable with a Company controlled by the CEO that is due upon demand but no later than April 30, 2022. As of December 31, 2023 and 2022, the Company has received advances under the note of $20,500 and $102,000 and made repayment of $0 and $0, respectively. As of December 31, 2023 and 2022, the notes had balances of $122,500 and $122,500 respectively and is due April 30, 2024.
On January 8, 2021, the Company entered into a $125,000, 30% note payable due on June 8, 2021. Under the note the Company must make interest only payments of $3,125 starting on February 10, 2021 and continuing through maturity. On December 31, 2021, the noteholder extended the due date to June 8, 2022 for $1,250. On September 1, 2023, the noteholder sold the ownership of the note to an entity under common ownership of a related party who concurrently amended the terms of the note with the Company to accrue interest and to extend the maturity date of the note to August 31, 2025. This assignment makes this a related party note and has been disclosed in notes payable for December 31, 2022 (Note 6 - notes payable). As of December 31, 2023 and 2022 the balance of the note was $125,000 and $0, respectively.
On July 23, 2023, the Company entered into a $40,000, 12% note payable with an entity under common control of a related party on July 22, 2024.
Interest expense associated with the related party notes for the years ended December 31, 2023 and 2022 was $66,100 and $30,456 respectively.
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Convertible notes payable - related party consist of the following at:
|
| December 31, 2023 |
|
| December 31, 2022 |
| ||
Convertible note payable, 8% interest, due December 2024 |
| $ | 2,205,623 |
|
| $ | 1,628,930 |
|
Convertible note payable, 12% interest, due December 2023 |
|
| 400,000 |
|
|
| 400,000 |
|
Convertible note payable, 12% interest, due July 2023 |
|
| - |
|
|
| 100,000 |
|
Convertible note payable, 12% interest, due December 2024 |
|
| 150,000 |
|
|
| - |
|
Convertible note payable, 12% interest, due December 2024 |
|
| 85,000 |
|
|
| - |
|
Total Notes Payable - related party |
|
| 2,840,623 |
|
|
| 2,128,930 |
|
Less unamortized debt discounts |
|
| - |
|
|
| - |
|
Total Notes Payable |
|
| 2,840,623 |
|
|
| 2,128,930 |
|
Less current portion |
|
| (2,840,623 | ) |
|
| (500,000 | ) |
Total Notes Payable - long term |
| $ | - |
|
| $ | 1,628,930 |
|
On September 1, 2022, the Company entered into a $2,500,000 8% convertible grid note with Notation Labs, Inc, a company commonly controlled by a director of the Company. The note is due on December 31, 2024 and is convertible at a rate of $0.80 per share (post-split). During the year ending December 31, 2023 and 2022, the Company received $1,190,853 and $1,365,180 in net advances from the note and made payments of $479,160 and $108,750 on the note, respectively. As of December 31, 2023 and 2022 the balance of the note was $2,205,623 and $1,628,930, respectively.
On July 26, 2022, the Company issued a $400,000 12% convertible promissory note to a company commonly controlled by a director of the Company. The note is due on December 15, 2023 and is convertible into shares of the Company’s common stock at a rate of $0.08 per share. As of December 31, 2023 and 2022 the balance of the note was $400,000 and $400,000, respectively.
On July 26, 2022, the Company issued a $100,000 12% convertible promissory note to a company commonly controlled by a director of the Company. The note is due on July 1, 2023 and is convertible into shares of the Company’s common stock at a rate of $0.02 per share. On July 24, 2023, the Company paid this note off in full. As of December 31, 2023 and 2022 the balance of the note was $0 and $100,000, respectively.
On June 15, 2023, the Company issued a $150,000 12% convertible promissory note to a company commonly controlled by a shareholder of the Company. The note is due on December 31, 2024 and is convertible into shares of the Company’s common stock at a rate of $0.02 per share. As of December 31, 2023, the balance of the note was $150,000.
On July 25, 2023, the Company issued a $85,000 12% convertible promissory note to a company commonly controlled by a shareholder of the Company. The note is due on December 31, 2024 and is convertible into shares of the Company’s common stock at a rate of $0.02 per share. As of December 31, 2023, the balance of the note was $85,000.
Interest expense on all of the above convertible notes for the years ended December 31, 2023 and 2022 was $251,463 and $184,244, respectively.
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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”).
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
(1) AUDIT FEES
Audit and Non-Audit Fees
The following table sets forth fees billed to us by our independent auditors, for the years ended 2023 and 2022 for (i) services rendered for the audit of our annual financial statements and the review of our quarterly financial statements, (ii) services rendered that are reasonably related to the performance of the audit or review of our financial statements that are not reported as Audit Fees, and (iii) services rendered in connection with tax preparation, compliance, advice and assistance.
Fee Category |
| Fiscal 2023 Fees |
|
| Fiscal 2022 Fees |
| ||
|
|
|
|
|
|
| ||
Audit Fees |
| $ | 47,700 |
|
| $ | 79,750 |
|
Audit Related Fes |
|
| - |
|
|
| - |
|
Tax Fees |
|
| - |
|
|
| - |
|
All Other Fees |
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
Total Fees |
| $ | 47,700 |
|
| $ | 79,750 |
|
Audit fees and audit related fees represent amounts billed for professional services rendered for the audit of our annual financial statements and the review of our interim financial statements. Before our independent accountants were engaged to render these services, their engagement was approved by our Directors.
(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.
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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
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 F-1 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. |
Exhibit Index
Exhibit Number |
| Exhibit Description |
| Acquisition Agreement and Plan of Merger - dated March 3, 2011(3) | |
| Addendum No. 1 to Acquisition Agreement and Plan of Merger - Dated April 27, 2011(4) | |
| ||
| Articles of Incorporation of Bollente Companies, Inc. (Formerly Alcantara Brands Corporation)(1) | |
| Certificate of Amendment - Name Change - Dated March 2, 2011(2) | |
| Certificate of Change - 50:1 Reverse Split - Dated September 23, 2010(2) | |
| Articles of Incorporation of Bollente Name Change Subsidiary, Inc. - Dated June 4, 2018(5) | |
| ||
3(i)(f) |
| Certificate of Designation of Series B Preferred Stock - Dated April 2, 2020 |
3(i)(g) |
| Certificate of Change - Increase Authorized - Dated May 25, 2021* |
| ||
| Certification pursuant to Section 302 of the Sarbanes-Oxley Act* | |
| ||
101.INS |
| Inline XBRL Instance Document |
101.SCH |
| Inline XBRL Taxonomy Extension Schema |
101.CAL |
| Inline XBRL Taxonomy Extension Calculation Linkbase |
101.DEF |
| Inline XBRL Taxonomy Extension Definition Linkbase |
101.LAB |
| Inline XBRL Taxonomy Extension Label Linkbase |
101.PRE |
| Inline XBRL Taxonomy Extension Presentation Linkbase |
104 |
| Cover Page Interactive Data File |
1. | Incorporated by reference from the Company’s Registration Statement on Form SB-2 filed on March 19, 2008. |
2. | Incorporated by reference from the Company’s Quarterly Report on Form 10-Q filed on November 24, 2010. |
3. | Incorporated by reference from the Company’s Current Report on Form 8-K filed on March 10, 2011. |
4. | Incorporated by reference from the Company’s Current Report on Form 8-K filed on May 6, 2011. |
5. | Incorporated by reference from the Company’s Current Report on Form 8-K filed on June 6, 2018 |
* | Filed herewith. |
| 36 |
| Table of Contents |
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.
TRUTANKLESS INC.
