TESI 10-K
Titan Environmental Solutions Inc. (TESI)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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the fiscal year ended
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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Securities registered pursuant to Section 12(b) of the Act: None.
| Title of Each Class | Trading Symbol | Name of Each Exchange on which registered | ||
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Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, $0.0001 par value per share
(Title of class)
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The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed Second fiscal quarter was approximately $. Shares of common stock held by each executive officer and director and by each person who owns 10% or more of the outstanding common stock of the registrant have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. Without acknowledging that any individual director of registrant is an affiliate, all directors have been included as affiliates with respect to shares owned by them.
As of March 30, 2023, there were shares of the Registrant’s common stock, $0.0001 par value per share, outstanding.
| Documents incorporated by reference: |
TABLE OF CONTENTS
GENERAL INFORMATION
FORWARD-LOOKING STATEMENTS
Certain statements discussed in Item 1 (Business), Item 1A (Risk Factors), Item 3 (Legal Proceedings), Item 7 (Management’s Discussion and Analysis of Financial Condition and Results of Operations), and elsewhere in this Annual Report on Form 10-K as well as in other materials and oral statements that TraQiQ, Inc. (the “Company”) releases from time to time to the public constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements concerning management’s expectations, strategic objectives, business prospects, anticipated economic performance and financial condition and other similar matters involve significant known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements of results to differ materially from any future results, performance or achievements discussed or implied by such forward-looking statements. Such risks, uncertainties and other important factors are discussed in Item 1A (Risk Factors) and Item 7 (Management’s Discussion and Analysis of Financial Condition and Results of Operations). In addition, these statements constitute the Company’s cautionary statements under the Private Securities Litigation Reform Act of 1995. It should be understood that it is not possible to predict or identify all such factors.
These forward-looking statements generally can be identified by the use of forward-looking terminology, such as “may,’’ “will,’’ “expect,’’ “intend,’’ “estimate,’’ “anticipate,’’ “believe,’’ “continue’’ or similar terminology, although not all forward-looking statements contain these words. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, you are cautioned that any such forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Although we believe that the expectations reflected in such forward-looking statements are reasonable as of the date made, expectations may prove to have been materially different from the results expressed or implied by such forward-looking statements. Important factors that may cause actual results to differ from projections include, for example:
| ● | the success or failure of management’s efforts to implement our business plan; | |
| ● | our ability to fund our operating expenses; | |
| ● | our ability to compete with other companies that have a similar business plan;
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our ability to adequately protect our proprietary technology and intellectual property;
our ability to hire and retain highly qualified personnel;
our ability to obtain additional financing;
our ability to meet the requirements of the Securities and Exchange Commission (the “SEC”) and the Nasdaq Capital Market in order to list our stock on the trading market;
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| ● | our ability to comply with borrowing covenants; | |
| ● | 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 low, we also disclaim any obligation to update our view of any such risks or uncertainties or to announce publicly the result of any revisions to the forward-looking statements made in this annual report on form 10-k
When considering these forward-looking statements, you should keep in mind the cautionary statements in this annual report on Form 10-K and in our other filings with the SEC. We cannot assure you that the forward-looking statements in this annual report on Form 10-K will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may prove to be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time-frame, or at all. Any forward-looking statement made by us in this annual report of Form 10-K speaks only as of the date on which we make it. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law. You are advised, however, to consult any further disclosures we make on related subjects in our public announcements and SEC filings.
PART I
Item 1. Business
COMPANY OVERVIEW
TraQiQ, Inc. (the “Company,” “we,” “our,” or “us”) was incorporated in the State of California on September 9, 2009 as Thunderclap Entertainment, Inc. On July 14, 2017, Thunderclap Entertainment, Inc. changed its name to TraQiQ, Inc. For the years ended December 31, 2022 and 2021, our operations were concentrated in India, Southeast Asia and Latin America, and involved servicing business supply chains with last mile delivery and mobile commerce. We helped businesses in emerging markets leverage the gig economy with the following two-prong approach: (i) we offered our software as a service so our customers could build their own delivery networks and (ii) we offered our network of over 14,000 task workers in India through our Mimo network. In December 2022, we sold a substantial portion of this legacy business. We remain in the technology services and solutions business through our subsidiary, TraQIQ Solutions Inc., and continue to operate our OmniM2M.com website that drives internet of things e-commerce revenue.
