TKLS 10-Q
Trutankless, Inc. (TKLS)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
For the quarterly period ended
Commission file number
(Exact name of registrant as specified in its charter) |
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(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
| (Zip Code) |
(
(Registrant’s telephone number, including area code)
Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐
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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Ruble 12b-2 of the Exchange Act.
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 Exchange Act). Yes
The number of shares of Common Stock, $0.001 par value, outstanding on June 6, 2023, was
TRUTANKLESS, INC.
QUARTERLY PERIOD ENDED SEPTEMBER 30, 2022
Index to Report on Form 10-Q
| 2 |
| Table of Contents |
TRUTANKLESS, INC
CONSOLIDATED BALANCE SHEETS
|
| September 30, 2022 |
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| December 31, 2021 |
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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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Inventory |
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Assets of discontinued operations |
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Total current assets |
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Other Assets |
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Right to use asset |
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Other assets |
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Total other assets |
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Total assets |
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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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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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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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Liabilities of discontinued operations |
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Total current 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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Total long-term liabilities |
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Total liabilities |
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Stockholders' deficit |
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Preferred stock, $0.001 par value, |
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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 |
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Total stockholders' deficit |
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Total liabilities and stockholders' deficit |
| $ |
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| $ |
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See accompanying notes to the consolidated financial statements
| 3 |
| Table of Contents |
TRUTANKLESS, INC
CONSOLIDATED STATEMENTS OF OPERATIONS
|
| For the three months ended |
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| For the nine months ended |
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|
| September 30, 2022 |
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| September 30, 2021 |
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| September 30, 2022 |
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| September 30, 2021 |
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Revenue |
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Cost of goods sold |
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Gross profit |
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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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Other income (expenses) |
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Interest expense |
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Gain/Loss on change of derivative liability |
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Loss on extinguishment of notes payable |
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Gain on debt forgiveness of PPP loan |
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Total income (expenses) |
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Net loss before tax provision |
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Tax provision |
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Net loss from continuing operations |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
Net loss from discontinued operations before tax provision |
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Tax provision for discontinued operations |
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Net loss from discontinued operations |
| $ |
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| $ |
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| $ | ( | ) |
| $ |
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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 |
| $ |
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| $ |
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| $ |
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| $ |
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Net loss per common share - basic and diluted |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
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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
| 4 |
| Table of Contents |
TRUTANKLESS, INC
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
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| Additional |
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| Total |
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| Preferred Stock |
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| Common Stock |
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| Paid-in |
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| Subscriptions |
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| Accumulated |
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| Stockholders' |
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| Shares |
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| Amount |
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| Shares |
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| Amount |
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| Capital |
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| Payable |
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| Deficit |
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| Deficit |
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Balance, December 31, 2021 |
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Stock issued for services |
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| - |
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Shares issued for debt discount |
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| - |
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Spin-off of Notation labs |
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| - |
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| - |
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Rounding shares cancellation |
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| - |
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| ( | ) |
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Imputed interest |
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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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| ( | ) |
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Balance, March 31, 2022 |
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Stock issued for services |
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| - |
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| - |
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Shares issued to extend notes |
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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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| ( | ) |
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Balance, June 30, 2022 |
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| ( | ) |
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Stock issued for services |
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| - |
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| - |
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Shares issued to extend notes |
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| - |
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| ( | ) |
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Cancellation of commitment shares |
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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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| ( | ) |
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Balance, September 30, 2022 |
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| Additional |
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| Total |
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| Preferred Stock |
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| Common Stock |
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| Paid-in |
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| Subscriptions |
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| Accumulated |
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| Stockholders' |
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| Shares |
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| Amount |
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| Shares |
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| Amount |
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| Capital |
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| Payable |
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| Deficit |
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| Deficit |
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Balance, December 31, 2020 |
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Stock issued for cash |
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| - |
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Stock issued for services |
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| - |
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Shares issued for beneficial conversion feature |
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| - |
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| ( | ) |
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Shares issued for extinguishment of notes |
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| - |
