TRUTANKLESS, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the three months ended | For the nine months ended September 30, |
| March 31, 2021 | | March 31, 2020 | 2021 | | 2020 |
Cash Flows from Operating Activities | | | | | | |
Net loss | $ | (2,276,946) | | $ | (3,502,149) | $ | (6,108,851) | | $ | (8,331,470) |
Adjustments to reconcile net loss to net cash provided by operating activities: | | |
Shares issued for services | | 1,475,067 | | 1,300,000 | | 3,312,117 | | 5,401,114 |
Gain/Loss on change in derivative liability | | (149,798) | | 501,314 | | (149,798) | | (21,063) |
Loss on extinguishment of notes payable | | 260,000 | | 1,965,284 | | 260,000 | | 2,018,215 |
Rescission and retirement of shares for services | | - | | (97,380) | |
Gain on forgiveness of PPP loan payable | | | (101,327) | | - |
Depreciation and amortization | | 2,766 | | 142 | | 8,455 | | 204 |
Non cash operating lease expense | | (56) | | 4,061 | | (544) | | 12,183 |
Amortization of debt discount | | 332,428 | | 469,009 | | 1,117,826 | | 1,028,652 |
Changes in assets and liabilities | | |
Accounts receivable | | 23,556 | | (40,561) | | 108,016 | | (168,881) |
Inventory | | (415,009) | | 70,272 | | (42,172) | | 69,360 |
Prepaid expenses | | (245,238) | | (957,026) | | (400,038) | | (1,416,871) |
Accounts payable | | 109,883 | | (197,547) | | 286,301 | | (154,319) |
Lease liability | | - | | (3,518) | | - | | (10,876) |
Interest payable - related party | | 16,603 | | | 142,029 | | 34,590 | | 182,950 |
Royalty liability | | | 90,000 | | - |
Royalty liability - related party | | | 250,000 | | | - |
Net cash used in operating activities | | (866,744) | | | (346,070) | | (1,335,425) | | | (1,390,802) |
| | | | | | |
Cash Flows from Investing Activities: | | |
Purchase of fixed assets | | (22,753) | | | - | | (25,298) | | | - |
Net cash used in investing activities | | (22,753) | | | - | | (25,298) | | | - |
| | | | | | |
Cash Flows from Financing Activities: | | |
Proceeds from convertible notes payable | | 380,750 | | 12,000 | | 439,590 | | 837,583 |
Repayments of convertible notes payable | | (12,160) | | (12,000) | | (829,142) | | (638,600) |
Proceeds from payroll protection program loan payable | | | - | | 107,485 |
Proceeds from notes payable | | 226,250 | | 231,783 | | 835,358 | | 572,700 |
Repayments from notes payable | | (190,797) | | (18,550) | | (115,145) | | (40,723) |
Proceeds from notes payable - related party | | | 147,500 | | 1,000 |
Repayments from notes payable - related party | | | - | | (800) |
Proceeds from sale of common stock, net of offering costs | | 380,000 | | | 175,000 | | 899,259 | | | 574,500 |
Net cash provided by financing activities | | 784,043 | | | 388,233 | | 1,377,420 | | | 1,413,145 |
| | | | | | |
Net increase in cash | | (105,454) | | | 42,163 | | 16,697 | | | 22,343 |
Cash, beginning of period | | 151,628 | | | 4,342 | | 151,628 | | | 4,342 |
Cash, end of period | $ | 46,174 | | $ | 46,505 | $ | 168,325 | | $ | 26,685 |
| | | | | | |
Supplemental disclosure of cash flow information | | |
Cash paid for interest | $ | 17,200 | | $ | 198,270 | $ | 93,491 | | $ | 106,781 |
Cash paid for taxes | $ | - | | $ | - | $ | - | | $ | - |
| | | | | | |
SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: | | |
Notes and accrued interest settled with stock | $ | 200,000 | | $ | 400,000 | $ | 200,000 | | $ | - |
Derivative liability written off to additional paid in capital | $ | 152,451 | | $ | - | $ | 152,451 | | $ | 338,176 |
Shares issued for debt discount | $ | 288,260 | | $ | - | |
Reclassification of notes payable to convertible notes payable | | $ | - | | $ | 1,060,000 |
Notes and accrued interest settled with stock | | $ | - | | $ | 400,000 |
Recognition of debt discount | | $ | 484,993 | | $ | - |
Effect of stock split | | $ | 64,580 | | $ | - |
See accompanying notes to the consolidated financial statements
TRUTANKLESS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31,September 30, 2021
(UNAUDITED)(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 Android 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 three months ended March 31,September 30, 2021 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, 2020, as filed with the SEC.
The consolidated balance sheet as of December 31, 2020, 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, 2020.
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 and Bollente International,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.
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 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.
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.
Inventory
Inventories are stated at the lower of cost (average cost) or 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.
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 of March 31,September 30, 2021 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 March 31,September 30, 2021 and December 31, 2020.
Financial assets and liabilities measured at fair value on a recurring basis are summarized below as of March 31,September 30, 2021:
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total |
Liabilities | | | | | | | | | | | | |
Derivative Financial Instruments | | $ | - | | $ | - | | $ | - | | $ | - |
Financial assets and liabilities measured at fair value on a recurring basis are summarized below as of December 31, 2020:
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total |
Liabilities | | | | | | | | | | | | |
Derivative Financial Instruments | | $ | - | | $ | - | | $ | 302,249 | | $ | 302,249 |
As of December 31, 2020, the Company’s stock price was $0.35, risk-free discount rate of 1.60% and volatility of 182%.
The following table provides a summary of the changes in fair value, including net transfers in and/or out, of the derivative financial instruments, measured at fair value on a recurring basis using significant unobservable inputs:
| | Amount | | Amount |
Balance December 31, 2020 | | $ | 302,249 | | $ | 302,249 |
Change in fair market value of derivative liabilities | | | (149,798) | | | (149,798) |
Settlement of derivative liability | | | (152,451) | | | (152,451) |
Balance March 31, 2021 | | $ | - | |
Balance September 30, 2021 | | | $ | - |
NOTE 2 - GOING CONCERN
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business.
Management evaluated all relevant conditions and events that are reasonably known or reasonably knowable, in the aggregate, as of the date the consolidated financial statements are issued and determined that substantial doubt exists about the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent on the Company’s ability to generate revenues and raise capital. The Company has not generated sufficient revenues from product sales to provide sufficient cash flows to enable the Company to finance its operations internally. As of March 31,September 30, 2021, the Company had $46,174$168,325 cash on hand. At March 31,September 30, 2021 the Company has an accumulated deficit of $45,270,017.$49,101,922. For the quarternine months ended March 31,September 30, 2021, the Company had a net loss of $2,276,946,$6,108,851, and cash used in operations of $866,744.$1,335,425. These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year from the date of filing.
Over the next twelve months management plans to raise additional capital and to invest its working capital resources in sales and marketing in order to increase the distribution and demand for its products. However, there is no guarantee the Company will generate sufficient revenues or raise capital to continue operations. If the Company fails to generate sufficient revenue and obtain additional capital to continue at its expected level of operations, the Company may be forced to scale back or discontinue its sales and marketing efforts. The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
NOTE 3 - INVENTORY
Inventories consist of the following at:
| March 31, 2021 | | December 31, 2020 |
Finished goods | | 439,663 | | | 24,654 |
Total | $ | 439,663 | | $ | 24,654 |
| September 30, 2021 | | December 31, 2020 |
Finished goods | | 66,826 | | | 24,654 |
Total | $ | 66,826 | | $ | 24,654 |
NOTE 4 - ACCOUNTS RECEIVABLE, NET
Accounts receivable consist of the following at:
| March 31, 2021 | | December 31, 2020 | September 30, 2021 | | December 31, 2020 |
Accounts receivable | | 268,601 | | | 292,156 | | 181,331 | | | 292,156 |
Allowance for doubtful accounts | | (182,191) | | | (182,191) | | (179,381) | | | (182,191) |
Total | $ | 86,410 | | $ | 109,966 | $ | 1,950 | | $ | 109,966 |
NOTE 5 - PREPAID CONSULTING EXPENSES
Prepaid consulting expense was $1,708,213$1,863,013 and $1,462,975 as of the March 31,September 30, 2021 and December 31, 2020, respectively. During the threenine months ended March 31,September 30, 2021, the Company issued 4,135,0001,404,406 shares of stock (Post split) for consulting agreements with a term ranging from 7 months to 2 years. The Company considered the market price of the common stock issued and fair value of the services rendered and determined that the market prices of the shares on the date issued of $739,200$1,943,250 was the more readily determinable values. The Company recorded amortization of the prepaid stock compensation amounting to $493,962$1,543,212 and $306,987$902,020 for the threenine months ended March 31,September 30, 2021 and 2020, respectively.
NOTE 6 - RELATED PARTY
Notes payable - related party consist of the following at:
| September 30, 2021 | | December 31, 2020 |
Note payable, secured, 5% interest, due May 2022 | $ | 4,350 | | $ | 4,350 |
Note payable, secured, 11% interest, due January 2023 | | 300,000 | | | 500,000 |
Note payable, secured, 12% interest, due April 2022 | | 110,500 | | | 65,000 |
Note payable, secured, 10% interest, due April 2022 | | 102,000 | | | - |
Total Notes Payable - related party | $ | 516,850 | | $ | 569,350 |
Less unamortized debt discounts | | - | | | - |
Total Notes Payable | | 516,850 | | | 569,350 |
Less current portion | | (216,850) | | | (69,350) |
Total Notes Payable - long term | $ | 300,000 | | $ | 500,000 |
As of March 31,September 30, 2021, and December 31, 2020, the Company had two notes payable due to an officer and director of the Company in the amount of $69,350$114,850 and $69,350, respectively. The notes have interest rate that range from 0%-8%5%-12% and are due on demand.