On January 5, 2023, we consummated the transactions contemplated by the Asset Purchase Agreement dated as of December 30, 2022 (the “Purchase Agreement”) among Renovare Environmental, Inc. (“REI”) and BioHiTech America, LLC (“BHT” and, together with REI, the “Renovare Sellers”) and us, pursuant to which the Renovare Sellers sold and assigned to us, and we purchased and assumed from the Renovare Sellers, (a) certain assets related to the business of (i) aerobic digestion technology solutions for the disposal of food waste at the point of generation and (ii) data analytics with respect to food waste (collectively, the “Digester Business”) and (b) certain specified liabilities of the Renovare Sellers. We intend for the Digester Business to be one of our principal businesses going forward, and we intend to supplement our current business through the acquisition of complementary businesses.
Going forward, our mission is to reduce the environmental impact of the waste management industry through the development and deployment of cost-effective technology solutions. Our suite of technologies includes on-site biological processing equipment for food waste and proprietary real-time data analytics tools to reduce food waste generation. These proprietary solutions may enable certain businesses and municipalities of all sizes to lower disposal costs while having a positive impact on the environment. When used individually or in combination, we believe that our solutions can reduce the carbon footprint associated with waste transportation, repurpose non-recyclable plastics, and significantly reduce landfill usage. As we continue to expand our waste management business we plan to discontinue or spin off the remaining portions of the legacy business.
REVOLUTION SERIES™ DIGESTERS
The Company currently markets an aerobic digestion technology solution for the disposal of food waste at the point of generation. Its line of Revolution Series Digesters has been described as self-contained, robotic digestive systems that we believe are as easy to install as a standard dishwasher with no special electrical or plumbing requirements. Units range in size depending upon capacity, with the smallest unit approximately the size of a residential washing machine. The digesters utilize a biological process to convert food waste into a liquid that we believe is safe to discharge down an ordinary drain. This process can result in a substantial reduction in costs for customers including cruise lines, restaurants, retail stores, hospitals, hotel/hospitality companies and governmental units by eliminating the transportation and logistics costs associated with food waste disposal. The Company also expects the process reduce the greenhouse gases associated with food-waste transportation and decomposition in landfills that have been linked to climate change. The Company offers its Revolution Series Digesters in several sizes targeting small- to mid-sized food waste generation sites that are often more economical than traditional disposal methods. The Revolution Series Digesters are manufactured and assembled in the United States.
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In an effort to expand the capabilities of its digesters, the Company developed a sophisticated Internet of Things (“IoT”) technology platform to provide its customers with transparency into their internal and supply chain waste generation and operational practices. This patented process collects weight related data from the digesters to deliver real-time data that provides valuable information that when analyzed, can improve efficiency, and validate corporate sustainability efforts. The Company provides its IoT platform through a SaaS (“Software as a Service”) model that is either bundled in its rental agreements or sold through a separate annual software license. The Company continues to add new capacity sizes to its line of Revolution Series Digesters to meet customer needs.
Digester Technologies, Markets, Customers and Competition
The Company plans to leverage its existing technology, including our digester’s on-board patented weighing system, by collecting, accumulating, and providing empirical data that can aid in improving the efficiency of the upstream supply chain. By streaming data from the digesters, collecting information from system users and integrating business application data, TraQiQ’s internet-enabled system known as the BioHiTech CloudTM can provide necessary data to aid customers in reshaping their purchasing decisions and positively affecting employee behavior. In its simplest form, the BioHiTech Cloud can quantify food waste in a fashion that we do not believe has historically been available. It enables users to understand food waste generation habits and to improve operational efficiencies.
