Titan Environmental Solutions Inc 10-K for FY2019
Titan Environmental Solutions Inc. (TESI)
About this 10-K
Titan Environmental Solutions Inc filed this 10-K on June 1, 2020, covering the fiscal year ended December 31, 2019 (FY2019).
Headline figures
Fiscal year ended December 31, 2019, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $680.73K
- up 275.4% from $181.32K a year earlier
- Net loss
- $223.21K
- compared with a net loss of $397.86K a year earlier
- Diluted EPS
- -$0.01
- compared with -$0.01 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
| [X] | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2019
| [ ] | 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 000-56148
TraqIQ Inc.
(Exact name of registrant as specified in its charter)
| California | 30-0580318 | |
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) |
14205 SE 36th Street, Suite 100
Bellevue, WA 98006
(Address of principal executive offices)
Registrant’s telephone number, including area code: (425) 818-0560
Securities registered pursuant to Section 12(b) of the Act: None
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 [X] 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 [X] 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. [X] Yes [ ] No
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 [X] No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non- accelerated filer, or a smaller reporting company. See 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 [ ] |
| Non-accelerated filer [ ] | Smaller reporting company [X] |
| Emerging growth company [X] |
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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s Knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K/A. [X] Yes [ ] No
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [ ] Yes [X] No
Securities registered pursuant to Section 12(b) of the Act: None.
| Title of Each Class | Trading Symbol | Name of Each Exchange on which registered | ||
The number of shares of the Registrant’s common stock, $0.0001 par value per share, outstanding as of May 30, 2020, was 27,297,960.
| Documents incorporated by reference: | None |
EXPLANATORY NOTE
TraqIQ, Inc. (the “Company is filing the Form 10-K after the March 30, 2020 deadline applicable to the Company for the filing of a Form 10-K in reliance on the 45-day extension provided by an order issued by the U.S. Securities and Exchange Commission (the “SEC”) under Section 36 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), dated March 4, 2020 (Release No. 34-88318), as modified and superseded by a new SEC order issued on March 25, 2020 (Release No. 34-88465) (collectively, the “Order”).
On March 27, 2020, the Company filed a Current Report on Form 8-K/A (the “Form 8-K”) to indicate its intention to rely on the Order for such extension. The State of Washington, where the Company has its base operations and in India where the Company’s largest subsidiary is located, as well as certain of its vendors, was one of the epicenters for the coronavirus pandemic (“COVID-19”). The Company has closed its offices and requested that all employees work remotely until further notice. Employees affected include certain of its key personnel responsible for assisting the Company in the preparation of its financial statements. In view of these ongoing circumstances, the Company was unable to timely provide to its auditors and accountants the financial records to provide consent, which resulted in the Company being unable to timely file an accurate Annual Report on Form 10-K for its year ended December 31, 2019 by the prescribed date without undue hardship and expense to the Company. Consistent with the Company’s statements made in the Form 8-K, the Company was unable to file the Form 10-K until May 30, 2020, and therefore relied on the Order due to circumstances related to COVID-19.
TABLE OF CONTENTS
GENERAL INFORMATION
FORWARD-LOOKING STATEMENTS
Certain statements discussed in Item 1 (Business), Item 1A (Risk Factors), Item 3 (Legal Proceedings), Item 7 (Management’s Discussion and Analysis of Financial Condition and Results of Operations), and elsewhere in this Annual Report on Form 10-K as well as in other materials and oral statements that the Company releases from time to time to the public constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements concerning management’s expectations, strategic objectives, business prospects, anticipated economic performance and financial condition and other similar matters involve significant known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements of results to differ materially from any future results, performance or achievements discussed or implied by such forward-looking statements. Such risks, uncertainties and other important factors are discussed in Item 1A (Risk Factors) and Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations. In addition, these statements constitute the Company’s cautionary statements under the Private Securities Litigation Reform Act of 1995. It should be understood that it is not possible to predict or identify all such factors.
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 annual report on Form 10-K.
When considering these forward-looking statements, you should keep in mind the cautionary statements in this annual report on Form 10-K and in our other filings with the SEC. We cannot assure you that the forward-looking statements in this annual report on Form 10-K 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.
Emerging Growth Company Status
We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act enacted in April 2012, and, for as long as we continue to be an “emerging growth company,” we may choose to take advantage of exemptions from various reporting requirements applicable to other public companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We will remain an “emerging growth company” until the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1 billion or more; (ii) the last day of the fiscal year following the fifth anniversary of the date of the first sale of our common equity securities pursuant to an effective registration statement; (iii) the date on which we have issued more than $1 billion in non-convertible debt during the prior three year period; and (iv) the date on which we are deemed to be a “large accelerated filer.” We may take advantage of the extended transition period until the first to occur of the date we (i) are no longer an “emerging growth company” or (ii) affirmatively and irrevocably opt out of the extended transition period. Consequently, our financial statements may not be comparable to companies that comply with public company effective dates.
Overview
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 OmniM2M and Ci2i agreed to exchange all of their respective shares, representing 100% ownership in OmniM2M and Ci2i in exchange for 12,000,000 shares of the Company’s common stock, respectively. The OmniM2M Shareholders and the Ci2i Shareholders have each been issued their respective 12,000,000 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. Accordingly, the consolidated financial statements included the accounts of Ci2i for all periods presented and the accounts of TraqIQ, Inc. and OmniM2M, which was acquired by the Company on July 19, 2017 since the date of acquisition. For accounting purposes, the acquisition of OmniM2M 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 OmniM2M control the activities of the respective companies. Prior to the merger with Ci2i and acquisition of OmniM2M, the Company was considered a shell company under Rule 12b-2 of the Securities Exchange Act of 1934, as amended (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 $18,109, 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.
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 1,329,272 shares of common stock of the Company valued at $268. The warrants will be exercisable as follows: (i) 100,771 warrants immediately; (ii) 859,951 warrants exercisable one-year after the date of closing; and (iii) 368,550 warrants exercisable two-years after the date of closing. This transaction is being recorded as a business combination under ASC 805.
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OmniM2M, Inc.
The Industrial Internet of Things (“IIoT”) is about the transformation of any physical object into a digital data solution. Once you attach a sensor to it, a physical object (whether a tiny one like a pill that goes through your body, or a very large one like a plane or building) starts functioning a lot like any other digital solution – it emits data about its usage, location and state; it can be tracked, controlled, personalized and upgraded remotely; and, when coupled with all the progress in Big Data and artificial intelligence, the digital solution can become intelligent, predictive, collaborative and in some cases semi-autonomous.
According to Gartner Group, there will be over 21 billion “things” connected to the internet by 2020, or in other words, 3 things per each human being on earth. The Gartner Group reported that the market size for services is expected to be $235 billion in 2016, with the majority coming from business services. Wintergreen Research (2016) more conservatively estimates the commercial IIoT market at $16.3B in 2016 and reaching $185.9B by 2023.
OmniM2M is focused on the IIoT, thereby helping commercial customers increase their return on investment in their facilities. Applications such as video surveillance, smart meters, digital health monitors and a host of other services are creating new requirements and opportunities for new IIoT devices and solutions.
OmniM2M historically has provided bundled solutions of hardware, software, connectivity, applications and analytics to address targeted problems in refrigeration, pest control and tank monitoring. OmniM2M’s unique solutions can be deployed rapidly and provides considerable Return on Investment (ROI) benefits immediately by saving up to 25% of an employee’s time or meeting of corporate compliance goals). OmniM2M has deployed solutions that are currently being used by several customers with positive results. Over the past two years, OmniM2M has been primarily billing the software component. They provide the solution that at times may require minor purchases of hardware to complete the service.
Historically, OmniM2M has performed the services (“solutions”) in the following industries: Refrigeration, Pest Control, and Tank Monitoring. As noted, in the past few years, a majority of the OmniM2M services have occurred in the refrigeration sector. A majority of these services were software related.
OmniM2M Refrigeration Solution
The OmniM2M Refrigeration Solution includes a piece of hardware (the size is about that of a smart phone) that is deployed in the refrigeration units. It has a cellular connection to the OmniM2M software in the cloud. The solution tracks the temperature and alerts the user via email and/or text if there is a change in the temperature. When the health inspector performs its assessment, the customer can simply print or email the data using the OmniM2M reporting feature solution. In addition to monitoring food, the OmniM2M solutions can potentially prevent food poisoning outbreaks by safely monitoring food and equipment to their optimum temperatures.
Customer Pain Points
The typical refrigeration customer (restaurant/meat distributor/catering) frequently has issues with its equipment breaking down, meeting compliance requirements and ensuring product freshness. Aging equipment typically results in significant financial losses when the asset fails. The typical restaurant has a regulatory requirement to log the temperature in its refrigeration units four (4) times per day. This data is compiled manually by employees who check each unit and log the temperature. Since it’s a manual process, there is generally no monitoring performed outside of business hours. Assets tend to fail outside of normal hours when employees are not on location and the issue or failure is not detected.
The Solution
The OmniM2M Refrigeration Solution includes a piece of hardware (the size is about that of a smart phone) that is deployed in the refrigeration units. It has a cellular connection to the OmniM2M software in the cloud. The solution tracks the temperature and alerts the user via email and/or text if there is a change in the temperature. When the health inspector performs its assessment, the customer can simply print or email the data using the OmniM2M reporting feature solution. In addition to monitoring food, the OmniM2M solutions can potentially prevent food poisoning outbreaks by safely monitoring food and equipment to their optimum temperatures.
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OmniM2M Pest Control Solution
By installing a small sensor on the pest trap, the OmniM2M Pest Control Solution notifies a control technician when a pest has been caught in a trap. This notification enables the user to check the trap when it has caught the targeted vermin. Our OmniM2M Pest Control Solution also complies with state and federal laws by sending daily status reports of the active traps.
This solution results in a saving of up to 2 hours of employee time per day and reduces driving time on average, by approximately 50 miles per day.
OmniM2M Tank Monitoring Solution
By installing a small sensor in any large tank (that holds liquids), the OmniM2M Tank Monitoring Solution notifies the user electronically when the tank needs to be refilled. This solution saves considerable expense of unplanned truck rolls for refilling the tanks.
By installing a small sensor in any large tank (that holds liquids), the OmniM2M system notifies the user electronically when the tank needs to be refilled. This solution saves considerable expense of unplanned truck rolls for refilling the tanks.
TraqIQ Solutions, Inc.
Ci2i was formed about over 15 years ago and has most recently been providing IT consulting solutions, predominantly in the business intelligence and data analytics arenas. The Company has been a vendor to Microsoft for over 10 years and has done work with many Microsoft product and business groups, including Microsoft Azure and Microsoft Media planning. Ci2i has worked closely with customers where a wide variety of analytics solutions were built.
Ci2i’s cloud solutions and analytics services comprise software development, program management, project management, and business analytics services.
The Competitive Environment
The IIoT marketplace is very fragmented marketplace comprised of a few dozen Fortune 50 companies offering development platforms and networking infrastructure; about 100 Fortune 1000 companies offering a range of products, services and solutions across multiple industry segments; and at least 100 smaller start-up companies and publicly traded companies that offer a small number of products, services and solutions in targeted industry segments.
We believe that OmniM2M will succeed by focusing on a small number of industry segments – such as Transportation, Energy (Oil & Gas), and Resource Management – and by offering data analytics and systems integration services that complement the sale of IIoT devices to enterprise customers.
TransportIQ, Inc. (“TransportIQ”)
TransportIQ was formed in the State of Nevada on September 8, 2017. The logistics and transportation industry worldwide is highly competitive, and is serviced by a wide range of industry players – from large multinational logistics companies scheduling millions of shipments internationally to smaller private companies that deliver thousands of shipments to individual businesses and consumers. Spending in the U.S. logistics and transportation industry alone totaled $1.48 trillion in 2015 and represented about 8 percent of annual gross domestic product (GDP).
TransportIQ, is long haul trucking carrier business that comprises contract drivers and owner operators. TransportIQ’s customers include leading third-party logistics and supply chain management providers such as C.H. Robinson.
TransportIQ launched its business with owner operators and has begun to hire drivers, thereby improving gross profits and service reliability. It plans to grow its operations by incrementally adding new third-party logistics and supply chain management customers, owner operators, and contract drivers.
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TransportIQ plans to differentiate itself from traditional carriers through the adoption of new technologies that can help TransportIQ create competitive advantages in the transportation industry, including:
| ● | Industrial Internet of Things (IIoT) tracking devices | |
| ● | Data Analytics software that can help dispatchers improve efficiency and profitability | |
| ● | Blockchain transaction software to improve efficiencies with third party logistics companies |
TRAQIQ Solutions Private Ltd.
Pursuant to the Share Exchange Agreement with TRAQ Pvt Ltd., the Company acquired 100% of the shares of TRAQ Pvt Ltd. and assumed certain net liabilities in exchange for warrants exercisable over a five-years to purchase 1,329,272 shares of common stock of the Company valued at $268. The warrants will be exercisable as follows: (i) 100,771 warrants immediately upon closing; (ii) 859,951 warrants exercisable one-year after the date of closing; and (iii) 368,550 warrants exercisable two-years after the date of closing. This transaction is being recorded as a business combination under ASC 805.
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.
TRAQ Pvt Ltd. was established in May 2000 and is headquartered in New Delhi, India. TRAQ Pvt Ltd. is a leading software development company with which 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.
Risk Factors Related to Our Business
An investment in our securities involves a high degree of risk. You should not invest in our securities if you cannot afford to lose your entire investment. In deciding whether you should invest in our securities, you should carefully consider the following information together with all of the other information contained in this Current Report. Any of the following risk factors can cause our business, prospects, financial condition or results of operations to suffer and you to lose all or part of your investment.
General Risks Relating to Our Business, Operations of Financial Condition
We have a limited operating history and are subject to the risks encountered by early-stage companies.
Because our operating company has a limited operating history, you should consider and evaluate our operating prospects in light of the risks and uncertainties frequently encountered by early-stage companies in rapidly evolving markets. For us, these risks include:
● risks that we may not have sufficient capital to achieve our growth strategy;
● risks that we may not develop our product and service offerings in a manner that enables us to be profitable and meet our customers’ requirements;
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● risks that our growth strategy may not be successful; and
● risks that fluctuations in our operating results will be significant relative to our revenues.
These risks are described in more detail below. Our future growth will depend substantially on our ability to address these and the other risks described in this section. If we do not successfully address these risks, our business would be significantly harmed.
Our operating losses and working capital deficiency raise substantial doubt about our ability to continue as a going concern. If we do not continue as a going concern, investors could lose their entire investment.