In January 2019,On April 30, 2021, the Company executedentered into a lease agreement$150,000, 12% grid note payable with Templar Asset Group, LLC, a related party. The lease termCompany controlled by the CEO that is one year at a ratedue upon demand but no later than April 30, 2022. As of $4,200 perthe nine month for a periodended September 30, 2021, the Company has received advances under the note of one year with an option to continue a month to month basis thereafter (See Note 9).$102,000.
On February 5, 2020, the Company agreed to settle a certain $900,000 convertible note payable issued to a shareholder dated August 2, 2016 and $312,006 in accrued interest. As part of the settlement the Company issued 1,000,000, 5 year warrants exercisable at $0.50 per share valued at $781,755 (See Note 9), 4,000,000 shares of common stock valued at $1,240,000, based on stock price on date of issuance, in settlement of $400,000 of the
principal balance of the note, and issued a new $500,000 11% promissory note. The issuance of the shares and warrants under the agreement resulted in the noteholder becoming a more than 5% shareholder and a related party.
The new note is due in two payments, $250,000 January 2, 2022 and $250,000 on January 2, 2023. Interest will accrue from the date of this Note on the unpaid and outstanding Principal balance to be paid as follows: (a) Fifty-Four Thousand Nine Hundred Ninety-Three and 37/100 Dollars ($54,993.37) on January 4, 2021; plus (b) three hundred thousand (300,000) shares of common Stock, by January 3, 2022, plus (c) six hundred thousand (600,000) shares of common stock on January 3, 2023. The Company evaluated the modification under ASC 470-50 and determined that the modifications were considered substantial and qualified for extinguishment accounting under such guidance. As such the Company recorded a loss on extinguishment of debt of $1,725,879 associated with the excess reacquisition cost of the new debt over the carrying value of the original debt. On January 4, 2021, the Company entered into an agreement with the note holder to convert $200,000 of the principal balance of the note and to extend the payment date of the first interest payment of $54,993.87$54,994 to January 2, 2023. As consideration, the Company issued the noteholder 2,200,000 shares of common stock valued at $440,000. The Company evaluated the modification under ASC 470-50 and determined that the modifications were considered substantial and qualified for extinguishment accounting under such guidance. As such the Company recorded a loss on extinguishment of debt of $240,000 associated with the excess reacquisition cost of the new debt over the carrying value of the original debt. As of the September 30, 2021, the note had a balance of $300,000.
Interest expense associated with the related party notes for the threenine months ended March 31,September 30, 2021 and 2020 was $10,114$32,055 and $10,274$41,882 respectively.
Royalty Agreement - Related Party
During the nine months ended September 30, 2021, the Company issued a Royalty agreement which it offered 25% of the prospective gross margin of the Company’s smart devices currently in development or $20 per product sold when developed for $2,000,000. As of the September 30, 2021, the Company has raised a total of $250,000 under this agreement from a current shareholder.
NOTE 7 - ROYALTY AGREEMENT
During the nine months ended September 30, 2021, the Company issued a Royalty agreement which it offered 25% of the prospective gross margin of the Company’s smart devices currently in development or $20 per product sold when developed for $2,000,000. As of the September 30, 2021, the Company has raised a total of $90,000 under this agreement.
NOTE 8 - NOTES PAYABLE
Notes payable consist of the following at:
| March 31, 2021 | | December 31, 2020 |
Note payable, secured, 12% interest, due July 2020 | $ | - | | $ | - |
Note payable, secured, 12% interest, due July 2020 | | - | | | - |
Note payable, secured, 12% interest, due January 2020 | | - | | | - |
Note payable, secured, 12% interest, due July 2020 | | - | | | - |
Note payable, secured, 12% interest, due June 1, 2022 | | 214,824 | | | 249,027 |
Note payable, secured, 12% interest, due June 1, 2021 | | 300,000 | | | 300,000 |
Note payable, secured, 12% interest, due October 2019 | | - | | | - |
Note payable, secured, 12% interest, due March 2020 | | - | | | - |
Note payable, secured, 10% interest, due June 2021 | | 192,458 | | | 231,813 |
Notes payable, secured, 12% interest, due August 2021 | | 140,968 | | | 258,207 |
Notes payable, secured, 10% interest, due June 2021 | | 125,000 | | | - |
Notes payable, secured, 10% interest, due July 2021 | | 101,250 | | | - |
Total notes Payable | $ | 1,074,500 | | $ | 1,039,047 |
| | | | | |
Less unamortized debt discounts | | (172,413) | | | (308,999) |
Total Notes Payable | | 902,087 | | | 730,048 |
Less current portion | | (687,263) | | | (480,801) |
Total Notes Payable - long term | $ | 214,824 | | $ | 249,247 |
| September 30, 2021 | | December 31, 2020 |
Note payable, secured, 12% interest, due June 1, 2022 | $ | 133,882 | | $ | 249,027 |
Note payable, secured, 12% interest, due June 1, 2022 | | 300,000 | | | 300,000 |
Note payable, secured, 10% interest, due June 2021 | | - | | | 231,813 |
Notes payable, secured, 12% interest, due August 2021 | | - | | | 258,207 |
Notes payable, secured, 10% interest, due June 2021 | | 125,000 | | | - |
Notes payable, secured, 24% interest, due November 2022 | | 103,000 | | | - |
Notes payable, secured, 12% interest, due May 2022 | | 10,000 | | | - |
Notes payable, secured, 12% interest, due April 2022 | | 95,000 | | | - |
Notes payable, secured, 10% interest, due June 2022 | | 350,000 | | | - |
Notes payable, secured, 10% interest, due on demand | | 21,340 | | | - |
Notes payable, secured, 10% interest, due November 2021 | | 98,000 | | | - |
Total notes Payable | $ | 1,236,222 | | $ | 1,039,047 |
| | | | | |
Less unamortized debt discounts | | (123,369) | | | (308,999) |
Total Notes Payable | | 1,112,853 | | | 730,048 |
Less current portion | | (1,112,853) | | | (480,801) |
Total Notes Payable - long term | $ | - | | $ | 249,247 |
On September 2, 2016, the Company issued a $100,000 12% promissory note. The note was due on September 1, 2017. As an incentive to enter into the agreement the noteholder was also granted 25,000 shares valued at $25,000 which was recognized as a debt discount. On May 16, 2019, the maturity date of the note was extended to July 1, 2020 (see below) for the issuance of 50,000 shares of common stock valued at $21,000, which was recognized as a debt discount over the extended maturity date, which was recognized as a debt discount over the extended maturity date. As of March 31,September 30, 2021, the full amounts of the debt discount have been amortized.
On February 2, 2018, the Company entered into an agreement with the note holder to split a certain note payable dated July 1, 2015 into two notes in the amount of $150,000 and $50,000, respectively. In addition to splitting the notes the noteholder also agreed to extend the due date of the new $50,000 note to July 1, 2018 and on June 4, 2018, for consideration of 15,000 shares the noteholder further agreed to extend the due date of the new $50,000 note to April 1, 2019. On November 15, 2018, both notes were further extended to January 1, 2020 (see below) for the issuance of 80,000 shares valued $40,800. On May 16, 2019, the maturity dates of both notes were extended to July 1, 2020 for the issuance of 50,000 shares of common stock valued at $21,000. The Company recorded the fair market value of all the shares issued for extensions to financing cost.
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 $300,000, 12% note due June 1, 2021. As consideration the Company issued the note holder 175,000 shares of common stock valued at $61,250 which was recorded as financing expense. The Company evaluated the modification under ASC 470-50 and determined that the modifications were considered substantial and qualified for extinguishment accounting under such guidance. As such the Company recorded a loss on extinguishment of debt of $61,250 associated with the excess reacquisition cost of the new debt over the carrying value of the original debt.
On June 11, 2020, the Company issued $160,000 of principal amount of 12% secured convertible promissory notes and warrants to purchase common stock. The notes were due between May and August 2018 and bear interest of percent (12%). The notes are secured by all of the Company’s assets. The outstanding principal amounts and accrued but unpaid interest of the notes is convertible at any time at the option of the holder into common stock at a conversion price of $1.00 per share. The notes were issued with warrants to purchase up to 160,000 shares of the Company’s common stock which were valued at $119,616. On May 16, 2019, the maturity date of the note was extended to January 11, 2020 for the issuance of 90,000 shares of common stock valued at $45,900. As of December 31, 2020, $165,516 of the debt discount was amortized and the note was shown net of unamortized discount of $0.
On January 30, 2019, the Company issued a $100,000 12% promissory note. The note was due on December 31, 2019. As an incentive to enter into the agreement the noteholder was also granted 100,000 shares valued at $45,000 which was recognized as a debt discount. On May 16, 2019, the maturity date of the note was extended to December 31, 2020 (see below) for the issuance of 55,000 shares of common stock valued at $23,100 The Company recorded the fair market value of all the shares issued for extensions to financing cost.
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 $260,000, 12% note due June 1, 2022. As consideration the Company issued the note holder 175,000 shares of common stock valued at $61,250, which was recognized as a financing cost. The Company evaluated the modification under ASC 470-50 and determined that the modifications were considered substantial and qualified for extinguishment accounting under such guidance. As such, the Company recorded a loss on extinguishment of debt of $61,250 associated with the excess reacquisition cost of the new debt over the carrying value of the original debt. During the threenine months ended March 31,September 30, 2021, the Company paid $34,203$74,674 to the noteholder, and the balance of note was $214,824$174,353 as of March 31,September 30, 2021.