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| - |
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Derivative liability written off to additional paid in capital |
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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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| ( | ) |
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Balance, March 31, 2021 |
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| ( | ) |
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Stock issued for cash |
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| - |
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| ( | ) |
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Stock issued for services |
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| - |
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| - |
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Shares issued for beneficial conversion feature |
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| - |
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Shares issued for extinguishment of notes |
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| - |
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| ( | ) |
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Derivative liability written off to additional paid in capital |
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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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| ( | ) |
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Balance, June 30, 2021 |
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| ( | ) |
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Stock issued for cash |
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| - |
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| ( | ) |
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Stock issued for services |
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| - |
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| ( | ) |
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Shares issued for beneficial conversion feature |
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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, September 30, 2021 |
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See accompanying notes to the consolidated financial statements
| 5 |
| Table of Contents |
TRUTANKLESS, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
| For the nine months ended |
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| September 30, 2022 |
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| September 30, 2021 |
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Cash Flows from Operating Activities |
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Net loss from continuing operations |
| $ | ( | ) |
| $ | ( | ) |
Net loss from discontinued operations |
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| ( | ) |
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Adjustments to reconcile net loss to net cash provided by operating activities: |
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Imputed interest |
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Shares issued for services |
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Cancellation of commitment shares |
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| ( | ) |
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Gain/Loss on change in derivative liability |
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| ( | ) | |
Shares issued to extend debt |
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Loss on extinguishment of notes payable and accrued expenses |
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Gain on forgiveness of PPP loan payable |
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| ( | ) | |
Depreciation and amortization |
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Non cash operating lease expense |
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Amortization of debt discount |
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Changes in assets and liabilities |
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Accounts receivable |
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Inventory |
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| ( | ) | |
Prepaid expenses |
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Accounts payable and accrued liabilities |
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Accounts payable and accrued liabilities - related party |
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Interest payable - related party |
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Operating cash flow from continued operations |
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| ( | ) |
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Operating cash flow from discontinued operations |
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| |
Net cash used in operating activities |
|
| ( | ) |
|
| ( | ) |
|
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|
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|
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|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
Purchase of fixed assets |
|
|
|
|
| ( | ) | |
Net cash used in investing activities |
|
|
|
|
| ( | ) | |
|
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|
Cash Flows from Financing Activities: |
|
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|
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|
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|
|
|
Proceeds from convertible notes payable |
|
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|
| ||
Repayments of convertible notes payable |
|
| ( | ) |
|
| ( | ) |
Proceeds from convertible notes payable - related party |
|
|
|
|
|
| ||
Proceeds from notes payable |
|
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|
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| ||
Repayments from notes payable |
|
| ( | ) |
|
| ( | ) |
Proceeds from notes payable - related party |
|
|
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|
| ||
Proceeds from sale of common stock, net of offering costs |
|
|
|
|
|
| ||
Financing cash flows from continued operations |
|
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|
| ||
Financing cash flows from discontinued operations |
|
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| ||
Net cash provided by financing activities |
|
|
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|
|
| ||
|
|
|
|
|
|
|
|
|
Net decrease in cash |
|
| ( | ) |
|
|
| |
Cash of continuing operations, beginning of period |
|
|
|
|
|
| ||
Cash, end of period |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information |
|
|
|
|
|
|
|
|
Cash paid for interest |
| $ |
|
| $ |
| ||
Cash paid for taxes |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: |
|
|
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|
|
|
|
|
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|
|
|
|
|
|
|
|
Derivative liability written off to additional paid in capital |
| $ |
|
| $ |
| ||
Notes and accrued interest settled with stock |
| $ |
|
| $ |
| ||
Recognition of debt discount |
| $ |
|
| $ |
| ||
See accompanying notes to the consolidated financial statements
| 6 |
| Table of Contents |
TRUTANKLESS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(UNAUDITED)
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 Google play store, will augment existing products in the home automation space.
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (GAAP) and applicable rules and regulations of the Securities and Exchange Commission (SEC) regarding interim financial reporting. Certain information and note disclosures normally included in the consolidated financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. As such, the information included in the consolidated financial statements for the nine months ended September 30, 2022 should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Form 10-K for the Company’s fiscal year ended December 31, 2021, as filed with the SEC.
The consolidated balance sheet as of December 31, 2021, included herein was derived from the audited financial statements as of that date, but does not include all disclosures including notes required by GAAP.
The accompanying unaudited consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, and cash flows for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for the year ending December 31, 2022.
The consolidated financial statements include the accounts of Trutankless, Inc. and its wholly owned subsidiaries. On May 16, 2010, the Company acquired 100% of the outstanding stock of Bollente, Inc. On August 20th, 2020 the Company formed a wholly-owned subsidiary, Notation Labs, Inc. All significant inter-company transactions and balances have been eliminated.
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 condensed 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 September 30, 2022, the assets and liabilities associated with these Notation Labs Inc. are classified as assets and liabilities of discontinued operations in the condensed consolidated balance sheet. The disclosures presented in our notes to the interim condensed consolidated financial statements are presented on a continuing operations basis.
| 7 |
| Table of Contents |
Reclassifications
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.
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 September 30, 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 September 30, 2022 and 2021, 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
| 8 |
| Table of Contents |
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. Accounts receivable are presented net of an allowance for doubtful accounts of $
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”. 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
We recognize revenue in accordance with generally accepted accounting principles as outlined in the Financial Accounting Standard Board’s (“FASB”) Accounting Standards Codification (“ASC”) 606, Revenue From Contracts with Customers, which requires that five basic criteria be met before revenue can be recognized: (i) identify the contract with the customer; (ii) identity the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price; and (v) recognize revenue when or as the entity satisfied a performance obligation.
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. We only record revenue when collectability is probable.
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.
| 9 |
| Table of Contents |
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 September 30, 2022 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 September 30, 2022 and December 31, 2021.