Our operating losses and working capital deficiency raise substantial doubt about our ability to continue as a going concern. If we do not generate revenues, do not achieve profitability and do not have other sources of financing for our business, we may have to curtail or cease our development plans and operations, which could cause investors to lose the entire amount of their investment.
If we are unable to manage our anticipated post-Share Exchange Agreement growth effectively, our business could be adversely affected.
We anticipate that a significant expansion of our operations and addition of operating subsidiaries, including one in the United States, and new personnel will be required in all areas of our operations in order to implement our post-Share Exchange business plan. Our future operating results depend to a large extent on our ability to manage this expansion and growth successfully. For us to continue to manage such growth, we must put in place legal and accounting systems, and implement human resource management and other tools. We have taken preliminary steps to put this structure in place. However, there is no assurance that we will be able to successfully manage this anticipated rapid growth. A failure to manage our growth effectively could materially and adversely affect our ability to market our crowd funding platform in multiple venues.
Increasing competition within our emerging industry could have an impact on our business prospects.
The IIoT market is an emerging industry where new competitors are entering the market frequently. These competing companies may have significantly greater financial and other resources than we have and may have been developing their products and services longer than we have been developing ours. Although we anticipate that our portfolio of products and related revenue stream sources are broad, increasing competition may have a negative impact on our profit margins.
Our business is subject to risks generally associated with fluctuating economic tendencies in the capital markets.
The demand for our products can change over time due to fluctuations in the global and local economies and in the related capital requirements of small and medium-sized enterprises. These fluctuations could negatively impact our future revenue streams.
We may not be able to adequately protect our proprietary technology, and our competitors may be able to offer similar products and services, which would harm our competitive position.
Our success depends in part upon our proprietary technology. We rely primarily on trademark, copyright, service mark and trade secret laws, confidentiality procedures, license agreements and contractual provisions to establish and protect our proprietary rights. Despite these precautions, third parties could copy or otherwise obtain and use our technology without authorization or develop similar technology independently. We also pursue the registration of our domain names, trademarks, and service marks in the United States. We cannot assure you that the protection of our proprietary rights will be adequate or that our competitors will not independently develop similar technology, duplicate our products and services or design around any intellectual property rights we hold.
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If third parties claim that we infringe their intellectual property, it may result in costly litigation.
We cannot assure you that third parties will not claim our current or future products infringe their intellectual property rights. Any such claims, with or without merit, could cause costly litigation that could consume significant management time. As the number of product and services offerings in the crowd funding market increases and functionalities increasingly overlap, companies such as ours may become increasingly subject to infringement claims. Such claims also might require us to enter into royalty or license agreements. If required, we may not be able to obtain such royalty or license agreements or obtain them on terms acceptable to us.
We may need additional financing. Any limitation on our ability to obtain such additional financing could have a material adverse effect on our business, financial condition and results of operations.
Although we expect that the proceeds from the offering we completed will be sufficient to implement our business plan, there can be no assurance that we will not require additional capital. The raising of additional capital could result in dilution to our stockholders. In addition, there is no assurance that we will be able to obtain additional capital if we need it, or that if available, it will be available to us on favorable or reasonable terms. Any limitation on our ability to obtain additional capital as and when needed could have a material adverse effect on our business, financial condition and results of operations.
If we fail to maintain proper and effective internal controls, our ability to produce accurate and timely financial statements could be impaired, which could harm our operating results, our ability to operate our business and investors’ views of us.
Ensuring that we have adequate internal financial and accounting controls and procedures in place so that we can produce accurate financial statements on a timely basis is a costly and time-consuming effort that will need to be evaluated frequently. Section 404 of the Sarbanes-Oxley Act requires public companies to conduct an annual review and evaluation of their internal controls. Our failure to maintain the effectiveness of our internal controls in accordance with the requirements of the Sarbanes-Oxley Act could have a material adverse effect on our business. We could lose investor confidence in the accuracy and completeness of our financial reports, which could have an adverse effect on the price of our common stock. In addition, if our efforts to comply with new or changed laws, regulations, and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice, regulatory authorities may initiate legal proceedings against us and our business may be harmed.
Risks Relating to our Securities
There is not now, and there may not ever be, an active market for the Company’s Common Stock.
There currently is no public market for our Common Stock. Further, our Common Stock is not currently quoted on the OTC Markets (the “OTC Markets”) and trading of our Common Stock has not yet commenced. If and when our stock does begin to trade, such trading may be extremely sporadic. For example, several days may pass before any shares may be traded. As a result, an investor may find it difficult to dispose of, or to obtain accurate quotations of the price of, our Common Stock. Accordingly, investors must assume they may have to bear the economic risk of an investment in our Common Stock for an indefinite period of time. There can be no assurance that a more active market for the Common Stock will develop, or if one should develop, there is no assurance that it will be sustained. This severely limits the liquidity of our Common Stock and would likely have a material adverse effect on the market price of our Common Stock and on our ability to raise additional capital. A market maker has submitted an application to have our common stock quoted on the OTC Markets and we have responded to comments from FINRA and are awaiting any final comments or FINRA’s approval.
We cannot assure you that the Common Stock will become liquid or that it will be listed on a securities exchange.
Until our Common Stock is listed on a national securities exchange such as the New York Stock Exchange or the Nasdaq Stock Market, if ever, we expect our Common Stock to remain eligible for quotation on the OTC Markets. In that venue, however, an investor may find it difficult to obtain accurate quotations as to the market value of our Common Stock. In addition, if we fail to meet the criteria set forth in SEC regulations, various requirements would be imposed by law on broker-dealers who sell our securities to persons other than established customers and accredited investors. Consequently, such regulations may deter broker-dealers from recommending or selling our Common Stock, which may further affect the liquidity of the Common Stock. This would also make it more difficult for us to raise capital.
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Our Common Stock is subject to the “penny stock” rules of the SEC and the trading market in the securities is limited, which makes transactions in the stock cumbersome and may reduce the value of an investment in the stock.
The SEC has adopted Rule 15g-9 which establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require:
| ● | that a broker or dealer approve a person’s account for transactions in penny stocks; and |
| ● | the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased. |
In order to approve a person’s account for transactions in penny stocks, the broker or dealer must:
| ● | Obtain financial information and investment experience objectives of the person; and |
| ● | make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks. |
The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form sets forth:
| ● | the basis on which the broker or dealer made the suitability determination; and |
| ● | that the broker or dealer received a signed, written agreement from the investor prior to the transaction. |
Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of common stock and cause a decline in the market value of stock.
Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.
The price of our Common Stock may become volatile, which could lead to losses by investors and costly securities litigation.
The trading price of our Common Stock is likely to be highly volatile and could fluctuate in response to factors such as:
● actual or anticipated variations in our operating results;
● announcements of developments by us or our competitors;
● announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments;
● adoption of new accounting standards affecting our Company’s industry;
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● additions or departures of key personnel;
● sales of our Common Stock or other securities in the open market; and
● other events or factors, many of which are beyond our control.
The stock market is subject to significant price and volume fluctuations. In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been initiated against the company. Litigation initiated against us, whether or not successful, could result in substantial costs and diversion of our management’s attention and resources, which could harm our business and financial condition.
We do not anticipate dividends to be paid on our Common Stock, and investors may lose the entire amount of their investment.
Cash dividends have never been declared or paid on the Common Stock, and we do not anticipate such a declaration or payment for the foreseeable future. We expect to use future earnings, if any, to fund business growth. Therefore, stockholders will not receive any funds absent a sale of their shares. We cannot assure stockholders of a positive return on their investment when they sell their shares, nor can we assure that stockholders will not lose the entire amount of their investment.
If securities analysts do not initiate coverage or continue to cover our Common Stock or publish unfavorable research or reports about our business, this may have a negative impact on the market price of our common stock.
The trading market for the Common Stock will depend on the research and reports that securities analysts publish about our business and the Company. We do not have any control over these analysts. There is no guarantee that securities analysts will cover the Common Stock. If securities analysts do not cover the Common Stock, the lack of research coverage may adversely affect its market price. If we are covered by securities analysts, and our stock is the subject of an unfavorable report, our stock price and trading volume would likely decline. If one or more of these analysts ceases to cover the Company or fails to publish regular reports on the Company, we could lose visibility in the financial markets, which could cause our stock price or trading volume to decline.
You may experience dilution of your ownership interests because of the future issuance of additional shares of the Common Stock.
In the future, we may issue our authorized but previously unissued equity securities, resulting in the dilution of the ownership interests of our present stockholders and the purchasers of Common Stock offered hereby. We are currently authorized to issue an aggregate of 310,000,000 shares of capital stock consisting of 300,000,000 shares of Common Stock, par value $0.0001, and 10,000,000 shares of preferred stock, par value $0.0001, with preferences and rights to be determined by our Board of Directors. We authorized 50,000 shares of our Preferred Stock as Series A and 50,000 shares are issued and outstanding. As of the date of this Report, there are 27,297,960 shares of our Common Stock issued and outstanding and 50,000 shares of our Series A Preferred Stock issued and outstanding. We may also issue additional shares of our Common Stock or other securities that are convertible into or exercisable for our Common Stock in connection with hiring or retaining employees, future acquisitions, future sales of its securities for capital raising purposes, or for other business purposes. The future issuance of any such additional shares of our Common Stock may create downward pressure on the trading price of the Common Stock. There can be no assurance that we will not be required to issue additional shares, warrants or other convertible securities in the future in conjunction with any capital raising efforts, including at a price (or exercise prices) below the price at which shares of the Common Stock will be initially quoted on the OTC Markets.
Pandemics including COVID-19 may adversely affect our business.
The recent unprecedented events related to COVID-19, the disease caused by the novel coronavirus (SARS-CoV-2), have had significant health, economic, and market impacts and may have short-term and long-term adverse effects on our business that we cannot predict as the global pandemic continues to evolve. The extent and effectiveness of responses by governments and other organizations also cannot be predicted.
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Our ability to access the capital markets and maintain existing operations is unknown during the COVID-19 pandemic. Any such limitation on available financing and how we conduct business with our customers and vendors would adversely affect our business.
Item 1B. Unresolved Staff Comments
None.
We do not own any property. As of the date of this annual report, our main corporate mailing address is 14205 S.E. 36th St., Suite 100, Bellevue, WA 98006. We will consider leasing additional office space after our public listing is completed.
Our subsidiary, TRAQ Pvt Ltd. also leases two spaces in India that expires through October 2027.
From time to time the Company is a party to various legal or administrative proceedings arising in the ordinary course of our business. While any litigation contains an element of uncertainty, we have no reason to believe that the outcome of such proceedings will have a material adverse effect on the financial condition or results of operations of the Company.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
There is no active market for our common stock.
Holders of our Common Stock
As of May 30, 2020, there were approximately 52 stockholders of record of our common stock. This number does not include shares held by brokerage clearing houses, depositories or others in unregistered form. The stock transfer agent for our securities is Equity Stock Transfer.
Dividends
The Company has never declared or paid any cash dividends on its common stock. The Company currently intends to retain future earnings, if any, to finance the expansion of its business. As a result, the Company does not anticipate paying any cash dividends in the foreseeable future.
Securities Authorized for Issuance Under Equity Compensation Plans
None.
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Unregistered Sales of Equity Securities
On July 19, 2017, the Company approved the issuance of 50,000 shares of its Series A Convertible Preferred Stock to its CEO and, on August 1 2017, the Company sold and issued the 50,000 shares of its Series A Convertible Preferred Stock to its CEO at a price of $0.20 per share for $10,000.
On July 19, 2017, the Company issued 3,000,000 shares of common stock to the former shareholders of Ci2i pursuant to the Share Exchange Agreement. The acquisition of Ci2i was considered a reverse merger with Ci2i the accounting acquiror.
In addition, on July 19, 2017, the Company acquired OmniM2M. For accounting purposes, the acquisition of OmniM2M is recorded at historical cost in accordance with ASC 805-50-25-2 as this is considered an acquisition of entities under common control as the management of the Company and OmniM2M control the activities of the respective companies. The Company issued 3,000,000 shares to the former shareholders of OmniM2M in this acquisition.
All the offers and sales of securities listed above were made to accredited investors. The issuance of the above securities is exempt from the registration requirements under Rule 4(2) of the Securities Act of 1933, as amended, and/or Rule 506 as promulgated under Regulation D.
Item 6. Selected Financial Data.
As a smaller reporting company, the Company is not required to file selected financial data.
Item 7. 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 financial statements, which we have prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these 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 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.
Overview
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 OmniM2M and Ci2i agreed to exchange all of their respective shares, representing 100% ownership in OmniM2M and Ci2i in exchange for 12,000,000 shares of the Company’s common stock, respectively. The OmniM2M Shareholders and the Ci2i Shareholders have each been issued their respective 12,000,000 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. Accordingly, the consolidated financial statements included the accounts of Ci2i for all periods presented and the accounts of TraqIQ, Inc. and OmniM2M, which was acquired by the Company on July 19, 2017 since the date of acquisition. For accounting purposes, the acquisition of OmniM2M 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 OmniM2M control the activities of the respective companies. Prior to the merger with Ci2i and acquisition of OmniM2M, the Company was considered a shell company under Rule 12b-2 of the Securities Exchange Act of 1934, as amended (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 $18,109, 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.
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Ci2i is an innovative and growth-oriented services company founded in 1998 that develops and deploys intelligent technologies and products in order to meet the demand for sustainable, integrated solutions to contemporary business needs. Ci2i is a consulting services company that provides marketing and technical services to its clients. These services are delivered both on a Project and a Time & Materials basis. The primary focus has been in the Analytics and Intelligence segments. The Company typically does not own any IP, as all the work is done on behalf of the clients.
OmniM2M was formed in 2014 and is an innovative and growth-oriented company that develops and deploys “Internet of Things” (IoT) and “Mobile to Mobile” (M2M) products in order to meet the demand for sustainable, integrated solutions to contemporary business needs.
