UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q/A
(Amendment No. 1)10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 20212022
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 000-54219
TRUTANKLESS, INC.
(Exact name of registrant as specified in its charter)
TRUTANKLESS, INC. |
(Exact name of registrant as specified in its charter) |
Nevada |
| 26-2137574 |
(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
|
|
|
Scottsdale, |
| 85254 |
(Address of principal executive offices) |
| (Zip Code) |
(480)(480) 275-7572
(Registrant’s telephone number, including area code)
Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒☐ No ☐☒
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Ruble 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
Non-accelerated | ☐ | Smaller reporting company | ☒ |
(Do not check if a smaller reporting company) | Emerging growth company | ☐ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares of Common Stock, $0.001 par value, outstanding on November 10, 2021,June 6, 2023, was 13,051,38022,857,850 shares.
Explanatory Note: This Form 10-Q/A Amendment No. 1 is being filed to amend the original Form 10-Q for the quarterly period ended September 30, 2021 filed with the Securities and Exchange Commission on November 15, 2021 (the “Form 10-Q”) to update Part II-Other Information of the Form 10-Q.
Items included in the Original Form 10-Q that are not amended by this Form 10-Q/A remain in effect as of the date of the Original Form 10-Q. This amendment does not reflect events occurring after the filing of the Original Form 10-Q, or modify or update those disclosures that may be affected by subsequent events, and no other changes are being made to any other disclosure contained in the Original Form 10-Q.
TRUTANKLESS, INC.
QUARTERLY PERIOD ENDED SEPTEMBER 30, 20212022
Index to Report on Form 10-Q
| 2 |
| Table of Contents |
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
TRUTANKLESS, INC
CONSOLIDATED BALANCE SHEETS
| September 30, 2021 |
| December 31, 2020 |
| September 30, 2022 |
|
| December 31, 2021 |
| |||||
ASSETS |
|
|
|
|
|
|
|
|
| |||||
Current assets |
|
|
|
|
|
|
|
|
| |||||
Cash |
| $ | 168,325 |
| $ | 151,628 |
| $ | 1,054 |
| $ | 38,895 |
| |
Accounts receivable |
|
| 1,950 |
| 109,966 |
| 4,499 |
| 5,424 |
| ||||
Inventory |
|
| 66,826 |
| 24,654 |
| 118,286 |
| 119,418 |
| ||||
Prepaid consulting expenses |
|
| 353,264 |
|
| 585,460 | ||||||||
Assets of discontinued operations |
|
| - |
|
|
| 20,831 |
| ||||||
Total current assets |
|
| 590,365 |
|
| 871,708 |
| 123,839 |
| 184,568 |
| |||
|
|
|
|
|
|
|
|
| ||||||
Other Assets |
|
|
|
|
|
|
|
| ||||||
Prepaid consulting expenses - long term |
|
| 1,509,749 |
| 877,515 | |||||||||
Right to use asset |
|
| 21,807 |
| 33,990 |
| 120,289 |
| 17,744 |
| ||||
Other assets |
|
| 30,565 |
|
| 13,722 |
|
| 17,004 |
|
|
| 26,439 |
|
Total other assets |
|
| 1,562,121 |
|
| 925,227 |
|
| 137,293 |
|
|
| 44,183 |
|
|
|
|
|
|
| |||||||||
Total assets |
| $ | 2,152,486 |
| $ | 1,796,935 |
| $ | 261,132 |
|
| $ | 228,751 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
LIABILITIES AND STOCKHOLDERS’ DEFICIT |
|
|
| |||||||||||
LIABILITIES AND STOCKHOLDERS' DEFICIT |
|
|
|
|
| |||||||||
Current liabilities |
|
|
|
|
|
|
|
| ||||||
Accounts payable and accrued liabilities |
|
| 1,431,290 |
| 1,144,989 |
| 1,015,158 |
| 888,531 |
| ||||
Accounts payable and accrued liabilities - related party |
| 151,700 |
| 129,700 |
| |||||||||
Lease liability |
|
| 24,462 |
| 16,424 |
| 40,419 |
| 19,960 |
| ||||
Accrued interest payable - related party |
|
| 241,523 |
| 206,933 |
| 84,669 |
| 77,419 |
| ||||
Derivative liability |
|
| - |
| 302,249 | |||||||||
Payroll protection program loan payable |
|
| 6,158 |
| 107,485 | |||||||||
Royalty liability |
|
| 90,000 |
| - | |||||||||
Royalty liability - related party |
|
| 250,000 |
| - | |||||||||
Notes payable - related party |
|
| 216,850 |
| 69,350 |
| 136,450 |
| 106,350 |
| ||||
Notes payable, net of debt discount |
|
| 1,112,853 |
| 480,801 |
| 763,840 |
| 799,377 |
| ||||
Convertible notes payable, net of debt discount |
|
| 1,430,874 |
|
| 970,839 |
| 1,277,893 |
| 1,031,432 |
| |||
Convertible notes payable - related party |
| 1,791,680 |
| - |
| |||||||||
Liabilities of discontinued operations |
|
| - |
|
|
| 758,279 |
| ||||||
Total current liabilities |
|
| 4,804,010 |
|
| 3,299,070 |
|
| 5,261,809 |
|
|
| 3,811,048 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Lease liability - long-term |
|
| - |
| 20,765 |
| 76,367 |
| - |
| ||||
Notes payable - long term, net of debt discount |
|
| - |
| 249,247 |
| - |
| 201,000 |
| ||||
Convertible notes payable - long term, net of debt discount |
|
| 15,411 |
| 91,335 | |||||||||
Notes payable - related party |
|
| 300,000 |
|
| 500,000 | ||||||||
Notes payable - related party, non current |
|
| 110,500 |
|
|
| 110,500 |
| ||||||
Total long-term liabilities |
|
| 315,411 |
|
| 861,347 |
|
| 186,867 |
|
|
| 311,500 |
|
|
|
|
|
|
| |||||||||
Total liabilities |
|
| 5,119,421 |
|
| 4,160,417 |
|
| 5,448,675 |
|
|
| 4,122,548 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Stockholders’ deficit |
|
|
| |||||||||||
Preferred stock, $0.001 par value, 9,990,000 shares authorized, 0 and 76,000 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively |
|
| - |
| - | |||||||||
Series B Preferred stock, $0.001 par value, 10,000 shares authorized, 10,000 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively |
|
| 10 |
| 10 | |||||||||
Common stock, $0.001 par value, 100,000,000 shares authorized, 13,051,380 and 9,225,621 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively |
|
| 13,052 |
| 9,226 | |||||||||
Stockholders' deficit |
|
|
|
|
| |||||||||
Preferred stock, $0.001 par value, 9,990,000 shares authorized, 76,000 and 76,000 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively |
| - |
| - |
| |||||||||
Series B Preferred stock, $0.001 par value, 10,000 shares authorized, 10,000 and 0 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively |
| 10 |
| 10 |
| |||||||||
Common stock, $0.001 par value, 1,000,000,000 shares authorized, 20,348,727 and 20,217,577 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively |
| 20,349 |
| 20,217 |
| |||||||||
Additional paid in capital |
|
| 45,388,479 |
| 39,961,979 |
| 54,261,326 |
| 54,170,266 |
| ||||
Subscriptions payable |
|
| 733,446 |
| 658,374 |
| 4,299,521 |
| 2,288,551 |
| ||||
Accumulated deficit |
|
| (49,101,922) |
|
| (42,993,071) |
|
| (63,768,749 | ) |
|
| (60,372,841 | ) |
Total stockholders’ deficit |
|
| (2,966,935) |
|
| (2,363,482) | ||||||||
Total liabilities and stockholders’ deficit |
| $ | 2,152,486 |
| $ | 1,796,935 | ||||||||
Total stockholders' deficit |
|
| (5,187,543 | ) |
|
| (3,893,797 | ) | ||||||
|
|
|
|
|
| |||||||||
Total liabilities and stockholders' deficit |
| $ | 261,132 |
|
| $ | 228,751 |
| ||||||
See accompanying notes to the consolidated financial statements
| 3 |
| Table of Contents |
TRUTANKLESS, INC
CONSOLIDATED STATEMENTS OF OPERATIONS
| For the three months ended September 30, |
| For the nine months ended September 30, | ||||||||
2021 |
| 2020 |
| 2021 |
| 2020 | |||||
|
|
|
|
|
|
|
| ||||
Revenue | $ | 16,557 |
| $ | 361,008 |
| $ | 199,371 |
| $ | 1,439,271 |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold |
| (5,663) |
|
| (309,269) |
|
| (145,635) |
|
| (1,099,277) |
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
| 10,894 |
|
| 51,739 |
|
| 53,736 |
|
| 339,994 |
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
| 688,199 |
|
| 288,770 |
|
| 1,309,112 |
|
| 1,071,675 |
Research and development |
| 37,273 |
|
| 29,734 |
|
| 214,037 |
|
| 93,812 |
Professional fees |
| 1,423,185 |
|
| 645,812 |
|
| 3,140,925 |
|
| 4,394,334 |
Total operating expenses |
| 2,148,657 |
|
| 964,316 |
|
| 4,664,074 |
|
| 5,559,821 |
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
| (2,137,763) |
|
| (912,577) |
|
| (4,610,338) |
|
| (5,219,827) |
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses) |
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
| (387,068) |
|
| (385,028) |
|
| (1,489,638) |
|
| (1,114,491) |
Gain/Loss on change of derivative liability |
| - |
|
| 82,645 |
|
| 149,798 |
|
| 21,063 |
Loss on extinguishment of notes |
| - |
|
| (9,850) |
|
| (260,000) |
|
| (2,018,215) |
Gain on debt forgiveness |
| 101,327 |
|
| - |
|
| 101,327 |
|
| - |
Total income (expenses) |
| (285,741) |
|
| (312,233) |
|
| (1,498,513) |
|
| (3,111,643) |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss before tax provision |
| (2,423,504) |
|
| (1,224,810) |
|
| (6,108,851) |
|
| (8,331,470) |
Tax provision |
| - |
|
| - |
|
| - |
|
| - |
Net loss | $ | (2,423,504) |
| $ | (1,224,810) |
| $ | (6,108,851) |
| $ | (8,331,470) |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share - basic and diluted | $ | (0.20) |
| $ | (0.18) |
| $ | (0.56) |
| $ | (1.25) |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding - basic and diluted |
| 12,515,897 |
|
| 6,970,361 |
| $ | 10,979,879 |
| $ | 6,667,460 |
|
| For the three months ended |
|
| For the nine months ended |
| ||||||||||
|
| September 30, 2022 |
|
| September 30, 2021 |
|
| September 30, 2022 |
|
| September 30, 2021 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Revenue |
| $ | 4,627 |
|
| $ | 16,557 |
|
| $ | 24,639 |
|
| $ | 199,371 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold |
|
| (11,392 | ) |
|
| (5,663 | ) |
|
| (21,796 | ) |
|
| (145,635 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
| (6,765 | ) |
|
| 10,894 |
|
|
| 2,843 |
|
|
| 53,736 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
| 865,296 |
|
|
| 688,199 |
|
|
| 3,018,979 |
|
|
| 1,309,112 |
|
Research and development |
|
| 57,041 |
|
|
| 37,273 |
|
|
| 176,071 |
|
|
| 214,037 |
|
Professional fees |
|
| 71,326 |
|
|
| 1,423,185 |
|
|
| 131,905 |
|
|
| 3,140,925 |
|
Total operating expenses |
|
| 993,663 |
|
|
| 2,148,657 |
|
|
| 3,326,955 |
|
|
| 4,664,074 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
| (1,000,428 | ) |
|
| (2,137,763 | ) |
|
| (3,324,112 | ) |
|
| (4,610,338 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
| 59,279 |
|
|
| (387,068 | ) |
|
| (436,748 | ) |
|
| (1,489,638 | ) |
Gain/Loss on change of derivative liability |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 149,798 |
|
Loss on extinguishment of notes payable |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (260,000 | ) |
Gain on debt forgiveness of PPP loan |
|
| - |
|
|
| 101,327 |
|
|
| - |
|
|
| 101,327 |
|
Total income (expenses) |
|
| 59,279 |
|
|
| (285,741 | ) |
|
| (436,748 | ) |
|
| (1,498,513 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss before tax provision |
|
| (941,149 | ) |
|
| (2,423,504 | ) |
|
| (3,760,860 | ) |
|
| (6,108,851 | ) |
Tax provision |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Net loss from continuing operations |
| $ | (941,149 | ) |
| $ | (2,423,504 | ) |
| $ | (3,760,860 | ) |
| $ | (6,108,851 | ) |
Net loss from discontinued operations before tax provision |
|
| - |
|
|
| - |
|
|
| (26,489 | ) |
|
| - |
|
Tax provision for discontinued operations |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Net loss from discontinued operations |
| $ | - |
|
| $ | - |
|
| $ | (26,489 | ) |
| $ | - |
|
Net loss |
| $ | (941,149 | ) |
| $ | (2,423,504 | ) |
| $ | (3,787,349 | ) |
| $ | (6,108,851 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share from continuing operations - basic and diluted |
| $ | (0.05 | ) |
| $ | (0.19 | ) |
| $ | (0.18 | ) |
| $ | (0.56 | ) |
Net loss per common share from discontinued operations- basic and diluted |
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
Net loss per common share - basic and diluted |
| $ | (0.05 | ) |
| $ | (0.19 | ) |
| $ | (0.19 | ) |
| $ | (0.56 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding - basic and diluted |
|
| 20,387,667 |
|
|
| 12,515,897 |
|
|
| 20,332,673 |
|
|
| 10,979,879 |
|
See accompanying notes to the consolidated financial statements
| 4 |
| Table of Contents |
TRUTANKLESS, INC
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’STOCKHOLDERS' DEFICIT
For the Nine Months ended September 30, 2021
