Quarterly Report (10-q)

Date : 08/17/2018 @ 11:04AM
Source : Edgar (US Regulatory)
Stock : Trutankless, Inc. (TKLS)
Quote : 0.352  -0.138 (-28.16%) @ 9:30PM

Quarterly Report (10-q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549


Form 10-Q


[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended June 30, 2018


[  ]  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)


Nevada

 

26-2137574

(State or other jurisdiction

of incorporation or organization)

 

(I.R.S. Employer Identification No.)


15720 N. Greenway Hayden Loop, Suite 2

 

 

Scottsdale, Arizona

 

85260

(Address of principal executive offices)

 

(Zip Code)


(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 [X]  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 [X]  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 filer  [  ]

Smaller reporting company  [X]

(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 [X]


The number of shares of Common Stock, $0.001 par value, outstanding on August 14, 2018, was 31,734,906 shares.





TRUTANKLESS INC.

QUARTERLY PERIOD ENDED JUNE 30, 2018


Index to Report on Form 10-Q




PART I - FINANCIAL INFORMATION

3

Item 1. Financial Statements

3

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

15

Item 3. Quantitative and Qualitative Disclosure About Market Risk

23

Item 4. Controls and Procedures

23

PART II - OTHER INFORMATION

25

Item 1. Legal Proceedings.

25

Item 1A. Risk Factors

25

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

25

Item 3. Defaults Upon Senior Securities.

26

Item 4. Mine Safety Disclosures

26

Item 5. Other Information.

26

Item 6. Exhibits.

27

SIGNATURES

28




















2



PART I - FINANCIAL INFORMATION


Item 1. Financial Statements


TRUTANKLESS INC.

(F.K.A. BOLLENTE COMPANIES INC.)

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)


 

June 30, 2018

 

December 31, 2017

 

 

 

 

ASSETS

 

 

 

Current assets

 

 

 

 

Cash

$

64,400

 

$

78,599

 

Accounts receivable

 

245,234

 

 

129,246

 

Inventory

 

29,931

 

 

157,487

 

Prepaid expenses

 

409,302

 

 

318,207

 

 

Total current assets

 

748,867

 

 

683,539

 

 

 

 

 

 

 

Fixed assets, net of accumulated depreciation

 

1,704

 

 

1,223

 

 

 

 

 

 

Other Assets

 

 

 

 

 

 

Security deposits

 

1,500

 

 

1,500

 

Trademarks

 

11,916

 

 

11,916

 

Software

 

1,698

 

 

4,167

 

 

Total other assets

 

15,114

 

 

17,583

 

 

 

 

 

 

Total assets

$

765,685

 

$

702,345

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

762,887

 

 

624,253

 

Accrued interest payable - related party

 

7,877

 

 

4,483

 

Customer deposits

 

600

 

 

600

 

Advances

 

4,300

 

 

4,300

 

Line of credit - related party

 

-

 

 

4,791

 

Notes payable- related party

 

99,150

 

 

34,150

 

Notes payable, net of debt discount

 

275,225

 

 

380,000

 

Convertible notes payable, net of debt discount

 

1,055,229

 

 

932,041

 

 

Total current liabilities

 

2,205,268

 

 

1,984,618

 

 

 

 

 

 

 

Convertible notes payable - long term, net of debt discount

 

227,131

 

 

151,359

 

 

Total long-term liabilities

 

227,131

 

 

151,359

 

 

 

 

 

 

Total liabilities

 

2,432,399

 

 

2,135,977

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

Preferred stock, $0.001 par value, 10,000,000 shares authorized,

76,000 shares issued and outstanding as of

June 30, 2018 and December 31, 2017, respectively

 

76

 

 

76

 

Common stock, $0.001 par value, 100,000,000 shares authorized,

30,310,902 and 27,924,842 shares issued and outstanding as of

June 30, 2018 and December 31, 2017, respectively

 

30,310

 

 

27,925

 

Additional paid in capital

 

23,158,265

 

 

21,986,722

 

Subscriptions payable

 

258,000

 

 

548,780

 

Accumulated defcit

 

(25,113,365)

 

 

(23,997,135)

 

 

Total stockholders' equity

 

(1,666,714)

 

 

(1,433,632)

 

 

 

 

 

 

Total liabilities and stockholders' equity

$

765,685

 

$

702,345


See accompanying notes to consolidated financial statements.

3




TRUTANKLESS INC.

(F.K.A. BOLLENTE COMPANIES INC.)

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)


 

For the three months ended

 

For the six months ended

 

June 30, 2018

 

June 30, 2017

 

June 30, 2018

 

June 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

$

354,339

 

$

142,831

 

$

779,385

 

$

258,139

 

 

 

 

 

 

 

 

 

 

 

 

Cost of goods sold

 

(411,985)

 

 

(125,803)

 

 

(733,432)

 

 

(189,748)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

(57,646)

 

 

17,028

 

 

45,953

 

 

68,391

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative

 

372,339

 

 

367,950

 

 

647,373

 

 

541,902

 

 

Research and development

 

4,486

 

 

34,570

 

 

4,486

 

 

86,719

 

 

Professional fees

 

138,822

 

 

106,824

 

 

253,616

 

 

273,432

 

 

 

Total operating expenses

 

515,647

 

 

509,344

 

 

905,475

 

 

902,053

 

 

 

 

 

 

 

 

 

 

 

 

Other expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(148,185)

 

 

(127,875)

 

 

(256,708)

 

 

(260,911)

 

 

 

Total expenses

 

(148,185)

 

 

(127,875)

 

 

(256,708)

 

 

(260,911)

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

$

(721,478)

 

$

(620,191)

 

$

(1,116,230)

 

$

(1,094,573)

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per common share - basic

$

(0.03)

 

$

(0.03)

 

$

(0.04)

 

$

(0.04)

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of

common shares outstanding - basic

 

28,779,902

 

 

24,143,855

 

 

28,127,392

 

 

24,689,356






















See accompanying notes to consolidated financial statements.