On June 2, 2020, the Company entered in to a $345,000 note payable, including an original issue discount of $34,500 promissory note. Interest under the promissory note is 12% per annum, and the principal and all accrued but unpaid interest is due twelve (12) months from funding with monthly payment of $37,150 beginning on September 1, 2020. On September 6, 2020, the note was amended to increase the payments on the note to $41,420 and extended the first payment to October 2, 2020. In addition, as part of the amendment the Company can further extend the due date of the first payment with notice to the noteholder and payment of an extension fee of $4,142. The holder has the right upon an event of default to convert the note and accrued interest into common shares at the closing bid price on the date preceding the notice of conversion. As an incentive to enter into the agreement, the noteholder was also granted 1,468,085 shares valued at $308,298, based on market value of the shares of $0.21 on the date of issuance which was recognized as a debt discount. During the threenine months ended March 31,September 30, 2021, $84,526$146,511 of the
discount was amortized and the note was shown net of unamortized discount of $61,985.$0. During the threenine months ended March 31,September 30, 2021, the Company paid $39,355$231,813 to the noteholder and the balance of note was $192,458$0 as of March 31,September 30, 2021.
On August 20, 2020, the Company entered in to a $278,000 note payable, including an original issue discount of $27,800 promissory note. Interest under the promissory note is 12% per annum, and the principal and all accrued but unpaid interest is due twelve (12) months from funding with monthly payment of $31,136 beginning on November 18, 2020. The holder has the right upon an event of default to convert the note and accrued interest into common shares at the closing bid price on the date preceding the notice of conversion. As an incentive to enter into the agreement, the noteholder was also granted 1,002,919 shares valued at $211,622, based on market value of the shares of $0.1828 on the date of issuance which was recognized as a debt discount. During the threenine months ended March 31,September 30, 2021, $52,060$211,622 of the discount was amortized and the note was shown net of unamortized discount of $110,428.$47,560. During the threenine months ended March 31,September 30, 2021, the Company paid $117,239$210,647 to the noteholder, and the balance of note was $140,968$47,560 as of March 31,September 30, 2021.
On January 8, 2021, the Company entered into a $125,000, 30% note payable due on June 8, 2021. Under the note the Company must make interest only payments of $3,125 starting on February 10, 2021 and continuing through maturity.
On March 12, 2021, the Company entered into a $101,125, 24% note payable due on July 12, 2021. As of September 30, 2021, the note was paid in full.
On April 26, 2021, the Company entered into a $95,000, 12% note payable due on April 26, 2022.
On May 7, 2021, the Company entered into a $10,000, 12% note payable due on May 7, 2022.
On May 12, 2021, the Company entered into a $103,000, 24% note payable due on September 12, 2021.
On June 28, 2021, the Company entered in to a $350,000 note payable, including an original issue discount of $35,000. Interest under the promissory note is 12% per annum, and the principal and all accrued but unpaid interest is due twelve (12) months from funding with monthly payment of $39,200 beginning on August 6, 2021. As an incentive to enter into the agreement, the noteholder was also granted 1,262,669 shares valued at $183,906, based on market value of the shares on the date of issuance which was recognized as a debt discount. During the nine months ended September 30, 2021, $60,538 of the discount was amortized and the note was shown net of unamortized discount of $226,632.
On September 3, 2021, the Company entered into a $150,000, 12% grid note payable that is due 30 days upon demand. As of the nine months ended September 30, 2021, the Company has received advances under the note of $21,340.
On July 12, 2021, the Company entered into a $98,000, 12% note payable due on November 12, 2021.
Payroll Protection Program
On May 4, 2020, we received funds under the Paycheck Protection Program, a part of the CARES Act. The loan is serviced by Bank of America, and the application for these funds required us to, in good faith, certify that the current economic uncertainty made the loan necessary to support our ongoing operations. We used the funds for payroll and related costs. The receipt of these funds, and the forgiveness of the loan attendant to these funds, is dependent on our ability to adhere to the forgiveness criteria. The loan bears interest at a rate of 1.0% per annum and matures on May 4, 2022, with the first payment deferred until November 2020. Under the terms of the PPP, certain amounts may be forgiven if they are used in accordance with the CARES Act. The Company believes that the full amount of the $107,485 Paycheck Protection Program loan will be forgiven, and therefore, the entire loan is classified as a current liability in the accompanying Balance Sheet. As of September 30, 2021, $101,327 of the note was forgiven and $6,158 was due outstanding.
Interest expense for the threenine months ended March 31,September 30, 2021 and 2020 was $265$804 and $0,$439, respectively.
Convertible notes payable, net of debt discount consist of the following:
| March 31, 2021 | | December 31, 2020 | September 30, 2021 | | December 31, 2020 |
Convertible note payable, secured, 12% interest, due August 31, 2019, in default | | 50,000 | | | 50,000 | | 50,000 | | | 50,000 |
Convertible note payable, secured, 12% interest, due February 1, 2021 | | 100,000 | | | 100,000 | |
Convertible note payable, secured, 12% interest, due May 2, 2022 | | | 100,000 | | | 100,000 |
Convertible note payable, secured, 12% interest, due May 2, 2020 | | 50,000 | | | 50,000 | | 50,000 | | | 50,000 |
Convertible note payable, secured, 12% interest, due May 22, 2020, in default | | 5,000 | | | 5,000 | | 5,000 | | | 5,000 |
Convertible note payable, secured, 12% interest, due Feb 15, 2021 | | 75,000 | | | 75,000 | | 75,000 | | | 75,000 |
Convertible notes payable, secured, 4% interest, due October 14, 2020 | | 75,000 | | | 75,000 | | 75,000 | | | 75,000 |
Convertible note payable, secured, 12% interest, due January 11, 2020 | | - | | | - | |
Convertible note payable, secured, 10% interest, due February 8, 2020 | | - | | | 50,000 | | - | | | 50,000 |
Convertible note payable ,12% interest, due May 2020 | | - | | | - | | - | | | - |
Convertible note payable ,12% interest, due May 2020, in default | | 162,750 | | | 168,750 | | 162,750 | | | 168,750 |
Convertible note payable, secured, 10% interest, due February 8, 2020 | | - | | | 50,000 | | - | | | 50,000 |
Convertible note payable, secured, 12% interest | | 52,700 | | | 44,060 | | 68,205 | | | 44,060 |
Convertible note payable, secured, 10% interest, due October 2021 | | 29,000 | | | 23,000 | | - | | | 23,000 |
Convertible note payable, secured, 10% interest, due April 2022 | | 26,000 | | | 26,000 | | - | | | 26,000 |
Convertible note payable, secured, 10% interest, due May 2021 | | 350,000 | | | 350,000 | |
Convertible note payable, secured, 10% interest, due May 2022 | | | 350,000 | | | 350,000 |
Convertible note payable, secured, 10% interest, due October 18, 2021 | | 26,083 | | | 26,083 | | 26,083 | | | 26,083 |
Convertible notes payable, secured, 10% interest, due May through November 2022 | | 560,000 | | | 435,000 | | 560,000 | | | 435,000 |
Convertible note payable, secured, 10% interest, due January 6, 2022 | | 275,000 | | | - | | 119,143 | | | - |
Convertible note payable, secured, 12% interest, due February 8, 2022 | | 100,000 | | | - | | 100,000 | | | - |
Convertible notes payable, secured, 4% interest, due March 3, 2021 | | 25,000 | | | - | | 25,000 | | | - |
Convertible notes payable, secured, 10% interest, due December 2021 | | | 10,000 | | | - |
Convertible notes payable, secured, 10% interest, due August 2022 | | | 10,000 | | | - |
Total notes payable | | 1,961,533 | | | 1,527,893 | | 1,786,181 | | | 1,527,893 |
| | | | | | | | | | |
Less unamortized discounts | | (643,187) | | | (465,719) | | (339,896) | | | (465,719) |
Total convertible notes payable, net | $ | 1,318,346 | | $ | 1,062,174 | $ | 1,446,285 | | $ | 1,062,174 |
Less current portion | | (1,233,916) | | | (970,839) | | (1,430,874) | | | (970,839) |
| | | | | | | | | | |
Convertible notes payable, net - Long-term | $ | 84,430 | | $ | 91,335 | $ | 15,411 | | $ | 91,335 |
On June 2, 2016, the Company issued $50,000 of principal amount of 12% secured convertible promissory notes and 50,000 warrants to purchase common stock. The note was due on August 31, 2018, was later extended to August 31, 2019, bears interest of twelve percent (12%) and is currently past due. The outstanding principal amounts and accrued but unpaid interest of the notes is convertible at any time at the option of the holder into common stock at a conversion price of $1.00 per share. The notes were issued with warrants to purchase up to 50,000 shares of the Company’s common stock at an exercise price of $1.50 per share.
On May 2, 2017, the Company issued $100,000 of principal amount of 12% secured convertible promissory notes and 20,000 warrants to purchase common stock. The note was due on May 2, 2020 and is secured by the Company’s accounts receivable and inventory and on August 1, 2020, for the issuance of 50,000 shares valued at $10,000 based on market value of the shares of $0.20 on the date of issuance, was further extended to February 1, 2021.2021, and was again extended on April 20, 2021 to May 2, 2022 for the 100,000 shares valued at $17,000. The outstanding principal amounts and accrued but unpaid interest of the notes is convertible at any time at the option of the holder into common stock at a conversion price of $0.50 per share. The notes were issued with warrants to purchase up to 10,000 shares of the Company’s common stock at an exercise price of $1.00 per share. As of March 31,September 30, 2021, the note was shown net of unamortized discount of $0
On May 2, 2017, the Company issued $50,000 of principal amount of 10% secured convertible promissory notes and 10,000 warrants to purchase common stock. The note was due on May 2, 2020 and is secured by the Company’s accounts receivable and inventory. On April 22, 2020, the note was extended to May 2, 2021. The outstanding principal amounts and accrued but unpaid interest of the notes is convertible at any time at the option of the holder
into common stock at a conversion price of $0.50 per share. The notes were issued with warrants to purchase up to 10,000 shares of the Company’s common stock at an exercise price of $1.00 per share. As of March 31,September 30, 2021, the note was shown net of unamortized discount of $0.