The BioHiTech Cloud data can be used to help educate customers as to where, when and how waste is being created. Tracking and analyzing waste based on creation time, food type, preparation stage, origin of waste or other key metrics may provide a clearer picture of the food waste lifecycle. Our digesters provide significant economic savings and decreases in carbon footprint, and we believe that the addition of the BioHiTech Cloud increases that impact by helping customers to manage inventory more accurately and to improve their preparation practices and staff efficiencies.
The Company believes that its combined offering of technology and digesters provides customers with information that has not been readily available to consumers in the past and that has the potential for improved management and reduction of waste at the point of generation on a real-time basis.
The Company believes that its digester products can remove organic waste from the overcrowded and costly landfills of the world and provide significant benefits to both business organizations and the community including:
| ● | Eliminating the transportation of organic waste, | |
| ● | Reducing carbon and methane emissions associated with landfilling and truck transportation, | |
| ● | Complying with municipal laws banning organic waste from landfills, | |
| ● | Contributing to corporate and regulatory targets for diverting waste from landfills, | |
| ● | Extending the lifespan of the country’s disposal facilities, | |
| ● | Reducing groundwater and soil contamination at landfills, | |
| ● | Reducing harmful greenhouse gases that contribute to global climate change, and | |
| ● | Recycling food waste into renewable resources (clean water, biogas, bio-solids). |
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In addition to the removal of waste, the Company’s solution also provides real time information and metrics to improve the efficiency of an organization. Such information has not been readily available to consumers in the past. By providing a cloud-based dashboard and mobile application, the BioHiTech Cloud gives real-time visibility to the status of the device itself and provides insight to the efficiencies of the operations of food preparation and consumption of the user. Using cloud technologies, the Company’s systems allow for visibility into the food preparation and consumption processes on an individual, regional, or national level.
The BioHiTech Cirrus™ application allows customers more immediate access to analytical data provided by the Eco-Safe Digester and more efficient monitoring across a number of network-connected devices. The mobile application is available to existing BioHiTech Cloud customers and is available through the iTunes Store and Google Play.
Target Markets
The Company’s target market for its digesters includes any producers of consistent volumes of food waste. As municipalities continue to enact ordinances prohibiting commercial food waste from being disposed of in landfills, the Company intends to focus its efforts on targeting those businesses most affected by such ordinances. Many cities and states have already banned landfill disposal of food waste generated by large, commercial food waste generators, with pending legislation in numerous others. The Company anticipates this trend to continue as sustainability efforts advance.
Customers
Customers for the Company’s digesters are consistent producers of food waste. Industries served include, but are not limited, to the maritime sector as well as retail, healthcare, government, hospitality, education and food service (including traditional restaurants and quick service restaurants). Volume of food waste, as well as traditional waste disposal costs, are the primary drivers of return on investment for customers. The Company sells its products to customers throughout the United States and abroad. We estimate that there are approximately 200,000 potential customers that would benefit from the use of our digesters, which include restaurants, cruise ships, healthcare facilities and local municipalities.
Digester Marketing Strategy
The Company markets through two channels: “reseller” and “in-house” direct sales. Domestic and international resellers are granted a non-exclusive license to sell and market products and services. All resellers are required to purchase all products and consumables directly from the Company. In some cases, we also provide annual service to customers of our resellers at an additional charge.
As regulations continue to be passed regarding the disposal of food waste, we plan to leverage both our internal and external marketing sources to communicate to and inform the target market of the increasing level of need for our products and services.
Competition
There are a small number of companies that distribute products utilizing a similar aerobic digestion methodology as our Revolution Digester, but we believe that they lack our technological depth of data collection, analytics and reporting. With the receipt of a United States patent on our Network Connected Weight Tracking System for a Food Waste Disposal Machine in 2018 and a Canadian patent in 2022, there is a barrier to competitors providing similar technology to their customers. Further, we believe that these competitors do not have a competitive product to the Revolution Series of digesters based on price point, size, throughput, power and plumbing requirements and data collection, analytics and reporting.