TransportIQ was formed in the State of Nevada on September 8, 2017. TransportIQ is long haul trucking carrier business that comprises contract drivers and owner operators. TransportIQ’s customers include leading third-party logistics and supply chain management providers such as C.H. Robinson. TransportIQ plans to differentiate itself from traditional carriers through the adoption of new technologies that can help TransportIQ create competitive advantages in the transportation industry, including:
| ● | Industrial Internet of Things (IIoT) tracking devices | |
| ● | Data Analytics software that can help dispatchers improve efficiency and profitability | |
| ● | Blockchain transaction software to improve efficiencies with third party logistics companies |
On May 16, 2019, the Company entered into a Share Exchange Agreement with TRAQIQ Solutions Private Limited. Pursuant to the Share Exchange Agreement with TRAQ Pvt Ltd., the Company acquired 100% of the shares of TRAQ Pvt Ltd. and assumed certain net liabilities in exchange for warrants exercisable over a five-years to purchase 1,329,272 shares of common stock of the Company valued at $268. The warrants will be exercisable as follows: (i) 100,771 warrants immediately upon closing; (ii) 859,951 warrants exercisable one-year after the date of closing; and (iii) 368,550 warrants exercisable two-years after the date of closing. This transaction is being recorded as a business combination under ASC 805.
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.
TraqIQ, Inc. (along with its wholly owned subsidiaries, referred to herein as the “Company”) was incorporated in the
Going Concern
The Company has an accumulated deficit of $1,896,984 and a working capital deficit of $2,697,036 as of December 31, 2019 compared to a working capital deficit of $1,658,685 as of December 31, 2018. The Company’s continuation as a going concern is dependent on its ability to generate sufficient cash flows from operations to meet its obligations, which it has not been able to accomplish to date, and/or obtain additional financing from its stockholders and/or other third parties.
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Our consolidated financial statements have been prepared on a going concern basis, which implies the Company will continue to meet its obligations and continue its operations for the next fiscal year. The continuation of the Company as a going concern is dependent upon the ability of the Company to obtain necessary equity or debt financing to continue operations, successfully locating and negotiating with other business entities for potential acquisition and /or acquiring new clients to generate revenues.
In May 2019, the Company acquired 100% of the shares of TRAQ Pvt Ltd. and assumed certain net liabilities in exchange for warrants exercisable over a five-years to purchase 1,329,272 shares of common stock of the Company valued at $268. This acquisition will assist the Company in operations and cash flow.
In order to further implement its business plan and satisfy its working capital requirements, the Company will need to raise additional capital. There is no guarantee that the Company will be able to raise additional equity or debt financing at acceptable terms, if at all.
There is no assurance that the Company will ever be profitable. These consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should the Company be unable to continue as a going concern.
Critical Accounting Policies and Estimates
Our significant accounting policies are more fully described in the notes to our consolidated financial statements. Those material accounting estimates that we believe are the most critical to an investor’s understanding of our financial results and condition are discussed immediately below and are particularly important to the portrayal of our financial position and results of operations and require the application of significant judgment by our management to determine the appropriate assumptions to be used in the determination of certain estimates.
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.
Capitalized Software Costs
In accordance with the relevant FASB accounting guidance regarding the development of software to be sold, leased, or marketed, the Company expenses such costs as they are incurred until technological feasibility has been established, at and after which time these costs are capitalized until the product is available for general release to customers. Once the technological feasibility is established per ASC 985-20, the Company capitalizes costs associated with the acquisition or development of major software for internal and external use in the balance sheet. Costs incurred to enhance the Company’s software products, after general market release of the services using the products, is expensed in the period they are incurred. The Company only capitalizes subsequent additions, modifications or upgrades to internally developed software to the extent that such changes allow the software to perform a task it previously did not perform. The Company expenses software maintenance and training costs as incurred.
Revenue Recognition
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), specifically ASC 606-10-50-12. This standard provides a single set of guidelines for revenue recognition to be used across all industries and requires additional disclosures. The updated guidance introduces a five-step model to achieve its core principal of the entity recognizing revenue to depict the transfer of goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company adopted the updated guidance effective January 1, 2018 using the full retrospective method, however the new standard did not have a material impact on its consolidated financial position and consolidated results of operations, as it did not change the manner or timing of recognizing revenue.
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Trucking Revenue
The Company’s contracts with customers are generally on a purchase order basis and represent a single stand-alone performance obligation to transport property on behalf of a customer at a pre-determined rate. The performance obligation is satisfied at the point in time in which the delivery of property is complete and the Company generally collect payment within 30 days of delivery. Accordingly, revenue for each contract is recognized when the Company’s performance obligation is complete. There are no agency relationships in any if the services related to the trucking sector.
Professional Service Revenue
TRAQ Pvt Ltd. generally derives its revenues from professional and support services, which includes revenue generated from software development projects and associated fees for consulting, implementation, training, and project management provided to customers using their systems. Revenue from arrangements with customers is recognized based on the Company’s satisfaction of distinct performance obligations identified in each agreement, generally at a point in time as discussed in ASC 606. In instances where multiple performance obligations are identified, the Company allocates the transaction price to each performance obligation based on relative selling prices of each distinct product or service, and recognizes revenue related to each performance obligation at the points in time that each performance obligation is satisfied. The Company’s performance obligation includes providing customization of software’s, selling of licenses, where the Company typically satisfies its performance obligations prior to the submission of invoices to the customer for such services. The Company’s performance obligation for consulting and technical support is delivered on as the work is being performed, which is satisfied prior to invoicing. The Company generally collects payment within 30 to 60 days of completion of the performance obligation and there are no agency relationships.
Software development arrangements involving significant customization, modification or production are accounted for in accordance with the appropriate technical accounting guidance issued by the FASB using the percentage-of- completion method. The Company recognizes revenue using periodic reported actual hours worked as a percentage of total expected hours required to complete the project arrangement and applies the percentage to the total arrangement fee.
Unbilled revenue represents earnings in excess of billings as at the end of the reporting period. Sales taxes collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore are excluded from revenues in the statements of operations.
TRAQ Pvt Ltd. has deferred the revenue and costs attributable to certain process transition activities with respect to its customers where such activities do not represent the culmination of a separate earnings process. Such revenue and costs are subsequently recognized ratably over the period in which the related services are performed. Further, the deferred costs are limited to the amount of the deferred revenues.
Software Solution Revenue
Revenue from arrangements with customers is recognized based on the Company’s satisfaction of distinct performance obligations identified in each agreement, generally at a point in time as discussed in ASC 606. In instances where multiple performance obligations are identified, the Company allocates the transaction price to each performance obligation based on relative selling prices of each distinct product or service, and recognizes revenue related to each performance obligation at the points in time that each performance obligation is satisfied. The Company’s performance obligation includes providing connectivity to software, generally through a monthly subscription, where the Company typically satisfies its performance obligations prior to the submission of invoices to the customer for such services. The Company’s performance obligation for hardware components that are purchased by the customer in connection with the solution is delivery of the purchased device, which is satisfied prior to invoicing. The Company provides a twelve-month warranty on their hardware. All units deployed by the Company are past the twelve-month period, thus the Company has not accrued for a warranty liability. The Company generally collects payment within 30 to 60 days of completion of the performance obligation and there are no agency relationships.
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Costs of Services Provided
Costs of services provided consist of data processing costs, customer support costs including personnel costs to maintain the Company’s proprietary databases, costs to provide customer call center support, hardware and software expense associated with transaction processing systems and exchanges, telecommunication and computer network expense, and occupancy costs associated with facilities where these functions are performed. Depreciation expense is not included in costs of services provided.
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 other than TRAQ Pvt Ltd. whose functional currency is 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).
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.
The Company files income tax returns in the U.S. federal tax jurisdiction and various state tax jurisdictions. The 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.
Fair Value of Financial Instruments
ASC 825, “Financial Instruments,” requires the Company to disclose estimated fair values for its financial instruments. Fair value estimates, methods, and assumptions are set forth below for the Company’s financial instruments: The carrying amount of cash, accounts receivable, prepaid and other current assets, accounts payable and accrued expenses, stockholder advances, and short term financing approximate fair value because of the short-term maturity of those instruments. The Company does not utilize derivative instruments.
Earnings (Loss) Per Share of Common Stock
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. An uncertain number of shares underlying convertible debt have been excluded from the computation of loss per share because their impact was anti-dilutive.
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.
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Recently Issued Accounting Standards
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses. The standard requires a financial asset (including trade receivables) measured at amortized cost basis to be presented at the net amount expected to be collected. Thus, the income statement will reflect the measurement of credit losses for newly-recognized financial assets as well as the expected increases or decreases of expected credit losses that have taken place during the period. This standard will be effective for the calendar year ending December 31, 2020. The Company is currently in the process of evaluating the impact of adoption of this ASU on the financial statements.
There were other 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.
Results of Operations and Financial Condition for the Year Ended December 31, 2019 as Compared to the Year Ended December 31, 2018
Revenues
For the year ended December 31, 2019 compared to December 31, 2018, the Company’s revenues increased by $499,414, or 275%, from $181,318 in 2018 to $680,732 in 2019 due to the Company’s lack of trucking revenue being generated in TransportIQ offset by the revenues generated in TRAQ Pvt Ltd. post-acquisition in May 2019. The Company will continue to focus move towards an analytics model (solutions revenue) which is expected to bring in more revenue and higher profitability.
Cost of Sales
For the year ended December 31, 2019 compared to December 31, 2018, the Company’s cost of revenues increased by $252,277, or 141%, from $179,086 in 2018 to $431,363 in 2019 due to the Company’s lack of support services being incurred to accommodate the trucking services in TransportIQ offset by the cost of revenues generated in TRAQ Pvt Ltd. post-acquisition in May 2019. The Company will continue to move towards an analytics model which is expected to bring in more revenue and higher profitability.
Operating Expenses
For the year ended December 31, 2019 compared to December 31, 2018, the Company’s salary and salary related costs increased by $95,946, or 514%, from $18,669 in 2018 to $114,615 in 2019 due to the salary and salary related costs of TRAQ Pvt Ltd. post-acquisition in May 2019.
During the year ended December 31, 2019, compared to 2018, the Company’s professional fees increased by $129,607, or 82%, from $158,168 in 2018 to $287,775 in 2019. Our professional fees increased in 2019 compared to 2018 due the professional fees of TRAQ Pvt Ltd. post-acquisition in May 2019.
For the year ended December 31, 2019 compared to December 31, 2018, the Company’s rent expense increased by $86,532, or 3,712%, from $2,331 in 2018 to $88,863 in 2019 due to not renewing their office space in an effort to reduce their overhead and utilizing a virtual office offset by the rent expense of TRAQ Pvt Ltd. post-acquisition in May 2019.
For the year ended December 31, 2019 compared to December 31, 2018, the Company’s depreciation and amortization expense increased $42,840, from $0 in 2018 to $42,840 in 2019. The increase was the result of the depreciation and amortization expense on the fixed and intangible assets acquired in the TRAQ Pvt Ltd. acquisition.
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For the year ended December 31, 2019 compared to December 31, 2018, the Company’s general and administrative expenses increased by $74,126, or 85%, from $86,793 in 2018 to $160,919 in 2019 primarily due to the lowering of overhead expenses in TransportIQ as the Company is moving towards an analytics model offset by the general and administrative expenses of TRAQ Pvt Ltd. post-acquisition in May 2019.
Interest Expense, net
For the year ended December 31, 2019 compared to December 31, 2018, the Company’s interest expense, net of interest income increased by $79,702, or 47%, from $170,462 in 2018 to $250,164 in 2019 due to higher levels of debt in 2019 and due to the debt incurred with respect to the TRAQ Pvt Ltd. acquisition in May 2019.
Forgiveness of Debt
For the year ended December 31, 2019 compared to December 31, 2018, the Company’s forgiveness of debt increased by $44,120 or 389%, from $11,330 in 2018 to $55,450 in 2019 due to forgiveness of payables.
Included in other income is $417,148 in 2019 for the recognized bargain purchase gain and $25,000 in 2018 that was other income related to the one-time sale of domain names.
Net Loss
For the year ended December 31, 2019 compared to December 31, 2018, the Company’s net loss decreased by $174,652, or 44%, from $397,861 in 2018 to $223,209 in 2019 due to the reduction of overhead expenses of due to the reduction of services related to TransportIQ offset by the increase in expenditures related to TRAQ Pvt Ltd. post-acquisition in May 2019.
Liquidity and Capital Resources
As of December 31, 2019, current assets were $818,830 and current liabilities outstanding amounted to $3,515,866 which resulted in a working capital deficit of $2,697,036. As of December 31, 2018, current assets were $13,806 and current liabilities outstanding amounted to $1,672,491 which resulted in a working capital deficit of $1,658,685.
Net cash used in operating activities was $516,509 for the year ended December 31, 2019 compared to $222,833 in 2018. Cash used in operations for 2019 and 2018 was the primarily related to the loss in operations offset by the bargain purchase gain, increases in accounts payable and accrued expenses and the changes in accounts receivable due to the lack of adequate cash flow of the Company.
The only investing activities for the year ended December 31, 2019, related to the cash and restricted cash of $234 and $185,399, respectively acquired in the TRAQ Pvt Ltd. acquisition and some acquisitions of fixed assets related to TRAQ Pvt Ltd. of $3,417.
Net cash provided by financing activities for the year ended December 31, 2019 was $523,667 compared to the year ended December 31, 2018 of $223,462. The cash provided by financing activities was the result of the issuance of long-term debt, including related parties, convertible notes from related and unrelated parties, offset by repayments on long term-debt which include related parties.
Off-Balance Sheet Arrangements
We have no off-balance sheet financing arrangements.
Contractual Obligations
Not required for a smaller reporting company.
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Item 8. Financial Statements and Supplementary Data
Our consolidated financial statements and notes thereto and the report of our independent registered public accounting firm, are set forth starting on page F-1 of this report.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
On February 1, 2020, the board of directors of TraqIQ, Inc. (the “Company”) approved the selection of AJSH & Co LLP (“AJSH”) as its independent registered public accounting firm replacing MAC Accounting Group, LLP (“MAC”).
(a) Dismissal of Independent Registered Public Accounting Firm
On February 1, 2020, the Company’s board of directors approved the dismissal of MAC as the Company’s independent registered public accounting firm and the Company accordingly notified MAC of such action effective as of that date.
The report of MAC on the Company’s consolidated balance sheet as of December 31, 2018, and the related consolidated statements of operations, changes in stockholders’ deficit, and cash flows for the year ended December 31, 2018, did not contain any adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles, other than the statements related to the Company’s ability to continue as a going concern.
In addition, during the fiscal year ended December 31, 2018, there were no “disagreements” (as that term is defined in Item 304(a)(1)(iv) of Regulation S-K and related instructions) between the Company and MAC with respect to any matter relating to accounting principles, financial statement disclosure or auditing scope or procedures which, if not resolved to the satisfaction of MAC, would have caused MAC to make reference to the subject matter of the disagreement in its reports on the Company’s financial statements with respect to such periods.
