TKLS.OTC.PinkTrutankless, INC
10-Q: Trutankless Inc. Reports Increased Revenue but Continues to Face Going Concern Challenges in Q3 2024
Sentiment:
Quarterly Report
Trutankless Inc. saw a significant increase in revenue in the third quarter of 2024, driven by parts sales and the launch of new products, but the company still faces substantial financial challenges and a going concern warning.
Capital raiseThe company is planning to raise additional capital to fund its operations and growth plans.The company has been relying on equity offerings and debt financings to fund its operations.The company has issued a large number of shares for services, debt conversion and financing incentives which may dilute existing shareholders.
Worse than expectedThe company's net loss has increased significantly compared to the same period last year.The company's operating expenses have increased substantially, outpacing revenue growth.The company has a significant working capital deficiency and limited cash reserves.The company has a going concern warning, indicating a high risk of potential business failure.
Summary
- Trutankless Inc. reported a substantial increase in revenue for the nine months ended September 30, 2024, reaching $191,285 compared to $3,469 in the same period last year.
- The revenue growth was attributed to sales of parts for older products and the initial sales of the new Gen 3 residential water heaters.
- However, the company's operating expenses also increased significantly to $3,416,851, up from $1,465,624 in the prior year, driven by research and development and professional fees.
- The company's net loss for the nine months ended September 30, 2024, was $4,908,865, a substantial increase from the $1,958,827 loss in the same period of 2023.
- Trutankless had a working capital deficiency of $4,483,190 as of September 30, 2024, and only $34,719 in cash on hand.
- The company's accumulated deficit stood at $71,574,778 as of September 30, 2024.
- Management has expressed substantial doubt about the company's ability to continue as a going concern due to its history of operating losses and insufficient cash flow.
- The company is relying on raising additional capital and investing in sales and marketing to increase demand for its products.
- The company has a number of related party transactions including notes and convertible notes payable.
- The company has issued a large number of shares for services, debt conversion and financing incentives.
Sentiment
Score: 3
Explanation: The document presents a mixed picture with some positive revenue growth but significant financial challenges, including a going concern warning. The high expenses, net losses, and reliance on debt and equity financing raise serious concerns about the company's long-term viability.
Positives
- The company experienced a substantial increase in revenue, indicating a potential market for its products.
- The launch of the Gen 3 product line is a positive step towards future growth.
- The company is actively working on new apps and control panels for its smart water heaters, which could enhance its market position.
- The company has established relationships with major wholesale plumbing distributors.
Negatives
- The company's operating expenses have increased significantly, outpacing revenue growth.
- The company is experiencing substantial net losses, raising concerns about its financial sustainability.
- The company has a significant working capital deficiency and limited cash reserves.
- The company has a large accumulated deficit, indicating a history of financial challenges.
- The company is heavily reliant on debt and equity financing, which may dilute existing shareholders.
- The company has a going concern warning, indicating a high risk of potential business failure.
- The company has a number of related party transactions which may be a concern for investors.
- The company has issued a large number of shares for services, debt conversion and financing incentives which may dilute existing shareholders.
Risks
- The company's ability to continue as a going concern is highly uncertain due to its financial condition.
- The company may not be able to raise sufficient capital to fund its operations and growth plans.
- The company's reliance on debt financing could lead to restrictive covenants and financial instability.
- The company's inability to generate sufficient revenue could force it to scale back or discontinue operations.
- The company faces risks related to product development, manufacturing, and market competition.
- The company has a number of legal proceedings which may impact the business.
- The company has a number of related party transactions which may be a concern for investors.
Future Outlook
Management plans to raise additional capital and invest in sales and marketing to increase the distribution and demand for its products over the next twelve months. However, there is no guarantee the Company will generate sufficient revenues or raise capital to continue operations.
Management Comments
- Management anticipates the Company's trutankless water heater, with Wi-Fi capability and trutankless' proprietary apps offered in the iOS and Android store, will augment existing products in the home automation space.
- Management has expressed substantial doubt about the company's ability to continue as a going concern.
- Management plans to raise additional capital and to invest its working capital resources in sales and marketing in order to increase the distribution and demand for its products.
Industry Context
The company operates in the home automation and water heating industry, which is experiencing growth. The company is attempting to leverage its relationships with wholesale plumbing distributors to increase sales. The company is also developing smart home technology to integrate with other devices in the Smart Home market.
Comparison to Industry Standards
- The company's revenue growth is a positive sign, but its high operating expenses and net losses are concerning when compared to established players in the water heating industry.
- Companies like Rheem and A.O. Smith have significantly higher revenue and profitability due to their established market presence and economies of scale.
