Annual Report (10-k)

Date : 04/10/2019 @ 8:35PM
Source : Edgar (US Regulatory)
Stock : Trutankless, Inc. (TKLS)
Quote : 0.64  0.09 (16.36%) @ 5:11PM

Annual Report (10-k)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


Form 10-K


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


For the fiscal year ended December 31, 2018


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


Commission file number 000-54219


[TKLS10K1.JPG]

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)


Securities registered pursuant to Section 12(b) of the Act:

None


Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.001 par value



Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes [  ]  No [X]


Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes [  ]  No [X]


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes [X]  No [  ]


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  [  ]


Indicate by check mark whether the registrant a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "small reporting company" in Rule 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 Act).  Yes [  ]  No [X]


As of June 30, 2018, the aggregate market value of shares held by non-affiliates of the registrant (computed by reference to the price at which the common equity was last sold) was approximately $16,590,369.60.


The number of shares of Common Stock, $0.001 par value, outstanding on April 9, 2019 was 37,413,906 shares.


DOCUMENTS INCORPORATED BY REFERENCE: None.
































TRUTANKLESS INC.

FOR THE FISCAL YEAR ENDED

DECEMBER 31, 2018


Index to Report on Form 10-K


PART I

1

ITEM 1. BUSINESS

1

ITEM 1A. RISK FACTORS

12

ITEM 1B. UNRESOLVED STAFF COMMENTS

16

ITEM 2. PROPERTIES

16

ITEM 3. LEGAL PROCEEDINGS

16

PART II

17

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASE OF EQUITY SECURITIES

17

ITEM 6. SELECTED FINANCIAL DATA

20

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

20

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

24

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

24

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

24

ITEM 9A (T) CONTROLS AND PROCEDURES

25

ITEM 9B. OTHER INFORMATION

26

PART III

27

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

27

ITEM 11. EXECUTIVE COMPENSATION

30

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

32

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

33

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

34

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

35

SIGNATURES

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FORWARD-LOOKING STATEMENTS


This Annual Report on Form 10-K contains forward-looking statements and involves risks and uncertainties that could materially affect expected results of operations, liquidity, cash flows, and business prospects.  These statements include, among other things, statements regarding:


·

our ability to diversify our operations;

·

inability to raise additional financing for working capital;

·

the fact that our accounting policies and methods are fundamental to how we report our financial condition and results of operations, and they may require our management to make estimates about matters that are inherently uncertain;

·

our ability to attract key personnel;

·

our ability to operate profitably;

·

deterioration in general or regional economic conditions;

·

adverse state or federal legislation or regulation that increases the costs of compliance, or adverse findings by a regulator with respect to existing operations;

·

changes in U.S. GAAP or in the legal, regulatory and legislative environments in the markets in which we operate;

·

the inability of management to effectively implement our strategies and business plan;

·

inability to achieve future sales levels or other operating results;

·

the unavailability of funds for capital expenditures;

·

other risks and uncertainties detailed in this report;


as well as other statements regarding our future operations, financial condition and prospects, and business strategies. Forward-looking statements may appear throughout this report, including without limitation, the following sections: Item 1 “Business,” Item 1A “Risk Factors,” and Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Forward-looking statements generally can be identified by words such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “projects,” “will be,” “will continue,” “will likely result,” and similar expressions. These forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties, which could cause our actual results to differ materially from those reflected in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this Annual Report on Form 10-K, and in particular, the risks discussed under the caption “Risk Factors” in Item 1A and those discussed in other documents we file with the Securities and Exchange Commission (SEC). We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.






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This summary highlights certain information regarding the Company, including its history, its business objectives, and management team. The words “TRUTANKLESS,” “us,” “we,” the “Company” and any variants thereof used in this summary refer to Trutankless, Inc.


The Company’s stock symbol is TKLS, and is presently traded on the OTCQB maintained by OTC Markets Group, Inc.  The Company is a reporting company under the rules and regulations of the US Securities and Exchange Commission.  The Company’s filings can be reviewed at www.sec.gov.


PART I


ITEM 1.

BUSINESS


Trutankless Inc. was incorporated in the state of Nevada on March 7, 2008. The Company is headquartered in Scottsdale, Arizona and currently operates through its wholly-owned subsidiary, Bollente, Inc., a Nevada corporation incorporated on December 3, 2009.


Trutankless is involved in sales, marketing, research and development of a high quality, whole-house, smart electric tankless water heater that is more energy efficient than conventional products. Management anticipates the Company's trutankless water heater, with Wi-Fi capability and trutankless' proprietary apps offered in the iOS and Android store, will augment existing products in the hope automation space.


Overview of Potential Markets and Summary of Marketing Plan


Management intends to focus on the United States residential market initially. For decades Americans have used only tank type water heaters. For most homes, the units hold an average of 40 to 80 gallons of water in a storage tank, are gas or electric fueled and consume excessive energy to keep water hot continuously. In fact, water heaters expend up to 25% of the total energy used by a typical household representing the second largest use of energy in most homes. Depending on household usage, approximately 25 - 50% of the heat created is lost through the walls of the tank and connecting pipes.


There are other problems inherent with traditional tank water heaters:


·

Due to the high temperatures and corrosive aspects of water, a typical water heater has a lifespan of 10.7 years.

·

Unless replaced beforehand, more than two thirds of water heaters eventually corrode and leak or burst, often resulting in extensive and costly water and mold related damage.

·

Due to the large size and other installation requirements often result in the units being installed in garages and utility rooms on the opposite side of the home from the bathroom fixtures. Because of this, an estimated 10,000 gallons of water per household goes down the drain while users wait on the water to get hot at the faucet.




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·

Traditional tank water heaters take up to 6 to 9 square feet of floor space, which can be especially valuable in multi-family or commercial applications.

·

To reduce operating costs, many people adjust the temperature on their water heaters down. Unfortunately, lower temperatures increase the possibility of unhealthy, waterborne bacteria growth.

·

To increase water heating capacity, many people will adjust the temperature of their water heaters up. In addition to using more energy, this practice can be dangerous by posing a greater risk of scalding.

·

Tankless water heaters are becoming increasingly popular in America because they:

·

Produce a continuous, unlimited supply of hot water

·

Expend only the energy needed to heat the water used with no standby energy loss

·

Can last more than twice as long as tank heaters

·

Are small and require very little space.

·

Are not conducive to bacterial growth

·

Are considered very green by green conscious builders and consumers.


Electric tankless water heaters have additional benefits over gas powered models because they can be installed almost anywhere in a home (closets, attics, utility rooms, etc.) where hot water is needed which improves flexibility of floor plan design for builders, architects, and remodelers. In addition, gas tankless water heaters may not be suitable for many applications due to challenges with adequate fuel supply, the need for exhaust vents with specific requirements, and other code-related requirements. In spite of these issues, gas tankless water heaters have enjoyed significant growth in North America because of the efficiency and performance they provide.


Home Automation Overview


Key trends in the home automation space, which is estimated to reach $46.22 Billion worldwide by 2025, have been driven by consumers’ desire for efficiency and lifestyle improvements. Companies like Nest have helped to introduce the Internet of Things to appliances with a direct impact on how users interact with traditional household appliances and have the ability to reduce energy usage. The trend towards integration with voice assistants is also on the rise with key industry leaders like Alexa and Google Assistant playing larger roles in the home automation industry. Insurance and utility companies have joined this trend by partnering with home automation manufacturers by leveraging different devices to build insurance products including discounts and rebates. While home security and safety monitoring are expected to continue to dominate the overall market, management anticipates energy management and HVAC controls and monitors will be one of the fastest growing markets in the U.S. which accounts for 36% of global demand.





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Trutankless replaces an archaic technology which is second to HVAC in home energy consumption, and combined with Wi-Fi capabilities, the system can not only save energy it has the ability to inform users and property owners of energy use, water use, and potential issues like leaks or other failures in the plumbing system. Management plans to roll out additional technologies in the future that can integrate with the Company's trutankless smart apps. Currently, the product has the ability to notify homeowners in the event of water flow while the system is set in away mode. Leak detection, leak damage mitigation, and hot water recirculation for instant hot water at the point of use are becoming major trends in the home automation space. Management believes new products can be introduced into its growing wholesale network to augment trutankless' momentum and harness growing trends to a fresh audience of plumbing and other home service professionals.


Homebuilders and plumbing companies have begun selling homes with more technology integrations. Lennar Homes for example, the nation's largest homebuilder, just recently announced the world's first Wi-Fi Certified communities and employs Amazon's Alexa voice assistant. Trutankless has also been introduced into Lennar communities, and management expects that trutankless products will share Wi-Fi Certification as well as integration with Alexa's voice command capabilities, among other improvements to its existing technology platform.


Tankless Industry Overview


The U.S. gas tankless, whole-house, water heater market is dominated by five brands; Noritz, Rinnai, Takagi, Aqua Star by Bosch and Rheem by Paloma. The U.S. electric tankless water heater market is dominated by four companies; Stiebel-Eltron, Rheem (Eemax/EcoSmart), Seisco by Microtherm, Inc., and Power Star by Bosch. Until just a few years ago, there were only a few tankless water heater manufacturers with a presence in the United States, but that is changing. Now, several Japanese and European manufacturers have begun marketing products in the United States, and since 2003, gas tankless products have experienced dramatic growth. Electric tankless systems have not experienced comparable growth due to several factors, primarily product performance, capacity, product quality and electrical power supply and installation issues.


Manufacturers of tank heaters have a competitive advantage due largely to their product categories long established use, name recognition, established distribution and brand position in the marketplace. Many plumbers and other building industry professionals were opposed to changing brands or to tankless systems because many tankless water heaters have been poorly designed in the past. As a result there is a perception among some contractors that these water heaters are more complicated and generally less dependable than traditional tank heaters. This perception is often passed along to consumers when making buying decisions or inquiring about switching to a tankless water heater. In recent years however, the industry has experienced a contraction in sales of products and services for new building projects. Consequently, higher ticket, higher margin products, such as tankless and solar water heating systems have become a primary growth driver for many plumbers and companies who had traditionally avoided emerging technologies.



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While we believe that our products will have superior performance, such as endless hot water, superior longevity, greater efficiency and lower “life-cycle” costs than traditional tank water heaters, the Company’s success will depend to a large degree on the successful conversion of traditional water heater buyers to tankless water heater buyers. The acquisition price of tankless water heaters (both gas and electric) is greater than traditional tank water heaters, but the overall cost of ownership will be less than that of traditional tank technologies under typical circumstances. Although the public’s awareness of tankless systems has not been strong historically, sales growth in the sector is suggestive of increasing awareness.