MAC’s letter to the U.S. Securities and Exchange Commission stating its agreement with the statements in these paragraphs is filed as Exhibit 16.1 to this Current Report on Form 8-K.
(b) Engagement of New Independent Registered Public Accounting Firm
On February 1, 2020, the Company engaged AJSH as its new independent registered public accounting firm. During the fiscal year ended December 31, 2018 and through February 1, 2020, the date the Company engaged AJSH, the Company did not consult with AJSH regarding any of the matters or events set forth in Item 304(a)(2)(i) and (ii) of Regulation S-K.
Item 9A. Controls and Procedures
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. |
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| - | 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. |
Management’s Annual Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Exchange Act Rule 13a-15(f). Management conducted an evaluation of the effectiveness of the internal control over financial reporting as of December 31, 2019, using the criteria established in Internal Control – Integrated Framework (2013 framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. As a result of management’s assessment, management has determined that there are material weaknesses due to the lack of segregation of duties and, due to the limited resources based on the size of the Company. Due to the material weaknesses management concluded that as of December 31, 2019, the Company’s internal control over financial reporting was ineffective. In order to address and resolve the weaknesses, the Company will endeavor to locate and appoint additional qualified personnel to the board of directors and pertinent officer positions as the Company’s financial means allow. To date, the Company’s limited financial resources have not allowed the Company to hire the additional personnel necessary to address the material weaknesses.
Management’s Annual Report on Internal Control Over Financial Reporting
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.
Changes in Internal Control Over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting that occurred during the Company’s last fiscal quarter (the Company’s fourth fiscal quarter in the case of an annual report) 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; |
| 18 |
| (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. |
None.
Item 10. Directors, Executive Officers, and Corporate Governance;
The following persons are our executive officers and directors as of May 30, 2020 and hold the positions set forth opposite their respective names. The members of the Board of Directors serve until the next annual meeting and a successor is appointed and qualified, or until resignation or removal.
| Name | Age | Position | Date of Appointment | |||
| Ajay Sikka | 52 | Chairman of the Board, Director, Chief Executive Officer, President & Chief Financial Officer | July 19, 2017 | |||
| James DuBois | 56 | Director | February 2, 2018 | |||
| Greg Rankich | 46 | Director | May 11, 2019 |
Business Experience
The following is a brief description of the business experience of our executive officers and directors:
Ajay Sikka, Chairman and Director, President and Chief Financial Officer
Ajay Sikka, age 52, was appointed to our Board as its Chairman the Board appointed him as our Chief Executive Officer, President, Chief Financial and Accounting Officer on July 19, 2017. From May 2014 to the present, Mr. Sikka has served as Chief Executive Officer of OmniM2M, Inc., an IIoT hardware, software and services company. From March 2011 to the present, Mr. Sikka has also served as Chief Executive Officer of Ci2i Services, Inc., an IIoT analytics and marketing company that is focused on providing services and support to enterprise customers, including Microsoft, Staples, Accenture, and Pactera. From April 2004 to Feb 2011, Mr. Sikka served as Senior Director at Microsoft Corp. in Redmond, Washington, where he worked in multiple teams, including Law & Corporate affairs, Central IT, and Business Strategy. He also managed Microsoft’s CloudCRM team that provided Customer Relationship Management (CRM) services within Microsoft. From April 2000 to March 2004, Mr. Sikka served as Chief Executive Officer of IndiaHQ Solutions, Inc., a content provider (Websites, newspapers, Yellow pages) for the South Asian community. That company was sold in 2004. From April 1996 to April 2000, Mr. Sikka served as Group Manager at Microsoft Corp. in Redmond, Washington where he drove Microsoft’s internet business and content management initiatives with telecommunications and Internet service providers. He arrived at Microsoft subsequent to Microsoft’s purchase of Vermeer, that made the FrontPage product. Mr. Sikka is an active angel investor and board of director member for startup companies and new ventures in the Seattle area.
| 19 |
James DuBois, Director
James DuBois, age 56, is a member of our Board and was appointed to our Board on February 2, 2018. Mr. Dubois, currently serves as Global IT Advisor and Board Member at Expeditors International of Seattle, Washington. Mr. Dubois has guided IT and business transformation, corporate governance, customer-focused strategic product/services development, security, and risk management. While at Microsoft, as CIO and Chief Information Security Officer roles, directing IT modernization through corporate growth, turnaround, acquisitions integrations and divestitures.
Greg Rankich, Director
Greg Rankich, age 46, is a member of our Board and was appointed to our Board on May 11, 2019. Mr. Rankich, from May 2018 to present, is the co-founder and partner at Better U Today, which is a program designed to provide a simple and straightforward approach to help people achieve their ideal weight through food, education and lifestyle changes. From January 2017 to present, Mr. Rankich also serves as the managing partner of Kirkland REI, LLC which is a private real estate investment and management firm that focuses on four primary asset classes: Single Residential Properties, Multi-Family Properties, Commercial Properties and Land Acquisition. From July 2013 to present, Mr. Rankich serves as an Advisory Board Member of Ro Health, which is a rapidly growing medical staffing and home health agency. Ro Health supplies clients and patients with healthcare providers that are kind and caring. From July 2005 to May 2018, Mr. Rankich served as the Chief Executive Officer of Xtreme Consulting Group, Inc. an $80 million in revenue international services firm that employs best-in-class business and technology professionals who are focused on improving business performance for clients of all types and sizes. Digital Intelligence Systems acquired Xtreme on May 11, 2018. Prior to founding Xtreme, Mr. Rankich held many roles within Microsoft Corporation. In 2010, Mr. Rankich was a finalist for Ernst & Young “Entrepreneur of the Year” award. He is an active member of company boards and advisory panels and is also involved in numerous charities and non-profits in the northwest. Mr. Rankich graduated with a B.A. in International Business and a M.B.A. from Washington State University.
Involvement in Certain Legal Proceedings
Except as set forth in the director and officer biographies above, to the Company’s knowledge, during the past ten (10) years, none of the Company’s directors, executive officers, promoters, control persons, or nominees has been:
| ● | the subject of any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; | |
| ● | convicted in a criminal proceeding or is subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); | |
| ● | subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or | |
| ● | found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law. |
Committees of the Board of Directors
Our Board of Directors has no committees. We do not have a standing nominating, compensation or audit committee.
| 20 |
Corporate Governance
Board Independence
We currently have three directors serving on our board of directors. Our Board of Directors has adopted the definition of “independence” as described in NASDAQ Rules 4200 and 4350. Independent directors would not include anyone who, within the past three years, be employed by us or any of our parent or subsidiary or any of their family members; or any director who is, or who has a family member who is, a controlling shareholder. Our board of directors has determined that no directors meet the independence requirements. We may obtain independent directors in the future but there is no assurance that we will do so.
Code of Business Conduct and Ethics
In September 30, 2009, we adopted a Code of Ethics and Business Conduct which is applicable to our employees and which also includes a Code of Ethics for our chief executive and principal financial officers and any persons performing similar functions. A code of ethics is a written standard designed to deter wrongdoing and to promote:
| ● | honest and ethical conduct, | |
| ● | full, fair, accurate, timely and understandable disclosure in regulatory filings and public statements, | |
| ● | compliance with applicable laws, rules and regulations, | |
| ● | the prompt reporting violation of the code, and | |
| ● | accountability for adherence to the code. |
A copy of our Code of Business Conduct and Ethics has been filed with the Securities and Exchange Commission as Exhibit 14.1 to our registration statement, which is incorporated herein. We will provide a copy of the Code of Ethics to any person without charge, upon request. The request for a copy can be made in writing to TraqIQ, Inc., 14205 S.E. 36th St., Suite 100, Bellevue, WA 98006, Attention: Ajay Sikka, CEO.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our directors and executive officers and persons who own more than 10% of the issued and outstanding shares of our common stock to file reports of initial ownership of common stock and other equity securities and subsequent changes in that ownership with the SEC. Officers, directors and greater than ten percent stockholders are required by SEC regulation to furnish us with copies of all Section 16(a) forms they file. To our knowledge, based solely on a review of the copies of such reports furnished to us and written representations that no other reports were required, during the fiscal year ended December 31, 2019 all Section 16(a) filing requirements applicable to our officers, directors and greater than 10% beneficial owners were complied with.
Item 11. Executive Compensation
Summary Executive Compensation Table
The following table shows, for the years ended December 31, 2019 and 2018, compensation awarded to or paid to, or earned by, our Chief Executive Officer and Chief Financial Officer (the “Named Executive Officers”). We did not have any executive directors or officers that earned in excess of $100,000 during the years ended December 31, 2019 and 2018.
SUMMARY COMPENSATION TABLE
Name and principal position (a) | Year (b) | Salary ($) (c) | Bonus ($) (d) | Stock Awards ($) (e) | Option Awards ($) (f) | Non-Equity Incentive Plan Compensation ($) (g) | Nonqualified Deferred Compensation Earnings ($) (h) | All Other Compensation ($) (i) | Total ($) (j) | |||||||||||||||||||||||||||
| Ajay Sikka, CEO, CFO and Director | 2018 | $ | 973 | - | - | - | - | - | - | $ | 973 | |||||||||||||||||||||||||
| 2019 | $ | 105,700 | - | - | - | - | - | - | $ | 105,700 | ||||||||||||||||||||||||||
| 21 |
We currently do not have any formal employment arrangement with Mr. Sikka and his compensation has not been fixed or based on any percentage calculations. The Board will make all decisions determining the amount and timing of his compensation if his annual compensation exceeds $50,000. In 2019 and 2018, Mr. Sikka received a salary of $105,700 and $973, respectively.
Grants of Plan-Based Awards Table
We currently do not have any equity compensation plans. Therefore, none of our named executive officers received any grants of stock, option awards or other plan-based awards during in 2019 or 2018.
Outstanding Equity Awards at Fiscal Year-End Table
None. We do not have any equity award compensation plans.
Stock Incentive Plan
We currently do not have any stock incentive plans with any of our executive officers or employees.
Employment Agreements
We currently do not have any employment agreements with any of our executive officers.
Director Compensation
We have not adopted compensation arrangements for members of our board of directors.
Directors’ and Officers’ Liability Insurance
The Company may obtain directors’ and officers’ liability insurance insuring its directors and officers against liability for acts or omissions in their capacities as directors or officers in the near future, subject to certain exclusions. Such insurance also insures the Company against losses which we may incur in indemnifying our officers and directors.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following tables set forth certain information regarding the ownership of our common stock as of May 30, 2020, by:
| ● | each director; | |
| ● | each person known by us to own beneficially 5% or more of our Common Stock; | |
| ● | each officer named in the summary compensation table elsewhere in this Current Report on Form 8-K; and | |
| ● | all directors and executive officers as a group. |
The amounts and percentages of common stock beneficially owned are reported on the basis of regulations of the SEC governing the determination of beneficial ownership of securities. Under the rules of the SEC, a person is deemed to be a “beneficial owner” of a security if that person has or shares “voting power,” which includes the power to vote or to direct the voting of such security, or “investment power,” which includes the power to dispose of or to direct the disposition of such security. A person is also deemed to be a beneficial owner of any securities of which that person has the right to acquire beneficial ownership within 60 days. Under these rules more than one person may be deemed a beneficial owner of the same securities and a person may be deemed to be a beneficial owner of securities as to which such person has no economic interest. The percentages of common stock beneficially owned are calculated on the basis of 27,297,960 total common shares issued and outstanding after giving effect to the Share Exchange Agreement and the percentage of Series A Preferred Stock is based on the 50,000 shares issued and outstanding. Each share of preferred stock is convertible into 85% of the average closing price of the common stock over the last 20 trading days immediately preceding the conversion.
| 22 |
Unless otherwise indicated below, to the best of our knowledge each beneficial owner named in the table has sole voting and sole investment power with respect to all shares beneficially owned, subject to community property laws where applicable.
| Title of Class | Name and Address of Beneficial Owner | Shares | Percent of Class | |||||||
| Preferred A Stock | Ajay Sikka(1) 14205 S.E. 36th St., Suite 100 Bellevue, WA 98006 | 50,000 | 100.00 | % | ||||||
| Common Stock | Ajay Sikka 14205 S.E. 36th St., Suite 100 Bellevue, WA 98006 | 15,154,384 | 55.52 | % | ||||||
| Common Stock | James DuBois, 11208 248 Ave NE, Redmond, WA 98053 | 0 | 0.00 | % | ||||||
| Common Stock | Greg Rankich | 0 | 0.00 | % | ||||||
| Common Stock | All Officers and Directors as a Group (2 persons) | 15,154,384 | 55.52 | % | ||||||
| Preferred Stock | All Officers and Directors as a Group (2 persons) | 50,000 | 100.00 | % | ||||||
| 5% or Greater | ||||||||||
| Common Stock | Virandra Sikka 14205 S.E. 36th St., Suite 100 Bellevue, WA 98006 | 3,264,412 | 11.96 | % | ||||||
| Common Stock | Swarn Thiara 6704 126th Street SE, Snohomish, WA 98296 | 2,600,000 | 9.53 | % | ||||||
| Common Stock | Dharam Vir Sikka 235 140th Avenue NE, Bellevue, WA 98005 | 1,823,568 | 6.68 | % | ||||||
| Common Stock | Ajay Sikka 14205 S.E. 36th St., Suite 100 Bellevue, WA 98006 | 15,154,384 | 55.52 | % | ||||||
| 22,842,364 | 83.68 | % | ||||||||
| Preferred Stock | Ajay Sikka 14205 S.E. 36th St., Suite 100 Bellevue, WA 98006 | 50,000 | 100.00 | % | ||||||
(1) Ajay Sikka is our controlling shareholder. Under the terms of the Series A Preferred Stock, he is entitled to 50,000 votes of common stock for each share of Series A Preferred Stock, thereby effectively giving him, in addition to his 15,154,384 common share votes, an additional 2,500,000,000 common share votes.
Changes in Control
Except for matters described in this Current Report regarding the Share Exchange Agreement and our Series A Preferred Stock, we are unaware of any contract or other arrangement or provisions of our Articles or Bylaws the operation of which may at a subsequent date result in a change of control of us. There are not any provisions in our Articles or Bylaws, the operation of which would delay, defer, or prevent a change in control of us.
| 23 |
Item 13. Certain Relationships and Related Transactions and Director Independence
Certain Relationships and Related Party Transactions
Except as described below, and the past two years, there have been no transactions, whether directly or indirectly, between Ajay Sikka and any of our officers or former officers, directors or former directors or their family members.