By: | /s/ Guy Newman |
|
Guy Newman, Chief Executive Officer
Date: May 20, 2025
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/ Guy Newman |
|
|
|
|
Guy Newman |
| Director and Principal Executive and Financial Officer |
| May 20, 2025 |
|
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/s/ Robertson J. Orr |
|
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|
Robertson James Orr |
| Director |
| May 20, 2025 |
| 37 |
| Table of Contents |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and
Board of Directors of Trutankless, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Trutankless, Inc. (the “Company”) as of December 31, 2023 (restated), and December 31, 2022, and the related consolidated statements of operations, stockholders’ deficit, and cash flows, for the years ended December 31, 2023 (restated), and December 31, 2022, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 (restated), and December 31, 2022, and the results of its operations and its cash flows for the years ended December 31, 2023 (restated), and December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.
Substantial Doubt about the Company's ability to continue as a Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As of December 31, 2023 (restated), and December 31, 2022, the Company had an accumulated deficit of $66,915,867, and $64,765,393 respectively. The Company has not established sufficient revenue to cover its operating costs for the next twelve (12) months. These factors raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to 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.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, 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.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the Board of Directors (audit committee equivalent) and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
| |
We have served as the Company’s auditor since 2024. | |
May 20, 2025
PCAOB ID:
| F-1 |
| Table of Contents |
TRUTANKLESS, INC
RESTATED CONSOLIDATED BALANCE SHEETS
|
| December 31, 2023 |
|
| December 31, 2022 |
| ||
ASSETS |
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Current assets |
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Cash |
| $ |
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| $ |
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Accounts receivable |
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Prepaid expenses |
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| ||
Total current assets |
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Other non-current assets |
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Right to use asset |
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Trademarks |
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Other assets |
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Total other non-current assets |
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Total assets |
| $ |
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| $ |
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LIABILITIES AND STOCKHOLDERS' DEFICIT |
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Current liabilities |
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Accounts payable and accrued liabilities |
| $ |
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| $ |
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Accounts payable and accrued liabilities - related party |
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Lease liability |
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Accrued interest payable - related party |
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Promissory notes - royalty agreements liabilities |
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Notes payable - related party |
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Notes payable, net of debt discount |
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Convertible notes payable, net of debt discount |
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Convertible notes payable - related party |
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Total current liabilities |
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Long-term liabilities |
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Lease liability - long-term |
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Notes payable - long term, net of debt discount |
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Notes payable - related party, non-current |
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Convertible notes payable, net of debt discount, non-current |
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Convertible notes payable - related party, non-current |
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Total long-term liabilities |
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Total liabilities |
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Commitments and Contingencies (Note 7) |
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Stockholders' deficit |
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Series B Preferred stock, $ |
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Common stock, $ |
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Additional paid in capital |
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Subscriptions payable |
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Accumulated deficit |
|
| ( | ) |
|
| ( | ) |
Total stockholders' deficit |
|
| ( | ) |
|
| ( | ) |
Total liabilities and stockholders' deficit |
| $ |
|
| $ |
| ||
See accompanying notes to the consolidated financial statements.
| F-2 |
| Table of Contents |
TRUTANKLESS, INC
RESTATED CONSOLIDATED STATEMENTS OF OPERATIONS
|
| For the Years Ended |
| |||||
|
| December 31, 2023 |
|
| December 31, 2022 |
| ||
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Revenue |
| $ |
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| $ |
| ||
Cost of goods sold |
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Gross profit |
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| ( | ) | |
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Operating expenses |
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General and administrative |
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Research and development |
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Professional fees |
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Total operating expenses |
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Loss from operations |
|
| ( | ) |
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| ( | ) |
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Other income (expenses) |
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Gain/Loss on change of derivative liability |
|
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Loss on forgiveness of debt |
|
| ( | ) |
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Settlement expense |
|
| ( | ) |
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Interest expense |
|
| ( | ) |
|
| ( | ) |
Total other income (expenses) |
|
| ( | ) |
|
| ( | ) |
Net loss before tax provision |
|
| ( | ) |
|
| ( | ) |
Tax provision |
|
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Net loss from continuing operations |
|
| ( | ) |
|
| ( | ) |
Net loss from discontinued operations |
|
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|
| ( | ) | |
Net loss |
| $ | ( | ) |
| $ | ( | ) |
|
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|
Net loss per common share from continuing operations - basic and diluted |
| $ | ( | ) |
| $ | ( | ) |
Net loss per common share from discontinued operations- basic and diluted |
| $ |
|
| $ | ( | ) | |
Net loss per common share - basic and diluted |
| $ | ( | ) |
| $ | ( | ) |
|
|
|
|
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|
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|
|
Weighted average number of common shares outstanding - basic and diluted |
|
|
|
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|
| ||
See accompanying notes to the consolidated financial statements.
| F-3 |
| Table of Contents |
TRUTANKLESS, INC
RESTATED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
|
| Preferred Stock |
|
| Common Stock |
|
| Additional Paid-in |
|
| Subscriptions |
|
| Accumulated |
|
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| |||||||||||||||
|
| Shares |
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| Amount |
|
| Shares |
|
| Amount |
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| Capital |
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| Payable |
|
| Deficit |
|
| Total |
| ||||||||
Balance, December 31, 2021 |
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ | ( | ) | ||||||
Stock issued for services |
|
| - |
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| |||||||
Shares issued in debt modification |
|
| - |
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| |||||||
Shares issued for debt discount |
|
| - |
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Shares issued for the settlement of accrued expenses |
|
| - |
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| - |
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| ||||||
Cancellation of commitment shares |
|
| - |
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|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
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| ( | ) | |||
Imputed interest |
|
| - |
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| - |
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Spin-off of Notation Labs, Inc. |
|
| - |
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| - |
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Net loss |
|
| - |
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| - |
|
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| ( | ) |
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| ( | ) | ||||
Balance, December 31, 2022 |
|
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| ( | ) |
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| ( | ) | ||||||
Stock issued for services |
|
| - |
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| ( | ) |
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| ||||||
Shares issued for debt restructuring |
|
| - |
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| ( | ) |
|
| ( | ) |
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| |||||
Shares issued in debt modification |
|
| - |
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| ( | ) |
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Shares issued for the settlement of notes payable |
|
| - |
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| ( | ) |
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Effects of change in accounting policy |
|
| - |
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| - |
|
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|
| ( | ) |
|
|
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| ( | ) | ||||
Net loss |
|
| - |
|
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|
| - |
|
|
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|
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|
| ( | ) |
|
| ( | ) | ||||
Balance, December 31, 2023 |
|
|
|
| $ |
|
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|
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ | ( | ) | ||||||
See accompanying notes to the consolidated financial statements.