4



TRUTANKLESS INC.

(F.K.A. BOLLENTE COMPANIES INC.)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


 

For the six months ended

 

June 30, 2018

 

June 30, 2017

 

 

 

 

Cash Flows from Operating Activities

 

 

 

 

Net loss

$

(1,116,230)

 

$

(1,094,573)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

Shares issued for services

 

82,749

 

 

152,000

 

Depreciation and amortization

 

2,880

 

 

4,120

 

Amortization of debt discount

 

154,583

 

 

131,145

Changes in assets and liabilities

 

 

 

 

 

 

(Increase) decrease in accounts receivable

 

(115,988)

 

 

(206)

 

(Increase) decrease in inventory

 

127,556

 

 

(155,372)

 

(Increase) decrease in prepaid expenses

 

(16,095)

 

 

72,279

 

Increase (decrease) in accounts payable

 

142,029

 

 

58,483

 

Increase (decrease) in accrued interest payable - related party

 

-

 

 

2,000

 

 

Net cash used in operating activities

 

(738,516)

 

 

(830,124)

 

 

 

 

 

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

Purchase of fixed assets

 

(892)

 

 

-

 

 

Net cash used in investing activities

 

(892)

 

 

-

 

 

 

 

 

 

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds from convertible notes payable

 

75,000

 

 

420,000

 

Repayments of convertible notes payable

 

(80,000)

 

 

-

 

Proceeds from notes payable

 

225,000

 

 

15,000

 

Repayments from notes payable

 

-

 

 

(22,414)

 

Proceeds from line of credit - related party

 

-

 

 

22,500

 

Repayments on line of credit - related party

 

(4,791)

 

 

(5,000)

 

Proceeds from sale of common stock, net of offering costs

 

510,000

 

 

375,009

 

Proceeds from sale of preferred stock

 

-

 

 

37,500

 

Repurchase of  common stock

 

-

 

 

(84,000)

 

 

Net cash provided by financing activities

 

725,209

 

 

758,595

 

 

 

 

 

 

Net decrease in cash

 

(14,199)

 

 

(71,529)

 

 

 

 

 

 

Cash, beginning of period

 

78,599

 

 

87,134

 

 

 

 

 

 

Cash, end of period

$

64,400

 

$

15,655

 

 

 

 

 

 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

Cash paid for interest

$

13,700

 

$

23,750

 

Cash paid for taxes

$

-

 

$

-






See accompanying notes to consolidated financial statements.



5



TRUTANKLESS INC.

(F.K.A. BOLLENTE COMPANIES INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2018

(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.


Nature of operations

The Company is involved in research and development of a new high quality, whole-house, electric tankless water heater that is more energy efficient than conventional products.


Principles of consolidation

The consolidated financial statements include the accounts of Trutankless Inc. and its wholly owned subsidiaries. On May 16, 2010, the Company acquired 100% of the outstanding stock of Bollente, Inc. On the date of acquisition, Bollente, Inc. was 2.78% owned and controlled 100% by Robertson J. Orr, a majority shareholder and officer and director of Trutankless Inc. and the acquisition was accounted for by means of a pooling of the entities from the date of inception of Trutankless Inc. on March 7, 2008 because the entities were under common control. On November 21, 2013, the Company formed a wholly owned subsidiary, Nuvola, Inc. On August 13, 2015, the Company formed a wholly owned subsidiary, Bollente International, Inc. All significant inter-company transactions and balances have been eliminated.


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 six months ended June 30, 2018 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, 2017 as filed with the SEC pursuant to Rule 12(b) under the Securities Act of 1934.


The consolidated balance sheet as of December 31, 2017, 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 ended December 31, 2018.




6



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 statements of cash flows, all highly liquid investments with an original maturity of three months or less are cash equivalents. The carrying value of these investments approximates fair value.


Website

The Company capitalizes the costs associated with the development of the Company’s website pursuant to ASC Topic 350. Other costs related to the maintenance of the website are expensed as incurred. Amortization is provided over the estimated useful lives of 3 years using the straight-line method for financial statement purposes. The Company plans to commence amortization upon completion and release of the Company’s fully operational website.


Stock-based compensation

The Company records stock-based compensation in accordance with the guidance in ASC Topic 505 and 718 which requires the Company to recognize expenses related to the fair value of its employee stock option awards. This eliminates accounting for share-based compensation transactions using intrinsic value and requires instead that such transactions be accounted for using a fair-value-based method. The Company recognizes the cost of all share-based awards on a graded vesting basis over the vesting period of the award.


The Company accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with ASC 505-50. Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration other than employee services is determined on the earliest of a performance commitment or completion of performance by the provider of goods or services as defined by FASB ASC 505-50.