- The company's reliance on debt and equity financing is not uncommon for early-stage companies, but the level of debt and the going concern warning are significant red flags.
- The company's research and development spending is high, which is typical for a company developing new technology, but it needs to translate into sales and profitability.
- The company's professional fees are very high compared to industry standards, which may indicate issues with financial management or compliance.
Legal Proceedings
- The company is still subject to a civil penalty of $20,000 to the Securities and Exchange Commission.
- The company has a default judgement of $38,768 from a legal proceeding in Florida.
Related Party Transactions
- The company has a number of related party transactions including notes and convertible notes payable.
- The company has advances from a related party of $7,500 as of September 30, 2024.
- The company has notes payable to related parties totaling $361,950 as of September 30, 2024.
- The company has convertible notes payable with related parties totaling $3,039,523 as of September 30, 2024.
Stakeholder Impact
- Shareholders face significant risk due to the company's financial instability and potential dilution from future equity offerings.
- Employees may be concerned about job security due to the company's going concern warning.
- Customers may be concerned about the company's ability to provide ongoing support and warranty services.
- Suppliers and creditors face increased risk of non-payment due to the company's financial challenges.
Next Steps
- The company plans to raise additional capital.
- The company plans to invest in sales and marketing to increase product demand.
- The company plans to continue developing new apps and control panels for its smart water heaters.
Key Dates
| Date | Description |
|---|---|
| 2008-03-07 | Trutankless Inc. was incorporated in the state of Nevada. |
| 2010-05-16 | The Company acquired 100% of the outstanding stock of Bollente, Inc. |
| 2010-10-05 | The Company amended its articles of incorporation and changed its name to Bollente Companies, Inc. |
| 2016-09-02 | The Company issued $50,000 of principal amount of 12% secured convertible promissory notes and 6,250 warrants to purchase common stock. |
| 2018-02-15 | The Company issued a $75,000 12% secured convertible promissory note. |
| 2018-06-04 | The Company amended its articles of incorporation and changed its name to Trutankless, Inc. |
| 2019-02-19 | The Company issued a $25,000 4% convertible note. |
| 2019-11-19 | The Company entered in to a $281,000 convertible note payable. |
| 2020-01-01 | The Company entered into an agreement to consolidate three notes payable into one $300,000, 12% note. |
| 2020-05-01 | The Company issued a $350,000 10% convertible note. |
| 2020-08-20 | The Company formed a wholly owned subsidiary, Notation Labs, Inc. |
| 2020-10-26 | The Board of Directors authorized the Company to amend the Articles of Incorporation to increase the authorized capital stock. |
| 2021-03-03 | The Company issued a $25,000 4% convertible note. |
| 2021-04-26 | The Company entered into a $95,000, 12% note payable. |
| 2021-04-29 | The Company agreed to pay civil penalties of $25,000 to the Securities and Exchange Commission in settlement of a matter. |
| 2021-08-18 | The Company entered into a $10,000, 12% note payable. |
| 2021-09-27 | FINRA approved a 1-for-8 reverse stock split of the Company's common stock. |
| 2021-10-20 | The Company formed a wholly owned subsidiary, Tankless 365, Inc. |
| 2022-01-24 | The Company completed the spin-off of its subsidiary Notation Labs Inc. |
| 2022-02-22 | The Company entered into a $385,000, 12% note payable. |
| 2022-07-18 | The Company entered into a $150,000 8% convertible grid note. |
| 2022-07-26 | The Company issued a $400,000 12% convertible promissory note to a company commonly controlled by a shareholder of the Company. |
| 2022-09-01 | The Company entered into a $2,500,000 8% convertible grid note with Notation Labs, Inc. |
| 2023-04-06 | The Company was served a Summons for an Amended Complaint filed in the state of Florida. |
| 2023-06-08 | The Court of Duval County, FL entered a default judgement for $38,768. |
| 2023-06-15 | The Company issued a $150,000 12% convertible promissory note to a company commonly controlled by a shareholder of the Company. |
| 2023-07-15 | The Company announced its intention to spin-off its wholly-owned subsidiary, Tankless365, Inc. |
| 2023-07-23 | The Company entered into a $40,000, 12% note payable with an entity under common control of a related party. |
| 2023-07-25 | The Company issued a $85,000 12% convertible promissory note to a company commonly controlled by a shareholder of the Company. |
| 2023-08-03 | The Company initiated an offering of 12% Notes with maturity dates of 12 months starting on August 3, 2024. |
| 2023-08-24 | The Company executed a lease agreement. |