The details for amount due to related parties were as follows:
| 2019 | 2018 | |||||||
| December 31, | ||||||||
| Amount due from related parties: | ||||||||
| Ajay Sikka(1) | $ | 1,221,737 | $ | 728,236 | ||||
| Kunaal Sikka(2) | 15,000 | 15,000 | ||||||
| Swarm Singh(3) | 45,000 | 45,000 | ||||||
| Satinder Thiara(4) | 57,000 | 57,000 | ||||||
| Dharam Sikka(5) | 75,000 | 75,000 | ||||||
| James DuBois(6) | 20,000 | 20,000 | ||||||
| Total | $ | 1,433,737 | $ | 940,236 | ||||
| (1) | These advances from the CEO are unsecured, due on demand and bear interest at 15% annually. |
| (2) | Unsecured promissory note from Kunaal Sikka, the CEO’s son, dated September 13, 2018, in the amount of $15,000, at 12% annual interest maturing on December 31, 2019. On December 31, 2019 this note was in default and the interest changed to 18% per annum. |
| (3) | Note payable to Swarn Singh, father-in-law of the CEO, entered into January 2017 ($25,000) and February 2017 ($20,000), at interest rate of 15% annually (1.25% monthly). These are unsecured loans and both loans mature December 31, 2019. On December 31, 2019 these notes were in default and the interest changed to 21% annually (1.75% monthly). |
| (4) | Notes payable to Satinder Thiara entered into May 25, 2016 ($22,000) which is due December 31, 2021, December 13, 2016 ($10,000) which is due December 31, 2021, and May 1, 2018 ($25,000) which matures December 31, 2019 at interest rate of 15% annually (1.25% monthly). The May 1, 2018 note is in default and the interest rate changed to 21% annually (1.75% monthly). |
| (5) | Company entered into convertible notes with Dharam V. Sikka, father of CEO pursuant to a convertible note payable issued in August 2017 ($20,000), November 2017 ($30,000) and May 2018 ($25,000), with an interest rate of 6% and conversion terms as the Notes described above, maturing on December 31, 2019 and is convertible into shares of the Company’s common stock at a conversion rate equal to eighty percent (80%) of the average closing share price as quoted on the OTC Markets for the five (5) trading days prior to the date of conversion., On December 31, 2019 these notes were in default and the interest changed to 10% per annum.
|
| (6) | Company entered into a convertible note with James DuBois, a director of the Company in November 2017 in the amount of $20,000, at a 6% annual interest rate and conversion terms as the Notes described in (5) above, initially maturing on July 31, 2018, extended to December 31, 2019, On December 31, 2019 these notes were in default and the interest changed to 10% per annum |
Item 14. Principal Accounting Fees and Services.
The aggregate fees incurred for each of the last two years for professional services rendered by AJSH & Co LLP (“AJSH”) and MAC Accounting Group, LLP (“MAC”) the independent registered public accounting firms for the audits of the Company’s annual financial statements included in the Company’s Form 10-K and reviews of financial statements for its quarterly reports (Form 10-Q) are reported below. The Company engaged MAC on January 28, 2019 and they were dismissed on February 1, 2020, which is when AJSH was hired. The fees billed by AJSH and MAC relating to the audits for the years ended December 31, 2019 and 2018 were $30,000 and $44,000 are included in the amounts for December 31, 2019 and 2018 respectively.
| 24 |
| Audit
Fees | Audit Related Fees | Tax Fees | All Other Fees | Total | ||||||||||||||||
| 2019 | $ | 30,000 | $ | - | $ | - | $ | - | $ | 30,000 | ||||||||||
| 2018 | $ | 44,000 | $ | - | $ | - | $ | - | $ | 44,000 | ||||||||||
Audit Fees
The aggregate fees incurred by the Company’s principal accountant for the audit of the Company’s annual financial statements, review of financial statements included in the quarterly reports and other fees that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for the years ended December 31, 2019 and 2018.
Audit Related Fees
The aggregate fees billed for professional services that are reasonably related to the performance of the audit or review of the Company’s financial statements but are not reported “Audit Fees” for the years ended December 31, 2019 and 2018.
Tax Fees
The aggregate fees billed for professional services rendered by principal accountant for tax compliance, tax advice and tax planning during the years ended December 31, 2019 and 2018.
All Other Fees
Other fees billed for products or services provided by the Company’s principal accountant during the years ended December 31, 2019 and 2018.
| 25 |
Item 15. Exhibits, Financial Statement Schedules
101.INS XBRL Instance Document *
101.SCH XBRL Taxonomy Extension Schema Document *
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document *
101.DEF XBRL Taxonomy Extension Definition Linkbase Document *
101.LAB XBRL Taxonomy Extension Label Linkbase Document *
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document *
| * | Filed herewith |
| ** | Previously filed. |
| 26 |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| TraqIQ Inc. | ||
| Date: May 30, 2020 | By: | /s/ Ajay Sikka |
| Name: | Ajay Sikka | |
| Title: | Chairman
of the Board of Directors & Chief Executive Officer | |
| (Principal Executive Officer) | ||
| Date: May 30, 2020 | By: | /s/ Ajay Sikka |
| Name: | Ajay Sikka | |
| Title: | Chief Financial Officer | |
| (Principal Financial and Accounting Officer) | ||
| Date: May 30, 2020 | By: | /s/ James DuBois |
| Name: | James DuBois | |
| Title: | Director | |
| Date: May 30, 2020 | By: | /s/ Greg Rankich |
| Name: | Greg Rankich | |
| Title: | Director | |
| 27 |
FINANCIAL STATEMENTS
| F-1 |
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of TraqIQ, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of TraqIQ, Inc. and its subsidiaries (the “Company”) as of December 31, 2019, the related consolidated statements of operations, changes in stockholders’ deficit, cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019, and the results of its operations and its cash flow for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of financial statements. We believe that our audits provide a reasonable basis for our opinion.
Substantial Doubt about the Company Ability to Continue as a Going Concern
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has an accumulated deficit of $1,896,984 and working capital deficit of $2,697,036. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to this uncertainty are also described in the Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/AJSH & Co LLP
We have served as the Company’s auditor since 2020.
New Delhi, India
May 30, 2020
| F-2 |
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of TraqIQ, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Traq IQ, Inc. and subsidiaries (the Company) as of December 31, 2018, the related consolidated statements of operations, changes in stockholders’ deficit and cash flows, for the year then ended, and the related notes (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered recurring losses from operations and its total liabilities exceed its total assets. This raises substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters also are described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ Mac Accounting Group, LLP
We have served as the Company’s auditor since 2019.
Midvale, Utah
March 25, 2019
| F-3 |
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2019 AND 2018
IN US$
| DECEMBER 31, | DECEMBER 31, | |||||||
| 2019 | 2018 | |||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash | $ | 9,094 | $ | 2,347 | ||||
| Accounts receivable, net | 602,155 | 11,459 | ||||||
| Prepaid expenses and other current assets | 207,581 | - | ||||||
| Total Current Assets | 818,830 | 13,806 | ||||||
| Fixed assets, net | 48,681 | - | ||||||
| Intangible assets, net | 477,824 | - | ||||||
| Restricted cash | 182,627 | - | ||||||
| Long-term investment | 41,617 | - | ||||||
| Right-of-use asset | 537,268 | - | ||||||
| Other assets | 32,639 | - | ||||||
| Total Non-current Assets | 1,320,656 | - | ||||||
| TOTAL ASSETS | $ | 2,139,486 | $ | 13,806 | ||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| LIABILITIES | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | 883,845 | $ | 531,120 | ||||
| Cash overdraft | 427,890 | - | ||||||
| Accrued payroll and related taxes | 291,586 | - | ||||||
| Accrued taxes and duties payable | 50,623 | - | ||||||
| Current portion - lease liability | 122,343 | - | ||||||
| Current portion - long-term debt - related parties | 1,306,737 | 845,236 | ||||||
| Current portion - long-term debt | 191,508 | 54,801 | ||||||
| Current portion - convertible debt - long-term debt - related and unrelated parties | 241,334 | 241,334 | ||||||
| Total Current Liabilities | 3,515,866 | 1,672,491 | ||||||
| Long-term debt - related parties, net of current portion | 32,000 | - | ||||||
| Long-term debt, net of current portion | 19,202 | - | ||||||
| Lease liability, net of current portion | 432,800 | - | ||||||
| Total Non-current Liabilities | 484,002 | - | ||||||
| Total Liabilities | 3,999,868 | 1,672,491 | ||||||
| Commitments and contingencies | - | - | ||||||
| STOCKHOLDERS’ DEFICIT | ||||||||
| Preferred
stock, par value, $0.0001, 10,000,000 shares authorized, Series A Convertible Preferred, 50,000 and 50,000 shares issued and outstanding, respectively | 5 | 5 | ||||||
| Common
stock, par value, $0.0001, 300,000,000 shares authorized, 27,297,960 and 27,297,960 issued and outstanding, respectively | 2,730 | 2,730 | ||||||
| Additional paid in capital | 12,623 | 12,355 | ||||||
| Accumulated deficit | (1,896,984 | ) | (1,673,775 | ) | ||||
| Accumulated other comprehensive income (loss) | 21,244 | - | ||||||
| Total Stockholders’ Deficit | (1,860,382 | ) | (1,658,685 | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | 2,139,486 | $ | 13,806 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-4 |
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018
IN US$
| 2019 | 2018 | |||||||
| REVENUE | $ | 680,732 | $ | 181,318 | ||||
| COST OF REVENUE | 431,363 | 179,086 | ||||||
| GROSS PROFIT | 249,369 | 2,232 | ||||||
| OPERATING EXPENSES | ||||||||
| Salaries and salary related costs | 114,615 | 18,669 | ||||||
| Professional fees | 287,775 | 158,168 | ||||||
| Rent expense | 88,863 | 2,331 | ||||||
| Depreciation and amortization expense | 42,840 | - | ||||||
| General and administrative expenses | 160,919 | 86,793 | ||||||
| Total Operating Expenses | 695,012 | 265,961 | ||||||
| OPERATING LOSS | (445,643 | ) | (263,729 | ) | ||||
| OTHER INCOME (EXPENSE) | ||||||||
| Bargain purchase gain | 417,148 | - | ||||||
| Other income | - | 25,000 | ||||||
| Forgiveness of debt | 55,450 | 11,330 | ||||||
| Interest expense, net of interest income | (250,164 | ) | (170,462 | ) | ||||
| Total other income (expense) | 222,434 | (134,132 | ) | |||||
| NET LOSS BEFORE PROVISION FOR INCOME TAXES | (223,209 | ) | (397,861 | ) | ||||
| Provision for income taxes | - | - | ||||||
| NET LOSS | $ | (223,209 | ) | $ | (397,861 | ) | ||
| Other comprehensive loss | ||||||||
| Foreign currency translation adjustment | - | - | ||||||
| Comprehensive loss | $ | (223,209 | ) | $ | (397,861 | ) | ||
| Net loss per share - basic | $ | (0.01 | ) | $ | (0.01 | ) | ||
| Net loss per share - diluted | $ | (0.01 | ) | $ | (0.01 | ) | ||
| Weighted average common shares outstanding - basic | 27,297,960 | 27,297,960 | ||||||
| Weighted average common shares outstanding - diluted | 27,297,960 | 27,297,960 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-5 |
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018
IN US $
| Additional | Accumulated | |||||||||||||||||||||||||||||||
| Paid-In | Other | |||||||||||||||||||||||||||||||
| Series A Preferred | Common Stock | Capital - | Accumulated | Comprehensive | ||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Common | Deficit | Income (Loss) | Total | |||||||||||||||||||||||||
| Balance - December 31, 2017 | 50,000 | $ | 5 | 27,297,960 | $ | 2,730 | $ | 12,355 | $ | (1,275,914 | ) | $ | - | $ | (1,260,824 | ) | ||||||||||||||||
| Net loss for the year | - | - | - | - | - | (397,861 | ) | - | (397,861 | ) | ||||||||||||||||||||||
| Balance - December 31, 2018 | 50,000 | 5 | 27,297,960 | 2,730 | 12,355 | (1,673,775 | ) | - | (1,658,685 | ) | ||||||||||||||||||||||
| Acquisition of Mann India | - | - | - | - | 268 | - | 5,116 | 5,384 | ||||||||||||||||||||||||
| Net loss for the year | - | - | - | - | - | (223,209 | ) | 16,128 | (207,081 | ) | ||||||||||||||||||||||
| Balance - December 31, 2019 | 50,000 | $ | 5 | 27,297,960 | $ | 2,730 | $ | 12,623 | $ | (1,896,984 | ) | $ | 21,244 | $ | (1,860,382 | ) | ||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-6 |
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018
IN US$
| 2019 | 2018 | |||||||
| CASH FLOW FROM OPERTING ACTIVIITES | ||||||||
| Net income (loss) | $ | (223,209 | ) | $ | (397,861 | ) | ||
| Adjustments to reconcile net income (loss) to net cash used in operating activities | ||||||||
| Amortization of debt discount | - | 16,377 | ||||||
| Forgiveness of debt | - | (11,330 | ) | |||||
| Bargain purchase gain | (417,148 | ) | - | |||||
| Bad debt expense | 60,460 | - | ||||||
| Forgiveness of debt | (55,450 | ) | - | |||||
| Depreciation and amortization | 42,840 | - | ||||||
| Lease cost, net of repayment | 13,226 | - | ||||||
| Foreign currency (gain) loss | 18,882 | - | ||||||
| Changes in assets and liabilities | ||||||||
| Accounts receivable | (153,492 | ) | (7,266 | ) | ||||
| Prepaid expenses and other current assets | 12,019 | - | ||||||
| Other assets | (4,823 | ) | - | |||||
| Accounts payable and accrued expenses | 238,873 | 177,247 | ||||||
| Accrued payroll and payroll taxes | (29,669 | ) | - | |||||
| Accrued duties and taxes | (15,395 | ) | - | |||||
| Deferred revenue | (3,623 | ) | - | |||||
| Total adjustments | (293,300 | ) | 175,028 | |||||
| Net cash used in operating activities | (516,509 | ) | (222,833 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITES | ||||||||
| Cash received in acquisition of Mann | 234 | - | ||||||
| Restricted cash received in acquisition of Mann | 185,399 | - | ||||||
| Acquisition of fixed assets | (3,417 | ) | - | |||||
| Net cash provided by investing activities | 182,216 | - | ||||||
| CASH FLOWS FROM FINANCING ACTIVITES | ||||||||
| Decrease in cash overdraft | (36,691 | ) | - | |||||
| Proceeds from long-term debt - related parties | 593,201 | 326,130 | ||||||
| Repayment of long-term debt - related parties | (104,841 | ) | (149,406 | ) | ||||
| Proceeds from long-term debt | 143,600 | 97,500 | ||||||
| Repayments of long-term debt | (71,602 | ) | (75,762 | ) | ||||
| Proceeds from convertible notes - related and unrelated parties | - | 25,000 | ||||||
| Net cash provided by financing activities | 523,667 | 223,462 | ||||||
| NET INCREASE IN CASH AND | ||||||||
| RESTRICTED CASH | 189,374 | 629 | ||||||
| CASH AND RESTRICTED CASH - | ||||||||
| BEGINNING OF PERIOD | 2,347 | 1,718 | ||||||
| CASH AND RESTRICTED CASH - | ||||||||
| END OF PERIOD | $ | 191,721 | $ | 2,347 | ||||
| CASH PAID DURING THE PERIOD FOR: | ||||||||
| Interest expense | $ | 11,782 | $ | 17,646 | ||||
| Income taxes | $ | - | $ | - | ||||
| SUMMARY OF NON-CASH ACTIVITIES: | ||||||||
| Acquisition of Mann: | ||||||||
| Accounts receivable | $ | 506,951 | $ | - | ||||
| Prepaid and other current assets | 216,956 | - | ||||||
| Right-of-use asset | 576,566 | - | ||||||
| Fixed assets | 68,260 | - | ||||||
| Other assets | 37,950 | - | ||||||
| Investment | 42,248 | - | ||||||
| Customer relationships | 448,800 | - | ||||||
| Tradename | 49,799 | |||||||
| Accounts payable and accrued expenses | (173,197 | ) | - | |||||
| Accrued payroll and related taxes | (325,629 | ) | - | |||||
| Accrued duties and taxes | (66,765 | ) | - | |||||
| Lease liability | (585,207 | ) | - | |||||
| Deferred revenue | (3,618 | ) | - | |||||
| Debt | (90,314 | ) | - | |||||
| Cash overdraft | (471,017 | ) | - | |||||
| Cash | 234 | - | ||||||
| Restricted cash | 185,399 | - | ||||||
| Total net assets acquired | 417,416 | - | ||||||
| Consideration per Share Exchange Agreement | 268 | - | ||||||
| Goodwill/(Bargain Purchase Gain) | $ | (417,148 | ) | $ | - | |||
The accompanying notes are an integral part of these consolidated financial statements.