| Preferred Stock |
| Common Stock |
|
|
|
|
|
|
|
| ||||
Shares |
| Amount |
| Shares |
| Amount |
| Additional Paid-in Capital |
| Subscriptions Payable |
| Accumulated Deficit |
| Total Stockholders’ Deficit | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2020 | 10,000 |
| 10 |
| 9,225,621 |
| 9,226 |
| 39,961,979 |
| 658,374 |
| (42,993,071) |
| (2,363,482) |
Stock issued for cash | - |
| - |
| 218,750 |
| 219 |
| 174,781 |
| 205,000 |
| - |
| 380,000 |
Stock issued for services | - |
| - |
| 771,250 |
| 771 |
| 1,474,296 |
| - |
| - |
| 1,475,067 |
Shares for beneficial conversion feature | - |
| - |
| 199,898 |
| 200 |
| 382,840 |
| (74,780) |
| - |
| 308,260 |
Shares for extinguishment of debt | - |
| - |
| - |
| - |
| - |
| 460,000 |
| - |
| 460,000 |
Derivative liability written off to APIC | - |
| - |
| - |
| - |
| 152,451 |
| - |
| - |
| 152,451 |
Net loss | - |
| - |
| - |
| - |
| - |
| - |
| (2,276,946) |
| (2,276,946) |
Balance, March 31, 2021 | 10,000 |
| 10 |
| 10,415,518 |
| 10,416 |
| 42,146,347 |
| 1,248,594 |
| (45,270,017) |
| (1,864,650) |
Stock issued for cash | - |
| - |
| 536,574 |
| 537 |
| 428,722 |
| (35,000) |
| - |
| 394,259 |
Stock issued for services | - |
| - |
| - |
| - |
| - |
| 177,500 |
| - |
| 177,500 |
Shares for extinguishment of debt | - |
| - |
| 275,000 |
| 275 |
| 439,725 |
| (440,000) |
| - |
| - |
Shares for beneficial conversion feature | - |
| - |
| 5,200 |
| 5 |
| 159,756 |
| 214,050 |
| - |
| 373,811 |
Net loss | - |
| - |
| - |
| - |
| - |
| - |
| (1,408,401) |
| (1,408,401) |
Balance, June 30, 2021 | 10,000 |
| 10 |
| 11,232,292 |
| 11,232 |
| 43,174,550 |
| 1,165,144 |
| (46,678,418) |
| (2,327,481) |
Stock issued for cash | - |
| - |
| 537,500 |
| 538 |
| 349,462 |
| (225,000) |
| - |
| 125,000 |
Stock issued for services | - |
| - |
| 1,113,125 |
| 1,114 |
| 1,680,938 |
| (27,500) |
| - |
| 1,654,552 |
Shares for beneficial conversion feature | - |
| - |
| 168,463 |
| 168 |
| 183,529 |
| (179,198) |
| - |
| 4,498 |
Net loss | - |
| - |
| - |
| - |
| - |
| - |
| (2,423,504) |
| (2,423,504) |
Balance, September 30, 2021 | 10,000 |
| 10 |
| 13,051,380 |
| 13,052 |
| 45,388,479 |
| 733,446 |
| (49,101,922) |
| (2,966,935) |
|
|
|
|
|
|
|
| Additional |
|
|
|
|
|
|
|
| Total |
| ||||||||||||||
|
| Preferred Stock |
|
| Common Stock |
|
| Paid-in |
|
| Subscriptions |
|
| Accumulated |
|
| Stockholders' |
| ||||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Payable |
|
| Deficit |
|
| Deficit |
| ||||||||
Balance, December 31, 2021 |
|
| 10,000 |
|
|
| 10 |
|
|
| 20,217,577 |
|
|
| 20,217 |
|
|
| 54,170,266 |
|
|
| 2,288,551 |
|
|
| (60,372,841 | ) |
|
| (3,893,797 | ) |
Stock issued for services |
|
| - |
|
|
| - |
|
|
| 5,000 |
|
|
| 5 |
|
|
| 4,995 |
|
|
| 608,990 |
|
|
| - |
|
|
| 613,990 |
|
Shares issued for debt discount |
|
| - |
|
|
| - |
|
|
| 165,216 |
|
|
| 165 |
|
|
| 122,982 |
|
|
| - |
|
|
| - |
|
|
| 123,147 |
|
Spin-off of Notation labs |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 391,441 |
|
|
| 391,441 |
|
Rounding shares cancellation |
|
| - |
|
|
| - |
|
|
| (126 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Imputed interest |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 19,595 |
|
|
| - |
|
|
| - |
|
|
| 19,595 |
|
Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (1,425,873 | ) |
|
| (1,425,873 | ) |
Balance, March 31, 2022 |
|
| 10,000 |
|
|
| 10 |
|
|
| 20,387,667 |
|
|
| 20,387 |
|
|
| 54,317,838 |
|
|
| 2,897,541 |
|
|
| (61,407,273 | ) |
|
| (4,171,497 | ) |
Stock issued for services |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 642,990 |
|
|
| - |
|
|
| 642,990 |
|
Shares issued to extend notes |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 217,500 |
|
|
| - |
|
|
| 217,500 |
|
Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (1,420,327 | ) |
|
| (1,420,327 | ) |
Balance, June 30, 2022 |
|
| 10,000 |
|
|
| 10 |
|
|
| 20,387,667 |
|
|
| 20,387 |
|
|
| 54,317,838 |
|
|
| 3,758,031 |
|
|
| (62,827,600 | ) |
|
| (4,731,334 | ) |
Stock issued for services |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 642,990 |
|
|
| - |
|
|
| 642,990 |
|
Shares issued to extend notes |
|
| - |
|
|
| - |
|
|
| 87,500 |
|
|
| 88 |
|
|
| 101,412 |
|
|
| (101,500 | ) |
|
| - |
|
|
| - |
|
Cancellation of commitment shares |
|
| - |
|
|
| - |
|
|
| (126,440 | ) |
|
| (126 | ) |
|
| (157,924 | ) |
|
| - |
|
|
| - |
|
|
| (158,050 | ) |
Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (941,149 | ) |
|
| (941,149 | ) |
Balance, September 30, 2022 |
|
| 10,000 |
|
|
| 10 |
|
|
| 20,348,727 |
|
|
| 20,349 |
|
|
| 54,261,326 |
|
|
| 4,299,521 |
|
|
| (63,768,749 | ) |
|
| (5,187,543 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Additional |
|
|
|
|
|
|
|
|
|
| Total |
| ||
|
| Preferred Stock |
|
| Common Stock |
|
| Paid-in |
|
| Subscriptions |
|
| Accumulated |
|
| Stockholders' |
| ||||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Payable |
|
| Deficit |
|
| Deficit |
| ||||||||
Balance, December 31, 2020 |
|
| 10,000 |
|
|
| 10 |
|
|
| 9,225,909 |
|
|
| 9,216 |
|
|
| 39,961,989 |
|
|
| 658,374 |
|
|
| (34,702,928 | ) |
|
| 5,926,661 |
|
Stock issued for cash |
|
| - |
|
|
| - |
|
|
| 218,750 |
|
|
| 219 |
|
|
| 174,781 |
|
|
| 205,000 |
|
|
| - |
|
|
| 380,000 |
|
Stock issued for services |
|
| - |
|
|
| - |
|
|
| 271,250 |
|
|
| 271 |
|
|
| 1,474,796 |
|
|
| - |
|
|
| - |
|
|
| 1,475,067 |
|
Shares issued for beneficial conversion feature |
|
| - |
|
|
| - |
|
|
| 199,898 |
|
|
| 200 |
|
|
| 382,840 |
|
|
| (74,780 | ) |
|
| - |
|
|
| 308,260 |
|
Shares issued for extinguishment of notes |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 460,000 |
|
|
| - |
|
|
| 460,000 |
|
Derivative liability written off to additional paid in capital |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 152,451 |
|
|
| - |
|
|
| - |
|
|
| 152,451 |
|
Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (2,276,946 | ) |
|
| (2,276,946 | ) |
Balance, March 31, 2021 |
|
| 10,000 |
|
|
| 10 |
|
|
| 9,915,807 |
|
|
| 9,907 |
|
|
| 42,146,857 |
|
|
| 1,248,594 |
|
|
| (36,979,874 | ) |
|
| 6,425,493 |
|
Stock issued for cash |
|
| - |
|
|
| - |
|
|
| 536,574 |
|
|
| 537 |
|
|
| 428,722 |
|
|
| (35,000 | ) |
|
| - |
|
|
| 394,259 |
|
Stock issued for services |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 177,500 |
|
|
| - |
|
|
| 177,500 |
|
Shares issued for beneficial conversion feature |
|
| - |
|
|
| - |
|
|
| 5,200 |
|
|
| 5 |
|
|
| 159,756 |
|
|
| 214,050 |
|
|
| - |
|
|
| 373,811 |
|
Shares issued for extinguishment of notes |
|
| - |
|
|
| - |
|
|
| 275,000 |
|
|
| 275 |
|
|
| 439,725 |
|
|
| (440,000 | ) |
|
| - |
|
|
| - |
|
Derivative liability written off to additional paid in capital |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 152,451 |
|
|
| - |
|
|
| - |
|
|
| 152,451 |
|
Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (1,408,401 | ) |
|
| (1,408,401 | ) |
Balance, June 30, 2021 |
|
| 10,000 |
|
|
| 10 |
|
|
| 10,732,581 |
|
|
| 10,723 |
|
|
| 43,327,511 |
|
|
| 1,165,144 |
|
|
| (38,388,275 | ) |
|
| 6,115,113 |
|
Stock issued for cash |
|
| - |
|
|
| - |
|
|
| 537,500 |
|
|
| 538 |
|
|
| 349,462 |
|
|
| (225,000 | ) |
|
| - |
|
|
| 125,000 |
|
Stock issued for services |
|
| - |
|
|
| - |
|
|
| 1,113,125 |
|
|
| 1,114 |
|
|
| 1,680,938 |
|
|
| (27,500 | ) |
|
| - |
|
|
| 1,654,552 |
|
Shares issued for beneficial conversion feature |
|
| - |
|
|
| - |
|
|
| 168,463 |
|
|
| 168 |
|
|
| 183,529 |
|
|
| (179,198 | ) |
|
| - |
|
|
| 4,499 |
|
Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (2,423,504 | ) |
|
| (2,423,504 | ) |
Balance, September 30, 2021 |
|
| 10,000 |
|
|
| 10 |
|
|
| 12,551,669 |
|
|
| 12,543 |
|
|
| 45,541,440 |
|
|
| 733,446 |
|
|
| (40,811,779 | ) |
|
| 5,475,660 |
|
See accompanying notes to the consolidated financial statements
| 5 |
| Table of Contents |
TRUTANKLESS, INC
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
For the Nine Months ended September 30, 2020CASH FLOWS
| Preferred Stock |
| Common Stock |
|
|
|
|
|
|
|
| ||||
Shares |
| Amount |
| Shares |
| Amount |
| Additional Paid-in Capital |
| Subscriptions Payable |
| Accumulated Deficit |
| Total Stockholders’ Deficit | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2019 | 76,000 |
| 76 |
| 5,678,413 |
| 5,678 |
| 28,967,833 |
| 424,705 |
| (32,425,982) |
| (3,027,690) |
Stock issued for cash | - |
| - |
| 25,000 |
| 25 |
| 49,975 |
| 125,000 |
| - |
| 175,000 |
Stock issued for services | - |
| - |
| 501,875 |
| 502 |
| 1,235,888 |
| 63,610 |
| - |
| 1,300,000 |
Rescission and retirement of shares for services | - |
| - |
| (62,500) |
| (63) |
| (124,938) |
| - |
| - |
| (125,000) |
Shares and warrants issued for debt extensions | - |
| - |
| 72,332 |
| 72 |
| 164,276 |
| - |
| - |
| 164,348 |
Conversion of preferred stock to common | (76,000) |
| (76) |
| 25,625 |
| 26 |
| 15 |
| 35 |
| - |
| - |
Shares and warrants issued to extinguish debt | - |
| - |
| 545,250 |
| 545 |
| 2,243,554 |
| - |
| - |
| 2,244,099 |
Net loss | - |
| - |
| - |
| - |
| - |
| - |
| (3,502,149) |
| (3,502,149) |
Balance, March 31, 2020 | - |
| - |
| 6,785,995 |
| 6,786 |
| 32,536,603 |
| 613,350 |
| (35,928,131) |
| (2,771,392) |
Stock issued for cash | - |
| - |
| 225,000 |
| 225 |
| 274,775 |
| (118,000) |
| - |
| 157,000 |
Stock issued for services | 10,000 |
| 10 |
| 3,125 |
| 3 |
| 3,079,092 |
| 106,396 |
| - |
| 3,185,501 |
Rescission and retirement of shares for services | - |
| - |
| (84,250) |
| (84) |
| (175,156) |
| - |
| - |
| (175,240) |
Share and warrants issued for debt extensions | - |
| - |
| - |
| - |
| 34,086 |
| 8,995 |
| - |
| 43,081 |
Share and warrants issued for debt | - |
| - |
| 371,011 |
| 371 |
| 807,178 |
| 5,670 |
| - |
| 813,219 |
Reclass of derivative upon payoff of debt | - |
| - |
| - |
| - |
| 338,176 |
| - |
| - |
| 338,176 |
Net loss | - |
| - |
| - |
| - |
| - |
| - |
| (3,604,511) |
| (3,604,511) |
Balance, June 30, 2020 | - |
| - |
| 7,300,881 |
| 7,301 |
| 36,894,754 |
| 616,411 |
| (39,532,642) |
| (2,014,166) |
Stock issued for cash | - |
| - |
| 374,375 |
| 374 |
| 299,126 |
| (57,000) |
| - |
| 242,500 |
Stock issued for services | - |
| - |
| 645,625 |
| 646 |
| 1,059,683 |
| 155,524 |
| - |
| 1,215,853 |
Shares and warrants issued for debt extensions |
|
|
|
| 6,250 |
| 6 |
| 9,844 |
| - |
| - |
| 9,850 |
Share and warrants issued for debt | - |
| - |
| 125,365 |
| 125 |
| 183,205 |
| - |
| - |
| 183,330 |
Derivative liability written off to APIC | - |
| - |
| - |
| - |
| 188,276 |
| - |
| - |
| 188,276 |
Net loss | - |
| - |
| - |
| - |
| - |
| - |
| (1,224,810) |
| (1,224,810) |
Balance, September 30, 2020 | 10,000 |
| 10 |
| 8,452,496 |
| 8,452 |
| 38,634,888 |
| 714,935 |
| (40,757,452) |
| (1,399,167) |
|
| For the nine months ended |
| |||||
|
| September 30, 2022 |
|
| September 30, 2021 |
| ||
Cash Flows from Operating Activities |
|
|
|
|
|
| ||
Net loss from continuing operations |
| $ | (3,760,860 | ) |
| $ | (6,108,851 | ) |
Net loss from discontinued operations |
|
| (26,489 | ) |
|
| - |
|
Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Imputed interest |
|
| 19,595 |
|
|
| - |
|
Shares issued for services |
|
| 1,899,970 |
|
|
| 3,312,117 |
|
Cancellation of commitment shares |
|
| (158,050 | ) |
|
| - |
|
Gain/Loss on change in derivative liability |
|
| - |
|
|
| (149,798 | ) |
Shares issued to extend debt |
|
| 217,500 |
|
|
| - |
|
Loss on extinguishment of notes payable and accrued expenses |
|
| - |
|
|
| 260,000 |
|
Gain on forgiveness of PPP loan payable |
|
| - |
|
|
| (101,327 | ) |
Depreciation and amortization |
|
| 9,435 |
|
|
| 8,455 |
|
Non cash operating lease expense |
|
| (5,720 | ) |
|
| (544 | ) |
Amortization of debt discount |
|
| 118,156 |
|
|
| 1,117,826 |
|
Changes in assets and liabilities |
|
|
|
|
|
|
|
|
Accounts receivable |
|
| 925 |
|
|
| 108,016 |
|
Inventory |
|
| 1,132 |
|
|
| (42,172 | ) |
Prepaid expenses |
|
| - |
|
|
| (400,038 | ) |
Accounts payable and accrued liabilities |
|
| 120,101 |
|
|
| 286,301 |
|
Accounts payable and accrued liabilities - related party |
|
| 29,250 |
|
|
| - |
|
Interest payable - related party |
|
| 6,526 |
|
|
| 34,590 |
|
Operating cash flow from continued operations |
