Titan Environmental Solutions Inc 10-Q for FY2023 Q3
Titan Environmental Solutions Inc. (TESI)
About this 10-Q
Titan Environmental Solutions Inc filed this 10-Q on November 14, 2023, covering the quarter ended September 30, 2023 (FY2023 Q3).
Headline figures
Quarter ended September 30, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $2.61M
- up 107.9% from $1.25M a year earlier
- Net loss
- $118.59M
- compared with a net loss of $277.13K a year earlier
- Diluted EPS
- -$0.65
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
| TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _____________ to _____________
Commission
File Number:
(Exact Name of Registrant as Specified in Its Charter)
(State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) | |
| (Address of Principal Executive Office) | (Zip Code) |
(Registrant’s Telephone Number, Including Area Code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act: None.
| Title of Each Class | Trading Symbol | Name of Each Exchange on which registered | ||
Securities registered pursuant to Section 12(g) of the Exchange Act:
(Title of class)
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. ☐
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files). ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non- accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, “non-accelerated filer”, “smaller reporting company” and “emerging growth” in Rule 12b-2 of the Exchange Act.
| Large Accelerated filer ☐ | Accelerated filer ☐ |
| Smaller
reporting company | |
| Emerging
growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒
The number of shares of the Registrant’s common stock, $0.0001 par value per share, outstanding as of November 14, 2023, was .
| Documents incorporated by reference: | None |
TRAQIQ, INC
INDEX
| Page | ||
| PART I - FINANCIAL INFORMATION | ||
| Item 1. | Financial Statements | 4 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 29 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 33 |
| Item 4. | Controls and Procedures | 33 |
| PART II - OTHER INFORMATION | 34 | |
| Item 1. | Legal Proceedings | 34 |
| Item 1A. | Risk Factors | 34 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 34 |
| Item 3. | Defaults Upon Senior Securities | 34 |
| Item 4. | Mine Safety Disclosures | 34 |
| Item 5. | Other Information | 35 |
| Item 6. | Exhibits | 35 |
| Signatures | 36 | |
| 2 |
FORWARD-LOOKING STATEMENTS
Except for any historical information contained herein, the matters discussed in this quarterly report on Form 10-Q contain certain “forward-looking statements’’ within the meaning of the federal securities laws. This includes statements regarding our future financial position, economic performance, results of operations, business strategy, budgets, projected costs, plans and objectives of management for future operations, and the information referred to under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
These forward-looking statements generally can be identified by the use of forward-looking terminology, such as “may,’’ “will,’’ “expect,’’ “intend,’’ “estimate,’’ “anticipate,’’ “believe,’’ “continue’’ or similar terminology, although not all forward-looking statements contain these words. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, you are cautioned that any such forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Although we believe that the expectations reflected in such forward-looking statements are reasonable as of the date made, expectations may prove to have been materially different from the results expressed or implied by such forward-looking statements. Important factors that may cause actual results to differ from projections include, for example:
| ● | the success or failure of management’s efforts to implement our business plan; | |
| ● | our ability to fund our operating expenses; | |
| ● | our ability to compete with other companies that have a similar business plan; | |
| ● | the effect of changing economic conditions impacting our plan of operation; and | |
| ● | our ability to meet the other risks as may be described in future filings with the Securities and Exchange Commission (the “SEC”). |
Unless otherwise required by law, we also disclaim any obligation to update our view of any such risks or uncertainties or to announce publicly the result of any revisions to the forward-looking statements made in this quarterly report on Form 10-Q.
When considering these forward-looking statements, you should keep in mind the cautionary statements in this quarterly report on Form 10-Q and in our other filings with the SEC. We cannot assure you that the forward-looking statements in this quarterly report on Form 10-Q will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may prove to be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time-frame, or at all.
| 3 |
Item 1. Financial Statements
| 4 |
TRAQIQ, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2023 (UNAUDITED) AND DECEMBER 31, 2022
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Subscription receivable | ||||||||
| Other receivables | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Inventory | ||||||||
| Total Current Assets | ||||||||
| Property and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Goodwill | ||||||||
| Other assets | ||||||||
| Operating lease right-of-use asset, net | ||||||||
| Total Non-current Assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| LIABILITIES | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Customer deposits | ||||||||
| Accrued payroll and related taxes | ||||||||
| Derivative liability | ||||||||
| Convertible notes payable, net of discounts | ||||||||
| Convertible notes payable, net of discounts – related party | ||||||||
| Notes payable, net of discounts | ||||||||
| Notes payable, net of discounts – related party | ||||||||
| Operating lease liability, current | ||||||||
| Total Current Liabilities | ||||||||
| Notes payable, net of current portion and discounts | ||||||||
| Notes payable, net of current portion and discounts – related party | ||||||||
| Operating lease liability, net of current portion | ||||||||
| Total Non-current Liabilities | ||||||||
| Total Liabilities | ||||||||
| STOCKHOLDERS’ EQUITY | ||||||||
| Member’s equity | ||||||||
| Preferred stock, shares authorized: | ||||||||
| Preferred stock, par value, $, Series A Convertible Preferred, and shares issued and outstanding | ||||||||
| Preferred stock, par value, $, Series B Convertible Preferred, and shares issued and outstanding, respectively | ||||||||
| Preferred stock, par value, $, Series C Convertible Preferred, and shares issued and outstanding, respectively | ||||||||
| Preferred stock value | ||||||||
| Common stock, par value, $, shares authorized, and issued and outstanding, respectively | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ||||||
| Total Stockholders’ Equity | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 5 |
TRAQIQ, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022 (UNAUDITED)
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| For the Nine Months Ended | For the Three Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Cost of Revenues | ||||||||||||||||
| Gross Profit (Loss) | ( | ) | ||||||||||||||
| Operating Expenses | ||||||||||||||||
| Salary and salary related costs | ||||||||||||||||
| Stock-based compensation | ||||||||||||||||
| Professional fees | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Total Operating Expenses | ||||||||||||||||
| OPERATING LOSS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| OTHER INCOME (EXPENSE): | ||||||||||||||||
| Change in fair value of derivative liability | ||||||||||||||||
| Interest expense, net of interest income | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income, net | ||||||||||||||||
| Goodwill impairment | ( | ) | ||||||||||||||
| Loss on extinguishment and on issuance of share rights | ( | ) | ( | ) | ||||||||||||
| Total other income (expense) | ( | ) | ( | ) | ( | ) | ||||||||||
| Provision for income taxes | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per share | ||||||||||||||||
| Basic and diluted | $ | ) | $ | N/A | $ | ) | $ | N/A | ||||||||
| Weighted-average common shares outstanding | ||||||||||||||||
| Basic and diluted | N/A | N/A | ||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 6 |
TRAQIQ, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIENCY)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022 (UNAUDITED)
Members’ Equity | Series A Preferred Stock | Series B Preferred Stock | Series C Preferred Stock | Common Stock | Additional paid-in | Accumulated | ||||||||||||||||||||||||||||||||||||||||||
| (Deficiency) | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | capital | deficit | Total | |||||||||||||||||||||||||||||||||||||
| Balance - January 1, 2023 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Settlement of note due to contribution | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| Net loss | ( | ) | - | - | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Balance - March 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Effect of reverse acquisition | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Balance – June 30, 2023 | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| Cancelation of Series C Preferred Stock for options | - | - | ( | ) | ( | ) | - | |||||||||||||||||||||||||||||||||||||||||
| Exchange of debt, preferred stock and common stock for common stock rights | - | ( | ) | ( | ) | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Balance - September 30, 2023 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||||||||||||
| Members’ Equity | Series A Preferred Stock | Series B Preferred Stock | Series C Preferred Stock | Common Stock | Additional paid-in | Accumulated | ||||||||||||||||||||||||||||||||||||||||||
(Deficiency) | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | capital | deficit | Total | |||||||||||||||||||||||||||||||||||||
| Balance - January 1, 2022 | $ | ( | ) | $ | $ | $ | $ | $ | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Net income | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Balance - March 31, 2022 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Net loss | ( | ) | - | - | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Balance – June 30, 2022 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Balance | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Member contribution | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| Net loss | ( | ) | - | - | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Net income (loss) | ( | ) | - | - | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Balance - September 30, 2022 | $ | ) | $ | $ | $ | $ | $ | $ | $ | ( | ) | |||||||||||||||||||||||||||||||||||||
| Balance | $ | ) | $ | $ | $ | $ | $ | $ | $ | ( | ) | |||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 7 |
TRAQIQ, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
| 2023 | 2022 | |||||||
| Nine Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| CASH FLOW FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
| Goodwill impairment | ||||||||
| Employee Retention Credit | ||||||||
| Forgiveness of debt | ( | ) | ( | ) | ||||
| Depreciation and amortization | ||||||||
| Stock-based compensation | ||||||||
| Change in fair value of derivative liability and derivative expense | ( | ) | ||||||
| Amortization of discounts and convertible options on debt | ||||||||
| Loss on extinguishment of convertible notes | ||||||||
| Loss on sale of property and equipment | ||||||||
| Changes in assets and liabilities | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| Other receivables | ( | ) | ( | ) | ||||
| Inventory | ||||||||
| Right-of-use asset | ||||||||
| Accounts payable, accrued expenses and deferred taxes | ||||||||
| Customer deposits | ||||||||
| Accrued payroll and payroll taxes | ||||||||
| Operating lease liability | ( | ) | ( | ) | ||||
| Total adjustments | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITES | ||||||||
| Net cash received in reverse acquisition | ||||||||
| Acquisition of property and equipment | ( | ) | ( | ) | ||||
| Proceeds from disposal of property and equipment | ||||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITES | ||||||||
| Subscription receivable | ||||||||
| Loan origination fees | ( | ) | ||||||
| Member Contribution from Subscription Receivable | ||||||||
| Proceeds from convertible notes | ||||||||
| Repayment of convertible notes | ( | ) | ||||||
| Proceeds from convertible notes - related parties | ||||||||
| Proceeds from notes payable | ||||||||
| Repayments of notes payable | ( | ) | ( | ) | ||||
| Proceeds from note payables - related parties | ||||||||
| Repayment of notes payable - related parties | ( | ) | ( | ) | ||||
| Net cash provided by financing activities | ||||||||
| NET INCREASE IN CASH AND CASH EQUIVALENTS | ||||||||
| CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD | ||||||||
| CASH AND CASH EQUIVALENTS - END OF PERIOD | $ | $ | ||||||
| CASH PAID DURING THE PERIOD FOR: | ||||||||
| Interest expense | $ | $ | ||||||
| Income taxes | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES | ||||||||
| Member contributions in exchange for loans payable | $ | $ | ||||||
| Subscription receivable in exchange for equity | $ | $ | ||||||
| Non-cash transactions related to reverse acquisition | $ | $ | ||||||
| Settlement of note payable | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 8 |
TRAQIQ, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 – ORGANIZATION AND NATURE OF OPERATIONS
TraQiQ, Inc. (“TraQiQ” or along with its wholly owned subsidiaries, referred to herein as the “Company”) is engaged in the full-service solution of waste management. The Company is based out of Troy, Michigan and offers a comprehensive package of waste reduction, collection, recycling, and technology-enabled solutions to support customer demand. The Company operates two distinct lines of business. The Company’s wholly-owned subsidiary, Titan Trucking, LLC (“Titan”), is a non-hazardous solid waste management company providing waste and recycling collection and transportation services for industrial generators, commercial contractors and transfer station operators in Michigan. Titan maintains a fleet of roll off and tractor trailer trucks to perform its services. The Company’s wholly-owned subsidiary Recoup Technologies, Inc. (“Recoup”), provides technology-enabled solutions for food waste processing, including onsite digestors for food waste along with cloud-based software tracking and analytics solutions.