| F-7 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019 AND 2018
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 100% ownership in OmniM2M and Ci2i in exchange for 12,000,000 shares of the Company’s common stock, respectively. The OmniM2M Shareholders and the Ci2i Shareholders have each been issued their respective 12,000,000 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. Accordingly, the consolidated financial statements included the accounts of Ci2i for all periods presented and the accounts of TraqIQ, Inc. and Omni, which was acquired by the Company on July 19, 2017 since the date of acquisition. 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 $18,109, 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.
Ci2i is an innovative and growth-oriented services company founded in 1998 that develops and deploys intelligent technologies and products in order to meet the demand for sustainable, integrated solutions to contemporary business needs. Ci2i is a consulting services company that provides marketing and technical services to its clients. These services are delivered both on a Project and a Time & Materials basis. The primary focus has been in the Analytics and Intelligence segments. The Company typically does not own any IP, as all the work is done on behalf of the clients.
OmniM2M was formed in 2014 and is an innovative and growth-oriented company that develops and deploys “Internet of Things” (IoT) and “Mobile to Mobile” (M2M) products in order to meet the demand for sustainable, integrated solutions to contemporary business needs.
TransportIQ was formed in the State of Nevada on September 8, 2017. TransportIQ is long haul trucking carrier business that comprises contract drivers and owner operators. TransportIQ’s customers include leading third-party logistics and supply chain management providers such as C.H. Robinson. TransportIQ plans to differentiate itself from traditional carriers through the adoption of new technologies that can help TransportIQ create competitive advantages in the transportation industry, including:
| ● | Industrial Internet of Things (IIoT) tracking devices | |
| ● | Data Analytics software that can help dispatchers improve efficiency and profitability | |
| ● | Blockchain transaction software to improve efficiencies with third party logistics companies |
The Company’s Offering Statement on Form 1-A filed with the Securities and Exchange Commission was approved on February 25, 2019 with an effective date of February 27, 2019.
| F-8 |
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 1,329,272 shares of common stock of the Company valued at $268. The warrants will be exercisable as follows: (i) 100,771 warrants immediately; (ii) 859,951 warrants exercisable one-year after the date of closing; and (iii) 368,550 warrants exercisable two-years after the date of closing. This transaction is being recorded as a business combination under ASC 805.
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.
TRAQ Pvt Ltd. was established in May 2000 and is headquartered in New Delhi, India. TRAQ Pvt Ltd. is a leading software development company with which 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.
software.
TRAQ Pvt Ltd. provides services in the following areas: technology consultancy; business analytics and intelligence; enterprise mobility; enterprise application integration; crypto currency and blockchain implementation; software factory; and IT modernization.
NOTE 2 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying 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.
Forward Stock Split
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.
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.
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.
| F-9 |
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 other than TRAQ Pvt Ltd. whose functional currency is 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. The Company has no cash equivalents as of December 31, 2019 and 2018, respectively.
Restricted Cash
The Company’s restricted cash balance consists of time deposits with financial institutions which are valued at cost and approximate fair value. Interest earned on these deposits in included in interest income. The carrying value of our restricted cash at December 31, 2019 and December 31, 2018 was $182,627 and $0, respectively. The balances consist of time deposits pledged with financial institutions for a Line of Credit facility taken from Andhra Bank, issuance of overdraft limit.
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 no allowance was required for the outstanding accounts receivable as of December 31, 2019 and December 31, 2018.
Property and Equipment and Long-Lived Assets
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 three to ten years.
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 application 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 of TRAQ Pvt Ltd. which includes customer relationships and trademarks. The Company amortizes these intangible assets on a straight-line basis over their estimated useful lives of 15 years. OmniM2M has had and currently does have computer software development underway, however, has determined that the costs associated with this development, currently do not meet the requirements for capitalization under ASC 985-20-25. OmniM2M will continue to monitor the development of such software in relationship to the requirements under the ASC in the future to determine if capitalization is warranted.
| F-10 |
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.
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 periods ended December 31, 2019 and December 31, 2018.
Capitalized Software Costs
In accordance with the relevant FASB accounting guidance regarding the development of software to be sold, leased, or marketed, the Company expenses such costs as they are incurred until technological feasibility has been established, at and after which time these costs are capitalized until the product is available for general release to customers. Once the technological feasibility is established per ASC 985-20, the Company capitalizes costs associated with the acquisition or development of major software for internal and external use in the balance sheet. Costs incurred to enhance the Company’s software products, after general market release of the services using the products, is expensed in the period they are incurred. The Company only capitalizes subsequent additions, modifications or upgrades to internally developed software to the extent that such changes allow the software to perform a task it previously did not perform. The Company expenses software maintenance and training costs as incurred. The Company has not capitalized any cost for software development for the years ended December 31, 2019 and 2018, respectively.
Revenue Recognition
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), specifically ASC 606-10-50-12. This standard provides a single set of guidelines for revenue recognition to be used across all industries and requires additional disclosures. The updated guidance introduces a five-step model to achieve its core principal of the entity recognizing revenue to depict the transfer of goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company adopted the updated guidance effective January 1, 2018 using the full retrospective method, however the new standard did not have a material impact on its consolidated financial position and consolidated results of operations, as it did not change the manner or timing of recognizing revenue.
| F-11 |
Trucking Revenue
The Company’s contracts with customers are generally on a purchase order basis and represent a single stand-alone performance obligation to transport property on behalf of a customer at a pre-determined rate. The performance obligation is satisfied at the point in time in which the delivery of property is complete and the Company generally collect payment within 30 days of delivery. Accordingly, revenue for each contract is recognized when the Company’s performance obligation is complete. There are no agency relationships in any if the services related to the trucking sector.
Professional Service Revenue
TRAQ Pvt Ltd. generally derives its revenues from professional and support services, which includes revenue generated from software development projects and associated fees for consulting, implementation, training, and project management provided to customers using their systems. Revenue from arrangements with customers is recognized based on the Company’s satisfaction of distinct performance obligations identified in each agreement, generally at a point in time as discussed in ASC 606. In instances where multiple performance obligations are identified, the Company allocates the transaction price to each performance obligation based on relative selling prices of each distinct product or service, and recognizes revenue related to each performance obligation at the points in time that each performance obligation is satisfied. The Company’s performance obligation includes providing customization of software’s, selling of licenses, where the Company typically satisfies its performance obligations prior to the submission of invoices to the customer for such services. The Company’s performance obligation for consulting and technical support is delivered on as the work is being performed, which is satisfied prior to invoicing. The Company generally collects payment within 30 to 60 days of completion of the performance obligation and there are no agency relationships.
Software development arrangements involving significant customization, modification or production are accounted for in accordance with the appropriate technical accounting guidance issued by the FASB using the percentage-of- completion method. The Company recognizes revenue using periodic reported actual hours worked as a percentage of total expected hours required to complete the project arrangement and applies the percentage to the total arrangement fee.
Unbilled revenue represents earnings in excess of billings as at the end of the reporting period. Sales taxes collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore are excluded from revenues in the statements of operations.
TRAQ Pvt Ltd. has deferred the revenue and costs attributable to certain process transition activities with respect to its customers where such activities do not represent the culmination of a separate earnings process. Such revenue and costs are subsequently recognized ratably over the period in which the related services are performed. Further, the deferred costs are limited to the amount of the deferred revenues.
Software Solution Revenue
Revenue from arrangements with customers is recognized based on the Company’s satisfaction of distinct performance obligations identified in each agreement, generally at a point in time as discussed in ASC 606. In instances where multiple performance obligations are identified, the Company allocates the transaction price to each performance obligation based on relative selling prices of each distinct product or service, and recognizes revenue related to each performance obligation at the points in time that each performance obligation is satisfied. The Company’s performance obligation includes providing connectivity to software, generally through a monthly subscription, where the Company typically satisfies its performance obligations prior to the submission of invoices to the customer for such services. The Company’s performance obligation for hardware components that are purchased by the customer in connection with the solution is delivery of the purchased device, which is satisfied prior to invoicing. The Company provides a twelve-month warranty on their hardware. All units deployed by the Company are past the twelve-month period, thus the Company has not accrued for a warranty liability. The Company generally collects payment within 30 to 60 days of completion of the performance obligation and there are no agency relationships.
| F-12 |
The following is a summary of revenue for the years ended December 31, 2019 and 2018, disaggregated by type:
| 2019 | 2018 | |||||||
| Trucking Revenue | $ | — | $ | 144,127 | ||||
| Professional Services Revenue | 654,374 | — | ||||||
| Software Solution Revenue | 26,358 | 37,191 | ||||||
| $ | 680,732 | $ | 181,318 | |||||
Costs of Services Provided
Costs of services provided consist of data processing costs, customer support costs including personnel costs to maintain the Company’s proprietary databases, costs to provide customer call center support, hardware and software expense associated with transaction processing systems and exchanges, telecommunication and computer network expense, and occupancy costs associated with facilities where these functions are performed. Depreciation expense is not included in costs of services provided.
Lease Obligations
The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, current portion of operating lease liabilities and operating lease liabilities, less current portion in the Company’s consolidated balance sheets.
ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. For leases in which the rate implicit in the lease is not readily determinable, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Lease terms include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for operating lease arrangements is recognized on a straight-line basis over the lease term. The Company has lease agreements with lease and non-lease components, which are accounted for separately.
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.
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., TraqIQ Solutions, OmniM2M and TransportIQ file a consolidated income tax return in the U.S. federal tax jurisdiction and various state tax jurisdictions. TRAQ Pvt Ltd. files income tax returns in all India tax jurisdictions. The 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 TRAQ Pvt Ltd. are subject to examination by the India Income Tax Department and India state taxing authority, generally for 12 months after the relevant tax year, 24 months after the relevant tax year in case transfer pricing provisions are applicable.
| F-13 |
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. The Company does not utilize derivative 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.
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. The pricing model we use for determining the fair value of our derivatives are binomial pricing models. Valuations derived from this model are subject to ongoing internal and external verification and review. The model uses 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.
| F-14 |
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.
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.
| F-15 |
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.
Earnings (Loss) Per Share of Common Stock
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. An uncertain number of shares underlying convertible debt have been excluded from the computation of loss per share because their impact was anti-dilutive.
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.
Retirement Benefits to Employees
Defined Contribution Plan
In India, the employees receive benefits from a provident fund, where the employer and employees each make monthly contributions to the plan at a pre-determined rate to the Regional Provident Fund Commissioner. Employer’s contributions to the fund is charged as an expense in the Statements of Operations.
Defined Benefit Plan
In accordance with the Payment of Gratuity Act, 1972, applicable for Indian companies, TRAQ Pvt Ltd. provides for a lump sum payment to eligible employees, at retirement or termination of employment based on the last drawn salary and years of employment with the Company. Current service costs for defined benefit plans are accrued in the period to which they relate. The liability in respect of defined benefit plans is calculated annually by Mann. TRAQ Pvt Ltd. records annual amounts relating to its defined benefit plans based on calculations that incorporate various actuarial and other assumptions, including discount rates, mortality, assumed rates of return, compensation increases and turnover rates. TRAQ Pvt Ltd. reserves its assumptions on an annual basis and makes modifications to the assumptions based on current rates and trends when it is appropriate to do so. TRAQ Pvt Ltd.’s obligation in respect of the gratuity plan, which is a defined benefit plan, is provided for based on actuarial valuation.
| F-16 |
Other Long-Term Employee Benefits
TRAQ Pvt Ltd.’s net obligation in respect of leave encashment is the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value, and the fair value of any related assets is deducted. The discount rate is based on the prevailing market yields of Indian government securities at the reporting date that have maturity dates approximating the terms of TRAQ Pvt Ltd.’s obligations. The calculation is performed using the projected unit credit method. Any actuarial gains or losses are recognized.
Investments
The Company’s investments are in debt and equity instruments. These investments are accounted for in accordance with ASC 320 Investments – Debt Securities and ASC 321 Investments – Equity Securities. Interest earned under such investments are included in interest income.
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.
As a result, all operating units perform similar services, and approximately 99% of the Company’s revenue is generated from its Indian subsidiary. The Company believes that no segment reporting is required as all remaining operations outside of the Indian subsidiary is immaterial.