| F-4 |
| Table of Contents |
TRUTANKLESS, INC
RESTATED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
| For the Years Ended |
| |||||
|
| December 31, 2023 |
|
| December 31, 2022 |
| ||
Cash Flows from Operating Activities |
|
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| ||
Net loss from continuing operations |
| $ | ( | ) |
| $ | ( | ) |
Net loss from discontinued operations |
|
|
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|
| ( | ) | |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
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Depreciation |
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Provision for allowance on accounts receivable |
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Imputed interest |
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Shares issued for services |
|
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| ||
Effects of change in accounting policy |
|
| ( | ) |
|
|
| |
Cancellation of commitment shares |
|
|
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|
| ( | ) | |
Shares issued in debt modification |
|
|
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| ||
Amortization of right-of-use asset |
|
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| ( | ) | |
Amortization of debt discount |
|
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| ||
Changes in assets and liabilities |
|
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|
Accounts receivable |
|
| ( | ) |
|
| ( | ) |
Inventory |
|
|
|
|
|
| ||
Prepaid expenses |
|
| ( | ) |
|
|
| |
Deposits |
|
| ( | ) |
|
|
| |
Accounts payable and accrued liabilities |
|
|
|
|
|
| ||
Accounts payable and accrued liabilities - related party |
|
|
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| ||
Interest payable - related party |
|
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| ||
Operating cash flow used in continued operations |
|
| ( | ) |
|
| ( | ) |
Operating cash flow used in discontinued operations |
|
|
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|
| ( | ) | |
Net cash used in operating activities |
|
| ( | ) |
|
| ( | ) |
|
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|
Cash Flows from Investing Activities: |
|
|
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|
|
Cash held by subsidiary at spin-off |
|
|
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|
| ( | ) | |
Net cash used in investing activities |
|
|
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|
| ( | ) | |
|
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Cash Flows from Financing Activities: |
|
|
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|
|
|
Proceeds from advance payable |
|
|
|
|
|
| ||
Repayments of advance payable |
|
| ( | ) |
|
|
| |
Proceeds from notes payable |
|
| 1,000,227 |
|
|
| - |
|
Repayments of notes payable |
|
| ( | ) |
|
| ( | ) |
Proceeds from convertible notes payable |
|
|
|
|
|
| ||
Repayments of convertible notes payable |
|
| ( | ) |
|
| ( | ) |
Proceeds from notes payable - related party |
|
|
|
|
|
| ||
Repayments from notes payable - related party |
|
| ( | ) |
|
| ( | ) |
Proceeds from promissory notes – royalty agreements |
|
|
|
|
|
| ||
Proceeds from sale of common stock |
|
|
|
|
|
| ||
Financing cash flows from continued operations |
|
|
|
|
|
| ||
Financing cash flows from discontinued operations |
|
|
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|
| ||
Net cash provided by financing activities |
|
|
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|
| ||
|
|
|
|
|
|
|
|
|
Net change in cash |
|
| ( | ) |
|
|
| |
Cash of continuing operations, beginning of year |
|
|
|
|
|
| ||
Cash of continued operations at end of year |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information |
|
|
|
|
|
|
|
|
Cash paid for interest |
| $ |
|
| $ |
| ||
Cash paid for taxes |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Notes and accrued interest settled with stock |
| $ |
|
| $ |
| ||
See accompanying notes to the consolidated financial statements.
| F-5 |
| Table of Contents |
TRUTANKLESS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2023 AND 2022
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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. On June 4, 2018, the Company amended its articles of incorporation and changed its name to Trutankless, Inc.
The Company is involved in sales, marketing, research and development of a high quality, whole-house, smart electric tankless water heater that is more energy efficient than conventional products. Management anticipates the Company’s trutankless water heater, with Wi-Fi capability and Trutankless’ proprietary apps offered in the iOS and Android store, will augment existing products in the home automation space.
Principles of consolidation
The consolidated financial statements include the accounts of Trutankless, Inc. and its wholly owned subsidiaries. On May 16, 2010, the Company acquired
Spinoff - On January 24, 2022, the Company completed the previously announced spin-off of its subsidiary Notation Labs Inc into a stand-alone company. The historical results of Notation Labs Inc that were contributed to Trutankless Inc in the spinoff have been reflected as discontinued operations in our consolidated financial statements through the date of the spinoff and in the prior year periods as the spinoff represents a strategic shift in our business that has a major effect on operations and financial results. As of December 31, 2022, the assets and liabilities associated with Notation Labs Inc. are classified as assets and liabilities of discontinued operations in the consolidated balance sheet. The disclosures presented in our notes to the consolidated financial statements are presented on a continuing operations basis.
On July 15, 2023, the Company announced its intention to spin-off its wholly-owned subsidiary, Tankless365, Inc. On a date determined by the Board of Directors of the Company, each Shareholder having common stock as of the Distribution Date will be entitled to receive shares of the common stock of Tankless365, Inc. pro rata based on a 4:1 ratio. Subsequent to this announcement, the Company’s management decided that the subsidiary, Tankless 365, Inc. will not be spun-off but will remain as a subsidiary of the Company.
Certain prior year amounts have been reclassified for consistency with the current period presentation. These reclassifications had no effect on the reported results of operations.
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.
Change in accounting policy
During the year ended December 31, 2023, the Company changed its policy regarding unissued stock. Previously, the Company had used a last in, first out method for estimating its stock payable balance. During the year ended December 31, 2023, the Company changed to a first in, first out method for estimating the stock payable balance. This resulted in a credit to general and administrative expenses of $
| F-6 |
| Table of Contents |
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.
Stock-based compensation
The Company follows ASC 718-10, “Stock Compensation”, which addresses the accounting for transactions in which an entity exchanges its equity instruments for goods or services, with a primary focus on transactions in which an entity obtains employee services in share-based payment transactions. ASC 718-10 is a revision to SFAS No. 123, “Accounting for Stock-Based Compensation,” and supersedes Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and its related implementation guidance. ASC 718-10 requires measurement of the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). Incremental compensation costs arising from subsequent modifications of awards after the grant date must be recognized.
Income Taxes
The Company’s calculation of its tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in various taxing jurisdictions. The Company recognizes tax liabilities for uncertain tax positions based on management’s estimate of whether it is more likely than not that additional taxes will be required. The Company had no uncertain tax positions as of December 31, 2023 and 2022.
Deferred income taxes are recognized in the consolidated financial statements for the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts based on enacted tax laws and statutory tax rates. Temporary differences arise from net operating losses, differences in depreciation methods of archived images, and property and equipment, stock-based and other compensation, and other accrued expenses. A valuation allowance is established when it is determined that it is more likely than not that some or all of the deferred tax assets will not be realized.
The application of tax laws and regulations is subject to legal and factual interpretation, judgment and uncertainty. Tax laws and regulations themselves are subject to change as a result of changes in fiscal policy, changes in legislation, the evolution of regulations and court rulings. Therefore, the actual liability for U.S., or the various state jurisdictions, may be materially different from management’s estimates, which could result in the need to record additional tax liabilities or potentially reverse previously recorded tax liabilities. Interest and penalties are included in tax expense.
The Company includes interest and penalties arising from the underpayment of income taxes in the statements of operation in the provision for income taxes. As of December 31, 2023 and 2022, the Company had no accrued interest or penalties related to uncertain tax positions.
Earnings per share
The Company follows ASC Topic 260 to account for the earnings per share. Basic earnings 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 earnings 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. There are
Accounts receivable
Accounts receivable is comprised of uncollateralized customer obligations due under normal trade terms. The Company performs ongoing credit evaluation of its customers and management closely monitors outstanding receivables based on factors surrounding the credit risk of specific customers, historical trends, and other information. The carrying amount of accounts receivable is reviewed periodically for collectability. If management determines that collection is unlikely, an allowance that reflects management’s best estimate of the amounts that will not be collected is recorded.
| F-7 |
| Table of Contents |
Advertising Costs
The Company’s policy regarding advertising is to expense advertising when incurred. The Company incurred advertising expenses of $
Research and development costs
The Company charges research and development costs to expense when incurred in accordance with FASB ASC 730, “Research and Development”. These research and development expenses are not related to the patent that the Company has, but are focused on future product developments. Research and development costs were $
Inventory
Inventory, including manufacturing cost and shipping are stated at the lower of cost (average cost) or market (net realizable value).
Revenue recognition
Revenue is recognized in accordance with ASC 606. The Company performs the following five steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company applies the five-step model to arrangements that meet the definition of a contract under Topic 606, including when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of Topic 606, the Company evaluates the goods or services promised within each contract related performance obligation and assesses whether each promised good or service is distinct. The Company recognizes as revenue, the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.
Revenue recognition occurs at the time product is shipped to customers, when control transfers to customers, provided there are no material remaining performance obligations required of the Company or any matters of customer acceptance.
Fair value of financial instruments
The Company measures fair value in accordance with ASC 820 - Fair Value Measurements. ASC 820 defines fair value and establishes a three-level valuation hierarchy for disclosures of fair value measurements. ASC 820 establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, ASC 820 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three (3) levels of fair value hierarchy defined by ASC 820 are:
Level 1 - Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.