Our marketing and promotion plans have been developed to increase the awareness of the Company’s brand as the preferred option to traditional tank systems. Trutankless intends to position itself and its brand to capitalize on the paradigm shift to green-conscious living and development.


Trutankless® Products


We manufacture and distribute trutankless® water heaters, a line of new, high-quality, highly efficient electric tankless water heaters. Our trutankless® water heaters are engineered to outperform and outlast both its tank and tankless predecessors in energy efficiency, output, and durability. It provides endless hot water on demand for a whole household and it also integrates with home automation systems.


We have several features and design innovations which are new to the electric tankless water heater market that we believe will give our products a sustainable competitive advantage over our rivals in the market.

[TKLS10K3.GIF]



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Our trutankless® water heaters are available through wholesale plumbing distributors, including Ferguson, Hajoca, WinSupply locations, Morrison Supply, and several regional distributors. A partial listing of wholesalers may be found on our website (www.trutankless.com).


Our trutankless® water heaters are designed to provide an endless hot water supply because they are designed to heat water as it flows through the system. We believe that our products are capable of higher temperature rise than competitive units at given flow rates because of its improved design and greater efficiency. Our trutankless® water heaters can save energy and reduce operating costs compared to tank systems because unlike tanks, if there is no hot water demand, no energy is being used. In addition, we intend to improve life-cycle costs with an improved design conceived not only to increase efficiency, but also the longevity of our products versus competitive units. Generally, a typical tank water heater lasts about 9 years, whereas gas tankless systems may last longer, but requires more routine maintenance. Our product line is designed to last longer than tank water heaters without any routine maintenance required under most conditions.


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


Our trutankless® water heaters were officially launched in the first quarter of 2014 and is sold throughout the wholesale plumbing distribution channel. We began generating revenue in the first quarter of 2014. As of the fiscal year ended December 31, 2014, we generated $238,912 in revenue. As of the fiscal year ended December 31, 2015, we generated $265,504 in revenue. As of the fiscal year ended December 31, 2016, we generated $429,582 in revenue. As of the fiscal year ended December 31, 2017, we generated $695,857 in revenue. As of the fiscal year ended December 31, 2018, we generated $1,537,958 in revenue.


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







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[TKLS10K5.GIF]


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


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


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


Industry Recognition and Awards


Trutankless® received the Best of IBS 2014 Award for Best Home Technology Product from the National Association of Home Builders (NAHB) at that year’s International Builders Show (IBS) in Las Vegas. The IBS is produced by NAHB and is the largest annual light construction show in the world - featuring more than 1,100 exhibitors and attracting 75,000 attendees including high level decision makers from some of the largest homebuilders in the world as well as plumbing and HVAC professionals from top outfits in major markets.


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


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



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In 2015, Trutankless was named in Buildings Magazine’s 2015 listing of “Money Savings Products” in the Energy Saving Measures category and received a Special Mention in the Architizer A+ Awards.


That same year, Appliance Design Magazine named Trutankless among the winners of their annual Excellence in Design Award, and the editors of Green Builder Magazine named Trutankless as one of their picks as “Hot Product”.


Consumer Reports Magazine featured Trutankless in its Top 5 Remodeling Trends for 2016, and leading home improvement website, houzz.com, honored the company with 4 consecutive “Best of Houzz” honors from 2014 through 2018.


Customers and Markets


We sell our products to plumbing wholesale distributors and dealers.


Approximately 81% of our sales in 2018, 90% of our sales in 2017, 96.1% of our sales in 2016, 98.3% of our sales in 2015 and 93.5% of our sales in 2014 were to wholesale plumbing equipment distributors for commercial and residential applications. We rely on commissioned manufacturers’ representatives to market our product lines. Additionally, our products are sold to independent dealers throughout the United States.


Manufacturing and Logistics


Our principal supplier is Sinbon Electronics, a contract manufacturer and engineering company based in Taiwan with manufacturing facilities in China, Taiwan, in the U.S., and other global locations. Sinbon handles procurement and supply chain management. We have a Manufacturing Services Agreement establishing our pricing and payment terms, warranty, shipping, and delivery terms. We are also negotiating our engineering agreement with Sinbon, which is ongoing and currently being re-negotiated.


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


Intellectual Property & Proprietary Rights


We regard substantial elements of our brands and underlying intellectual property as proprietary and attempt to protect them by relying on trademark, service mark and trade secret laws, restrictions on disclosure and transferring title and other methods.


Our plans are to actively pursue patent and trademark protection for all of newly developed products, both domestically and abroad. We have novel and proprietary technologies related to our product line and the central focus of our patent counsel has been successfully building a defensible portfolio of patent claims which have been granted.



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To date, we have filed and received a United States federal trademark registration for trutankless® and our logo design with the help of our outside marketing and branding experts and have acquired several unique domain registrations reflective of our online marketing strategy (www.Trutankless.com). During the year ended December 31, 2013, our patent agent filed a provisional patent with the US Patent and Trademark Office with the US Patent and Trademark Office with 37 claims based on our prototype design. Upon completion of our engineered prototype, we filed additional patents with additional claims. We have been able to obtain a formal patent for our tankless water heater with a total of 34 individual and dependent claims. We will continue to protect our intellectual property through confidentiality agreements with vendors and consultants and trade secret protocols employed by employees, consultants, and contractors.


Growth Strategy


Trutankless’ product launched in the first quarter of 2014 and is sold through the wholesale plumbing distribution channel. Gas tankless manufacturers’ support of this sales channel was critical in their ability to quickly capture appreciable market share in the $3.6 billion replacement market. No electric tankless has been available solely through wholesale distributors which have welcomed the arrival of trutankless. Trutankless’ sales and service training programs geared towards plumbers and contractors are the primary focal point of the Company’s sales strategy. Trutankless is employing several outside manufacturers rep agencies to quickly scale sales and educate distributors, plumbers, builders, and contractors.


The Company is also leveraging online marketing strategies and social media. By continually building an immersive and educational web experience at www.trutankless.com. Trutankless is efficiently building brand awareness among consumers. Launch efforts are focused in Arizona, Texas, and the Southeast which accounts for over 1,000,000 electric water heater shipments annually. Licensing and co-branding opportunities are being assessed, since strategic partnerships would eliminate the channel conflicts that have historically obstructed previous electric tankless entries in the marketplace. Electric tankless category competitors have traditionally been unable to obtain partnership household brand names because of generally poor manufacturing quality and product support. In the future we may pursue co-branding opportunities to  accelerate sales of Trutankless’ products through retail channels.


In addition, we have determined that as part of our growth strategy, we will seek to partner with or acquire entities operating in various fields, with a bias towards green and "clean-tech" sectors. Our management has experience in marketing, product launches, business development strategies, and certain other areas specific to the success of growth companies. We will operate with a view towards identifying acquisition candidates as we seek the rights to provide the market with products and services geared toward environmental responsibility, innovative technology in the plumbing industry, and home automation technology.


We have identified several agents who are well suited to provide consulting to high-growth technology and consumer products companies. We are currently negotiating with several agents possessing technical expertise related to planning, structuring, and capitalizing growth companies in the green and "clean-tech" sectors who will be tasked with creating additional revenues and assist the Company with our own planning, structure, and capitalization.



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We have identified several entities that fit one or more of our criteria. We are focused on adding value to these companies and acquiring either the entity or its business, maintaining and growing that business, and hiring and utilizing existing management where appropriate. We have begun the design of a website which we believe will help us attract relationships with possible acquisition targets.


Margin Expansion


Cost reduction measures, including outsourcing of key components and certain quality control testing protocols, are currently being undertaken on an expedited basis to rapidly reduce costs and improve manufacturing scalability. Such reductions are expected to take place in stages over the next three quarters and are likely to result in gross sales margins approaching 50% or more, which is far higher than other commodity-heavy technologies, and companies in the sector with mature technologies.


Market Outlook


Trutankless entered the market in front of the largest water heater replacement cycle ever at a time when homeowners are seeking ways to reduce their carbon footprint without sacrificing comfort. Additionally, statistics have shown a trend towards electric water heating in new construction markets. Florida, Texas, and Arizona, and areas where electric water heaters dominate the market, have been epicenters of the residential new construction strength in the US. In the new construction market, builders are increasingly marketing “green” features and trutankless fit well along with other energy saving innovations.


In commercial markets, projects with a green designation like LEED or EnergyStar recently became the majority. We feel that our commercial line of trutankless products are well suited to thousands of customers in the retail, quick serve and fast casual restaurants, hair salons, education. In addition to residential new construction and replacement markets, we feel the commercial applications for which our products are appropriate represent a large portion of the commercial water heater market.


Additionally, the Federal Government mandated that standard electric water heaters over 55 gallons may not be sold (started in April 2015), effectively forcing the market to use alternative technologies like tankless water heaters.


Investment Analysis


Trutankless has entered the market with a disruptive product that has enjoyed significant trend towards tankless water heating to displace gas tankless water heaters thus far. As a result of the market share growth of gas tankless, we believe TKLS is poised to produce exceptional results in the significant electric water heating market. Management has plans to significantly reduce the cost of goods sold and develop other innovations to supplement existing offerings which will be sold through the existing sales channels and reps which to help ensure sustainable growth over the next 3-5 years.




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Recent Developments


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


On April 4, 2017, we announced that our trutankless line of smart electric tankless water heaters is the exclusive water heating solution for luxury communities built by the award -winning Arizona home builder Cullum Homes.


On April 11, 2017, we announced that our trutankless line of smart water heaters has been chosen for both a retrofit project and new construction of townhomes at Friendship Village, a retirement community touted as “senior living for the at heart,” located in Tempe, Arizona.


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 has 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.


In April 2018, we announced record fourth quarter and full year 2017 results. The announcement included a record 61% increase in annual revenue compared to the prior year driven, in part, by a 133% increase in the fourth quarter over the prior period.


In May 2018, we announced that the Company had set a sales record for the first quarter of 2018, which was an all-time revenue record, and a fourth consecutive quarter of increasing gross margins.


In July 2018, we announced a corporate name change to Trutankless, Inc. from Bollente Companies, Inc., and began trading under the new ticker symbol TKLS.