|
| (1,528,529 | ) |
|
| (1,675,425 | ) |
Operating cash flow from discontinued operations |
|
| (10,667 | ) |
|
| 340,000 |
|
Net cash used in operating activities |
|
| (1,539,196 | ) |
|
| (1,335,425 | ) |
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
Purchase of fixed assets |
|
| - |
|
|
| (25,298 | ) |
Net cash used in investing activities |
|
| - |
|
|
| (25,298 | ) |
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from convertible notes payable |
|
| 378,200 |
|
|
| 439,590 |
|
Repayments of convertible notes payable |
|
| (70,381 | ) |
|
| (829,142 | ) |
Proceeds from convertible notes payable - related party |
|
| 1,419,180 |
|
|
| - |
|
Proceeds from notes payable |
|
| - |
|
|
| 835,358 |
|
Repayments from notes payable |
|
| (292,904 | ) |
|
| (115,145 | ) |
Proceeds from notes payable - related party |
|
| 30,100 |
|
|
| 147,500 |
|
Proceeds from sale of common stock, net of offering costs |
|
| - |
|
|
| 899,259 |
|
Financing cash flows from continued operations |
|
| 1,464,195 |
|
|
| 1,377,420 |
|
Financing cash flows from discontinued operations |
|
| 37,160 |
|
|
| - |
|
Net cash provided by financing activities |
|
| 1,501,355 |
|
|
| 1,377,420 |
|
|
|
|
|
|
|
|
|
|
Net decrease in cash |
|
| (37,841 | ) |
|
| 16,697 |
|
Cash of continuing operations, beginning of period |
|
| 38,895 |
|
|
| 151,628 |
|
Cash, end of period |
| $ | 1,054 |
|
| $ | 168,325 |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information |
|
|
|
|
|
|
|
|
Cash paid for interest |
| $ | 168,052 |
|
| $ | 93,491 |
|
Cash paid for taxes |
| $ | - |
|
| $ | - |
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability written off to additional paid in capital |
| $ | - |
|
| $ | 152,451 |
|
Notes and accrued interest settled with stock |
| $ | - |
|
| $ | 200,000 |
|
Recognition of debt discount |
| $ | - |
|
| $ | 484,993 |
|
See accompanying notes to the consolidated financial statements
TRUTANKLESS, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the nine months ended September 30, | ||||
2021 |
| 2020 | |||
Cash Flows from Operating Activities |
|
|
| ||
Net loss | $ | (6,108,851) |
| $ | (8,331,470) |
Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
|
|
|
Shares issued for services |
| 3,312,117 |
|
| 5,401,114 |
Gain/Loss on change in derivative liability |
| (149,798) |
|
| (21,063) |
Loss on extinguishment of notes payable |
| 260,000 |
|
| 2,018,215 |
Gain on forgiveness of PPP loan payable |
| (101,327) |
|
| - |
Depreciation and amortization |
| 8,455 |
|
| 204 |
Non cash operating lease expense |
| (544) |
|
| 12,183 |
Amortization of debt discount |
| 1,117,826 |
|
| 1,028,652 |
Changes in assets and liabilities |
|
|
|
|
|
Accounts receivable |
| 108,016 |
|
| (168,881) |
Inventory |
| (42,172) |
|
| 69,360 |
Prepaid expenses |
| (400,038) |
|
| (1,416,871) |
Accounts payable |
| 286,301 |
|
| (154,319) |
Lease liability |
| - |
|
| (10,876) |
Interest payable - related party |
| 34,590 |
|
| 182,950 |
Royalty liability |
| 90,000 |
|
| - |
Royalty liability - related party |
| 250,000 |
|
| - |
Net cash used in operating activities |
| (1,335,425) |
|
| (1,390,802) |
|
|
|
|
|
|
Cash Flows from Investing Activities: |
|
|
|
|
|
Purchase of fixed assets |
| (25,298) |
|
| - |
Net cash used in investing activities |
| (25,298) |
|
| - |
|
|
|
|
|
|
Cash Flows from Financing Activities: |
|
|
|
|
|
Proceeds from convertible notes payable |
| 439,590 |
|
| 837,583 |
Repayments of convertible notes payable |
| (829,142) |
|
| (638,600) |
Proceeds from payroll protection program loan payable |
| - |
|
| 107,485 |
Proceeds from notes payable |
| 835,358 |
|
| 572,700 |
Repayments from notes payable |
| (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 |
| 899,259 |
|
| 574,500 |
Net cash provided by financing activities |
| 1,377,420 |
|
| 1,413,145 |
|
|
|
|
|
|
Net increase in cash |
| 16,697 |
|
| 22,343 |
Cash, beginning of period |
| 151,628 |
|
| 4,342 |
Cash, end of period | $ | 168,325 |
| $ | 26,685 |
|
|
|
|
|
|
Supplemental disclosure of cash flow information |
|
|
|
|
|
Cash paid for interest | $ | 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 |
| $ | - |
Derivative liability written off to additional paid in capital | $ | 152,451 |
| $ | 338,176 |
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 |
| $ | - |
| 6 |
| Table of Contents |
See accompanying notes to the consolidated financial statements
TRUTANKLESS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberSEPTEMBER 30, 20212022
(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 AndroidGoogle play store, will augment existing products in the home automation space.
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (GAAP) and applicable rules and regulations of the Securities and Exchange Commission (SEC) regarding interim financial reporting. Certain information and note disclosures normally included in the consolidated financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. As such, the information included in the consolidated financial statements for the threenine months ended September 30, 20212022 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, 2020,2021, as filed with the SEC.
The consolidated balance sheet as of December 31, 2020,2021, included herein was derived from the audited financial statements as of that date, but does not include all disclosures including notes required by GAAP.
The accompanying unaudited consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, and cash flows for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for the year ending December 31, 2020.2022.
The consolidated financial statements include the accounts of Trutankless, Inc. and its wholly owned subsidiaries. On May 16, 2010, the Company acquired 100% of the outstanding stock of Bollente, Inc. On August 20th,20th, 2020 the Company formed a wholly-owned subsidiary, Notation Labs, Inc. All significant inter-company transactions and balances have been eliminated.
Spinoff - On January 24, 2022, the Company completed the previously announced spin-off of its subsidiary Notation Labs Inc into a stand-alone company. The historical results of Notation Labs Inc that were contributed to Trutankless Inc in the spinoff have been reflected as discontinued operations in our condensed consolidated financial statements through the date of the spinoff and in the prior year periods as the spinoff represents a strategic shift in our business that has a major effect on operations and financial results. As of September 30, 2022, the assets and liabilities associated with these Notation Labs Inc. are classified as assets and liabilities of discontinued operations in the condensed consolidated balance sheet. The disclosures presented in our notes to the interim condensed consolidated financial statements are presented on a continuing operations basis.
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Reclassifications
Certain prior year amounts have been reclassified for consistency with the current period presentation. These reclassifications had no effect on the reported results of operations.
Use of estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ significantly from those estimates.
Cash and cash equivalents
For the purpose of the statements of cash flows, all highly liquid investments with an original maturity of three months or less are considered to be cash equivalents. The carrying value of these investments approximates fair value.
Stock-based compensation
The Company follows ASC 718-10, “Stock Compensation”, which addresses the accounting for transactions in which an entity exchanges its equity instruments for goods or services, with a primary focus on transactions in which an entity obtains employee services in share-based payment transactions. ASC 718-10 is a revision to SFAS No. 123, “Accounting for Stock-Based Compensation,” and supersedes Accounting Principles Board (“APB”)
Opinion No. 25, “Accounting for Stock Issued to Employees,” and its related implementation guidance. ASC 718-10 requires measurement of the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). Incremental compensation costs arising from subsequent modifications of awards after the grant date must be recognized.
Income Taxes
The Company’s calculation of its tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in various taxing jurisdictions. The Company recognizes tax liabilities for uncertain tax positions based on management’s estimate of whether it is more likely than not that additional taxes will be required. The Company had no uncertain tax positions as of September 30, 2022.
Deferred income taxes are recognized in the consolidated financial statements for the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts based on enacted tax laws and statutory tax rates. Temporary differences arise from net operating losses, differences in depreciation methods of archived images, and property and equipment, stock-based and other compensation, and other accrued expenses. A valuation allowance is established when it is determined that it is more likely than not that some or all of the deferred tax assets will not be realized. The application of tax laws and regulations is subject to legal and factual interpretation, judgment and uncertainty. Tax laws and regulations themselves are subject to change as a result of changes in fiscal policy, changes in legislation, the evolution of regulations and court rulings. Therefore, the actual liability for U.S., or the various state jurisdictions, may be materially different from management’s estimates, which could result in the need to record additional tax liabilities or potentially reverse previously recorded tax liabilities. Interest and penalties are included in tax expense.
The Company includes interest and penalties arising from the underpayment of income taxes in the statements of operation in the provision for income taxes. As of September 30, 2022 and 2021, the Company had no accrued interest or penalties related to uncertain tax positions.
Earnings per share
The Company follows ASC Topic 260 to account for the earnings per share. Basic earnings per common share (“EPS”) calculations are determined by dividing net income by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per common share calculations are determined by dividing net income by the weighted average number of common shares and dilutive common share equivalents outstanding. During periods when common stock equivalents, if any, are anti-dilutive they are not considered in the computation. There are 9,806,047 additional shares issuable in connection with outstanding warrants, stock payable, and convertible debts as of September 30, 2022.
| 8 |
| Table of Contents |
Accounts receivable
Accounts receivable is comprised of uncollateralized customer obligations due under normal trade terms. The Company performs ongoing credit evaluation of its customers and management closely monitors outstanding receivables based on factors surrounding the credit risk of specific customers, historical trends, and other information. The carrying amount of accounts receivable is reviewed periodically for collectability. If management determines that collection is unlikely, an allowance that reflects management’s best estimate of the amounts that will not be collected is recorded. Accounts receivable are presented net of an allowance for doubtful accounts of $179,381 and $179,381 at September 30, 2022 and December 31, 2021, respectively.
Advertising Costs
The Company’s policy regarding advertising is to expense advertising when incurred. The Company incurred advertising expenses of $3,967and $6,580 during the nine months ended September 30, 2022 and 2021, respectively.
Research and development costs
The Company charges research and development costs to expense when incurred in accordance with FASB ASC 730, “Research and Development”. Research and development costs were $176,071 and $214,037 for the nine months ended September 30, 2022 and 2021, respectively.
Inventory
InventoriesInventory, including manufacturing cost and shipping are stated at the lower of cost (average cost) or netmarket (net realizable value.value).