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Most of these competitors originated in Korea and continue to manufacture their products in Asia and India. One company that we are aware of has claimed to be developing competitive data collection and web enablement, but are unaware of the deployment and functionality of their technology offering. Compared to our competitors, we believe that our machine has the smallest footprint and requires the least amount of water to operate, and we believe it is an industry leader in terms of installations and efficiency. Currently we are not aware of any direct competitor with the ability to capture and deliver real time data.
Alternative technologies or processes to digesters or similar equipment are:
Traditional Composting: Composting has been in existence for many years and has historically been the only option for organics disposal. Composting:
| ● | Relies heavily on truck collection and transportation. | |
| ● | Uses facilities that can in some cases be considered public nuisances. | |
| ● | Is very difficult to provide accurate metrics on waste volumes and generation. | |
| ● | Facilities are difficult to site and are often long distances from waste generation. | |
| ● | Is neither cost effective nor environmentally friendly. |
Anaerobic Digestion: Anaerobic digesters are readily used throughout Europe. Anaerobic digestion (“AD”) is the decomposition of organic waste in the absence of oxygen. The beneficial by-product is gas that is used to generate electricity. AD is generally accomplished on a large municipal or commercial scale and traditionally has not been readily available as an “at the source” solution. AD facilities are beginning to be utilized in the United States and are considered to be a viable disposal option for organic waste. While the technology is sound, we believe that AD facilities face various challenges in the United States, although we believe that AD facilities will continue to be developed and will be a part of the total solution for organic waste disposal. Many private equity funds have made investments in companies that own or are permitting AD facilities. The challenges to AD include:
| ● | Capital intensity of sizeable plants. | |
| ● | Difficult to site with proximity to feedstock. | |
| ● | Need steady, homogenous waste source (pre-processing is necessary). | |
| ● | Relies on traditional collection and transportation of waste (significant costs). | |
| ● | Rely on “tip fee” to subsidize operating expenses. | |
| ● | Difficult to provide data to consumers (similar to composting). |
Patents and Trademarks
On May 22, 2018, BioHiTech received a United States patent for its “Network Connected Weight Tracking System for a Food Waste Disposal Machine”, which expires on July 23, 2036. On March 22, 2022, BioHiTech received a Canadian patent for the “Network Connected Weight Tracking System for a Food Waste Disposal Machine”, which expires on January 12, 2035. Both of these patents have been transferred to the Company.
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Corporate History
The Company was incorporated in the State of California on September 9, 2009 as Thunderclap Entertainment, Inc. On July 14, 2017, Thunderclap Entertainment, Inc. changed its name to TraQiQ, Inc.
On March 18, 2022, the Financial Industry Regulatory Authority, approved a reverse 1-for-8 stock split of the Company’s common stock (the “Reverse Split”). The Reverse Split was effective on March 21, 2022. The common stock and common stock equivalents and the per-share amounts have been retroactively restated in accordance with ASC 855-10-25 and the loss per share figures have been retroactively restated in accordance with ASC 260-10-55-12.
On December 30, 2022, the Company entered into an Assignment of Stock (the “MTP Agreement”) with Mimo Technologies Private Ltd. (“MTP”) and Lathika Regunathan (“LR”), pursuant to which the Company sold, assigned and transferred to LR, and LR purchased from the Company, all of the Company’s equity interests in MTP in exchange for nominal consideration of $1.00.
On December 30, 2022, the Company entered into an Assignment of Stock (the “TSP Agreement”) with TraQiQ Solutions Private Ltd. (“TSP”) and LR, pursuant to which the Company sold, assigned and transferred to LR and LR purchased from the Company, all of the Company’s equity interests in TSP in exchange for nominal consideration of $1.00.
On December 30, 2022, the Company entered into an Assignment of Units (the “Rohuma Agreement”, and, together with the MTP Agreement and the TSP Agreement, the “Disposition Agreements”) with Rohuma LLC (“Rohuma”) and Happy Kompany LLC (“Happy”) pursuant to which the Company sold, assigned and transferred to Happy, and Happy purchased from the Company, all of the Company’s equity interests in Rohuma, in exchange for nominal consideration of $1.00. Pursuant to the Rohuma Agreement, the Company assumed the liabilities of Rohuma with respect to two loans with Paypal/Loanbuilder in an aggregate principal amount of $155,053 plus any accumulated interest and fees.