On May 19, 2023, the Company completed its acquisition of Titan and Titan’s wholly owned subsidiary, Senior Trucking, LLC (“Senior”). In accordance with ASC 805 - Business Combinations (“ASC 805”), the transaction was treated as a reverse acquisition for financial reporting purposes, with TraQiQ treated as the legal acquirer and Titan treated as the accounting acquirer. TraQiQ remains the continuing registrant and reporting company . Accordingly, the historical financial and operating data of the Company, which covers periods prior to the closing date of the Titan Merger, reflects the assets, liabilities, and results of operations for Titan and does not reflect the assets, liabilities and results of operations of TraQiQ for the periods prior to May 19, 2023 (Note 3 – Business Combinations).
On
July 28, 2023 the Company, its wholly owned subsidiary TraQiQ Solutions, Inc (“Ci2i”), and Ajay Sikka (“Sikka”),
a director of the Company and its former chief executive officer, signed an Assignment of Stock Agreement (the “Assignment Agreement”).
Under the terms of the Assignment Agreement, the Company assigned and transferred to Sikka all of the rights, title, and interests in
the issued and outstanding equity interests of Ci2i in exchange for consideration of $
March 31, 2023 Financial Statements
In connection with the preparation
of the Company’s condensed consolidated financial statements reported in the Company’s Quarterly Report on Form 10-Q for the
quarter ended June 30, 2023, (collectively, “the second quarter financial statements”), the Company identified errors in its
previously-issued financial statements as of and for the period ending March 31, 2023. Management determined that these financial statements
incorrectly accounted for the January 5, 2023, acquisition of the Recoup digester business assets as a business combination instead of
as an asset acquisition under the guidance enumerated in FASB ASC 805. The result of the change was to remove goodwill previously recorded
($
The Company’s acquisition of Titan on May 19, 2023 (Note 3 – Business Combinations) (the “Titan Merger”) was treated as a reverse acquisition under ASC 805 for financial reporting purposes, with TraQiQ as the legal acquirer and Titan as the accounting acquirer. Titan’s historical consolidated financial statements have replaced TraQiQ’s historical consolidated financial statements with respect to periods prior to the completion of the Titan Merger. Therefore, management believes the accounting errors identified do not impact the historical consolidated financial statements presented herein.
Going Concern
The Company’s consolidated financial statements as of September 30, 2023 and December 31, 2022 are prepared using accounting principles generally accepted in the United States of America (“GAAP”), which contemplates continuation of the Company as a going concern. This contemplates the realization of assets and liquidation of liabilities in the ordinary course of business.
For
the nine months ended September 30, 2023, the Company had a net loss of $
Management’s
plans include raising capital through issuances of equity and debt securities, and minimizing operating expenses of the business to improve
the Company’s cash burn rate. On July 17, 2023, the Company converted $
| 9 |
NOTE 2 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with GAAP for interim financial information and with the instructions to Rule 8-03 of Regulation S-X. Accordingly, they do not include all the information and notes for complete financial statements. In the opinion of management, all adjustments (consistent of normal recurring accruals and adjustments) considered necessary for a fair presentation of the consolidated financial statements have been included. Results for the interim periods should not be considered indicative of results to be expected for a full year. The Company adopted a December 31 fiscal year-end for financial statement purposes.
Principles of Consolidation and Basis of Accounting
The consolidated financial statements include the accounts of TraQiQ, Inc and its wholly owned subsidiaries. All material inter-company accounts and transactions have been eliminated. The Company’s policy is to prepare its consolidated financial statements on the accrual basis of accounting, whereby revenue is recognized when earned and expenses are recognized when incurred.
Accounting Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
Business Combinations
Under the guidance enumerated in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805, if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, the set is not considered a business and is accounted for as an asset acquisition at which point, the acquirer measures the assets acquired based on their cost, which is allocated on a relative fair value basis.
Business combinations are accounted for utilizing the fair value of consideration determined by the Company’s management and external specialists. The Company recognizes estimated fair values of the tangible and intangible assets acquired and liabilities assumed as of the acquisition date. Goodwill is recognized as any excess in fair value over the net value of assets acquired and liabilities assumed.
Cash and cash equivalents
The
Company considers all highly-liquid money market funds and certificates of deposit with original maturities of less than three months
to be cash equivalents. The Company maintains its cash balances with various banks. The balances are insured by the Federal Deposit Insurance
Corporation (“FDIC”) up to $
Accounts Receivable, net
Accounts receivables are recorded at the amount the Company expects to collect on the balance outstanding at year-end. Management closely monitors outstanding balances during the year and allocates an allowance account if appropriate. The Company estimates and records a provision for its expected credit losses related to its financial instruments, including its trade receivables and contract assets. The Company considers historical collection rates, the current financial status of its customers, macroeconomic factors, and other industry-specific factors when evaluating for current expected credit losses. Forward-looking information is also considered in the evaluation of current expected credit losses. However, because of the short time to the expected receipt of accounts receivable, the Company believes that the carrying value, net of expected losses, approximates fair value and therefore, relies more on historical and current analysis of such financial instruments.
As
of September 30, 2023 and December 31, 2022, the Company allocated $
| 10 |
Subscriptions Receivable
Subscription
receivable consists of units that have been issued with subscriptions that have not yet been settled. As of September 30, 2023 and December
31, 2022, there were $ and $
Inventory
Inventories primarily consist of parts for our digester business purchased for resale. Inventory is stated at the lower of cost (first-in, first-out) or net realizable value. Management reviews the age of inventories for obsolescence and determined that a reserve for obsolescence was not required as of September 30, 2023.
Property and Equipment, net
Property
and equipment is stated at cost. Depreciation is computed primarily using the straight-line method over the estimated useful lives of
the assets. Expenditures for repairs and maintenance are charged to expense as incurred. For assets sold or otherwise disposed of, the
cost and related accumulated depreciation are removed from the accounts, and any related gain or loss is reflected in the condensed consolidated
statement of operations or the period in which the disposal occurred. The Company utilizes a useful life ranging from
Management regularly reviews property and equipment for possible impairment. This review occurs annually or more frequently if events or changes in circumstances indicate the carrying amount of the asset may not be recoverable. Based on management’s assessment, there were no indicators of impairment of the Company’s property and equipment as of September 30, 2023 and December 31, 2022.
Finite Long-lived Intangible Assets, Net
Finite long-lived intangible assets are recorded at their estimated fair value at the date of acquisition. Finite long-lived intangible assets are amortized on a straight-line basis over their estimated useful lives. Management annually evaluates the estimated remaining useful lives of the finite intangible assets to determine whether events or changes in circumstances warrant a revision to the remaining period of amortization. Titan acquired the finite intangible asset, customer lists, as part of the acquisition of WTI Global, Inc. during the year ended December 31, 2022. The Company also recognized finite intangible intellectual property, noncompete agreement and tradename assets from its reverse acquisition with Titan (Note 3 – Business Combinations).
Finite long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be fully recoverable. An impairment loss is recognized if the sum of the expected long-term undiscounted cash flows the asset is expected to generate is less than its carrying amount. Any write-downs are treated as permanent reductions in the carrying amount of the respective asset. Management assessed and concluded that no impairment write-down would be necessary for finite long-lived intangible assets as of September 30, 2023 and December 31, 2022.
The Company amortizes these intangible assets on a straight-line basis over their estimated useful lives, as stated below:
SCHEDULE OF FINITE LONG-LIVED INTANGIBLE ASSETS ESTIMATED USEFUL LIFE
| Finite Long-lived Intangible Assets Categories | Estimated Useful Life | |
| Customer Lists | ||
| Intellectual Property | ||
| Noncompete agreement | ||
| Tradenames |
Goodwill
Goodwill represents the excess of the acquisition price of a business over the fair value of identified net assets of that business. Goodwill has an indefinite lifespan and is not amortized. The Company evaluates goodwill for impairment at least annually and record an impairment charge when the carrying amount of a reporting unit with goodwill exceeds the fair value of the reporting unit. The Company has two reporting units, Titan and Recoup.
The
Company assesses qualitative factors to determine if it is necessary to conduct a quantitative goodwill impairment test. If deemed necessary,
a quantitative assessment of the reporting unit’s fair value is conducted and compared to its carrying value in order to determine
the impairment charge. Due to the reverse acquisition with Titan, the Company recognized goodwill of $
The
fair value of the Recoup reporting unit was estimated using an income approach and included assumptions related to estimates of future
revenue and operating expenses, long-term growth rates, a technology obsolescence rate, and a discount rate. The quantitative impairment
test indicated a fair value of the reporting unit that was lower than it’s carrying value, and as a result, the goodwill was impaired
with an impairment expense of $
Leases
The Company assesses whether a contract is or contains a lease at inception of the contract and recognizes right-of-use assets (“ROU”) and corresponding lease liabilities at the lease commencement date. The lease term is used to calculate the lease liability, which includes options to extend or terminate the lease when it is reasonably certain that the option will be exercised. The leases the Company currently holds do not have implicit borrowing rates, therefore the Company utilizes its incremental borrowing rate to measure the ROU assets and liabilities. Operating lease expense is generally recognized on a straight-line basis over the lease term. All leases that have lease terms of one year or less are considered short-term leases, and therefore are not recorded through a ROU or liability.
The Company has elected to apply the practical expedient to not separate the lease and non-lease components of a contract, which ultimately results in a higher amount of total lease payments being included within the present value calculation of the lease liability.
| 11 |
Loan Origination Fees
Loan
origination fees represent loan fees, inclusive of original issue discounts, relating to convertible note payables and note payables
granted to the Company. The Company amortizes loan origination fees over the life of the note (Note 9 – Note Payables and Note
10 – Convertible Note Payable). Amortization expense of loan issuance fees for the nine months ended September 30, 2023 and
2022 was $
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 and cash equivalents.
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 and cash equivalents, short-term notes payable, accounts payable and accrued expenses. The carrying value of long-term debt approximates fair value, as the variable interest rates approximate current market rates. The Company measured its derivative liabilities at fair value on a recurring basis using level 3 inputs.
Convertible Instruments
The Company evaluates its convertible instruments to determine if those contracts or embedded components of those contracts qualify as derivative financial instruments to be separately accounted for in accordance with the FASB ASC Topic 815 “Derivatives and Hedging” (“ASC 815”). The accounting treatment of derivative financial instruments requires that the Company record embedded conversion options and any related freestanding instruments at their fair values as of the inception date of the agreement and at fair value as of each subsequent balance sheet date. Any change in fair value is recorded in earnings each period as non-operating, non-cash income or expense. The Company reassesses the classification of its derivative instruments at each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification. Embedded conversion options and any related freestanding instruments are recorded as a discount to the host instrument. The Company allocates proceeds based on the relative fair values of the debt and equity components.
