TESI 10-Q
Titan Environmental Solutions Inc. (TESI)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
| TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _____________ to _____________
Commission
File Number:
(Exact Name of Registrant as Specified in Its Charter)
(State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) | |
| (Address of Principal Executive Office) | (Zip Code) |
(Registrant’s Telephone Number, Including Area Code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act: None.
| Title of Each Class | Trading Symbol | Name of Each Exchange on which registered | ||
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, $.0001 par value per share
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act ☐ Yes ☒ No
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
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. ☒
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files). ☐ Yes ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non- accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, “non-accelerated filer”, “smaller reporting company” and “emerging growth” in Rule 12b-2 of the Exchange Act.
| Large Accelerated filer ☐ | Accelerated filer ☐ |
| Smaller
reporting company | |
| Emerging
growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒
The number of shares of the Registrant’s common stock, $0.0001 par value per share, outstanding as of May 17, 2023, was .
| Documents incorporated by reference: | None |
TRAQIQ, INC
INDEX
| Page | ||
| PART I - FINANCIAL INFORMATION | ||
| Item 1. | Financial Statements | 4 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 36 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 41 |
| Item 4. | Controls and Procedures | 42 |
| PART II - OTHER INFORMATION | ||
| Item 1. | Legal Proceedings | 43 |
| Item 1A. | Risk Factors | 43 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 43 |
| Item 3. | Defaults Upon Senior Securities | 43 |
| Item 4. | Mine Safety Disclosures | 43 |
| Item 5. | Other Information | 43 |
| Item 6. | Exhibits | 43 |
| Signatures | 44 | |
| 2 |
FORWARD-LOOKING STATEMENTS
Except for any historical information contained herein, the matters discussed in this quarterly report on Form 10-Q contain certain “forward-looking statements’’ within the meaning of the federal securities laws. This includes statements regarding our future financial position, economic performance, results of operations, business strategy, budgets, projected costs, plans and objectives of management for future operations, and the information referred to under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
These forward-looking statements generally can be identified by the use of forward-looking terminology, such as “may,’’ “will,’’ “expect,’’ “intend,’’ “estimate,’’ “anticipate,’’ “believe,’’ “continue’’ or similar terminology, although not all forward-looking statements contain these words. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, you are cautioned that any such forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Although we believe that the expectations reflected in such forward-looking statements are reasonable as of the date made, expectations may prove to have been materially different from the results expressed or implied by such forward-looking statements. Important factors that may cause actual results to differ from projections include, for example:
| ● | the success or failure of management’s efforts to implement our business plan; | |
| ● | our ability to fund our operating expenses; | |
| ● | our ability to compete with other companies that have a similar business plan; | |
| ● | the effect of changing economic conditions impacting our plan of operation; and | |
| ● | our ability to meet the other risks as may be described in future filings with the Securities and Exchange Commission (the “SEC”). |
Unless otherwise required by law, we also disclaim any obligation to update our view of any such risks or uncertainties or to announce publicly the result of any revisions to the forward-looking statements made in this quarterly report on Form 10-Q.
When considering these forward-looking statements, you should keep in mind the cautionary statements in this quarterly report on Form 10-Q and in our other filings with the SEC. We cannot assure you that the forward-looking statements in this quarterly report on Form 10-Q will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may prove to be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time-frame, or at all.
| 3 |
Item 1. Financial Statements
| 4 |
TRAQIQ, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 2023 (UNAUDITED) AND DECEMBER 31, 2022
IN USD
| March 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Inventory | ||||||||
| Total Current Assets | ||||||||
| Fixed assets, net | ||||||||
| Intangible assets, net | ||||||||
| Goodwill | ||||||||
| Total Non-current Assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| LIABILITIES | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Contract liabilities | ||||||||
| Accrued payroll and related taxes | ||||||||
| Derivative liability | ||||||||
| Notes payable | ||||||||
| Convertible notes payable, net of discounts | ||||||||
| Total Current Liabilities | ||||||||
| Total Liabilities | ||||||||
| STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| Convertible preferred stock, par value $, shares authorized: | ||||||||
| Preferred stock, par value, $, Series A Convertible Preferred, shares issued and outstanding | ||||||||
| Preferred stock, par value, $, Series B Convertible Preferred, and shares issued and outstanding, respectively | ||||||||
| Common stock, par value, $, shares authorized, and issued and outstanding, respectively | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income | ||||||||
| Total Stockholders’ Deficit | ( | ) | ( | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | $ | ||||||
| 5 |
TRAQIQ, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022 (UNAUDITED)
IN USD
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2023 | 2022 | |||||||
| REVENUE | $ | $ | ||||||
| COST OF REVENUES | ||||||||
| GROSS PROFIT | ( | ) | ||||||
| OPERATING EXPENSES | ||||||||
| Salaries and salary related costs | ||||||||
| Professional fees | ||||||||
| Rent expense | ||||||||
| Depreciation and amortization expense | ||||||||
| General and administrative expenses | ||||||||
| Total Operating Expenses | ||||||||
| OPERATING LOSS | ( | ) | ( | ) | ||||
| OTHER INCOME (EXPENSE) | ||||||||
| Change in fair value of derivative liability | ( | ) | ||||||
| Derivative expense | ( | ) | ||||||
| Interest expense, net of interest income | ( | ) | ( | ) | ||||
| Other income | ||||||||
| Total other expense | ( | ) | ( | ) | ||||
| NET LOSS FROM CONTINUING OPERATIONS, BEFORE PROVISION FOR INCOME TAXES | ( | ) | ( | ) | ||||
| Provision for income taxes – continuing operations | ||||||||
| NET LOSS FROM CONTINUING OPERATIONS | ( | ) | ( | ) | ||||
| NET LOSS FROM DISCONTINUED OPERATIONS, BEFORE PROVISION FOR INCOME TAXES |
( | ) | ||||||
| Provision for income taxes – discontinued operations | ||||||||
| NET LOSS FORM DISCONTINUED OPERATIONS | ( | ) | ||||||
| NET LOSS | ( | ) | ( | ) | ||||
| NET INCOME ATTRIBUTABLE TO PRIOR NON-CONTROLLING INTEREST | ||||||||
| NET LOSS ATTRIBUTABLE TO CONTROLLING INTEREST | $ | ( | ) | $ | ( | ) | ||
| Other comprehensive loss | ||||||||
| Foreign currency translations adjustment | ||||||||
| Comprehensive loss | $ | ( | ) | $ | ( | ) | ||
| Basic and diluted loss from continuing operations per share | $ | ( | ) | $ | ( | ) | ||
| Basic and diluted loss from discontinued operations per share | $ | $ | ( | ) | ||||
| Basic and diluted net loss per share | $ | ( | ) | $ | ( | ) | ||
| Weighted average common shares outstanding - basic and diluted | ||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 6 |
TRAQIQ, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022 (UNAUDITED)
IN USD
| Additional | Accumulated | |||||||||||||||||||||||||||||||||||||||||||
| Series A Preferred | Series B Preferred | Common Stock | Paid-In Capital - | Accumulated | Other Comprehensive | Non-controlling | ||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Common | Deficit | Income (Loss) | Interest | Total | ||||||||||||||||||||||||||||||||||
| Balance – January 1, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||
| Fractional share adjustment | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation on granting of options | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation for restricted stock grants (shares not issued) | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Warrants earned for acquisition of Mimo | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Net loss for the three months ended March 31, 2022 | - | - | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||
| Balance – March 31, 2022 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Balance – January 1, 2023 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Shares issued to settle debt | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Shares issued as consideration for the acquisition of Recoup | ||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation for restricted stock grants (shares not issued) | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Net loss for the three months ended March 31, 2023 | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Balance – March 31, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | $ | $ | ( | ) | ||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 7 |
TRAQIQ, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022
IN USD
| Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| CASH FLOW FROM OPERTING ACTIVIITES | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash (used in) operating activities | ||||||||
| Change in non-controlling interest | ( | ) | ||||||
| Bank service charges capitalized to defaulted debt principal | ||||||||
| Bad debt expense | ||||||||
| Forgiveness of debt | ( | ) | ||||||
| Depreciation and amortization | ||||||||
| Lease cost, net of repayment | ||||||||
| Foreign currency (gain) loss | ( | ) | ||||||
| Stock-based compensation | ||||||||
| Change in fair value of derivative liability and derivative expense | ( | ) | ||||||
| Fees paid in debt financing | ||||||||
| Amortization of discounts and convertible options on debt | ||||||||
| Gain on sale of assets | ( | ) | ||||||
| Changes in assets and liabilities | ||||||||
| Accounts receivable | ( | ) | ||||||
| Prepaid expenses and other current assets | ||||||||
| Inventory | ||||||||
| Accounts payable, accrued expenses and deferred taxes | ||||||||
| Accrued payroll and payroll taxes | ||||||||
| Accrued duties and taxes | ||||||||
| Total adjustments | ||||||||
| Net cash (used in) operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITES | ||||||||
| Cash received in acquisition of Recoup | ( | ) | ||||||
| Acquisition of fixed assets | ( | ) | ||||||
| Net cash (used in) provided by investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITES | ||||||||
| Increase in cash overdraft | ||||||||
| Proceeds from convertible notes | ||||||||
| Repayments of convertible notes | ( | ) | ||||||
| Proceeds from long-term debt - related parties | ||||||||
| Repayment of long-term debt - related parties | ( | ) | ||||||
| Proceeds from notes payable | ||||||||
| Repayments of note payable | ( | ) | ( | ) | ||||
| Net cash provided by financing activities | ||||||||
| NET INCREASE IN CASH AND RESTRICTED CASH | ||||||||
| CASH AND RESTRICTED CASH - BEGINNING OF PERIOD | ||||||||
| CASH AND RESTRICTED CASH - END OF PERIOD | $ | $ | ||||||
| CASH PAID DURING THE PERIOD FOR: | ||||||||
| Interest expense | $ | $ | ||||||
| Income taxes | $ | $ | ||||||
| SUMMARY OF NON-CASH ACTIVITIES: | ||||||||
| Right of use asset for lease liability | ||||||||
| Original issue discount recognized on new convertible notes | ||||||||
| Shares issued for debt settlement | ||||||||
| Acquisition of Recoup: | ||||||||
| Inventory | $ | $ | ||||||
| Fixed assets | ||||||||
| Intangible assets | ||||||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| Customer deposits | ( | ) | ||||||
| Current portion - long-term debt | ( | ) | ||||||
| Total net assets acquired | ||||||||
| Consideration paid in cash | ( | ) | ||||||
| Consideration per Share Exchange Agreement | ( | ) | ||||||
| Total Consideration | ( | ) | ||||||
| Goodwill | $ | ( | ) | $ | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 8 |
TRAQIQ, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN USD)
(UNAUDITED)
NOTE 1 – ORGANIZATION AND NATURE OF OPERATIONS
TraQiQ, Inc. (along with its wholly owned subsidiaries, referred to herein as the “Company”) was incorporated in the State of California on September 9, 2009 as Thunderclap Entertainment, Inc. On July 14, 2017, Thunderclap Entertainment, Inc. changed its name to TraQiQ, Inc. On July 19, 2017, the Company entered into a Share Exchange Agreement (“Share Exchange”) with the stockholders of OmniM2M, Inc. (“OmniM2M”) and TraQiQ Solutions, Inc. dba Ci2i Services, Inc. (formerly Ci2i Services, Inc. – amended November 6, 2019) (“Ci2i”) whereby the stockholders of Omni and Ci2i exchanged all of their respective shares, representing % ownership in OmniM2M and Ci2i in exchange for shares of the Company’s common stock, respectively. The OmniM2M Shareholders and the Ci2i Shareholders have each been issued their respective shares on a pro rata basis based on their respective holdings in OmniM2M and Ci2i in the Share Exchange Agreement. The Share Exchange was accounted for as a reverse merger whereas Ci2i is considered the accounting acquirer and TraQiQ,Inc. is considered the accounting acquiree. For accounting purposes, the acquisition of Omni is recorded at historical cost in accordance with Accounting Standard Codification (“ASC”) 805-50-25-2 as this is considered an acquisition of entities under common control as the management of the Company and Omni control the activities of the respective companies. Prior to the merger with Ci2i and acquisition of Omni, the Company was considered a shell company under Rule 12b-2 of the Exchange Act. On December 1, 2017, The Company entered into a Share Purchase Agreement (the “Share Exchange Agreement”) with Ajay Sikka (“Sikka”), the sole shareholder of Transport IQ, Inc. whereby Sikka agreed to sell all of the shares in TransportIQ, Inc. (“TransportIQ”) in exchange for $, in the form of cancellation of all of the debt of TransportIQ that is owed to the Company. The transaction became effective upon the execution of the Share Exchange Agreement by Sikka and the Company; and Transport IQ, Inc, is now a wholly-owned subsidiary of the Company. Because TransportIQ was commonly controlled and owned, the transaction was recorded at the historical carrying value of TransportIQ’s assets and liabilities.