Recent Accounting Pronouncements
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. This new guidance is effective for the Company for its fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company is evaluating its potential impact but does not expect the new standard to have a material impact on the Company’s results of operations or cash flows.
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. As the Company was a Smaller Reporting Company at the time of issuance of the ASU, the Company expects to adopt the ASU effective October 1, 2023, including the interim periods within the fiscal year. Early application of the adoption is permitted. The Company is evaluating its potential impact but does not expect the new standard to have a material impact on the Company’s results of operations or cash flows.
In August 2020, the FASB issued ASU 2020-06, “Debt - Debt with Conversion and Other Options (subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (subtopic 815-40),” which reduces the number of accounting models in ASC 470-20 that require separate accounting for embedded conversion features. As a result, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost as long as no other features require bifurcation and recognition as derivatives. By removing those separation models, the effective interest rate of convertible debt instruments will be closer to the coupon interest rate. Further, the diluted net income per share calculation for convertible instruments will require the Company to use the if-converted method. The treasury stock method should no longer be used to calculate diluted net income per share for convertible instruments. The amendment will be effective for the Company for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years.
| 10 |
| Table of Contents |
NOTE 2 – SPIN-OFF OF NOTATION LABS INC.
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 |
|
|
| |
Royalty liability |
|
|
| |
Total current liabilities of discontinued operations |
|
|
| |
Net liabilities spun off to shareholders |
|
| ( | ) |
Discontinued Operations
The components of assets and liabilities of discontinued operations that are stated separately as of December 31, 2021 in the Consolidated Balance Sheets are comprised of the following items:
|
| December 31, |
| |
|
| 2021 |
| |
Assets |
|
|
| |
Cash and cash equivalents |
|
|
| |
Total Assets of Discontinued Operations |
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
Trade accounts payable and accrued liabilities |
|
|
| |
Due to related party |
|
|
| |
Notes payable - related party |
|
|
| |
Notes payable |
|
|
| |
Royalty liability |
|
|
| |
Total current liabilities of discontinued operations |
|
|
| |
| 11 |
| Table of Contents |
The components of loss from discontinued operations, net of tax for the Notation Labs business are as follows:
|
| September 30, |
| |
|
| 2022 |
| |
Selling, general and administrative |
|
|
| |
Research and development |
|
|
| |
Other (income) expense, net |
|
|
| |
loss from discontinued operations before taxes |
|
|
| |
Taxes on income |
|
|
| |
Loss from discontinued operations, net of taxes |
|
|
| |
The components of cashflows from discontinued operations for the Notation Labs business are as follows:
|
| September 30, |
| |
Cash Flows from Operating Activities: |
| 2022 |
| |
Retained earnings transferred to Notation labs |
|
|
| |
Net assets transferred to Notation labs |
|
|
| |
Net liabilities transferred to Notation labs |
|
| ( | ) |
Accounts payable and accrued liabilities |
|
| ( | ) |
Net transfers to Notation Labs included in Net Cash used in operating activities included in Discontinued Operations |
|
| ( | ) |
|
|
|
|
|
Cash Flows from Financing Activities: |
|
|
|
|
Proceeds from notes payable related party |
|
| ( | ) |
Net transfer to Notation labs from financing activities |
|
|
| |
Net transfers to Notation Labs included in Net Cash Provided by Financing activities Discontinued Operations |
|
|
| |
NOTE 3 - 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 September 30, 2022, the Company had $
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 4 - INVENTORY
Inventories consist of the following at:
|
| September 30, 2022 |
|
| December 31, 2021 |
| ||
Finished goods |
|
|
|
|
|
| ||
Total |
| $ |
|
| $ |
| ||
| 12 |
| Table of Contents |
NOTE 5 - ACCOUNTS RECEIVABLE, NET
Accounts receivable consist of the following at:
|
| September 30, 2022 |
|
| December 31, 2021 |
| ||
Accounts receivable |
|
|
|
|
|
| ||
Allowance for doubtful accounts |
|
| ( | ) |
|
| ( | ) |
Total |
| $ |
|
| $ |
| ||
NOTE 6 - RELATED PARTY
Notes payable - related party consist of the following at:
|
| September 30, 2022 |
|
| December 31, 2021 |
| ||
Note payable, secured, 5% interest, due May 2022 |
| $ |
|
| $ |
| ||
Note payable, secured, 12% interest, due May 2030 |
|
|
|
|
|
| ||
Note payable, secured, 12% interest, due April 2022 |
|
|
|
|
|
| ||
Total Notes Payable - related party |
| $ |
|
| $ |
| ||
Less unamortized debt discounts |
|
|
|
|
|
| ||
Total Notes Payable |
|
|
|
|
|
| ||
Less current portion |
|
| ( | ) |
|
| ( | ) |
Total Notes Payable - long term |
| $ |
|
| $ |
| ||
During the nine months ending September 30, 2022 the Company received $
As of September 30, 2022 and December 31, 2021, 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 $
Interest expense associated with the related party notes for the nine months ended September 30, 2022 and 2021 was $
Accounts payable and accrued liabilities – related party
In January 2019, the Company executed a lease agreement with Templar Asset Group, LLC, a related party.