In August 2018, we announced a sales increase of 200% in the first half of the year over the same period in the prior year. Growth was attributed to several factors, including strong demand for its trutankless line of smart water heaters amongst a growing number of the nation’s largest homebuilders, as well as the impact of improving velocity in channel sales.


In November 2018, we announced a sales increase of 190% for the nine months ending September 30 over the same period of 2017. Increased production and expanded wholesale customer base were credited as the primary factors for continuing sales expansion.





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In March 2019, we issued a corporate update, including the up-listing of the Company to the OTC Markets’ OTCQB tier and new patent claims granted for its proprietary home automation capabilities. The Company also revealed several new key relationships with new home construction leaders such as Lennar Homes, DR Horton, and Shea Homes, as well as with national plumbing companies like Service Experts, Benjamin Franklin Plumbing, and RotoRooter.


Target Markets


The United States market for residential tank water heaters in 2010 was approximately 7.65 million units according to data released by the Air-Conditioning, Heating, and Refrigeration Institute (AHRI). Almost 50% of those shipments were electric water heaters, and the company has found in comparing those statistics with government data, that over 90% of tank water heaters shipped in 2010 were intended for “replacement” installations.


Trutankless initially market its products to builders, remodelers and distributors in the southern and western U.S. These areas of the country have been selected because of generally higher ground water temperatures, which improves the effects of the performance and capacity of all brands of tankless water heaters. This area of the country also traditionally has the largest share of population growth and new housing starts, accounting for almost two-thirds of all housing starts in 2010, according to government data. Additionally, the southern U.S., and specifically the southeastern U.S., has the highest usage of electric water heaters.


Distribution Plan


Initially, we will be distributing our first product line throughout the southern and western U.S. using an existing network of plumbing and electrical wholesalers (distributors), manufacturers’ representatives and dealers. We believe that we will continue building existing partnerships with major companies in the building and plumbing industries to rapidly expand awareness of Trutankless and our products in the water heater market in the U.S and Canada.


Sales will continue to be pursued through the following channels:


1.

Regional and national plumbing and electrical wholesalers (also called “distributors”);

2.

Plumbers and electricians on a direct basis, in those areas where wholesalers have not yet been set up; and,

3.

Builders on a direct basis, in those areas where wholesalers & mechanical contractors have not yet been set up.


We will expand sales of the product further by marketing the product directly to consumers over the internet with a series of aggressive and ongoing marketing initiatives. We intend to market to industry professionals and end-users through more traditional marketing efforts as well, including print advertising, attendance of select national trade shows, and attendance of select regional consumer shows. We also expect Trutankless will be successful in providing education, training, and support to our sales and installer networks as part of our distribution and marketing efforts.



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We believe our products will be a differentiating factor for industry professionals and builders as they market to their customers. Additionally, our electric tankless products are expected to provide these professionals and their companies with a mechanism to increase revenue and improve gross margin as compared to more traditional water heating products.


Employees


We currently have six full-time employees, including our two officers, and two part-time employees. We expect to increase the number of employees to expand our sales and technical staff. We are using and will continue to use independent consultants and contractors to perform various professional services. We believe that this use of third-party service providers may enhance our ability to contain operating, general expenses and capital costs.


Available Information


Our periodic reports filed with the SEC, which include Form 10-K, Form 10-Q, Form 8-K and amendments thereto, may be accessed by the public free of charge from the SEC. Electronic copies of these reports can be accessed at the SEC’s website (http://www.sec.gov). Copies of these reports may also be obtained, free of charge, upon written request to: Trutankless Inc., 15720 N. Greenway Hayden Loop, Suite 2, Scottsdale, Arizona 85260, Attn: Corporate Secretary. The public may read or obtain copies of these reports from the SEC at the SEC’s Public Reference Room at 450 Fifth N.W., Washington, D.C. 20549 (1-800-SEC-0330).


ITEM 1A.

RISK FACTORS


If we are unable to attract and retain key personnel, our business could be harmed.


If any of our key employees were to leave, we could face substantial difficulty in hiring qualified successors and could experience a loss in productivity while any successor obtains the necessary training and experience. Our employment relationships are generally at-will. We cannot assure that one or more key employees will not leave in the future. We intend to continue to hire additional highly qualified personnel, but may not be able to attract, assimilate or retain qualified personnel in the future. Any failure to attract, integrate, motivate and retain these employees could harm our business.


We are subject to significant competition from large, well-funded companies.


The industry we compete in is characterized by intense competition and rapid and significant technological advancements. Many companies are working in a number of areas similar to our primary field of interest to develop new products; some of which may be similar and/or competitive to our products.


Most of the companies with which we compete have substantially greater financial, technical, manufacturing, marketing, sales and distribution and other resources than us. If a competitor enters the tankless water heater industry and establishes a greater market share in the direct-selling channel, our business and operating results will be adversely affected.



12





Our auditors have substantial doubt about our ability to continue as a going concern. Additionally, our auditor’s report reflects that the ability of the Company to continue as a going concern is dependent upon our ability to raise additional capital from the sale of common stock and, ultimately, the achievement of significant operating revenues.


Our financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Our auditor’s report reflects that the ability of the Company to continue as a going concern is dependent upon our ability to raise additional capital from the sale of common stock and, ultimately, the achievement of significant operating revenues. If we are unable to continue as a going concern, stockholders will lose their investment.  We will be required to seek additional capital to fund future growth and expansion. No assurance can be given that such financing will be available or, if available, that it will be on commercially favorable terms. Moreover, favorable financing may be dilutive to investors.


We will require additional financing in order to implement our business plan. In the event we are unable to acquire additional financing, we may not be able to implement our business plan resulting in a loss of revenues and ultimately the loss of your investment.


Due to our very recent start-up nature, we will have to incur the costs of product development, import expenses, advertising, in addition to hiring new employees and commencing additional marketing activities for product sales and distribution. To fully implement our business plan we will require substantial additional funding.


We will need to raise additional funds to expand our operations. We plan to raise additional funds through private placements, registered offerings, debt financing or other sources to maintain and expand our operations. Adequate funds for this purpose on terms favorable to us may not be available, and if available, on terms significantly more adverse to us than are manageable. Without new funding, we may be only partially successful or completely unsuccessful in implementing our business plan, and our stockholders may lose part or all of their investment.


Our internal controls may be inadequate, which could cause our financial reporting to be unreliable and lead to misinformation being disseminated to the public.


Our management is responsible for establishing and maintaining adequate internal control over financial reporting. As defined in Exchange Act Rule 13a-15(f), internal control over financial reporting is a process designed by, or under the supervision of, the principal executive and principal financial officer and effected by the board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that: (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;





13





(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company, and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.


We have two individuals performing the functions of all officers and directors. Mr. Orr, our CEO, and Mr. Stebbins, our president, have developed our internal control procedures and are responsible for monitoring and ensuring compliance with those procedures. As a result, our internal controls may be inadequate or ineffective, which could cause our financial reporting to be unreliable and lead to misinformation being disseminated to the public. Investors relying upon this misinformation may make an uninformed investment decision.


We depend on certain key employees, and believe the loss of any of them would have a material adverse effect on our business.


We will be dependent on the continued services of our management team, as well as our outside consultants. While we have no assurance that our current management will produce successful operations, the loss of such personnel could have an adverse effect on meeting our production and financial performance objectives. We have no assurance that we will not lose the services of these or other key personnel and may not be able to timely replace any personnel if we do lose their services.


Our ability to attract qualified sales and marketing personnel is critical to our future success, and any inability to attract such personnel could harm our business.


Our future success may also depend on our ability to attract and retain additional qualified design and sales and marketing personnel. We face competition for these individuals and may not be able to attract or retain these employees, which could have a material adverse effect on our results of operations and financial condition.


RISKS RELATED TO OUR INTELLECTUAL PROPERTY AND TECHNOLOGY


If we fail to secure or protect our intellectual property rights, our products and competitors may be able to use our designs, each of which could harm our reputation, reduce our revenues and increase our costs.


We will rely on intellectual property laws to protect our proprietary rights with respect to our trademarks and pending patent. We are susceptible to injury from patent infringement, which may harm our reputation for producing high-quality products or force us to incur additional expense in enforcing our rights. It is difficult and expensive to detect and prevent patent infringement. Despite our efforts to protect our intellectual property, some may attempt to violate our intellectual property rights by using our trademarks and imitating our products, which could potentially harm our brand, reputation and financial condition.




14






We may face significant expenses and liability in connection with the protection of our intellectual property rights. Infringement claims and lawsuits likely would be expensive to resolve and would require substantial management time and resources. Any adverse determination in litigation could subject us to the loss of our rights to a particular trademark, which could prevent us from manufacturing, selling or using certain aspects of our products or could subject us to substantial liability, any of which would harm our results of operations. Aside from infringement claims against us, if we fail to secure or protect our intellectual property rights, our competitors may be able to use our designs. If we are unable to successfully protect our intellectual property rights or resolve any conflicts, our results of operations may be harmed.


Our reliance on intellectual property and other proprietary information subjects us to the risk that these key ingredients of our business could be copied by competitors.


Our success depends, in significant part, on the proprietary nature of our technology. If a competitor is able to reproduce or otherwise capitalize on our technology, despite the safeguards we have in place, it may be difficult, expensive or impossible for us to obtain necessary legal protection. In addition to patent protection of intellectual property rights, we consider elements of our product designs and processes to be proprietary and confidential. We rely upon employee, consultant and vendor non-disclosure agreements and contractual provisions and a system of internal safeguards to protect our proprietary information. However, any of our registered or unregistered intellectual property rights may be challenged or exploited by others in the industry, which might harm our operating results.


RISKS RELATING TO OUR COMMON STOCK


Because our common stock could remain under $5.00 per share, it could continue to be deemed a low-priced “Penny” stock, an investment in our common stock should be considered high risk and subject to marketability restrictions.


Since our common stock is currently under $5.00 per share, it is considered a penny stock, as defined in Rule 3a51-1 under the Securities Exchange Act, it will be more difficult for investors to liquidate their investment even if and when a market develops for the common stock. If the trading price of the common stock stays below $5.00 per share, trading in the common stock is subject to the penny stock rules of the Securities Exchange Act specified in rules 15g-1 through 15g-10. Those rules require broker-dealers, before effecting transactions in any penny stock, to:


·

Deliver to the customer, and obtain a written receipt for, a disclosure document;

·

Disclose certain price information about the stock;

·

Disclose the amount of compensation received by the broker-dealer or any associated person of the broker-dealer;

·

Send monthly statements to customers with market and price information about the penny stock; and

·

In some circumstances, approve the purchaser s account under certain standards and deliver written statements to the customer with information specified in the rules.