The
Financial Industry Regulatory Authority on March 18, 2022, approved a
On January 5, 2023, the Company consummated the transactions contemplated by the Asset Purchase Agreement dated as of December 30, 2022 (the “Purchase Agreement”) among Renovare Environmental, Inc. (“REI”) and BioHiTech America, LLC (“BHT” and, together with REI, the “Renovare Sellers”) and us, pursuant to which the Renovare Sellers sold and assigned to us, and we purchased and assumed from the Renovare Sellers, (a) certain assets related to the business of (i) aerobic digestion technology solutions for the disposal of food waste at the point of generation and (ii) data analytics with respect to food waste (collectively, the “Digester Business”) and (b) certain specified liabilities of the Renovare Sellers. The Company intends for the Digester Business to be one of our principal businesses going forward, and the Company intends to supplement our current business through the acquisition of complementary businesses.
Overview of the Company
Our mission is to reduce the environmental impact of the waste management industry through the development and deployment of cost-effective technology solutions. Our suite of technologies includes on-site biological processing equipment for food waste and proprietary real-time data analytics tools to reduce food waste generation. These proprietary solutions may enable certain businesses and municipalities of all sizes to lower disposal costs while having a positive impact on the environment. When used individually or in combination, we believe that our solutions can reduce the carbon footprint associated with waste transportation, repurpose non-recyclable plastics, and significantly reduce landfill usage. As we continue to expand our waste management business we plan to discontinue or spin off the remaining portions of the legacy business.
The Company currently markets an aerobic digestion technology solution for the disposal of food waste at the point of generation. Its line of Revolution Series Digesters has been described as self-contained, robotic digestive systems that we believe are as easy to install as a standard dishwasher with no special electrical or plumbing requirements. Units range in size depending upon capacity, with the smallest unit approximately the size of a residential washing machine. The digesters utilize a biological process to convert food waste into a liquid that we believe is safe to discharge down an ordinary drain. This process can result in a substantial reduction in costs for customers including cruise lines, restaurants, retail stores, hospitals, hotel/hospitality companies and governmental units by eliminating the transportation and logistics costs associated with food waste disposal. The Company also expects the process reduce the greenhouse gases associated with food-waste transportation and decomposition in landfills that have been linked to climate change. The Company offers its Revolution Series Digesters in several sizes targeting small- to mid-sized food waste generation sites that are often more economical than traditional disposal methods. The Revolution Series Digesters are manufactured and assembled in the United States.
| 9 |
In an effort to expand the capabilities of its digesters, the Company developed a sophisticated Internet of Things (“IoT”) technology platform to provide its customers with transparency into their internal and supply chain waste generation and operational practices. This patented process collects weight related data from the digesters to deliver real-time data that provides valuable information that when analyzed, can improve efficiency, and validate corporate sustainability efforts. The Company provides its IoT platform through a SaaS (“Software as a Service”) model that is either bundled in its rental agreements or sold through a separate annual software license. The Company continues to add new capacity sizes to its line of Revolution Series Digesters to meet customer needs.
Legacy Business
TraQiQ Solutions Private Limited
On May 16, 2019, the Company entered into a Share Exchange Agreement with Mann-India Technologies Private Ltd., an Indian Corporation (“Mann”). On January 2, 2020, Mann changed its name to TraQiQ Solutions Private Limited (“TRAQ Pvt Ltd”). Pursuant to the Share Exchange Agreement with Mann, the Company acquired % of the shares of Mann and assumed certain net liabilities in exchange for warrants exercisable over a -years to purchase shares of common stock of the Company valued at $. The warrants will be exercisable as follows: (i) warrants immediately; (ii) warrants exercisable one-year after the date of closing, which was extended to March 31, 2021; and (iii) warrants exercisable two-years after the date of closing. This transaction is being recorded as a business combination under ASC 805. There were of these warrants exercised during 2021 and warrants remain outstanding as of March 31, 2022.
The warrants that are exercisable in one-year and two-years are conditioned upon TRAQ Pvt Ltd. achieving certain revenue figures and pre-tax profit percentages. TRAQ Pvt Ltd. must achieve target revenue of $ million (US$) and pre-tax profit of % (US$). Should TRAQ Pvt Ltd. be unable to achieve these criteria, the warrants will be reduced proportionately. A total of of these warrants were cancelled effective May 16, 2021 as a result of these criteria not being achieved.
Mann-India Private limited was renamed to TraQiQ Solutions Private Limited shortly after acquisition by TraQiQ Inc.
TRAQ Pvt Ltd. was established in May 2000 and is headquartered in New Delhi, India. TRAQ Pvt Ltd. is a leading software development company which, with the advent of technology, has evolved as a mature and fast-growing company committed to provide reliable and cost-effective software solutions across industries all over the world.
TRAQ Pvt Ltd. has its own experienced team of software developers dedicated towards developing various kinds of customized software.
TraQ Pvt Ltd. has been doing business around the world for over 15 years, with particular emphasis on Latin America and India. The customer list includes large enterprise Finance and Insurance companies across Latin America. The company’s product portfolio has evolved rapidly and now includes enterprise ready solutions for payment processing, mobile wallets, micro lending solutions and digital transformation.
On December 30, 2022, the Company entered into an Assignment of Stock (the “TSP Agreement”) with TraQiQ Solutions Private Ltd. (“TSP”) and LR, pursuant to which the Company sold, assigned and transferred to LR and LR purchased from the Company, all of the equity interests in TSP in exchange for nominal consideration of $.
Rohuma, LLC
On January 22, 2021, the Company entered into a Share Exchange Agreement with Rohuma, LLC, a Delaware limited liability company (“Rohuma”) and its members, whereby the Rohuma members agreed to exchange all of their respective membership interests in Rohuma in exchange for shares of common stock, of which the first tranche of shares were issued on March 1, 2021 totaling shares, with the remaining value reflected as contingent consideration until the shares vest at which time they will be issued. The transaction was valued at $ ($ per share). The Company as of March 31, 2022, determined that the second tranche of shares () met the criteria to be issued, and the value of $ was reclassified from contingent consideration to Obligation to Issue Common Stock. Rohuma has an Indian affiliate that is owned % by Rohuma and by its founding member.
| 10 |
Rohuma dba Kringle.ai was a California based software solutions company that enabled digital and mobile commerce by providing enterprise class applications that cover loyalty and rewards products, payments, online ordering, distribution logistics for retail and more. Kringle analyzed customers’ omni-channel behaviors and transactions. Using AI for digital commerce, Kringle was able to deliver real time, automated 1:1 recommendations and personalized content across all customer touch points.
On December 30, 2022, the Company entered into an Assignment of Units (the “Rohuma Agreement”, and, together with the MTP Agreement and the TSP Agreement, the “Disposition Agreements”) with Rohuma LLC (“Rohuma”) and Happy Kompany LLC (“Happy”) pursuant to which the Company sold, assigned and transferred to Happy, and Happy purchased from the Company, all of the equity interests in Rohuma in exchange for nominal consideration of $. Pursuant to the Rohuma Agreement, the Company assumed the liabilities of Rohuma with respect to two loans with Paypal/Loanbuilder in an aggregate principal amount of $ plus any accumulated interest and fees.
Mimo Technologies Private Limited
On February 17, 2021, the Company entered into a Share Exchange Agreement with Mimo Technologies Private Ltd., and Indian corporation (“Mimo”) and its shareholders, whereby the Mimo shareholders agreed to exchange all of their respective shares in Mimo in exchange for warrants to purchase shares of the Company’s common stock. Of these warrants, were earned at the date of acquisition, with the remaining expected to be earned over the next two years from grant based on revenue goals for Mimo. The warrants have a term of and an exercise price of $ and value in the amount of $, of which $ is reflected in additional paid in capital, with the remaining $ reflected as contingent consideration. The Company as of March 31, 2022, determined that the criteria for vesting of the second tranche of warrants was satisfied and reclassified $ from contingent consideration to additional paid in capital. In addition to the issuance of the warrants, TRAQ Pvt Ltd, wrote off $ in amounts due from a note receivable, $ in accounts receivable and $ in a debenture from Mimo. In addition, a cash payment was made to one of the minority shareholders of Mimo in the amount of $.
TraQiQ operated the Mimo delivery and task service in India. This service ran on the TraQSuite platform. Mimo had 14,000+ independent contractors across India performing deliveries and fulfilling tasks for the largest corporations in the country. Our team at Mimo used a sophisticated technology platform and a smartphone app to get their tasks completed. This was coupled with a verification and billing system that allowed customers of all sizes to leverage this distribution infrastructure.
Mimo offered a broad set of services. These offerings could be classified into three broad categories:
| ● | Data collection and client verification (surveys, verification, on-boarding), | |
| ● | Cash management & handling services, and | |
| ● | Distribution and demand generation (order fulfilment, demand generation, delivery services for e-commerce companies) |
Mimo assisted the delivery and pickup segment of the banking and insurance industry by performing verifications, field investigations for loan requests, business verifications and employment verification, and also collected documents, assisted in filling forms for banks, and completed data collection from customers.
Mimo worked with microfinance institutions to collect cash, such as loan payments, convert cash to digital means like debit cards, and conduct data collection and surveys.
For consumer goods companies, Mimo did promotional marketing, Last mile (hyper-local) delivery, merchant onboarding or activation, store audits, and route optimization for delivery. Mimo provided efficient end-to-end transshipment logistics. The framework managed and optimized last-mile delivery & e-commerce logistics across the entire distribution chain with transparency and seamless integration.
| 11 |
During the COVID-19 pandemic, Mimo leveraged video as a platform for verification and document delivery.
There were also data digitization tasks being done by Mimo task workers across the country. In a country like India where there are over 20 languages and multiple dialects, the task workers converted paper documents into electronic form in the same language or translated them into another language.
Mimo provided delivery and task worker solutions across India. Mimo works with Banking, Financial, Logistics and Distribution companies, to take their products and services to semi-urban and rural India. Mimo trained the agents in each Product or Service through an online and classroom training platform. The company powered the gig economy task workers throughout the country and provided a very valuable source of employment for young people who may or may not have a high school diploma.
On December 30, 2022, the Company entered into an Assignment of Stock (the “MTP Agreement”) with Mimo Technologies Private
Ltd. (“MTP”) and Lathika Regunathan (“LR”), pursuant to which the Company sold, assigned and transferred to LR,
and LR purchased from the Company, all of the Company’s equity interests in MTP in exchange for nominal consideration of $.
TraQSuite is a cloud based software platform with a revenue model based on initial and transaction-based licensing fees as well as consulting fees. Licensees pay an initial per-module fee that varies depending on the number of modules that are licensed.
The Company’s TraQSuite software platform powers the last mile distribution network, allowing business users to target customers, facilitate and validate transactions, track and manage task workers, manage funds and run a distribution network. Key features of the TraQSuite software include:
| ● | Last Mile delivery: TraQSuite’s Last-Mile software module enables a business to manage thousands of task workers across multiple geographies to deliver products and services to the users. The software platform, operating through mobile apps, allows for data sharing, delivery validation, geo-tagging and know-your-customer (KYC) requirements and can even measure customer satisfaction. |
| ● | Transact: TraQSuite enables task workers to facilitate transactions by meeting the end customers. They can collect payments via credit cards, smart-phone swipes, SMS messages or cash. Both banked and unbanked users can buy products and services and pay with their mobile devices. | |
| ● | Target: TraQSuite enables customer transactions to be rewarded with loyalty credits, tokens or points that can be redeemed by the customer for free products, discounts and benefits. The software analyzes these transactions and purchase behaviors by using leading AI models and can deliver real time, automated and targeted offers and recommendations for additional purchases and customer retention. |
The Mimo delivery and task service in India runs on the TraQSuite platform and performs deliveries and fulfills tasks for some of the largest businesses in India. Mimo provides delivery and pickup services for the banking and insurance industry, performing verifications, field investigations for loan requests, business verification, employment verification, collection of documents and customer data and assistance in filling out forms for banks. Mimo works with microfinance institutions to collect cash, such as loan payments, convert cash to digital forms such as debit cards, and conduct data collection and surveys. For consumer goods companies, Mimo does promotional marketing, last mile (hyper-local) delivery, merchant onboarding or activation, store audits, and route optimization for delivery.
| 12 |
Continuing Operations
Recoup Technologies, Inc.
Recoup Technologies, Inc. provides cutting-edge solutions based on patented technologies, to measure, analyze and manage the waste management process. Recoup’s products divert food waste from landfill, reduce costs, improve operations, and minimize negative environmental impact for organizations across the world. The company offers Products (Digestors) that convert food waste into grey water discharge that is safe to enter sewage systems. The company also provides accurate real-time information to eliminate the uncertainty about where food waste occurs, how much is being wasted and its associated value. A waste tracking process forecasts accurate supply chain and inventory needs, standardizes best practices for production, and improves future planning for the prevention of waste.