Recently Issued Accounting Standards
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses. The standard requires a financial asset (including trade receivables) measured at amortized cost basis to be presented at the net amount expected to be collected. Thus, the income statement will reflect the measurement of credit losses for newly-recognized financial assets as well as the expected increases or decreases of expected credit losses that have taken place during the period. This standard will be effective for the calendar year ending December 31, 2020. The Company is currently in the process of evaluating the impact of adoption of this ASU on the financial statements.
There were other 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.
Going Concern
The Company has an accumulated deficit of $1,896,984 and a working capital deficit of $2,697,036, as of December 31, 2019, and a working capital deficit of $1,658,685 as of December 31, 2018. As a result of these factors, management has determined that there is substantial doubt about the Company ability to continue as a going concern.
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 of time. The consolidated financial statements of the Company do not include any adjustments that may result from the outcome of the uncertainties.
In May 2019, the Company acquired 100% of the shares of TRAQ Pvt Ltd. and assumed certain net liabilities in exchange for warrants exercisable over a five-years to purchase 1,329,272 shares of common stock of the Company. This acquisition will assist the Company in operations and cash flow.
| F-17 |
The Company plans to raise additional capital to carry out its business plan. The Company’s ability to raise additional capital through future equity and debt securities issuances is unknown. Obtaining additional financing and the successful development of the Company’s contemplated plan of operations, ultimately, to profitable operations, are necessary for the Company to continue operations.
NOTE 3: ACQUISITION OF TRAQ PVT LTD.
On May 16, 2019, the Company entered into a Share Exchange Agreement with Mann-India Technologies Private Ltd., an Indian Corporation. On January 2, 2020, the name of this company was changed to TRAQIQ Solutions Private Limited. Pursuant to the Share Exchange Agreement with TRAQ Pvt Ltd., the Company acquired 100% of the shares of TRAQ Pvt Ltd. and assumed certain net liabilities) in exchange for warrants exercisable over a five-years to purchase 1,329,272 shares of common stock of the Company valued at $268. The warrants will be exercisable as follows: (i) 100,771 warrants immediately upon closing; (ii) 859,951 warrants exercisable one-year after the date of closing; and (iii) 368,550 warrants exercisable two-years after the date of closing.
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.
The Company acquired the assets and liabilities noted below in exchange for the warrants noted herein and accounted for the acquisition in accordance with ASC 805. As a result, total consideration was equal to the value of the warrants of $268, as stated in the agreement, and the Company recognized a gain on bargain purchase in the amount of $417,148. In accordance with ASC 805-20-50-4A, based on the book values which approximate fair values at the effective date of acquisition, the purchase price was recorded as follows:
| Cash (including restricted cash of $185,399) | $ | 185,633 | ||
| Accounts receivables, net | 506,951 | |||
| Prepaid expenses and other current assets | 216,956 | |||
| Right-of-use asset | 576,566 | |||
| Fixed assets | 68,260 | |||
| Customer relationships | 448,800 | |||
| Tradenames | 49,799 | |||
| Investment | 42,248 | |||
| Other assets | 37,950 | |||
| Accounts payable and accrued expenses | (173,197 | ) | ||
| Accrued payroll and related taxes | (325,629 | ) | ||
| Accrued duties and taxes | (66,765 | ) | ||
| Lease liability | (585,207 | ) | ||
| Deferred revenue | (3,618 | ) | ||
| Cash overdraft | (471,017 | ) | ||
| Debt – related parties | (61,273 | ) | ||
| Debt | (29,041 | ) | ||
| $ | 417,416 |
The customer relationships and tradenames are being amortized over fifteen years.
The difference between the net assets acquired of $417,416, and the consideration paid (in the form of warrants) of $268 represents a bargain purchase gain of $417,148.
Since the acquisition TRAQ Pvt Ltd. has recorded $654,374 in revenues and a loss of $26,983 that are included in consolidated results.
| F-18 |
The following table shows pro-forma results for the years December 31, 2019 and December 31, 2018 as if the acquisition had occurred on January 1, 2018. These unaudited pro forma results of operations are based on the historical financial statements and related notes of TRAQ Pvt Ltd. and the Company.
For the year ended December 31, 2019 | For the year ended December 31, 2018 | |||||||
| Revenues | $ | 1,143,606 | $ | 1,236,665 | ||||
| Net income (loss) | $ | (166,533 | ) | $ | (726,273 | ) | ||
| Net income (loss) per share | $ | (0.01 | ) | $ | (0.03 | ) | ||
NOTE 4: CASH AND RESTRICTED CASH
Cash and restricted cash are as follows:
December 31, 2019 |
December 31, 2018 |
|||||||
| Cash on hand | $ | 252 | $ | - | ||||
| Bank balances | 8,842 | 2,347 | ||||||
| Restricted cash | 182,627 | - | ||||||
| Total | $ | 191,721 | $ | 2,347 | ||||
ASU 2016-18, “Statements of Cash Flows” (Topic 230) was adopted by the Company in 2017. In accordance with this standard, restricted cash and restricted cash equivalents is included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the Statements of Cash Flows. During the years ended December 31, 2019 and December 31, 2018, there were no cash equivalents.
NOTE 5: FIXED ASSETS
The Company’s property and equipment is as follows:
December 31, 2019 | December 31, 2018 | |||||||
| Property and equipment – TRAQ Pvt Ltd. | $ | 650,621 | $ | - | ||||
| Less: accumulated depreciation | (601,940 | ) | - | |||||
| Net | $ | 48,681 | $ | - | ||||
Depreciation expense for the years ended December 31, 2019 and 2018 was $22,065 and $0, respectively.
NOTE 6: INTANGIBLE ASSETS
The Company’s intangible assets are as follows:
December 31, 2019 | December 31, 2018 | |||||||
| Customer relationships | $ | 448,800 | $ | - | ||||
| Tradenames | 49,799 | |||||||
| Less: accumulated amortization | (20,775 | ) | - | |||||
| Net | $ | 477,824 | $ | - | ||||
Amortization expense for the years ended December 31, 2019 and 2018 was $20,775 and $0, respectively.
| F-19 |
NOTE 7: LONG-TERM INVESTMENT
The Company’s long-term investment is as follows:
| December 31, 2019 | December 31, 2018 | |||||||
| Equity Security – Compulsorily Convertible Debenture | $ | 41,617 | $ | - | ||||
The investment the Company has in a 1% Compulsorily Convertible Debenture for the period of seven years are neither to be redeemed by the issuing entity nor are redeemable at the option of the investor, therefore this has been considered an equity security. The Company has elected to measure the equity security at its cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.
NOTE 8: LONG-TERM DEBT RELATED PARTIES
The following is a summary of the current portion - long-term debt - related parties as of December 31, 2019 and December 31, 2018:
December 31, 2019 | December 31, 2018 | |||||||||
| Unsecured advances - CEO | (a) | $ | 1,221,737 | $ | 728,236 | |||||
| Notes payable - Satinder Thiara | (b) | 57,000 | 57,000 | |||||||
| Promissory note – Kunaal Sikka | (c) | 15,000 | 15,000 | |||||||
| Notes payable – Swarn Singh | (d) | 45,000 | 45,000 | |||||||
| 1,338,737 | 845,236 | |||||||||
| Current portion of long-term det related parties | (1,306,737 | ) | (845,236 | ) | ||||||
| Long-term debt – related parties | $ | 32,000 | $ | - | ||||||
| (a) | This is an unsecured advance from the CEO originally entered into January 1, 2015. The note bears interest at 15% annually (1.25% monthly) and are due on demand. For the years ended December 31, 2019 and 2018, the Company repaid $99,700 and $149,406, the CEO made additional advances of $593,201 and $286,130, Interest expense on this loan for the years ended December 31, 2019 and 2018 was $153,588 and $99,800. Accrued interest on this loan at December 31, 2019 and December 31, 2018 is $443,519 and $289,931, respectively. | |
| (b) | Notes payable to Satinder Thiara entered into May 25, 2016 ($22,000) which is due December 31, 2021, December 13, 2016 ($10,000) which is due December 31, 2021, and May 1, 2018 ($25,000) which matured December 31, 2019 at interest rate of 15% annually (1.25% monthly). These are unsecured loans. Interest expense on these loans for the years ended December 31, 2019 and 2018 was $8,550 and $7,372, respectively. Accrued interest on these loans at December 31, 2019 and 2018 is $22,923 and $14,373, respectively. Satinder Thiara is a shareholder of the Company and the CEO’s wife. The May 1, 2018 note is in default as of December 31, 2019. As a result the interest rate was changed to 21% annually (1.75% monthly). |
| F-20 |
| (c) | Unsecured promissory note from Kunaal Sikka, the CEO’s son, dated September 13, 2018, in the amount of $15,000, maturing on December 31, 2019, and accruing interest at an annual rate of 12%. Interest expense on these loans for the years ended December 31, 2019 and 2018 was $1,800 and $540, respectively. Accrued interest on these loans at December 31, 2019 and 2018 is $2,340 and $540, respectively. The note is in default as of December 31, 2019. As a result the interest rate was changed to 18% annually (1.50% monthly). | |
| (d) | Note payable to Swarn Singh, father-in-law of the CEO, entered into January 3, 2017 ($25,000) and February 1, 2017 ($20,000) at interest rate of 15% annually (1.25% monthly). These are unsecured notes. Interest expense on these loans for the years ended December 31, 2019 and 2018 was $6,750 and $6,887, respectively. Accrued interest on these loans at December 31, 2019 and 2018 is $19,970 and $13,220, respectively. Both notes are due December 31, 2019. The notes are in default as of December 31, 2019. As a result the interest rate was changed to 21% annually (1.75% monthly). |
NOTE 9: LONG-TERM DEBT
The following is a summary of the long-term debt as of December 31, 2019 and December 31, 2018:
December 31, 2019 | December 31, 2018 | ||||||||
| Promissory notes - Kabbage | (a) | $ | 23,826 | $ | 36,687 | ||||
| Promissory notes – Loan Builder | (b) | - | 12,114 | ||||||
| Other debt – in default | (c) | 6,000 | 6,000 | ||||||
| Yukti Securities Private Limited | (d) | 4,660 | - | ||||||
| Lathika Regunathan | (e) | - | - | ||||||
| Noor Qazi | (f) | 50,562 | - | ||||||
| Auto loan – ICICI Bank | (g) | 25,662 | - | ||||||
| Baxter Credit Union | (h) | 100,000 | - | ||||||
| Total | $ | 210,710 | $ | 54,801 | |||||
| Current portion | (191,508 | ) | (54,801 | ) | |||||
| Long-term debt, net of current portion | $ | 19,202 | $ | - | |||||
| (a) | Multiple monthly loan agreements with Kabbage. Each of these loans has a six-month duration with interest and fees spread over the 6 months. | |
| (b) | Business loan agreement with LoanBuilder in August 2018 in the amount of $18,000, payable in 52 weekly payments of $409, including interest. | |
| (c) | Note payable to an individual for $7,500, issued in May 2018 as consideration for services, due in June 2018, and bearing no interest. During the year ended December 31, 2018, the Company made a payment of $1,500 against the note and the Company has withheld payment of the remaining amount pending receipt of amounts due from the service provider. | |
| (d) | Loan payable to Yukti Securities Private Limited is an unsecured loan which is due on demand. | |
| (e) | Unsecured loan from Lathika Regunathan, individual, is due on demand. This loan was paid off in the three months ended December 31, 2019. | |
| (f) | Unsecured loan from Noor Qazi, individual, is due on demand. | |
| (g) | Loan payable with ICICI Bank, secured by the vehicle the loan was taken for. Payments are monthly at $752, through maturity in May 2023. Of the amount outstanding, the following represents the maturity: Current (2020) - $6,460; 2021 - $7,288; 2022 - $7,952; and 2023 - $3,962. | |
| (h) | Revolving loan in the amount of $100,000 at 4% interest per annum due December 30, 2020. The loan is guaranteed by the CEO of the Company. |
| F-21 |
NOTE 10: CURRENT PORTION - CONVERTIBLE DEBT – RELATED AND UNRELATED PARTIES
The following is a summary of current portion - convertible debt - related and unrelated parties as of December 31, 2019 and December 31, 2018:
December 31, 2019 | December 31, 2018 | ||||||||
| Face value of notes – related party | (a) | $ | 95,000 | $ | 95,000 | ||||
| Face value of notes – unrelated parties | (a) | 98,077 | 98,077 | ||||||
| Excess of the fair value of shares issuable over the face value of the convertible notes | (a) | 48,257 | 48,257 | ||||||
| $ | 241,334 | $ | 241,334 | ||||||
| (a) | In connection with the reverse merger in July 2017, the Company and two stockholders, who had provided related party advances to the Company, agreed to exchange their related party advances for 6% Convertible Promissory Notes that were originally due on January 15, 2018 (the “Notes”) in the amount of $68,077. From August 2017 through November 2017, the Company issued additional notes to four different parties (two of which were related parties) in the principal amount of $100,000 ($70,000 to related parties). In January 2018, the holders of the Notes agreed to extend the maturity to April 30, 2018, and in April 2018, agreed to further extend the maturity of certain notes to June or July 2018. During the year ended December 31, 2018, the maturity of the notes were further extended to March 31, 2019 and then again to periods ranging from June 30, 2019 to December 31, 2019. The Notes bear simple interest at 6% unless the Company defaults, which increases the interest rate to 10%. The Holders, at their option, can elect to convert the principal plus any accrued interest, into shares of the Company’s common stock at a conversion rate equal to eighty percent (80%) of the average closing share price as quoted on the OTC Markets for the five (5) trading days prior to the date of conversion. There are two notes that had a maturity date of June 30, 2019, with the remaining notes having a maturity date of December 31, 2019. These notes have not been extended and are currently in default. The Company has classified these notes as current liabilities. The Company has accrued the default interest on the two notes from July 1, 2019 through December 31, 2019. | |
| During the year ended December 31, 2018, the Company received additional proceeds from a related party of $25,000 (from Dharam V. Sikka, father of CEO) pursuant to a convertible note payable issued in May 2018, with the same interest rate and conversion terms as the Notes described above, initially maturing on December 31, 2018, which has been extended to March 31, 2019 and then again to December 31, 2019. Because the Notes are convertible into a variable number of shares of common stock based on a fixed dollar amount, in accordance with ASC Topic 480-10-50-2, the notes are recorded at the fair value of the shares issuable upon conversion. The excess of the fair value of shares issuable over the face value of the Notes is recorded as a discount to the note to be amortized into interest expense over the term of the note. |
The Company recorded interest expense of $12,958and $11,215 for the years ended December 31, 2019 and 2018, respectively, for these convertible notes. Accrued interest on the convertible notes was $27,936 and $14,979 at December 31, 2019 and 2018, respectively.