Valuations derived from various models are subject to ongoing internal and external verification and review. The Company determined the fair value of the derivative liability as of September 30, 2023 using the Black-Scholes pricing model for its derivative liability from warrants and a Monte Carlo pricing model for its derivative liabilities from convertible note payables. The inputs used involve management’s judgement and may impact net income (loss).
| 12 |
Revenue Recognition
The Company records revenue based on a five-step model in accordance with FASB ASC 606, Revenue from Contracts with Customers, which requires the following:
1. Identify the contract with a customer.
2. Identify the performance obligations in the contract.
3. Determine the transaction price of the contract.
4. Allocate the transaction price to the performance obligations in the contract.
5. Recognize revenue when the performance obligations are met or delivered.
The Company’s operating revenues are primarily generated from fees charged for the collection and disposal of waste. Revenues are recognized at a point in time immediately after completion of disposal of waste at a landfill or transfer station. Revenues from collection operations are influenced by factors such as collection frequency, type of collection furnished, type and volume or weight of the waste collected, distance to the disposal facility or material recovery facility and disposal costs. Fees charged at transfer stations are generally based on the weight or volume of waste deposited, including the cost of loading, transporting, and disposing of the solid waste at a disposal site. The fees charged for services generally include environmental, fuel charge and regulatory recovery fees, which are intended to pass through to customers direct and indirect costs incurred. For waste collection and disposal services the Company invoices its customers with standard 30-day payment terms without any significant financing terms.
The Company also recognizes operating revenues from its product sales, such as sales of digester equipment and parts. Performance obligations from product sales are satisfied at the point in time when products are shipped to the customer, which is when the customer has title and control. Therefore, the Company’s product sale contracts have a single performance obligation (shipment of product). The Company primarily receives fixed consideration for sales of products. When revenue is earned on digester equipment related services, such as management advisory fees and digester maintenance and repair services, fees are recognized as the services are performed based on service milestones. For product sales, the Company invoices its customers with standard 30-day payment terms without any significant financing terms.
The following is a summary of revenue disaggregated by type for the nine and three months ended September 30, 2023 and 2022:
SUMMARY OF DISAGGREGATION OF REVENUE
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Nine Months Ended | Three Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Product sales | $ | $ | $ | $ | ||||||||||||
| Waste collection and disposal | ||||||||||||||||
| Total revenue | $ | $ | $ | $ | ||||||||||||
Concentration Risk
The Company performs a regular review of customer activity and associated credit risks.
As
of September 30, 2023, three customers accounted for approximately
During
the nine months ended September 30, 2023, one customer accounted for approximately
The Company maintains positive customer relationships and continually expands its customer base, mitigating the impact of any potential concentration risks that exist.
Basic net (loss) income per common share is computed by dividing net (loss) income by the weighted average number of vested common shares outstanding during the period. Diluted net income per common share is computed by dividing net income by the weighted average number vested of common shares, plus the net impact of common shares (computed using the treasury stock method), if dilutive, resulting from the exercise of dilutive securities. In periods when losses are reported, the weighted-average number of common shares outstanding excludes common stock equivalents because their inclusion would be anti-dilutive. As of September 30, 2023 and September 30, 2022, the Company excluded the common stock equivalents summarized below, which entitle the holders thereof to ultimately acquire shares of common stock, from its calculation of earnings per share, as their effect would have been anti-dilutive.
| Nine Months Ended | Nine Months Ended | |||||||
| September 30, | September 30, | |||||||
| 2023 | 2022 | |||||||
| Series C preferred stock | ||||||||
| Warrants | ||||||||
| Convertible notes | ||||||||
| Total common stock equivalents | ||||||||
As further described in Note 3 – Business Combinations, under applicable accounting principles, the historical financial results of Titan prior to May 19, 2023 replace the historical financial statements for the period prior to May 19, 2023. Titan’s equity structure, prior to the combination with the TraQiQ, was a limited liability company, resulting in all components of equity attributable to the members being reported within Member’s Equity. Given that Titan was a limited liability company, net loss prior to the reverse acquisition is not applicable for purposes of calculating loss per share.
The Company has assessed the Series A Right to Receive Common Stock (“Series A Rights”) and the Series B Rights to Receive Common Stock (“Series B Rights”) for appropriate balance sheet classification and concluded that the Series A Rights and Series B Rights are freestanding equity-linked financial instruments that meet the criteria for equity classification under ASC 480 and ASC 815. In accordance with ASC 260 Earnings per Share the Company determined that the Series A Rights and Series B Rights should be included in the determination of basic and diluted earnings per share.
| 13 |
Income Taxes and Uncertain Tax Positions
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.
The Company follows FASB 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. files a tax return in the U.S. federal tax jurisdiction and various state tax jurisdictions. Prior to the sale of its subsidiary TraQiQ Solutions, Inc., TraQiQ Inc. and TraQiQ Solutions Inc filed a consolidated tax return in the U.S. federal tax jurisdiction and various state tax jurisdictions. Recoup files a tax return in the U.S. federal tax jurisdiction and the State of Delaware. Prior to the Titan Merger, Titan, with consent from its shareholders, had elected under the Internal Revenue Code to be an “S” corporation. In lieu of corporation income taxes, the shareholders of an “S” corporation are taxed on their proportionate share of the Company’s taxable income. For U.S. federal income tax purposes, the Titan Merger qualified as a tax-free “reorganization”. Therefore, following the Titan Merger, Titan is to be taxed as a “C” corporation in the U.S. federal tax jurisdiction and in various state tax jurisdictions.
The U.S. federal and state income tax returns of the Company are subject to examination by the IRS and state taxing authorities. U.S. federal income tax returns have a default audit examination window of three years, and an examination window of six years when there are substantial omissions or errors on the return. There is no statute of limitations for fraudulent or false returns, or for returns which were never filed. The company is subject to various state tax jurisdictions, which generally have an examination window of four years for income tax returns.
Advertising and Marketing Costs
Costs
associated with advertising are charged to expense as occurred. For the three and nine months ended September 30, 2023 the advertising
and marketing costs were $
Recently Issued Accounting Standards
The Company has reviewed the recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the SEC and determined that these pronouncements do not have a material impact on the Company’s current or anticipated consolidated financial statement presentation or disclosures.
Recently Adopted Accounting Standards
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (“ASU 2016-13”), which requires the measurement of expected credit losses for financial instruments carried at amortized cost, such as accounts receivable, held at the reporting date based on historical experience, current conditions, and reasonable forecasts. The main objective of this ASU is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The Company adopted this ASU as of January 1, 2023. The adoption did not have a material impact on the Company’s financial statements.
In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”) to simplify accounting for certain financial instruments. ASU 2020-06 eliminates the current models that require separation of beneficial conversion and cash conversion features from convertible instruments and simplifies the derivative scope exception guidance pertaining to equity classification of contracts in an entity’s own equity. The new standard also introduces additional disclosures for convertible debt and freestanding instruments that are indexed to and settled in an entity’s own equity. ASU 2020-06 amends the diluted earnings per share guidance, including the requirement to use the if-converted method for all convertible instruments. ASU 2020-06 is effective for smaller reporting companies with fiscal years beginning after December 15, 2023 and should be applied on a full or modified retrospective basis, with early adoption permitted. The Company adopted ASU 2020-06 effective January 1, 2023. The adoption of ASU 2020-06 did not have an impact on the Company’s financial statements.
NOTE 3 – BUSINESS COMBINATIONS
Titan Trucking, LLC Reverse Acquisition
The Company, the Company’s subsidiary Titan Merger Sub Corp. (“Merger Sub”), Titan and the owners of Titan (“Titan owners”) entered into a merger agreement (the “Titan Merger Agreement”) on May 19, 2023 (the “acquisition date”). Pursuant to the terms of the Titan Merger Agreement, Merger Sub was merged with and into Titan on the acquisition date with Titan surviving as a wholly-owned subsidiary of the Company (the “Titan Merger”). For U.S. federal income tax purposes, the Titan Merger qualified as a tax-free “reorganization”. Under the terms of the Titan Merger Agreement, the Company agreed to pay the Titan owners shares of the Company’s Series C Preferred Stock. Concurrent to the Titan Merger, the Company’s chief executive officer and one of the Company’s directors resigned from their respective positions and a new chief executive officer, chief operating officer and chief financial officer were appointed. Additionally, the new chief executive officer and chief operating officer were both appointed as directors of the Company. The Company additionally agreed to issue stock compensation in the form of shares of the Company’s Series C Preferred Stock to the new chief executive officer (Note 14 – Stock-Based Compensation).
| 14 |
In accordance with ASC 805 – Business Combinations, the Titan Merger was accounted for as a reverse acquisition with Titan being deemed the accounting acquirer of TraQiQ. Titan, as the accounting acquirer, recorded the assets acquired and liabilities assumed of TraQiQ at their fair values as of the acquisition date. Titan’s historical consolidated financial statements have replaced TraQiQ’s historical consolidated financial statements with respect to periods prior to the completion of the Titan Merger with retroactive adjustments to Titan’s legal capital to reflect the legal capital of TraQiQ. TraQiQ remains the continuing registrant and reporting company.
Titan
was deemed to be the accounting acquirer based on the following facts and circumstances: (1) the Titan owners owned approximately
The Company accounted for the Titan Merger as a reverse acquisition using acquisition accounting. Because the Titan Merger qualifies as a reverse acquisition and given that Titan was a private company at the time of the Titan Merger and therefore its value was not readily determinable, the fair value of the merger consideration was deemed to be equal to quoted market capitalization of the Company at the acquisition date. The purchase consideration was as follows:
SCHEDULE OF PURCHASE CONSIDERATION
| TraQiQ, Inc. market capitalization at closing | $ | |||
| Total purchase consideration | $ |
The Company recorded all tangible and intangible assets and liabilities at their preliminary estimated fair values on the acquisition date. The Company is currently in the process of finalizing the estimated fair values with a third-party specialist. The following represents the allocation of the estimated purchase consideration:
SCHEDULE OF TANGIBLE AND INTANGIBLE ASSETS ACQUIRED AND LIABILITIES ASSUMED AT THEIR PRELIMINARY ESTIMATED FAIR VALUES
| Preliminary | ||||
| Estimated | ||||
| Description | Fair Value | |||
| Assets: | ||||
| Cash | $ | |||
| Accounts receivable | ||||
| Prepaid expenses and other current assets | ||||
| Inventory | ||||
| Fixed assets | ||||
| Intangible assets | ||||
| Goodwill | ||||
| Assets acquired total | $ | |||
| Liabilities: | ||||
| Accounts payable and accrued expenses | $ | ( | ) | |
| Customer deposits | ( | ) | ||
| Accrued payroll and related taxes | ( | ) | ||
| Derivative liability | ( | ) | ||
| Convertible notes payable | ( | ) | ||
| Convertible notes payable – related parties | ( | ) | ||
| Notes payable | ( | ) | ||
| Notes payable – related parties | ( | ) | ||
| Liabilities acquired total | $ | ( | ) | |
| Net fair value of assets (liabilities) | $ | |||
The Company assessed the fair values of the tangible and intangible assets and liabilities and the amount of goodwill to be recognized as of the acquisition date. Fair values are preliminary and were based on management’s estimates and assumptions. The intangible assets acquired were specific to the Company’s Recoup subsidiary.
| 15 |
The
preliminary fair value of the intellectual property intangible asset was measured using the multiple periods excess earnings method (“MPEEM”).