Earnings per share

The Company follows ASC Topic 260 to account for the earnings per share. Basic earnings per common share (“EPS”) calculations are determined by dividing net income by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per common share calculations are determined by dividing net income by the weighted average number of common shares and dilutive common share equivalents outstanding. During periods when common stock equivalents, if any, are anti-dilutive they are not considered in the computation.


Inventory

The cost of our inventory includes the amount we pay to our suppliers to acquire inventory, freight costs incurred in connection with the delivery of product to our distribution centers.  Net realizable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution.





7



Accounts receivable and allowance for doubtful accounts

Accounts receivable are stated at the amount management expects to collect. The Company generally does not require collateral to support customer receivables. The Company provides an allowance for doubtful accounts based upon a review of the outstanding accounts receivable, historical collection information and existing economic conditions. As of June 30, 2018, the Company has recorded a total allowance for bad debt of $65,773.


Revenue recognition

The Company records revenue when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable and collectability is probable. The Company records revenue from the sale of product upon shipment or delivery of the products to the customer. The Company also records the shipping income when the products are sent to the customer.


Fair value of financial instruments

Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of June 30, 2018. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values. These financial instruments include cash and accounts payable. Fair values were assumed to approximate carrying values for cash and payables because they are short term in nature and their carrying amounts approximate fair values or they are payable on demand.


Level 1: The preferred inputs to valuation efforts are “quoted prices in active markets for identical assets or liabilities,” with the caveat that the reporting entity must have access to that market. Information at this level is based on direct observations of transactions involving the same assets and liabilities, not assumptions, and thus offers superior reliability. However, relatively few items, especially physical assets, trade in active markets.


Level 2: FASB acknowledged that active markets for identical assets and liabilities are relatively uncommon and, even when they do exist, they may be too thin to provide reliable information. To deal with this shortage of direct data, the board provided a second level of inputs that can be applied in three situations.


Level 3: If inputs from levels 1 and 2 are not available, FASB acknowledges that fair value measures of many assets and liabilities are less precise. The board describes Level 3 inputs as “unobservable,” and limits their use by saying they “shall be used to measure fair value to the extent that observable inputs are not available.” This category allows “for situations in which there is little, if any, market activity for the asset or liability at the measurement date”. Earlier in the standard, FASB explains that “observable inputs” are gathered from sources other than the reporting company and that they are expected to reflect assumptions made by market participants.











8



NOTE 2 - GOING CONCERN


The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the recoverability of assets and the satisfaction of liabilities in the normal course of business. As a result, the Company incurred accumulated net losses for the six months ended June 30, 2018 of ($25,113,365).


The ability of the Company to continue as a going concern is dependent upon its ability to raise additional capital from the sale of common stock and, ultimately, the achievement of significant operating revenues. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might result from this uncertainty.


NOTE 3 - INVENTORY


Inventories consist of the following at:


 

June 30, 2018

 

December 31, 2017

Finished goods

29,931

 

157,487

Total

$29,931

 

$157,487


Inventory purchases are prepaid up to 70% during the manufacturing process, with the final 30% being paid upon shipment. The Company inventory is shipped from the manufacturer to the Company via FOB shipping point and as such is included in the Company’s inventory at the point of shipment. As of June 30, 2018, and December 31, 2017, the Company had prepaid inventory of $337,851 and $276,954, respectively.


NOTE 4 - RELATED PARTY


As of June 30, 2018, and December 31, 2017, the Company had two notes payable due to an officer and director of the Company in amount of $34,150 and $34,150, respectively. The notes have interest rate that range from 0%-8% with due dates ranging from on demand through April 2017.


On January 25, 2018, the Company issued a $100,000 12% secured promissory grid notes due to an officer and director of the Company. The note is due on December 31, 2020. During the six months ended June 30, 2018, the Company received advances of $65,000 on the grid note. As of June 30, 2018, $65,000 remained outstanding on the note.


As of June 30, 2018, and December 31, 2017, the Company had line of credit due to a Company controlled by an officer and director of the Company in amount of $0 and $4,791, respectively. During the six months ended June 30, 2018 and 2017 the Company received advances $0 and $5,000 and made payments of $4,791 and $5,000, respectively.










9



NOTE 5 - NOTES PAYABLE


Notes payable net of debt discount consist of the following at:


 

June 30,

2018

 

December 31,

2017

 

 

 

 

 

 

Note payable from a shareholder, secured, 12% interest,

due June 2017

$

150,000

 

$

200,000

 

 

 

 

 

 

Note payable from a shareholder, secured, 12% interest,

due September 2017

 

100,000

 

 

100,000

 

 

 

 

 

 

Note payable from a shareholder, secured, 12% interest

secured, 5% interest, due April 2019

 

50,000

 

 

--

 

 

 

 

 

 

Note payable, to an officer, director and shareholder,

secured, 5% interest, due June 2017

 

--

 

 

80,000

 

 

 

 

 

 

Total Notes Payable

$

300,000

 

$

380,000

 

 

 

 

 

 

Less discounts

 

(24,775)

 

 

--

 

 

 

 

 

 

Total Notes Payable

 

275,225

 

 

380,000

Less current portion

 

(275,225)

 

 

(380,000)

 

 

 

 

 

 

Total Notes Payable - long term

$

--

 

$

--


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 the splitting the notes the noteholder also agreed to the extend the due date of the new $50,000 note to July 1, 2018. 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


Interest expense including amortization of the associated debt discount for the three months ended June 30, 2018 and 2017 was $20,576 and $49,228, respectively.