The Company is not currently trading on any exchange and was not for the years ended December 31, 2019 and December 31, 2018, respectively. The Company does not have a share price and has calculated the stock-settled liability in accordance with ASC 835-30 which establishes the monetary value at settlement of these instruments at fair value.
| F-22 |
NOTE 11: STOCKHOLDERS’ DEFICIT
Series A Convertible Preferred Stock
On July 19, 2017, the Company approved the issuance of 50,000 shares of its Series A Convertible Preferred Stock to its CEO and, on August 1, 2017, the Company sold and issued the 50,000 shares of its Series A Convertible Preferred Stock to its CEO at a price of $0.20 per share for $10,000.
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 $500 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 (i) eighty five percent (85%) of the average closing bid price of the Common Stock over the twenty (20) trading days immediately preceding the date of conversion, (ii) but no less than par value of the Common Stock. For purposes of determining the closing bid price on any day, reference shall be to the closing bid price for a share of Common Stock on such date on the OTC Markets, as reported on Bloomberg, L.P. (or similar organization or agency succeeding to its functions of reporting prices) (the “Per Share Market Value”).
Common Stock
As of December 31, 2019, the Company has 27,297,960 shares issued and outstanding.
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.
Warrants
On May 16, 2019, the Company entered into a Share Exchange Agreement with Mann-India Technologies Private Ltd., an Indian Corporation. Pursuant to the Share Exchange Agreement, the Company acquired 100% of the shares of TRAQ Pvt Ltd. and assumed certain net liabilities in exchange for warrants exercisable over a five-years to purchase 1,329,272 shares of common stock of the Company valued at $268. The warrants will be exercisable as follows: (i) 100,771 warrants immediately upon closing; (ii) 859,951 warrants exercisable one-year after the date of closing; and (iii) 368,550 warrants exercisable two-years after the date of closing. The value of the transaction totaled $268 and is reflected as an increase to additional paid in capital.
NOTE 12: OPERATING LEASE
The Company has adopted ASU No. 2016-02, Leases (Topic 842), as of January 1, 2019 and will account for their lease in terms of the right of use assets and offsetting lease liability obligations for this new lease under this pronouncement. In accordance with ASC 842 - Leases, effective January 1, 2019, the Company up until May 16, 2019 did not have any long-term lease commitments. On May 17, 2019 with the Company’s acquisition of TRAQ Pvt Ltd., recorded a lease right of use asset and a lease liability at present value of $576,566 and $585,207, respectively. The Company is recording this amount at present value, in accordance with the standard, using an incremental borrowing rate by adjusting the benchmark reference rates with appropriate financing spreads and lease specific adjustments for the effects of collateral. The right of use asset will be composed of the sum of all lease payments plus any initial direct cost and will be straight line amortized over the life of the expected lease term. For the expected term of the lease the Company will use the term of the nine-year lease. This lease will be treated as an operating lease under the new standard.
| F-23 |
The Company has chosen to implement this standard using the modified retrospective model approach with a cumulative-effect adjustment, which does not require the Company to adjust the comparative periods presented when transitioning to the new guidance on January 1, 2019. The Company has also elected to utilize the transition related practical expedients permitted by the new standard. The modified retrospective approach provides a method for recording existing leases at adoption and in comparative periods that approximates the results of a modified retrospective approach.
The lease right of use asset of $592,909 will be amortized on a straight-line basis over the term of the lease. For the year ended December 31, 2019 the Company recorded a rent expense of $74,214. As of December 31, 2019, the value of the unamortized lease right of use asset is $537,268. As of December 31, 2019, the Company’s lease liability was $555,143.
| Remaining Lease Obligation by calendar year (undiscounted cash flows) | ||||
| 2020 | $ | 122,343 | ||
| 2021 | 125,670 | |||
| 2022 | 131,611 | |||
| 2023 | 140,695 | |||
| 2024 | 144,520 | |||
| 2025 and thereafter | 163,494 | |||
| Total lease payments | 828,333 | |||
| Less: Imputed interest | 273,190 | |||
| Present value of lease liabilities | $ | 555,143 | ||
nOTE 13: CONCENTRATIONS
During the years ended December 31, 2019 and 2018, the Company had two major customers comprising 82% of revenues and two major customers comprising 91% of revenues, respectively. A major customer is defined as a customer that represents 10% or greater of total revenues. There was 67% and 77% of accounts receivable two and two customers as of December 31, 2019 and December 31, 2018, respectively.
During the year ended December 31, 2018, approximately 84% of the Company’s cost of sales was incurred through the use of five vendors.
The Company does not believe that the risk associated with these customers or vendors will have an adverse effect on the business.
nOTE 14: CONTINGENCY
During the year ended December 31, 2018, the Company charged an independent truck driver approximately $190,000 pursuant to its agreement with the driver, which entitled the Company to fees equal to $800 per day for the driver’s failure to return a trailer owned by the Company with the period prescribed by the agreement. The Company has not recognized this as income due to uncertainty of payment and will record as other income during the period in which amounts are collected.
NOTE 15: PROVISION FOR INCOME TAXES
The provision (benefit) for income taxes for the years ended December 31, 2019 and 2018 differs from the amount which would be expected as a result of applying the statutory tax rates to the losses before income taxes due primarily to the valuation allowance to fully reserve net deferred tax assets.
| F-24 |
All United States based entities:
The following table summarizes the significant differences between the U.S. Federal statutory tax rate and the Company’s effective tax rate for financial statement purposes for the years ended December 31, 2019 and 2018:
| 2019 | 2018 | |||||||
| Federal income taxes at statutory rate | 21.00 | % | 21.00 | % | ||||
| State income taxes at statutory rate | 7.50 | % | 7.50 | % | ||||
| Temporary differences | (0.82 | )% | 7.75 | % | ||||
| Permanent differences | (7.41 | )% | (0.71 | )% | ||||
| Impact of Tax Reform Act | (0.00 | )% | (0.00 | )% | ||||
| Change in valuation allowance | (20.27 | )% | (35.54 | )% | ||||
| Totals | 0.00 | % | 0.00 | % | ||||
Realization of deferred tax assets is dependent upon sufficient future taxable income during the period that deductible temporary differences and carry-forwards are expected to be available to reduce taxable income. As the achievement of required future taxable income is uncertain, the Company recorded a valuation allowance.
| As of | As of | |||||||
December 31, 2019 | December 31, 2018 | |||||||
| Deferred tax assets: | ||||||||
| Net operating losses before non-deductible items | $ | 486,714 | $ | 417,735 | ||||
| Depreciation | (1,616 | ) | (2,827 | ) | ||||
| Related party accrued interest | - | 32,344 | ||||||
| Total deferred tax assets | 485,098 | 447,252 | ||||||
| Less: Valuation allowance | (485,098 | ) | (447,252 | ) | ||||
| Net deferred tax assets | $ | - | $ | - | ||||
As of December 31, 2019, the Company has a net operating loss carry forward of $1,807,667 expiring through 2037. The Company has provided a valuation allowance against the full amount of the deferred tax asset due to management’s uncertainty about its realization. Furthermore, the net operating loss carry forward may be subject to further limitation pursuant to Section 382 of the Internal Revenue Code. The valuation allowance was increased by $37,846 in 2019.
On December 22, 2017, the Tax Cuts and Jobs Act (the “Act”) was signed into law. The Act decreases the U.S. corporate federal income tax rate from a maximum of 35% to a flat 21% effective January 1, 2018. The impact of the re-measurement on the Corporation’s net deferred tax asset, as of December 31, 2017, was an approximately $31,000 decrease in deferred tax assets, with a corresponding decrease in the Company’s valuation allowance, and no impact on income tax expense. The Act also includes a number of other provisions including, among others, the elimination of net operating loss carrybacks and limitations on the use of future losses, the repeal of the Alternative Minimum Tax regime and the repeal of the domestic production activities deduction. These provisions are not expected to have a material effect on the Corporation.
Given the significant complexity of the Act and anticipated additional implementation guidance from the Internal Revenue Service, further implications of the Act may be identified in future periods.
The Company classifies income tax penalties and interest, if any, as part of other general and administrative expenses in the accompanying consolidated statements of operations. The Company did not expense any penalties or interest during the years ended December 31, 2019 or December 31, 2018 and did not accrue any penalties or interest as of December 31, 2019 or December 31, 2018.
| F-25 |
India based entity:
Significant components of deferred tax liabilities as at December 31, 2019 (was acquired May 2019):
| As of | ||||
| December 31, 2019 | ||||
| Deferred Tax Assets: | ||||
| Difference between book and tax base of fixed assets | $ | 56,696 | ||
| Provision for gratuity | 22,253 | |||
| Provision for leave encashment | 8,598 | |||
| Operating lease | 2,339 | |||
NOL carryforward (based on last tax return filed per Indian Income Tax laws) | 11,404 | |||
| MAT credit | 8,860 | |||
| Deferred Tax Assets | 110,150 | |||
| Net Deferred Tax Assets | 110,150 | |||
| Less: Valuation allowance | (110,150 | ) | ||
| Net Deferred Tax Asset | $ | - | ||
Deferred tax assets and liabilities are recognized for future tax consequences attributable to temporary differences between the financial statement carrying values of assets and liabilities and their respective tax bases.
At December 31, 2019, the Company performed an analysis of the deferred tax asset valuation allowance due to management’s uncertainty about its realization. The Company when necessary will record a valuation allowance against this deferred tax asset. Based on the analysis, the Company has provided a valuation allowance against the full amount of said Deferred Tax Assets of $110,150 due to management’s uncertainty about its realization.
nOTE 16: EMPLOYEE BENEFIT PLANS
TRAQ Pvt Ltd.’s Gratuity Plan provides for lump sum payment to vested employees on retirement or upon termination of employment in an amount based on the respective employee’s salary and years of employment with the Company. Liabilities with regard to the Gratuity Plans are determined by actuarial valuation using the projected unit credit method. Current service costs for the Gratuity Plan are accrued in the year to which they relate. Actuarial gains or losses or prior service costs, if any, resulting from amendments to the plans are recognized and amortized over the remaining period of service of the employees.
| F-26 |
The benefit obligation has been measured as of December 31, 2019. The gratuity plan is unfunded. The following table sets forth the activity of the Gratuity Plans and the amounts recognized in the Company’s financial statements for the period May 16, 2019 through December 31, 2019:
Period May 16, 2019 through |
||||
| December 31, 2019 | ||||
| Change in projected benefit obligation: | ||||
| Projected benefit obligation as of May 16, 2019 | $ | 65,550 | ||
| Service cost | 6,982 | |||
| Interest cost | 3,106 | |||
| Benefits paid | (1,932 | ) | ||
| Actuarial gain (loss) on the Obligation | 13,086 | |||
| Effect of exchange rate changes | (1,198 | ) | ||
| $ | 85,594 | |||
| Projected benefit obligation as of December 31, 2019 | ||||
| Unfunded amount – non-current | $ | 74,781 | ||
| Unfunded amount - current | 10,813 | |||
| Total accrued liability | $ | 85,594 | ||
| Components of net period benefit costs: | ||||
| Service cost | $ | 6,982 | ||
| Interest cost | 3,106 | |||
| Actuarial gain (loss) on the Obligation | 11,888 | |||
| $ | 21,976 | |||
| The weighted average actuarial assumptions used to determine benefit obligations and net periodic gratuity cost are: | ||||
| Discount rate | 6.70% per annum | |||
| Rate of increase in compensation levels | 10.00 % per annum |
Leave Encashment:
The other long-term employee benefits has been measured as of December 31, 2019. The following table sets forth the activity of the leave encashment and the amounts recognized in TRAQ Pvt Ltd.’s financial statements at the end of the period May 16, 2019 through December 31, 2019:
Period May 16, 2019 through |
||||
| December 31, 2019 | ||||
| Change in projected benefit obligation: | ||||
| Projected benefit obligation as of May 16, 2019 | $ | 24,243 | ||
| Service cost | 3,646 | |||
| Interest cost | 940 | |||
| Benefits paid | (919 | ) | ||
| Actuarial gain (loss) on the Obligation | 5,617 | |||
| Effect of exchange rate changes | (457 | ) | ||
| $ | 33,070 | |||
| Projected benefit obligation as of December 31, 2019 | ||||
| Unfunded amount – non-current | $ | 5,388 | ||
| Unfunded amount - current | 27,682 | |||
| Total accrued liability | $ | 33,070 | ||
| Components of net period benefit costs: | ||||
| Service cost | $ | 3,646 | ||
| Interest cost | 940 | |||
| Actuarial gain (loss) on the Obligation | 5,160 | |||
| $ | 9,746 | |||
| The weighted average actuarial assumptions used to determine benefit obligations and net periodic gratuity cost are: | |||
| Discount rate | 6.70% per annum | ||
| Rate of increase in compensation levels | 10.00 % per annum |
nOTE 17: SUBSEQUENT EVENTS
Management has evaluated subsequent events, in accordance with FASB ASC Topic 855, “Subsequent Events”, through the date which the consolidated financial statements were available to be issued and there are no material subsequent events to report.
| F-27 |
EXHIBIT 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Ajay Sikka, Chief Executive Officer, certify that:
1. I have reviewed this annual report on Form 10-K of TraqIQ Inc.;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant) and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal annual period that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal controls over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial data information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.
| Date: May 30, 2020 | /s/ Ajay Sikka |
| Ajay Sikka | |
Chief Executive Officer (Principal Executive Officer) |
EXHIBIT 31.2
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Ajay Sikka, Chief Financial Officer, certify that:
1. I have reviewed this annual report on Form 10-K of TraqIQ Inc.;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant) and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal annual period that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal controls over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial data information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.
| Date: May 30, 2020 | /s/ Ajay Sikka |
| Ajay Sikka | |
Chief Financial Officer (Principal Financial and Accounting Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual report of TraqIQ Inc. (the “Company”) on Form 10-K for the period ending December 31, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Ajay Sikka, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities and Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Date: May 30, 2020 | /s/ Ajay Sikka |
| Ajay Sikka | |
Chief Executive Officer (Principal Executive Officer) |
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual report of TraqIQ Inc. (the “Company”) on Form 10-K for the period ending December 31, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Ajay Sikka, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities and Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Date: May 30, 2020 | /s/ Ajay Sikka |
| Ajay Sikka | |
Chief Financial Officer (Principal Financial and Accounting Officer) |