Significant inputs used to measure the fair value include an estimated useful life of ten (
The
preliminary fair value of the tradenames intangible asset was measured using the relief from royalty method. Significant inputs used
to measure the fair value include an estimated projected revenue from the tradename, a pre-tax royalty rate of
The
preliminary fair value of the noncompete agreement intangible asset was measured with a discounted cash flow analysis that compared projected
cash flows during the noncompete agreement period with and without the agreement. Significant inputs used to measure the fair value include
an estimate of time for the parties involved to identify the product, bring in the technology, and start the manufacturing process. As
well as the estimated risk that the parties involved would choose to compete without the agreement in place and a discount rate of
Goodwill
arising from the acquisition consisted of new customer relationships for the Company, access to new product market opportunities and
expected growth opportunities. Total acquisition costs incurred were approximately $
The
approximate revenue and gross profit for TraQiQ (excluding the operations of Titan) from May 19, 2023 through September 30, 2023 was
$
The following supplemental pro-forma financial information approximate combined financial information assumes that the acquisition had occurred at the beginning of the year ended December 31, 2022:
SCHEDULE OF SUPPLEMENTAL PRO-FORMA FINANCIAL INFORMATION
| Nine Months Ended | Year Ended | |||||||
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Total revenue | $ | $ | ||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Pro forma loss per common share | $ | ) | $ | ) | ||||
| Pro forma weighted average number of common shares basic and diluted | ||||||||
The
pro forma combined results of operations for the year ended December 31, 2022, include stock-based compensation of $ and goodwill
impairment expense of $
NOTE 4 – PROPERTY AND EQUIPMENT, NET
Fixed assets consist of the following as of September 30, 2023 and December 31, 2022:
SCHEDULE OF PROPERTY AND EQUIPMENT, NET
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Containers | $ | $ | ||||||
| Trucks and tractors | ||||||||
| Trailers | ||||||||
| Shop equipment | ||||||||
| Leasehold improvements | $ | $ | ||||||
| Property and equipment, gross | ||||||||
| Less accumulated depreciation | ( | ) | ( | ) | ||||
| Net book value | $ | $ | ||||||
Depreciation
expenses for the three and nine months ended September 30, 2023 were $
On
June 10, 2022, Titan entered into an asset purchase agreement with Century Waste Management (“Century”) for consideration
of approximately $
NOTE 5 – INTANGIBLES, NET
Intangible assets consisted of the following as of September 30, 2023 and December 31, 2022:
SCHEDULE OF INTANGIBLE ASSETS
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Customer Lists | $ | $ | ||||||
| Intellectual Property | ||||||||
| Tradenames | ||||||||
| Noncompete Agreement | ||||||||
| Intangible assets, gross | ||||||||
| Less: accumulated amortization | ( | ) | ||||||
| Net book value | $ | $ | ||||||
| Intangible assets, net | $ | $ | ||||||
| 16 |
Amortization
expense from intangible assets was $
On
December 9, 2022, Titan entered into a purchase agreement with WTI Global, Inc. (the “seller” or “WTI”) for
consideration of approximately $
As
a result of the Titan Merger, the Company recorded $
Future amortization expense from intangible assets as of September 30, 2023 were as follows:
SCHEDULE OF FUTURE AMORTIZATION EXPENSE
| For the Year Ended, | ||||
| December 31, | ||||
| Remainder of 2023 | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Thereafter | ||||
| Total remaining amortization expense | $ | |||
NOTE 6 – GOODWILL
The
Company has two reporting units, Titan and Recoup. As of September 30, 2023 and December 31, 2022, the goodwill for both reporting units
was $
As
a result of the historical net losses of TraQiQ, the Company concluded it was more likely than not that the fair value of the reporting
unit was less than it’s carrying amount as of June 30, 2023. Therefore, the Company performed an impairment assessment of the goodwill.
The fair value of the Recoup reporting unit was estimated using an income approach and included assumptions related to estimates of future
revenue and operating expenses, long-term growth rates, a technology obsolescence rate, and a discount rate. The quantitative impairment
test indicated a fair value of the reporting unit that was lower than it’s carrying value, and as a result, the goodwill was impaired
with an impairment expense of $
NOTE 7 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Detail of accounts payable and accrued expenses as of September 30, 2023, and 2022 was as follows:
SCHEDULE OF ACCOUNTS PAYABLE AND ACCRUED EXPENSES
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Accounts payable | $ | $ | ||||||
| Credit card payable | ||||||||
| Accrued interest | ||||||||
| Accrued expenses and other payables | ||||||||
| Total accounts payable and accrued expenses | $ | $ | ||||||
NOTE 8 – LEASES
As
of September 30, 2023, Titan maintains two leases classified as operating leases. Leases with an initial term of
Titan
has a
On
April 1, 2023, Titan entered into a
SCHEDULE OF WEIGHTED AVERAGE REMAINING LEASE TERMS AND DISCOUNT RATES
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Weighted average remaining lease term (in years) | ||||||||
| Weighted average discount rate | % | % | ||||||
| 17 |
Future minimum lease payments required under operating leases on an undiscounted cash flow basis as of September 30, 2023 were as follows:
SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS UNDER OPERATING LEASES
| For the Year Ended, | ||||
| December 31, | ||||
| Remainder of 2023 | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Thereafter | ||||
| Total minimum lease payments | ||||
| Less: imputed interest | ( | ) | ||
| Present value of future minimum lease payments | ||||
| Current operating lease liabilities | ||||
| Non-current operating lease liabilities | $ | |||
The
Company had operating lease expenses of $
NOTE 9 – NOTES PAYABLE
The Company borrows funds from various creditors to finance its equipment, operations, and acquisitions. The collateralized loans below are secured by interest in the financed equipment.
The Company’s notes payables balance as of September 30, 2023 and December 31, 2022, consisted of the following:
SCHEDULE OF LONG-TERM DEBT
| September 30, | December 31, | |||||||||||||||||
| 2023 | 2022 | |||||||||||||||||
| Current | Non-current | Current | Non-current | |||||||||||||||
| Loans: | ||||||||||||||||||
| WTI Global Inc. | (a) | $ | $ | $ | $ | |||||||||||||
| Collateralized Loans: | ||||||||||||||||||
| Peoples United | (b) | |||||||||||||||||
| M&T Bank | (c) | |||||||||||||||||
| Daimler Truck | (d) | |||||||||||||||||
| Ascentium Capital | (e) | |||||||||||||||||
| Balboa Capital | (f) | |||||||||||||||||
| Blue Bridge Financial | (g) | |||||||||||||||||
| Channel Equipment Finance | (h) | |||||||||||||||||
| Financial Pacific | (i) | |||||||||||||||||
| M2 Equipment | (j) | |||||||||||||||||
| Meridian Equipment Finance | (k) | |||||||||||||||||
| Navitas | (l) | |||||||||||||||||
| Pawnee | (m) | |||||||||||||||||
| Signature | (n) | |||||||||||||||||
| Trans Lease | (o) | |||||||||||||||||
| Verdant | (p) | |||||||||||||||||
| Western Equipment | (q) | |||||||||||||||||
| Issued prior to Titan Merger: | ||||||||||||||||||
| Michaelson Capital | (r) | |||||||||||||||||
| Loanbuilder | (s) | |||||||||||||||||
| Individual | (t) | |||||||||||||||||
| Kabbage Loans | (u) | |||||||||||||||||
| Baxter Credit Union | (v) | |||||||||||||||||
| Related Parties: | ||||||||||||||||||
| Titan Holdings 2 | (w) | |||||||||||||||||
| Total outstanding principal | ||||||||||||||||||
| Less: discounts | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||
| Total notes payable | ||||||||||||||||||
| Less: Notes payable – related parties | ||||||||||||||||||
| Notes payable | $ | $ | $ | $ | ||||||||||||||
| 18 |
| (a) | |
| (b) | |
| (c) | |
| (d) |
On
June 3, 2019, Titan entered into another collateralized loan agreement with Daimler Trucks for $
On
June 14, 2019, Titan entered into another collateralized loan agreement with Daimler Trucks for $ |
| (e) |
On
May 10, 2022, Titan entered into an equipment financing agreement with Ascentium Capital for $
On
June 5, 2022, Titan entered into an equipment financing agreement with Ascentium Capital for $ |
| (f) | |
| (g) | |
| (h) | |
| (i) |
On
October 15, 2022, Titan entered into an additional equipment financing agreement with Financial Pacific for $ |
| (j) | |
| (k) |
| 19 |
| (l) | |
| (m) | |
| (n) |
On
September 15, 2022, Titan entered into a collateralized loan agreement with Signature Bank for $ |
| (o) | |
| (p) | |
| (q) | |
|
Note Payables issued prior to Titan Merger: | |
| (r) |
In October of 2023 the Company and Michaelson agreed to forbear the principal payments owed to Michaelson during the three months ended September 30, 2023 until October 30, 2023 (Note 16 – Subsequent Events). |
| (s) |
On
June 15, 2023, the Company agreed to settle Loanbuilder – 3. In accordance with ASC 470-60, “Troubled Debt Restructuring
by Debtors” each of the Loanbuilder notes is accounted for as a troubled debt restructuring due to their respective settlement
agreements. As a result of the Loanbuilder - 3 settlement, the Company recorded a net gain on extinguishment of debt of $
Excluding
the Loanbuilder - 3 repayments, and as of September 30, 2023, the Company has 31 remaining required monthly repayments of $ |
| (t) | |
| (u) | |
| 20 |
| (v) | |
Related Parties:
| |
| (w) | |
Interest
expense on these notes for the nine and three months ended September 30, 2023 was $
Principal maturities for the next five years and thereafter as of September 30, 2023 were as follows:
SCHEDULE OF PRINCIPAL MATURITIES OF NOTES PAYABLE
| Remainder of 2023 | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Thereafter | ||||
| Total principal payments | $ | |||
| Less: debt discounts | ( | ) | ||
| Total notes payable | $ |
Paycheck Protection Program Note Forgiveness
Titan
applied for and received loans from the Paycheck Protection Program (the “PPP”) in the amounts of $
NOTE 10 – CONVERTIBLE NOTES PAYABLE
The Company’s convertible notes as of September 30, 2023 and December 31, 2022 were as follows:
SCHEDULE OF CONVERTIBLE NOTES PAYABLES
| Current | Non-current | Current | Non-current | |||||||||||||||
| September 30, | December 31, | |||||||||||||||||
| 2023 | 2022 | |||||||||||||||||
| Current | Non-current | Current | Non-current | |||||||||||||||
| Issued prior to Titan Merger | ||||||||||||||||||
| Evergreen – 2022 | (a) | $ | $ | $ | $ | |||||||||||||
| Evergreen – 2023 | (b) | |||||||||||||||||
| GS Capital | (c) | |||||||||||||||||
| Chambers | (d) | |||||||||||||||||
| Eleven 11 | (e) | |||||||||||||||||
| Calvary Fund | (f) | |||||||||||||||||
| Keystone Capital | (g) | |||||||||||||||||
| Diagonal Lending | (h) | |||||||||||||||||
| Seven Knots | (i) | |||||||||||||||||
| Issued prior to Titan Merger – Related Parties: | ||||||||||||||||||
| Sikka | (j) | |||||||||||||||||
| Miller | (k) | |||||||||||||||||
| Convertible Notes Payable: | ||||||||||||||||||
| Calvary Fund – Bridge Notes | (l) | |||||||||||||||||
| Evergreen – Bridge Note | (m) | |||||||||||||||||
| Keystone Capital – Bridge Notes | (n) | |||||||||||||||||
| Seven Knots – Bridge Notes | (o) | |||||||||||||||||
| Individual #2 – Bridge Notes | (p) | |||||||||||||||||
| Individual #3 – Bridge Notes | (q) | |||||||||||||||||
| Individual #4 – Bridge Notes | (r) | |||||||||||||||||
| Individual #5 – Bridge Notes | (s) | |||||||||||||||||
| Convertible notes payable | (s) | |||||||||||||||||
| Related Parties: | ||||||||||||||||||
| Miller – Bridge Notes | (t) | |||||||||||||||||
| Titan 5 – Bridge Note | (u) | |||||||||||||||||
| Note payable to related parties | (u) | |||||||||||||||||
| Total outstanding principal | ||||||||||||||||||
| Less: discounts | ( | ) | ||||||||||||||||
| Total convertible notes payable | ||||||||||||||||||
| Convertible notes payable – related parties | ||||||||||||||||||
| Convertible notes payable | $ | $ | $ | $ | ||||||||||||||
| 21 |
| Issued prior to Titan Merger: | |
| (a) | |
| (b) | |
| (c) | |
| (d) | |
| (e) | |
| 22 |
| (f) | |
| (g) | |
| (h) | |
| (i) | |
|
Issued prior to Titan Merger – Related Parties:
| |
| (j) | |
| (k) | |
| 23 |
Convertible Notes Payable:
| (l) | |
| (m) | |
| (n) | |
| (o) | |
| (p) | |
| (q) | |
| (r) | |
| (s) | |
Related Parties:
| |
| (t) | |
| (u) | |
Interest expense due to convertible note payables for the nine and three months ended September 30, 2023 was $
Convertible note payables principal maturities for the next five years and thereafter as of September 30, 2023 were as follows:
SCHEDULE OF PRINCIPAL MATURITIES OF NOTES PAYABLE
| Remainder of 2023 | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Total principal payments | ||||
| Less: debt discounts | ( | ) | ||
| Total convertible notes payable | $ |
NOTE 11 – DERIVATIVE LIABILITIES
The Company has issued certain convertible notes payable that contain conversion options with variable settlement features which make their conversion options a derivative liability. The conversion option derivatives are embedded in their respective note payables and for accounting purposes have been bifurcated from the host instruments. Please see Note 10 – Convertible Notes Payable for more information.