TraQiQ Solutions, Inc.
Ci2i was a services company founded in 1998 that developed and deployed intelligent technologies and products in order to meet the demand for sustainable, integrated solutions. Ci2i’s primary focus has been in the analytics and intelligence segments. The Company was investing significantly in building products in the area of supply chain and last mile delivery.
Ci2i’s cloud solutions and analytics services comprised software development, program management, project management, and business analytics services.
NOTE 2 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the regulations of the United States Securities and Exchange Commission. The condensed consolidated financial statements and accompanying notes are the representations of the Company’s management, who are responsible for their integrity and objectivity. In their opinion, such financial information includes all adjustments considered necessary for a fair presentation at such date and the operating results and cash flows for such periods.
These condensed consolidated financial statements should be read in conjunction with a reading of the Company’s consolidated financial statements and notes thereto included in Form 10-K filed with the SEC on March 31, 2023. Interim results of operations for the three months ended March 31, 2023 are not necessarily indicative of future results for the full year.
Consolidation
The consolidated financial statements include the accounts of TraQiQ, Inc. and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
The Company applies the guidance of Topic 810 Consolidation of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) to determine whether and how to consolidate another entity. Pursuant to ASC paragraph 810-10-15-10, all majority-owned subsidiaries—all entities in which a parent has a controlling financial interest—are consolidated except when control does not rest with the parent.
Pursuant to ASC paragraph 810-10-15-8, the usual condition for a controlling financial interest is ownership of a majority voting interest, and, therefore, as a general rule ownership by one reporting entity, directly or indirectly, of more than 50 percent of the outstanding voting shares of another entity is a condition pointing toward consolidation. The power to control may also exist with a lesser percentage of ownership, for example, by contract, lease, agreement with other stockholders, or by court decree.
In
accordance with ASC 810-10-45, the Company has deconsolidated the subsidiaries of MTP, Rohuma and TSP as a result of the
nonreciprocal transfer (spinoff). As a result of the deconsolidation the Company has recognized a loss from discontinued operations
of $
Noncontrolling Interests
In
accordance with ASC 810-10-45 Noncontrolling Interests in Consolidated Financial Statements, the Company classifies noncontrolling
interests as a component of equity within the consolidated balance sheet.
| 13 |
Use of Estimates
The preparation of financial statements in conformity with GAAP 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 revenues and expenses during the reporting periods. These estimates include, but are not limited to, management’s estimate of provisions required for non-collectible accounts receivable, depreciative lives of our assets, determination of technological feasibility, and valuation allowances of our deferred tax assets. Actual results could differ from those estimates.
Foreign Currency Transactions
The Company accounts for foreign currency transactions in accordance with ASC 830, “Foreign Currency Matters” (“ASC 830”), specifically the guidance in subsection ASC 830-20, “Foreign Currency Transactions”. The U.S. dollar is the functional and reporting currency for the Company and its subsidiaries. The functional currency of the deconsolidated subsidiary TRAQ Pvt Ltd. was the Indian Rupee. Pursuant to ASC 830, monetary assets and liabilities denominated in foreign currencies are translated into U.S. dollars at exchange rates in effect at the balance sheet date, with the resulting gains or losses upon settlement reported in foreign exchange gain (loss) in the computation of net income (loss). Gains or losses resulting from translation adjustments are reported under accumulated other comprehensive income (loss).
Reclassification
Certain prior period amounts have been reclassified to conform with current period presentation with no effect on the Company’s net loss, total assets, liabilities equity or cash flows.
Cash and Cash Equivalents
Cash
and cash equivalents include cash on hand and on deposit at banking institutions as well as all highly liquid short-term investments
with original maturities of 90 days or less of $
Accounts Receivable and Concentration of Credit Risk
The Company considers accounts receivable, net of allowance for returns and doubtful accounts, to be fully collectible. The allowance is based on management’s estimate of the overall collectability of accounts receivable, considering historical losses and economic conditions. Based on these same factors, individual accounts are charged off against the allowance when management determines those individual accounts are uncollectible.
Credit
extended to customers is generally uncollateralized. Past-due status is based on contractual terms. Management has determined that
Fixed assets, net
Fixed
assets are stated at cost. Depreciation on fixed assets are computed using the straight-line method over the estimated useful lives of
the assets, which range from to
Intangible assets, net and Long-lived Assets
FASB Codification Topic 360 “Property, Plant and Equipment” (ASC 360), requires that long-lived assets and certain identifiable intangibles held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The adoption of ASC 360 has not materially affected the Company’s reported earnings, financial condition or cash flows.
Intangible assets with definite useful lives are stated at cost less accumulated amortization. Intangible assets represent purchased intangible assets of Recoup. The Company amortizes these intangible assets on a straight-line basis over their estimated useful lives, as stated below:.
| Intangible and Long-Lived Asset Categories | Estimated Useful Life | |
| Intellectual property | ||
| Non compete agreement | ||
| Tradenames | ||
| Goodwill |
The Company has adopted Accounting Standard Update (“ASU”) 2017-04 Intangibles – Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment. The adoption of this ASU did not have a material impact on our consolidated financial statements. The Company reviews recoverability of long-lived assets on a periodic basis whenever events and changes in circumstances have occurred which may indicate a possible impairment. The assessment for potential impairment is based primarily on the Company’s ability to recover the carrying value of its long-lived assets from expected future cash flows from its operations on an undiscounted basis. If such assets are determined to be impaired, the impairment recognized is the amount by which the carrying value of the assets exceeds the fair value of the assets.
| 14 |
The Company will assess the impairment of identifiable intangibles whenever events or changes in circumstances indicate that the carrying value may not be recoverable at the time they do have intangible assets. Factors the Company considers to be important which could trigger an impairment review include the following:
1. Significant underperformance relative to expected historical or projected future operating results;
2. Significant changes in the manner of use of the acquired assets or the strategy for the overall business; and
3. Significant negative industry or economic trends.
When the Company determines that the carrying value of intangibles may not be recoverable based upon the existence of one or more of the above indicators of impairment and the carrying value of the asset cannot be recovered from projected undiscounted cash flows, the Company records an impairment charge. The Company will measure any impairment based on a projected discounted cash flow method using a discount rate determined by management to be commensurate with the risk inherent in the current business model. Significant management judgment is required in determining whether an indicator of impairment exists and in projecting cash flows. Management has determined that no impairment of long-lived assets is required for the three months ended March 31, 2023. Management has determined that impairment of long-lived assets is required for the retrospective presentation of the three months ended March 31, 2022 as a result of the discontinued operations. Please see Note 8 – Intangible Assets and Note 9 - Goodwill.
Due to the Company’s acquisition of Recoup and the resulting recognition of goodwill from the acquisition, the Company plans on analyzing goodwill for impairment for each future reporting period.
Inventory
Inventories consist of the company’s waste-management Digester units, Digester unit spare parts, and the biological fuel used for the functioning of the Digester units. Inventories are measured at the lower of weighted average cost or market value. Write-downs and write-offs of inventory are charged to cost of revenues.
Contract Liabilities
Advance
payments in the form of customer deposits for goods to be sold, or services to be performed, are recorded by the Company as contract
liabilities. Deferred revenue recognized during the company’s revenue recognition process is also recorded as contract liabilities.
As a result of the January 5, 2023 acquisition of Recoup, the Company assumed $
Revenue Recognition
The Company records revenue based on a five-step model in accordance with ASC 606, Revenue from Contracts with Customers, which require that we:
1. Identify the contract with a customer;
2. Identify the performance obligations in the contract;
3. Determine the transaction price of the contract;
4. Allocate the transaction price to the performance obligations in the contract;
5. Recognize revenue when the performance obligations are met or delivered.
When revenue is earned based on product sales, such as sales of digester equipment and parts, solid recovered fuel and recycled materials, the Company’s performance obligations are satisfied at the point in time when products are shipped to the customer, which is when the customer has title and control. Therefore, the Company’s contracts have a single performance obligation (shipment of product). The Company primarily receives fixed consideration for sales of products.
When revenue is earned based on receipt of disposal waste, the Company’s performance obligations are satisfied at the point in time when disposal waste products are received from the customer, which is when the Company has title and control. Therefore, the Company’s contracts have a single performance obligation (receipt of disposal waste).
When revenue is earned on services, such as management advisory fees and digester maintenance and repair services, fees are recognized over the period the services are performed based on service milestones.
| 15 |
The following is a summary of revenue for the three months ended March 31, 2023 and 2022, disaggregated by type for continuing operations:
| 2023 | 2022 | |||||||
| Professional Services Revenue | $ | $ | ||||||
| Sale of goods | ||||||||
| Software Solution Revenue | ||||||||
| $ | $ | |||||||
The following is a summary of revenue for the three months ended March 31, 2023 and 2022, disaggregated by type for discontinuing operations:
| 2023 | 2022 | |||||||||
| Professional Services Revenue | (a) | $ | $ | |||||||
| Sale of goods | ||||||||||
| Software Solution Revenue | ||||||||||
| $ | $ | |||||||||
| (a) |
Costs of Revenues
Costs of revenues provided consist of the cost of goods sold, and IT support costs such as data processing costs, costs to maintain the Company’s proprietary databases, hardware and software expense associated with transaction processing systems and exchanges, and computer network expense.
Income Taxes
Income taxes are accounted under the asset and liability method. The current charge for income tax expense is calculated in accordance with the relevant tax regulations applicable to entity. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and for operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred tax assets are reduced by a valuation allowance if, based on available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
| 16 |
Uncertain Tax Positions
The Company follows ASC 740-10, “Accounting for Uncertainty in Income Taxes”. This requires recognition and measurement of uncertain income tax positions using a “more-likely-than-not” approach. Management evaluates their tax positions on an annual basis.
TraQiQ, Inc.and TraQiQ Solutions, Inc, file a consolidated income tax return in the U.S. federal tax jurisdiction and various state tax jurisdictions. Recoup files a tax return in the U.S. federal tax jurisdiction and the U.S. State of Delaware. Rohuma US, part of the discontinued operations, files a separate tax return in the U.S. federal tax jurisdiction and various state tax jurisdictions. The remainder of the discontinued operations, TRAQ Pvt Ltd. and Mimo file separate individual income tax returns in the India tax jurisdictions.
The U.S. federal and state income tax returns of the Company are subject to examination by the IRS and state taxing authorities, generally for three years after they were filed. The India tax returns of the Company are subject to examination by the India Income Tax Department and India state taxing authority, generally for 12 months after the relevant tax year, and 24 months after the relevant tax year in case transfer pricing provisions are applicable.
Fair Value of Financial Instruments
ASC 825, “Financial Instruments,” requires the Company to disclose estimated fair values for its financial instruments. The carrying amount of cash, accounts receivable, prepaid and other current assets, accounts payable and accrued expenses, stockholder advances, short term financing and convertible debt approximate fair value because of the short-term maturity of those instruments.
Fair Value Measurements
ASC 820 “Fair Value Measurements” defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosure about fair value measurements.
The following provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which fair value is observable:
Level 1- fair value measurements are those derived from quoted prices (unadjusted in active markets for identical assets or liabilities);
Level 2- fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
Level 3- fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).
Financial instruments classified as Level 1 - quoted prices in active markets include cash.
These consolidated financial instruments are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment to estimation. Valuations based on unobservable inputs are highly subjective and require significant judgments. Changes in such judgments could have a material impact on fair value estimates.
In addition, since estimates are as of a specific point in time, they are susceptible to material near-term changes. Changes in economic conditions may also dramatically affect the estimated fair values.
Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management for the respective periods. The respective carrying value of certain financial instruments approximated their fair values due to the short-term nature of these instruments. These financial instruments include cash, investments, short-term notes payable, accounts payable and accrued expenses.
| 17 |
Derivative Financial Instruments
Derivatives are recorded on the consolidated balance sheet at fair value. The conversion features of the convertible instruments are embedded derivatives and are separately valued and accounted for on the consolidated balance sheet with changes in fair value recognized during the period of change as a separate component of other income/expense. Fair values for exchange-traded securities and derivatives are based on quoted market prices. Valuations derived from various models are subject to ongoing internal and external verification and review. Model used incorporate market-sourced inputs such as interest rates and stock price volatilities. Selection of these inputs involves management’s judgment and may impact net income (loss).
With the issuance of the July 2017 FASB ASU 2017-11, “Earnings Per Share (Topic 260) Distinguishing Liabilities from Equity (Topic 480) Derivatives and Hedging (Topic 815),” which addresses the complexity of accounting for certain financial instruments with down round features, the Company has chosen the early adopt retroactively the amendments in Part I of the standard whereby fair value derivative liabilities previously recognized were derecognized in the current and comparative periods. Under the amendments included in this update, the Company is no longer required to record changes in fair value during the period of change as a separate component of other income (expense) in the consolidated Statements of Operations.