Revenue recognition
We recognize revenue in accordance with generally accepted accounting principles as outlined in the Financial Accounting Standard Board’s (“FASB”) Accounting Standards Codification (“ASC”) 606, Revenue From Contracts with Customers, which requires that five basic criteria be met before revenue can be recognized: (i) identify the contract with the customer; (ii) identity the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price; and (v) recognize revenue when or as the entity satisfied a performance obligation.
Revenue recognition occurs at the time product is shipped to customers, when control transfers to customers, provided there are no material remaining performance obligations required of the Company or any matters of customer acceptance. We only record revenue when collectability is probable.
Fair value of financial instruments
The Company measures fair value in accordance with ASC 820 - Fair Value Measurements. ASC 820 defines fair value and establishes a three-level valuation hierarchy for disclosures of fair value measurements. ASC 820 establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, ASC 820 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three (3) levels of fair value hierarchy defined by ASC 820 are:
Level 1 - Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.
Level 2 - Inputs (other than quoted market prices included in Level 1) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.
Level 3 - Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model. Valuation of instruments includes unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.
As defined by ASC 820, the fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale, which was further clarified as the price that would be received to sell an asset or paid to transfer a liability (“an exit price”) in an orderly transaction between market participants at the measurement date.
| 9 |
| Table of Contents |
The reported fair values for financial instruments that use Level 2 and Level 3 inputs to determine fair value are based on a variety of factors and assumptions. Accordingly, certain fair values may not represent actual values of the Company’s financial instruments that could have been realized as of September 30, 20212022 or that will be recognized in the future, and do not include expenses that could be incurred in an actual settlement. The carrying amounts of the Company’s financial assets and liabilities, such as cash, accounts receivable, receivables from related parties,
prepaid expenses and other, accounts payable, accrued liabilities, and related party and third-party notes payables approximate fair value due to their relatively short maturities. The Company’s notes payable to related parties approximates the fair value of such instrument based upon management’s best estimate of terms that would be available to the Company for similar financial arrangements at September 30, 20212022 and December 31, 2020.2021.
FinancialRecent Accounting Pronouncements
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers, as if it had originated the contracts. Under the current business combinations guidance, such assets and liabilities measuredare recognized by the acquirer at fair value on the acquisition date. This new guidance is effective for the Company for its fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company is evaluating its potential impact but does not expect the new standard to have a recurring basis are summarized belowmaterial impact on the Company’s results of operations or cash flows.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments on October 1, 2020 (“ASU 2016-13”). ASU 2016-13 requires entities to use a new forward-looking “expected loss” model that reflects expected credit losses, including credit losses related to trade receivables, and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates, which generally will result in the earlier recognition of allowances for losses. As the Company was a Smaller Reporting Company at the time of issuance of the ASU, the Company expects to adopt the ASU effective October 1, 2023, including the interim periods within the fiscal year. Early application of the adoption is permitted. The Company is evaluating its potential impact but does not expect the new standard to have a material impact on the Company’s results of operations or cash flows.
In August 2020, the FASB issued ASU 2020-06, “Debt - Debt with Conversion and Other Options (subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (subtopic 815-40),” which reduces the number of accounting models in ASC 470-20 that require separate accounting for embedded conversion features. As a result, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost as long as no other features require bifurcation and recognition as derivatives. By removing those separation models, the effective interest rate of September 30, 2021:convertible debt instruments will be closer to the coupon interest rate. Further, the diluted net income per share calculation for convertible instruments will require the Company to use the if-converted method. The treasury stock method should no longer be used to calculate diluted net income per share for convertible instruments. The amendment will be effective for the Company for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years.
| 10 | ||||||||||||
|
|
|
| |||||||||
| Table of Contents |
NOTE 2 – SPIN-OFF OF NOTATION LABS INC.
On January 24, 2022, the Company completed the spin-off of its subsidiary Notation Labs Inc into a stand-alone company. Each holder of the common stock received one share of Notation labs, Inc common stock for every four shares of the Company’s common stock held at the close of business on December 10, 2021, the record date of the distribution. In contemplation of the Spin-off, the Notation Labs business, the historical results of operations, assets and liabilities, and the cash flows of Notation Labs are reflected as discontinued operations. Prior to the Separation, net assets attributable to Notation Labs were as follows:
|
|
|
| ||
Cash and cash equivalents |
|
| 79,517 |
| |
Due to related party | 486,500 | ||||
Total Assets of Discontinued Operations | 566,017 | ||||
|
|
|
|
| |
|
|
|
|
|
|
|
|
| 75,918 |
| |
Due to related party |
|
| 200 | ||
Notes payable - related party |
| 400,000 | |||
Notes payable | 21,340 | ||||
Royalty liability | 460,000 | ||||
Total current liabilities of discontinued operations | 957,458 | ||||
Net liabilities spun off to shareholders | (391,441 | ) | |||
FinancialDiscontinued Operations
The components of assets and liabilities measured at fair value on a recurring basisof discontinued operations that are summarized belowstated separately as of December 31, 2020:2021 in the Consolidated Balance Sheets are comprised of the following items:
|
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Financial Instruments |
| $ | - |
| $ | - |
| $ | 302,249 |
| $ | 302,249 |
December 31, | ||||
2021 | ||||
Assets | ||||
Cash and cash equivalents | 20,831 | |||
Total Assets of Discontinued Operations | ||||
Liabilities | ||||
Trade accounts payable and accrued liabilities | 76,739 | |||
Due to related party | 200 | |||
Notes payable - related party | 200,000 | |||
Notes payable | 21,340 | |||
Royalty liability | 460,000 | |||
Total current liabilities of discontinued operations | 758,279 | |||
| 11 |
|
| Table of Contents |
The following table provides a summarycomponents of loss from discontinued operations, net of tax for 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:Notation Labs business are as follows:
|
| Amount | |
Balance December 31, 2020 |
| $ | 302,249 |
Change in fair market value of derivative liabilities |
|
| (149,798) |
Settlement of derivative liability |
|
| (152,451) |
Balance September 30, 2021 |
| $ | - |
September 30, | ||||
2022 | ||||
Selling, general and administrative | 683 | |||
Research and development | 25,804 | |||
Other (income) expense, net | 2 | |||
loss from discontinued operations before taxes | 26,489 | |||
Taxes on income | - | |||
Loss from discontinued operations, net of taxes | 26,489 | |||
The components of cashflows from discontinued operations for the Notation Labs business are as follows:
September 30, | ||||
Cash Flows from Operating Activities: | 2022 | |||
Retained earnings transferred to Notation labs | 391,441 | |||
Net assets transferred to Notation labs | 134,831 | |||
Net liabilities transferred to Notation labs | (536,114 | ) | ||
Accounts payable and accrued liabilities | (825 | ) | ||
Net transfers to Notation Labs included in Net Cash used in operating activities included in Discontinued Operations | (10,667 | ) | ||
Cash Flows from Financing Activities: | ||||
Proceeds from notes payable related party | (114,000 | ) | ||
Net transfer to Notation labs from financing activities | 151,160 | |||
Net transfers to Notation Labs included in Net Cash Provided by Financing activities Discontinued Operations | 37,160 | |||
NOTE 23 - GOING CONCERN
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business.
Management evaluated all relevant conditions and events that are reasonably known or reasonably knowable, in the aggregate, as of the date the consolidated financial statements are issued and determined that substantial doubt exists about the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent on the Company’s ability to generate revenues and raise capital. The Company has not generated sufficient revenues from product sales to provide sufficient cash flows to enable the Company to finance its operations internally. As of September 30, 2021,2022, the Company had $168,325$1,054 cash on hand. At September 30, 20212022 the Company has an accumulated deficit of $49,101,922.$63,768,749. For the nine months ended September 30, 2021,2022, the Company had a net loss of $6,108,851,$3,787,349, and cash used in operations of $1,335,425.$1,539,196. 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 34 - INVENTORY
Inventories consist of the following at:
September 30, 2021 |
| December 31, 2020 |
| September 30, 2022 |
|
| December 31, 2021 |
| |||||
Finished goods |
| 66,826 |
|
| 24,654 |
|
| 118,286 |
|
|
| 119,418 |
|
Total | $ | 66,826 |
| $ | 24,654 |
| $ | 118,286 |
|
| $ | 119,418 |
|
| 12 |
| Table of Contents |
NOTE 45 - ACCOUNTS RECEIVABLE, NET
Accounts receivable consist of the following at:
September 30, 2021 |
| December 31, 2020 |
| September 30, 2022 |
|
| December 31, 2021 |
| |||||
Accounts receivable |
| 181,331 |
|
| 292,156 |
| 183,880 |
| 184,805 |
| |||
Allowance for doubtful accounts |
| (179,381) |
|
| (182,191) |
|
| (179,381 | ) |
|
| (179,381 | ) |
Total | $ | 1,950 |
| $ | 109,966 |
| $ | 4,499 |
|
| $ | 5,424 |
|
NOTE 5 - PREPAID CONSULTING EXPENSES
Prepaid consulting expense was $1,863,013 and $1,462,975 as of the September 30, 2021 and December 31, 2020, respectively. During the nine months ended September 30, 2021, the Company issued 1,404,406 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 $1,943,250 was the more readily determinable values. The Company recorded amortization of the prepaid stock compensation amounting to $1,543,212 and $902,020 for the nine months ended 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 |
| September 30, 2022 |
|
| December 31, 2021 |
| |||||
Note payable, secured, 5% interest, due May 2022 | $ | 4,350 |
| $ | 4,350 |
| $ | 19,450 |
| $ | 4,350 |
| |
Note payable, secured, 11% interest, due January 2023 |
| 300,000 |
|
| 500,000 | ||||||||
Note payable, secured, 12% interest, due May 2030 |
| 125,500 |
| 110,500 |
| ||||||||
Note payable, secured, 12% interest, due April 2022 |
| 110,500 |
|
| 65,000 |
|
| 102,000 |
|
|
| 102,000 |
|
Note payable, secured, 10% interest, due April 2022 |
| 102,000 |
|
| - | ||||||||
Total Notes Payable - related party | $ | 516,850 |
| $ | 569,350 |
| $ | 246,950 |
|
| $ | 216,850 |
|
Less unamortized debt discounts |
| - |
|
| - |
|
| - |
|
|
| - |
|
Total Notes Payable |
| 516,850 |
|
| 569,350 |
|
| 246,950 |
|
|
| 216,850 |
|
Less current portion |
| (216,850) |
|
| (69,350) |
|
| (136,450 | ) |
|
| (106,350 | ) |
Total Notes Payable - long term | $ | 300,000 |
| $ | 500,000 |
| $ | 110,500 |
|
| $ | 110,500 |
|
During the nine months ending September 30, 2022 the Company received $15,100 under a note payable from a director of the Company. As of September 30, 2021,2022 and December 31, 2020,2021, the Company had two notesone note payable due to an officer anda director of the Company in the amount of $114,850$19,450 and $69,350,$4,350, respectively. The notes havenote has an interest rate that range fromof 5%-12% and areis due on demand.
As of September 30, 2022 and December 31, 2021, the Company had one note payable due to an officer of the Company in the amount of $125,500 and $110,500, respectively. The note has an interest rate of 12%and is due on demand.
On April 30, 2021, the Company entered into a $150,000, 12% grid note payable with a Company controlled by the CEO that is due upon demand but no later than April 30, 2022. As of the nine month ended September 30, 2022 and December 31, 2021, the Company has received advances under the note of $102,000.$102,000 and $102,000, respectively.
Interest expense associated with the related party notes for the nine months ended September 30, 2022 and 2021 was $21,521 and $32,055 respectively.
Accounts payable and accrued liabilities – related party
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.
Rent expense associated with the lease agreement for the nine months ended September 30, 2022 and 2021 was $37,800 and $37,800, respectively. As of September 30, 2022 and December 31, 2021 the Company had amounts due associated with the lease of $93,700 and $59,100, respectively.
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| Table of Contents |
In January 2014, the Company executed a lease agreement with Perigon Companies, LLC, a related party. The lease term is one month at a rate of $4,000 per month for a period of one month 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. The lease was terminated as of January 1, 2019.
Rent expense associated with the lease agreement for the six months ended September 30, 2022 and 2021 was $0 and $0, respectively. As of September 30, 2022 and December 31, 2021 the Company had amounts due associated with the lease of $34,500 and $34,500, respectively.
During the nine months ended September 30, 2022 and 2021 the Company received $0 and $0 in advances from a related party, respectively. As of September 30, 2022 and December 31, 2021 the Company had received advances from a related party of $23,500 and $23,500, respectively.
NOTE 7 - NOTES PAYABLE
Notes payable consist of the following at:
|
| September 30, 2022 |
|
| December 31, 2021 |
| ||
Note payable, secured, 12% interest, due June 2024 |
| $ | 79,920 |
|
| $ | 93,411 |
|
Note payable, secured, 12% interest, due June 2024 |
|
| 300,000 |
|
|
| 300,000 |
|
Notes payable, secured, 30% interest, due June 2021 |
|
| 125,000 |
|
|
| 125,000 |
|
Notes payable, secured, 12% interest, due April 2022 |
|
| 95,000 |
|
|
| 95,000 |
|
Notes payable, secured, 10% interest, due June 2022 |
|
| - |
|
|
| 219,333 |
|
Notes payable, secured, 12% interest, due December 2023 |
|
| 10,000 |
|
|
| 10,000 |
|
Notes payable, unsecured, 0% interest, due on demand |
|
| 13,000 |
|
|
| 13,000 |
|
Notes payable, secured, 12% interest, due June 2024 |
|
| 140,920 |
|
|
| 201,000 |
|
Total notes Payable |
| $ | 763,840 |
|
| $ | 1,056,744 |
|
|
|
|
|
|
|
|
|
|
Less unamortized debt discounts |
|
| - |
|
|
| (56,367 | ) |
Total Notes Payable |
|
| 763,840 |
|
|
| 1,000,377 |
|
Less current portion |
|
| (763,840 | ) |
|
| (799,377 | ) |
Total Notes Payable - long term |
| $ | - |
|
| $ | 201,000 |
|
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 11,250 shares of common stock (post-Split) valued at $45,900. As of December 31, 2021, $165,516 of the debt discount was amortized and the note was shown net of unamortized discount of $0.