15






Consequently, the penny stock rules may restrict the ability or willingness of broker-dealers to accept the common stock for deposit into an account or, if accepted for deposit, to sell the common stock and these restrictions may affect the ability of holders to sell their common stock in the secondary market and the price at which such holders can sell any such securities. These additional procedures could also limit our ability to raise additional capital in the future.


FINRA sales practice requirements may also limit a stockholder's ability to buy and sell our stock.


In addition to the “penny stock” rules described above, the Financial Industry Regulatory Authority (FINRA) has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer's financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.


ITEM 1B.

UNRESOLVED STAFF COMMENTS


None.


ITEM 2.

PROPERTIES


We currently maintain an executive office 15720 N. Greenway Hayden Loop, Suite 2, Scottsdale Arizona 85260, which consists of approximately 1,924 square feet. Our monthly rent for this office is $2,800.


ITEM 3.

LEGAL PROCEEDINGS


We are not a party to any material legal proceedings.











16






PART II


ITEM 5.

MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASE OF EQUITY SECURITIES


Market Information


Our common stock is traded in the OTCQB under the symbol “TKLS”. Our common stock has traded sporadically on the OTCQB, which limits our ability to locate accurate high and low bid prices for each quarter within the last two fiscal years. Therefore, the following table lists the available quotations for the high and low bid prices for the fiscal years ended December 31, 2018 and 2017.


The following table sets forth, the average high and low bid prices of our common stock as reported by Yahoo Finance. These quotations reflect inter-dealer prices, without retail mark-up, markdown or commission, and may not necessarily represent actual transactions


 

 

 

Year Ending

December 31, 2018

 

 

Year Ending

December 31, 2017

 

 

 

AVERAGE BID PRICES

 

 

AVERAGE BID PRICES

 

 

 

High

 

 

Low

 

 

High

 

 

Low

1st Quarter

 

$

0.94

 

$

0.58

 

$

0.66

 

$

0.49

2nd Quarter

 

$

0.92

 

$

0.43

 

$

1.01

 

$

0.76

3rd Quarter

 

$

0.52

 

$

0.38

 

$

0.90

 

$

0.85

4th Quarter

 

$

0.61

 

$

0.41

 

$

0.84

 

$

0.69


Holders of Common Stock


As of April 9, 2019, there were approximately 343 stockholders of record of our common stock. This number does not include shares held by brokerage clearing houses, depositories or others in unregistered form.


Dividends


The payment of dividends is subject to the discretion of our Board of Directors and will depend, among other things, upon our earnings, our capital requirements, our financial condition, and other relevant factors. We have not paid or declared any dividends upon our common stock since our inception and, by reason of our present financial status and our contemplated financial requirements, do not anticipate paying any dividends upon our common stock in the foreseeable future.




17






We have never declared or paid any cash dividends. We currently do not intend to pay cash dividends in the foreseeable future on the shares of common stock. We intend to reinvest any earnings in the development and expansion of our business. Any cash dividends in the future to common stockholders will be payable when, as and if declared by our Board of Directors, based upon the Board’s assessment of:


·

our financial condition;

·

earnings;

·

need for funds;

·

capital requirements;

·

prior claims of preferred stock to the extent issued and outstanding; and

·

other factors, including any applicable laws.


Therefore, there can be no assurance that any dividends on the common stock will ever be paid.


Recent Sales of Unregistered Securities


During the year ended December 31, 2018, the Company issued 2,726,560 shares of common stock with a fair value of $1,236,784 for services.


During the year ended December 31, 2018, the Company issued 2,693,500 shares of common stock for $1,202,467 cash, of which $130,780 of the cash was received during the year ended December 31, 2017 and recorded as stock payable. Additionally, the Company received an additional $10,000 for the sale of 20,000 shares of common stock which have not been issued and remain in stock payable.


During the year ended December 31, 2018, the Company has issued 600,000 shares of common stock for the cancellation of royalty termination agreements.


During the year ended December 31, 2018, the Company issued 795,000 shares of common stock with a fair value of $397,500 to various noteholders as consideration to enter, split, and extend certain note payables during the period.


We believe that the issuance and sale of the securities was exempt from the registration and prospectus delivery requirements of the Securities Act of 1933 by virtue of Section 4(2) and Regulation D Rule. The securities were sold directly by us and did not involve a public offering or general solicitation. The recipients of the securities were afforded an opportunity for effective access to files and records of the Registrant that contained the relevant information needed to make their investment decision, including the financial statements and 34 Act reports.





18





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.


Stock Warrants


During the year ended December 31, 2018, we granted 256,312 warrants.in conjunction with units which included shares sold for cash to purchase 256,312 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 year ended December 31, 2018, we granted 216,000 warrants valued at $80,898 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.


During the year ended December 31, 2018, we granted 450,000 warrants valued at $95,764 in conjunction with a standard letter of credit to purchase 450,000 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.


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


Subsequent Sales & issuances of Unregistered Securities


Subsequent to year end, the Company issued 1,644,000 shares of common stock for cash.


Subsequent to year end, the Company issued 120,000 shares of common stock were returned and cancelled by the Company.


On January 30, 2019, the Company issued a $100,000 12% promissory note. The note is due on September 30, 2019. As an incentive to enter into the agreement the noteholder was also granted 100,000 shares.



19






On February 11, 2019, the Company issued a $25,000 12% promissory note. The note is due on September 30, 2019. As an incentive to enter into the agreement the noteholder was also granted 25,000 shares.


On February 11, 2019, the Company issued a $25,000 12% promissory note. The note is due on September 30, 2019. As an incentive to enter into the agreement the noteholder was also granted 25,000 shares.


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


Issuer Purchases of Equity Securities


The Company did not repurchase any of its equity securities during the fourth quarter ended December 31, 2018.


ITEM 6.

SELECTED FINANCIAL DATA


This item is not applicable, as we are considered a smaller reporting company.


ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


Background


Trutankless Inc. was incorporated in the state of Nevada on March 7, 2008. The Company is headquartered in Scottsdale, Arizona and currently operates through its wholly-owned subsidiary, Bollente, Inc., a Nevada corporation incorporated on December 3, 2009.


Trutankless is involved in sales, marketing, research and development of a high quality, whole-house, smart electric tankless water heater that is more energy efficient than conventional products. See “Item 1. Business.”





20





RESULTS OF OPERATIONS


Revenues


In the year ended December 31, 2018 we generated $1,537,958 in revenues, as compared to $695,857 in revenues in the prior year. The increase in sales was attributable mostly to sales of our trutankless® products and also the sale of Vero products. Cost of goods sold was $1,703,608, as compared to $530,593 in the prior year.


To the knowledge of management, the Company is unaware of any trends or uncertainties in the sales or costs of our products and services for the periods discussed.


Expenses


Operating expenses totaled $2,728,348 during the year ended December 31, 2018 as compared to $2,570,071 in the prior year. In the year ended December 31, 2018, our expenses primarily consisted of General and Administrative of $1,384,342, Research and Development of $216,069 and Professional fees of $1,127,937.


General and administrative fees decreased $325,775, from the year ended December 31, 2017 to the year ended December 31, 2018. This decrease was primarily due to a decrease in wages and marketing in 2017.


Research and Development increased $50,851 from the year ended December 31, 2017 to the year ended December 31, 2018. Research and Development fees increased due to the integration of new materials into the production process during 2018.


Professional fees increased $433,201 from the year ended December 31, 2017 to the year ended December 31, 2018. Professional fees increased due to an increase in consulting fees associated with business development.


Other Expenses


Interest expense increased $174,455 to $641,619 in the year ended December 31, 2018 from $467,164 for the year ended December 31, 2017. The increase was the result of an increase in notes payable with interest accruals.




21





Net Loss


In the year ended December 31, 2018, we generated a net loss of $3,535,617, an increase of $663,646 from $2,871,971 for the year ended December 31, 2017. This increase was attributable to increased consulting fees associated with business development and the Company spending more towards developing its technology.


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 of 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 December 31, 2018, we had an accumulated deficit of $27,532,752. Primarily because of our history of operating losses and our recording of note payables, we have a working capital deficiency of $1,463,177 at December 31, 2018. Losses have been funded primarily through issuance of common stock and borrowings from our stockholders and third-party debt. As of December 31, 2018, we had $9,668 in cash, $214,260 in accounts receivable, $403,322 in inventory, and $227,111 in prepaid expenses.


Debt Financing


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.


During the year ended December 31, 2017, we 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 December 31, 2018, the Company has issued 1,200,000 shares of common stock and has recorded the balance of the common stock due to stock payable. During the year ended December 31, 2018, the Company paid $0 in dividends related to royalty agreements.



22





Cash Flows from Operating, Investing and Financing Activities


The following table provides detailed information about our net cash flow for all financial statement periods presented in this Annual Report. To date, we have financed our operations through the issuance of stock and borrowings.


The following table sets forth a summary of our cash flows for the years ended December 31, 2018 and 2017:


 

 

Year ended

December 31,

 

 

2018

 

2017

Net cash used in operating activities

 

$

(1,588,537)

 

$

(1,521,944)

Net cash used in investing activities

 

 

(892)

 

 

-

Net cash provided by financing activities

 

 

1,520,98

 

 

1,597,109

Net increase/(decrease) in Cash

 

 

(68,931)

 

 

75,165

Cash, beginning

 

 

78,599

 

 

87,134

Cash, ending

 

$

9,668

 

$

162,299


Operating activities


Net cash used in operating activities was $1,588,537 for the year ended December 31, 2018, as compared to $1,521,944 used in operating activities for the same period in 2017. The increase in net cash used in operating activities was primarily due to higher volume of units sold and increase in research and development cost.


Investing activities


Net cash used in investing activities was $892 for the year ended December 31, 2018, as compared to $0 used in investing activities for the same period in 2017. The increase in net cash used in investing activities was primarily due to an increase in fixed asset purchases.


Financing activities


Net cash provided by financing activities for the year ended December 31, 2018 was $1,520,498, as compared to $1,597,109 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 December 31, 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.





23






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.


ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


This item in not applicable as we are currently considered a smaller reporting company.


ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


See Index to Financial Statements and Financial Statement Schedules appearing on page 38 of this Form 10-K.


ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE


We have had no disagreements with our independent auditors on accounting or financial disclosures.