On January 5, 2023, the Company, consummated the transactions contemplated by the Purchase Agreement among TraQiQ Environmental, Inc. (“REI”) and BioHiTech America, LLC (“BHT” and, together with REI, the “Renovare Sellers”) and the Company, pursuant to which the Renovare Sellers sold and assigned to the Company, and the Company purchased and assumed from the Renovare Sellers, (a) certain assets related to the business of (i) offering aerobic digestion technology solutions for the disposal of food waste at the point of generation and (ii) data analytics with respect to food waste (collectively, the “Digester Business”) and (b) certain specified liabilities of the Renovare Sellers, including, but not limited to, indebtedness in an amount equal to $3,017,090 (the “Michaelson Debt”) owed to Michaelson Capital Special Finance Fund II, L.P. (“Michaelson”).
In exchange for the assets of the Digester Business, the Company (a) paid the Renovare Sellers an amount equal to $150,000 and (b) issued to REI (i) 1,250,000 shares of the Company’s Series B Preferred Stock, par value $0.0001 (the “Series B Preferred Stock”), and (ii) 15,686,926 shares of the Company’s common stock, par value $0.0001 (the “Common Stock”), a portion of which is being held in escrow. The Purchase Agreement contained standard representations and warranties by the Company and the Renovare Sellers which, except for fundamental representations, remain in effect for twelve months following the closing date. 1,568,693 shares of the Common Stock portion of the closing consideration were placed into escrow, the release of which is contingent upon a mutual agreement of the parties or January 4, 2024 or if a claim is pending, a final non-appealable order of any court of competent jurisdiction. Additional agreements ancillary to the asset acquisition were also executed, including but not limited to a bill of sale, assignment and assumption agreement, an escrow agreement and a domain name assignment agreement. The Renovare Sellers also agreed that, for a period of five years from closing date, the Sellers would not engage in a business that competes with the Digester Business.
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Corporate Information
The Company’s principal executive offices are located at 14205 SE 36th St., Suite 100, Bellevue WA 98006 and its telephone number is (425) 818-0560. The Company’s website is https://RecoupEnv.com/. Information contained on our website does not constitute part of and is not incorporated into this annual report on Form 10-K.
Available Information
The Company’s reports filed with or furnished to the SEC pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, are available, free of charge, on our Investors website at https://recoupenv.com/investors/ as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The SEC maintains a website at http://www.sec.gov that contains reports, and other information regarding us and other companies that file materials with the SEC electronically.
Item 1A. Risk Factors
Risks Relating to Our Business, Operations of Financial Condition
We have a limited operating history and are subject to the risks encountered by early-stage companies.
Our company has a limited operating history, and you should consider and evaluate our operating prospects in light of the risks and uncertainties frequently encountered by early-stage companies in rapidly evolving markets. For us, these risks include:
| ● | risks that we may not have sufficient capital to achieve our growth strategy; | |
| ● | risks that we may not develop our product and service offerings in a manner that enables us to be profitable and meet our customers’ requirements; | |
| ● | risks that our growth strategy may not be successful; and | |
| ● | risks that fluctuations in our operating results will be significant relative to our revenues. |
These risks are described in more detail below. Our future growth will depend substantially on our ability to address these and the other risks described in this section. If we do not successfully address these risks, we will be unable to sustain our business growth to date and you could lose your investment.
Our operating losses and working capital deficiency raise substantial doubt about our ability to continue as a going concern. If we do not continue as a going concern, investors could lose their entire investment.
Our operating losses and working capital deficiency raise substantial doubt about our ability to continue as a going concern. We have an accumulated deficit of $17,522,786 as of December 31, 2022. We may never achieve profitability. If we do not generate sufficient revenues, do not achieve profitability and do not have other sources of financing for our business, we may have to curtail or cease our development plans and operations, which could cause investors to lose the entire amount of their investment.