Level 2 - Inputs (other than quoted market prices included in Level 1) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.
Level 3 - Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model. Valuation of instruments includes unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.
As defined by ASC 820, the fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale, which was further clarified as the price that would be received to sell an asset or paid to transfer a liability (“an exit price”) in an orderly transaction between market participants at the measurement date.
The reported fair values for financial instruments that use Level 2 and Level 3 inputs to determine fair value are based on a variety of factors and assumptions. Accordingly, certain fair values may not represent actual values of the Company’s financial instruments that could have been realized as December 31, 2023 or that will be recognized in the future, and do not include expenses that could be incurred in an actual settlement. The carrying amounts of the Company’s financial assets and liabilities, such as cash, accounts receivable, receivables from related parties, prepaid expenses and other, accounts payable, accrued liabilities, and related party and third-party notes payables approximate fair value due to their relatively short maturities. The Company’s notes payable to related parties approximates the fair value of such instrument based upon management’s best estimate of terms that would be available to the Company for similar financial arrangements at December 31, 2023 and 2022.
| F-8 |
| Table of Contents |
Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by FASB that are adopted by the Company as of the specified effective date. If not discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on the Company’s financial statements upon adoption, except as noted below.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments on October 1, 2020 (“ASU 2016-13”). ASU 2016-13 requires entities to use a new forward-looking “expected loss” model that reflects expected credit losses, including credit losses related to trade receivables, and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates, which generally will result in the earlier recognition of allowances for losses. The Company adopted the ASU effective October 1, 2023, and the adoption of the new standard did not have a material impact on the Company's results of operations or cash flows.
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers, as if it had originated the contracts. Under the current business combinations guidance, such assets and liabilities are recognized by the acquirer at fair value on the acquisition date. The Company adopted the provisions of the accounting pronouncement as of October 1, 2023 and the new standard did not have an impact on the Company's consolidated financial statements in the first quarter ended December 31, 2023.
In November 2023, the FASB issued ASU 2023-07, Improvements to Disclosures About Reportable Segments, which requires enhanced disclosures about significant segment expenses. In addition, the amendments enhance interim disclosure requirements, clarify circumstances in which an entity can disclose multiple segment measures of profit or loss, provide new segment disclosure requirements for entities with a single reportable segment, and contain other disclosure requirements. The new guidance is effective for all public entities for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of ASU 2020-01 on its consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures ("ASU 2023-09"), to require disaggregated information about a reporting entity’s effective tax rate reconciliation, as well as information on income taxes paid. The new requirements should be applied on a prospective basis with an option to apply them retrospectively. ASU 2023-09 will be effective for annual periods beginning after December 15, 2024, with early adoption permitted. The Company is evaluating the impact this ASU will have on its consolidated financial statements and related disclosures.
NOTE 2 - GOING CONCERN
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business.
Management evaluated all relevant conditions and events that are reasonably known or reasonably knowable, in the aggregate, as of the date the consolidated financial statements are issued and determined that substantial doubt exists about the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent on the Company’s ability to generate revenues and raise capital. The Company has not generated sufficient revenues from product sales to provide sufficient cash flows to enable the Company to finance its operations internally. As of December 31, 2023 and 2022, the Company had $
| F-9 |
| Table of Contents |
Over the next twelve months management plans to raise additional capital and to invest its working capital resources in sales and marketing in order to increase the distribution and demand for its products. However, there is no guarantee the Company will generate sufficient revenues or raise capital to continue operations. If the Company fails to generate sufficient revenue and obtain additional capital to continue at its expected level of operations, the Company may be forced to scale back or discontinue its sales and marketing efforts. The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
NOTE 3 - ACCOUNTS RECEIVABLE, NET
Accounts receivable consist of the following at:
|
| December 31, 2023 |
|
| December 31, 2022 |
| ||
Accounts receivable |
|
|
|
|
|
| ||
Allowance for doubtful accounts |
|
| ( | ) |
|
| ( | ) |
Total |
| $ |
|
| $ |
| ||
NOTE 4 – ROYALTY AGREEMENTS LIABILITIES
In November and December 2023, the Company issued 15 promissory note royalty agreements to investors for a total of $
NOTE 5 - RELATED PARTY
Accounts payable and accrued liabilities – related party
As of December 31, 2023 and 2022 the Company had received advances from a related party of $
Notes payable - related party consist of the following at:
|
| December 31, 2023 |
|
| December 31, 2022 |
| ||
Note payable, secured, 5% interest, due on demand |
| $ |
|
| $ |
| ||
Note payable, secured, 12% interest, due April 26, 2024 |
|
|
|
|
|
| ||
Note payable, secured, 12% interest, due April 30, 2026 |
|
|
|
|
|
| ||
Note payable, secured, 30% interest, due August 31, 2025 |
|
|
|
|
|
| ||
Note payable, secured, 18% interest, due July 25, 2024 |
|
|
|
|
|
| ||
Total Notes Payable - related party |
|
|
|
|
|
| ||
Less unamortized debt discounts |
|
|
|
|
|
| ||
Total Notes Payable |
|
|
|
|
|
| ||
Less current portion |
|
| ( | ) |
|
| ( | ) |
Total Notes Payable - long term |
| $ |
|
| $ |
| ||
| F-10 |
| Table of Contents |
During the year ending December 31, 2023 the Company received $
As of December 31, 2023 and 2022, the Company had one note payable due to an officer of the Company in the amount of $
On April 30, 2021, the Company entered into a $
On January 8, 2021, the Company entered into a $
On July 23, 2023, the Company entered into a $
Interest expense associated with the related party notes for the years ended December 31, 2023 and 2022 was $
Convertible notes payable - related party consist of the following at:
|
| December 31, 2023 |
|
| December 31, 2022 |
| ||
Convertible note payable, 8% interest, due December 2024 |
| $ |
|
| $ |
| ||
Convertible note payable, 12% interest, due December 2023 |
|
|
|
|
|
| ||
Convertible note payable, 12% interest, due July 2023 |
|
|
|
|
|
| ||
Convertible note payable, 12% interest, due December 2024 |
|
|
|
|
|
| ||
Convertible note payable, 12% interest, due December 2024 |
|
|
|
|
|
| ||
Total Notes Payable - related party |
|
|
|
|
|
| ||
Less unamortized debt discounts |
|
|
|
|
|
| ||
Total Notes Payable |
|
|
|
|
|
| ||
Less current portion |
|
| ( | ) |
|
| ( | ) |
Total Notes Payable - long term |
| $ |
|
| $ |
| ||
On September 1, 2022, the Company entered into a $
| F-11 |
| Table of Contents |
On July 26, 2022, the Company issued a $
On July 26, 2022, the Company issued a $
On June 15, 2023, the Company issued a $
On July 25, 2023, the Company issued a $
Interest expense on all of the above convertible notes for the years ended December 31, 2023 and 2022 was $
NOTE 6 - NOTES PAYABLE
Notes payable consist of the following at:
|
| December 31, 2023 |
|
| December 31, 2022 |
| ||
Note payable, secured, 12% interest, due June 2024 |
| $ |
|
| $ |
| ||
Note payable, secured, 12% interest, due June 2024 |
|
|
|
|
|
| ||
Notes payable, secured, 12% interest, due April 2022 |
|
|
|
|
|
| ||
Note payable, secured, 30% interest, due June 8, 2022 |
|
|
|
|
|
| ||
Notes payable, secured, 12% interest, due December 2023 |
|
|
|
|
|
| ||
Notes payable, unsecured, 8% interest, due on demand |
|
|
|
|
|
| ||
Notes payable, secured, 12% interest, due June 2024 |
|
|
|
|
|
| ||