24






ITEM 9A (T)

CONTROLS AND PROCEDURES


Evaluation of Disclosure Controls and Procedures


Our Principal Executive Officer and Principal Financial Officer, Robertson James Orr, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Report. Based on his evaluation, Mr. Orr concluded that our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.


Management’s Report on Internal Control Over Financial Reporting


Our management is responsible for establishing and maintaining adequate internal control, as is defined in the Securities Exchange Act of 1934.  These internal controls are designed to provide reasonable assurance that the reported financial information is presented fairly, that disclosures are adequate and that the judgments inherent in the preparation of financial statements are reasonable.  There are inherent limitations in the effectiveness of any system of internal controls, including the possibility of human error and overriding of controls.  Consequently, an effective internal control system can only provide reasonable, not absolute, assurance with respect to reporting financial information.


Our internal control over financial reporting includes policies and procedures that: (i) pertain to maintaining records that in reasonable detail accurately and fairly reflect our transactions; (ii) provide reasonable assurance that transactions are recorded as necessary for preparation of our financial statements in accordance with generally accepted accounting principles and the receipts and expenditures of company assets are made and in accordance with our management and directors authorization; and (iii) provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on our financial statements.


Management has undertaken an assessment of the effectiveness of our internal control over financial reporting based on the framework and criteria established in the Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).  Based upon this evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2018.





25






This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to attestation by our registered public accounting firm pursuant to the temporary rules of the Securities and Exchange Commission that permit the company to provide only management’s report in this annual report.


Changes in Internal Control Over Financial Reporting


There were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or reasonably likely to materially affect, our internal control over financial reporting.


ITEM 9B.

OTHER INFORMATION


None.



























26






PART III


ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE


The members of our board of directors serve for one year terms and are elected at the next annual meeting of stockholders, or until their successors have been elected. The officers serve at the pleasure of the board of directors.


Information as to our current directors and executive officers is as follows:


Name

Age

Title

Since

Robertson James Orr

44

Chief Executive Officer, Secretary, Treasurer & Director

May 12, 2010

Michael Stebbins

36

President and Director

June 23, 2016


Duties, Responsibilities and Experience


Robertson James Orr , has been our Chief Executive Officer, Treasurer, Secretary and a Director since May 12, 2010. Mr. Orr attended Arizona State University and graduated with a BA in Business Management. In 1998, Mr. Orr assisted in the founding of bluemedia, Inc., a successful large format digital printing company based in Tempe, Arizona.  Mr. Orr led bluemedia to profitability 9 years ago while overseeing the company's sales department and business development, and since then the company has continued to grow by more than 28% annually. In 2005, Mr. Orr and his Partners in bluemedia started a non-traditional ad agency called Blind Society, which is responsible for the direct to consumer marketing efforts of companies like AT&T, K-Swiss, and Activision. In addition to his entrepreneurial successes, Mr. Orr has been involved with supporting numerous local charitable causes through his work with the Boys & Girls Clubs of Phoenix, St. Joseph the Worker, the MDA and the ADA. He is also on the Board of Directors for the Tempe Chamber of Commerce and is active in the Phoenix 40.


Michael Stebbins , has been our President since February 2, 2017 and a Director since June 23, 2016. Mr. Stebbins is also the president and a director of Bollente, Inc., a Nevada corporation and wholly owned subsidiary of the Company. In 2009, Mr. Stebbins assisted in the founding of Bollente, Inc. Mr. Stebbins helped lead the design team that created our trutankless water heater. He oversaw virtually every aspect of launching our trutankless line of water heaters. Working directly with engineering and development teams, he developed several innovations and was instrumental in working on Bollente Inc.’s intellectual property and patents consisting of 29 proprietary claims related to our products. Since substantially completing R/D efforts in 2013, Mr. Stebbins has worked with the rest of management to lead branding, marketing, and sales initiatives, which has resulted in substantial sales growth and business development opportunities. Mr. Stebbins’ experience in the water heater industry dates back to 2003. Prior to co-founding Bollente, Inc., Mr. Stebbins spent time consulting on several product development projects. Mr. Stebbins was named Top 35 Entrepreneurs under 35 by the Arizona Republic.



27





Indemnification of Directors and Officers


Our Articles of Incorporation and Bylaws both provide for the indemnification of our officers and directors to the fullest extent permitted by Nevada law.


Limitation of Liability of Directors


Pursuant to the Nevada General Corporation Law, our Articles of Incorporation exclude personal liability for our Directors for monetary damages based upon any violation of their fiduciary duties as Directors, except as to liability for any breach of the duty of loyalty, acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, or any transaction from which a Director receives an improper personal benefit. This exclusion of liability does not limit any right which a Director may have to be indemnified and does not affect any Director’s liability under federal or applicable state securities laws. We have agreed to indemnify our directors against expenses, judgments, and amounts paid in settlement in connection with any claim against a Director if he acted in good faith and in a manner he believed to be in our best interests.


Election of Directors and Officers


Directors are elected to serve until the next annual meeting of stockholders and until their successors have been elected and qualified. Officers are appointed to serve until the meeting of the Board of Directors following the next annual meeting of stockholders and until their successors have been elected and qualified.


Section 16(a) Beneficial Ownership Reporting Compliance


Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), requires our executive officers and directors, and persons who beneficially own more than ten percent of our common stock, to file initial reports of ownership and reports of changes in ownership with the SEC. Executive officers, directors and greater-than-ten-percent beneficial owners are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. Based upon a review of the copies of such forms furnished to us and written representations from our executive officers and directors, we believe that as of the date of this filing they were current in their filings.


Code of Ethics


A code of ethics relates to written standards that are reasonably designed to deter wrongdoing and to promote:


1.

Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;

2.

Full, fair, accurate, timely and understandable disclosure in reports and documents that are filed with, or submitted to, the Commission and in other public communications made by an issuer;




28






3.

Compliance with applicable governmental laws, rules and regulations;

4.

The prompt internal reporting of violations of the code to an appropriate person or persons identified in the code; and

5.

Accountability for adherence to the code.


We have not adopted a corporate code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions.


Our decision to not adopt such a code of ethics results from our having a small management for the Company. We believe that the limited interaction which occurs having such a small management structure for the Company eliminates the current need for such a code, in that violations of such a code would be reported to the party generating the violation.


Corporate Governance


We currently do not have standing audit, nominating and compensation committees of the board of directors, or committees performing similar functions. Until formal committees are established, our entire board of directors, perform the same functions as an audit, nominating and compensation committee.


Involvement in Certain Legal Proceedings


To the best of our knowledge, none of our directors or executive officers has, during the past five years:


·

been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offences);

·

had any bankruptcy petition filed by or against the business or property of the person, or of any partnership, corporation or business association of which he was a general partner or executive officer, either at the time of the bankruptcy filing or within two years prior to that time;

·

been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or federal or state authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting, his involvement in any type of business, securities, futures, commodities, investment, banking, savings and loan, or insurance activities, or to be associated with persons engaged in any such activity;

·

been found by a court of competent jurisdiction in a civil action or by the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;





29






·

been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated (not including any settlement of a civil proceeding among private litigants), relating to an alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or

·

been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.


ITEM 11.

EXECUTIVE COMPENSATION


Overview of Compensation Program


We currently have not appointed members to serve on the Compensation Committee of the Board of Directors. Until a formal committee is established, our entire Board of Directors has responsibility for establishing, implementing and continually monitoring adherence with the Company’s compensation philosophy. The Board of Directors ensures that the total compensation paid to the executives is fair, reasonable and competitive.


Compensation Philosophy and Objectives


The Board of Directors believes that the most effective executive compensation program is one that is designed to reward the achievement of specific annual, long-term and strategic goals by the Company and that aligns executives’ interests with those of the stockholders by rewarding performance above established goals, with the ultimate objective of improving stockholder value. As a result of the size of the Company and only having two officers, the Board evaluates both performance and compensation on an informal basis. Upon hiring additional executives, the Board intends to establish a Compensation Committee to evaluate both performance and compensation to ensure that the Company maintains its ability to attract and retain superior employees in key positions and that compensation provided to key employees remains competitive relative to the compensation paid to similarly-situated executives of peer companies. To that end, the Board believes executive compensation packages provided by the Company to its executives, including the named executive officers, should include both cash and stock-based compensation that reward performance as measured against established goals.





30





Role of Executive Officers in Compensation Decisions


The Board of Directors makes all compensation decisions for, and approves recommendations regarding equity awards to, the executive officers and Directors of the Company. Decisions regarding the non-equity compensation of other employees of the Company are made by management.


Summary Compensation Table


The table below summarizes the total compensation paid to or earned by our current Executive Officers for the fiscal years ended December 31, 2018, 2017 and 2016.


SUMMARY COMPENSATION TABLE

 

Name and Principal

Positions

Year

Salary

($)

Bonus

($)

Stock

Awards

($)

Option

Awards

($)

Non-

Equity

Incentive

Plan

Compen-

sation

($)

Non-qualified

Deferred

Compensation

Earnings

($)

All Other

Compen-

sation

($)

Total

($)

Robertson James Orr (1) ,

2018

4,000

-0-

60,000 (2)

-0-

-0-

-0-

-0-

64,000

Former President, CEO, Secretary,

2017

7,200

-0-

24,000 (3)

-0-

-0-

-0-

-0-

31,200

Treasurer & Director

2016

1,500

-0-

66,000 (4)

-0-

-0-

-0-

-0-

67,500

 

 

 

 

 

 

 

 

 

 

Michael Stebbins (5) ,

President & Director

2018

153,750

-0-

125,000 (6)

-0-

-0-

-0-

-0-

278,750

 

2017

128,154

-0-

30,000 (7)

-0-

-0-

-0-

-0-

158,154

(1)

Mr. Orr was appointed President, CEO, Secretary, Treasurer, and Director of the Company on May 12, 2010. On February 2, 2017, Mr. Orr resigned as president.

(2)

Amount represents the fair market value of 120,000 shares of common stock issued for services as an employee.

(3)

Amount represents the fair market value of 120,000 shares of common stock issued for services as an employee.

(4)

Amount represents the fair market value of 90,000 shares of common stock issued for services as an employee.

(5)

Mr. Stebbins was appointed President of the Company on February 2, 2017.

(6)

Amount represents the fair market value of 250,000 shares of common stock issued for services as an employee.

(7)

Amount represents the fair market value of 150,000 shares of common stock issued for services as an employee.