Rent expense associated with the lease agreement for the nine months ended September 30, 2022 and 2021 was $
| 13 |
| Table of Contents |
In January 2014, the Company executed a lease agreement with Perigon Companies, LLC, a related party. The lease term is one month at a rate of $
Rent expense associated with the lease agreement for the six months ended September 30, 2022 and 2021 was $
During the nine months ended September 30, 2022 and 2021 the Company received $
NOTE 7 - NOTES PAYABLE
Notes payable consist of the following at:
|
| September 30, 2022 |
|
| December 31, 2021 |
| ||
Note payable, secured, 12% interest, due June 2024 |
| $ |
|
| $ |
| ||
Note payable, secured, 12% interest, due June 2024 |
|
|
|
|
|
| ||
Notes payable, secured, 30% interest, due June 2021 |
|
|
|
|
|
| ||
Notes payable, secured, 12% interest, due April 2022 |
|
|
|
|
|
| ||
Notes payable, secured, 10% interest, due June 2022 |
|
|
|
|
|
| ||
Notes payable, secured, 12% interest, due December 2023 |
|
| 10,000 |
|
|
| 10,000 |
|
Notes payable, unsecured, 0% interest, due on demand |
|
|
|
|
|
| ||
Notes payable, secured, 12% interest, due June 2024 |
|
|
|
|
|
| ||
Total notes Payable |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Less unamortized debt discounts |
|
|
|
|
| ( | ) | |
Total Notes Payable |
|
|
|
|
|
| ||
Less current portion |
|
| ( | ) |
|
| ( | ) |
Total Notes Payable - long term |
| $ |
|
| $ |
| ||
On June 11, 2020, the Company issued $
On January 30, 2019, the Company issued a $
On January 1, 2020, the Company entered into an agreement to consolidate the above two notes payable dated June 11, 2018 and January 30, 2019 into one $
| 14 |
| Table of Contents |
On September 2, 2016, the Company issued a $
On February 2, 2018, the Company entered into an agreement with the note holder
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 June 28, 2021, the Company entered in to 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 $
| 15 |
| Table of Contents |
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 $201,000, 12% note due December 15, 2023. As consideration the Company issued the note holder
On November 4, 2021, the Company entered into a $
Interest expense including amortization of the associated debt discount for the nine months ended September 30, 2022 and 2021 was $
Convertible notes payable, net of debt discount consist of the following:
|
| September 30, 2022 |
|
| December 31, 2021 |
| ||
Convertible note payable, secured, 12% interest, due August 31, 2019, in default |
|
|
|
|
|
| ||
Convertible note payable, secured, 12% interest, due May 2, 2023 |
|
|
|
|
|
| ||
Convertible note payable, secured, 10% interest, due April 2023 |
|
|
|
|
|
| ||
Convertible note payable, secured, 10% interest, due May 22, 2020, in default |
|
|
|
|
|
| ||
Convertible note payable, secured, 12% interest, due Feb 15, 2024, in default |
|
|
|
|
|
| ||
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 January 6, 2022 |
|
|
|
|
|
| ||
Convertible note payable, secured, 12% interest, due February 8, 2022 |
|
|
|
|
|
| ||
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 February 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 June 2, 2016, the Company issued $
On May 2, 2017, the Company issued $
| 16 |
| Table of Contents |
On May 2, 2017, the Company issued $
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 $
| 17 |
| Table of Contents |
On May 5, 2020, the Company issued a $
On January 6, 2021, the Company entered into 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 $
On March 3, 2021, the Company issued a $
On June 15, 2021, the Company entered into 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 nine months ended September30, 2022 2021 was $
| 18 |
| Table of Contents |
NOTE 8 - COMMITMENTS AND CONTINGENCIES
Operating Lease Agreements
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.
The Company has entered into lease agreements as a lessee for the use of office space. These lease agreements are classified as operating leases and the liability and right-of-use asset are recognized on the balance sheet at lease commencement. Leases with an initial term of 12 months or less are not recorded on the balance sheet and are recognized as lease expense on a straight-line basis over the lease term. As a result of the adoption of ASC 842, the Company recognized an operating lease liability and right-of-use asset of $64,978.
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 12%, as the rate implicit in the lease is not determinable.