On February 5,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 6,875 shares of common stock(post-split) 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 agreedentered into an agreement to settle a certain $900,000 convertibleconsolidate the above two notes payable dated June 11, 2018 and January 30, 2019 into one $260,000, 12% note payable issued to a shareholder dated August 2, 2016 and $312,006 in accrued interest.due June 1, 2022. As part of the settlementconsideration the Company issued 1,000,000, 5 year warrants exercisable at $0.50 per share valued at $781,755 (See Note 9), 4,000,000the note holder 175,000 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$61,250, which was recognized as 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.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 $1,725,879$61,250 associated with the excess reacquisition cost of the new debt over the carrying value of the original debt. On January 4,May 1, 2022, for the issuance of 25,000 shares valued at $29,000 on the date of commitment, the loan was further extended to June 1, 2024. During the nine months ending September 30, 2022 the Company made principal payments totaling $13,490. As of September 30, 2022 and December 31, 2021 the Company entered into an agreement with the note holder to convert $200,000 of the principal balance of the note was $79,920 and to extend the payment date of the first interest payment of $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 nine months ended September 30, 2021 and 2020 was $32,055 and $41,882$93,411, 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:
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 |
| 14 |
| Table of Contents |
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 September 30, 2021,2022, 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, 20201, 2022, 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 100,00025,000 shares valued at $45,000 which was recognized as a debt discount. On May 16, 2019,$29,000 on the maturity date of commitment, the noteloan was further 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.2024. 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 nine months endedAs of September 30, 2022 and December 31, 2021 the Company paid $74,674 to the noteholder, and the balance of note was $174,353 as of 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$300,000 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 nine months ended September 30, 2021, $146,511 of the
discount was amortized and the note was shown net of unamortized discount of $0. During the nine months ended September 30, 2021, the Company paid $231,813 to the noteholder and the balance of note was $0 as of 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 nine months ended September 30, 2021, $211,622 of the discount was amortized and the note was shown net of unamortized discount of $47,560. During the nine months ended September 30, 2021, the Company paid $210,647 to the noteholder, and the balance of note was $47,560 as of September 30, 2021.$300,000, respectively.
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,December 31, 2022, the Company entered into a $101,125, 24% note payablenoteholder extended the due on July 12, 2021.date to June 8, 2022 for $1,250. As of September 30, 2022 and December 31, 2021 the balance of the note was paid$125,000 and $125,000, respectively. As of September 30, 2022 the note is in full.default.
On April 26, 2021, the Company entered into a $95,000, 12% note payable due on April 26, 2022.
On May 7, As of September 30, 2022 and December 31, 2021 the Company entered into a $10,000, 12%balance of the 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.was $95,000 and $95,000, respectively.
On June 28, 2021, the Company entered in to a $350,000 note payable, including an original issue discount of $35,000.$56,892. 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 1,262,669157,834 shares valued at $183,906,$169,198, 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, $60,5382022, $56,367 of the discount was amortized and the note was shown net of unamortized discount of $226,632.$0. During the nine months ending September 30, 2022 the Company made principal payments totaling $219,333. As of September 30, 2022 and December 31, 2021 the balance of the note was $0 and $219,333, respectively.
On September 3,August 18, 2021, the Company entered into a $150,000,$10,000, 12% grid note payable that is due 30 days upon demand.on August 18, 2022. On April 10, 2022 the note was amended to have a due date of December 7, 2023. As of the nine months ended September 30, 2022 and December 31, 2021 the balance of the note was $10,000 and $10,000, respectively.
On May 12, 2021, the Company has received advances under theentered into a $103,000, 24% note of $21,340.payable due on September 12, 2021.
On July 12, 2021, the Company entered into a $98,000, 12% note payable due on November 12, 2021.
| 15 |
|
| Table of Contents |
On November 12, 2021, the Company entered into an agreement to consolidate the two notes payable above dated May 4, 2020, we received funds12, 2021 and July 12, 2021 into one $201,000, 12% note due December 15, 2023. As consideration the Company issued the note holder 100,000 shares of common stock valued at $125,000 which was recorded as financing expense. The Company evaluated the modification under ASC 470-50 and determined that the Paycheck Protection Program,modifications were considered substantial and qualified for extinguishment accounting under such guidance. As such the Company recorded a partgain on extinguishment of debt of $15,643 associated with the deficit reacquisition cost of the CARES Act. The loan is serviced by Banknew debt over the carrying value of America, and the applicationoriginal debt. On May 1, 2022, for these funds required us to, in good faith, certify that the current economic uncertainty madeissuance of 100,000 shares valued at $87,000 on the date of commitment, the loan necessarywas further extended to support our ongoing operations. We usedJune 1, 2024. During the funds for payroll and related costs. The receipt of these funds, andnine months ending September 30, 2022 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.made principal payments totaling $60,080. As of September 30, 2022 and December 31, 2021 $101,327the balance of the note was forgiven$140,920 and $6,158$201,000, respectively.
On November 4, 2021, the Company entered into a $25,000, 0% note payable due on demand. As of September 30, 2022 and December 31, 2021 the balance of the note was due outstanding.$13,000 and $13,000, respectively.
Interest expense including amortization of the associated debt discount for the nine months ended September 30, 2022 and 2021 was $158,210 and 2020 was $804 and $439,$478,758, respectively.
Convertible notes payable, net of debt discount consist of the following:
September 30, 2021 |
| December 31, 2020 | |||
Convertible note payable, secured, 12% interest, due August 31, 2019, in default |
| 50,000 |
|
| 50,000 |
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 |
Convertible note payable, secured, 12% interest, due May 22, 2020, in default |
| 5,000 |
|
| 5,000 |
Convertible note payable, secured, 12% interest, due Feb 15, 2021 |
| 75,000 |
|
| 75,000 |
Convertible notes payable, secured, 4% interest, due October 14, 2020 |
| 75,000 |
|
| 75,000 |
Convertible note payable, secured, 10% interest, due February 8, 2020 |
| - |
|
| 50,000 |
Convertible note payable ,12% interest, due May 2020 |
| - |
|
| - |
Convertible note payable ,12% interest, due May 2020, in default |
| 162,750 |
|
| 168,750 |
Convertible note payable, secured, 10% interest, due February 8, 2020 |
| - |
|
| 50,000 |
Convertible note payable, secured, 12% interest |
| 68,205 |
|
| 44,060 |
Convertible note payable, secured, 10% interest, due October 2021 |
| - |
|
| 23,000 |
Convertible note payable, secured, 10% interest, due April 2022 |
| - |
|
| 26,000 |
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 |
Convertible notes payable, secured, 10% interest, due May through November 2022 |
| 560,000 |
|
| 435,000 |
Convertible note payable, secured, 10% interest, due January 6, 2022 |
| 119,143 |
|
| - |
Convertible note payable, secured, 12% interest, due February 8, 2022 |
| 100,000 |
|
| - |
Convertible notes payable, secured, 4% interest, due March 3, 2021 |
| 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 |
| 1,786,181 |
|
| 1,527,893 |
|
|
|
|
|
|
Less unamortized discounts |
| (339,896) |
|
| (465,719) |
Total convertible notes payable, net | $ | 1,446,285 |
| $ | 1,062,174 |
Less current portion |
| (1,430,874) |
|
| (970,839) |
|
|
|
|
|
|
Convertible notes payable, net - Long-term | $ | 15,411 |
| $ | 91,335 |
|
| September 30, 2022 |
|
| December 31, 2021 |
| ||
Convertible note payable, secured, 12% interest, due August 31, 2019, in default |
|
| 50,000 |
|
|
| 50,000 |
|
Convertible note payable, secured, 12% interest, due May 2, 2023 |
|
| 100,000 |
|
|
| 100,000 |
|
Convertible note payable, secured, 10% interest, due April 2023 |
|
| 45,000 |
|
|
| 50,000 |
|
Convertible note payable, secured, 10% interest, due May 22, 2020, in default |
|
| 5,000 |
|
|
| 5,000 |
|
Convertible note payable, secured, 12% interest, due Feb 15, 2024, in default |
|
| 75,000 |
|
|
| 75,000 |
|
Convertible notes payable, secured, 4% interest, due October 14, 2020, in default |
|
| 75,000 |
|
|
| 75,000 |
|
Convertible note payable ,12% interest, due May 2020, in default |
|
| 162,750 |
|
|
| 162,750 |
|
Convertible note payable, secured, 10% interest, due May 1, 2024 |
|
| 350,000 |
|
|
| 350,000 |
|
Convertible note payable, secured, 12% interest, due January 6, 2022 |
|
| - |
|
|
| 30,382 |
|
Convertible note payable, secured, 12% interest, due February 8, 2022 |
|
| 95,000 |
|
|
| 100,000 |
|
Convertible notes payable, secured, 4% interest, due March 3, 2021, in default |
|
| 25,000 |
|
|
| 25,000 |
|
Convertible notes payable, secured, 10% interest, due December 2021, in default |
|
| 10,000 |
|
|
| 10,000 |
|
Convertible notes payable, 8% interest, due February 2023 |
|
| 355,000 |
|
|
| - |
|
Convertible notes payable, 8% interest, due July 2023 |
|
| 28,200 |
|
|
|
|
|
Total notes payable |
|
| 1,375,950 |
|
|
| 1,033,132 |
|
|
|
|
|
|
|
|
|
|
Less unamortized discounts |
|
| (98,057 | ) |
|
| (1,700 | ) |
Total convertible notes payable, net |
| $ | 1,277,893 |
|
| $ | 1,031,432 |
|
Less current portion |
|
| (1,277,893 | ) |
|
| (1,031,432 | ) |
|
|
|
|
|
|
|
|
|
Convertible notes payable, net - Long-term |
| $ | - |
|
| $ | - |
|
On June 2, 2016, the Company issued $50,000 of principal amount of 12% secured convertible promissory notes and 50,0006,250 warrants to purchase common stock.stock (post-split). 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.in default. 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$8.00 per share.share (post-split). The notes were issued with warrants to purchase up to 50,0006,250 shares of the Company’s common stock at an exercise price of $1.50$12 per share.share (post-split). As of September 30, 2022 and December 31, 2021 the balance of the note was $50,000 and $50,000, respectively. As of the date of filing the loan is in default.
On May 2, 2017, the Company issued $100,000 of principal amount of 12%10% 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$6,250 shares (post-split) valued at $10,000 based on market value of the shares of $0.20$1.6 (post-split) on the date of issuance, was further extended to February 1, 2021, and was again extended on April 20, 2021 to May 2, 2022 for the 100,00012,500 shares (post-split) valued at $17,000, which is included in stock payable. On May 1, 2022, for the issuance of 12,500 shares valued at $17,000.$14,500 on the date of commitment, the loan was further extended to May 1, 2023. 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$4 per share.share (post-split). 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$8.00 per share.share (post-split). As of September 30, 2022 and December 31, 2021 the balance of the note was shown net$100,000 and $100,000, respectively. As of unamortized discountthe date of $0filing the loan is in default.
| 16 |
| Table of Contents |
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$4 per share.share (post-split). The notes were issued with warrants to purchase up to 10,0001,250 shares (post-split) of the Company’s common stock at an exercise price of $1.00$8.00 per share.share (post-split). One December 31, 2021 the note was amended to cease accruing interest as of May 1,2022 and the due date of the note was amended to April 1, 2023. As of September 30, 2022 and December 31, 2021 the balance of the note was shown net$45,000 and $50,000, respectively. As of unamortized discountthe date of $0.filing the loan was in default.
On May 22, 2017, the Company issued $5,000 of principal amount of 10% secured convertible promissory notes and 1,000125 warrants (post-split) to purchase common stock at an exercise price of $1.$8 (post-split). 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 1,000125 shares of the Company’s common stock at an exercise price of $1.00$8.00 per share.share (post-split). As of September 30, 2022 and December 31, 2021 the balance of the note was shown net of unamortized discount of $0.$5,000 and $5,000, respectively.
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 50,0006,250 shares of common stock (post-split) 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.and is currently in default. On February 9, 2019,22, 2022 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 maturitydue date of the note was changedfurther extended 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.15, 2024. As of September 30, 2022 and December 31, 2021 the balance of 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$75,000 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 nine months ended September 30, 2021 and 2020, the Company recorded amortization of the debt discount of $0 and $0,$75,000, respectively. On February 14, 2019, the noteholder agreed to extend the note through October 14, 2020. As of 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 September 30, 2021, the noteholder advanced a total of $100,460 and has made payments on the principal balance of $47,760. As of September 30, 2021, there was an outstanding balance on the note in the amount of $52,700. As of 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 60,0007,500 shares valued at $30,000, which was recognized as a debt discount. As of September 30, 2022 and December 31, 2021 the balance of the note was shown net of unamortized discount of $0.$50,000 and $50,000, respectively.