Termination of Employment


There are no compensatory plans or arrangements, including payments to be received from the Company, with respect to any person which would in any way result in payments to any such person because of his resignation, retirement, or other termination of such person’s employment with the Company or its subsidiaries, or any change in control of the Company, or a change in the person’s responsibilities following a change in control of the Company, except with respect to a breach of contract on the part of the Company.


Option Grants in Last Fiscal Year


During the years ended December 31, 2018 and 2017, we did not grant any options to our officers and directors.





31





Employment Agreements


The Company has an employment agreement with the CEO/President 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 March 31, 2018 and ending February 28, 2019 with an option renewal on (March 1) thereafter.


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 $165,000 per annum plus an one-time bonus of 250,000 shares of common stock commencing on October 1, 2018 and ending September 30, 2019 with an option renewal on September 15, 2019.


ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS


The following table sets forth information, to the best of our knowledge, about the beneficial ownership of our common stock on April 9, 2019 relating to the beneficial ownership of our common stock by those persons known to beneficially own more than 5% of our capital stock and by our directors and executive officers.  The percentage of beneficial ownership for the following table is based on 37,413,906 shares of common stock outstanding.


Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and does not necessarily indicate beneficial ownership for any other purpose. Under these rules, beneficial ownership includes those shares of common stock over which the stockholder has sole or shared voting or investment power. It also includes shares of common stock that the stockholder has a right to acquire within 60 days after April 9, 2019 pursuant to options, warrants, conversion privileges or other right. The percentage ownership of the outstanding common stock, however, is based on the assumption, expressly required by the rules of the Securities and Exchange Commission, that only the person or entity whose ownership is being reported has converted options or warrants into shares of our common stock.


Security Ownership of Management, Directors and Certain Beneficial Owners


Title of

Class

Name of Beneficial Owner(1)

Number

Of Shares

Percent

Beneficially

Owned

Common

Robertson James Orr - CEO and Director (2)

1,136,327

3.03%

Common

Michael Stebbins - President and Director (2)(3)

1,714,309(3)

4.58%

 

All Directors, Officers and Principal Stockholders as a Group

2,850,636

7.61%

1.

As used in this table, “beneficial ownership” means the sole or shared power to vote, or to direct the voting of, a security, or the sole or shared investment power with respect to Common Stock (i.e., the power to dispose of, or to direct the disposition of, a security).

2.

The address of each Officer and Director is c/o Trutankless, Inc., 15720 N. Greenway Hayden Loop, Suite 2, Scottsdale, AZ 85260.

3.

Of the total shares of Common Stock owned or controlled by Mr. Stebbins, 350,000 shares are held by White Isle Holdings, Inc. and 15,000 shares are held by Core Financial Companies LLC.



32





Changes in Control


There are no arrangements, known to the Company, including any pledge by any person of securities of the Company, the operation of which may at a subsequent date result in a change in control of the Company.


ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPNDENCE


Transactions with Related Persons


As of December 31, 2018, and 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. The note is due on December 31, 2020. During the year ended December 31, 2018, the Company received advances of $65,000 on the grid note. As of December 31, 2018, $65,000 remained outstanding on the note.


As of December 31, 2018, and 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 year ended December 31, 2018 and 2017 the Company received advances $0 and $22,500 and made payments of $4,791 and $17,709, respectively.


Promoters and Certain Control Persons


We did not have any promoters at any time since our inception in March 2008.


Director Independence


We currently do not have any independent directors, as the term “independent” is defined in Section 803A of the NYSE Amex LLC Company Guide. Since the OTCQB does not have rules regarding director independence, the Board makes its determination as to director independence based on the definition of “independence” as defined under the rules of the New York Stock Exchange (“NYSE”) and American Stock Exchange (“Amex”).







33






ITEM 14.

PRINCIPAL ACCOUNTING FEES AND SERVICES


(1) AUDIT FEES


Audit and Non-Audit Fees


The following table sets forth fees billed to us by AMC Auditing, our independent auditors, for the years ended 2018 and 2017 for (i) services rendered for the audit of our annual financial statements and the review of our quarterly financial statements, (ii) services rendered that are reasonably related to the performance of the audit or review of our financial statements that are not reported as Audit Fees, and (iii) services rendered in connection with tax preparation, compliance, advice and assistance.


Fee Category

 

Fiscal 2018 Fees

 

Fiscal 2017 Fees

 

 

 

 

 

Audit Fees

 

$35,317

 

$29,209

Audit Related Fes

 

--

 

--

Tax Fees

 

--

 

--

All Other Fees

 

--

 

--

 

 

 

 

 

Total Fees

 

$35,317

 

$29,209


Audit fees and audit related fees represent amounts billed for professional services rendered for the audit of our annual financial statements and the review of our interim financial statements. Before our independent accountants were engaged to render these services, their engagement was approved by our Directors.


(2) AUDIT-RELATED FEES


None.


(3) TAX FEES


See table above.


(4) ALL OTHER FEES


None.


(5) AUDIT COMMITTEE POLICIES AND PROCEDURES


We do not have an audit committee.




34





(6) If greater than 50 percent, disclose the percentage of hours expended on the principal accountant's engagement to audit the registrant's financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant's full-time, permanent employees.


Not applicable.


ITEM 15.

EXHIBITS, FINANCIAL STATEMENT SCHEDULES


We have filed the following documents as part of this Annual Report on Form 10-K:


1.

The financial statements listed in the "Index to Consolidated Financial Statements" on page 38 are filed as part of this report.

2.

Financial statement schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.

3.

Exhibits included or incorporated herein: See index to Exhibits.


Exhibit Index


Exhibit

Number

Exhibit Description

2.1

Acquisition Agreement and Plan of Merger - dated March 3, 2011(3)

2.2

Addendum No. 1 to Acquisition Agreement and Plan of Merger - Dated April 27, 2011(4)

2.3

Agreement and Plan of Merger between Bollente Companies, Inc. and Bollente Name Change Subsidiary, Inc. - Dated June 4, 2018(5)

3(i)(a)

Articles of Incorporation of Bollente Companies, Inc. (Formerly Alcantara Brands Corporation)(1)

3(i)(b)

Certificate of Amendment - Name Change - Dated March 2, 2011(2)

3(i)(c)

Certificate of Change - 50:1 Reverse Split - Dated September 23, 2010(2)

3(i)(d)

Articles of Incorporation of Bollente Name Change Subsidiary, Inc. - Dated June 4, 2018(5)

3(i)(e)

Articles of Merger between Bollente Companies, Inc. and Bollente Name Change Subsidiary, Inc. - Dated June 4, 2018(5)

3(ii)(a)

Bylaws of Trutankless, Inc. (1)

31.1

Certification pursuant to Section 302 of the Sarbanes-Oxley Act*

32.1

Certification pursuant to 18 U.S.C. Section 350*

101.INS

XBRL Instance

101.SCH

XBRL Taxonomy Extension Schema

101.CAL

XBRL Taxonomy Extension Calculation

101.DEF

XBRL Taxonomy Extension Definition

101.LAB

XBRL Taxonomy Extension Label

101.PRE

XBRL Taxonomy Extension Presentation

(1)

Incorporated by reference from the Company’s Registration Statement on Form SB-2 filed on March 19, 2008.

(2)

Incorporated by reference from the Company’s Quarterly Report on Form 10-Q filed on November 24, 2010.

(3)

Incorporated by reference from the Company’s Current Report on Form 8-K filed on March 10, 2011.

(4)

Incorporated by reference from the Company’s Current Report on Form 8-K filed on May 6, 2011.

(5)

Incorporated by reference from the Company’s Current Report on Form 8-K filed on June 6, 2018


*Filed herewith.




35






SIGNATURES


Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


TRUTANKLESS INC.



By: /s/ Robertson J. Orr

Robertson James Orr, Chief Executive Officer


Date: April 9, 2019


Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


Signature

Title

Date

 

 

 

/s/ Robertson J. Orr

Robertson James Orr

Chairman of the Board of Directors, Chief Executive Officer (Principal Executive Officer) and Principal Financial Officer

April 9, 2019

 

 

 

 

 

 

/s/ Michael Stebbins

Michael Stebbins

Director

April 9, 2019















36





TRUTANKLESS INC.


INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017



 

PAGES

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

F-1

 

 

CONSOLIDATED BALANCE SHEETS

F-2

 

 

CONSOLIDATED STATEMENTS OF OPERATIONS

F-3

 

 

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

F-4

 

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

F-5

 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

F-6






















[TKLS10K7.GIF]


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and Stockholders of

TruTankless, Inc.


Opinion on the Financial Statements


We have audited the accompanying balance sheets of Trutankless, Inc. (the “Company”) as of December 31, 2018 and December 31, 2017 and the related statements of operations, stockholders’ (deficit), and cash flows for each of the years in the two-year period ended December 31, 2018, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and December 31, 2017, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2018 in conformity with accounting principles generally accepted in the United States of America.


Basis for Opinion


These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.


We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.


Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.


The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has negative working capital at December 31, 2018, has incurred recurring losses and recurring negative cash flow from operating activities, and has an accumulated deficit which raises substantial doubt about its ability to continue as a going concern. Management’s plans concerning these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.


/s/ AMC Auditing

AMC Auditing

We have served as the Company’s auditor since 2015

Las Vegas, Nevada

April 5, 2019



F-1





TRUTANKLESS INC.