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.
Under current GAAP, an equity-linked financial instrument with a down round feature that otherwise is not required to be classified as a liability under the guidance in Topic 480 is evaluated under the guidance in Topic 815, “Derivatives and Hedging,” to determine whether it meets the definition of a derivative. If it meets that definition, the instrument (or embedded feature) is evaluated to determine whether it is indexed to an entity’s own stock as part of the analysis of whether it qualifies for a scope exception from derivative accounting.
Generally, for warrants and conversion options embedded in financial instruments that are deemed to have a debt host (assuming the underlying shares are readily convertible to cash or the contract provides for net settlement such that the embedded conversion option meets the definition of a derivative), the existence of a down round feature results in an instrument not being considered indexed to an entity’s own stock. This results in a reporting entity being required to classify the freestanding financial instrument or the bifurcated conversion option as a liability, which the entity must measure at fair value initially and at each subsequent reporting date.
The amendments in this Update revise the guidance for instruments with down round features in Subtopic 815-40, “Derivatives and Hedging—Contracts in Entity’s Own Equity,” which is considered in determining whether an equity-linked financial instrument qualifies for a scope exception from derivative accounting. An entity still is required to determine whether instruments would be classified in equity under the guidance in Subtopic 815-40 in determining whether they qualify for that scope exception. If they do qualify, freestanding instruments with down round features are no longer classified as liabilities and embedded conversion options with down round features are no longer bifurcated.
| 18 |
For entities that present EPS in accordance with Topic 260, and when the down round feature is included in an equity-classified freestanding financial instrument, the value of the effect of the down round feature is treated as a dividend when it is triggered and as a numerator adjustment in the basic EPS calculation. This reflects the occurrence of an economic transfer of value to the holder of the instrument, while alleviating the complexity and income statement volatility associated with fair value measurement on an ongoing basis. Convertible instruments are unaffected by the Topic 260 amendments in this Update.
Those amendments in Part I of this Update are a cost savings relative to current GAAP. This is because, assuming the required criteria for equity classification in Subtopic 815-40 are met, an entity that issued such an instrument no longer measures the instrument at fair value at each reporting period (in the case of warrants) or separately accounts for a bifurcated derivative (in the case of convertible instruments) on the basis of the existence of a down round feature. For convertible instruments with embedded conversion options that have down round features, applying specialized guidance such as the model for contingent beneficial conversion features rather than bifurcating an embedded derivative also reduces cost and complexity. Under that specialized guidance, the issuer recognizes the intrinsic value of the feature only when the feature becomes beneficial instead of bifurcating the conversion option and measuring it at fair value each reporting period.
The amendments in Part II of this Update replace the indefinite deferral of certain guidance in Topic 480 with a scope exception. This has the benefit of improving the readability of the Codification and reducing the complexity associated with navigating the guidance in Topic 480.
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. 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. The amendments in Part 1 of this Update should be applied in either of the following ways:
| 1. | retrospectively to outstanding financial instruments with a down round feature by means of a cumulative-effect adjustment to the statement of financial position as of the beginning of the first fiscal year and interim period(s) in which the pending content that links to this paragraph is effective; or | |
| 2. | retrospectively to outstanding financial instruments with a down round feature for each prior reporting period presented in accordance with the guidance on accounting changes in paragraphs 250-10-45-5 through 45-10. |
The amendments in Part II of this Update do not require any transition guidance because those amendments do not have an accounting effect.
Basic net income (loss) per common share is computed using the weighted average number of common shares outstanding. Diluted earnings per share (EPS) include additional dilution from common stock equivalents, such as convertible notes, preferred stock, stock issuable pursuant to the exercise of stock options and warrants. Common stock equivalents are not included in the computation of diluted earnings per share when the Company reports a loss because to do so would be anti-dilutive for periods presented.
Related Party Transactions
Parties are considered to be related to the Company if the parties directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal stockholders of the Company, its management, members of the immediate families of principal stockholders of the Company and its management and other parties with which the Company may deal where one-party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. The Company discloses all related party transactions. All transactions shall be recorded at fair value of the goods or services exchanged. Property purchased from a related party is recorded at the cost to the related party and any payment to or on behalf of the related party in excess of the cost is reflected as compensation or distribution to related parties depending on the transaction.
| 19 |
Segment Reporting
For purposes of segment disclosures, two or more operating segments should be grouped only if the segments meet all the requirements of paragraph 280-10-50-11, including the requirements for similar economic characteristics.
Approximately 99% of the Company’s revenue is generated from its Recoup subsidiary. The Company believes that no segment reporting is required as all remaining operations outside of the Recoup subsidiary is immaterial.
Recently Issued Accounting Standards
There were updates recently issued, most of which represent technical corrections to the accounting literature or application to specific industries or transactions that are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.
NOTE 4: GOING CONCERN
The
Company has an accumulated deficit of $
These consolidated financial statements of the Company have been prepared assuming that the Company will continue as a going concern, which contemplates, among other things, the realization of assets and the satisfaction of liabilities in the normal course of business over a reasonable period. The consolidated financial statements of the Company do not include any adjustments that may result from the outcome of the uncertainties. The Company’s continuation as a going concern is contingent upon its ability to obtain additional financing and generate revenue and cash flow to meet its obligations on a timely basis. Management intends to seek additional funding through debt or equity financing during the next twelve months to source new inventory and generate revenue from product sales.
NOTE 5: DISCONTINUED OPERATIONS
As
discussed in Note 1, the Company sold Rohuma, Mimo and TSP in December of 2022. Additionally, the Company is shifting operations to waste
management. As such, these businesses are reported as discontinued operations for the three months ended March 31, 2022. As required,
the Company has retrospectively recast its consolidated statements of operations and balance sheets for all periods presented. The retrospective
recast of the company’s income statement and balance sheet for the quarter ended March 31, 2022 resulted in a loss on discontinued
operations of $
The following table presents a reconciliation of the major financial lines constituting the results of operations for discontinued operations to the net income (loss) from discontinued operations presented separately in the consolidated statement of operations for the three months ended March 31, 2022:
| Rohuma | Mimo | TSP | Total | |||||||||||||
| March 31, 2022 | March 31, 2022 | March 31, 2022 | March 31, 2022 | |||||||||||||
| REVENUE | $ | $ | $ | $ | ||||||||||||
| COST OF REVENUE | ||||||||||||||||
| GROSS PROFIT (LOSS) | ( | ) | ( | ) | ( | ) | ||||||||||
| OPERATING EXPENSES | ||||||||||||||||
| Salaries and salary related costs | ||||||||||||||||
| Professional fees | ||||||||||||||||
| Rent expense | ||||||||||||||||
| Depreciation and amortization expense | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Total Operating Expenses | ||||||||||||||||
| OPERATING (LOSS) INCOME | ( | ) | ( | ) | ( | ) | ||||||||||
| OTHER INCOME (EXPENSE) | ||||||||||||||||
| Loss from impairment of intangible assets | ( | ) | ( | ) | ||||||||||||
| Loss from impairment of goodwill | ( | ) | ( | ) | ( | ) | ||||||||||
| Interest expense, net of interest income | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income | ||||||||||||||||
| Total other income (expense) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| INCOME (LOSS) FROM DISTCONTINUED OPERATIONS, BEFORE PROVISION FOR INCOME TAXES | ( | ) | ( | ) | ( | ) | ||||||||||
| Provision for income taxes – discontinued operations | ||||||||||||||||
| LOSS INCOME FROM DISTCONTINUED OPERATIONS | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
The following table presents a reconciliation of Rohuma, Mimo, and TSP net cash flow from operating, investing and financing activities for the periods indicated below:
| March 31, 2022 | ||||
| Net cash (used in) provided by operating activities - discontinued operations | $ | |||
| Net cash (used in) provided by investing activities - discontinued operations | $ | |||
| Net cash provided by (used in) financing activities - discontinued operations | $ | ( | ) | |
| 20 |
NOTE 6: ACQUISITION OF RECOUP TECHNOLOGIES, INC.
On
January 5, 2023, pursuant to an asset purchase agreement, dated December 30, 2022, we completed the acquisition of Recoup Technologies,
Inc., and its digester business assets (“Recoup” or the “Digester business”), from Renovare Environmental, Inc
(“REI”), BioHiTech America, LLC (“BHT” and together with REI, the “Renovare Sellers”) for a purchase
price of $
| Type of Consideration | Number of Shares | Fair Value | ||||||||
| Cash | $ | |||||||||
| Issuance of common stock | a. | $ | ||||||||
| Issuance of series – B preferred stock | b. | $ | ||||||||
| Liabilities assumed: | ||||||||||
| Michaelson Capital Senior Note | c. | $ | ||||||||
| Accounts Payable and accrued expenses | $ | |||||||||
| Contract liabilities | $ | |||||||||
| Total consideration | $ | |||||||||
| a. | ||
| b. | ||
| c. |
The acquisition of Recoup was accounted for as a business combination in accordance with the acquisition method under the guidance in ASC 805-10 and 805-20. Accordingly, the total purchase consideration was allocated to intangible assets acquired based on their respective estimated fair values. The acquisition method of accounting requires, among other things, that assets acquired, and liabilities assumed, if any, in a business purchase combination be recognized at their fair values as of the acquisition date. The process for estimating the fair values of identifiable intangible assets and certain tangible assets requires the use of significant estimates and assumptions, including estimating future cash flows, developing appropriate discount rates, estimating the costs, and timing.
The allocation of the purchase price in connection with the acquisition of Recoup was calculated as follows:
| Description | Fair Value | Weighted
Average Useful Life (Years) | |||||
| Fixed assets – truck | $ | ||||||
| Inventory | |||||||
| Intellectual property | |||||||
| Tradenames | |||||||
| Noncompete agreement | |||||||
| Goodwill | |||||||
| $ | |||||||
Intellectual
property was measured at fair value using the multiple periods excess earnings method (“MPEEM”). Significant inputs used
to measure the fair value include an estimated useful life of ten (
Tradenames
were measured at fair value using the relief from royalty method. Significant inputs used to measure the fair value include an estimated
projected revenue from the tradename, a pre-tax royalty rate of
The
noncompete agreement was measured at fair value with a discounted cash flow analysis that compared projected cash flows during the noncompete
agreement period with and without the agreement. Significant inputs used to measure the fair value include an estimate of time for the
seller to identify the product, bring in the technology, and start the manufacturing process. As well as the estimated risk that the
Seller would chose to compete without the agreement in place and a discount rate of
Goodwill
of $
The
approximate revenue and gross profit for the acquired business as a standalone entity per ASC 805 from January 5, 2023 to March
31, 2023 was $
Pro Forma Information
The results of operations of Recoup will be included in the Company’s consolidated financial statements as of the date of acquisition through the current period end. The following supplemental pro-forma financial information approximate combined financial information assumes that the acquisition had occurred at the beginning of the three months ended March 31, 2023 and the year ended December 31, 2022:
| March 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Revenue | $ | $ | ||||||
| Net Income (Loss) | $ | ( | ) | $ | ( | ) | ||
| Earnings (Loss) per common share, basic | $ | ( | ) | $ | ( | ) | ||
| Earnings (Loss) per common share, diluted | $ | ( | ) | $ | ( | ) | ||
| Weighted average common shares outstanding – basic and diluted | ||||||||
| 21 |
NOTE 8: INTANGIBLE ASSETS
The Company’s intangible assets are as follows:
March 31, 2023 | December 31, 2022 | |||||||
| Intellectual property | $ | $ | ||||||
| Non-compete agreement | ||||||||
| Tradenames | ||||||||
| Less: accumulated amortization | ( | ) | ||||||
| Net | $ | $ | ||||||
Amortization
expense due to the amortization of intangibles for the three months ended March 31, 2023 and 2022 was $
As
of December 31, 2022, the Company did not have any intangible assets as they were previously all held by Rohuma, Mimo and TSP, and
as they were fully impaired upon the disposal as Rohuma, Mimo and TSP. For the three months ended March 31, 2022, for the purposes
of the retrospective presentation of the continuing operations, the Company fully impaired the Rohuma, Mimo and TSP intangible
assets; resulting in impairment expense of $
NOTE 9: GOODWILL
As
of March 31, 2023, all goodwill was held by Recoup. The Company’s goodwill was $
For
the three months ended March 31, 2023 there were no indicators of impairment noted. For the quarter ended March 31, 2022, for the
purposes of the retrospective presentation of the disposal of Rohuma and Mimo, the Company fully impaired the Rohuma and Mimo
goodwill resulting in impairment expense of $
| 22 |
NOTE 10: CONVERTIBLE NOTES PAYABLE
As of March 31, 2023 and December 31, 2022, the Company had the following convertible notes outstanding, all of which are current liabilities. Any convertible notes payable that were repaid or converted in 2022, are not listed, and details of which can be found in our Form 10-K filed March 31, 2022:
March 31, 2023 | December 31, 2022 | |||||||||
| Evergreen Capital Management LLC - 5 | (a) | $ | $ | |||||||
| Evergreen Capital Management LLC - 4 | (b) | |||||||||
| Evergreen Capital Management LLC - 6 | (c) | |||||||||
| Evergreen Capital Management LLC - 7 | (d) | |||||||||
| GS Capital | (e) | |||||||||
| Chambers | (f) | |||||||||
| Eleven 11 Management LLC - 1 | (g) | |||||||||
| Eleven 11 Management LLC – 2 | (h) | |||||||||
| Cavalry Fund – 1 | (i) | |||||||||
| Cavalry Fund – 2 | (j) | |||||||||
| Cavalry Fund – 3 | (k) | |||||||||
| Keystone Capital – 1 | (l) | |||||||||
| Keystone Capital – 2 | (m) | |||||||||
| Total Convertible Notes Payable | $ | $ | ||||||||
| Less: Discounts | ( | ) | ( | ) | ||||||
| $ | $ | |||||||||
| (a) | ||
| (b) |
On
December 30, 2022, the director, the Company, and Evergreen Capital Management, LLC (“Evergreen”) signed a note purchase
agreement (the “Evergreen note purchase”). In accordance with the Evergreen note purchase, Evergreen purchased the director
note from the director, and the company issued shares of its Common Stock to the director for a value of $
Pursuant to the Evergreen note purchase the Company exchanged the director note with Evergreen for a secured convertible promissory note (“Evergreen – 4”) which was issued on December 30, 2022 and has a maturity date of December 31, 2023. Please Note 11 – Long-Term Debt – Related Parties and Note 15 – Derivative Liabilities. | |
| (c) | ||
| (d) | ||
| (e) |
| 23 |
| (f) | ||
| (g) | ||
| (h) | ||
| (i) | ||
| (j) | ||
| (k) | ||
| (l) | ||
| (m) |
Interest expense on these
notes for the three months ended March 31, 2023 is $
| 24 |
NOTE 11: LONG-TERM DEBT - RELATED PARTIES
The following is a summary of the current portion - long-term debt - related parties as of March 31, 2023 and December 31, 2022:
March 31, 2023 | December
31, 2022 | |||||||||
| Note payable - Director | (a) | $ | $ | |||||||
| Current portion of long-term debt related parties | ( | ) | ||||||||
| Long-term debt – related parties | $ | $ | ||||||||
| (a) |
On
December 30, 2022, the director, the Company, and Evergreen Capital Management, LLC (“Evergreen”) signed a note purchase
agreement (the “Evergreen note purchase”). In accordance with the Evergreen note purchase, Evergreen purchased the
director note from the director,
and the company issued
shares of its Common Stock to the director for a value of $
Pursuant to the Evergreen note purchase the Company exchanged director the note with Evergreen for a secured convertible promissory note (“Evergreen – 4”) which was issued on December 30, 2022 and has a maturity date of December 31, 2023. Please Note 10 – Convertible Notes Payable and Note 15 – Derivative Liabilities. |
| 25 |
Interest expense on these notes for the three months ended March 31, 2023 and 2022 was $ and $, respectively.