On
February 12, 2021, the Company granted warrants (the “Platinum Point Warrants”) that have a term of and an
exercise price of $
| 24 |
The fair value of each convertible note embedded derivative is estimated using a Monte Carlo valuation model. The model used a “with or without” scenario analysis. Changes to the inputs used in the model could produce a significantly higher or lower fair value. The following assumptions were used as of September 30, 2023 and December 31, 2022:
SCHEDULE OF VALUATION ASSUMPTIONS
Nine Months Ended 2023 | Year Ended December 31, 2022 | |||||||
| Expected term (years) | - | |||||||
| Expected volatility | % | |||||||
| Expected dividend yield | % | |||||||
| Risk-free interest rate | % | |||||||
The fair value of the Platinum Point Warrants derivative liability is estimated using a Black-Scholes valuation model with a stock price of $11.60. Changes to the inputs used in the model could produce a significantly higher or lower fair value. The following assumptions were used as of September 30, 2023 and December 31, 2022:
SCHEDULE OF VALUATION ASSUMPTIONS
Nine Months Ended 2023 | Year Ended December 31, 2022 | |||||||
| Expected term (years) | - | |||||||
| Expected volatility | % | |||||||
| Expected dividend yield | % | |||||||
| Risk-free interest rate | % | |||||||
The derivative liabilities as of September 30, 2023 and December 31, 2022 were as follows:
SCHEDULE OF DERIVATIVE LIABILITIES
September 30, 2023 | December 31, 2022 | |||||||
| Fair value of the Platinum Point Warrants ( | $ | $ | ||||||
| Fair value of the Diagonal Lending conversion option | ||||||||
| $ | $ | |||||||
Activity related to the derivative liabilities for the nine months ended September 30, 2023 is as follows:
SCHEDULE OF ACTIVITY RELATED TO DERIVATIVE LIABILITIES
| Beginning balance as of December 31, 2022 | $ | |||
| Warrants/conversion option – derivative liabilities recognized due to reverse acquisition | ||||
| Extinguishment of conversion option derivative liabilities due to debt extinguishment | ( | ) | ||
| Change in fair value of warrants/conversion option - derivative liabilities | ( | ) | ||
| Ending balance as of September 30, 2023 | $ |
NOTE 12 – BENEFIT PLAN
Titan
offers a 401(k) plan. Employees are eligible to participate in the plan on the first day of the month following the date of hire. Employees
may defer up to $
Employer
contributions for the three and nine months ended September 30, 2023 were $
NOTE 13 – STOCKHOLDERS’ EQUITY
As further described in Note 3 – Business Combination, under applicable accounting principles, the historical financial results of Titan prior to May 19, 2023 has replaced the historical financial statements of TraQiQ for the period prior to May 19, 2023. Titan’s equity structure, prior to the combination with the TraQiQ, was a limited liability company, resulting in all components of equity attributable to the members being reported within Member’s Equity.
As of September 30, 2023 and December 31, 2022, the Company was authorized to issue a total of shares of its Preferred Stock in one or more series.
Members’ Equity
As
of December 31, 2022, Titan had members’ equity of $
On
February 1, 2023, in exchange for the settlement of the $
Series A Preferred Stock
As of September 30, 2023, there were Series A Convertible Preferred shares issued and outstanding.
| 25 |
Series B Preferred Stock
As of September 30, 2023, there were shares of Series B Preferred Stock issued and outstanding. On July 17, 2023, all outstanding shares of the Company’s Series B Preferred Stock were exchanged for the Company’s Series A Rights.
Each outstanding share of Series B Convertible Preferred Stock was convertible into the shares of the Company’s common stock at any time commencing after the issuance date. Series B Convertible Stock had no voting rights. Upon any liquidation, dissolution, or winding-up of the Company, whether voluntary or involuntary (a “Liquidation”), the Series B Holders were entitled to receive out of the assets of the Company, whether capital or surplus, the same amount that a holder of Common Stock would receive if the Series B Preferred were fully converted. Except for stock dividends or distributions for, Series B Holders were entitled to receive, and the Company was required to pay, dividends on shares of Series B Preferred equal (on an as-if-converted-to-Common-Stock basis) to and in the same form as dividends actually paid on shares of the Common Stock when, as, and if such dividends are paid on shares of the Common Stock. No other dividends were required to be paid on shares of Series B Preferred.
On July 17, 2023, the Company entered into Exchange Agreements (the “Series B Preferred Exchange Agreements”) with two accredited investors, including Sikka. Pursuant to the Series B Preferred Exchange Agreements, such investors exchanged shares of the Company’s Series B Convertible Preferred Stock into an aggregate of Series A Rights dated as of July 17, 2023. On July 20, 2023, the Company entered into an Exchange Agreement (the “REI Exchange Agreement”) with Renovare Environmental, Inc. (“REI”) pursuant to which REI exchanged shares of Common Stock and shares of Series B Preferred Stock for Series A Rights dated July 20, 2023 and Series B Rights dated July 20, 2023.
Series C Preferred Stock
As of September 30, 2023, there were shares of Series C Preferred Stock issued and outstanding.
Each
outstanding share of Series C Convertible Preferred Stock has a par value of $ and is convertible into shares of the Company’s
common stock at any time commencing after the issuance date. The Series C Convertible Stock has voting rights equivalent to the voting
rights of the common stock the holder would receive upon conversion. Upon any liquidation, dissolution, or winding-up of the Company,
whether voluntary or involuntary (a “Liquidation”), the Series C Holders shall be entitled to receive on a pro-rata basis,
the first $
On May 19, 2023, pursuant to the terms of the Titan Merger Agreement, the Company completed the Titan Merger. Under the terms of the Titan Merger Agreement, the Company agreed to pay the Titan owners shares of the Company’s Series C Preferred Stock as consideration. The Company accounted for the Titan Merger as a reverse acquisition using acquisition accounting. Because the Titan Merger qualifies as a reverse acquisition and given that Titan was a private company at the time of the Titan Merger and therefore its value was not readily determinable, the fair value of the merger consideration was deemed to be equal to quoted market capitalization of the Company at the acquisition date (Note 3 – Business Combinations).
Concurrent to the Titan Merger, the Company’s chief executive officer and one of the Company’s directors resigned from their respective positions and a new chief executive officer, chief operating officer and chief financial officer were appointed. The Company agreed to issue stock compensation in the form of shares of the Company’s Series C Preferred Stock to the new chief executive officer (Note 14 – Stock-Based Compensation). On September 28, 2023, the Company and the chief executive officer signed a cancellation agreement and the Series C Preferred Stock shares were rescinded (Note 14 – Stock-based Compensation).
Common Stock
As of September 30, 2023, the Company had shares of common stock issued and outstanding. As of September 30, 2023, there were shares of common stock authorized.
Under the terms of the Company’s articles of incorporation, holders of common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders, including the election of directors, and do not have cumulative voting rights. The holders of outstanding shares of common stock are entitled to receive dividends out of assets or funds legally available for the payment of dividends at such times and in such amounts as the Company’s board of directors from time to time may determine. The common stock is not entitled to pre-emptive rights and is not subject to conversion or redemption. Upon liquidation, dissolution or winding up of the Company, the assets legally available for distribution to stockholders are distributable ratably among the holders of common stock after payment of liquidation preferences, if any, on any outstanding shares of preferred stock and the payment of other claims of creditors. The rights, preferences and privileges of holders of common stock are subject to and may be adversely affected by the rights of the holders of shares of outstanding preferred stock and any series of preferred stock the Company may designate and issue in the future.
During the three months ended September 30, 2023, the Company issued shares of common stock due to vested restricted stock awards.
On
July 17, 2023, the Company also entered into Exchange Agreements (the “Series B Preferred Exchange Agreements”) with two
accredited investors, including Sikka. Pursuant to the Series B Preferred Exchange Agreements Sikka exchanged shares of the
Company’s common stock and a payment of receivable from the Company for unreimbursed advances in the amount of $
| 26 |
Warrants
The following schedule summarizes the changes in the Company’s common stock warrants:
SCHEDULE OF CHANGES IN COMMON STOCK WARRANTS
| Weighted | Weighted | |||||||||||||||||||
| Warrants Outstanding | Average | Average | ||||||||||||||||||
| Number | Exercise | Remaining | Aggregate | Exercise | ||||||||||||||||
| Of | Price | Contractual | Intrinsic | Price | ||||||||||||||||
| Shares | Per Share | Life | Value | Per Share | ||||||||||||||||
| Balance at December 31, 2022 | $ | - | $ | $ | ||||||||||||||||
| Warrants acquired concurrent with the Titan Merger | – | |||||||||||||||||||
| Warrants granted | $ | - | $ | - | $ | - | ||||||||||||||
| Warrants exercised | $ | - | $ | - | $ | - | ||||||||||||||
| Warrants expired/cancelled | $ | - | $ | - | $ | - | ||||||||||||||
| Balance at September 30, 2023 | $ | – | $ | $ | ||||||||||||||||
| Exercisable at September 30, 2023 | $ | – | $ | $ | ||||||||||||||||
| Balance at December 31, 2021 | $ | - | $ | - | $ | |||||||||||||||
| Warrants granted | $ | - | $ | - | $ | - | ||||||||||||||
| Warrants exercised/exchanged | $ | - | $ | - | $ | - | ||||||||||||||
| Warrants expired/cancelled | $ | - | $ | - | $ | - | ||||||||||||||
| Balance at September 30, 2022 | $ | - | $ | - | $ | |||||||||||||||
| Exercisable at September 30, 2022 | $ | - | $ | - | $ | |||||||||||||||
Right to Receive Common Shares
On
July 17, 2023, the Company entered into Exchange Agreements (the “Note Exchange Agreements”), with five holders of its convertible
note payables. Under the terms of the Note Exchange Agreements, $
On
July 17, 2023, the Company also entered into Exchange Agreements (the “Series B Preferred Exchange Agreements”) with two
accredited investors, including Sikka. Pursuant to the Series B Preferred Exchange Agreements, such investors exchanged shares
of the Company’s Series B Convertible Preferred Stock into an aggregate of Series A Rights dated as of July 17, 2023.