10



NOTE 6 - CONVERTIBLE NOTES PAYABLE


Convertible notes payable, net of debt discount consist of the following:


 

June 30,

2018

 

December 31,

2017

Convertible note payable from a shareholder, secured,

12% interest, due May 2018, convertible at $1 per share

$

10,000

 

$

10,000

 

 

 

 

 

 

Convertible note payable from a shareholder, secured,

12% interest, due May 2018, convertible at $1 per share

 

50,000

 

 

50,000

 

 

 

 

 

 

Convertible note payable from a shareholder, secured,

12% interest, due June 2018, convertible at $1 per share

 

50,000

 

 

50,000

 

 

 

 

 

 

Convertible note payable from a shareholder, secured,

12% interest, due August 2018, convertible at $1 per share

 

50,000

 

 

50,000

 

 

 

 

 

 

Convertible note payable from an entity owned and controlled

by a shareholder, secured, 12% interest, due 120 days after

delivery of payment notice from lender or August 2018,

convertible at $0.25 per share

 

900,000

 

 

900,000

 

 

 

 

 

 

Convertible note payable from a shareholder, secured,

12% interest, due May 2020, convertible at $1 per share

 

100,000

 

 

100,000

 

 

 

 

 

 

Convertible note payable from a shareholder, secured,

12% interest, due May 2020, convertible at $1 per share

 

50,000

 

 

50,000

 

 

 

 

 

 

Convertible note payable from a shareholder, secured,

12% interest, due May 2020, convertible at $1 per share

 

5,000

 

 

5,000

 

 

 

 

 

 

Convertible note payable from a shareholder, secured,

12% interest, due Feb 2020, convertible at $0.50 per share

 

75,000

 

 

--

 

 

 

 

 

 

Convertible note payable from a shareholder, secured,

12% interest, due Dec 2018, convertible at $0.50 per share

 

160,000

 

 

--

 

 

 

 

 

 

Less discount

 

(167,640)

 

 

(131,600)

 

 

 

 

 

 

Total notes payable, net

$

1,282,360

 

$

1,083,400

 

 

 

 

 

 

Less current portion

 

(1,055,229)

 

 

(932,041)

 

 

 

 

 

 

Convertible notes payable, net - Long-term

$

227,131

 

$

151,359


On February 15, 2018, the Company issued a $75,000 12% secured convertible promissory note. The note is due on February 24, 2020 and are 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.




11



On June 11, 2018, the Company issued a $160,000 12% secured convertible promissory note. As an incentive to enter into the note agreement the Company also issued the noteholder 40,000 shares valued and $20,000 which was recorded as a debt discount and is being amortized over the life of the note. The note is due on December 11, 2018 and is 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.


During the six months ended June 30, 2018, the Company entered into an agreement with the note holder to extend certain note payable dated August 2, 2016 through either 120 days after demand from the noteholder or August 19, 2019 for consideration of 216,000 shares valued at $108,000 and 216,000 three year warrants exercisable at $1 and valued using Black Scholes at $80,898.


Interest expense including amortization of the associated debt discount for the six months ended June 30, 2018 and 2017 was $233,622 and $127,681, respectively.


NOTE 7 - ROYALTY PAYMENTS


The Company has agreed to allow accredited investors the ability to receive a royalty on products sold in an effort to fund its distribution and marketing advances internationally by purchasing units. Each unit represents 0.625% royalty interest in the Gross Margin of product sold by Bollente International, Inc., costing $25,000 per unit.


As of June 30, 2018, the Company paid $11,400 in dividends related to royalty agreements.


On October 18, 2017, the Company entered into royalty termination agreements whereas the Company converted all royalties interest into a total of 1,400,000 shares of common stock valued at $700,000. As of June 30, 2018, the Company has issued 1,150,000 shares of common stock and has recorded the balance of the common stock due to stock payable.


NOTE 8 - COMMITMENTS AND CONTINGENCIES


Office Lease


In January 2015, the Company executed a sublease agreement with Perigon Companies, LLC, a related party. The lease term is one year at a rate of $4,000 per month with an option to continue a month to month basis. The Company paid a refundable security deposit of $1,500.


In January 2015, the Company executed a sublease agreement with Templar Asset Group, LLC, a related party. The lease term is one year at a rate of $2,800 per month with an option to continue a month to month basis. The Company was not required to pay a security deposit.


Rent expense for the six months ended June 30, 2018 and 2017 was $47,000 and $40,800, respectively.


Executive Employment Agreements


The Company has an employment agreement with the CEO to perform duties and responsibilities as may be assigned. The base salary is in the amount of $75,000 per annum plus an annual bonus of 120,000 shares of common stock commencing on June 30, 2018 and ending February 28, 2019 with an option renewal on (March 1) thereafter.




12



The Company has an employment agreement with the President to perform duties and responsibilities as may be assigned. The base salary is in the amount of $150,000 per annum plus a one-time bonus of 250,000 shares of common stock commencing on October 1, 2017 and ending September 30, 2018 with an option renewal on September 15, 2018.


NOTE 9 - STOCK WARRANTS


During the quarter ended June 30, 2018, we granted 291,560 warrants in conjunction with units which included shares sold for cash to purchase 291,560 shares of the Company’s common stock at an exercise price of $1.00 per share. The warrants are exercisable at any time until three (3) years after the closing date.