NOTE 12: NOTES PAYABLE
The following is a summary of the notes payable as of March 31, 2023 and December 31, 2022. Any long-term debt that was repaid or converted in 2022, is not listed, and the details of those notes can be found in our Form 10-K filed March 31, 2023:
March 31, 2023 | December 31, 2022 | |||||||||
| Baxter Credit Union | (a) | $ | $ | |||||||
| Diagonal Lending (FKA Sixth
Street Lending), net of discounts of $ | (b) | |||||||||
| Loan Builder | (c) | |||||||||
| Loan Builder #2 | (d) | |||||||||
| Loan Builder #3 | (e) | |||||||||
| Individual | (f) | |||||||||
| Kabbage Loan | (g) | |||||||||
| Forward Finance | (h) | |||||||||
| Celtic | (i) | |||||||||
| Michaelson Capital | (j) | |||||||||
| Total | $ | $ | ||||||||
| Current portion | ( | ) | ( | ) | ||||||
| Long-term debt, net of current portion | $ | $ | ||||||||
| (a) | |
| (b) | |
| (c) | |
| (d) | |
| (e) | |
| (f) | |
| (g) |
| 26 |
| (h) | |
| (i) | |
| (j) |
After
failing to make the first $ |
Interest
expense on these notes for the three months ended March 31, 2023 and 2022 are $
NOTE 13: STOCKHOLDERS’ EQUITY (DEFICIT)
Series A Convertible Preferred Stock
As of March 31, 2023 and December 31, 2022, there are Series A Convertible Preferred shares issued and outstanding.
Each outstanding share of Series A Convertible Preferred Stock is convertible into the number of shares of the Company’s common stock (the “Common Stock”) determined by dividing the Stated Value by the Conversion Price as defined below, at the option of any Series A Convertible Preferred Stock shareholder in whole or in part, at any time commencing no earlier than six (6) months after the issuance date; provided that any conversion under this section must be made during the ten (10) day period immediately following the date on which the corporation files with the Securities and Exchange Commission any periodic report on form 10-Q, 10-K or the equivalent form; provided further that, any conversion under this Section IV: (a) shall be for a minimum Stated Value of $ of Series A Convertible Preferred Stock.
The
Conversion Price for each share of Series A Convertible Preferred Stock in effect on any Conversion Date shall be
| 27 |
Series B Convertible Preferred Stock
As of March 31, 2023 and December 31, 2022, there were and shares of Series B Preferred Stock issued and outstanding, respectively.
Each outstanding share of Series B Convertible Preferred Stock is convertible into the shares of the Company’s common stock at any time commencing after the issuance date. Series B Convertible Stock has no voting rights. Upon any liquidation, dissolution, or winding-up of the Corporation, whether voluntary or involuntary (a “Liquidation”), the Series B Holders shall be entitled to receive out of the assets of the Corporation, whether capital or surplus, the same amount that a holder of Common Stock would receive if the Series B Preferred were fully converted. Except for stock dividends or distributions for, Series B Holders are entitled to receive, and the Company shall pay, dividends on shares of Series B Preferred equal (on an as-if-converted-to-Common-Stock basis) to and in the same form as dividends actually paid on shares of the Common Stock when, as, and if such dividends are paid on shares of the Common Stock. No other dividends shall be paid on shares of Series B Preferred.
On
December 30, 2022, the Company exchanged outstanding debt securities of the Company with unpaid principal and interest in the amount
of $
On
January 5, 2023, pursuant to an asset purchase agreement, dated December 30, 2022, we completed the acquisition of Recoup
Technologies, Inc., and its digester business assets (“Recoup” or the “Digester business”), from Renovare
Environmental, Inc (“REI”), BioHiTech America, LLC (“BHT” and together with REI, the “Renovare
Sellers”). The consideration for the Recoup acquisiton included the issuance of
shares of its Series B Preferred Stock valued at $
Common Stock
As of March 31, 2023, and December 31, 2022, the Company has and shares issued and outstanding, respectively. On April 12, 2018, the Company amended its Articles of Incorporation to forward split all outstanding shares of common stock such that all issued and outstanding shares of Common Stock shall be automatically combined and reclassified such that each share of Pre-Forward Split Stock shall be combined and reclassified into four shares of Common Stock. The number of shares for all periods presented has been retroactively restated to reflect the forward split.
During the year ended December 31, 2022, there was shares offered as commitment shares as additional consideration for the purchase of a convertible note.
On
December 30, 2022, the Company exchanged outstanding debt securities of the Company with unpaid principal and interest in the amount
of $
Between October 1, 2022 and December 31, 2022, options were exercised into shares of the Company’s common stock for no consideration. Upon issuance, the remaining $ of stock-based compensation was expensed.
On
December 1, 2022, the Company issued shares of its common stock in exchange for vested restricted stock awards valued at $
During the three months ended December 31, 2022, the Company issued shares of its common stock in exchange for warrants for no consideration.
During
the three months ended June 30, 2022,
During
the three months ended March 31, 2022, the
On
January 5, 2023, pursuant to an asset purchase agreement, dated December 30, 2022, we completed the acquisition of Recoup
Technologies, Inc., and its digester business assets (“Recoup” or the “Digester business”), from Renovare
Environmental, Inc (“REI”), BioHiTech America, LLC (“BHT” and together with REI, the “Renovare
Sellers”). The consideration for the Recoup acquisiton included the issuance of
shares of Common Stock valued at $
| 28 |
Common Stock Warrants
The following schedule summarizes the changes in the Company’s common stock warrants:
| Weighted | Weighted | |||||||||||||||||||
| Warrants Outstanding | Average | Average | ||||||||||||||||||
| Number | Exercise | Remaining | Aggregate | Exercise | ||||||||||||||||
| Of | Price | Contractual | Intrinsic | Price | ||||||||||||||||
| Shares | Per Share | Life | Value | Per Share | ||||||||||||||||
| Balance at December 31, 2022 | $ | - | years | $ | $ | |||||||||||||||
| Warrants granted | $ | - | $ | $ | ||||||||||||||||
| Warrants exercised | $ | - | $ | $ | ||||||||||||||||
| Warrants expired/cancelled | $ | - | $ | $ | ||||||||||||||||
| Balance at March 31, 2023 | $ | - | years | $ | $ | |||||||||||||||
| Exercisable at March 31, 2023 | $ | - | years | $ | $ | |||||||||||||||
| Balance at December 31, 2021 | $ | - | years | $ | $ | |||||||||||||||
| Warrants granted | $ | - | $ | |||||||||||||||||
| Warrants exercised/exchanged | $ | - | $ | |||||||||||||||||
| Warrants expired/cancelled | $ | - | $ | |||||||||||||||||
| Balance at March 31, 2022 | $ | - | years | $ | $ | |||||||||||||||
| Exercisable at March 31, 2022 | $ | - | years | $ | $ | |||||||||||||||
Changes to these inputs could produce a significantly higher or lower fair value measurement. The fair value of each option/warrant is estimated using the Black-Scholes valuation model. The following assumptions were used for the three months ended March 31, 2023 and year ended December 31, 2022:
Three Months Ended March 31, 2023 | Year Ended December 31, 2022 | |||||||
| Risk free interest rate | – | % | % | |||||
| Expected term | – years | - | ||||||
| Expected volatility | % - | % | % | |||||
| Expected dividend yield | – | % | % |
In
June 2022, there were
In
December 2022, there were
On November 23, 2020, the Board of Directors of the Company approved the 2020 Equity Incentive Plan.
Options
On October 19, 2020, the Company granted stock options to board members, advisory board members, employees and consultants. The options have a -year term, and are both service-based grants, as well as performance-based grants. As of March 31, 2023 all of the options had vested, and had been either exercised or had expired.
| 29 |
Stock based compensation expense from options for the three months ended March 31, 2023 and 2022 were $ and $, respectively. As of March 31, 2023, there remains $ of unrecognized stock-based compensation from options.
Three Months Ended March 31, 2023 | Year Ended December 31, 2022 | |||||||||||||||
| Number | Weighted Average Exercise Price | Number | Weighted Average Exercise Price | |||||||||||||
| Beginning balance | $ | $ | ||||||||||||||
| Granted | ||||||||||||||||
| Exercised | ( | ) | ||||||||||||||
| Forfeited | ( | ) | ||||||||||||||
| Expired | ||||||||||||||||
| Ending balance | $ | $ | ||||||||||||||
| Intrinsic value of options | $ | - | $ | |||||||||||||
| Weighted Average Remaining Contractual Life (Years) | - | - | ||||||||||||||
Restricted Stock Awards
On November 23, 2020, the Board of Directors of the Company approved the 2020 Equity Incentive Plan.
On January 1, 2023, the Company granted restricted stock awards to board members pursuant to the 2020 Equity Incentive Plan. The awards vest over a -year term and are compensation for the board members’ service.
On January 1, 2023, the Company granted restricted stock awards to a director pursuant to the 2020 Equity Incentive Plan. The awards vest over a -month term and are compensation for the director’s service.
On January 1, 2023, the Company granted restricted stock awards to the CEO. The awards were granted as a sign-on bonus. of the restricted stock awards vested after a -month term, which ended on March 31, 2023.