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$4 per share.share (post-split). 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 5,000625 shares (post-split) valued at $2,500, which was recognized as a debt discount. As of September 30,December 31, 2021, the shares have not been issued and were included in stock payable. As of September 30,December 31, 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 nine months ended September 30, 2021 and 2020, the Company recorded amortization of the debt discount of $0 and $235,681, respectively. As of September 30, 2022 and December 31, 2021 $562,000the balance 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$25,000 and accrued interest under the first tranche of $357,852 and on August 20, 2020, the Company paid the principal and accrued interest$25,000, respectively. As of the second tranche of $239,055. The fair value ofSeptember 30, 2022 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 paidnote was in capital.default.
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.funding, which has July 19, 2020 for the first tranche. 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 427,00053,375 shares (post-split) 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 nine months ended September 30, 2021 and 2020, the Company recorded amortization of the debt discount of $0 and $84,715, respectively. As of 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 September 30,December 31, 2021, the Company paid the $60,000 toward the principal balance under the first tranche of $60,000. As of September 30,December 31, 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 nine months ended September 30, 2021
and 2020, the Company recorded amortization of the debt discount of $9,741 and $9,291, respectively. As of September 30, 2021,2022, the debt discount has been amortized in full and the note was shown net of unamortized discount of $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. During the nine month ended September 30, 2021, the noteholder advanced a total of $48,300 and is due 96,600 shares valued at $13,274, based on market value of the shares on the date of funding and 162,000 warrants valued at $12,150 which was recorded as financing expense. For the nine months ended September 30, 2021 and 2020, the Company recorded amortization of the debt discount of $20,278 and $0, respectively.$0. As of September 30, 2022 and December 31, 2021 the balance of the note was shown net of unamortized discount of $0.$162,750 and $162,750, respectively.
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On May 5, 2020, the Company issued a $350,000 6%10% convertible note. The note is due on May 1, 2021 and is convertible at a rate of $0.125$1 per shares.share (post-split). As an incentive to enter into the agreement the noteholder was also granted 1,500,000187,500 shares (post-split) valued at $207,000, which was recognized as a debt discount. ForOn April 21, 2021, the nine months ended September 30, 2021 and 2020,noteholder agreed to extend the Company recorded amortizationnote through May 1, 2022. As an incentive to enter into the agreement, the noteholder was also granted 12,500 shares (post-split) valued at $20,000, which was recognized as financing expense. On May 1, 2022, for the issuance of 75,000 shares valued at $87,000 on the debt discountdate of $82,545 and $40,392, respectively.commitment, the loan was further extended to May 1, 2024. As of September 30, 2021,2022, the note was shown net of unamortized discount of $0.
As of September 30, 2022 and December 31, 2021 we issued secured convertible promissory notes in the aggregate principal amountbalance of $560,000 to several accredited investors through a private placement of which $125,000 in notes were issued during the nine months ended 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 nine months ended September 30, 2021 and 2020, $209,542 and $0 of the discount, respectively, was amortized and the note was shown net of unamortized discount of $270,855.
As part of the private placement, the Company paid a consultant a $50,000 retainer$350,000 and commissions equivalent to 10% of the gross proceeds received from the issuance of convertible notes which were recorded as financing cost.$350,000, respectively.
On January 6, 2021, the Company entered into a $275,000, 12%10% convertible note payable due January 6, 2022, including an original issue discount of $25,000.$35,000. 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 982,861122,857 shares of common stock (post-split) valued $167,086 and 152,000 five year19,000 five-year warrants exercisable at $0.125$1 (post-split) valued at $30,400. During the nine months ended September 30, 2021, $173,8862022 the Company made payments totaling $30,382 in principal, and $0the balance of the discount, respectively,loan as of September 30, 2022 and December 31, 2021 was amortized$0 and $30,382, respectively.
On February 8, 2021, the Company entered into an agreement to consolidate two notes payable above dated September 17, 2018 and February 8, 2019 into one $100,000, 12% note due February 8, 2022. The note is convertible into shares of common stock at a conversion price of $0.80 per share (post-split). As consideration the Company issued the note holder 12,500 shares of common stock (post-split) valued at $20,000 which was recorded as financing expense. As of the December 31, 2021, the shares were not issued and included in stock payable. 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 $20,000 associated with the excess reacquisition cost of the new debt over the carrying value of the original debt. During the nine months ending September 30, 2022 the Company made principal payments totaling $5,000. As of September 30, 2022 and December 31, 2021 the balance of the note was shown net of unamortized discount of $58,600.$95,000 and $100,000, respectively.
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$0.80 per shares.share (post-split). For the nine months ended September 30, 2021 and 2020,2022, the Company recorded amortization of the debt discount of $7,480.$1,700. As of September 30, 2021,2022, the note was shown net of unamortized discount of $2,520.$0. As of September 30, 2022 and December 31, 2021 the balance of the note was $25,000 and $25,000, respectively.
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$0.80 per share.share (post-split). As an inducement to enter into the agreement the Company also granted the noteholder 55,0006,875 shares of common stock.stock (post-split). The issuance of the note and shares resulted in a discount from the beneficial conversion feature totaling $10,000,$5,699, including $3,774$2,151 attributable to the conversion feature and $6,226$3,548 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, 2022 and December 31, 2021, the note balance was $10,000 and $1,000 and was shown net of unamortized discount of $4,153.$0 and $0, respectively.
On February 22, 2022 the Company entered into a $385,000, 12% note payable due on February 22, 2023. The note is convertible upon default at the higher of the closing price of the common stock on the closing date, or par value. As an inducement to enter into the agreement the Company also granted the noteholder 165,216 shares of common stock (post-split). The issuance of the note and shares resulted in a total debt discount of $158,147, with $123,147 attributable to the shares. During the nine months ending September 30, 2022 the Company made principal payments totaling $30,000. During the nine months ending September 30, 2022 $60,090 of the debt discount was amortized and the note is shown net of debt discount of $98,057. As of September 30, 2022 the balance of the note was $355,000.
On July 18, 2022, the Company entered into a $150,000 8% convertible grid note. The note is due on July 18, 2023 and is convertible at a rate of $0.80 per share (post-split). During the nine months ending September 30, 2022 the Company received $28,200 in advances from the note. As of September 30, 2022 the balance of the note was $28,200.
Interest expense including financing cost and amortization of the associated debt discount on all of the above convertible notes for the nine months ended September 30,September30, 2022 2021 was $160,296 and 2020 was $681,281, and $385,430, respectively.
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NOTE 9 - 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 108 - 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 was required to payhas entered into lease agreements as a $1,781 security deposit.
Thelessee for the use of office space. These lease agreement wasagreements are classified as an operating leaseleases 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. During the nine months ending September30, 2022 the Company agreed to renew the lease through December 31, 2025.
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.
In January 2022, the Company executed a lease agreement. The lease term was 13 months at a rate of $5,805 per month. The Company was required to pay a $5,805.33 security deposit.
Undiscounted Cash Flows
As of September 30, 2021,2022, the right of use asset and lease liability were shown on the consolidated balance sheet at $21,807$120,289 and $24,432,$116,786, 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 September 30, 2021:September30, 2022:
Amounts due as of September 30, 2021 |
| Operating Leases | |||||
2021 |
|
| 4,502 | ||||
Amounts due as of September 30, 2022 |
| Operating Leases |
| ||||
2022 |
|
| 20,054 |
| 30,344 |
| |
2023 |
| 63,693 |
| ||||
2024 |
| 22,634 |
| ||||
2025 |
|
| 21,886 |
| |||
Total minimum lease payments |
| $ | 24,556 |
| $ | 138,557 |
|
Less: effect of discounting |
|
| (94) |
|
| (21,771 | ) |
Present value of future minimum lease payments |
| $ | 24,462 |
| $ | 116,785 |
|
Less: current obligations under leases |
|
| (24,462) |
|
| (40,419 | ) |
Long-term lease obligations |
| $ | - |
| $ | 76,367 |
|
NOTE 11 - STOCK WARRANTSLegal Matter
On January 18,July 6, 2020, we received a letter from the staff of the Division of Enforcement of the Securities and Exchange Commission (the “Staff”) that indicated the Company may have violated certain rules and regulations regarding a late filing notification filed by the Company and that the Staff is conducting an informal inquiry into the matter. On April 29, 2021, the Company granted 19,000 (post-split) 3 years warrants exercisable at $8.00 per share withagreed to pay civil penalties of $25,000 to the issuanceSecurities and Exchange Commission in settlement of a convertible note payable, valued at $30,400. The warrants were valued using the Black-Scholes option pricing model. Assumptions usedmatter. Payment shall be made in the valuation includefollowing four installments: (1) $5,000 within 14 days of entry of the following: a) market valueorder; (2) $7,500 within 180 days of stock on measurement dateentry of $0.20; b) risk-free ratethe order; (3) $6,250 within 270 days of .46%; c) volatility factorentry of 419%; d) dividend yieldthe order; and (4) $6,250 within 360 days of 0%entry of the order. As of September 30, 2022, $5,000 was paid and $20,000 remained due.
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On February 2, 2021, the Company granted 50,000 (post-split) 3 years warrants exercisable at $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 18,750 shares of common stock and 18,750 warrants for cash proceeds of $15,000.
On February 11, 2021, the Company granted 125,000 3 years warrants (post-split) exercisable at $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 200,000 shares of common stock (post-split) and 200,000 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.NOTE 9 - STOCK WARRANTS
The following is a summary of stock warrants activity during the period ended September 30, 2021.2022
| Number of Shares |
| Weighted Average Exercise Price |
Balance, December 31, 2020 | 1,848,985 |
| $8.00 |
Warrants granted and assumed | 1,144,000 |
| $1.00 |
Warrants expired | - |
| - |
Warrants canceled | - |
| - |
Warrants exercised | - |
| - |
Balance outstanding and exercisable, September 30, 2021 | 2,992,985 |
| $1.76 |
|
| Number of Shares |
|
| Weighted Average Exercise Price |
| ||
Balance, December 31, 2021 |
|
| 2,510,485 |
|
| $ | 1.85 |
|
Warrants granted and assumed |
|
| - |
|
|
| - |
|
Warrants expired |
|
| - |
|
|
| - |
|
Warrants canceled |
|
| - |
|
|
| - |
|
Warrants exercised |
|
| - |
|
|
| - |
|
Balance outstanding and exercisable, September 30, 2022 |
|
| 2,510,485 |
|
| $ | 1.85 |
|
The following is a summary of stock warrants activity during the period ended September 30, 2020.December 31, 2021.
| Number of Shares |
| Weighted Average Exercise Price |
| Number of Shares |
|
| Weighted Average Exercise Price |
| ||
Balance, December 31, 2019 | 309,766 |
| $8.00 | ||||||||
Balance, December 31, 2020 |
| 1,848,985 |
| $ | 2.16 |
| |||||
Warrants granted and assumed | 1,043,595 |
| $0.96 |
| 1,144,000 |
| $ | 1.00 |
| ||
Warrants expired | - |
| - |
| - |
| - |
| |||
Warrants canceled | (208,333) |
| $8.00 |
| - |
| - |
| |||
Warrants exercised | - |
| - |
|
| (482,500 | ) |
| $ | 1.00 |
|
Balance outstanding and exercisable, September 30, 2020 | 1,145,028 |
| $0.96 | ||||||||
Balance outstanding and exercisable, December 31, 2021 |
|
| 2,510,485 |
|
| $ | 1.85 |
| |||
NOTE 1210 - 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. 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,March 7, 2022 the Company issued 122,858 (post-split)5,000 shares of the Company’s common stock for services valued $167,086 in connection with a notes payable dated January 6, 2021.at $5,000.
On February 4, 2021, the Company issued 271,875 (post-split) shares for services valued at $588,250.
On February 8, 2021, the Company issued 18,750 (post-split) shares of common stock and 18,750 warrants (post-split) for cash proceeds of $15,000.
On February 8, 2021, the Company issued 7,500 (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 8,22, 2022 convertible at $0.10 per share. As consideration the Company is to issue the note holder 12,500 shares of common stock (post-split). As of September 30, 2021, the shares have not been issued.
On February 17, 2021, the Company issued 14,540 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 4,375 shares (post-split) for services valued at $11,200.
On February 17, 2021, the Company sold 200,000 shares of common stock (post-split) and 200,000 warrants for cash proceeds of $160,000.
On February 24, 2021, the Company issued 62,500 shares (post-split) to extend a certain note payable dated January 25, 2019.
On February 24, 2021, the Company issued 487,500 shares (post-split) for services valued at $649,000.
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 12,500 shares of common stock (post-split) valued at $17,000. As of June 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 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 have 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%$385,000, 12% note payable due on December 15, 2021.February 22, 2023. The note is convertible upon default at $0.10 per share.the higher of the closing price of the common stock on the closing date, or par value. As an inducement to enter into the agreement the Company also granted the noteholder 6,875165,216 shares of common stock valued at $123,147 (post-split).
During the three months ending March 31, 2022 the Company agreed to issue 2,140,000 shares of common stock valued at $608,990 for services. As of September 30, 2022 the shares had not been issued and were recorded as stock payable.
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On January 24, 2022 the Company completed the spin-off of its subsidiary Notation Labs Inc into a stand-alone Company. On August 20, 2020 each holder of the common stock received one share of Notation labs, Inc common stock for every four shares of the Company’s common stock held at the close of business on December 10, 2021, the record date of the distribution. As a result of the spin-off the Notation Labs financials were deconsolidated from those of the Company and an increase of $391,441 in accumulated deficit was recorded.
During the six months ending June 30, 2021, these2022 imputed interest of $19,595 was recorded as additional paid in capital.
During the six months ending June 30, 2022 126 shares were not issued and included in Stock payable.of the Company’s common stock was cancelled as rounding shares.
On June 28, 2021,May 1, 2022, 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 157,834issued 75,000 shares of common stock (post-split) valued at $169,198 which$87,000 to extend a certain note payable dated May 1, 2020.