On May 22, 2017, the Company issued $5,000 of principal amount of 10% secured convertible promissory notes and 1,000 warrants to purchase common stock at an exercise price of $1. The note was due on May 22, 2020 and is currently in default secured by the Company’s accounts receivable and inventory. The outstanding principal amounts and accrued but unpaid interest of the notes is convertible at any time at the option of the holder into common stock at a conversion price of $0.50 per share. The notes were issued with warrants to purchase up to 1,000 shares of the Company’s common stock at an exercise price of $1.00 per share. As of March 31,September 30, 2021, the note was shown net of unamortized discount of $0.
On February 15, 2018, the Company issued a $75,000 12% secured convertible promissory note. The note was due on February 24, 2020 and is secured by the Company’s accounts receivable and inventory. On April 22, 2020, the due date of the note was extended to February 15, 2021 for the issuance of 50,000 shares of common stock valued at $8,995 based on market value of the shares of $0.18 on the date of issuance.
On September 17, 2018, the Company issued a $50,000 10% promissory note. The note was due on September 18, 2020. As an incentive to enter into the agreement the noteholder was also granted 10,000 shares valued at $5,000, based on market value of the shares of $0.50 on the date of issuance. On February 9, 2019, the note was amended for the issuance of 50,000 shares of common stock valued at $30,000 based on market value of the shares of $0.60 on the date of issuance, which was recognized as a debt discount, the note holder agreed to a convert the note at a price of $0.50 per share. Additionally, the maturity date of the note was changed to February 8, 2020 and the note is currently in default. As of December 31, 2020, the shares have not been issued and were included in stock payable. As of March 31,September 30, 2021, the note was shown net of unamortized discount of $0.
On December 14, 2018, the Company issued a $50,000 4% convertible note. The note was originally due on February 14, 2019 and is convertible at a rate of $0.50 per shares. As an incentive to enter into the agreement, the noteholder was also granted 10,000 shares valued at $5,000, based on market value of the shares of $0.60 on the date of issuance, which was recognized as a debt discount. For the threenine months ended March 31,September 30, 2021 and 2020, the Company recorded amortization of the debt discount of $0 and $0, respectively. On February 14, 2019, the noteholder agreed to extend the note through October 14, 2020. As of March 31,September 30, 2021, the note was shown net of unamortized discount of $0.
On January 25, 2019, the Company issued a $100,000 8% convertible note. The note was due on March 1, 2019 and is convertible at a rate of $0.50 per shares. On April 29, 2020, the note was amended to be due on demand but not before January 25, 2021 and the conversion price was changed to $0.10 per share. As consideration, the Company granted 140,000 three year warrants exercisable at $0.125 per share and valued at $21,836. The Company evaluated the modification under ASC 470-50 and determined that the modifications were considered substantial and qualified for extinguishment accounting under such guidance. As such the Company recorded a loss on extinguishment of debt of $34,086 associated with the excess reacquisition cost of the new debt over the carrying value of the original debt. Additionally, the reduction of the conversion price resulted in a beneficial conversion feature totaling $12,250. The noteholder is due two shares of common stock for every dollar funded. As of March 31,September 30, 2021, the noteholder advanced a total of $100,460 and has made payments on the principal balance of $47,760. As of March 31,September 30, 2021, there was an outstanding balance on the note in the amount of $52,700. As of March 31,September 30, 2021, the note was shown net of unamortized discount of $0.
On February 8, 2019, the Company issued a $50,000 10% convertible note. The note was due on February 8, 2020 and is currently in default. As an incentive to enter into the agreement, the noteholder was also granted 60,000 shares valued at $30,000, which was recognized as a debt discount. As of March 31,September 30, 2021, the note was shown net of unamortized discount of $0.
On February 19, 2019, the Company issued a $25,000 4% convertible note. The note was due on August 19, 2019 and is convertible at a rate of $0.50 per share. On February 14, 2019, the noteholder agreed to extend the note through October 14, 2020. As an incentive to enter into the agreement, the noteholder was also granted 5,000 shares valued at $2,500, which was recognized as a debt discount. As of March 31,September 30, 2021, the shares have not been issued and were included in stock payable. As of March 31,September 30, 2021, the note was shown net of unamortized discount of $0.
On October 18, 2019, the Company issued a $23,000 10% convertible note. The note is due on October 17, 2021 and is convertible at a rate of $0.50 per share. As an incentive to enter into the agreement, the noteholder was also granted 46,000 shares valued at $15,175, based on market value of the shares of $0.33 on the date of issuance, which
was recognized as a debt discount. During the year ended December 31, 2020, the Company restructured the note to reduce the conversion price to $0.10 per share and the noteholder advanced another $6,000. As consideration, the Company issued an additional 12,000 shares of common stock valued at $4,560 and 232,000 warrants valued at $82,131.
On November 5, 2019, the Company entered into a $562,000 convertible note payable, including an original issue discount of $56,200 pursuant to which we borrowed $337,000, including a $37,000 original issue discount in the first tranche during the year ended December 31, 2019. Interest under the convertible promissory note is 12% per annum, and the principal and all accrued but unpaid interest was due 180 days from funding. The note is convertible at the lesser of (i) 70% multiplied by the lowest Trading Price during the previous twenty-five (25) trading day period ending on the latest complete Trading Day prior to the date of the note and 70% of the market price. As an incentive to enter into the agreement, the noteholder was also granted 854,000 shares valued at $307,440. The Company analyzed the conversion feature and determined it was required to be bifurcated and recognized as a derivative liability. The derivative at inception was valued at $392,061, based on the Black Scholes Merton pricing model. As the fair value of the derivative and the shares issued at inception were in excess of the face amount of the note, the Company recorded a debt discount in the amount of $337,000 to be amortized utilizing the effective interest method of accretion over the term of the note. On January 30, 2020, the Company borrowed an additional $225,000, including a $19,200 original issue discount. As an incentive, the noteholder was also granted an additional 476,493 shares valued at $147,713. The Company analyzed the conversion feature and determined it was required to be bifurcated and recognized as a derivative liability. The derivative at inception was valued at $212,798, based on the Black Scholes Merton pricing model. As the fair value of the derivative and the shares issued at inception were in excess of the face amount of the note, the Company recorded a debt discount in the amount of $225,000 to be amortized utilizing the effective interest method of accretion over the term of the note. Further, the excess of $161,011 was recognized as a financing cost on the Statement of Operations. For the threenine months ended March 31,September 30, 2021 and 2020, the Company recorded amortization of the debt discount of $0 and $235,681, respectively. As of March 31,September 30, 2021, $562,000 of the debt discount has been amortized and the note was shown net of unamortized discount of $0. On May 5, 2020, the Company paid the principal and accrued interest under the first tranche of $357,852 and on August 20, 2020, the Company paid the principal and accrued interest of the second tranche of $239,055. The fair value of the derivative liability associated with the first and second tranches on the date of settlement of $275,728 and $188,276, respectively were reclassified to additional paid in capital.
On November 19, 2019, the Company entered in to a $281,000 convertible note payable, including an original issue discount of $28,100 convertible promissory note pursuant to which $150,000 was borrowed, including a $18,500 discount during the year ended December 31, 2019. Interest under the convertible promissory note is 12% per annum, and the principal and all accrued but unpaid interest is due 180 days from funding. On May 20, 2020, the noteholder agreed to extend the due date of the first tranche of funding until July 19, 2020 and is currently past due. On the date of default the Company incurred a default penalty of 50% of the balance of the note amounting to $54,250. The note is convertible at the lesser of (i) 70% multiplied by the lowest Trading Price during the previous twenty-five (25) trading day period ending on the latest complete Trading Day prior to the date of the note and 70% of the market price with a floor of $0.01. As an incentive to enter into the agreement, the noteholder was also granted 427,000 shares valued at $175,070. The Company analyzed the conversion feature and determined it was required to be bifurcated and recognized as a derivative liability. The derivative at inception was valued at $192,226, based on the Black Scholes Merton pricing model. As the fair value of the derivative and the shares issued at inception were in excess of the face amount of the note, the Company recorded a debt discount in the amount of $168,500 to be amortized utilizing the effective interest method of accretion over the term of the note. Further, the excess of $104,041 was recognized as a financing cost on the Statement of Operations. For the threenine months ended March 31,September 30, 2021 and 2020, the Company recorded amortization of the debt discount of $0 and $84,715, respectively. As of March 31,September 30, 2021, $168,500 of the debt discount has been amortized and the note was shown net of unamortized discount of $0. As of March 31,September 30, 2021, the Company paid the $60,000 toward the principal balance under the first tranche of $60,000. As of March 31,September 30, 2021, the fair value of the derivative liability associated with the note of $152,451 was reclassified to additional paid in capital.