Notes payable, 12% interest, due starting August 2024 |
|
|
|
|
|
| ||
Total notes Payable |
|
|
|
|
|
| ||
Less unamortized debt discounts |
|
|
|
|
| ( | ) | |
Total Notes Payable |
|
|
|
|
|
| ||
Less current portion |
|
| ( | ) |
|
| ( | ) |
Total Notes Payable - long term |
| $ |
|
| $ |
| ||
On September 11, 2020, the Company issued $
| F-12 |
| Table of Contents |
On January 1, 2020, the Company entered into an agreement to consolidate three notes payable above dated September 2, 2016 and February 2, 2018 into one $
On January 8, 2021, the Company entered into a $
On April 26, 2021, the Company entered into a $
On August 18, 2021, the Company entered into a $
On May 12, 2021, the Company entered into a $
On July 12, 2021, the Company entered into a $
On November 12, 2021, the Company entered into an agreement to consolidate the two notes payable above dated May 12, 2021 and July 12, 2021 into one $
On November 4, 2021, the Company entered into a $
On August 3, 2023 the Company’s wholly owned subsidiary initiated an offering of
Interest expense including amortization of the associated debt discount for the year ended December 31, 2023 and 2022 was $
| F-13 |
| Table of Contents |
Convertible notes payable, net of debt discount consist of the following:
|
| December 31, 2023 |
|
| December 31, 2022 |
| ||
Convertible note payable, secured, 12% interest, due August 31, 2019, in default |
| $ |
|
| $ |
| ||
Convertible note payable, secured, 12% interest, due May 2, 2024 |
|
|
|
|
|
| ||
Convertible note payable, secured, 10% interest, due February 2024 |
|
|
|
|
|
| ||
Convertible note payable, secured, 10% interest, due May 22, 2020, in default |
|
|
|
|
|
| ||
Convertible note payable, secured, 12% interest, due Feb 15, 2024 |
|
|
|
|
|
| ||
Convertible notes payable, secured, 4% interest, due October 14, 2020, in default |
|
|
|
|
|
| ||
Convertible note payable ,12% interest, due May 2020, in default |
|
|
|
|
|
| ||
Convertible note payable, secured, 10% interest, due May 1, 2024 |
|
|
|
|
|
| ||
Convertible note payable, secured, 12% interest, due February 8, 2024 |
|
|
|
|
|
| ||
Convertible notes payable, secured, 4% interest, due March 3, 2021, in default |
|
|
|
|
|
| ||
Convertible notes payable, secured, 10% interest, due December 2021, in default |
|
|
|
|
|
| ||
Convertible notes payable, 8% interest, due December 2023 |
|
|
|
|
|
| ||
Convertible notes payable, 8% interest, due July 2023 |
|
|
|
|
|
| ||
Total notes payable |
|
|
|
|
|
| ||
Less unamortized discounts |
|
| ( | ) |
|
| ( | ) |
Total convertible notes payable, net |
|
|
|
|
|
| ||
Less current portion |
|
| ( | ) |
|
| ( | ) |
Convertible notes payable, net – long-term |
| $ |
|
| $ |
| ||
On September 2, 2016, the Company issued $
On May 2, 2017, the Company issued $
On May 2, 2017, the Company issued $
| F-14 |
| Table of Contents |
On May 22, 2017, the Company issued $
On February 15, 2018, the Company issued a $
On February 8, 2019, the Company issued a $
On February 19, 2019, the Company issued a $
On November 19, 2019, the Company entered in to a $
On May 5, 2020, the Company issued a $
On February 8, 2021, the Company entered into an agreement to consolidate two notes payable above dated September 17, 2018 and February 8, 2019 into one $
| F-15 |
| Table of Contents |
On March 3, 2021, the Company issued a $
On February 22, 2022 the Company entered into a $
On July 18, 2022, the Company entered into a $
Interest expense including financing cost and amortization of the associated debt discount on all of the above convertible notes for the year ended December 31, 2023 and 2022 was $
NOTE 7 - COMMITMENTS AND CONTINGENCIES
Operating Lease Agreements
In accordance with ASC 842, the Company determines whether or not a contract contains a lease based on whether or not it provides the Company with the use of a specifically identified asset for a period of time, as well as both the right to direct the use of that asset and receive the significant economic benefits of the asset. The Company elected the transition relief package of practical expedients, and as a result, we did not assess 1) whether existing or expired contracts contain embedded leases, 2) lease classification for any existing or expired leases, and 3) whether lease origination costs qualified as initial direct costs. We elected the short-term lease practical expedient by establishing an accounting policy to exclude leases with a term of 12 months or less.
During 2018, the Company executed a lease agreement. The lease term is
In January 2023, the Company executed a lease agreement. The lease term is
In early 2022, the Company spun-off a wholly owned subsidiary, Notation Labs, Inc. (“Notation Labs”). Notation Labs and the Company have continued to share office and warehouse spaces. The agreement is that Notation Labs pays portions of the leases based on agreements between the two companies for usage and other factors. Notation Labs paid $
The discount rate utilized for classification and measurement purposes as of the inception date of the lease is based on the Company’s collateralized incremental interest rate to borrow of
| F-16 |
| Table of Contents |
Undiscounted Cash Flows
As of December 31, 2023, the right of use asset and lease liability were shown on the consolidated balance sheet at $
Amounts due as of December 31, 2023 |
| Operating Leases |
| |
2024 |
| $ |
| |
2025 |
|
|
| |
2026 |
|
|
| |
Total minimum lease payments |
| $ |
| |
Less: effect of discounting |
|
| ( | ) |
Present value of future minimum lease payments |
| $ |
| |
Less: current obligations under leases |
|
| ( | ) |
Long-term lease obligations |
| $ |
| |
Legal Matter
On July 6, 2020, we received a letter from the staff of the Division of Enforcement of the Securities and Exchange Commission (the “Staff”) that indicated the Company may have violated certain rules and regulations regarding a late filing notification filed by the Company and that the Staff is conducting an informal inquiry into the matter. On April 29, 2021, the Company agreed to pay civil penalties of $
On April 6, 2023, the Company was served a Summons for an Amended Complaint filed in the state of Florida with claims for Strict Liability, Negligence and Breach of Implied Warranty. The complaint, filed by an insurance company, stems from its payments for claims filed by a policy holder on two separate occasions. The first insurance claim payment was due to a leak caused by improper installation in which the contractor failed to meet local codes. The second insurance claim payment followed the contractor’s failure to properly repair the improper installation. The complaint states that the contractor failed to follow basic installation guidelines supplied with the product in either incident, resulting in damages. On June 8, 2023, the Court of Duval County, FL entered a default judgement for $
NOTE 8 - STOCK WARRANTS
The following is a summary of stock warrants activity during the period ended December 31, 2023
|
| Number of Shares |
|
| Weighted Average Exercise Price |
| ||
Balance, December 31, 2022 |
|
|
|
| $ |
| ||
Warrants granted and assumed |
|
| - |
|
|
|
| |
Warrants expired |
|
| ( | ) |
|
|
| |
Warrants canceled |
|
| - |
|
|
|
| |
Warrants exercised |
|
| - |
|
|
|
| |
Balance outstanding and exercisable, December 31, 2023 |
|
|
|
| $ |
| ||
| F-17 |
| Table of Contents |
NOTE 9 - INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Company recorded the valuation allowance due to the uncertainty of future realization of federal and state net operating loss carryforwards. The deferred income tax assets are comprised of the following at December 31, 2023 and 2022:
|
| 2023 |
|
| 2022 |
| ||
Deferred income tax assets: |
| $ |
|
| $ |
| ||
Valuation allowance |
|
| ( | ) |
|
| ( | ) |
Net deferred tax asset |
| $ |
|
| $ |
| ||
Reconciliation between the statutory rate and the effective tax rate is as follows at December 31, 2023 and 2022:
|
| 2023 |
|
| 2022 |
| ||
Effective Tax Rate Reconciliation: |
|
|
|
|
|
| ||
Federal statutory tax rate |
|
| % |
|
| % | ||
State taxes, net of federal benefit |
|
| % |
|
| % | ||
Change in valuation allowance |
|
| ( | )% |
|
| ( | )% |
Effective tax rate |
|
| % |
|
| % | ||
As of December 31, 2023, the Company had net operating loss carryforwards of approximately $66,915,867 and net operating loss carryforwards expire in 2024 through 2031. The current year’s net operating loss will carryforward indefinitely, limited to 80% of the current year taxable income. The deferred income tax asset is derived by taking the net operating loss carryforward of $
The current income tax benefit of $
The Company recognizes interest and penalties related to uncertain tax positions in general and administrative expense. As of December 31, 2023 and 2022 the Company has no unrecognized uncertain tax positions, including interest and penalties.