On May 2, 2022, the Company issued 12,500 shares of common stock (post-split) valued at $14,500 to extend a certain note payable dated May 2, 2017.
On June 1, 2022, the Company agreed to issue 100,000 shares (post-split) to extend a certain note payable dated February 2, 2018. As of September 30, 2022 the shares had not yet been issued.
During the three months ending June 30, 2022 the Company agreed to issue 2,200,000 shares of common stock valued at $642,990 for services. As of September 30, 2022 the shares had not been issued and were recorded as stock payable.
On August 1, 2022 the Company received and cancelled 126,440 shares of common stock valued at $158,050 that had previously been issued on July 12,as commitment shares for a certain notes payable dated June 28, 2021.
During the ninethree months endedending September 30, 2021,2022 the Company wasagreed 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 500,0002,200,000 shares of common stock (post-split)valued at $642,990 for cash proceedsservices. As of $315,000.September 30, 2022 the shares had not been issued and were recorded as stock payable.
NOTE 11 - SUBSEQUENT EVENTS
On July 7, 2021,November 9, 2022 the Company issued 403,125 shares (post-split)18,750 of the Company’s common stock for services valued at $468,000.services.
On August 4, 2021,November 30, 2022 the Company issued 37,500115,973 shares of the Company’s 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 extend a certain note payable dated January 25, 2019.November 12, 2021.
On SeptemberDecember 15, 2021,2022 the Company issued 40,00090,000 shares (post-split) for services valued at $44,800.of the Company’s common stock to settle $18,000 in accrued interest due to a note holder.
On September 16, 2021,May 3, 2023 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 900,00084,400 shares of the Company’s common stock (post-split)as an incentive for cash proceeds of $90,000. As if September 30, 2021, the share were not issued and included in stock payable.
NOTE 13 - SUBSEQUENT EVENTSa certain convertible note dated July 18, 2022.
On October 15, 2021,May 3, 2023 the Board of DirectorsCompany issued 2,200,000 of the Company authorized a plan to Spin-Off Notation Labs as an independent company, anticipated to be accomplished by means of a pro rata distribution of shares ofCompany’s common stock for services.
On April 6, 2023, the Company was served a Summons for an Amended Complaint filed in the state of Notation LabsFlorida with claims for Strict Liability, Negligence and Breach of Implied Warranty. The complaint, filed by an insurance company, stems from its payments for claims filed by a policy holder on two separate occasions. The first insurance claim payment was due to all of our holders of shares of common stock ofa leak caused by improper installation in which the Company. Followingcontractor failed to meet local codes. The second insurance claim payment followed the Spin-Off, we will no longer own any equitycontractor’s failure to properly repair the improper installation. The complaint states that the contractor failed to follow basic installation guidelines supplied with the product in Notation Labs and Notation Labs will operate as an independent company.either incident, resulting in damages. The exact management structure of Notation Labs has not been determined but will be determined priorCompany believes the alleged claims in the suit related to the Spin-Off.Company and its products are without merit.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This Quarterly Report on Form 10-Q contains forward-looking statements. Any statements contained herein that are not historical fact may deem to be forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The words “believes,” “anticipates,” “plans,” “expects,” “intends,” and similar expressions identify some of the forward-looking statements. Forward-looking statements are not guarantees of performance or future results and involve risks, uncertainties and assumptions. These statements include, among other things, statements regarding:
| · | our ability to diversify our operations; |
· | inability to raise additional financing for working capital; | |
· | the fact that our accounting policies and methods are fundamental to how we report our financial condition and results of operations, and they may require our management to make estimates about matters that are inherently uncertain; | |
· | our ability to attract key personnel; | |
· | our ability to operate profitably; | |
· | deterioration in general or regional economic conditions; | |
· | adverse state or federal legislation or regulation that increases the costs of compliance, or adverse findings by a regulator with respect to existing operations; | |
· | changes in U.S. GAAP or in the legal, regulatory and legislative environments in the markets in which we operate; | |
· | the inability of management to effectively implement our strategies and business plan; | |
· | inability to achieve future sales levels or other operating results; | |
· | the unavailability of funds for capital expenditures; | |
· | other risks and uncertainties detailed in this report; |
as well as other statements regarding our future operations, financial condition and prospects, and business strategies. These forward-looking statements are subject to certain risks and uncertainties that could cause our actual results to differ materially from those reflected in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this Quarterly Report on Form 10-Q, and in particular, the risks discussed under the heading “Risk Factors” in Part II, Item 1A and those discussed in other documents we file with the Securities and Exchange Commission. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.
References in the following discussion and throughout this Quarterly Report to “we”, “our”, “us”, “TKLS”, “Trutankless”, “Bollente”, “the Company”, and similar terms refer to Trutankless, Inc. unless otherwise expressly stated or the context otherwise requires.
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AVAILABLE INFORMATION
AVAILABLE INFORMATION
The Company’sOur common stock symbol is TKLS,was quoted and is presently traded on the OTCQB maintained byover-the-counter market (the “OTC Markets”) under the trading symbol TKLS. SEC amendments to Rule 15c2-11 became effective on September 28, 2021, as a result our common stock ceased to be quoted on the OTC Markets Group, Inc.Market, and the Company’s common stock may be quoted and traded on the OTC Expert Market under the symbol TKLS. We file annual, quarterly and other reports and other information with the SEC. You can read these SEC filings and reports over the Internet at the SEC’sSEC'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’sCompany's trutankless water heater, with Wi-Fi capability and trutankless’trutankless' proprietary apps offered in the iOS and AndroidGoogle play store, will augment existing products in the hope automation space.
Trutankless® ProductsThe Company spun off its wholly owned subsidiary, Notation Labs, Inc. with shareholders of the Company to receive pro rata ownership of the spun off company in the form of an equity dividend distribution. Common shares of Notation Labs, Inc. were issued to shareholders of record December 10th, 2021 and the spin off occurred on January 24th, 2022, with each shareholder of record receiving 1 share in the subsidiary for every 4 shares in the Company held as of the Record Date.
We manufacture and distribute trutankless® water heaters, a line of new, high-quality, highly efficient electric tankless water heaters. Trutankless® Products
Our trutankless® water heaters are engineeredwere designed to outperform and outlast both its tank and tankless predecessors in energy efficiency, output, and durability. It providesprovide an endless hot water onsupply because they are designed to heat water as it flows through the system. We believe that our products have an improved design and greater efficiency thereby saving energy and offering reduction operating costs compared to tank systems because unlike tanks, if there is no hot water demand, for a whole householdno energy is being used. In addition, we intend to improve manufacturing and itlife-cycle costs with an improved design conceived not only to increase efficiency, but also integrates with home automation systems.
the longevity of our products versus competitive units. We have several features and design innovations which are new to the electric tankless water heater market that we believe will give our products a sustainable competitive advantage over our rivals in the market.
Our trutankless® water heaters arewill be available through wholesale plumbing distributors, including Home Depot Pro, Ferguson, Hajoca, WinSupply locations, Morrison Supply, and several regional distributors. A partial listing of wholesalers may be found on our website (www.trutankless.com).
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We created a custom heat exchanger for our trutankless® product line that utilizes our patented technology to heat water as it flows through the system, which means customers need not worry about running out of hot water. We believe we’ve selected the bestare developing systems using upgraded materials, availableelectronics, 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 31,1, 2019, we generated $1,908,708. As of December 31, 2020, we generated $1,661,278. As of the fiscal year ended December 31, 2021, we generated $246,032 in revenue. For the nine months ended September 30, 2021,2022, we generated $199,371.$24,639.
In July of 2014, we launchedWe are developing a new, customizable onlineapp and control panel for our trutankless® line of smart electric water heaters. From the dashboard,Using our app, residential and commercial users canwill be able to 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.mobile device.
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. Wewe plan to continue intend to take advantage of these powerful macro-economic trends.
our relationships as we launch our totally redesigned trutankless® brand whole home tankless water heaters.
Home.trutankless.comWww.trutankless.com is available as a service to consumers of trutankless® water heaters. We expect to have applicationsnew apps available for download from the Google Play and Apple iOS and Goggle Play stores, which likewill integrate with other devices in the online control panels, allows monitoring and control of the tankless systems.Smart Home market.
Industry Recognition and Awards
Trutankless® received the Best of IBS 2014 Award for Best Home Technology Product from the National Association of Home Builders (NAHB) at that year’s International Builders Show (IBS) in Las Vegas. The IBS is produced by NAHB and isVegas, 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’sGovernor's Award of Merit for Energy and Technology Innovation for the trutankless line of electric tankless heaters at Arizona Forward’sForward's 2014 Environmental Excellence Awards.
Trutankless® receivedAwards, as well as Kitchen and Bath Business Magazine’s 2014 K*BB Product Innovator’s Award Judges Choice Product.
In 2015, Trutankless was named in Buildings Magazine’s 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,Awards, Appliance Design Magazine named Trutankless among the winners of their annual Excellence in Design Award, and the editors of Green Builder Magazine named Trutankless as one of their picks as a “Hot Product”.
Consumer Reports Magazine featured Trutankless in its Top 5 Remodeling Trends for 2016, and leading home improvement website, houzz.com, honored the company with 4 consecutive “Best of Houzz” honors from 2014 through 2018.
We expect our new line of water heaters will garner similar accolades once the product has been launched with proprietary improvements which will continue to lead the market in the tankless water heating technology which we expect will continue to be driven, in large part, through industry professionals in their local markets.
Customers and Markets
We sellintend to continue selling our products to plumbing wholesale distributors and dealers.
Approximately 94%100% and 98% 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 20152022 and 93.5% of our sales in 20142021, 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 arehave historically been sold to independent dealersvarious home builders throughout the United States.States in both single family and multi-family applications.
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Manufacturing and Logistics
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 pricingfinancial and payment terms,arrangements, warranty, shipping, and delivery terms. Weterms with a large US based contract manufacturer with vertically integrated capabilities for electro-mechanical box builds. Finished product 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 arebe generally shipped FreeFreight on Board (FOB) Shanghai via oceanstandard LTL freight and are to be either drop-shipped to customers directly with some inventory to be warehoused at Associated Global Systems located in Phoenix, Arizona. Merchandise is typically shipped using common carriers or freight companies which are selected at the time of shipment based on order volume and the best available rates.
Recent Developments
COVID-19 Pandemic
In December 2019, an outbreak of a novel strain of coronavirus originated in Wuhan, China (“COVID-19”) and has since spread worldwide, including to the Unites States (the “U.S.”), posing public health risks that have reached pandemic proportions (the “COVID-19 Pandemic”). The COVID-19 Pandemic poses a threat to the health and economic wellbeing of our employees, customers and vendors. The operation of all of our facilities is critically dependent on our employees who staff these locations. To ensure the wellbeing of our employees and their families, we have provided all of our employees with detailed health and safety literature on COVID-19, such as the Center for Disease Control (the “CDC”)’s industry-specific guidelines for working with the deceased who were and may have been infected with COVID-19. In addition, our procurement and safety teams have updated and developed new safety-oriented guidelines to support daily field operations and provided personal protection equipment to those employees whose positions necessitate them, and we have implemented work from home policies at our corporate office consistent with CDC guidance to reduce the risks of exposure to COVID-19 while still supporting the families that we serve.
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
Results of Operations for the three months ended September 30, 20212022 compared with the three months ended September 30, 2020.2021.
Revenues
In the three months ended September 30, 2021,2022, we generated $16,557$4,627 in revenues, as compared to $361,008$16,557 in revenues in the prior year. The decrease in sales was attributable to less sales of our trutankless® residential and light commercial products.
Cost of goods sold was $11,392 in the three months ended September 30, 2022, as compared to $5,663 in the three months ended September 30, 2021, as compared to $309,269 in the three months ended September 30, 2020.2021. This increase in cost of goods sold was primarily attributable to the decreased revenue.an increase in freight costs.
To the knowledge of management, the Company is unaware of any trends or uncertainties in the sales or costs of our products and services for the periods discussed.
Expenses
Operating expenses totaled $2,148,657$993,663 during the three months ended September 30, 20212022 as compared to $964,316$2,148,657 in the prior year. In the three-month period ended September 30, 2021,2022, our expenses primarily consisted of General and Administrative of $688,199,$865,296, Research and development of $37,27357,041 and Professional fees of $1,423,123.$71,326.
General and administrative fees increased $399,429,$177,097, or approximately 138%26% to $865,296 for the three months ended September 30, 2022 from $688,199 for the three months ended September 30, 2021 from $288,7702021. This increase was primarily the result of an increase in consulting fees.
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Research and development increased $19,768, or approximately 53% to $57,041 for the three months ended September 30, 2020. This increase was primarily due to an increase in wages and marketing.
Research and development increased to2022 from $37,273 for the three months ended September 30, 2021 from $29,734 for the three 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 increased $777,373, or approximately 120% to $1,423,185 for the three months ended September 30, 2021 from $345,812 for the three months ended September 30, 2020. Professional fees increased due to an increase in consulting fees associated with business development.
Other Expenses
Other expenses decreased to $26,492 in the three months ended September 30, 2021 from the three months ended September 30, 2020. The decrease was the result of a increase in gain on forgiveness of debt.
Net Loss
In the three months ended September 30, 2021, we generated a net loss of $2,423,504, an increase of $1,198,694 from $1,224,810 for the three months ended 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, 2020.2021. 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,$1,351,859, or approximately 23%95% to $3,140,925$71,326 for the ninethree months ended September 30, 20212022 from $4,394,334$1,423,185 for the ninethree months ended September 30, 2020.2021. Professional fees decreased due to a decrease in consulting fees associated with business development.