During the quarter ended June 30, 2018, we granted 216,000 warrants in conjunction with a debt extension agreement to purchase 216,000 shares of the Company’s common stock at an exercise price of $1.00 per share. The warrants are exercisable at any time until three (3) years after the closing date of the agreement.


The following is a summary of stock warrants activity during the year ended June 30, 2018 and December 31, 2017.


 

 

Number of

Shares

 

Weighted

Average

Exercise Price

Balance, December 31, 2017

 

1,473,312

 

$  1.00

Warrants granted and assumed

 

296,312

 

$  1.00

Warrants expired

 

--

 

--

Warrants canceled

 

--

 

--

Warrants exercised

 

--

 

--

Balance, June 30, 2018

 

1,769,624

 

$  1.00


As of June 30, 2018, there are warrants exercisable to purchase 1,769,624 shares of common stock in the Company.


NOTE 10 - 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.


Each share of Preferred Stock is convertible, at any time, at the option of the holder, is convertible 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 will be automatically converted into shares of the Company’s common stock and warrants after three years from the original issue date of the Preferred Stock.


During the six months ended June 30, 2018, the Company issued 313,500 shares of common stock with a fair value of $156,750 for services.





13



During the six months ended June 30, 2018, the Company issued 1,251,560 shares of common stock for $145,780 cash, of which $430,000 of the cash was received during the year ended December 31, 2017 and recorded as stock payable. Additionally, the Company received $480,000 for the sale of common stock of which $50,000 has not been issued and has been recorded as stock payable.


As of December 31, 2017, the Company was obligated to issue 550,000 shares of common stock valued at $275,000 for the cancellation of the royalty payments disclosed in Note 7. As of June 30, 2018, 550,000 valued at $275,000 of these shares were issued and 250,000 shares valued at $125,000 have not been issued and remain in stock payable.


During the six months ended June 30, 2018, the Company issued 271,000 shares of common stock with a fair value of $135,500 to various noteholders as consideration to enter, split, and extend certain note payables during the period.


NOTE 11 - SUBSEQUENT EVENTS


Subsequent to June 30, 2018, the Company entered into to and closed an amendment to a certain note agreement dated August 2, 2016, whereas the noteholder agreed to provide a Standby Letter of Credit (SLC) in the amount of $450,000 required under a manufacturing service agreement with the Company’s largest supplier of inventory. In consideration for providing the SLC, the Company agreed to issue 738,000 shares of common stock and grant 450,000 warrants.  Subsequent to June 30, 2018, 414,000 shares have been issued and 324,000 shares remain outstanding to be issued as of the date of this filing.


Subsequent to June 30, 2018, the Company issued 785,000 shares of common stock valued at $392,000 for services and 225,000 shares of common stock for $112,500, of which $50,000 was received during the quarter ended June 30, 2018 and was recorded as stock payable.
























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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.










15



AVAILABLE INFORMATION


We file annual, quarterly and other reports and other information with the SEC. You can read these SEC filings and reports over the Internet at the SEC's website at www.sec.gov or on our website at www.trutanklessinc.com. You can also obtain copies of the documents at prescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, NE, Washington, DC 20549 on official business days between the hours of 10:00 am and 3:00 pm. Please call the SEC at (800) SEC-0330 for further information on the operations of the public reference facilities. We will provide a copy of our annual report to security holders, including audited financial statements, at no charge upon receipt to 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. On June 5, 2018, we changed our name from Bollente Companies Inc. to Trutankless Inc. 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.


We are 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.


On August 13, 2015, we formed a wholly-owned subsidiary, Bollente International, Inc. (“Bollente International”), to begin international manufacturing and sales expansion for our trutankless® line of water heaters. The Company no longer operates Bollente International and on July 30, 2018, the Company caused Bollente International to be dissolved.


Products


Trutankless®


We manufacture and distribute trutankless® water heaters, a line of new, high-quality, highly efficient electric tankless water heaters. Our trutankless® water heaters are engineered to outperform and outlast both its tank and tankless predecessors in energy efficiency, output, and durability. It provides endless hot water on demand for a whole household and it also integrates with home automation systems. We have several features and design innovations which are new to the electric tankless water heater market that we believe will give our products a sustainable competitive advantage over our rivals in the market. Our trutankless® water heaters are available through wholesale plumbing distributors, including Ferguson, Hajoca, Hughes Supply, WinSupply locations, Morrison Supply, and several regional distributors. A partial listing of wholesalers may be found on our website (www.trutankless.com).


Our trutankless® water heaters are designed to provide an endless hot water supply because they are designed to heat water as it flows through the system. We believe that our products are capable of higher temperature rise than competitive units at given flow rates because of its improved design and greater efficiency. Our trutankless® water heaters can save energy and reduce operating costs compared to tank systems because unlike tanks, if there is no hot water demand, no energy is being used.


In addition, we intend to improve life-cycle costs with an improved design conceived not only to increase efficiency, but also the longevity of our products versus competitive units. Generally, a typical tank water heater lasts about 11 years, whereas gas tankless systems may last longer, but requires more routine maintenance. Our product line is designed to last longer than tank water heaters without any routine maintenance required under most conditions.