NOTE 10 - STOCKHOLDERS’ EQUITY
The Company is authorized to issue
The Company has also designated
| F-18 |
| Table of Contents |
February 19, 2020 the Company converted the
On November 30, 2022 the Company agreed to issue
On December 15, 2022 the Company agreed to issue
On May 3, 2023 the Company issued
On May 3, 2023 the Company issued
On July 24, 2023 the Company issued
On July 24, 2023 the Company issued
On August 7, 2023 the Company issued
On August 7, 2023, the Company issued
On August 9, 2023 the Company issued
On August 16, 2023, the Company issued
On August 16, 2023, the Company issued
On August 16, 2023 the Company issued
On August 17, 2023, the Company issued
On August 25, 2023 the Company issued
On August 29, 2023 the Company issued
On August 29, 2023, the Company issued
| F-19 |
| Table of Contents |
NOTE 11 - SPIN-OFF OF NOTATION LABS, INC. (DISCONTINUED OPERATIONS)
On January 24, 2022, the Company completed the spin-off of its subsidiary Notation Labs Inc into a stand-alone company. Each holder of the common stock received one share of Notation labs, Inc common stock for every four shares of the Company’s common stock held at the close of business on December 10, 2021, the record date of the distribution. In contemplation of the Spin-off, the Notation Labs business, the historical results of operations, assets and liabilities, and the cash flows of Notation Labs are reflected as discontinued operations. Prior to the Separation, net assets attributable to Notation Labs were as follows:
Assets |
|
|
| |
Cash and cash equivalents |
| $ |
| |
Due to related party |
|
|
| |
Total assets of discontinued operations |
|
|
| |
|
|
|
|
|
Liabilities |
|
|
|
|
Trade accounts payable and accrued liabilities |
|
|
| |
Due to related party |
|
|
| |
Notes payable - related party |
|
|
| |
Notes payable |
|
|
| |
Stock subscription payable |
|
|
| |
Royalty liability |
|
|
| |
Total current liabilities of discontinued operations |
|
|
| |
Net liabilities attributable to Notation Labs, Inc. |
| $ | ( | ) |
Discontinued Operations
On January 24, 2022, the Company spun-off its subsidiary, Notation Labs, Inc. (Notation). Effective January 24, 2022, the Notation was spun-off into its own entity and it ceased being a subsidiary of the Company.
In accordance with the provisions of ASC 205-20, the Company had zero assets and liabilities of the discontinued operations (held for sale) in the consolidated balance sheets.
In accordance with the provisions of ASC 205-20, the Company has not included in the results of continuing operations the results of operations of the discontinued operations in the Consolidated Statements of Operations. The results of operations for this entity for the years ended December 31, 2023 and 2022, have been reflected as discontinued operations in the Consolidated Statements of Operations, and consist of the following:
|
| December 31, 2023 |
|
| December 31, 2022 |
| ||
Selling, general and administrative expenses |
| $ |
|
| $ |
| ||
Research and development |
|
|
|
|
|
| ||
Other (income) expense, net |
|
|
|
|
|
| ||
Loss from discontinued operations before taxes |
|
|
|
|
|
| ||
Tax provision |
|
|
|
|
|
| ||
Loss from discontinued operations, net of taxes |
| $ |
|
| $ |
| ||
In accordance with the provisions of ASC 205-20, the Company has separately reported the cash flow activity of the discontinued operations in the Consolidated Statements of Cash Flows. The cash flow activity from discontinued operations for the years ended December 31, 2023 and 2022, have been reflected as discontinued operations in the Consolidated Statements of Cash Flows and consist of the following:
|
| December 31, 2023 |
|
| December 31, 2022 |
| ||
Cash Flows from Operating Activities: |
|
|
|
|
|
| ||
Net loss |
| $ |
|
| $ | ( | ) | |
Accounts payable and accrued liabilities |
|
|
|
|
| ( | ) | |
Net cash used in operating activities |
| $ |
|
| $ | ( | ) | |
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
Cash held by subsidiary at spin-off |
| $ |
|
| $ | ( | ) | |
Net cash used in investing activities |
| $ |
|
| $ | ( | ) | |
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
Proceeds from notes payable related party |
| $ |
|
| $ |
| ||
Proceeds from common stock sale |
|
|
|
|
|
| ||
Net cash provided by financing activities |
| $ |
|
| $ |
| ||
NOTE 12 - RESTATEMENT
The Company has restated the 2023 and 2022 consolidated financial statements as originally presented in its 10K filed on June 26, 2024.
On April 2, 2024, the Company received a letter from the Securities and Exchange Commission informing the Company that the Public Accounting Oversight Board has revoked the registration of our auditor, Gries & Associates, LLC (“Gries”). The Board of Directors of Registrant approved the dismissal of Gries and dismissed Gries as the independent certifying accountant for the Registrant.
This Annual Report on Form 10-K/A (“Form 10-K/A”) is being filed as Amendment No. 1 to our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, which was filed with the Securities and Exchange Commission on June 26, 2024 (the “Original Filing”).
| F-20 |
| Table of Contents |
This Form 10-K/A is being filed to:
| (a) | The independent certifying accountant report includes the year ended December 31, 2022; |
|
|
|
| (b) | Restate balances as identified during the audit performed by the newly appointed independent certifying accountant. |
The restatements are being made in accordance with ASC 250, “Accounting Changes and Error Corrections.” The disclosure provision of ASC 250 requires a company that corrects an error to disclose that its previously issued financial statements have been restated, a description of the nature of the error, the effect of the correction on each financial statement line item and any per share amount affected for each prior period presented, and the cumulative effect on retained earnings (deficit) in the statement of financial position as of the beginning of the each period presented.