During 2018, the Company executed a lease agreement. The lease term is
In January 2019, the Company executed a lease agreement with Templar Asset Group, LLC, a related party. The lease term is one year at a rate of $
In January 2022, the Company executed a lease agreement. The lease term was
Undiscounted Cash Flows
As of September 30, 2022, the right of use asset and lease liability were shown on the consolidated balance sheet at $
Amounts due as of September 30, 2022 |
| Operating Leases |
| |
2022 |
|
|
| |
2023 |
|
|
| |
2024 |
|
|
| |
2025 |
|
|
| |
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 $
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NOTE 9 - STOCK WARRANTS
The following is a summary of stock warrants activity during the period ended September 30, 2022
|
| Number of Shares |
|
| Weighted Average Exercise Price |
| ||
Balance, December 31, 2021 |
|
|
|
| $ |
| ||
Warrants granted and assumed |
|
| - |
|
|
|
| |
Warrants expired |
|
| - |
|
|
|
| |
Warrants canceled |
|
| - |
|
|
|
| |
Warrants exercised |
|
| - |
|
|
|
| |
Balance outstanding and exercisable, September 30, 2022 |
|
|
|
| $ |
| ||
The following is a summary of stock warrants activity during the period ended December 31, 2021.
|
| Number of Shares |
|
| Weighted Average Exercise Price |
| ||
Balance, December 31, 2020 |
|
|
|
| $ |
| ||
Warrants granted and assumed |
|
|
|
| $ |
| ||
Warrants expired |
|
| - |
|
|
|
| |
Warrants canceled |
|
| - |
|
|
|
| |
Warrants exercised |
|
| ( | ) |
| $ |
| |
Balance outstanding and exercisable, December 31, 2021 |
|
|
|
| $ |
| ||
NOTE 10 - STOCKHOLDERS’ EQUITY
The Company is authorized to issue
The Company has also designated
On March 7, 2022 the Company issued
On February 22, 2022 the Company entered into a $
During the three months ending March 31, 2022 the Company agreed to issue
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On January 24, 2022 the Company completed the spin-off of its subsidiary Notation Labs Inc into a stand-alone Company. On August 20, 2020 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. As a result of the spin-off the Notation Labs financials were deconsolidated from those of the Company and an increase of $
During the six months ending June 30, 2022 imputed interest of $
During the six months ending June 30, 2022
On May 1, 2022, the Company issued
On May 2, 2022, the Company issued
On June 1, 2022, the Company agreed to issue
During the three months ending June 30, 2022 the Company agreed to issue
On August 1, 2022 the Company received and cancelled
During the three months ending September 30, 2022 the Company agreed to issue 2,200,000 shares of common stock valued at $642,990 for services. As of September 30, 2022 the shares had not been issued and were recorded as stock payable.
NOTE 11 - SUBSEQUENT EVENTS
On November 9, 2022 the Company issued
On November 30, 2022 the Company issued
On December 15, 2022 the Company issued
On May 3, 2023 the Company issued
On May 3, 2023 the Company issued
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. The Company believes the alleged claims in the suit related to the Company and its products are without merit.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This Quarterly Report on Form 10-Q contains forward-looking statements. Any statements contained herein that are not historical fact may deem to be forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The words “believes,” “anticipates,” “plans,” “expects,” “intends,” and similar expressions identify some of the forward-looking statements. Forward-looking statements are not guarantees of performance or future results and involve risks, uncertainties and assumptions. 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. These forward-looking statements are subject to certain risks and uncertainties that 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 Quarterly Report on Form 10-Q, and in particular, the risks discussed under the heading “Risk Factors” in Part II, Item 1A and those discussed in other documents we file with the Securities and Exchange Commission. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.
References in the following discussion and throughout this Quarterly Report to “we”, “our”, “us”, “TKLS”, “Trutankless”, “Bollente”, “the Company”, and similar terms refer to Trutankless, Inc. unless otherwise expressly stated or the context otherwise requires.
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AVAILABLE INFORMATION
Our common stock was quoted and traded on the over-the-counter market (the “OTC Markets”) under the trading symbol TKLS. SEC amendments to Rule 15c2-11 became effective on September 28, 2021, as a result our common stock ceased to be quoted on the OTC Market, and the Company’s common stock may be quoted and traded on the OTC Expert Market under the symbol TKLS. We file annual, quarterly and other reports and other information with the SEC. You can read these SEC filings and reports over the Internet at the SEC's website at www.sec.gov or on our website at www.trutanklessinc.com. You can also obtain copies of the documents at prescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, NE, Washington, DC 20549 on official business days between the hours of 10:00 am and 3:00 pm. Please call the SEC at (800) SEC-0330 for further information on the operations of the public reference facilities. We will provide a copy of our annual report to security holders, including audited financial statements, at no charge upon receipt of a written request to us at Trutankless, Inc., 15720 N. Greenway Hayden Loop, Suite 2, Scottsdale, Arizona 85260.
General
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. Management anticipates the Company's trutankless water heater, with Wi-Fi capability and trutankless' proprietary apps offered in the iOS and Google play store, will augment existing products in the hope automation space.
The Company spun off its wholly owned subsidiary, Notation Labs, Inc. with shareholders of the Company to receive pro rata ownership of the spun off company in the form of an equity dividend distribution. Common shares of Notation Labs, Inc. were issued to shareholders of record December 10th, 2021 and the spin off occurred on January 24th, 2022, with each shareholder of record receiving 1 share in the subsidiary for every 4 shares in the Company held as of the Record Date.