Pursuant to the Series B Preferred Exchange Agreement Sikka also exchanged shares of the Company’s common stock and a
payment of receivable from the Company for unreimbursed advances in the amount of $
On July 20, 2023, the Company entered into an Exchange Agreement (the “REI Exchange Agreement”) with Renovare Environmental, Inc. (“REI”) pursuant to which REI exchanged shares of Common Stock and shares of Series B Preferred Stock for Series A Rights dated July 20, 2023 and Series B Rights dated July 20, 2023. The Series A Rights and Series B Rights were valued at their fair value at the time of grant, which was deemed to be $ per Series A Right Share and $ per Series B Right Share.
The
transactions contemplated by the Note Exchange Agreement, Series B Preferred Exchange Agreement and REI Exchange Agreement are together
referred to as the “Rights Exchanges”. As a result of the Rights Exchanges, the Company recognized a loss of $
The Company’s Series A Rights obligate the Company to issue Common Stock (“Series A Right Shares”) to the holder without any additional consideration. The number of Series A Right Shares is fixed, and is only subject to customary non-price based ratable adjustments, such as stock splits, and stock combinations. The Series A Rights are exercisable immediately and expire five years after the issuance date. The Series A Rights require the Company to hold in reserve the total number of shares of Common Stock that would need to be exercised in order meet the obligations of the Series A Rights.
The Company’s Series B Rights obligate the Company to issue Common Stock (“Series B Right Shares”) to the holder without any additional consideration. The number of Series B Right Shares is fixed and is only subject to customary non-price based ratable adjustments, such as stock splits, and stock combinations. The Company’s Series B Rights are exercisable upon the earlier of (1) December 31, 2023 or (2) the initial date on which the Company’s Common Stock is listed for trading on the New York Stock Exchange, NYSE American, the Nasdaq Global Select Market, Nasdaq Capital Markets, or the Nasdaq Global Market. The Series B Rights expire five years after the issuance date. The Series B Rights require the Company to hold in reserve the total number of shares of Common Stock that would need to be exercised in order meet the obligations of the Series B Rights.
The Company assessed the Series A Rights and Series B Rights for appropriate balance sheet classification and concluded that the Series A Rights and Series B Rights are freestanding equity-linked financial instruments that meet the criteria for equity classification under ASC 480 and ASC 815. Accordingly, they are classified as equity and accounted for as a component of additional paid-in capital at the time of issuance. The Company also determined that the Series A Rights and Series B Rights should be included in the determination of basic and diluted earnings per share in accordance with ASC 260, Earnings per Share.
The TraQiQ Inc. 2020 Equity Incentive Plan was initially approved by the Company’s Board of Directors on November 23, 2020.
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SCHEDULE OF RESTRICTED STOCK AWARDS ACTIVITY
| Weighted | ||||||||||||
| Weighted | Average | |||||||||||
| Average | Remaining | |||||||||||
| Number | Grant Date | Contractual | ||||||||||
| Shares | Fair Value | Term (years) | ||||||||||
| Nonvested at December 31, 2021 | $ | - | ||||||||||
| Granted | $ | - | ||||||||||
| Shares vested | $ | - | ||||||||||
| Forfeitures | $ | - | ||||||||||
| Nonvested at June 30, 2022 | - | |||||||||||
| Granted | $ | - | ||||||||||
| Shares vested | $ | - | ||||||||||
| Forfeitures | $ | - | ||||||||||
| Nonvested at September 30, 2022 | $ | - | ||||||||||
| Nonvested at December 31, 2022 | $ | - | ||||||||||
| Granted | $ | - | ||||||||||
| Shares vested | $ | - | ||||||||||
| Forfeitures | $ | - | ||||||||||
| Nonvested at March 31, 2023 | $ | - | ||||||||||
| Acquired concurrent with the Titan Merger (vested and unreleased) | $ | - | ||||||||||
| Acquired concurrent with the Titan Merger (unvested) | $ | |||||||||||
| Granted | $ | - | ||||||||||
| Shares vested | $ | - | ||||||||||
| Forfeitures | $ | - | ||||||||||
| Nonvested at June 30, 2023 | $ | |||||||||||
| Vested (and unreleased) at June 30, 2023 | $ | - | ||||||||||
| Nonvested at June 30, 2023 | - | |||||||||||
| Granted | - | |||||||||||
| Shares vested | - | |||||||||||
| Forfeitures and cancelations | ( | ) | $ | - | ||||||||
| Vested and released | ( | ) | - | |||||||||
| Total outstanding at September 30, 2023 | $ | - | ||||||||||
As of June 30, 2023, there were shares of common stock related to restricted stock grants that were vested and unissued. On September 13, 2023, the Company signed a Cancellation of Restricted Stock Grants Agreement with Sikka and two directors which rescinded and annulled of the vested and unreleased shares and the unvested shares. Consequently, the obligation to issue shares was eliminated.
Stock-based compensation from restricted stock awards for the nine months ended September 30, 2023 and 2022 was $ and $, respectively. Stock-based compensation from restricted stock awards for the three months ended September 30, 2023 and 2022 was $ and $, respectively. As of September 30, 2023, there remained $ of unrecognized stock-based compensation from restricted stock awards. The total fair value of restricted shares that vested during the nine months ended September 30, 2023 and 2022 was $ and $, respectively. The fair value of the vested and unreleased shares on the date of the Titan Merger was $.
On the Titan Merger acquisition date, the Company awarded shares of Series C Preferred Stock that vested immediately to its chief executive officer, and as a result recorded $ of stock-based compensation (Note 13 – Stockholders’ Equity). On September 28, 2023, the Company and the chief executive officer signed a cancellation agreement and the Series C Preferred Stock shares were rescinded. Under the terms of the cancellation agreement, the Company agreed to issue ten-year stock options to acquire a number of shares of common stock of the Company in order to provide the chief executive officer an equity interest in the Company commensurate with the value of the original stock award. Such options will have an exercise price equal to the sale price of the common stock in the next public offering of common stock consummated by the Company.
The fair value of the Series C Preferred Stock was determined using observable inputs (level 2 fair value measurement) with a market approach technique. The main input for the Series C Preferred Stock fair value was the price of the Company’s common stock as of the date of the grant.
NOTE 15 – CONTINGENCIES
From time to time, the Company is involved in routine litigation that arises in the ordinary course of business. The Company is in an ongoing lawsuit with Wolverine Transfer Station over a contractual dispute and property damages. Wolverine is countersuing the Company for losses from the cancellation of contractual obligations. It is the position of the Company that net losses arising from Wolverine’s claims are not estimable nor probable at the time of this filing.
NOTE 16 – SUBSEQUENT EVENTS
Subsequent events were evaluated through November 14, 2023, which is the date the financial statements were available to be issued. There were no subsequent events other than those described below:
Deferral of Note Payable Payments
In October 2023, the Company and Michaelson agreed to forbear until October 31, 2023, the principal payments owed by the Company to Michaelson during the three month period ended September 30, 2023 under the terms of the Michaelson Note. The Company continued to pay Michaelson its regularly scheduled interest payments and on October 31, 2023 paid Michaelson the deferred principal (Note 9 – Notes Payable).
Related Party Promissory Note
In October 2023, the Company and Glen Miller, the Company’s chief executive officer, signed a non-interest
bearing promissory note with a principal of $
Board and Shareholder Approval of Plan for Reincorporation
Subsequent
to September 30, 2023, the Company’s Board of Directors and the holders of the Company’s capital stock representing a majority of the total
votes entitled to be cast by the Company’s shareholders approved a plan to reincorporate the Company in the State of Nevada (the
“Reincorporation”) through the merger (the “Reincorporation Merger”) of the Company with and into Titan Environmental
Solutions Inc., a wholly-owned, newly-formed Nevada subsidiary formed by the Company specifically for this purpose (“Titan Environmental”),
in an effort to better position the Company to attract capital as it seeks to grow its business in the waste management industry. Implementing
the Reincorporation will have, among other things, the following effects: 1) the Company’s corporate name will be charged to “Titan
Environmental Solutions, Inc.”, 2) each share of the Company’s common stock issued and outstanding immediately prior to the
effective time of the Reincorporation Merger will be converted into one share of common stock of Titan Environmental, 3) each issued
and outstanding share of the Company’s Series C preferred stock immediately prior to the effective time of the Reincorporation
Merger will be converted into one share of Series A convertible preferred stock of Titan Environmental, which has substantially the same
rights and preferences as the Company’s Series C preferred stock, 4) each outstanding Right to Receive Common Stock issued and
outstanding immediately prior to the effective time of the Reincorporation Merger will be converted into one Right to Receive Common
Stock of Titan Environmental, which has substantially the same rights and preferences as the Company’s Rights to Acquire Common
Stock, 5) the outstanding warrants to purchase our common stock will automatically be assumed by Titan Environmental and will represent
a warrant to acquire shares of common stock of Titan Environmental, 6) the Company’s authorized capital stock will be increased
to
On or about October 12, 2023, the Company mailed an Information Statement that describes the Reincorporation to the Company’s shareholders of record as of October 5, 2023 for informational purposes only pursuant to Section 14(c) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules and regulations prescribed thereunder. Pursuant to Rule 14c-2 under the Exchange Act, the Reincorporation will not be effective until 20 calendar days after the mailing of the Information Statement to the shareholders, at which time the Company may file with the California Secretary of State and the Nevada Secretary of State one or more certificates of merger and incorporation to effectuate the Reincorporation. The Reincorporation will be effective at such time after the expiration of such 20-day period as the board of directors determines to be the appropriate effective time.
| 28 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The discussion and analysis of our financial condition and results of operations are based on our condensed consolidated financial statements, which we have prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, as well as the reported revenues and expenses during the reporting periods. On an ongoing basis, we evaluate estimates and judgments, including those described in greater detail below. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
As used in this “Management’s Discussion and Analysis of Financial Condition and Results of Operation,” except where the context otherwise requires, the term “we,” “us,” “our,” or “the Company,” refers to the business of TraQIQ Inc.
The following presentation of management’s discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements, the accompanying notes thereto and other financial information appearing elsewhere in this quarterly report on Form 10-Q. This section and other parts of this quarterly report on Form 10-Q contain forward-looking statements that involve risks and uncertainties. See “Forward-Looking Statements.”
Overview of Our Company
We operate two distinct lines of business. Titan Trucking, LLC is a non-hazardous solid waste management company providing waste and recycling collection and transportation services for industrial generators, commercial contractors and transfer station operators in Michigan. Titan maintains a fleet of roll off and tractor trailer trucks to perform its services. Titan operates in a highly recession resistant industry given the ongoing generation of waste and recyclable materials. Titan’s goal is to provide our customers with safe and efficient options for the disposal and recycling of their waste streams. Titan has begun to create the infrastructure needed to expand its operations organically and through strategic acquisitions and market development opportunities across the Midwest, Northeast and Southeast regions of the United States. Recoup Technologies, Inc. provides technology enabled solutions for food waste processing including onsite Digestors for food waste along with cloud-based software tracking and analytics solutions.