Other Expenses
Other expenses decreased $1,613,130$345,020 to $1,498,513an other income of $59,279 in the ninethree months ended September 30, 20212022 from $3,111,643$285,741 in the ninethree months ended September 30, 2020.2021. The decrease was the result of a loss on extinguishmentthe cancellation of notes that occurred duringpreviously issued commitment shares.
Net Loss
In the ninethree months ended September 30, 2020.
Net Loss
In the nine months ended September 30, 2021,2022, we generated a net loss of $6,108,851,$941,149, a decrease of $2,222,619$1,482,355 from $8,331,470$2,423,504 for the ninethree months ended September 30, 2020.2021. This decrease was attributable to a decrease in stock based consulting payments.overall expenditures.
Going Concern
The accompanying consolidated financial statements have been prepared in accordanceconformity with generally accepted accounting principles generally accepted inthat contemplate the United Statescontinuance of America onthe Company as a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business.concern.
Management evaluated all relevant conditions and events that are reasonably known or reasonably knowable, in the aggregate, as of the date the consolidated financial statements are issued and determined that substantial doubt exists about the Company’s ability to continue as a going concern.concern within one year from the date of this filing. The Company’s ability to continue as a going concern is dependent on the Company’s ability to generate revenues and raise capital. The Company has not generated sufficient revenues from product sales to provide sufficient cash flows to enable the Company to finance its operations internally. As of September 30, 2021,2022, the Company had $168,325$1,054 cash on hand. At September 30, 20212022, the Company has an accumulated deficit of $49,101,922.$63,768,749. For the nine months ended September 30, 2021,2022, the Company had a net loss of $6,108,851,$3,787,349, and cash used in operations of $1,330,425.$1,539,196. These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year from the date of filing.concern.
Over the next twelve months management plans to raise additional capital andthe Company intends 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 September 30, 2021,2022, we had an accumulated deficit of $49,101,922.$63,768,749. Primarily because of our history of operating losses and our recording of note payables, we have a working capital deficiency of $4,213,645$5,137,970 at September 30, 2021.2022. Losses have been funded primarily through issuance of common stock and borrowings from our stockholders and third-party debt. As of September 30, 2021,2022, we had $168,325$1,054 in cash, $66,826$4,499 in inventory,accounts receivable, and $1,863,013$118,286 in prepaid expenses.inventory. We used net cash in operating activities of $1,330,425$1,539,196 for the nine months ended September 30, 2021.2022.
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Cash Flows from Operating, Investing and Financing Activities
The following table provides detailed information about our net cash flow for all financial statement periods presented in this Quarterly Report. To date, we have financed our operations through the issuance of stock and borrowings.
The following table sets forth a summary of our cash flows for the nine months ended September 30, 20212022 and 2020:2021:
|
| Nine months ended September 30, |
| Three months ended September 30, |
| |||||||||
|
| 2021 |
| 2020 |
| 2022 |
|
| 2021 |
| ||||
Net cash used in operating activities |
| $ | (1,335,425) |
| $ | (1,390,802) |
| $ | (1,539,196 | ) |
| $ | (1,335,425 | ) |
Net cash used in investing activities |
|
| (25,298) |
| - |
| - |
| (25,298 | ) | ||||
Net cash provided by financing activities |
|
| 1,337,420 |
|
| 1,413,145 |
|
| 1,501,355 |
|
|
| 1,377,420 |
|
Net increase/(decrease) in Cash |
|
| 16,697 |
|
| 22,343 |
| (37,841 | ) |
| 16,697 |
| ||
Cash, beginning |
|
| 151,628 |
|
| 4,342 |
|
| 38,895 |
|
|
| 151,628 |
|
Cash, ending |
| $ | 168,325 |
| $ | 26,685 |
| $ | 1,054 |
|
| $ | 168,325 |
|
Operating activities - Net cash used in operating activities was $1,335,425$1,539,196 for the nine months ended September 30, 2021,2022, as compared to $1,390,802$1,335,425 used in operating activities for the same period in 2020.2021. The decrease in net cash used in operating activities was primarily due to an increasea decrease in consulting contract cost.
Investing activities - Net cash used in investing activities for the nine months ended September 30, 20212022 was $25,298$0 as compared to $0$25,298 for the same period of 2020.2021. The increasedecrease in net cash used in investing activities was attributable to the purchase of additional equipment duringassets in the period.prior year.
Financing activities - Net cash provided by financing activities for the nine months ended September 30, 20212022 was $1,337,420$1,501,355 as compared to $1,413,145$1,377,420 for the same period of 2020.2021. The decreaseincrease of net cash provided by financing activities was mainly attributable to less debtincreased equity financing.
Ongoing Funding Requirements
As of September 30, 2021,2022, we continue to use traditional and/or debt financing to provide the capital we need to run the business. It is possible that we may need additional funding to enable us to fund our operating expenses and capital expenditures requirements.
Until such time, if ever, as we can generate substantial product revenues, we intend to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements. There can be no assurance that any of those sources of funding will be available when needed on acceptable terms or at all. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of existing stockholders. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise funds through collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings or relationships with third parties when needed or on acceptable terms, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts; abandon our business strategy of growth through acquisitions; or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
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Critical Accounting Policies and Estimates
The preparation of our financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and judgments that affect our reported assets, liabilities, revenues, and expenses, and the disclosure of contingent assets and liabilities. We base our estimates and judgments on
historical experience and on various other assumptions we believe to be reasonable under the circumstances. Future events, however, may differ markedly from our current expectations and assumptions.
There have been no material changes to our critical accounting policies as compared to the critical accounting policies and significant judgements and estimates disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020,2021, filed with the SEC on June 24, 2021.November, 30 2022.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
This item in not applicable as we are currently considered a smaller reporting company.
Item 4. Controls and Procedures
Evaluation of disclosure controls and procedures
As required by Rule 13a-15 under the Exchange Act, as of the end of the Company’s last fiscal quarter, the Company carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of the Company’s current management, including the Company’s Chief Executive Officer and Principal Financial Officer (Principal Financial and Accounting Officer), who concluded that the Company’s disclosure controls and procedures are not effective.
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in the Company reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in Company reports filed under the Exchange Act is accumulated and communicated to management, including the Company’s Chief Executive Officer and Principal Financial Officer (Principal Financial and Accounting Officer), as appropriate, to allow timely decisions regarding required disclosure.
Changes in internal control over financial reporting
Management reviews the Company’s system of internal control over financial reporting and makes changes to the Company’s processes and systems to improve controls and increase efficiency, while ensuring that the Company maintains an effective internal control environment. Changes may include such activities as implementing new, more efficient systems, consolidating activities and migrating processes.
During the Company’s last fiscal quarter, there was no change in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.
On July 6, 2020, we received a letter from the staff of the Division of Enforcement of the Securities and Exchange Commission (the “Staff”) that indicated the Company may have violated certain rules and regulations regarding a late filing notification filed by the Company and that the Staff is conducting an informal inquiry into the matter. On April 29, 2021, the Company agreed to pay civil penalties of $25,000 to the Securities and Exchange Commission in settlement of the matter. Payment shall be made in the following four installments: (1) $5,000 within 14 days of entry of the order; (2) $7,500 within 180 days of entry of the order; (3) $6,250 within 270 days of entry of the order; and (4) $6,250 within 360 days of entry of the order. As of September 30, 2022, $5,000 was paid and $20,000 remained due.
On September 14th, 2021, a Company subsidiary received a demand for arbitration through the American Arbitration Association pursuant to a manufacturing services agreement with Cypress Holdings Ltd d/b/a Cypress Industries alleging Breach of Contract for non-payment of invoices. The Company believes the claim is without merit and has filed a defense and counter claim. After Cypress Industries failed to cure many Breaches of its manufacturing services agreement, including failure to deliver a single Trutankless unit, the Company cancelled its purchase order with Cypress Industries. The Company is seeking substantial relief, including lost profit, due to the Breach of Contract, Fraudulent Inducement, Misrepresentation, Unjust Enrichment, and Negligence of Cypress Industries. The Company believes its claims to be meritorious and that it will prevail in this matter. Since it presently is not possible to determine the outcome ofsubsequently settled this matter no provision has been madeon February 28, 2022.
On April 6, 2023, the Company was served a Summons for an Amended Complaint filed in the financial statementsstate of Florida with claims for Strict Liability, Negligence and Breach of Implied Warranty. The complaint, filed by an insurance company, stems from its payments for claims filed by a policy holder on two separate occasions. The first insurance claim payment was due to a leak caused by improper installation in which the ultimate resolution.contractor failed to meet local codes. The second insurance claim payment followed the contractor’s failure to properly repair the improper installation. The complaint states that the contractor failed to follow basic installation guidelines supplied with the product in either incident, resulting in damages. The Company believes the alleged claims in the suit related to the Company and its products are without merit.
Item 1A. Risk Factors
The risk factors listed in our 20202021 Form 10-K,10-K/A, filed with the Securities Exchange Commission on June 24, 2020,November 30, 2022, are hereby incorporated by reference.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
On March 7, 2022 the Company issued 5,000 shares of the Company’s common stock for services valued at $5,000.
On February 22, 2022 the Company entered into a $385,000, 12% note payable due on February 22, 2023. The note is convertible upon default at the higher of the closing price of the common stock on the closing date, or par value. As an inducement to enter into the agreement the Company also granted the noteholder 165,216 shares of common stock valued at $123,147(post-split).
On January 24, 2022 the Company completed the spin-off of its subsidiary Notation Labs Inc into a stand-alone Company. On August 20, 2020 each holder of the common stock received one share of Notation labs, Inc common stock for every four shares of the Company’s common stock held at the close of business on December 10, 2021, the record date of the distribution. As a result of the spin-off the Notation Labs financials were deconsolidated from those of the Company and an increase of $391,441 in accumulated deficit was recorded.
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On May 1, 2022, the Company issued 75,000 shares (post-split) to extend a certain note payable dated May 1, 2020.
On May 2, 2022, the Company issued 12,500 shares (post-split) to extend a certain note payable dated May 2, 2017.
On June 1, 2022, the Company agreed to issue 100,000 shares (post-split) to extend a certain note payable dated February 2, 2018. As of October 17, 2022 the shares had not yet been issued.
On July 1, 2021 ,14, 2022, the Company issued 6,875entered into a $750,000, 12% line of credit with a Company controlled by a shareholder that is due on December 15,2023 and convertible into shares (post-split) forof the receipt of additional advances under a certain note dated April 30, 2020 valuedCompany’s common stock at $7,450.$.325 per share.
On July 1, 2021,14, 2022, the Company issued 500,000entered into a $500,000, 12% line of credit with a Company controlled by a shareholder that is due on December 15,2023 and convertible into shares of the Company’s common stock at $.08 per share.
On August 1, 2022 the Company received and cancelled 126,440 shares of common stock (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.$158,050 that had previously been issued as commitment shares for a certain notes payable dated June 28, 2021.
On August 4, 2021,2022 the Company issued 37,50087,500 shares of the Company’s common stock (post-split) for cash proceeds of $35,000.to extend a certain notes payable dated May 2, 2017 and May 1, 2022.
On August 4, 2021,November 9, 2022 the Company issued 300,000 shares (post-split)18,750 of the Company’s common stock for services valued at $359,000.services.
On September 15, 2021,November 30, 2022 the Company issued 3,750115,973 shares of the Company’s common stock (post-split), in connection with an additional $15,000 advance received on related to extend a certain note payable dated January 25, 2019.November 12, 2021.
On SeptemberDecember 15, 2021,2022 the Company issued 40,00090,000 shares (post-split) for services valued at $44,800.of the Company’s common stock to settle $18,000 in accrued interest due to a note holder.
On September 16, 2021,May 3, 2023 the Company issued 370,00084,400 shares (post-split)of the Company’s common stock as an incentive for services valued at $545,400.a certain convertible note dated July 18, 2022.
On May 3, 2023 the Company issued 2,200,000 of the Company’s common stock for services.
We believe that the above issuances and sale of the securities was exempt from the registration and prospectus delivery requirements of the Securities Act of 1933 by virtue of Section 4(2) and Regulation D Rule. The securities were sold directly by us and did not involve a public offering or general solicitation. The recipients of the securities were afforded an opportunity for effective access to files and records of the Registrant that contained the relevant information needed to make their investment decision, including the financial statements and 34 Act reports. We reasonably believed that the recipients, immediately prior to the sale of the securities, were accredited investors and had such knowledge and experience in our financial and business matters that they were capable of evaluating the merits and risks of their investment. The management of the recipients had the opportunity to speak with our management on several occasions prior to their investment decision. There were no commissions paid on the issuance and sale of the securities.
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Issuer Purchases of Equity Securities
The Company did not repurchase any of its equity securities during the period ended September 30, 2021.2022.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures
Not applicable.applicable
Item 5. Other Information.
None.
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Item 6. Exhibits.
Exhibit No. |
| Description |
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101.INS |
| Inline XBRL Instance Document |
|
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101.SCH |
| Inline XBRL Taxonomy Extension Schema |
|
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101.CAL |
| Inline XBRL Taxonomy Extension Calculation Linkbase |
|
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101.DEF |
| Inline XBRL Taxonomy Extension Definition Linkbase |
|
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101.LAB |
| Inline XBRL Taxonomy Extension Label Linkbase |
|
|
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101.PRE |
| Inline XBRL Taxonomy Extension Presentation Linkbase |
104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). |
* Filed herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
TRUTANKLESS,INC.
(Registrant)
By: | /s/ Michael Stebbins | |
Michael Stebbins, CEO, Principal Financial Officer and Principal Executive Officer |
| |
Date: |
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