On January 8, 2020, the Company issued a $26,083 convertible note. The note is due on January 8, 2022 and is convertible at a rate of $0.10 per shares. As an incentive to enter into the agreement, the noteholder was also granted 52,166 shares and 208,664 2-year warrants exercisable at $0.125. The issuance of the note and warrants resulted in a discount from the beneficial conversion feature totaling $26,083, including $13,203 attributable to the conversion
feature, $10,566 attributable to the warrants, and $2,313 was attributable to the shares. The excess fair value of the consideration given of $19,823 was recorded as financing expense. For the threenine months ended March 31,September 30, 2021
and 2020, the Company recorded amortization of the debt discount of $3,211$9,741 and $2,962,$9,291, respectively. As of March 31,September 30, 2021, the note was shown net of unamortized discount of $10,298.
On May 5, 2020, the Company issued a $350,000 6% convertible note. The note is due on May 1, 2021 and is convertible at a rate of $0.125 per shares. As an incentive to enter into the agreement the noteholder was also granted 1,500,000 shares valued at $207,000, which was recognized as a debt discount. For the three months ended March 31, 2021 and 2020, the Company recorded amortization of the debt discount of $61,397 and $0, respectively. As of March 31, 2021, the note was shown net of unamortized discount of $21,148.$3,768.
On April 30, 2020, the Company issued a $100,000 8% convertible note. The note is due on April 30, 2022 and is convertible at a rate of $0.125 per shares which resulted in a discount from the beneficial conversion feature totaling 20,250. The note holder is due two shares of common stock and eight three-year warrants exercisable at a rate of $0.125 for every dollar funded. As of March 31,During the nine month ended September 30, 2021, the noteholder advanced a total of $26,000$48,300 and is due 40,50096,600 shares valued at $5,670,$13,274, based on market value of the shares of $0.14 on the date of funding and 162,000 warrants valued at $12,150 which was recorded as financing expense. For the threenine months ended March 31,September 30, 2021 and 2020, the Company recorded amortization of the debt discount of $2,549$20,278 and $0, respectively. As of March 31,September 30, 2021, the note was shown net of unamortized discount of $17,729.$0.
On May 5, 2020, the Company issued a $350,000 6% convertible note. The note is due on May 1, 2021 and is convertible at a rate of $0.125 per shares. As an incentive to enter into the agreement the noteholder was also granted 1,500,000 shares valued at $207,000, which was recognized as a debt discount. For the nine months ended September 30, 2021 and 2020, the Company recorded amortization of the debt discount of $82,545 and $40,392, respectively. As of September 30, 2021, the note was shown net of unamortized discount of $0.
As of March 31,September 30, 2021, we issued secured convertible promissory notes in the aggregate principal amount of $560,000 to several accredited investors through a private placement of which $125,000 in notes were issued during the threenine months ended March 31,September 30, 2021. The convertible notes bear interest at a rate of 10% per annum, mature two years from issuance. The notes and accrued interest are convertible at the option of the noteholder into our common stock at $0.125 per share. As an incentive to enter into the agreements the Company also issued 4,480,000 three year warrants exercisable at $0.125 per share valued at $477,540, which was recorded as a debt discount. During the threenine months ended March 31,September 30, 2021 and 2020, $69,080$209,542 and $0 of the discount, respectively, was amortized and the note was shown net of unamortized discount of $411,317.$270,855.
As part of the private placement, the Company paid a consultant a $50,000 retainer and commissions equivalent to 10% of the gross proceeds received from the issuance of convertible notes which were recorded as financing cost.
On January 6, 2021, the Company entered into a $275,000, 12% convertible note payable including an original issue discount of $25,000. The note is convertible into shares of common stock equal to the closing bid price of common stock on the trading day immediately preceding the date of conversion. On February 7, 2021 and granted the noteholder an additional 982,861 shares of common stock valued $167,086 and 152,000 five year warrants exercisable at $0.125 valued at $30,400. During the threenine months ended March 31,September 30, 2021, $57,325$173,886 and $0 of the discount, respectively, was amortized and the note was shown net of unamortized discount of $175,161.$58,600.
On March 3, 2021, the Company issued a $25,000 4% convertible note. The note is due on March 3, 2022 and is convertible at a rate of $0.10 per shares. For the threenine months ended March 31,September 30, 2021 and 2020, the Company recorded amortization of the debt discount of $2,466.$7,480. As of March 31,September 30, 2021, the note was shown net of unamortized discount of $7,534.$2,520.
On June 15, 2021, the Company entered into a $10,000, 10% note payable due on December 15, 2021. The note is convertible at $0.10 per share. As an inducement to enter into the agreement the Company also granted the noteholder 55,000 shares of common stock. The issuance of the note and shares resulted in a discount from the beneficial conversion feature totaling $10,000, including $3,774 attributable to the conversion feature and $6,226 was attributable to the shares. For the nine months ended September 30, 2021, the Company recorded amortization of the debt discount of $5,847. As of September 30, 2021, the note was shown net of unamortized discount of $4,153.
Interest expense including financing cost and amortization of the associated debt discount on all of the above convertible notes for the threenine months ended March 31,September 30, 2021 and 2020 was $413,302$681,281 and $727,493,$385,430, respectively.
NOTE 89 - DERIVATIVE LIABILITY
The Company accounts for the fair value of the conversion features of its convertible debt in accordance with ASC Topic No. 815-15 “Derivatives and Hedging; Embedded Derivatives” (“Topic No. 815-15”). Topic No. 815-15 requires the Company to bifurcate and separately account for the conversion features as an embedded derivative contained in the Company’s convertible debt. The Company is required to carry the embedded derivative on its balance sheet at fair value and account for any unrealized change in fair value as a component of results of operations. The Company values the embedded derivatives using the Black-Scholes pricing model. The Company has determined that all convertible debt while having variable conversion prices also include floor prices. Therefore the shares issuable are not indeterminate and the conversion feature is not required to be bifurcated under ASC 815.
NOTE 910 - 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.
During 2018, the Company executed a lease agreement. The lease term is 38 months at a rate of $1,680 per month with 3% increases beginning January 1, 2021 and rent commencing on January 1, 2019. The Company has entered intowas required to pay a $1,781 security deposit.
The lease agreements as a lessee for the use of office space. These lease agreements areagreement was classified as an operating leaseslease 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 for the lease above 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 39 months at a rate of $1,680 per month with 3% increases beginning January 1, 2021 and rent commencing on January 1, 2019. The Company was required to pay a $1,781 security deposit.
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 $4,200 per month for a period of one year with an option to continue a month to month basis thereafter. Under ASC 842, this lease is not recorded on the balance sheet as its term is 12 months or less.
Undiscounted Cash Flows
As of March 31,September 30, 2021, the right of use asset and lease liability were shown on the consolidated balance sheet at $29,929$21,807 and $33,072,$24,432, respectively. The table below reconciles the fixed component of the undiscounted cash flows and the total remaining years to the operating lease liability recorded on the consolidated balance sheet as of March 31,September 30, 2021:
Amounts due as of March 31, 2021 | | Operating Leases |
2021 | | | 15,574 |
2022 | | | 21,370 |
Total minimum lease payments | | $ | 36,944 |
Less: effect of discounting | | | (3,872) |
Present value of future minimum lease payments | | $ | 33,072 |
Less: current obligations under leases | | | (27,730) |
Long-term lease obligations | | $ | 5,342 |
Amounts due as of September 30, 2021 | | Operating Leases |
2021 | | | 4,502 |
2022 | | | 20,054 |
Total minimum lease payments | | $ | 24,556 |
Less: effect of discounting | | | (94) |
Present value of future minimum lease payments | | $ | 24,462 |
Less: current obligations under leases | | | (24,462) |
Long-term lease obligations | | $ | - |
NOTE 1011 - STOCK WARRANTS
On January 18, 2021, the Company granted 152,00019,000 (post-split) 3 years warrants exercisable at $0.125$8.00 per share with the issuance of a convertible note payable, valued at $30,400. The warrants were valued using the Black-Scholes option pricing model. Assumptions used in the valuation include the following: a) market value of stock on measurement date of $0.20; b) risk-free rate of .46%; c) volatility factor of 419%; d) dividend yield of 0%
On January 22, 2021, the Company granted 600,00075,000 (post-split) 3 years warrants exercisable at $0.125$8.00 per share with the issuance of a convertible note payable, valued at $36,482. The warrants were valued using the Black-Scholes option pricing model. Assumptions used in the valuation include the following: a) market value of stock on measurement date of $0.27; b) risk-free rate of .13%; c) volatility factor of 220%; d) dividend yield of 0%
On February 2, 2021, the Company granted 400,00050,000 (post-split) 3 years warrants exercisable at $0.125$8.00 per share with the issuance of a convertible note payable, valued at $18,152. The warrants were valued using the Black-Scholes option pricing model. Assumptions used in the valuation include the following: a) market value of stock on measurement date of $0.28; b) risk-free rate of .11%; c) volatility factor of 220%; d) dividend yield of 0%
On February 8, 2021, the Company issued 150,00018,750 shares of common stock and 150,00018,750 warrants for cash proceeds of $15,000.
On February 11, 2021, the Company granted 1,000,000125,000 3 years warrants (post-split) exercisable at $0.125$8.00 per share in connection with a consulting agreement, valued at $213,817. The warrants were valued using the Black-Scholes option pricing model. Assumptions used in the valuation include the following: a) market value of stock on measurement date of $0.21; b) risk-free rate of .19%; c) volatility factor of 376%; d) dividend yield of 0%
On February 17, 2021, the Company sold 1,600,000200,000 shares of common stock (post-split) and 1,600,000200,000 warrants (post-split) for cash proceeds of $160,000.
On June 1, 2021, the Company granted 125,000 3 years warrants (post-split) exercisable at $8.00 per share in connection with the modification of a debt agreement, valued at $150,163. The warrants were valued using the Black-Scholes option pricing model. Assumptions used in the valuation include the following: a) market value of stock on measurement date of $0.16; b) risk-free rate of .31%; c) volatility factor of 209%; d) dividend yield of 0%.