On March 22, 2023, the Company granted restricted stock awards to a director pursuant to the 2020 Equity Incentive Plan. The awards have a -year term and are compensation for the director’s service.
| Weighted | ||||||||||||
| Weighted | Average | |||||||||||
| Average | Remaining | |||||||||||
| Number | Grant Date | Contractual | ||||||||||
| Shares | Fair Value | Term (years) | ||||||||||
| Nonvested at December 31, 2021 | $ | - | ||||||||||
| Granted | $ | |||||||||||
| Shares vested | $ | |||||||||||
| Forfeitures | $ | |||||||||||
| Nonvested at March 31, 2022 | $ | - | ||||||||||
| Nonvested at December 31, 2022 | $ | - | ||||||||||
| Granted | $ | |||||||||||
| Shares vested | $ | |||||||||||
| Forfeitures | $ | |||||||||||
| Nonvested at March 31, 2023 | $ | |||||||||||
| Vested and unreleased | ||||||||||||
| Outstanding at March 31, 2023 | ||||||||||||
Stock based compensation expense from restricted stock awards for the three months ended March 31, 2023 and 2022 were $ and $, respectively. As of March 31, 2023, there remains $ of unrecognized stock-based compensation from restricted stock awards. The total fair value of restricted shares that vested during the three months ended March 31, 2023 and 2022 was $ and $, respectively.
NOTE 15: DERIVATIVE LIABILITIES
On June 15, 2021 the Company issued a $
On
July 5, 2022, the Company entered into a 11% OID Senior Secured Promissory Note (the “GS Capital Note”) with GS Capital
Partners LLC (“GS Capital”) in the amount of $
| 30 |
On
February 12, 2021, the Company granted
On
March 3, 2023, the Company entered into a 20% OID Senior Secured Promissory Note (“Keystone – 1”) with Keystone Capital
Partners. (“Keystone”) in the amount of $
On
March 21, 2023, the Company entered into a 20% OID Senior Secured Promissory Note (“Keystone – 2”) with Keystone Capital
Partners. (“Keystone”) in the amount of $
On
March 14, 2023, the Company entered into a 20% OID Senior Secured Promissory Note (“Cavalry - 1”) with Cavalry Fund. (“Cavalry”)
in the amount of $
On
February 16, 2023, the Company entered into a 20% OID Senior Secured Promissory Note (“Cavalry – 2”) with Cavalry Fund.
(“Cavalry”) in the amount of $
On
March 14, 2023, the Company entered into a 20% OID Senior Secured Promissory Note (“Cavalry – 3”) with Cavalry Fund.
(“Cavalry”) in the amount of $
On
February 14, 2023, the Company entered into a 20% OID Senior Secured Promissory Note (“Eleven 11 – 1”) with Eleven
11 Management LLC. (“Eleven 11”) in the amount of $
On
March 14, 2023, the Company entered into a 20% OID Senior Secured Promissory Note (“Eleven 11 – 2”) with Eleven 11
Management LLC. (“Eleven 11”) in the amount of $
| 31 |
On
October 21, 2022, the Company entered into a 20% OID Senior Secured Promissory Note (“Evergreen – 5”) with Evergreen
Capital Management, LLC (“Evergreen”) in the amount of $
On
January 4, 2023, the Company entered into a 20% OID Senior Secured Promissory Note (“Evergreen – 6”) with Evergreen
Capital Management, LLC (“Evergreen”) in the amount of $
On
February 14, 2023, the Company entered into a 20% OID Senior Secured Promissory Note (“Evergreen – 7”) with Evergreen
Capital Management, LLC (“Evergreen”) in the amount of $
On
February 16, 2023, the Company entered into a 20% OID Senior Secured Promissory Note (the “Chambers Note”) with James D.
Chambers Living Trust (“Chambers”) in the amount of $
Changes to these inputs could produce a significantly higher or lower fair value measurement. The fair value of each warrant is estimated using the Black-Scholes valuation model. The following assumptions were used in March 31, 2022 and December 31, 2021:
Three Months Ended March 31, 2023 | Year Ended December 31, 2022 | |||||||
| Expected term | ||||||||
| Expected volatility | % | % | ||||||
| Expected dividend yield | % | % | ||||||
| Risk-free interest rate | % | % |
| 32 |
The Company’s derivative liabilities are as follows:
March 31, 2023 | December 31, 2022 | |||||||
| Fair value of the Evergreen 4 conversion option | $ | $ | ||||||
| Fair value of the GS Capital conversion option | ||||||||
| Fair value of the Platinum
Point warrants ( | ||||||||
| Fair value of the Keystone 1 conversion option | ||||||||
| Fair value of the Keystone 2 conversion option | ||||||||
| Fair value of the Calvary 1 conversion option | ||||||||
| Fair value of the Calvary 2 conversion option | ||||||||
| Fair value of the Calvary 3 conversion option | ||||||||
| Fair value of the Eleven 11 - 1 conversion option | ||||||||
| Fair value of the Eleven 11 – 2 conversion option | ||||||||
| Fair value of the Evergreen 5 conversion option | ||||||||
| Fair value of the Evergreen 6 conversion option | ||||||||
| Fair value of the Evergreen 7 conversion option | ||||||||
| Fair value of the Chambers conversion option | ||||||||
| $ | $ | |||||||
Activity related to the derivative liabilities for the three months ended March 31, 2023 is as follows:
| Beginning balance as of December 31, 2022 | $ | |||
| Issuances of warrants/conversion option – derivative liabilities | ||||
| Extinguishment of derivative liability upon conversion/repayment of convertible notes | ||||
| Change in fair value of warrants/conversion option - derivative liabilities | ||||
| Ending balance as of March 31, 2023 | $ | |||
nOTE 16: CONCENTRATIONS
A major customer is defined as a customer that represents 10% or greater of total revenues. The Company does not believe that the risk associated with these customers or vendors will have an adverse effect on the business.
Concentration of Revenues
The Company’s concentration of revenue is as follows:
| For the Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Customer A | * | % | ||||||
| Customer B | * | % | ||||||
| Customer C | % | * | ||||||
| Customer D | % | * | ||||||
| Customer E | % | * | ||||||
| * |
Concentration of Accounts Receivable
The Company’s concentration of accounts receivable is as follows:
As of March 31, 2023 | As of December 31, 2022 | |||||||
| Customer A | % | * | ||||||
| Customer B | % | * | ||||||
| Customer C | % | * | ||||||
| * |
nOTE 17: CONTINGENCY
During
the year ended December 31, 2018, the Company charged an independent truck driver approximately $
| 33 |
nOTE 18: COMMITMENTS AND CONTINGENCIES
The below commitments and contingencies are in respect of TRAQ Pvt Ltd., and following the transfer of all of the Company’s equity interests in TRAQ Pvt Ltd., to LR under the TSP Agreement, the commitments and contingencies were assumed by LR;
| (i) | TRAQ Pvt Ltd had applied for compounding of the TDS liability for the assessment year 2014-2015 and 2015-2016 in accordance with Indian Income Tax Laws. However, no amount payable for tax and penalty was confirmed by the Income Tax Department. Further, TRAQ Pvt Ltd has also defaulted for TDS deducted but not paid in time during assessment years 2016-2017 to 2020-2021. Accordingly, there may be a contingent liability in respect of TDS regarding compounding charges, interest, and penalty which is not quantifiable at present, and therefor no effect is given in the Consolidated Financial Statements. |
| (ii) | TRAQ Pvt Ltd was delayed in complying with provisions related to Foreign Direct Investment and Transfer of Shares to Non-resident as per the Master Circulars and notification issued by Reserve Bank of India, therefore, and is therefor liable for imposition of a penalty. Since the amount of the penalty is not ascertainable, no effect was given in the Consolidated Financial Statements. |
| (iii) | Prior
to its acquisition in May 2019, TRAQ Pvt Ltd, had provided a guarantee in favor of State Bank of India for $ |
| (iv) | TRAQ
Pvt Ltd has a contingent liability of $ |
The below commitments and contingencies are in respect of Mimo Technologies Pvt Ltd., and following the transfer of all of the Company’s equity interests in Mimo to LR under the MTP Agreement, the commitments and contingencies were assumed by LR;
| (i) | As of the execution of the MTP Agreement and the transfer of the Company’s entire equity interests in Mimo to LR, Mimo Technologies Pvt Ltd was delayed in complying with provisions related to Foreign Direct Investment and Transfer of Shares to Non-resident as per the Master Circulars and notification issued by Reserve Bank of India, and therefore, is liable for imposition of a penalty. Since the amount of the penalty for the same is not ascertainable, no effect was given in the Consolidated Financial Statements. |
| 34 |
nOTE 19: SUBSEQUENT EVENTS
On
April 19, 2023 the Company agreed to settle its outstanding debt owed under the Celtic Note. The settlement agreement reduced the liability
owed by the Company to two payments of $
On
April 28, 2023 the Company agreed to settle its outstanding debt owed under the Forward Finance future sales receipt agreement. The
settlement agreement reduced the liability owed by the Company to two payments of $
On
April 1, 2023, the Company entered into a 20% OID Senior Secured Promissory Note with Keystone Capital Partners. (“Keystone”)
in the amount of $
On
April 18, 2023, the Company entered into a 20% OID Senior Secured Promissory Note with Keystone Capital Partners. (“Keystone”)
in the amount of $
On
April 26, 2023, the Company entered into a 20% OID Senior Secured Promissory Note with Keystone Capital Partners. (“Keystone”)
in the amount of $
On
April 1, 2023, the Company entered into a 20% OID Senior Secured Promissory Note with Cavalry Fund I LP. (“Cavalry”) in the
amount of $
On
April 26, 2023, the Company entered into a 20% OID Senior Secured Promissory Note with Cavalry Fund I LP. (“Cavalry”) in
the amount of $
On
April 5, 2023, the Company entered into a 20% OID Senior Secured Promissory Note with Evergreen Capital Management LLC. in the amount
of $
On
April 26, 2023, the Company entered into a 20% OID Senior Secured Promissory Note with Evergreen Capital Management LLC. in the amount
of $
On
April 17, 2023, the Company entered into a 20% OID Senior Secured Promissory Note with Seven Knots LLC. in the amount of $
| 35 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The discussion and analysis of our financial condition and results of operations are based on our condensed consolidated financial statements, which we have prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, as well as the reported revenues and expenses during the reporting periods. On an ongoing basis, we evaluate estimates and judgments, including those described in greater detail below. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
As used in this “Management’s Discussion and Analysis of Financial Condition and Results of Operation,” except where the context otherwise requires, the term “we,” “us,” “our,” or “the Company,” refers to the business of TraqIQ Inc.
The following presentation of management’s discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements, the accompanying notes thereto and other financial information appearing elsewhere in this quarterly report on Form 10-Q. This section and other parts of this quarterly report on Form 10-Q contain forward-looking statements that involve risks and uncertainties. See “Forward-Looking Statements.”
Overview of the Company
Our mission is to reduce the environmental impact of the waste management industry through the development and deployment of cost-effective technology solutions. Our suite of technologies includes on-site biological processing equipment for food waste and proprietary real-time data analytics tools to reduce food waste generation. These proprietary solutions may enable certain businesses and municipalities of all sizes to lower disposal costs while having a positive impact on the environment. When used individually or in combination, we believe that our solutions can reduce the carbon footprint associated with waste transportation, repurpose non-recyclable plastics, and significantly reduce landfill usage. As we continue to expand our waste management business we plan to discontinue or spin off the remaining portions of the legacy business.
The Company currently markets an aerobic digestion technology solution for the disposal of food waste at the point of generation. Its line of Revolution Series Digesters has been described as self-contained, robotic digestive systems that we believe are as easy to install as a standard dishwasher with no special electrical or plumbing requirements. Units range in size depending upon capacity, with the smallest unit approximately the size of a residential washing machine. The digesters utilize a biological process to convert food waste into a liquid that we believe is safe to discharge down an ordinary drain. This process can result in a substantial reduction in costs for customers including cruise lines, restaurants, retail stores, hospitals, hotel/hospitality companies and governmental units by eliminating the transportation and logistics costs associated with food waste disposal. The Company also expects the process reduce the greenhouse gases associated with food-waste transportation and decomposition in landfills that have been linked to climate change. The Company offers its Revolution Series Digesters in several sizes targeting small- to mid-sized food waste generation sites that are often more economical than traditional disposal methods. The Revolution Series Digesters are manufactured and assembled in the United States.
In an effort to expand the capabilities of its digesters, the Company developed a sophisticated Internet of Things (“IoT”) technology platform to provide its customers with transparency into their internal and supply chain waste generation and operational practices. This patented process collects weight related data from the digesters to deliver real-time data that provides valuable information that when analyzed, can improve efficiency, and validate corporate sustainability efforts. The Company provides its IoT platform through a SaaS (“Software as a Service”) model that is either bundled in its rental agreements or sold through a separate annual software license. The Company continues to add new capacity sizes to its line of Revolution Series Digesters to meet customer needs.