CONSOLIDATED BALANCE SHEETS

(AUDITED)


 

December 31, 2018

 

December 31, 2017

ASSETS

 

 

 

Current assets

 

 

 

  Cash

$

9,668

 

$

78,599

  Accounts receivable

 

214,260

 

 

129,246

  Inventory

 

403,322

 

 

157,487

  Prepaid expenses

 

227,111

 

 

318,207

    Total current assets

 

854,361

 

 

683,539

 

 

 

 

 

 

  Fixed assets, net of accumulated depreciation

 

1,227

 

 

1,223

 

 

 

 

 

 

Other Assets

 

 

 

 

 

  Security deposits

 

3,281

 

 

1,500

  Trademarks

 

11,914

 

 

11,916

  Software

 

22

 

 

4,167

    Total other assets

 

15,217

 

 

17,583

 

 

 

 

 

 

Total assets

$

870,805

 

$

702,345

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' DEFICIT

 

 

 

 

 

Current liabilities

 

 

 

 

 

  Accounts payable and accrued liabilities

 

1,171,562

 

 

624,253

  Accrued interest payable - related party

 

10,166

 

 

4,483

  Customer deposits

 

600

 

 

600

  Advances

 

7,123

 

 

4,300

  Line of credit - related party

 

-

 

 

4,791

  Notes payable- related party

 

99,150

 

 

34,150

  Notes payable, net of debt discount

 

45,717

 

 

380,000

  Convertible notes payable, net of debt discount

 

983,220

 

 

932,041

    Total current liabilities

 

2,317,538

 

 

1,984,618

 

 

 

 

 

 

  Convertible notes payable - long term, net of debt discount

 

226,880

 

 

151,359

  Notes payable - long-term, net of debt discount

 

282,233

 

 

-

    Total long-term liabilities

 

509,113

 

 

151,359

 

 

 

 

 

 

Total liabilities

 

2,826,651

 

 

2,135,977

 

 

 

 

 

 

Stockholders' deficit

 

 

 

 

 

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

    76,000 shares issued and outstanding as of

    December 31, 2018 and 2017, respectively

 

76

 

 

76

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

    34,739,902 and 27,924,842 shares issued and outstanding as of

    December 31, 2018 and 2017, respectively

 

34,740

 

 

27,925

  Additional paid in capital

 

25,364,090

 

 

21,986,722

  Subscriptions payable

 

178,000

 

 

548,780

  Accumulated deficit

 

(27,532,752)

 

 

(23,997,135)

    Total stockholders' deficit

 

(1,955,846)

 

 

(1,433,632)

 

 

 

 

 

 

Total liabilities and stockholders' deficit

$

870,805

 

$

702,345


See accompanying notes to consolidated financial statements.

F-2





TRUTANKLESS INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(AUDITED)


 

 

For the years ended

 

 

December 31, 2018

 

December 31, 2017

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

1,537,958

 

$

695,857

 

 

 

 

 

 

 

Cost of goods sold

 

 

(1,703,608)

 

 

(530,593)

 

 

 

 

 

 

 

  Gross profit

 

 

(165,650)

 

 

165,264

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

  General and administrative

 

 

1,384,342

 

 

1,710,117

  Research and development

 

 

216,069

 

 

165,218

  Professional fees

 

 

1,127,937

 

 

694,736

    Total operating expenses

 

 

2,728,348

 

 

2,570,071

 

 

 

 

 

 

 

Other expenses

 

 

 

 

 

 

  Interest expense

 

 

(641,619)

 

 

(467,164)

    Total expenses

 

 

(641,619)

 

 

(467,164)

 

 

 

 

 

 

 

Net loss

 

$

(3,535,617)

 

$

(2,871,971)

 

 

 

 

 

 

 

Net loss per common share - basic

 

$

(0.11)

 

$

(0.11)

 

 

 

 

 

 

 

Weighted average number of common shares outstanding - basic

 

$

30,747,462

 

$

25,086,788
















See accompanying notes to consolidated financial statements.



F-3





TRUTANKLESS INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(AUDITED)


 

Preferred Stock

 

Common Stock

 

Additional

 

Subscriptions

 

Accumulated

 

Stockholders'

 

Shares

 

Amount

 

Shares

 

Amount

 

Paid-in Capital

 

Payable

 

Deficit

 

Deficit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2016

61,000

 

61

 

23,722,342

 

23,724

 

20,382,603

 

40,000

 

(21,073,013)

 

(626,625)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Prior period adjustment

-

 

-

 

-

 

-

 

-

 

-

 

(40,751)

 

(40,751)

Stock issued for cash

-

 

-

 

2,490,000

 

2,490

 

847,488

 

110,780

 

-

 

960,758

Repurchase and retirement

of shares for cash

-

 

-

 

(300,000)

 

(300)

 

(83,700)

 

-

 

-

 

(84,000)

Stock issued for cancelation

of royalty agreement

-

 

-

 

600,000

 

600

 

299,400

 

400,000

 

-

 

700,000

Common shares issued for

conversion of preferred shares

(10,000)

 

(10)

 

50,000

 

50

 

(40)

 

-

 

-

 

-

Preferred units issued for cash

25,000

 

25

 

-

 

-

 

62,475

 

-

 

-

 

62,500

Stock issued for services

-

 

-

 

1,362,500

 

1,362

 

473,819

 

(2,000)

 

-

 

473,181

Warrants issued with beneficial

conversion feature

-

 

-

 

-

 

-

 

4,677

 

-

 

-

 

4,677

Dividends

-

 

-

 

-

 

-

 

-

 

-

 

(11,400)

 

(11,400)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

(2,871,971)

 

(2,871,971)

Balance, December 31, 2017

76,000

 

76

 

27,924,842

 

27,925

 

21,986,722

 

548,780

 

(23,997,135)

 

(1,433,632)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock issued for cash

-

 

-

 

2,693,500

 

2,694

 

1,160,553

 

39,220

 

-

 

1,202,467

Stock issued for services

-

 

-

 

2,726,560

 

2,727

 

1,344,057

 

(110,000)

 

-

 

1,236,784

Stock issued for cancelation

of royalty agreement

-

 

-

 

600,000

 

600

 

299,400

 

(300,000)

 

-

 

-

Shares issued for note

extensions

-

 

-

 

795,000

 

795

 

396,705

 

-

 

-

 

397,500

Warrants issued for standard

letter of credit

 

 

 

 

 

 

 

 

176,653

 

 

 

 

 

176,653

Net loss

-

 

-

 

-

 

-

 

-

 

-

 

(3,535,617)

 

(3,535,617)

Balance, December 31, 2018

76,000

 

76

 

34,739,902

 

34,740

 

25,364,090

 

178,000

 

(27,532,752)

 

(1,955,846)
















See accompanying notes to consolidated financial statements.



F-4





TRUTANKLESS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(AUDITED)


 

For the years ended

 

December 31, 2018

 

December 31, 2017

Cash Flows from Operating Activities

 

 

 

  Net loss

$

(3,535,617)

 

$

(2,871,971)

Adjustments to reconcile net loss to net cash provided by

operating activities:

 

 

 

 

 

  Shares issued for services

 

1,236,784

 

 

1,053,180

  Prior period adjustment

 

 

 

 

(40,751)

  Shares issued for cancellation of royalty agreement

 

-

 

 

120,000

  Depreciation and amortization

 

5,035

 

 

4,379

  Amortization of debt discount

 

393,802

 

 

253,293

Changes in assets and liabilities

 

 

 

 

 

  (Increase) decrease in accounts receivable

 

(85,014)

 

 

(12,913)

  (Increase) decrease in inventory

 

(245,835)

 

 

(94,651)

  (Increase) decrease in prepaid expenses

 

91,096

 

 

(97,901)

  (Increase) decrease in security deposit

 

(1,781)

 

 

-

  Increase (decrease) in accounts payable

 

547,310

 

 

162,550

  Increase (decrease) in accrued interest payable - related party

 

5,683

 

 

2,841

    Net cash used in operating activities

 

(1,588,537)

 

 

(1,521,944)

 

 

 

 

 

 

Cash Flows from Investing Activities:

 

 

 

 

 

  Purchase of fixed assets

 

(892)

 

 

-

    Net cash used in investing activities

 

(892)

 

 

-

 

 

 

 

 

 

Cash Flows from Financing Activities:

 

 

 

 

 

  Advances

 

2,823

 

 

3,000

  Proceeds from convertible notes payable

 

285,000

 

 

705,000

  Proceeds from notes payable

 

115,000

 

 

15,000

  Repayments from notes payable

 

(80,000)

 

 

(142,240)

  Proceeds from line of credit - related party

 

-

 

 

22,500

  Repayments on line of credit - related party

 

(4,791)

 

 

(17,709)

  Proceeds from sale of common stock, net of offering costs

 

1,202,466

 

 

1,044,458

  Proceeds from sale of preferred stock

 

-

 

 

62,500

  Repurchase of common stock

 

-

 

 

(84,000)

  Dividends

 

-

 

 

(11,400)

    Net cash provided by financing activities

 

1,520,498

 

 

1,597,109

 

 

 

 

 

 

Net increase in cash

 

(68,931)

 

 

75,165

 

 

 

 

 

 

Cash, beginning of period

 

78,599

 

 

87,134

Cash, end of period

$

9,668

 

$

162,299

 

 

 

 

 

 

Supplemental disclosure of cash flow information

 

 

 

 

 

  Cash paid for interest

$

30,450

 

$

48,118

  Cash paid for taxes

$

-

 

$

-



See accompanying notes to consolidated financial statements.



F-5





TRUTANKLESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2018 AND 2017

(AUDITED)


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. All significant inter-company transactions and balances have been eliminated.


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.


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 FASB ASC 718-10 and the conclusions reached by the FASB 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.



F-6





TRUTANKLESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2018 AND 2017

(AUDITED)


Earnings per share

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


Inventory

Inventories are stated at the lower of cost (average cost) or market (net realizable value).


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 December 31, 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, actually 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.


Recent Accounting Pronouncements

On May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718), Scope of Modification Accounting. The amendments in this Update provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The amendments in this Update are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period, for (1) public business entities for reporting periods for which financial statements have not yet been issued and (2) all other entities for reporting periods for which financial statements have not yet been made available for issuance. Management has reviewed this pronouncement and has determined that it would not have a material impact to the financial statements.




F-7





TRUTANKLESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2018 AND 2017

(AUDITED)


In July 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815). The amendments in Part I of this Update change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified financial instruments, the amendments require entities that present earnings per share (EPS) in accordance with Topic 260 to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. Convertible instruments with embedded conversion options that have down round features are now subject to the specialized guidance for contingent beneficial conversion features (in Subtopic 470-20, Debt—Debt with Conversion and Other Options), including related EPS guidance (in Topic 260). The amendments in Part II of this Update recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Codification, to a scope exception. Those amendments do not have an accounting effect. For public business entities, the amendments in Part I of this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. For all other entities, the amendments in Part I of this Update are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted for all entities, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period.


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 year ended December 31, 2018 of ($27,532,752).


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:


 

December 31, 2018

 

December 31, 2017

Finished goods

 

403,322

 

 

157,487

Total

$

403,322

 

$

157,487





F-8





TRUTANKLESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2018 AND 2017

(AUDITED)


NOTE 4 - WEBSITE


Website consists of the following at:


 

December 31, 2018

 

December 31, 2017

Website

$

58,598

 

$

58,598

 

 

 

 

 

 

Less: Accumulated amortization

 

(58,598)

 

 

(58,598)

 

 

 

 

 

 

Website, net

$

--

 

$

--


Amortization expense from continuing operations for the years ended December 31, 2018 and 2017 was $0 and $1,628, respectively.