On June 15, 2021, the Company sold 375,000 shares of common stock (post-split) and 156,250 warrants (post-split) for cash proceeds of $210,000.
During the nine months ended September 30, 2021, the Company sold 150,000 shares of common stock (post-split) and 150,000 warrants (post-split) for cash proceeds of $125,000.
The following is a summary of stock warrants activity during the period ended March 31,September 30, 2021.
| Number of Shares | | Weighted Average Exercise Price | Number of Shares | | Weighted Average Exercise Price |
Balance, December 31, 2020 | 14,791,882 | | $1.00 | 1,848,985 | | $8.00 |
Warrants granted and assumed | 3,902,000 | | $0.125 | 1,144,000 | | $1.00 |
Warrants expired | - | | - | - | | - |
Warrants canceled | - | | - | - | | - |
Warrants exercised | - | | - | - | | - |
Balance outstanding and exercisable, March 31, 2021 | 18,693,882 | | $0.24 | |
Balance outstanding and exercisable, September 30, 2021 | | 2,992,985 | | $1.76 |
The following is a summary of stock warrants activity during the period ended March 31,September 30, 2020.
| Number of Shares | | Weighted Average Exercise Price | Number of Shares | | Weighted Average Exercise Price |
Balance, December 31, 2019 | 2,478,124 | | $1.00 | 309,766 | | $8.00 |
Warrants granted and assumed | 4,147,758 | | $0.47 | 1,043,595 | | $0.96 |
Warrants expired | - | | - | - | | - |
Warrants canceled | (1,666,666) | | $1.00 | (208,333) | | $8.00 |
Warrants exercised | - | | - | - | | - |
Balance outstanding and exercisable, March 31, 2020 | 4,959,882 | | $0.56 | |
Balance outstanding and exercisable, September 30, 2020 | | 1,145,028 | | $0.96 |
NOTE 1112 - STOCKHOLDERS’ EQUITY
The Company is authorized to issue 10,000,000 shares of it $0.001 par value preferred stock and 100,000,000 shares of its $0.001 par value common stock. On October 26, 2020, the Board of Directors (the Board), authorized the Company to amend the Articles of Incorporation of the Corporation to increase the authorized capital stock of the Corporation to 1,010,000,000 shares, of which 1,000,000,000 shall be authorized as common shares and 10,000,000 shall be authorized as preferred shares. Additionally, the Board authorized the execution of a reverse split of the issued and outstanding shares of the Corporation’s common stock at a ratio of up to one post-split share per twenty-five pre-split shares (1:25) at a time and exact ratio amount the Board of Directors deems appropriate .appropriate. On September 27, 2021, FINRA approved a 1-for-8 reverse stock split of the Company’s common stock that was approved by the Company’s Board of Directors. The Company’s equity transactions have been retroactively restated to reflect the effect of the stock split.
The Company has also designated 76,000 shares of Series A Preferred Stock. Each share of Series A Preferred Stock is convertible, at any time, at the option of the holder, into five shares of our common stock and one warrant to purchase one share of our common stock at $1.00 per share. All Preferred Stock automatically converts into shares of the Company’s common stock and warrants after three years from the original issue date of the Preferred Stock. On February 19, 2020 the Company converted the 76,000 outstanding Series A preferred shares, based on the automatic conversion terms into 205,000 common shares and 76,000 warrants have been issued, with the remaining 175,000 shares of common stock still to be issued and recognized as stock payable.
On February 6, 2021, the Company issued 982,861122,858 (post-split) shares of common stock valued $167,086 in connection with a notes payable dated January 6, 2021.
On February 4, 2021, the Company issued 2,175,000271,875 (post-split) shares for services valued at $588,250.
On February 8, 2021, the Company issued 150,00018,750 (post-split) shares of common stock and 150,00018,750 warrants (post-split) for cash proceeds of $15,000.
On February 8, 2021, the Company issued 60,0007,500 (post-split) shares for services valued at $12,800.
On February 8, 2021, the Company entered into an agreement to consolidate two $50,000 notes payable dated September 17, 2018 and February 8, 2019 into one $100,000, 10% note due February 8, 2022 convertible at $0.10 per share. As consideration the Company is to issue the note holder 100,00012,500 shares of common stock.stock (post-split). As of September 30, 2021, the shares have not been issued.
On February 17, 2021, the Company issued 116,32014,540 shares (post-split) in connection with shares due from a certain note payable dated January 25, 2019 and included in stock payable as of December 31, 2020.
On February 17, 2021, the Company issued 35,0004,375 shares (post-split) for services valued at $11,200.
On February 17, 2021, the Company sold 1,600,000200,000 shares of common stock (post-split) and 1,600,000200,000 warrants for cash proceeds of $160,000.
On February 24, 2021, the Company issued 500,00062,500 shares (post-split) to extend a certain note payable dated January 25, 2019.
On February 24, 2021, the Company issued 3,900,000487,500 shares (post-split) for services valued at $649,000.
On March 17,April 20, 2021, the Company sold 2,000,000noteholder of a certain note dated May 2, 2017, agreed to extend the maturity date of the note to May 2, 2022 for 12,500 shares of common stock for cash proceeds(post-split) valued at $17,000. As of $200,000 asJune 30 2021, these shares were not issued and included in Stock payable.
On April 30, 2021, the noteholder of a certain note dated May 2, 2020, agreed to extend the maturity date of the March 31,note to May 2, 2022 for 12,500 shares of common stock (post-split) valued at $20,000. As of September 30, 2021, the shares have not been issued and werehave been included in stock payable.
On June 1, 2021, the Company sold 125,000 shares of common stock (post-split) for cash proceeds of $100,000.
On June 15, 2021, the Company issued 275,000 shares of common stock (post-split) valued at $440,000, related to the settlement of a certain related party note dated February 5, 2020.
On June 15, 2021, the Company issued 250,000 shares of common stock (post-split) for cash proceeds of $200,000 that was received on March 17, 2021.
On June 15, 2021, the Company sold 187,500 shares of common stock (post-split) for cash proceeds of $150,000 which was received during the year ended December 31, 2020 and included in stock payable.
On June 15, 2021, the Company sold 99,074 shares of common stock (post-split) for cash proceeds of $79,259.
On June 15, 2021, the Company issued 5,200 shares of common stock (post-split), in connection with an additional $20,800 advance received on March 3, 2021 related to a certain note payable dated January 25, 2019.
On June 15, 2021, the Company entered into a $10,000, 10% note payable due on December 15, 2021. The note is convertible at $0.10 per share. As an inducement to enter into the agreement the Company also granted the noteholder 6,875 shares of common stock (post-split). As of June 30 2021, these shares were not issued and included in Stock payable.
On June 28, 2021, the Company entered into a $350,000, 12% note payable due on June 28, 2022. As an inducement to enter into the agreement, the Company also granted the noteholder 157,834 shares of common stock (post-split) valued at $169,198 which were issued on July 12, 2021.
During the nine months ended September 30, 2021, the Company was to issue 143,750 shares (post-split) for services valued at $177,500.
On July 1, 2021, the Company issued 6,875 shares (post-split) for the receipt of additional advances under a certain note dated April 30, 2020 valued at $7,450.
On July 1, 2021, the Company issued 500,000 shares of common stock (post-split) for cash proceeds of $315,000.
On July 7, 2021, the Company issued 403,125 shares (post-split) for services valued at $468,000.
On August 4, 2021, the Company issued 37,500 shares of common stock (post-split) for cash proceeds of $35,000.
On August 4, 2021, the Company issued 300,000 shares (post-split) for services valued at $359,000.
On September 15, 2021, the Company issued 3,750 shares of common stock (post-split), in connection with an additional $15,000 advance received on related to a certain note payable dated January 25, 2019.
On September 15, 2021, the Company issued 40,000 shares (post-split) for services valued at $44,800.
On September 16, 2021, the Company issued 370,000 shares (post-split) for services valued at $545,400.
During the nine months ended September 30, 2021, the Company sold 900,000 shares of common stock (post-split) for cash proceeds of $90,000. As if September 30, 2021, the share were not issued and included in stock payable.
NOTE 1213 - SUBSEQUENT EVENTS
On April 26, 2021, the Company issued a $95,000 12% convertible note. The note is due on April 3, 2022.
On April 20, 2021, the noteholder of a certain note dated May 2, 2017, agreed to extend the maturity date of the note to May 2, 2022 for 100,000 shares of common stock. As of the date of filing the shares have not been issued.
On April 30, 2021, the noteholder of a certain note dated May 2, 2017, agreed to extend the maturity date of the note to May 1, 2022 for 100,000 shares of common stock. As of the date of filing the shares have not been issued.
On April 30, 2021, the Company issued a $150,000 12% convertible note. The note is due on April 30, 2022. As of the date of filing the Company has received advances of $102,000 under the note.
On June 1, 2021, the noteholder of a certain note dated January 1, 2020, agreed to extend the maturity date of the note to June 1, 2022. In addition, the note was amended to allow for the note holder to covert the note at $0.10 per share. As consideration the Company granted the noteholder 1,000,000 three year warrants exercisable at $0.125.
On JuneOctober 15, 2021, the Board of Directors of the Company issued 2,200,000authorized a plan to Spin-Off Notation Labs as an independent company, anticipated to be accomplished by means of a pro rata distribution of shares of common stock valued at $440,000 that were due as March 31, 2021 and relatedof Notation Labs to a the settlementall of a certain related party note dated February 5, 2020.