Legacy Business
TraQiQ Solutions Private Limited
On May 16, 2019, the Company entered into a Share Exchange Agreement with Mann-India Technologies Private Ltd., an Indian Corporation (“Mann”). On January 2, 2020, Mann changed its name to TraQiQ Solutions Private Limited (“TRAQ Pvt Ltd”). Pursuant to the Share Exchange Agreement with Mann, the Company acquired 100% of the shares of Mann and assumed certain net liabilities in exchange for warrants exercisable over a five-years to purchase 166,159 shares of common stock of the Company valued at $268. The warrants will be exercisable as follows: (i) 12,596 warrants immediately; (ii) 107,494 warrants exercisable one-year after the date of closing, which was extended to March 31, 2021; and (iii) 46,069 warrants exercisable two-years after the date of closing. This transaction is being recorded as a business combination under ASC 805. There were 56,400 of these warrants exercised during 2021 and 57,368 warrants remain outstanding as of March 31, 2022.
The warrants that are exercisable in one-year and two-years are conditioned upon TRAQ Pvt Ltd. achieving certain revenue figures and pre-tax profit percentages. TRAQ Pvt Ltd. must achieve target revenue of $1.1 million (US$) and pre-tax profit of 25% (US$). Should TRAQ Pvt Ltd. be unable to achieve these criteria, the warrants will be reduced proportionately. A total of 52,391 of these warrants were cancelled effective May 16, 2021 as a result of these criteria not being achieved.
Mann-India Private limited was renamed to TraQiQ Solutions Private Limited shortly after acquisition by TraQiQ Inc.
TRAQ Pvt Ltd. was established in May 2000 and is headquartered in New Delhi, India. TRAQ Pvt Ltd. is a leading software development company which, with the advent of technology, has evolved as a mature and fast-growing company committed to provide reliable and cost-effective software solutions across industries all over the world.
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TRAQ Pvt Ltd. has its own experienced team of software developers dedicated towards developing various kinds of customized software.
TraQ Pvt Ltd. has been doing business around the world for over 15 years, with particular emphasis on Latin America and India. The customer list includes large enterprise Finance and Insurance companies across Latin America. The company’s product portfolio has evolved rapidly and now includes enterprise ready solutions for payment processing, mobile wallets, micro lending solutions and digital transformation.
On December 30, 2022, the Company entered into an Assignment of Stock (the “TSP Agreement”) with TraQiQ Solutions Private Ltd. (“TSP”) and LR, pursuant to which the Company sold, assigned and transferred to LR and LR purchased from the Company, all of the equity interests in TSP in exchange for nominal consideration of $1.00.
Rohuma, LLC
On January 22, 2021, the Company entered into a Share Exchange Agreement with Rohuma, LLC, a Delaware limited liability company (“Rohuma”) and its members, whereby the Rohuma members agreed to exchange all of their respective membership interests in Rohuma in exchange for 536,528 shares of common stock, of which the first tranche of shares were issued on March 1, 2021 totaling 320,285 shares, with the remaining value reflected as contingent consideration until the shares vest at which time they will be issued. The transaction was valued at $3,433,776 ($6.40 per share). The Company as of March 31, 2022, determined that the second tranche of shares (134,132) met the criteria to be issued, and the value of $858,445 was reclassified from contingent consideration to Obligation to Issue Common Stock. Rohuma has an Indian affiliate that is owned 99% by Rohuma and 1% by its founding member. Rohuma controls this entity and the 1% ownership by the member is now less than 1% upon acquisition by the Company. This amount is reflected as a non-controlling interest.
Rohuma dba Kringle.ai was a California based software solutions company that enabled digital and mobile commerce by providing enterprise class applications that cover loyalty and rewards products, payments, online ordering, distribution logistics for retail and more. Kringle analyzed customers’ omni-channel behaviors and transactions. Using AI for digital commerce, Kringle was able to deliver real time, automated 1:1 recommendations and personalized content across all customer touch points.
On December 30, 2022, the Company entered into an Assignment of Units (the “Rohuma Agreement”, and, together with the MTP Agreement and the TSP Agreement, the “Disposition Agreements”) with Rohuma LLC (“Rohuma”) and Happy Kompany LLC (“Happy”) pursuant to which the Company sold, assigned and transferred to Happy, and Happy purchased from the Company, all of the equity interests in Rohuma in exchange for nominal consideration of $1.00. Pursuant to the Rohuma Agreement, the Company assumed the liabilities of Rohuma with respect to two loans with Paypal/Loanbuilder in an aggregate principal amount of $155,053 plus any accumulated interest and fees.
Mimo Technologies Private Limited
On February 17, 2021, the Company entered into a Share Exchange Agreement with Mimo Technologies Private Ltd., and Indian corporation (“Mimo”) and its shareholders, whereby the Mimo shareholders agreed to exchange all of their respective shares in Mimo in exchange for warrants to purchase 170,942 shares of the Company’s common stock. Of these warrants, 102,565 were earned at the date of acquisition, with the remaining 68,377 expected to be earned over the next two years from grant based on revenue goals for Mimo. The warrants have a term of three years and an exercise price of $0.008 and value in the amount of $1,640,447, of which $984,268 is reflected in additional paid in capital, with the remaining $656,179 reflected as contingent consideration. The Company as of March 31, 2022, determined that the criteria for vesting of the second tranche of warrants was satisfied and reclassified $410,112 from contingent consideration to additional paid in capital. In addition to the issuance of the warrants, TRAQ Pvt Ltd, wrote off $258,736 in amounts due from a note receivable, $123,778 in accounts receivable and $40,354 in a debenture from Mimo. In addition, a cash payment was made to one of the minority shareholders of Mimo in the amount of $22,338. The Company acquired over 99% of Mimo with the remaining percentage of less than 1% reflected as a non-controlling interest.
TraQiQ operated the Mimo delivery and task service in India. This service ran on the TraQSuite platform. Mimo had 14,000+ independent contractors across India performing deliveries and fulfilling tasks for the largest corporations in the country. Our team at Mimo used a sophisticated technology platform and a smartphone app to get their tasks completed. This was coupled with a verification and billing system that allowed customers of all sizes to leverage this distribution infrastructure.
Mimo offered a broad set of services. These offerings could be classified into three broad categories:
| ● | Data collection and client verification (surveys, verification, on-boarding), | |
| ● | Cash management & handling services, and | |
| ● | Distribution and demand generation (order fulfilment, demand generation, delivery services for e-commerce companies) |
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Mimo assisted the delivery and pickup segment of the banking and insurance industry by performing verifications, field investigations for loan requests, business verifications and employment verification, and also collected documents, assisted in filling forms for banks, and completed data collection from customers.
Mimo worked with microfinance institutions to collect cash, such as loan payments, convert cash to digital means like debit cards, and conduct data collection and surveys.
For consumer goods companies, Mimo did promotional marketing, Last mile (hyper-local) delivery, merchant onboarding or activation, store audits, and route optimization for delivery. Mimo provided efficient end-to-end transshipment logistics. The framework managed and optimized last-mile delivery & e-commerce logistics across the entire distribution chain with transparency and seamless integration.
During the COVID-19 pandemic, Mimo leveraged video as a platform for verification and document delivery.
There were also data digitization tasks being done by Mimo task workers across the country. In a country like India where there are over 20 languages and multiple dialects, the task workers converted paper documents into electronic form in the same language or translated them into another language.
Mimo provided delivery and task worker solutions across India. Mimo works with Banking, Financial, Logistics and Distribution companies, to take their products and services to semi-urban and rural India. Mimo trained the agents in each Product or Service through an online and classroom training platform. The company powered the gig economy task workers throughout the country and provided a very valuable source of employment for young people who may or may not have a high school diploma.
On December 30, 2022, the Company entered into an Assignment of Stock (the “MTP Agreement”) with Mimo Technologies Private
Ltd. (“MTP”) and Lathika Regunathan (“LR”), pursuant to which the Company sold, assigned and transferred to LR,
and LR purchased from the Company, all of the Company’s equity interests in MTP in exchange for nominal consideration of $1.00.
TraQSuite is a cloud based software platform with a revenue model based on initial and transaction-based licensing fees as well as consulting fees. Licensees pay an initial per-module fee that varies depending on the number of modules that are licensed.
The Company’s TraQSuite software platform powers the last mile distribution network, allowing business users to target customers, facilitate and validate transactions, track and manage task workers, manage funds and run a distribution network. Key features of the TraQSuite software include:
| ● | Last Mile delivery: TraQSuite’s Last-Mile software module enables a business to manage thousands of task workers across multiple geographies to deliver products and services to the users. The software platform, operating through mobile apps, allows for data sharing, delivery validation, geo-tagging and know-your-customer (KYC) requirements and can even measure customer satisfaction. |
| ● | Transact: TraQSuite enables task workers to facilitate transactions by meeting the end customers. They can collect payments via credit cards, smart-phone swipes, SMS messages or cash. Both banked and unbanked users can buy products and services and pay with their mobile devices. | |
| ● | Target: TraQSuite enables customer transactions to be rewarded with loyalty credits, tokens or points that can be redeemed by the customer for free products, discounts and benefits. The software analyzes these transactions and purchase behaviors by using leading AI models and can deliver real time, automated and targeted offers and recommendations for additional purchases and customer retention. |
The Mimo delivery and task service in India runs on the TraQSuite platform and performs deliveries and fulfills tasks for some of the largest businesses in India. Mimo provides delivery and pickup services for the banking and insurance industry, performing verifications, field investigations for loan requests, business verification, employment verification, collection of documents and customer data and assistance in filling out forms for banks. Mimo works with microfinance institutions to collect cash, such as loan payments, convert cash to digital forms such as debit cards, and conduct data collection and surveys. For consumer goods companies, Mimo does promotional marketing, last mile (hyper-local) delivery, merchant onboarding or activation, store audits, and route optimization for delivery.
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Continuing Operations
Recoup Technologies, Inc.
Recoup Technologies, Inc. provides cutting-edge solutions based on patented technologies, to measure, analyze and manage the waste management process. Recoup’s products divert food waste from landfill, reduce costs, improve operations, and minimize negative environmental impact for organizations across the world. The company offers Products (Digestors) that convert food waste into grey water discharge that is safe to enter sewage systems. The company also provides accurate real-time information to eliminate the uncertainty about where food waste occurs, how much is being wasted and its associated value. A waste tracking process forecasts accurate supply chain and inventory needs, standardizes best practices for production, and improves future planning for the prevention of waste.
TraQiQ Solutions, Inc.
Ci2i was a services company founded in 1998 that developed and deployed intelligent technologies and products in order to meet the demand for sustainable, integrated solutions. Ci2i’s primary focus has been in the analytics and intelligence segments. The Company was investing significantly in building products in the area of supply chain and last mile delivery.
Ci2i’s cloud solutions and analytics services comprised software development, program management, project management, and business analytics services.
Going Concern
The Company has an accumulated deficit of $129,484,933 as of March 31, 2023 and a working capital deficit of $116,987,178, as of March 31, 2023, and a working capital deficit of $1,682,659 as of December 31, 2022. As a result of these factors, management has determined that there is substantial doubt about the Company ability to continue as a going concern.
The consolidated financial statements of the Company have been prepared assuming that the Company will continue as a going concern, which contemplates, among other things, the realization of assets and the satisfaction of liabilities in the normal course of business over a reasonable period. The consolidated financial statements of the Company do not include any adjustments that may result from the outcome of the uncertainties. The Company’s continuation as a going concern is contingent upon its ability to obtain additional financing and generate revenue and cash flow to meet its obligations on a timely basis. Management intends to seek additional funding through debt or equity financing during the next twelve months to source new inventory and generate revenue from product sales.
Discontinued Operations
As discussed in the consolidated financial statements, the Company sold Rohuma, Mimo and TSP in December of 2022. Additionally, the Company is shifting operations to waste management. As such, these businesses are reported as discontinued operations for the three months ended March 31, 2022. As required, the Company has retrospectively recast its consolidated statements of operations and balance sheets for the consolidated financial statements.
The retrospective recast of the company’s income statement and balance sheet for the quarter ended March 31, 2022 resulted in a loss on discontinued operations of $6,866,913 for the three months ended March 31, 2022. The Company has not segregated the cash flows of this business in the consolidated statements of cash flows. Management was also required to make certain assumptions and apply judgment to determine historical expenses related to the discontinued operations presented in prior periods. Unless noted otherwise, this discussion and analysis of our financial condition and results of operations refers to the Company’s continuing operations.