NOTE 5 - RELATED PARTY


As of December 31, 2018, and 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. The note is due on December 31, 2020. During the year ended December 31, 2018, the Company received advances of $65,000 on the grid note. As of December 31, 2018, $65,000 remained outstanding on the note.


As of December 31, 2018, and 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 year ended December 31, 2018 and 2017 the Company received advances $0 and $22,500 and made payments of $4,791 and $17,709, respectively.


NOTE 6 - NOTES PAYABLE


Notes payable consist of the following at:


 

December 31,

2018

 

December 31,

2017

Note payable from a shareholder, secured, 12% interest, due January 2020

$

150,000

 

$

200,000

Note payable from a shareholder, secured, 12% interest, due January 2020

 

100,000

 

 

100,000

Note payable from a shareholder, secured, 12% interest, due January 2020

 

50,000

 

 

--

Note payable, to an officer, director and shareholder, secured, 10% interest,

due September 2020

 

50,000

 

 

--

Note payable from a shareholder, secured, 5% interest, due June 2017

 

--

 

 

80,000

Total Notes Payable

$

350,000

 

$

380,000

 

 

 

 

 

 

Less discounts

 

(29,494)

 

 

--

 

 

 

 

 

 

Total Notes Payable

 

320,506

 

 

380,000

 

 

 

 

 

 

Less current portion

 

(38,273)

 

 

(380,000)

 

 

 

 

 

 

Total Notes Payable - long term

$

282,233

 

$

--

 

F-9





TRUTANKLESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2018 AND 2017

(AUDITED)


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 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.


On September 17, 2018, the Company issued a $50,000 10% promissory note. The note is 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. As of September 30, 2018, $89 of the debt discount was amortized. As of September 30, 2018, the note was shown net of unamortized discount of $4,911.


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


 

December 31,

2018

 

December 31,

2017

Convertible note payable, secured, 12% interest,

due May 2018, convertible at $1 per share

$

10,000

 

$

10,000

Convertible note payable, secured, 12% interest,

due May 2018, convertible at $1 per share

 

50,000

 

 

50,000

Convertible note payable, secured, 12% interest,

due June 2018, convertible at $1 per share

 

50,000

 

 

50,000

Convertible note payable, secured, 12% interest,

due August 2018, convertible at $1 per share

 

50,000

 

 

50,000

Convertible note payable, 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 discounts

 

(239,900)

 

 

(131,600)

 

 

 

 

 

 

Total notes payable, net

$

1,210,100

 

$

1,083,400

 

 

 

 

 

 

Less current portion

 

(983,220)

 

 

(932,041)

 

 

 

 

 

 

Convertible notes payable, net - Long-term

$

226,880

 

$

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 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.


 

F-10





TRUTANKLESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2018 AND 2017

(AUDITED)


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 was due on December 11, 2018, and on November 15, 2018, in consideration for 20,000 shares the note was extended to April 11, 2019 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 year ended December 31, 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.


During the year ended December 31, 2018, the Company entered into an agreement with the note holder to extend a Standby Letter of Credit (SLC) to the Company’s largest manufacturer in order to secure more favorable payment terms. The SLC is for $450,000 and is irrevocable for a period of two years. In consideration for providing the SLC, the Company agreed to issue 738,000 shares of common stock and grant 450,000 warrants, of which 414,000 shares have been issued and 324,000 shares remain outstanding to be issued. As of December 31, 2018, the Company has recorded a debt discount in the amount of $302,764 related to the fair value of the issued shares and warrants, which is being amortized over the two-year term of the SLC.


On May 2, 2017, the Company issued $100,000 of principal amount of 10% secured convertible promissory notes and 20,000 warrants to purchase common stock. The note is due on May 2, 2020 and is secured by the Company’s accounts receivable and inventory. The outstanding principal amounts and accrued but unpaid interest of the notes are convertible at any time at the option of the holder into common stock at a conversion price of $0.50 per share. The notes the were issued with warrants to purchase up to 10,000 shares of the Company’s common stock at an exercise price of $1.00 per share. The warrants are exercisable at any time. The warrants are exercisable until four (4) years after the closing date.


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 is due on May 2, 2020 and is secured by the Company’s accounts receivable and inventory. The outstanding principal amounts and accrued but unpaid interest of the notes are convertible at any time at the option of the holder into common stock at a conversion price of $0.50 per share. The notes the were issued with warrants to purchase up to 10,000 shares of the Company’s common stock at an exercise price of $1.00 per share. The warrants are exercisable at any time. The warrants are exercisable until four (4) years after the closing date.


On May 22, 2017, the Company issued $5,000 of principal amount of 10% secured convertible promissory notes and 1,000 warrants to purchase common stock. The note is due on May 22, 2020 and is secured by the Company’s accounts receivable and inventory. The outstanding principal amounts and accrued but unpaid interest of the notes are convertible at any time at the option of the holder into common stock at a conversion price of $0.50 per share. The notes the were issued with warrants to purchase up to 1,000 shares of the Company’s common stock at an exercise price of $1.00 per share. The warrants are exercisable at any time. The warrants are exercisable until four (4) years after the closing date.


Interest expense including amortization of the associated debt discount for the year ended December 31, 2018 and 2017 was $637,382 and $467,164, respectively.





F-11





TRUTANKLESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2018 AND 2017

(AUDITED)


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.


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 December 31, 2018, the Company has issued 1,200,000 shares of common stock, and has recorded the balance of the common stock due to stock payable. During the year ended December 31, 2018, the Company paid $0 in dividends related to royalty agreements.


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 on 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 $3,000 per month with an option to continue on a month to month basis. The Company was not required to pay a security deposit.


During 2018, the Company executed a lease agreement. The lease term is 51 months at a rate of $1,780 per month with rent commencing on January 1, 2019. The Company was required to pay a $1,781 security deposit.


Rent expense for the year ended December 31, 2018 and 2017 was $84,000 and $84,000, respectively.


Executive Employment Agreements


The Company has an employment agreement with the CEO/President 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 March 31, 2018 and ending February 28, 2019 with an option renewal on (March 1) thereafter.


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 $165,000 per annum plus a one-time bonus of 250,000 shares of common stock commencing on October 1, 2018 and ending September 30, 2019 with an option renewal on September 15, 2019.


NOTE 9 - STOCK WARRANTS


As of December 31, 2017, we issued 236,000 warrants for cash to purchase 236,000 shares of the Company’s common stock at an exercise price of $1.00 per share associated with. The warrants are exercisable at any time until three (3) years after the closing date.


During the year ended December 31, 2018, we granted 256,312 warrants.in conjunction with units which included shares sold for cash to purchase 256,312 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.



F-12





TRUTANKLESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2018 AND 2017

(AUDITED)


During the year ended December 31, 2018, we granted 216,000 warrants valued at $80,898 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.


During the year ended December 31, 2018, we granted 450,000 warrants valued at $95,764 in conjunction with a Standard letter of credit to purchase 450,000 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.


Summary of warrant activity for the two years ended December 31, 2018 and 2017 is presented below:


 

 

Number of

Shares

 

 

Weighted

Average

Exercise

Price

Balance, December 31, 2016

 

1,237,312

 

$

--

Warrants granted and assumed

 

236,000

 

$

--

Warrants expired

 

--

 

 

--

Warrants canceled

 

--

 

 

--

Warrants exercised

 

--

 

 

--

Balance, December 31, 2017

 

1,473,312

 

$

1.00

Warrants granted and assumed

 

922,312

 

$

--

Warrants expired

 

--

 

 

--

Warrants canceled

 

--

 

 

--

Warrants exercised

 

--

 

 

--

Balance, December 31, 2018

 

2,395,624

 

$

1.00


As of December 31, 2018, there are warrants exercisable to purchase 2,395,624 shares of common stock in the Company.


NOTE 10 - INCOME TAXES


For the year ended December 31, 2018, the cumulative net operating loss carry-forward from continuing operations is approximately $27,333,562 and will expire beginning in the year 2031.


The cumulative tax effect at the expected rate of 34% of significant items comprising our net deferred tax amount is as follows as of December 31, 2018 and 2017:


 

2018

 

2017

Deferred tax asset attributable to:

 

 

 

 

 

  Net operating loss carryover

$

8,901,506

 

$

8,159,026

  Valuation allowance

 

(8,901,506)

 

 

(8,159,026)

    Net deferred tax asset

$

--

 

$

--


Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry forwards of approximately $27,333,562 for Federal income tax reporting purposes are subject to annual limitations. Should a change in ownership occur, net operating loss carry forwards may be limited as to use in future years.



F-13





TRUTANKLESS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2018 AND 2017

(AUDITED)


Due to the enactment of the Tax Reform Act of 2017, the corporate tax rate for those tax years beginning with 2018 has been reduced to 21%.


NOTE 11 - 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 year ended December 31, 2018, the Company issued 2,726,560 shares of common stock with a fair value of $1,236,784 for services.


During the year ended December 31, 2018, the Company issued 2,693,500 shares of common stock for $1,202,467 cash, of which $130,780 of the cash was received during the year ended December 31, 2017 and recorded as stock payable. Additionally, the Company received an additional $10,000 for the sale of 20,000 shares of common stock which have not been issued and remain in stock payable.


During the year ended December 31, 2018, the Company has issued 600,000 shares of common stock for the cancellation of royalty termination agreements.


During the year ended December 31, 2018, the Company issued 795,000 shares of common stock with a fair value of $397,500 to various noteholders as consideration to enter, split, and extend certain note payables during the period.


NOTE 12 - SUBSEQUENT EVENT


Subsequent to year end, the Company issued 1,644,000 shares of common stock for cash.


Subsequent to year end, the Company issued 120,000 shares of common stock were returned and cancelled by the Company.


Subsequent to year end, the Company issued 1,000,000 shares of common stock for services.


On January 30, 2019, the Company issued a $100,000 12% promissory note. The note is due on September 30, 2019. As an incentive to enter into the agreement the noteholder was also granted 100,000 shares.


On February 11, 2019, the Company issued a $25,000 12% promissory note. The note is due on September 30, 2019. As an incentive to enter into the agreement the noteholder was also granted 25,000 shares.


On February 11, 2019, the Company issued a $25,000 12% promissory note. The note is due on September 30, 2019. As an incentive to enter into the agreement the noteholder was also granted 25,000 shares.





F-14


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