On June 15, 2021, the Company issued 2,000,000our holders of shares of common stock for cash proceeds of $200,000 that was received on March 17, 2021.the Company. Following the Spin-Off, we will no longer own any equity in Notation Labs and Notation Labs will operate as an independent company. The exact management structure of Notation Labs has not been determined but will be determined prior to the Spin-Off.
On June 15, 2021, the Company sold 1,500,000 shares of common stock for cash proceeds of $150,000 which was received during the year ended December 31, 2020 and included in stock payable.
On June 15, 2021, the Company sold 792,590 shares of common stock for cash proceeds of $79,259.
On June 15, 2021, the Company issued 41,600 shares of common stock, in connection with an additional $20,800 advance received on March 3, 2021 related to a certain note payable dated January 25, 2019.
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.
AVAILABLE INFORMATION
The Company’s stock symbol is TKLS, and is presently traded on the OTCQB maintained by OTC Markets Group, Inc. 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 Android store, will augment existing products in the hope automation space.
Trutankless® Products
We manufacture and distribute trutankless® water heaters, a line of new, high-quality, highly efficient electric tankless water heaters. Our trutankless® water heaters are engineered to outperform and outlast both its tank and tankless predecessors in energy efficiency, output, and durability. It provides endless hot water on demand for a whole household and it also integrates with home automation systems.
We have several features and design innovations which are new to the electric tankless water heater market that we believe will give our products a sustainable competitive advantage over our rivals in the market.
Our trutankless® water heaters are available through wholesale plumbing distributors, including Ferguson, Hajoca, WinSupply locations, Morrison Supply, and several regional distributors. A partial listing of wholesalers may be found on our website (www.trutankless.com).
Our trutankless® water heaters are designed to provide an endless hot water supply because they are designed to heat water as it flows through the system. We believe that our products are capable of higher temperature rise than competitive units at given flow rates because of its improved design and greater efficiency. Our trutankless® water heaters can save energy and reduce operating costs compared to tank systems because unlike tanks, if there is no hot water demand, no energy is being used. In addition, we intend to improve life-cycle costs with an improved design conceived not only to increase efficiency, but also the longevity of our products versus competitive units. Generally, a typical tank water heater lasts about 9 years, whereas gas tankless systems may last longer, but requires more routine maintenance. Our product line is designed to last longer than tank water heaters without any routine maintenance required under most conditions.
We created a custom heat exchanger for our trutankless® product line that utilizes our patented technology to heat water as it flows through the system, which means customers need not worry about running out of hot water. We believe we’ve selected the best materials available and a collection of exclusive design elements and features to maximize capacity, minimize energy use, and provide a truly maintenance free experience.
Our trutankless® water heaters were officially launched in the first quarter of 2014 and is sold throughout the wholesale plumbing distribution channel. We began generating revenue in the first quarter of 2014. As of the fiscal year ended December 31, 2014, we generated $238,912 in revenue. As of the fiscal year ended December 31, 2015, we generated $265,504 in revenue. As of the fiscal year ended December 31, 2016, we generated $429,582 in revenue. As of the fiscal year ended December 31, 2017, we generated $695,857 in revenue. As of the fiscal year ended December 31, 2018, we generated $1,537,958 in revenue. As of the fiscal year ended December 31, 2019, we generated $1,908,708. As of December 31, 2020, we generated $1,661,278. As of threenine months ended, March 31,September 30, 2021, we generated $172,838.$199,371.
In July of 2014, we launched a customizable online control panel for our trutankless® line of smart electric water heaters. From the dashboard, residential and commercial users can obtain real-time status reports, adjust unit temperature settings, view up to three years of water usage data, and change notification settings from anywhere in the world, using a computer or web-enabled smart device at home.trutankless.com.
Additionally, service professionals can also use the www.pro.trutankless.com dashboard to monitor system status on every unit they install, allowing them to proactively contact their customers if a service or warranty appointment is needed.
Our primary markets, Florida, Texas, Arizona, and the rest of the Sunbelt region are centers of growth in the U.S. construction industry with green building at an all-time high, and an unprecedented appliance replacement cycle. We intend to take advantage of these powerful macro-economic trends.
Home.trutankless.com is available as a service to consumers of trutankless® water heaters. We have applications available for download from the Google Play and Apple iOS stores, which like the online control panels, allows monitoring and control of the tankless systems.
Industry Recognition and Awards
Trutankless® received the Best of IBS 2014 Award for Best Home Technology Product from the National Association of Home Builders (NAHB) at that year’s International Builders Show (IBS) in Las Vegas. The IBS is produced by NAHB and is the largest annual light construction show in the world - featuring more than 1,100 exhibitors and attracting 75,000 attendees including high level decision makers from some of the largest homebuilders in the world as well as plumbing and HVAC professionals from top outfits in major markets.
Trutankless® received the Governor’s Award of Merit for Energy and Technology Innovation for the trutankless line of electric tankless heaters at Arizona Forward’s 2014 Environmental Excellence Awards.
Trutankless® received Kitchen and Bath Business Magazine’s 2014 K*BB Product Innovator’s Award Judges Choice Product.
In 2015, Trutankless was named in Buildings Magazine’s 2015 listing of “Money Savings Products” in the Energy Saving Measures category and received a Special Mention in the Architizer A+ Awards.
That same year, Appliance Design Magazine named Trutankless among the winners of their annual Excellence in Design Award, and the editors of Green Builder Magazine named Trutankless as one of their picks as “Hot Product”.
Consumer Reports Magazine featured Trutankless in its Top 5 Remodeling Trends for 2016, and leading home improvement website, houzz.com, honored the company with 4 consecutive “Best of Houzz” honors from 2014 through 2018.
Customers and Markets
We sell our products to plumbing wholesale distributors and dealers.
Approximately 94% of our sales in 2020, 76% of our sales in 2019, 81% of our sales in 2018, 90% of our sales in 2017, 96.1% of our sales in 2016, 98.3% of our sales in 2015 and 93.5% of our sales in 2014 were to wholesale plumbing equipment distributors for commercial and residential repair and replace applications. We rely on commissioned manufacturers’ representatives to market our product lines. Additionally, our products are sold to independent dealers throughout the United States.
Manufacturing and Logistics
Our principal supplier is Sinbon Electronics, a contract manufacturer and engineering company based in Taiwan with manufacturing facilities in China, Taiwan, in the U.S., and other global locations. Sinbon handles procurement and supply chain management. We have a Manufacturing Services Agreement establishing our pricing and payment terms, warranty, shipping, and delivery terms. We are also negotiating our engineering agreement with Sinbon, which is ongoing and currently being re-negotiated. We are negotiating agreements to secure additional vendors and manufacturing resources.
Finished products are generally shipped Free on Board (FOB) Shanghai via ocean freight and are 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.
Like most businesses world-wide, the COVID-19 Pandemic has impacted us financially; however, we cannot presently predict the scope and severity with which COVID-19 will impact our business, financial condition, results of operations and cash flows. However, COVID-19 has caused severe disruptions in client support, development and limited access to the Company’s books and records resulting in limited support from staff and professional advisors. This has, in turn, delayed the Company’s ability to conduct necessary work to finalize its financial statements which may otherwise impact the Company’s ability to complete its Quarterly Report. Notwithstanding the foregoing, we anticipate filing our Quarterly Report on or before June 29, 2020, which is within the 45-day period from the Report’s original filing deadline of May 15, 2020, provided by SEC Release No. 34-88465.
RESULTS OF OPERATIONS
Results of Operations for the three months ended March 31,September 30, 2021 compared with the three months ended March 31,September 30, 2020.
Revenues
In the three months ended March 31,September 30, 2021, we generated $172,838$16,557 in revenues, as compared to $539,561$361,008 in revenues in the prior year. The decrease in sales was attributable to less sales of our trutankless® residential and light commercial products. Cost of goods sold was $135,092$5,663 in the three months ended March 31,September 30, 2021, as compared to $246,532$309,269 in the three months ended March 31,September 30, 2020. This decreaseincrease in cost of goods sold was primarily attributable to a decrease in cost of inventory.the decreased revenue.
To the knowledge of management, the Company is unaware of any trends or uncertainties in the sales or costs of our products and services for the periods discussed.
Expenses
Operating expenses totaled $1,762,473$2,148,657 during the three months ended March 31,September 30, 2021 as compared to $773,760$964,316 in the prior year. In the three-month period ended March 31,September 30, 2021, our expenses primarily consisted of General and Administrative of $356,609,$688,199, Research and development of 140,490$37,273 and Professional fees of $1,265,374.$1,423,123.
General and administrative fees decreased $22,123,increased $399,429, or approximately 6%138% to $356,609$688,199 for the three months ended March 31,September 30, 2021 from $378,732$288,770 for the three months ended March 31,September 30, 2020. This decreaseincrease was primarily due to a decreasean increase in wages and marketing.
Research and development increased $76,412, or approximately 119% to $140,490$37,273 for the three months ended March 31,September 30, 2021 from $64,078$29,734 for the three months ended March 31,September 30, 2020. This increase is attributed primarily to the increased consulting fees associated with the Company’s research and development efforts.
Professional fees increased $934,424,$777,373, or approximately 282%120% to $1,265,374$1,423,185 for the three months ended March 31,September 30, 2021 from $330,950$345,812 for the three months ended March 31,September 30, 2020. Professional fees increased due to an increase in consulting fees associated with business development.
Other Expenses
Other expenses decreased $2,469,199 to $552,219$26,492 in the three months ended March 31,September 30, 2021 from $3,021,418 in the three months ended March 31,September 30, 2020. The decrease was the result of a losses incurred from the extinguishmentincrease in gain on forgiveness of debt during the prior year.debt.