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We created a custom heat exchanger for our trutankless® product line that utilizes our patent pending Velix technology to heat water as it flows through the system, which means customers need not worry about running out of hot water. We believe we’ve selected the best materials available and a collection of exclusive design elements and features to maximize capacity, minimize energy use, and provide a truly maintenance free experience.


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, 2017, we generated $695,857 in revenue. As of the six months ended June 30, 2018, we generated $779,385 in revenue.


In July of 2014, we launched MYtankless.com, a customizable online control panel for our trutankless® line of smart electric water heaters. From the dashboard, residential and commercial users can obtain real-time status reports, adjust unit temperature settings, view up to three years of water usage data, and change notification settings from anywhere in the world, using a computer or web-enabled smart device at www.mytankless.com.


Additionally, service professionals can also use the dashboard to monitor system status on every unit they install, allowing them to proactively contact their customers if a service or warranty appointment is needed.


Our primary markets, Florida, Texas, Arizona, and the rest of the Sunbelt region are centers of growth in the U.S. construction industry with green building at an all-time high, and an unprecedented appliance replacement cycle. We intend to take advantage of these powerful macro-economic trends.


MYTankless.com is available as a service to consumers of trutankless® water heaters. We have applications available for download from the Google Play and Apple iOS stores, which like the online control panels, allows monitoring and control of the tankless systems.


On March 21, 2017, we announced our exclusive partnership with Mr. Rooter®.


In April 2017, we announced that our trutankless® line of smart electric tankless water heaters are the exclusive water heating solution for luxury communities built by the award-winning Arizona home builder Cullum Homes.


In June 2017, we announced that we have signed a manufacturing agreement with SINBON Electronics, a leading solution provider of electronic component integration design and manufacturing with a global presence in the U.S., Taiwan, China, Japan, the U.K., Germany, Hungary and the Czech Republic.


In September 2017, we announced that our trutankless® line of electric water heaters have launched a nationwide distribution program with Ferguson, the largest distributor of commercial and residential plumbing supplies, and pipe, valves, and fittings (PVF) in the United States.


In March 2018, we announced our sales and installation expansion into the Florida water heating market, which is over 90% electric, with our trutankless® line of electric water heaters.





17



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 this year’s International Builders Show (IBS) in Las Vegas. The IBS is produced by NAHB and is the largest annual light construction show in the world - featuring more than 1,100 exhibitors and attracting 75,000 attendees including high level decision makers from some of the largest home builders in the world as well as plumbing and HVAC professionals from top outfits in major markets.


trutankless® received the Governor's Award of Merit for Energy and Technology Innovation for the trutankless line of electric tankless heaters at Arizona Forward's 2014 Environmental Excellence Awards.


trutankless® received Kitchen and Bath Business Magazine’s 2014 K*BB Product Innovator’s Award Judges Choice Product.


truCirc


truCirc is a high-tech, smart-home water circulation pump. The energy reducing, water-saving truCirc can be used as a standalone product or with our multi-award winning trutankless® electric tankless water heater. truCirc represents the next step in our mission to pioneer forward-thinking technology that changes the way people think about hot water.


A traditional water circulation pump circulates hot water through a home’s pipes, enabling homeowners to have instant, on-demand hot water as soon as they turn on the faucet and saving countless gallons of water that would have been wasted. truCirc takes the traditional pump to the next level with multiple hot water delivery strategies including a self-aware learning mode that tracks water usage in a household and predicts when hot water will be needed-- thereby using energy to keep water hot only when it’s desired. truCirc’s simple, modern, high-tech interface allows homeowners to quickly and easily change delivery modes or choose a zone or fixture to send hot water. Thermostatic shut-off valves can be installed at showerhead points of use throughout a home to further eliminate wasted water.


Our new product, truCirc, was unveiled on January 20, 2015 at the 2015 International Builders’ Show in Las Vegas and is still in the development phase. While not yet commercially available, trutankless products are expected to be compatible. Alternatively, truCirc is expected to be a standalone product for customers who don’t utilize trutankless.


Vero


On April 16, 2015, we announced the release of Vero, our new line of electric tankless water heaters geared towards budget-driven customers. Vero boasts the same water heating performance, durability and space savings of our flagship tankless water heater. Our trutankless® water heaters are available through wholesale plumbing distributors, including Ferguson, Hajoca, Hughes Supply, 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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Customers and Markets


We sell our products to plumbing wholesale distributors and dealers.


Wholesalers . Approximately 90% of our sales in 2017, 96.1% of our sales in 2016, 98.3% of our sales in 2015 and 93.5% of our sales in 2014 were to wholesale distributors for commercial and residential applications. We rely on commissioned manufacturers’ representatives to market our product lines. Additionally, our products are sold to independent dealers throughout the United States.


Manufacturing and Distribution


Our principal supplier is Sinbon Electronics, a contract manufacturer and engineering company based in Taiwan with manufacturing facilities in China. Sinbon handles procurement and supply chain management. We have an engineering agreement which is ongoing, and our manufacturing agreement is currently being negotiated.


Finished products are generally shipped Free on Board (FOB) Shanghai via ocean freight and are warehoused at Associated Global Systems located in Phoenix, Arizona. Merchandise is typically shipped using common carriers or freight companies are selected at the time of shipment based on order volume and the best available rates.


RESULTS OF OPERATIONS


Results of Operations for the three months ended June 30, 2018 compared with the three months ended June 30, 2017.