Reverse Acquisition with Titan Trucking, LLC
On May 19, 2023, we and our wholly-owned subsidiary, Titan Merger Sub Corp. (“Merger Sub”), entered into an Agreement and Plan of Merger dated as of the Closing Date (the “Merger Agreement”), with Titan Trucking, LLC, a Michigan limited liability company (“Titan”), Titan 5, LLC, a Michigan limited liability company (“Titan 5”), Titan National Holdings 2, LLC, a Michigan limited liability company (“Holdings”), Jeffrey Rizzo, an individual (“JR”), William McCauley, an individual (“WM”, and, together with Holdings, Titan 5 and JR, the “Sellers”), and Jeffrey Rizzo, as the Seller Representative, pursuant to which, Merger Sub was merged with and into Titan, with Titan continuing as the surviving entity and as a wholly-owned subsidiary of our company (the “Titan Merger”).
For U.S. federal income tax purposes, the Titan Merger qualified as a tax-free “reorganization”. Under the Terms of the Titan Merger Agreement, we agreed to pay the Titan owners 630,900 shares of our Series C Preferred Stock. Concurrent to the Titan Merger, the our chief executive officer and one of our directors resigned from their respective positions and a new chief executive officer, chief operating officer and chief financial officer were appointed. Additionally, the new chief executive officer and chief operating officer were both appointed as directors of our company. We additionally agreed to issue stock compensation in the form of 70,100 shares of our Series C Preferred Stock to the new chief executive officer.
In accordance with ASC 805 – Business Combinations, the Titan Merger was accounted for as a reverse acquisition with Titan being deemed the accounting acquirer of our company. Titan, as the accounting acquirer, recorded the assets and liabilities of our company at their fair values as of the acquisition date. Titan’s historical consolidated financial statements have replaced our historical consolidated financial statements with respect to periods prior to the completion of the Titan Merger with retroactive adjustments to Titan’s legal capital to reflect the legal capital of our company. We remain the continuing registrant and reporting company.
Titan was deemed to be the accounting acquirer based on the following facts and circumstances: (1) the Titan owners owned approximately 65% of the voting interests of the combined company immediately following the transaction; (2) the Titan Merger resulted in significant changes to the combined company’s Board of Directors; (3) the Titan Merger resulted in significant changes to the management of the combined company.
| 29 |
We accounted for the Titan Merger as a reverse acquisition using acquisition accounting. Because the Titan Merger qualifies as a reverse acquisition and given that Titan was a private company at the time of the Titan Merger and therefore its value was not readily determinable, the fair value of the merger consideration was deemed to be equal to quoted market capitalization of our company at the acquisition date. The purchase consideration is as follows:
| TraQiQ, Inc. market capitalization at closing | $ | 27,162,222 | ||
| Total purchase consideration | $ | 27,162,222 |
We recorded all tangible and intangible assets and liabilities at their preliminary estimated fair values on the acquisition date. The following represents the allocation of the estimated purchase consideration:
| Preliminary | ||||
| Estimated | ||||
| Description | Fair Value | |||
| Assets: | ||||
| Cash | $ | 69,104 | ||
| Accounts receivable, net | 369,338 | |||
| Prepaid expenses and other current assets | 17,893 | |||
| Inventory | 416,046 | |||
| Fixed assets, net | 1,134 | |||
| Intangible assets, net | 10,681,477 | |||
| Goodwill | 22,319,908 | |||
| $ | 33,874,900 | |||
| Liabilities: | ||||
| Accounts payable and accrued expenses | $ | (1,009,993 | ) | |
| Customer deposits | (311,544 | ) | ||
| Accrued payroll and related taxes | (21,077 | ) | ||
| Derivative liability | (219,171 | ) | ||
| Convertible notes payable | (1,466,382 | ) | ||
| Convertible notes payable – related parties | (102,851 | ) | ||
| Notes payable | (3,579,160 | ) | ||
| Notes payable – related parties | (2,500 | ) | ||
| $ | (6,712,678 | ) | ||
| Net fair value of assets (liabilities) | $ | 27,162,222 | ||
Results of Operations and Financial Condition for the Nine Months Ended September 30, 2023 as Compared to the Nine Months Ended September 30, 2022
Revenue
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2023 | 2022 | |||||||
| Product sales | $ | 935,209 | $ | - | ||||
| Waste collection and disposal | 4,633,015 | 2,823,911 | ||||||
| Total revenue | $ | 5,568,224 | $ | 2,823,911 | ||||
For the nine months ended September 30, 2023 compared to September 30, 2022, our revenues increased by $2,744,313, from $2,823,911 to $5,568,224. The increase was the result of the Titan Merger on May 19, 2023, and the resulting increased revenue caused by the combined operations of our company and Titan. Additionally, we have continued to expand the Titan sales operations.
Cost of Revenue
For the nine months ended September 30, 2023 compared to September 30, 2022, our cost of revenue increased by $1,835,714 or 64%, from $2,868,070 to $4,703,784. The increase was due to the increased revenue-generating activities from our increased sales activities, and from the combined operations of our company and Titan resulting from the Titan Merger.
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Operating Expenses
For the nine months ended September 30, 2023 compared to September 30, 2022, our salary and salary related costs increased by $847,735, or 257%, from $330,120 to $1,177,855. The increase was due to the increased personnel costs associated with the Titan Merger combination of the operations of our company and Titan and increases to the operational activity of Titan.
For the nine months ended September 30, 2023 compared to September 30, 2022, our stock based compensation increased by $5,590,485, or 100%, from $0 to $5,590,485. The increase can be attributed primarily to the vesting of restricted stock awards and to Series C Preferred Stock that was awarded to the chief executive officer on May 19, 2023 and which vested immediately. On September 28, 2023, the Company and the chief executive officer signed a cancellation agreement and the Series C Preferred Stock shares were rescinded and cancelled. Under the terms of the cancellation agreement, the Company agreed to issue ten-year stock options to acquire a number of shares of common stock of the Company in order to provide the chief executive officer an equity interest in the Company commensurate with the value of the original stock award. Such options will have an exercise price equal to the sale price of the common stock in the next public offering of common stock consummated by the Company.
For the nine months ended September 30, 2023 compared to September 30, 2022, our professional fees increased by $2,028,655, or 1,965%, from $103,247 to $2,131,902. The increase was attributed primarily to consulting, accounting, and legal fees incurred during 2023 related to the Titan Merger and our other acquisition activities.
For the nine months ended September 30, 2023 compared to September 30, 2022, our depreciation and amortization expense increased by $669,882 from $4,997 to $674,879. The increase in depreciation and amortization expense was the result of Titan’s investment in new fixed asset equipment and the intangible assets recognized from the Titan Merger.
For the nine months ended September 30, 2023 compared to September 30, 2022, our general and administrative expenses increased by $487,694, or 250%, from $194,889 to $682,583. The increase was primarily due to our increased operational and sales activities, the addition of a new lease, and the Titan Merger.
Interest Expense, net of Interest Income
For the nine months ended September 30, 2023 compared to September 30, 2022, our interest expense, net of interest income increased by $568,910, or 528%, from $107,816 to $676,726. The increase was due mainly to a large increase in debt instruments accruing interest on our balance sheet as a result of the Titan Merger. We also issued and sold new debt instruments following the Titan Merger, which increased our interest expense.
Net Loss
For the nine months ended September 30, 2023 compared to September 30, 2022, our net loss increased by $142,032,107 or 114,761% from a net loss of $123,763 to a net loss of $142,155,870. The change in net loss was primarily a result of the loss on extinguishment and issuance of share rights of $116,591,322, impairment of goodwill of $15,669,287, the increase in stock-based compensation, the increase in professional fees, and the other effects of the May 19, 2023 Titan Merger.
Results of Operations and Financial Condition for the Three Months Ended September 30, 2023 as Compared to the Three Months Ended September 30, 2022
Revenue
| Three Months Ended | ||||||||
| September 30, | ||||||||
| 2023 | 2022 | |||||||
| Product sales | $ | 751,034 | $ | - | ||||
| Waste collection and sales | 1,855,619 | 1,254,058 | ||||||
| Total revenue | $ | 2,606,653 | $ | 1,254,058 | ||||
For the three months ended September 30, 2023 compared to September 30, 2022, our revenues increased by $1,352,595 or 108%, from $1,254,058 to $2,606,653. The increase was the result of the acquisition of Titan on May 19, 2023, and the resulting revenue generated by Titan.
Cost of Revenue
For the three months ended September 30, 2023 compared to September 30, 2022, our cost of revenue increased by $744,700, or 61%, from $1,218,025 to $1,962,725. The increase was the result of the Titan Merger on May 19, 2023, and the resulting increased revenue caused by the combined operations of our company and Titan. Additionally, we have continued to expand the Titan sales operations.
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Operating Expenses
For the three months ended September 30, 2023 compared to September 30, 2022, our salary and salary-related costs increased by $433,462, or 345%, from $125,746 to $559,208. The increase was due to the increased personnel costs associated with the Titan Merger and increases to the operational activity of Titan.
For the three months ended September 30, 2023 compared to September 30, 2022, our stock based compensation increased by $2,278, or 100%, from $0 to $2,278. The increase is due to the vesting of restricted stock awards.
For the three months ended September 30, 2023 compared to September 30, 2022, our professional fees increased by $1,127,431, or 1,413%, from $79,800 to $1,207,231. The increase can be attributed primarily to consulting, accounting, and legal fees incurred during 2023 related to the Titan Merger and our other acquisition activities.
For the three months ended September 30, 2023 compared to September 30, 2022, our depreciation and amortization expense increased by $421,340 from $4,997 in September 2022 to $426,337. The increase in depreciation and amortization expense is the result of Titan’s investment in new fixed asset equipment and the intangible assets recognized from the Titan Merger.
For the three months ended September 30, 2023 compared to September 30, 2022, our general and administrative expenses increased by $198,491, or 283%, from $70,041 to $268,532. The increase was primarily due to our increased operational and sales activities, the addition of a second lease, and the Titan Merger.
Interest Expense, net of Interest Income
For the three months ended September 30, 2023 compared to September 30, 2022, our interest expense, net of interest income increased by $204,689, or 616%, from $33,206 to $237,895. The increase was due mainly to a large increase in debt instruments accruing interest on our balance sheet as a result of the Titan Merger. We have also issued and sold new debt instruments following the Titan Merger, which has resulted in increased interest expense.
Net Loss
For the three months ended September 30, 2023 compared to September 30, 2022, our net loss increased by $118,310,092 or 42,691% from $277,129 to $118,587,221 due to the loss on extinguishment and issuance of share rights of $116,591,322, the increase in professional expenses, and the other effects of the May 19, 2023 Titan Merger.
Liquidity and Capital Resources
Liquidity is the ability of an enterprise to generate adequate amounts of cash to meet its needs for cash requirements. As of September 30, 2023, we had $598,416 in cash and cash equivalents compared to $26,650 at December 31, 2022, an increase of $571,766 resulting primarily from net proceeds of debt financings. As of September 30, 2023, we had approximately $1.2 million in accounts receivable compared to approximately $0.5 million at December 31, 2022, an increase of approximately $0.7 million primarily from receivables gained from the Titan Merger.
As of September 30, 2023, we had total current assets of approximately $2.4 million and total current liabilities of approximately $10.7 million, or negative working capital of approximately $8.3 million, compared to total current assets of approximately $0.9 million and total current liabilities of approximately $2.0 million, or negative working capital of $1.1 million at December 31, 2022. This is a decrease in working capital of approximately $7.2 million over the working capital balance at the end of 2022 driven primarily by the Titan Merger and the private placements of debt securities completed during the nine-month period.