Trutankless® Products
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 have an improved design and greater efficiency thereby saving energy and offering reduction 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 manufacturing and life-cycle costs with an improved design conceived not only to increase efficiency, but also the longevity of our products versus competitive units. 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 be available through wholesale plumbing distributors, including Home Depot Pro, Ferguson, Hajoca, WinSupply locations, Morrison Supply, and several regional distributors. A partial listing of wholesalers may be found on our website (www.trutankless.com).
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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 are developing systems using upgraded materials, electronics, and a collection of exclusive design elements and features to maximize capacity, minimize energy use, and provide a truly maintenance free experience.
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. 1, 2019, we generated $1,908,708. As of December 31, 2020, we generated $1,661,278. As of the fiscal year ended December 31, 2021, we generated $246,032 in revenue. For the nine months ended September 30, 2022, we generated $24,639.
We are developing a new, customizable app and control panel for our smart electric water heaters. Using our app, residential and commercial users will be able to obtain real-time status reports, adjust unit temperature settings, view water usage data, and change notification settings from anywhere in the world on their mobile device.
Our primary markets, Florida, Texas, Arizona, and the rest of the Sunbelt region are centers of growth in the U.S. construction and we plan to continue intend to take advantage of our relationships as we launch our totally redesigned trutankless® brand whole home tankless water heaters.
Www.trutankless.com is available as a service to consumers of trutankless® water heaters. We expect to have new apps available for download from the Apple iOS and Goggle Play stores, which will integrate with other devices in the Smart Home market.
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 Governor's Award of Merit for Energy and Technology Innovation at Arizona Forward's 2014 Environmental Excellence Awards, as well as 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 listing of “Money Savings Products” in the Energy Saving Measures category, Special Mention in the Architizer A+ Awards, 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 a “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.
We expect our new line of water heaters will garner similar accolades once the product has been launched with proprietary improvements which will continue to lead the market in the tankless water heating technology which we expect will continue to be driven, in large part, through industry professionals in their local markets.
Customers and Markets
We intend to continue selling our products to plumbing wholesale distributors and dealers.
Approximately 100% and 98% of our sales in 2022 and 2021, were to wholesale plumbing equipment distributors for commercial and residential repair and replace applications. Additionally, our products have historically been sold to various home builders throughout the United States in both single family and multi-family applications.
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Manufacturing and Logistics
We have a Manufacturing Services Agreement establishing our financial and payment arrangements, warranty, shipping, and delivery terms with a large US based contract manufacturer with vertically integrated capabilities for electro-mechanical box builds. Finished product are to be generally shipped Freight on Board (FOB) via standard LTL freight and are to be either drop-shipped to customers directly with some inventory to be warehoused at Associated Global Systems located in Phoenix, Arizona. Merchandise is 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.
Recent Developments
COVID-19 Pandemic
In December 2019, an outbreak of a novel strain of coronavirus originated in Wuhan, China (“COVID-19”) and has since spread worldwide, including to the Unites States (the “U.S.”), posing public health risks that have reached pandemic proportions (the “COVID-19 Pandemic”). The COVID-19 Pandemic poses a threat to the health and economic wellbeing of our employees, customers and vendors. The operation of all of our facilities is critically dependent on our employees who staff these locations. To ensure the wellbeing of our employees and their families, we have provided all of our employees with detailed health and safety literature on COVID-19, such as the Center for Disease Control (the “CDC”)’s industry-specific guidelines for working with the deceased who were and may have been infected with COVID-19. In addition, our procurement and safety teams have updated and developed new safety-oriented guidelines to support daily field operations and provided personal protection equipment to those employees whose positions necessitate them, and we have implemented work from home policies at our corporate office consistent with CDC guidance to reduce the risks of exposure to COVID-19 while still supporting the families that we serve.
RESULTS OF OPERATIONS
Results of Operations for the three months ended September 30, 2022 compared with the three months ended September 30, 2021.
Revenues
In the three months ended September 30, 2022, we generated $4,627 in revenues, as compared to $16,557 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 $11,392 in the three months ended September 30, 2022, as compared to $5,663 in the three months ended September 30, 2021. This increase in cost of goods sold was primarily attributable to an increase in freight costs.
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 $993,663 during the three months ended September 30, 2022 as compared to $2,148,657 in the prior year. In the three-month period ended September 30, 2022, our expenses primarily consisted of General and Administrative of $865,296, Research and development of 57,041 and Professional fees of $71,326.
General and administrative fees increased $177,097, or approximately 26% to $865,296 for the three months ended September 30, 2022 from $688,199 for the three months ended September 30, 2021. This increase was primarily the result of an increase in consulting fees.
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Research and development increased $19,768, or approximately 53% to $57,041 for the three months ended September 30, 2022 from $37,273 for the three months ended September 30, 2021. This increase is attributed primarily to the increased consulting fees associated with the Company’s research and development efforts.
Professional fees decreased $1,351,859, or approximately 95% to $71,326 for the three months ended September 30, 2022 from $1,423,185 for the three months ended September 30, 2021. Professional fees decreased due to a decrease in consulting fees associated with business development.