Revenues


In the three months ended June 30, 2018, we generated $354,339 in revenues, as compared to $142,831 in revenues in the prior year. Cost of goods sold was $411,985 in the three months ended June 30, 2018, as compared to $125,803 in the three months ended June 30, 2017. This increase in cost of goods sold was primarily attributable to an increase in cost of inventory.


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.


Gross Profit


Our gross profit decreased $74,674, or approximately 439%, to ($57,646) for the three months ended June 30, 2018 from $17,028 for the three months ended June 30, 2017. This decrease in gross profit was primarily attributable to an increase in shipping cost for related to products sold.


Expenses


Operating expenses totaled $515,647 during the three months ended June 30, 2018 as compared to $509,344 in the prior year. In the three-month period ended June 30, 2018, our expenses primarily consisted of General and Administrative of $372,339, Research and Development of $4,486 and Professional fees of $138,822.




19




General and administrative fees increased $4,389, or approximately 1% to $372,339 for the three months ended June 30, 2018 from $367,950 for the three months ended June 30, 2017.  This increase was primarily due to an increase in wages and marketing.


Research and development decreased $30,084, or approximately 87% to $4,486 for the three months ended June 30, 2018 from $34,570 for the three months ended June 30, 2017.  This decrease is attributed primarily to the Company spending less towards developing its technology.


Professional fees increased $31,998, or approximately 30% to $138,822 for the three months ended June 30, 2018 from $106,824 for the three months ended June 30, 2017.  Professional fees increased due to an increase in consulting fees associated with business development.


Other Expenses


Interest expense increased $20,310 to $148,185 in the three months ended June 30, 2018 from $127,875 in the three months ended June 30, 2017. The increase was the result of an increase in notes payable with interest accruals.


Net Loss


In the three months ended June 30, 2018, we generated a net loss of $721,478, an increase of $101,287 from $620,191 for the three months ended June 30, 2017. This increase was attributable to increased cost of goods sold and consulting fees associated with business development.


Results of Operations for the six months ended June 30, 2018 compared with the six months ended June 30, 2017.


Revenues


In the six months ended June 30, 2018, we generated $779,385 in revenues, as compared to $258,139 in revenues in the prior year. Cost of goods sold was $733,432, as compared to $189,748 in the six months ended June 30, 2017. This increase in cost of goods sold was primarily attributable to an increase in cost of inventory.


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.


Gross Profit


Our gross profit decreased $22,438, or approximately 33%, to $45,953 for the six months ended June 30, 2018 from $68,391 for the six months ended June 30, 2017. This decrease in gross profit was primarily attributable to an increase in cost of goods sold.


Expenses


Operating expenses totaled $905,475 during the six months ended June 30, 2018 as compared to $902,053 in the prior year. In the six-month period ended June 30, 2018, our expenses primarily consisted of General and Administrative of $647,373, Research and Development of $4,486, and Professional fees of $253,616.




20




General and administrative fees increased $105,471, or approximately 19% to $647,373 for the six months ended June 30, 2018 from $541,902 for the six months ended June 30, 2017.  This increase was primarily due to an increase in wages and marketing.


Research and development decreased $82,233, or approximately 95% to $4,486 for the six months ended June 30, 2018 from $86,719 for the six months ended June 30, 2017.  This decrease is attributed primarily to the Company spending less towards developing its technology.


Professional fees decreased $19,816, or approximately 7% to $253,616 for the six months ended June 30, 2018 from $273,432 for the six months ended June 30, 2017.  Professional fees decreased due to a decrease in consulting fee associated with business development.


Other Expenses


Interest expense decreased $4,203 to $256,708 in the six months ended June 30, 2018 from $260,911 in the six months ended June 30, 2017. The decrease was the result of a decrease in notes payable with interest accruals.


Net Loss


In the six months ended June 30, 2018, we generated a net loss of $1,116,230, an increase of $21,657 from $1,094,573 for the six months ended June 30, 2017. This increase was attributable to increased cost of goods sold and consulting fees associated with business development.


Going Concern


The financial statements included in this filing have been prepared in conformity with generally accepted accounting principles that contemplate the continuance of the Company as a going concern.  The Company may not have a sufficient amount of cash required to pay all the costs associated with operating and marketing of its products. Management intends to use borrowings and security sales to mitigate the effects of cash flow deficits; however, no assurance can be given that debt or equity financing, if and when required, will be available. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets and classification of liabilities that might be necessary should the Company be unable to continue existence.


Liquidity and Capital Resources


At June 30, 2018, we had an accumulated deficit of $25,113,365. Primarily because of our history of operating losses and our recording of note payables, we have a working capital deficiency of $1,481,176 at June 30, 2018. Losses have been funded primarily through issuance of common stock and borrowings from our stockholders and third-party debt. As of June 30, 2018, we had $64,400 in cash, $245,234 in accounts receivable, $29,931 in inventory, and $409,302 in prepaid expenses. We used net cash in operating activities of $738,516 for the three months ended June 30, 2018.


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.