The changes and explanation of such are as follows:
Consolidated balance sheet as of December 31, 2023:
|
| Originally Reported |
|
| Adjustments |
|
| As Restated |
| |||
Cash |
| $ |
|
| $ | ( | ) |
| $ |
| ||
Total Current Assets |
|
|
|
|
| ( | ) |
|
|
| ||
Total Assets |
|
|
|
|
| ( | ) |
|
|
| ||
Accounts Payable and Accrued Liabilities |
|
|
|
|
| ( | ) |
|
|
| ||
Accrued Interest Payable - Related Party |
|
|
|
|
|
|
|
|
| |||
Notes Payable - Related Party |
|
|
|
|
| ( | ) |
|
|
| ||
Convertible Notes Payable, net of Debt Discount |
|
|
|
|
|
|
|
|
| |||
Total Current Liabilities |
|
|
|
|
| ( | ) |
|
|
| ||
Notes Payable - Related Party, Non-Current |
|
|
|
|
|
|
|
|
| |||
Total Liabilities |
|
|
|
|
|
|
|
|
| |||
Additional Paid-in Capital |
|
|
|
|
|
|
|
|
| |||
Subscriptions Payable |
|
|
|
|
|
|
|
|
| |||
Accumulated Deficit |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Total Stockholders' Deficit |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Total Liabilities and Stockholders' Deficit |
| $ |
|
| $ | ( | ) |
| $ |
| ||
Consolidated balance sheet as of December 31, 2022:
|
| Originally Reported |
|
| Adjustments |
|
| As Restated |
| |||
Cash |
| $ |
|
| $ |
|
| $ |
| |||
Inventory |
|
|
|
|
| ( | ) |
|
|
| ||
Total Current Assets |
|
|
|
|
| ( | ) |
|
|
| ||
Right-to-Use Asset |
|
|
|
|
| ( | ) |
|
|
| ||
Other Assets |
|
|
|
|
|
|
|
|
| |||
Total Assets |
|
|
|
|
| ( | ) |
|
|
| ||
Accounts Payable and Accrued Liabilities |
|
|
|
|
| ( | ) |
|
|
| ||
Accounts Payable and Accrued Liabilities – Related Party |
|
|
|
|
| ( | ) |
|
|
| ||
Accrued Interest Payable - Related Party |
|
|
|
|
|
|
|
|
| |||
Notes Payable - Related Party |
|
|
|
|
| ( | ) |
|
|
| ||
Notes Payable, net of Debt Discount |
|
|
|
|
| ( | ) |
|
|
| ||
Convertible Notes Payable, net of Debt Discount |
|
|
|
|
| ( | ) |
|
|
| ||
Total Current Liabilities |
|
|
|
|
| ( | ) |
|
|
| ||
Notes Payable - Long Term, net of Debt Discount |
|
|
|
|
|
|
|
|
| |||
Notes Payable - Related Party, Non-Current |
|
|
|
|
|
|
|
| ||||
Convertible Notes Payable, net of Debt Discount, Non-Current |
|
|
|
|
|
|
|
|
| |||
Total Liabilities |
|
|
|
|
| ( | ) |
|
|
| ||
Additional Paid-in Capital |
|
|
|
|
|
|
|
|
| |||
Subscriptions Payable |
|
|
|
|
|
|
|
|
| |||
Accumulated Deficit |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Total Stockholders' Deficit |
|
| ( | ) |
|
|
|
|
| ( | ) | |
Total Liabilities and Stockholders' Deficit |
| $ |
|
| $ | ( | ) |
| $ |
| ||
| F-21 |
| Table of Contents |
Consolidated Statement of Operations for the year ended December 31, 2023:
|
| Originally Reported |
|
| Restatement Adjustment |
|
| As Restated |
| |||
General and Administrative Expenses |
| $ |
|
| $ | ( | ) |
| $ |
| ||
Research and Development Expenses |
|
|
|
|
| ( | ) |
|
|
| ||
Total Operating Expenses |
|
|
|
|
| ( | ) |
|
|
| ||
Loss from Operations |
|
| ( | ) |
|
|
|
|
| ( | ) | |
Interest Expense |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Total Income (Expenses) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Net Loss |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Net Loss per Common Share from Continuing Operations - Basic and Diluted |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Net Loss per Common Share from Discontinued Operations - Basic and Diluted |
|
|
|
|
|
|
|
|
| |||
Net Loss per Common Share - Basic and Diluted |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
Consolidated Statement of Operations for the year ended December 31, 2022:
|
| Originally Reported |
|
| Restatement Adjustment |
|
| As Restated |
| |||
Revenue |
| $ |
|
| $ | ( | ) |
| $ |
| ||
Cost of Goods Sold |
|
|
|
|
|
|
|
|
| |||
Gross Profit (Loss) |
|
|
|
|
| ( | ) |
|
| ( | ) | |
General and Administrative Expenses |
|
|
|
|
| ( | ) |
|
|
| ||
Research and Development Expenses |
|
|
|
|
|
|
|
|
| |||
Professional Fees |
|
|
|
|
| ( | ) |
|
|
| ||
Total Operating Expenses |
|
|
|
|
| ( | ) |
|
|
| ||
Loss from Operations |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Gain on Extinguishment of Notes Payable |
|
|
|
|
| ( | ) |
|
|
| ||
Interest Expense |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Total Income (Expenses) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Net Loss |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
Net Loss per Common Share from Continuing Operations - Basic and Diluted |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Net Loss per Common Share from Discontinued Operations - Basic and Diluted |
|
|
|
|
|
|
|
|
| |||
Net Loss per Common Share - Basic and Diluted |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| F-22 |
| Table of Contents |
Consolidated Statement of Stockholders’ Deficit for the years ended December 31, 2023 and 2022:
|
| Common Shares |
| |||||||||
|
| As Previously Reported |
|
| Adjustments |
|
| As Restated |
| |||
Balance, December 31, 2021 |
|
|
|
|
| ( | ) |
|
| 20,217,451 |
| |
Stock issued for services |
|
|
|
|
| - |
|
|
|
| ||
Shares issued to extend notes |
|
|
|
|
| - |
|
|
|
| ||
Shares issued for debt discount |
|
|
|
|
| - |
|
|
|
| ||
Cancellation of commitment shares |
|
| ( | ) |
|
|
|
|
|
| ( | ) |
Rounding shares cancellation |
|
| ( | ) |
|
|
|
|
| - |
| |
Balance, December 31, 2022 |
|
|
|
|
|
|
|
|
|
| ||
Stock issued for services |
|
|
|
|
|
|
|
|
| |||
Shares issued for debt restructuring |
|
|
|
|
| - |
|
|
|
| ||
Shares issued to extend notes |
|
|
|
|
| - |
|
|
|
| ||
Shares issued for the settlement of notes payable |
|
|
|
|
|
|
|
|
| |||
Balance, December 31, 2023 |
|
|
|
|
|
|
|
|
| |||
|
| Additional Paid-in Capital |
| |||||||||
|
| As Previously Reported |
|
| Adjustments |
|
| As Restated |
| |||
Balance, December 31, 2021 |
| $ |
|
| $ |
|
| $ |
| |||
Stock issued for services |
|
|
|
|
| - |
|
|
|
| ||
Shares issued to extend notes |
|
|
|
|
| - |
|
|
|
| ||
Shares issued for debt discount |
|
|
|
|
|
|
|
|
| |||
Shares issued for the settlement of accrued expenses |
|
| - |
|
|
|
|
|
|
| ||
Cancellation of commitment shares |
|
| ( | ) |
|
|
|
|
| ( | ) | |
Imputed interest |
|
|
|
|
| - |
|
|
|
| ||
Balance, December 31, 2022 |
|
|
|
|
|
|
|
|
|
| ||
Stock issued for services |
|
|
|
|
|
|
|
|
| |||
Shares issued for debt restructuring |
|
| ( | ) |
|
|
|
|
| ( | ) | |
Shares issued to extend notes |
|
|
|
|
|
|
|
|
| |||
Shares issued for the settlement of notes payable |
|
|
|
|
| ( | ) |
|
|
| ||
Balance, December 31, 2023 |
| $ |
|
|
|
|
| $ |
| |||
| F-23 |
| Table of Contents |
|
| Subscriptions Payable |
| |||||||||
|
| As Previously Reported |
|
| Adjustments |
|
| As Restated |
| |||
Balance, December 31, 2021 |
| $ |
|
| $ | - |
|
| $ |
| ||
Stock issued for services |
|
|
|
|
| - |
|
|
|
| ||
Shares issued to extend notes |
|
|
|
|
|
|
|
|
| |||
Shares issued for the settlement of accrued expenses |
|
|
|
|
|
|
|
|
| |||
Spin-off of Notation labs |
|
| - |
|
|
| - |
|
|
| - |
|
Balance, December 31, 2022 |
|
|
|
|
|
|
|
|
|
| ||
Stock issued for services |
|
| ( | ) |
|
| - |
|
|
| ( | ) |
Shares issued for debt restructuring |
|
| ( | ) |
|
|
|
|
| ( | ) | |
Shares issued to extend notes |
|
| ( | ) |
|
|
|
|
| ( | ) | |
Shares issued for the settlement of notes payable |
|
| ( | ) |