Other Expenses
Other expenses decreased $345,020 to an other income of $59,279 in the three months ended September 30, 2022 from $285,741 in the three months ended September 30, 2021. The decrease was the result of the cancellation of previously issued commitment shares.
Net Loss
In the three months ended September 30, 2022, we generated a net loss of $941,149, a decrease of $1,482,355 from $2,423,504 for the three months ended September 30, 2021. This decrease was attributable to a decrease in overall expenditures.
Going Concern
The accompanying consolidated financial statements 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 within one year from the date of this filing. 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 September 30, 2022, the Company had $1,054 cash on hand. At September 30, 2022, the Company has an accumulated deficit of $63,768,749. For the nine months ended September 30, 2022, the Company had a net loss of $3,787,349, and cash used in operations of $1,539,196. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
Over the next twelve months the Company intends to invest its working capital resources in sales and marketing in order to increase the distribution and demand for its products. 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. However, there is no guarantee the Company will generate sufficient revenues or raise capital to continue operations. The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
In December 2019, an outbreak of a novel strain of coronavirus originated in Wuhan, China (“COVID-19”) and has since spread worldwide, including to the Unites States, posing public health risks that have reached pandemic proportions (the “COVID-19 Pandemic”). The COVID-19 Pandemic poses a threat to the health and economic wellbeing of our employees, customers and vendors. Like most businesses world-wide, the COVID-19 Pandemic has impacted the Company financially; however, management cannot presently predict the scope and severity with which COVID-19 will impact our business, financial condition, results of operations and cash flows.
Liquidity and Capital Resources
At September 30, 2022, we had an accumulated deficit of $63,768,749. Primarily because of our history of operating losses and our recording of note payables, we have a working capital deficiency of $5,137,970 at September 30, 2022. Losses have been funded primarily through issuance of common stock and borrowings from our stockholders and third-party debt. As of September 30, 2022, we had $1,054 in cash, $4,499 in accounts receivable, and $118,286 in inventory. We used net cash in operating activities of $1,539,196 for the nine months ended September 30, 2022.
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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 Quarterly Report. To date, we have financed our operations through the issuance of stock and borrowings.
The following table sets forth a summary of our cash flows for the nine months ended September 30, 2022 and 2021:
|
| Three months ended September 30, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Net cash used in operating activities |
| $ | (1,539,196 | ) |
| $ | (1,335,425 | ) |
Net cash used in investing activities |
|
| - |
|
|
| (25,298 | ) |
Net cash provided by financing activities |
|
| 1,501,355 |
|
|
| 1,377,420 |
|
Net increase/(decrease) in Cash |
|
| (37,841 | ) |
|
| 16,697 |
|
Cash, beginning |
|
| 38,895 |
|
|
| 151,628 |
|
Cash, ending |
| $ | 1,054 |
|
| $ | 168,325 |
|
Operating activities - Net cash used in operating activities was $1,539,196 for the nine months ended September 30, 2022, as compared to $1,335,425 used in operating activities for the same period in 2021. The decrease in net cash used in operating activities was primarily due to a decrease in consulting contract cost.
Investing activities - Net cash used in investing activities for the nine months ended September 30, 2022 was $0 as compared to $25,298 for the same period of 2021. The decrease in net cash used in investing activities was attributable to purchase of additional assets in the prior year.
Financing activities - Net cash provided by financing activities for the nine months ended September 30, 2022 was $1,501,355 as compared to $1,377,420 for the same period of 2021. The increase of net cash provided by financing activities was mainly attributable to increased equity financing.
Ongoing Funding Requirements
As of September 30, 2022, 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 requirements.
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. 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.
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.
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Critical Accounting Policies and Estimates
The preparation of our financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and judgments that affect our reported assets, liabilities, revenues, and expenses, and the disclosure of contingent assets and liabilities. We base our estimates and judgments on historical experience and on various other assumptions we believe to be reasonable under the circumstances. Future events, however, may differ markedly from our current expectations and assumptions.
There have been no material changes to our critical accounting policies as compared to the critical accounting policies and significant judgements and estimates disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on November, 30 2022.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
This item in not applicable as we are currently considered a smaller reporting company.
Item 4. Controls and Procedures
Evaluation of disclosure controls and procedures
As required by Rule 13a-15 under the Exchange Act, as of the end of the Company’s last fiscal quarter, the Company carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of the Company’s current management, including the Company’s Chief Executive Officer and Principal Financial Officer (Principal Financial and Accounting Officer), who concluded that the Company’s disclosure controls and procedures are not effective.
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in the Company reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in Company reports filed under the Exchange Act is accumulated and communicated to management, including the Company’s Chief Executive Officer and Principal Financial Officer (Principal Financial and Accounting Officer), as appropriate, to allow timely decisions regarding required disclosure.