| 2023-10-19 | The Company initiated an offering of 18% Notes with maturity dates of 12 months starting on August 3, 2024. |
| 2024-01-18 | The Company issued 1,050,000 shares pursuant to amendments to a related party promissory note. |
| 2024-01-19 | The Company issued 3,000,000 shares for a notice of conversion of a promissory note. |
| 2024-02-15 | The Company issued 200,000 shares for cash at $0.05 per share. |
| 2024-02-19 | The Company issued 750,000 shares for services pursuant to two consulting agreements and 100,000 shares for cash at $0.05 per share. |
| 2024-03-25 | The Company issued a $250,000 12% convertible promissory note to a trust controlled by a shareholder of the Company. |
| 2024-03-26 | The Company entered a settlement agreement with a noteholder, in which the noteholder agreed to accept payment of $250,000 as settlement in full for all principal and accrued interest. |
| 2024-04-02 | The Company issued 1,000,000 shares for services pursuant to a consulting agreement. |
| 2024-04-03 | The Company issued 3,857,143 shares pursuant to a promissory note amendment and conversion. |
| 2024-04-04 | The Company issued 36,893,398 shares to convert certain related party convertible notes. |
| 2024-04-14 | The Company issued 100,000 shares for services pursuant to a consulting agreement. |
| 2024-04-22 | The Company entered into a consulting agreement with an individual for a six-month period. |
| 2024-05-03 | The Company issued 7,002,740 shares of common stock for the conversion of $350,000 in principal and $140,192 in accrued interest on a convertible note. |
| 2024-05-07 | The Company issued 100,000 shares of common stock valued at $47,835, which was recorded in the prior year in Stock payable as an incentive to enter into a certain note payable. |
| 2024-05-14 | The Company entered into a convertible note agreement for $25,000. |
| 2024-05-29 | The Company entered into a convertible note agreement for $100,000. |
| 2024-07-03 | The Company entered into a convertible note agreement for $50,000. |
| 2024-07-07 | The Company issued 25,000 shares for services pursuant to two consulting agreements. |
| 2024-07-10 | The Company issued 200,000 shares for services pursuant to two consulting agreements. |
| 2024-07-14 | The Company issued 100,000 shares for services pursuant to a consulting agreement. |
| 2024-07-24 | The Company entered into a $50,000, 18% note payable and issued 300,000 shares of common stock valued at $21,000 as an incentive. |
| 2024-07-25 | The Company entered into a $100,000, 18% note payable and issued 2,500,000 shares of common stock valued at $175,000 as an incentive and issued 2,500,000 shares for services pursuant to a consulting agreement. |
| 2024-07-26 | The Company issued 600,000 shares for services pursuant to six consulting agreements and issued 600,000 shares of common stock valued at $420,000 as an incentive to enter into a certain note payable. |
| 2024-08-05 | The Company entered into a $100,000, 24% note payable and issued 200,000 shares of common stock valued at $80,000 as an incentive and issued 2,500,000 shares for services pursuant to an amendment to a consulting agreement and issued 2,500,000 shares for services pursuant to a consulting agreement. |
| 2024-08-06 | The Company issued 600,000 shares of common stock, which was recorded in the prior year in Stock payable pursuant to a consulting agreement. |
| 2024-08-08 | The Company issued 150,000 shares for cash at $0.05 per share. |
| 2024-08-09 | The Company issued 2,000,000 shares for services pursuant to a consulting agreement. |
| 2024-08-19 | The Company cancelled 1,000,000 shares of common stock valued that had previously been issued as an incentive to enter into a certain note payable. |
| 2024-08-29 | The Company issued 2,200,000 shares of common stock valued at $836,000 as an incentive to enter into a standby letter of credit and issued 2,550,000 shares for services pursuant to three consulting agreements. |
| 2024-09-03 | The Company reached a settlement agreement for 156,667 shares of common stock for the conversion of $23,500 of advances payable. |
| 2024-09-24 | The Company issued 1,000,000 shares for cash at $0.10 per share. |
| 2024-09-30 | End of the reporting period. |
| 2024-10-01 | The Company issued 300,000 shares per a subscription agreement at $0.10 per share for $30,000 in cash. |
| 2024-10-17 | The Company issued 1,000,000 shares per a subscription agreement at $0.10 per share for $100,000 in cash. |
| 2024-10-24 | The Company issued 250,000 shares for services pursuant to a consulting agreement. |
| 2024-11-14 | The number of shares of Common Stock, $0.001 par value, outstanding was 114,558,178 shares. |
Keywords
Trutankless, tankless water heater, financial results, revenue, net loss, operating expenses, going concern, capital raise, convertible notes, related party transactions, share issuance, debt financing
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