We are currently in default on several of our debt obligations, and have been in default on other debt obligations in the past year. If we are unable to resolve such defaults or any future defaults, it could have an adverse impact on our business, results of operations and financial condition and is likely to negatively impact the price of our common stock.
We are currently in default on five notes totaling $409,225 of debt (the “Outstanding Debt”). In addition, there was an additional $400,000 that was previously in default, but has subsequently been cured. Upon an event of default under the Outstanding Debt, the holders of such debt may exercise all rights and remedies available under the terms of the notes or applicable laws. We are currently in discussions with holders of the Outstanding Debt regarding possible solutions for the payment of the Outstanding Debt, including the possible extension of the maturity date of the Outstanding Debt. However, there can be no assurance that our discussions will be successful and if we are not successful in finding an acceptable resolution to the existing default or the impending event of default, the holders of the Outstanding Debt will be able to seek judgement for the full amount due and may seek to foreclose on our assets. If this occurs, any such remedy will have a material adverse effect on our business, results of operations and financial condition and is likely to negatively impact the price of our common stock.
If we are unable to transition to our new business, integrate our acquisitions or manage the growth of those companies effectively, our business could be adversely affected.
In the past, our business has grown mostly through the acquisition of other companies, both in the United States and in India. Going forward, we intend to focus on environmental services by acquiring cash-flow positive companies in that segment. We expect that our primary focus will be to acquire companies in the environmental services located in the United States. however, if we are unable to transition to the environmental services business or integrate our acquisitions effectively or efficiently, or fail to manage our growth, this could materially and adversely affect our business and results of operations. Therefore, our future operating results depend to a large extent on our ability to manage this transition, expansion and growth successfully. In addition, to successfully manage such growth, we will need to implement legal and accounting systems, human resource management and other tools, and if we are unable to do so this could also materially and adversely affect our business and results of operations.
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Post-acquisition of the Renovare business, we face substantial competition in the waste services industry, and if we cannot successfully compete in the marketplace, our business, financial condition and results of operations may be materially adversely affected.
The waste services industry is highly competitive, has undergone a period of consolidation and requires substantial labor and capital resources. Some of the markets in which we compete are served by one or more large, established companies, that are more well-known and better financed than we are. Intense competition exists not only to provide services to customers, but also to develop new products and services and to acquire other businesses within each market. Some of our competitors have significantly greater financial and other resources than we do.
In our waste disposal markets, we also compete with operators of alternative disposal and recycling facilities. We also increasingly compete with companies that seek to use waste as feedstock for alternative uses. Public entities may have financial advantages because of their ability to charge user fees or similar charges, impose tax revenues, access tax-exempt financing and, in some cases, utilize government subsidies. If we are unable to distinguish ourselves from our competitors and are unable to compete successfully, our business, financial condition and results of operations will be materially adversely affected.
If third parties claim that we infringe their intellectual property, it may result in costly litigation.
Third parties may claim our current or future products infringe their intellectual property rights. Any such claims, with or without merit, could cause costly litigation that could consume significant management time. As the number of product and services offerings in the artificial intelligence, mobile payments and task worker markets increases and functionalities increasingly overlap, we may become increasingly subject to infringement claims. Such claims also might require us to enter into royalty or license agreements. If required, we may not be able to enter into such royalty or license agreements or obtain them on terms acceptable to us.
Pandemics and other public health emergencies, including the COVID-19 pandemic, or fear thereof, could adversely impact our business, operations and financial condition.
Occurrences of epidemics or pandemics, depending on their scale, may cause different degrees of damage to national and local economies. Global economic conditions may be disrupted by widespread outbreaks of infectious or contagious diseases, including any resurgence or new variants of COVID-19. Pandemics and other public health emergencies, or fear thereof, have in the past caused and may in the future cause substantial changes in consumer behavior and restrictions on business and individual activities, which have led, and may lead to reduced economic activity. These effects could be exacerbated or prolonged by the emergence of variants. Extraordinary actions taken by international, federal, state and local public health and governmental authorities to contain and combat pandemics in regions throughout the world, including travel bans, quarantines, “stay-at-home” orders and similar mandates for many individuals and businesses to substantially restrict daily activities have had and could in the future have an adverse effect on our financial condition and results of operations.