Changes in internal control over financial reporting
Management reviews the Company’s system of internal control over financial reporting and makes changes to the Company’s processes and systems to improve controls and increase efficiency, while ensuring that the Company maintains an effective internal control environment. Changes may include such activities as implementing new, more efficient systems, consolidating activities and migrating processes.
During the Company’s last fiscal quarter, there was no change in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
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PART II - OTHER INFORMATION
Item 1. 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 is conducting an informal inquiry into the matter. On April 29, 2021, the Company agreed to pay civil penalties of $25,000 to the Securities and Exchange Commission in settlement of the matter. Payment shall be made in the following four installments: (1) $5,000 within 14 days of entry of the order; (2) $7,500 within 180 days of entry of the order; (3) $6,250 within 270 days of entry of the order; and (4) $6,250 within 360 days of entry of the order. As of September 30, 2022, $5,000 was paid and $20,000 remained due.
On September 14th, 2021, a Company subsidiary received a demand for arbitration through the American Arbitration Association pursuant to a manufacturing services agreement with Cypress Holdings Ltd d/b/a Cypress Industries alleging Breach of Contract for non-payment of invoices. The Company believes the claim is without merit and has filed a defense and counter claim. After Cypress Industries failed to cure many Breaches of its manufacturing services agreement, including failure to deliver a single Trutankless unit, the Company cancelled its purchase order with Cypress Industries. The Company is seeking substantial relief, including lost profit, due to the Breach of Contract, Fraudulent Inducement, Misrepresentation, Unjust Enrichment, and Negligence of Cypress Industries. The Company subsequently settled this matter on February 28, 2022.
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. The Company believes the alleged claims in the suit related to the Company and its products are without merit.
Item 1A. Risk Factors
The risk factors listed in our 2021 Form 10-K/A, filed with the Securities Exchange Commission on November 30, 2022, are hereby incorporated by reference.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
On March 7, 2022 the Company issued 5,000 shares of the Company’s common stock for services valued at $5,000.
On February 22, 2022 the Company entered into a $385,000, 12% note payable due on February 22, 2023. The note is convertible upon default at the higher of the closing price of the common stock on the closing date, or par value. As an inducement to enter into the agreement the Company also granted the noteholder 165,216 shares of common stock valued at $123,147(post-split).
On January 24, 2022 the Company completed the spin-off of its subsidiary Notation Labs Inc into a stand-alone Company. On August 20, 2020 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. As a result of the spin-off the Notation Labs financials were deconsolidated from those of the Company and an increase of $391,441 in accumulated deficit was recorded.
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On May 1, 2022, the Company issued 75,000 shares (post-split) to extend a certain note payable dated May 1, 2020.
On May 2, 2022, the Company issued 12,500 shares (post-split) to extend a certain note payable dated May 2, 2017.
On June 1, 2022, the Company agreed to issue 100,000 shares (post-split) to extend a certain note payable dated February 2, 2018. As of October 17, 2022 the shares had not yet been issued.
On July 14, 2022, the Company entered into a $750,000, 12% line of credit with a Company controlled by a shareholder that is due on December 15,2023 and convertible into shares of the Company’s common stock at $.325 per share.
On July 14, 2022, the Company entered into a $500,000, 12% line of credit with a Company controlled by a shareholder that is due on December 15,2023 and convertible into shares of the Company’s common stock at $.08 per share.
On August 1, 2022 the Company received and cancelled 126,440 shares of common stock valued at $158,050 that had previously been issued as commitment shares for a certain notes payable dated June 28, 2021.
On August 4, 2022 the Company issued 87,500 shares of the Company’s common stock to extend a certain notes payable dated May 2, 2017 and May 1, 2022.
On November 9, 2022 the Company issued 18,750 of the Company’s common stock for services.
On November 30, 2022 the Company issued 115,973 shares of the Company’s common stock to extend a certain note payable dated November 12, 2021.
On December 15, 2022 the Company issued 90,000 shares of the Company’s common stock to settle $18,000 in accrued interest due to a note holder.
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.
We believe that the above issuances 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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Issuer Purchases of Equity Securities
The Company did not repurchase any of its equity securities during the period ended September 30, 2022.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures
Not applicable
Item 5. Other Information.
None.
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Item 6. Exhibits.
Exhibit No. |
| Description |
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101.INS |
| Inline XBRL Instance Document |
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101.SCH |
| Inline XBRL Taxonomy Extension Schema |
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101.CAL |
| Inline XBRL Taxonomy Extension Calculation Linkbase |
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101.DEF |
| Inline XBRL Taxonomy Extension Definition Linkbase |
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101.LAB |
| Inline XBRL Taxonomy Extension Label Linkbase |
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101.PRE |
| Inline XBRL Taxonomy Extension Presentation Linkbase |
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104 |
| Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). |
* Filed herewith.
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SIGNATURES
Pursuant to the requirements 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.
(Registrant)
By: | /s/ Michael Stebbins |
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| Michael Stebbins, CEO, Principal Financial Officer and Principal Executive Officer |
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| Date: June 6, 2023 |
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