21




The following table sets forth a summary of our cash flows for the three months ended June 30, 2018 and 2017:


 

 

Three months ended

June 30,

 

 

2018

 

2017

Net cash used in operating activities

 

$

(738,516)

 

$

(830,124)

Net cash used in investing activities

 

 

(892)

 

 

-

Net cash provided by financing activities

 

 

725,209

 

 

758,595

Net increase/(decrease) in Cash

 

 

(14,199)

 

 

(71,479)

Cash, beginning

 

 

78,599

 

 

87,134

Cash, ending

 

$

64,400

 

$

15,605


Operating activities - Net cash used in operating activities was $738,516 for the three months ended June 30, 2018, as compared to $830,124 used in operating activities for the same period in 2017. The decrease in net cash used in operating activities was primarily due to a higher volume of units sold and decrease in research and development and consulting contract cost.


Investing activities - Net cash used in investing activities for the three months ended June 30, 2018 was $892, as compared to $0 for the same period of 2017. The increase of net cash used in investing activities was mainly attributable to the purchase of equipment during the current period.


Financing activities - Net cash provided by financing activities for the three months ended June 30, 2018 was $725,209, as compared to $758,595 for the same period of 2017. The decrease of net cash provided by financing activities was mainly attributable to less equity financing.


Ongoing Funding Requirements


As of June 30, 2018, 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.




22



Off-Balance Sheet Arrangements


We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.


Critical Accounting Policies and Estimates


The preparation of our financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and judgments that affect our reported assets, liabilities, revenues, and expenses, and the disclosure of contingent assets and liabilities. We base our estimates and judgments on historical experience and on various other assumptions we believe to be reasonable under the circumstances. Future events, however, may differ markedly from our current expectations and assumptions. See Note 1 - Summary of Significant Accounting Policies in our Notes to Consolidated Financial Statements.


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 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.



23




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.










































24




PART II - OTHER INFORMATION


Item 1. Legal Proceedings.


From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are not presently a party to any material litigation, nor to the knowledge of management is any litigation threatened against us, which may materially affect us.


Item 1A. Risk Factors


The risk factors listed in our 2017 Form 10-K, filed with the Securities Exchange Commission on April 16, 2018, are hereby incorporated by reference.


Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.


During the six months ended June 30, 2018, we issued 313,500 shares of common stock with a fair value of $156,750 for services.


During the six months ended June 30, 2018, we issued 1,251,560 shares of common stock for $145,780 cash, of which $430,000 of the cash was received during the year ended December 31, 2017 and recorded as stock payable. Additionally, we received $480,000 for the sale of common stock of which $50,000 has not been issued and has been recorded as stock payable.


As of December 31, 2017, the Company was obligated to issue 550,000 shares of common stock valued at $275,000 for the cancellation of the royalty payments disclosed in Note 7. As of June 30, 2018, 550,000 valued at $275,000 of these shares were issued and 250,000 shares valued at $125,000 have not been issued and remain in stock payable.


During the six months ended June 30, 2018, we issued 271,000 shares of common stock with a fair value of $135,500 to various noteholders as consideration to enter, split, and extend certain note payables during the period.


Warrants


During the quarter ended June 30, 2018, we granted 291,560 warrants in conjunction with units which included shares sold for cash to purchase 291,560 shares of the Company’s common stock at an exercise price of $1.00 per share. The warrants are exercisable at any time until three (3) years after the closing date.


During the quarter ended June 30, 2018, we granted 216,000 warrants in conjunction with a debt extension agreement to purchase 216,000 shares of the Company’s common stock at an exercise price of $1.00 per share. The warrants are exercisable at any time until three (3) years after the closing date of the agreement.




25




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.


Subsequent Issuances


Subsequent to June 30, 2018, we entered into and closed an amendment to a certain note agreement dated August 2, 2016, whereas the noteholder agreed to provide a Standby Letter of Credit (SLC) in the amount of $450,000 required under a manufacturing service agreement with the Company’s largest supplier of inventory. In consideration for providing the SLC, the Company agreed to issue 738,000 shares of common stock and grant 450,000 warrants. As of the date of the filing only 324,000 shares remain outstanding to be issued.


We believe that the above issuances and sale of the securities was exempt from the registration and prospectus delivery requirements of the Securities Act of 1933 by virtue of Section 4(2) and Regulation D Rule. The securities were sold directly by us and did not involve a public offering or general solicitation. The recipients of the securities were afforded an opportunity for effective access to files and records of the Registrant that contained the relevant information needed to make their investment decision, including the financial statements and 34 Act reports. We reasonably believed that the recipients, immediately prior to the sale of the securities, were accredited investors and had such knowledge and experience in our financial and business matters that they were capable of evaluating the merits and risks of their investment. The management of the recipients had the opportunity to speak with our management on several occasions prior to their investment decision. There were no commissions paid on the issuance and sale of the securities.


Issuer Purchases of Equity Securities


The Company did not repurchase any of its equity securities during the period ended June 30, 2018.


Item 3. Defaults Upon Senior Securities.


None.


Item 4. Mine Safety Disclosures


Not applicable.


Item 5. Other Information.


None.





26




Item 6. Exhibits.


Exhibit No.

 

Description

 

 

 

31.1 *

 

Certification of Chief Executive Officer and Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

 

32.1 *

 

Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

 

101.INS

 

XBRL Instance Document

 

 

 

101.SCH

 

XBRL Taxonomy Extension Schema

 

 

 

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase

 

 

 

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase

 

 

 

101.LAB

 

XBRL Taxonomy Extension Label Linkbase

 

 

 

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase


*  Filed herewith.


















27




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/ Robertson J. Orr

Robertson J. Orr, President,

Principal Financial Officer and

Principal Executive Officer


Date: August 16, 2018


























28


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