Net Loss
In the three months ended March 31,September 30, 2021, we generated a net loss of $2,276,946, a decrease$2,423,504, an increase of $1,225,203$1,198,694 from $3,502,149$1,224,810 for the three months ended March 31,September 30, 2020. This decrease was attributable to an increase in stock based consulting payments.
Results of Operations for the nine months ended September 30, 2021 compared with the nine months ended September 30, 2020.
Revenues
In the nine months ended September 30, 2021, we generated $199,371 in revenues, as compared to $1,439,271 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 $145,635 in the nine months ended September 30, 2021, as compared to $1,099,277 in the nine months ended September 30, 2020. This decrease in cost of goods sold was primarily attributable to a decrease in revenue.
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 $4,664,074 during the nine months ended September 30, 2021 as compared to $5,559,821 in the prior year. In the nine-month period ended September 30, 2021, our expenses primarily consisted of General and Administrative of $1,309,112, Research and development of 214,037 and Professional fees of $3,140,925.
General and administrative fees increased $237,437, or approximately 22% to $1,309,112 for the nine months ended September 30, 2021 from $1,071,675 for the nine months ended September 30, 2020. This increase was primarily due to an increase in wages and marketing.
Research and development increased $120,225, or approximately 128% to $214,037 for the nine months ended September 30, 2021 from $93,812 for the nine months ended September 30, 2020. This increase is attributed primarily to the increased consulting fees associated with the Company’s research and development efforts.
Professional fees decreased $1,253,409, or approximately 23% to $3,140,925 for the nine months ended September 30, 2021 from $4,394,334 for the nine months ended September 30, 2020. Professional fees decreased due to a decrease in consulting fees associated with business development.
Other Expenses
Other expenses decreased $1,613,130 to $1,498,513 in the nine months ended September 30, 2021 from $3,111,643 in the nine months ended September 30, 2020. The decrease was the result of a loss on extinguishment of notes that occurred during the nine months ended September 30, 2020.
Net Loss
In the nine months ended September 30, 2021, we generated a net loss of $6,108,851, a decrease of $2,222,619 from $8,331,470 for the nine months ended September 30, 2020. This decrease was attributable to a decrease in stock based consulting payments.
Going Concern
The accompanying consolidated financial statements have been prepared in conformityaccordance with accounting principles generally accepted accounting principles that contemplatein the continuanceUnited States of the Company asAmerica on a going concern.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 within one year from the date of this filing.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 March 31,September 30, 2021, the Company had $46,174$168,325 cash on hand. At March 31,September 30, 2021 the Company has an accumulated deficit of $45,270,017.$49,101,922. For the threenine months ended March 31,September 30, 2021, the Company had a net loss of $2,276,946,$6,108,851, and cash used in operations of $866,744.$1,330,425. These factors raise substantial doubt about the Company’s ability to continue as a going concern.concern within one year from the date of filing.
Over the next twelve months the Company intendsmanagement 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. 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 March 31,September 30, 2021, we had an accumulated deficit of $45,300,067.$49,101,922. Primarily because of our history of operating losses and our recording of note payables, we have a working capital deficiency of $2,554,276$4,213,645 at March 31,September 30, 2021. Losses have been funded primarily through issuance of common stock and borrowings from our stockholders and third-party debt. As of March 31,September 30, 2021, we had $46,174$168,325 in cash, $86,410 in accounts receivable, $439,663$66,826 in inventory, and $595,877$1,863,013 in prepaid expenses. We used net cash in operating activities of $866,744$1,330,425 for the threenine months ended March 31,September 30, 2021.
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 March 31,September 30, 2021 and 2020:
| | Three months ended March 31, | | Nine months ended September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
Net cash used in operating activities | | $ | (866,744) | | $ | (346,070) | | $ | (1,335,425) | | $ | (1,390,802) |
Net cash used in investing activities | | | 22,753 | | - | | | (25,298) | | - |
Net cash provided by financing activities | | | 784,043 | | | 388,233 | | | 1,337,420 | | | 1,413,145 |
Net increase/(decrease) in Cash | | | (105,454) | | | 42,163 | | | 16,697 | | | 22,343 |
Cash, beginning | | | 151,628 | | | 4,342 | | | 151,628 | | | 4,342 |
Cash, ending | | $ | 46,174 | | $ | 46,505 | | $ | 168,325 | | $ | 26,685 |
Operating activities - Net cash used in operating activities was $866,744$1,335,425 for the threenine months ended March 31,September 30, 2021, as compared to $346,070$1,390,802 used in operating activities for the same period in 2020. The increasedecrease in net cash used in operating activities was primarily due to an increase in consulting contract cost.
Investing activities - Net cash used in investing activities for the threenine months ended March 31,September 30, 2021 was $22,753$25,298 as compared to $0 for the same period of 2020. The increase in net cash used in investing activities was attributable to the purchase of tooling associated with manufacturing our inventory.additional equipment during the period.
Financing activities - Net cash provided by financing activities for the threenine months ended March 31,September 30, 2021 was $784,043$1,337,420 as compared to $388,233$1,413,145 for the same period of 2020. The increasedecrease of net cash provided by financing activities was mainly attributable to more equityless debt financing.
Ongoing Funding Requirements
As of March 31,September 30, 2021, 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.
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, 2020, filed with the SEC on June 24, 2021.
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.
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. We are not presently a party to any material litigation, nor to the knowledge of management is any litigation threatened against us, which may materially affect us.
Item 1A. Risk Factors
The risk factors listed in our 2020 Form 10-K, filed with the Securities Exchange Commission on June 24, 2020, are hereby incorporated by reference.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
On February 6,July 1, 2021 the Company issued 982,861 shares of common stock valued $167,086 in connection with a notes payable dated January 6, 2021.
On February 4, 2021, the Company issued 2,175,0006,875 shares (post-split) for servicesthe receipt of additional advances under a certain note dated April 30, 2020 valued at $588,250.$7,450.
On February 8, 2021, the Company issued 150,000 shares of common stock and 150,000 warrants for cash proceeds of $15,000.
On February 8, 2021, the Company issued 60,000 shares for services valued at $12,800.
On February 8, 2021, the Company entered into an agreement to consolidate two $50,000 notes payable dated September 17, 2018 and February 8, 2019 into one $100,000, 10% note due February 8, 2022 convertible at $0.10 per share. As consideration the Company is to issue the note holder 100,000 shares of common stock. As of the date of this filing the shares have not been issued.
On February 17, 2021, the Company issued 116,320 shares in connection with shares due from a certain note payable dated January 25, 2019 and included in stock payable as of December 31, 2020.
On February 17, 2021, the Company issued 35,000 shares for services valued at $11,200.
On February 17, 2021, the Company sold 1,600,000 shares of common stock and 1,600,000 warrants for cash proceeds of $160,000.
On February 24,July 1, 2021, the Company issued 500,000 shares to extend a certain note payable dated January 25, 2019.of common stock (post-split) for cash proceeds of $315,000.
On February 24,July 7, 2021, the Company issued 3,900,000403,125 shares (post-split) for services valued at $649,000.$468,000.
On March 17,August 4, 2021, the Company sold 2,000,000issued 37,500 shares of common stock (post-split) for cash proceeds of $200,000. As of the date of filing the shares have not been issued and were included in stock payable.$35,000.
Subsequent Issuances
On April 20, 2021, the noteholder of a certain note dated May 2, 2017, agreed to extend the maturity date of the note to May 2, 2022 for 100,000 shares of common stock. As of the date of this filing the shares have not been issued.
On April 30, 2021, the noteholder of a certain note dated May 2, 2017, agreed to extend the maturity date of the note to May 1, 2022 for 100,000 shares of common stock. As of the date of this filing the shares have not been issued.
On June 1, 2021, the noteholder of a certain note dated January 1, 2020, agreed to extend the maturity date of the note to June 1, 2022. In addition, the note was amended to allow for the note holder to covert the note at $0.10 per share. As consideration the Company granted the noteholder 1,000,000 three year warrants exercisable at $0.125.
On June 15,August 4, 2021, the Company sold 1,500,000issued 300,000 shares of common stock(post-split) for cash proceeds of $150,000 which was received during the year ended December 31, 2020 and included in stock payable.services valued at $359,000.
On June 15, 2021, the Company sold 792,590 shares of common stock for cash proceeds of $79,259.
On JuneSeptember 15, 2021, the Company issued 41,6003,750 shares of common stock (post-split), in connection with an additional $20,800$15,000 advance received on March 3, 2021 related to a certain note payable dated January 25, 2019.
On September 15, 2021, the Company issued 40,000 shares (post-split) for services valued at $44,800.
On September 16, 2021, the Company issued 370,000 shares (post-split) for services valued at $545,400.
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.
Issuer Purchases of Equity Securities
The Company did not repurchase any of its equity securities during the period ended March 31,September 30, 2021.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information.
None.
Item 6. Exhibits.
Exhibit No. | | Description |
| | |
31.1* | | Certification of Chief Executive Officer and Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| | |
32.1* | | Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| | |
101.INS | | XBRL Instance Document |
| | |
101.SCH | | XBRL Taxonomy Extension Schema |
| | |
101.CAL | | XBRL Taxonomy Extension Calculation Linkbase |
| | |
101.DEF | | XBRL Taxonomy Extension Definition Linkbase |
| | |
101.LAB | | XBRL Taxonomy Extension Label Linkbase |
| | |
101.PRE | | XBRL Taxonomy Extension Presentation Linkbase |
* Filed herewith.
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
Michael Stebbins, CEO,
Principal Financial Officer and
Principal Executive Officer
Date: July 26,November 15, 2021
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