|
|
|
|
| ( | ) | |
Effects of change in accounting policy |
|
| ( | ) |
|
|
|
|
| ( | ) | |
Balance, December 31, 2023 |
| $ |
|
|
|
|
| $ |
| |||
|
| Accumulated Deficit |
| |||||||||
|
| As Previously Reported |
|
| Adjustments |
|
| As Restated |
| |||
Balance, December 31, 2021 |
| $ | ( | ) |
| $ |
|
| $ | ( | ) | |
Spin-off of Notation labs |
|
|
|
|
| - |
|
|
|
| ||
Net loss |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Balance, December 31, 2022 |
|
| ( | ) |
|
|
|
|
|
| ( | ) |
Net loss |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Balance, December 31, 2023 |
| $ | ( | ) |
|
| - |
|
| $ | ( | ) |
| F-24 |
| Table of Contents |
Consolidated Statement of Cash Flows for the year ended December 31, 2023:
|
| Originally Reported |
|
| Restatement Adjustment |
|
| As Restated |
| |||
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|
| |||
Net loss |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
|
|
|
|
|
|
| |||
Provision for allowance on accounts receivable |
|
|
|
|
|
|
|
|
| |||
Shares issued for services |
|
|
|
|
|
|
|
|
| |||
Effects in change in accounting policy |
|
| ( | ) |
|
|
|
|
| ( | ) | |
Shares issued in debt modification |
|
|
|
|
|
|
|
|
| |||
Amortization of right-of-use asset |
|
|
|
|
| ( | ) |
|
|
| ||
Amortization of debt discount |
|
|
|
|
|
|
|
|
| |||
Changes in assets and liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
|
|
| ( | ) |
|
| ( | ) | |
Inventory |
|
|
|
|
| ( | ) |
|
|
| ||
Prepaid expenses |
|
|
|
|
| ( | ) |
|
| ( | ) | |
Deposits |
|
| ( | ) |
|
|
|
|
| ( | ) | |
Accounts payable and accrued liabilities |
|
|
|
|
| ( | ) |
|
|
| ||
Accounts payable and accrued liabilities - related party |
|
|
|
|
| ( | ) |
|
|
| ||
Interest payable - related party |
|
|
|
|
|
|
|
|
| |||
Net cash used in operating activities |
|
| ( | ) |
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from advance payable |
|
|
|
|
|
|
|
|
| |||
Repayment of advance payable |
|
|
|
|
| ( | ) |
|
| ( | ) | |
Proceeds from convertible notes payable |
|
|
|
|
|
|
|
|
| |||
Repayments of convertible notes payable |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Proceeds from convertible notes payable - related party |
|
|
|
|
| ( | ) |
|
|
| ||
Repayment of convertible notes payable - related party |
|
| ( | ) |
|
|
|
|
|
| ||
Proceeds from notes payable - related party |
|
|
|
|
|
|
|
|
| |||
Repayments from notes payable - related party |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Proceeds from royalty agreements |
|
|
|
|
|
|
|
|
| |||
Proceeds from notes payable |
|
|
|
|
|
|
|
|
| |||
Repayments from notes payable |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Proceeds from sale of common stock |
|
|
|
|
|
|
|
|
| |||
Net cash provided by financing activities |
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash |
|
| ( | ) |
|
|
|
|
|
| ( | ) |
Cash, beginning of year |
|
|
|
|
|
|
|
|
|
| ||
Cash, end of year |
| $ |
|
|
|
|
|
| $ |
| ||
| F-25 |
| Table of Contents |
Consolidated Statement of Cash Flows for the year ended December 31, 2022:
|
| Originally Reported |
|
| Restatement Adjustment |
|
| As Restated |
| |||
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|
| |||
Net loss from continuing operations |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
Net loss from discontinued operations |
|
| ( | ) |
|
|
|
|
|
| ( | ) |
Adjustments to reconcile net loss to net cash used operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
|
|
|
|
|
|
|
| ||
Imputed interest |
|
|
|
|
|
|
|
|
| |||
Shares issued for services |
|
|
|
|
|
|
|
|
| |||
Cancellation of commitment shares |
|
| ( | ) |
|
|
|
|
| ( | ) | |
Shares issued to extend notes |
|
|
|
|
|
|
|
|
| |||
Amortization of right-of-use asset |
|
| ( | ) |
|
|
|
|
| ( | ) | |
Amortization of debt discount |
|
|
|
|
|
|
|
|
| |||
Changes in assets and liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
| ( | ) |
|
|
|
|
| ( | ) | |
Inventory |
|
|
|
|
|
|
|
|
| |||
Accounts payable and accrued liabilities |
|
|
|
|
| ( | ) |
|
|
| ||
Accounts payable and accrued liabilities - related party |
|
|
|
|
| ( | ) |
|
|
| ||
Interest payable - related party |
|
|
|
|
|
|
|
|
| |||
Operating cash flow used in continued operations |
|
| ( | ) |
|
|
|
|
|
| ( | ) |
Operating cash flow used in discontinued operations |
|
| ( | ) |
|
|
|
|
|
| ( | ) |
Net cash used in operating activities |
|
| ( | ) |
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash held by subsidiary at spin-off |
|
|
|
|
| ( | ) |
|
| ( | ) | |
Net cash used in investing activities |
|
|
|
|
|
|
|
|
| ( | ) | |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from convertible notes payable |
|
|
|
|
| ( | ) |
|
|
| ||
Repayments of convertible notes payable |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Proceeds from convertible notes payable - related party |
|
|
|
|
| ( | ) |
|
|
| ||
Proceeds from notes payable - related party |
|
|
|
|
|
|
|
|
| |||
Repayments from notes payable - related party |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Repayments from notes payable |
|
| ( | ) |
|
|
|
|
| ( | ) | |
Financing cash flows from continued operations |
|
|
|
|
|
|
|
|
|
| ||
Financing cash flows from discontinued operations |
|
|
|
|
|
|
|
|
|
| ||
Net cash provided by financing activities |
|
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Net decrease in cash |
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Cash of continuing operations, beginning of year |
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Cash, end of year |
| $ |
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| $ |
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The adjustments above reflect restatement due to differences identified during the audit performed by the newly appointed independent certifying accountant.
NOTE 13 - SUBSEQUENT EVENTS
The Company has evaluated subsequent events through the date the financial statements were issued. The Company has determined that there are no other such events that warrant disclosure or recognition in the financial statements other than as set forth below.
On January 18, 2024, the Company issued
On January 25, 2024, the Company entered into a note agreement for $
On March 15, 2024, the Company issued
On March 15, 2024, the Company issued
On March 25, 2024, the Company settled a certain $
On April 4, 2024, the Company entered into a note agreement for $
On April 5, 2024, the Company issued
On April 10, 2024, the Company entered into a note agreement for $
On April 11, 2024, the Company issued
On April 11, 2024 the Company issued
On April 22, 2024, the Company entered into a consulting agreement with an individual for a six-month period. As compensation, the Company will issue
On April 23, 2024, the Company entered into a convertible note agreement for $
On April 25, 2024, the Company entered into a note extension agreement with Level Point Corp., a related entity, for the promissory note dated April 30, 2021 for $
On May 7, 2024, the Company issued
On May 9, 2024, the Company issued
On May 14, 2024, the Company entered into a convertible note agreement for $
On May 30, 2024, the Company entered into a convertible note agreement for $
| F-26 |