As of September 30, 2023, we had undiscounted obligations in the amount of approximately $7.5 million relating to the payment of indebtedness due within one year. We anticipate meeting our cash obligations on our indebtedness that is payable on or prior to September 30, 2024 primarily through the issuance of debt and equity securities, as well as through earnings from operations, including, in particular, those of Titan.
Our future capital requirements for our operations will depend on many factors, including the profitability of our businesses, the number and cash requirements of other acquisition candidates that we pursue, and the costs of our operations. We plan to generate positive cash flow from Titan to address some of our liquidity needs. However, to execute our business plan, service our existing indebtedness, finance our proposed acquisitions and implement our business strategy, we anticipate that we may need to obtain additional financing from time to time and may choose to raise additional funds through public or private equity or debt financings, a bank line of credit, borrowings from affiliates or other arrangements. We cannot be sure that any additional funding, if needed, will be available on terms favorable to us or at all. Furthermore, any additional capital raised through the sale of equity or equity-linked securities may dilute our current stockholders’ ownership in us and could also result in a decrease in the market price of our common stock. The terms of those securities issued by us in future capital transactions may be more favorable to new investors and may include the issuance of warrants or other derivative securities, which may have a further dilutive effect. Furthermore, any debt financing, if available, may subject us to restrictive covenants and significant interest costs. There can be no assurance that we will be able to raise additional capital, when needed, to continue operations in their current form.
During the nine months ended September 30, 2023 and 2022, our capital expenditures were approximately $0.2 million and approximately $3.3 million, respectively. During the nine months ended September 30, 2023, we offset our capital expenditures with approximately $69,000 in cash and cash equivalents from the Titan Merger and approximately $97,000 in proceeds from the disposal of property and equipment. During the nine months ended September 30, 2022, we offset our capital expenditures with approximately $0.3 million from the proceeds from disposal of property and equipment.
We expect our capital expenditures for next 12 months will grow as we continue to expand the Titan operational activity. These capital expenditures will be primarily utilized for equipment needed to generate revenue and for office equipment. We expect to fund such capital expenditures out of our working capital.
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Cash Flows
| Nine Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Net cash (used in) operating activities | $ | (2,153,563 | ) | $ | (117,281 | ) | ||
| Net cash (used in) investing activities | (7,202 | ) | (2,972,683 | ) | ||||
| Net cash provided by financing activities | 2,732,531 | 3,164,880 | ||||||
| Net increase in cash and cash equivalents | $ | 571,766 | $ | 74,916 | ||||
Operating Activities. The net cash used in operating activities for the nine months ended September 30, 2023 was primarily used to fund a net loss of approximately $142 million, adjusted for non-cash expenses in the aggregate amount of approximately $139 million. Non-cash expenses were primarily made up of approximately $117 million of loss on extinguishment and issuance of share rights, approximately $15.7 million of goodwill impairment and approximately $5.6 million of stock compensation expense. Approximately $1.2 million of cash was generated from net changes in the levels of operating assets and liabilities, primarily related to an increase in accounts payable and accrued expenses, and an increase in accrued payroll and payroll taxes. The cash generated was offset by an increase in accounts receivable, a decrease in the operating lease liability, and an increase in prepaid expenses.
The net cash used by operating activities for the nine months ended September 30, 2022 was primarily used to fund a net loss of approximately $124,000, adjusted for non-cash expenses in the aggregate amount of approximately $7,000. Approximately $13,000 was generated by net changes in the levels of operating assets and liabilities, primarily related to increases in accounts payable, offset by increases in prepaid expenses, and accounts receivable.
Investing Activities. During the nine months ended September 30, 2023, our cash used in investing activities was composed of the net cash received as a result of the Titan Merger and cash used for the acquisition of property and equipment, offset by cash from the disposal of property and equipment. During the nine months ended September 30, 2022, our cash used in investing activities was due to approximately $3,255,000 used for the acquisition of fixed assets, offset by approximately $282,000 received from the disposal of property and equipment.
Financing Activities. There was $2.7 million in cash generated from financing activities during the nine months ended September 30, 2023. This was primarily due to proceeds from convertible notes of $2.6 million, proceeds from notes payable – related parties of $841,000 and proceeds from convertible notes – related parties of $500,000. Cash provided from financing activities was offset by approximately $1.2 million of repayments of notes payable and $208,000 of repayments of notes payable – related parties. There was approximately $3.2 million of cash generated from financing activities during the nine months ended September 30, 2022. The cash provided by financing activities was due to $360,000 in member contributions from subscription receivable, approximately $3.2 million in proceeds from notes payable, and $572,000 in proceeds from note payables – related parties, offset by repayments of note payables of $518,000 and repayments of note payables – related parties of $348,000.
Non-Cash Investing and Financing Activities. We note that there was approximately $27 million of non-cash activity related to the recapitalization of equity due to the reverse merger transaction. Additionally, we settled a note payable as a contribution to equity for $170,000. During the nine months ended September 30, 2022 we recognized a subscription receivable of $995,000 in exchange for equity and we also recognized member contributions of $2,306,000 in exchange for the extinguishment of loans payable.
Cash Payments for Interest and Income Taxes. We had approximately $276,000 and $135,000 of cash payments for interest expense for the nine months ended September 30, 2023 and 2022, respectively. As well as $0 and $0 of cash payments for income taxes for the nine months ended September 30, 2023 and 2022, respectively.
Off-Balance Sheet Arrangements
We have no off-balance sheet financing arrangements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
None.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Based on an evaluation as of the date of the end of the period covered by this report, our chief executive officer and our chief financial officer (collectively, our “Certifying Officers”) conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as required by Exchange Act Rule 13a-15. Based on that evaluation, our Certifying Officers concluded that, because of the disclosed material weaknesses in our internal control over financial reporting, our 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 us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms.
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Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our 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 our reports filed under the Exchange Act is accumulated and communicated to management, including our Certifying Officers, to allow timely decisions regarding required disclosure. Based upon the evaluation of the disclosure controls and procedures at the end of the period covered by this report, our Certifying Officers concluded that our disclosure controls and procedures were not effective as a result of continuing weaknesses in our internal control over financial reporting principally due to the following:
| - | We have not established adequate financial reporting processes or monitoring activities to ensure adequate financial reporting and to mitigate the risk of management override, specifically because there are few employees and only two officers with management functions and therefore there is lack of segregation of duties. | |
| - | An outside consultant assists in the preparation of the annual and quarterly financial statements and partners with us to ensure compliance with U.S. GAAP and SEC disclosure requirements. | |
| - | We did not maintain a sufficient complement of qualified accounting personnel and controls associated with segregation of duties over complex transactions. |
Changes in Internal Control over Financial Reporting
There have been no change in our internal control over financial reporting that occurred during the period ended September 30, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
The term “internal control over financial reporting” is defined as a process designed by, or under the supervision of, the registrant’s principal executive and principal financial officers, or persons performing similar functions, and effected by the registrant’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
| (a) | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the registrant; |
| (b) | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the registrant are being made only in accordance with authorizations of management and directors of the registrant; and |
| (c) | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the registrant’s assets that could have a material effect on the financial statements. |
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we may become a party to litigation and subject to claims incident to the ordinary course of our business. Although the results of such litigation and claims in the ordinary course of business cannot be predicted with certainty, we believe that the final outcome of such matters will not have a material adverse effect on our business, results of operations or financial condition. Regardless of outcome, litigation can have an adverse impact on us because of defense costs, diversion of management resources and other factors. Currently, there is no litigation pending against our company that could materially affect our company other than as follows:
As reported in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2023 filed with the SEC on October 6, 2023 in July 2022, a complaint was filed against our subsidiary, Titan Trucking LLC (“Titan”), in the Circuit Court for Macomb County, Michigan titled Wolverine Transfer and Recycling LLC v. Titan Trucking LLC (Case No. 22-002780-CB) for breach of contract. There have been no material developments in that lawsuit that we have not previously reported.
In July 2023, a complaint was filed against us and Ajay Sikka, a director of our company and our former chief executive officer, in the Circuit Court of the Nineteenth Judicial Circuit, Lake County, Illinois titled Alta Waterford, LLC v. TraQiQ, Inc. and Ajay Sikka (Case No. 23LA00000476) for breach of contract. In the complaint, the plaintiff alleges that we breached contracts for the payment of compensation for investor relations and web development and copyright services allegedly provided by the plaintiff, which payment obligation was personally guaranteed by Mr. Sikka. The complaint seeks damages in the amount of $324,000, attorney fees and other unspecified litigation costs. We answered the complaint, denying all of the basic allegations, and the plaintiff then moved to strike our answer. We have since entered into an agreement with plaintiff pursuant to which we will file an amended answer on or before November 28, 2023. Once that amended answer has been filed, we will begin discovery. We have already requested that plaintiff produce all documents supporting its claim that it performed services under the contracts. The matter is currently scheduled for trial in Illinois in September 2024.
As of September 30, 2023, no accruals for loss contingencies have been recorded as the outcomes of these litigations is neither probable nor reasonably estimable.
Item 1A. Risk Factors
Not required under Regulation S-K for smaller reporting companies.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
There have been no sales of unregistered securities within the last two years that would be required to be disclosed in this Report pursuant to Item 701 of Regulation S-K.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
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Item 5. Other Information
(a) Not applicable.
(b) During the quarter ended September 30, 2023, there have not been any material changes to the procedures by which security holders may recommend nominees to the Board of Directors.
Item 6. Exhibits
| Exhibit Number | Description of Exhibit | |
| 31.1 | Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 31.2 | Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 32.1 | Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 32.2 | Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 101.INS | Inline XBRL Instance | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition | |
| 101.LAB | Inline XBRL Taxonomy Extension Labels | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
| 35 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| TraQiQ, Inc. | ||
| Date: November 14, 2023 | By: | /s/ Glen Miller |
| Glen Miller | ||
| Chief Executive Officer (principal executive officer) | ||
| Date: November 14, 2023 | By: | /s/ Michael Jansen |
| Michael Jansen | ||
| Chief Financial Officer (principal financial and accounting officer) | ||
| 36 |
Exhibit 31.1
CERTIFICATIONS
I, Glen Miller, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q for the quarter ended September 30, 2023 of TraQiQ, Inc.; |
| 2. | Based on my knowledge, this 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 report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this 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 report; |
| 4. | The registrant’s other certifying officer(s) 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 control 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 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 quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial 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 control over financial reporting. |
| Date: November 14, 2023 | |
| /s/ Glen Miller | |
| Glen Miller | |
| Chief Executive Officer | |
| (principal executive officer) |
Exhibit 31.2
CERTIFICATIONS
I, Michael Jansen, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q for the quarter ended September 30, 2023 of TraQiQ, Inc.; |
| 2. | Based on my knowledge, this 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 report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this 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 report; |
| 4. | The registrant’s other certifying officer(s) 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 control 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 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 quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial 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 control over financial reporting. |
| Date: November 14, 2023 | |
| /s/ Michael Jansen | |
| Michael Jansen | |
| Chief Financial Officer | |
| (principal financial 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 quarterly report of TraQiQ, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Glen Miller, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities 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. |
| Dated: November 14, 2023 | /s/ Glen Miller |
| Glen Miller | |
| 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 quarterly report of TraQiQ, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael Jansen, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities 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. |
| Dated: November 14, 2023 | /s/ Michael Jansen |
| Michael Jansen | |
| Chief Financial Officer | |
| (principal financial officer) |