The following table presents a reconciliation of the major financial lines constituting the results of operations for discontinued operations to the net income (loss) from discontinued operations presented separately in the consolidated statement of operations for the three months ended March 31, 2022:
| Rohuma | Mimo | TSP | Total | |||||||||||||
| March 31, 2022 | March 31, 2022 | March 31, 2022 | March 31, 2022 | |||||||||||||
| REVENUE | $ | 48,085 | $ | 64,652 | $ | 234,189 | $ | 346,886 | ||||||||
| COST OF REVENUE | 79,065 | 145,960 | 135,687 | 360,712 | ||||||||||||
| GROSS PROFIT (LOSS) | (31,020 | ) | (81,308 | ) | 98,502 | (13,826 | ) | |||||||||
| OPERATING EXPENSES | ||||||||||||||||
| Salaries and salary related costs | 104,263 | - | 17,556 | 121,819 | ||||||||||||
| Professional fees | 4,617 | 18,621 | 3,190 | 26,428 | ||||||||||||
| Rent expense | 442 | - | 755 | 1,197 | ||||||||||||
| Depreciation and amortization expense | - | 11,644 | 2,145 | 14,840 | ||||||||||||
| General and administrative expenses | 4,502 | 5,809 | 17,385 | 27,696 | ||||||||||||
| Total Operating Expenses | 114,875 | 36,074 | 41,031 | 191,980 | ||||||||||||
| OPERATING (LOSS) INCOME | (145,895 | ) | (117,382 | ) | 57,471 | (205,806 | ) | |||||||||
| OTHER INCOME (EXPENSE) | ||||||||||||||||
| Loss from impairment of intangible assets | - | (776,263 | ) | - | (776,263 | ) | ||||||||||
| Loss from impairment of goodwill | (3,519,869 | ) | (2,343,188 | ) | - | (5,863,057 | ) | |||||||||
| Interest expense, net of interest income | (2,126 | ) | (2,509 | ) | (14,280 | ) | (18,915 | ) | ||||||||
| Other income | 154 | 45 | 2,608 | 2,807 | ||||||||||||
| Total other income (expense) | (3,521,841 | ) | (3,121,915 | ) | (11,672 | ) | (6,655,428 | ) | ||||||||
| LOSS FROM DISTCONTINUED OPERATIONS, BEFORE PROVISION FOR INCOME TAXES | (3,667,736 | ) | (3,239,297 | ) | 45,799 | (6,861,234 | ) | |||||||||
| Provision for income taxes – discontinued operations | 367 | - | 5,312 | 5,679 | ||||||||||||
| LOSS INCOME FROM DISTCONTINUED OPERATIONS | $ | (3,668,103 | ) | $ | (3,239,297 | ) | $ | 40,487 | $ | (6,866,913 | ) | |||||
The following table presents a reconciliation of Rohuma, Mimo, and TSP net cash flows from operating, investing and financing activities for the periods indicated below:
| March 31, 2022 | ||||
| Net cash (used in) provided by operating activities - discontinued operations | $ | 409,295 | ||
| Net cash (used in) provided by investing activities - discontinued operations | $ | - | ||
| Net cash provided by (used in) financing activities - discontinued operations | $ | (468,293 | ) | |
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Acquisition of Recoup Technologies, Inc.
On January 5, 2023, pursuant to an asset purchase agreement, dated December 30, 2022, we completed the acquisition of all of the Digester business assets of Recoup Technologies, Inc. (“Recoup” or the “Digester business”) for a purchase price of $18,371,421 consisting of the following:
| Type of Consideration | Number of Shares | Fair Value | ||||||||
| Cash | $ | 150,000 | ||||||||
| Issuance of common stock | a. | 15,686,926 | $ | 1,592,318 | ||||||
| Issuance of series – B preferred stock | b. | 1,250,000 | $ | 12,688,256 | ||||||
| Liabilities assumed: | ||||||||||
| Michaelson Capital Senior Note | c. | $ | 3,017,090 | |||||||
| Accounts Payable and accrued expenses | $ | 612,213 | ||||||||
| Contract liabilities | $ | 311,544 | ||||||||
| Total consideration | $ | 18,371,421 | ||||||||
| a. | This transaction was exempt from registration under Section 4(a)(2) of the Securities Act of 1933, as amended | |
| b. | This transaction was exempt from registration under Section 4(a)(2) of the Securities Act of 1933, as amended | |
| c. | Please see Note 12 – Notes Payable |
The acquisition of Recoup was accounted for as a business combination in accordance with the acquisition method under the guidance in ASC 805-10 and 805-20. Accordingly, the total purchase consideration was allocated to intangible assets acquired based on their respective estimated fair values. The acquisition method of accounting requires, among other things, that assets acquired, and liabilities assumed, if any, in a business purchase combination be recognized at their fair values as of the acquisition date. The process for estimating the fair values of identifiable intangible assets and certain tangible assets requires the use of significant estimates and assumptions, including estimating future cash flows, developing appropriate discount rates, estimating the costs, and timing.
The allocation of the purchase price in connection with the acquisition of Recoup was calculated as follows:
| Description | Fair Value | Weighted Average Useful Life (Years) | ||||||
| Fixed assets – truck | $ | 1,196 | 7 | |||||
| Inventory | 379,718 | |||||||
| Intellectual property | 10,333,144 | 10 | ||||||
| Tradenames | 285,863 | 10 | ||||||
| Noncompete agreement | 78,615 | 5 | ||||||
| Goodwill | 7,292,885 | Indefinite | ||||||
| $ | 18,371,421 | |||||||
Goodwill of $7,292,885 arising from the acquisition of Recoup consisted of new customer relationships for the Company, access to new product market opportunities, expected growth opportunities, and the residual value after all identifiable intangible assets were valued. Total acquisition costs for the acquisition of Recoup incurred were $86,116 recorded as a component of General and administrative expenses.
The approximate revenue and gross profit for the acquired business as a standalone entity per ASC 805 from January 5, 2023 to March 31, 2023 was $64,611 and $29,158, respectively.
Results of Operations
Results of Operations and Financial Condition for the Three Months Ended March 31, 2023 as Compared to the Three Months Ended March 31, 2022
Revenue
For the three months ended March 31, 2023 compared to March 31, 2022, the Company’s revenues increased by $53,209, from $522 in Q1 2022 to $65,040 in Q1 2023. The increase is the result of the acquisition of Recoup on January 5, 2023, and the resulting revenue generated by Recoup.
Cost of Revenue
For the three months ended March 31, 2023 compared to March 31, 2022, the Company’s cost of revenue increased by $25,800, or 226%, from $11,416 in Q1 2022 to $37,216 in Q1 2023. The increase is due to the increased revenue caused by the implementation of the Recoup acquisition.
Operating Expenses
For the three months ended March 31, 2023 compared to March 31, 2022, the Company’s salary and salary related costs increased by $70,514, or 71%, from $100,016 to $170,530. The increase was due to the personnel costs associated with implementation of the Recoup acquisition.
For the three months ended March 31, 2023 compared to March 31, 2022, the Company’s professional fees decreased by $56,100, or 64%, from $88,051 to $31,951. The decrease can be attributed primarily to consulting fees incurred during 2022 in preparation for the disposal of the Company’s subsidiaries and acquisition.
For the three months ended March 31, 2023 compared to March 31, 2022, the Company’s depreciation and amortization expense increased by $409,788, from $0 to $409,788. The increase was primarily the result of the acquisition of Recoup’s intangible assets and the associated amortization of the intangibles.
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For the three months ended March 31, 2023 compared to March 31, 2022, the Company’s general and administrative expenses increased by $84,933, or 311%, from $27,309 to $112,242. The increase was primarily due to increased insurance expenses and bad debt expense of $52,110.
Interest Expense
For the three months ended March 31, 2023 compared to March 31, 2022, the Company’s interest expense decreased by $307,618, or 66%, from $464,180 to $156,562. The decrease was due mainly to a decrease in debt instruments accruing interest on the Company’s Balance sheet.
Changes in Fair Value of Derivative Liabilities
For the three months ended March 31, 2023 compared to March 31, 2022, the Company’s change in the fair value of the derivative liability increased by $16,828,293, from $0 in Q1 2022 to an expense of $16,828,293 in Q1 2023 due to changes in the volatility of the Company’s share price over the period March 31, 2023 compared to March 31, 2022.
Net Loss from Continuing Operations
For the three months ended March 31, 2023 compared to March 31, 2022, the Company’s net loss from continuing operations increased by $111,173,161 from $691,060 in Q1 2022 to $111,864,221 in Q1 2023 due to the changes noted herein.
Liquidity and Capital Resources
As of March 31, 2023, current assets were $576,312 and current liabilities outstanding amounted to $117,465,564 which resulted in a working capital deficit of $116,889,252. As of December 31, 2022, current assets were $66,460 and current liabilities outstanding amounted to $1,682,659 which resulted in a working capital deficit of $1,682,659.
Net cash used in operating activities was $192,445 for the three months ended March 31, 2023 compared to $399,388 for the three months ended March 31, 2022. Cash used in operations for the three months ended March 31, 2023, was primarily due to a net loss of $111,864,221, and an increase in accounts receivable of $117,979; offset by a change in the fair value of the derivative liability and derivative expense of $111,011,754, depreciation and amortization expense of $250,994, amortization of discounts and convertible options on debt of $158,794, an increase in accounts payable, accrued expenses, and deferred taxes of $93,957, and an increase in accrued payroll and payroll taxes of $94,529.
Net cash used in operations for the three months ended March 31, 2022 was primarily due to a net loss of $917,348; offset mainly by amortization of discounts and convertible options on debt of $292,777, an increase in accounts payable, accrued expenses and deferred taxes of $84,422, stock-based compensation of $51,431, and a decrease in accounts receivable of $45,052.
Cash flows used for investing activities for the three months ended March 31, 2022, was limited to the $25,574 acquisition of fixed assets related to the Company’s Indian subsidiaries, which were disposed of in December of 2022 and are considered discontinued operations. Cash flows used in investing activities for the three months ended March 31, 2023 was limited to the cash consideration paid for the acquisition of Recoup of $150,000.
During the three months ended March 31, 2023, the cash flows from financing activities consisted of convertible note proceeds of $705,000; offset by payments on notes payable of $163,814 and payments for convertible notes of $60,480. Net cash provided by financing activities for the three months ended March 31, 2022 consisted of proceeds received from long-term debt of $344,652, and proceeds received from related party notes of $205,836. These cash flows were offset by repayments of $63,973 in related party notes and $58,615 in long-term debt during the three months ended March 31, 2022. In addition, for the three months ended March 31, 2022 there was an increase in the cash overdraft of $48,400.
The company had $986 and $7,991 of cash payments for interest expense for the three months ended March 31, 2023 and 2022, respectively. As well as $0 and $5,679 of cash payments for income taxes for the three months ended March 31, 2023 and 2022, respectively.
Off-Balance Sheet Arrangements
We have no off-balance sheet financing arrangements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
None.
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Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Based on an evaluation as of the date of the end of the period covered by this report, the Company’s Certifying Officers conducted an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as required by Exchange Act Rule 13a-15. Based on that evaluation, the Company’s Certifying Officers concluded that, because of the disclosed material weaknesses in the Company’s internal control over financial reporting, the Company’s disclosure controls and procedures were ineffective as of the end of the period covered by this report to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms.
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in the Company’s reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the Company’s reports filed under the Exchange Act is accumulated and communicated to management, including the Company’s Certifying Officers, to allow timely decisions regarding required disclosure. Based upon the evaluation of the disclosure controls and procedures at the end of the period covered by this report, our Certifying Officers concluded that our disclosure controls and procedures were not effective as a result of continuing weaknesses in our internal control over financial reporting principally due to the following:
| - | We have not established adequate financial reporting processes or monitoring activities to ensure adequate financial reporting and to mitigate the risk of management override, specifically because there are few employees and only two officers with management functions and therefore there is lack of segregation of duties. | |
| - | An outside consultant assists in the preparation of the annual and quarterly financial statements and partners with us to ensure compliance with US GAAP and SEC disclosure requirements. | |
| - | Outside counsel assists us to review and editing of the annual and quarterly filings and to ensure compliance with SEC disclosure requirements. |
Changes in Internal Control over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting that occurred during the period ended March 31, 2023 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
The term “internal control over financial reporting” is defined as a process designed by, or under the supervision of, the registrant’s principal executive and principal financial officers, or persons performing similar functions, and effected by the registrant’s 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:
| (a) | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the registrant; |
| (b) | 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 registrant are being made only in accordance with authorizations of management and directors of the registrant; and |
| (c) | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the registrant’s assets that could have a material effect on the financial statements. |
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
We are not a party to any material litigation, nor, to the knowledge of management, is any litigation threatened against us that may materially affect us.
Item 1A. Risk Factors
None.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
(a) Not applicable.
(b) During the quarter ended March 31, 2023, there have not been any material changes to the procedures by which security holders may recommend nominees to the Board of Directors.
Item 6. Exhibits
| Exhibit Number | Description of Exhibit | |
| 31.1 | Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 31.2 | Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 32.1 | Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 32.2 | Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 101.INS | Inline XBRL Instance | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition | |
| 101.LAB | Inline XBRL Taxonomy Extension Labels | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| TraQiQ, Inc. | ||
| Date: May 18, 2023 | By: | /s/ Ajay Sikka |
| Ajay Sikka | ||
| Chief Executive Officer (principal executive officer) | ||
| Date: May 18, 2023 | By: | /s/ Ajay Sikka |
Ajay Sikka | ||
| Chief Financial Officer (principal financial and accounting officer) | ||
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