We will need additional financing. Any limitation on our ability to obtain such additional financing could have a material adverse effect on our business, financial condition and results of operations.
We may need to raise additional capital, which we may be unable to obtain on favorable or reasonable terms, or at all. If we raise additional capital, it could result in dilution to our stockholders. Any limitation on our ability to obtain additional capital as and when needed could have a material adverse effect on our business, financial condition and results of operations.
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If we fail to maintain proper and effective internal controls, our ability to produce accurate and timely financial statements could be impaired, which could harm our operating results, our ability to operate our business and investors’ views of us.
Ensuring that we have adequate internal financial and accounting controls and procedures in place so that we can produce accurate financial statements on a timely basis is a costly and time-consuming effort. Section 404 of the Sarbanes-Oxley Act requires public companies to conduct an annual review and evaluation of their internal controls. The Company’s internal control over financial reporting and disclosure controls and procedures were ineffective as of December 31, 2022. Our failure to maintain the effectiveness of our internal controls in accordance with the requirements of the Sarbanes-Oxley Act has had and may in the future have a material adverse effect on our business. We could lose investor confidence in the accuracy and completeness of our financial reports, which could have an adverse effect on the price of our common stock. In addition, if our efforts to comply with new or changed laws, regulations, and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice, regulatory authorities may initiate legal proceedings against us and our business may be harmed.
Risks Relating to our Common Stock
Our common stock is concentrated among a two large stockholders, whose interests may conflict with those of investors.
As of March 24, 2023, our Chairman of the Board of Directors, Chief Executive Officer and President, Ajay Sikka, beneficially owns shares representing approximately 35% of our common stock, and Renovare Environmental, Inc. beneficially owns shares representing approximately 42% of our common stock. Each, therefore, is in a position to exercise substantial influence over the outcome of all matters submitted to a vote of our stockholders, including the election of directors.
We may be unsuccessful in having our common stock listed on the Nasdaq Stock Market.
We have applied to have our common stock listed on the Nasdaq Capital Market under the symbol “TRIQ.” Our application has not yet been approved, and there can be no assurance that it will be approved. If it is approved and our common stock is listed, we may not be able to meet the continued listing requirements of the Nasdaq Stock Market, which require, among other things, a minimum closing price of our common stock and a minimum market capitalization. If we are unable to satisfy the requirements of the Nasdaq Capital Market for continued listing, our common stock would be subject to delisting from that market, and we might or might not be eligible to list our shares on another Nasdaq market. A delisting of our common stock from the Nasdaq Capital Market, particularly if we did not qualify to be listed on another Nasdaq market, could negatively impact us by, among other things, reducing the liquidity and market price of our common stock.
There is currently not an active liquid trading market for the Company’s common stock.
Our common stock is quoted on the OTC Markets QB tier under the symbol “TRIQ”. However, there is currently no regular active trading market in our common stock. Although there are periodic volume spikes from time to time, a consistent, active trading market may not develop. Whether or not in the future our common stock is listed on the Nasdaq Capital Market, there is no assurance an active trading market for our common stock will develop or be sustained or that we will remain eligible for continued listing on the Nasdaq Capital Market. If an active market for our common stock develops, there is a significant risk that our stock price may fluctuate in the future in response to any of the following factors, some of which are beyond our control:
| ● | variations in our quarterly operating results; | |
| ● | announcements that our revenue or income are below analysts’ expectations; | |
| ● | general economic downturns; | |
| ● | sales of large blocks of our common stock; or | |
| ● | announcements by us or our competitors of significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments. |
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You may experience dilution of your ownership interest due to future issuance of our securities.
We are currently authorized to issue 300,000,000 shares of common stock and 10,000,000 shares of preferred stock. We may issue additional shares of common stock or other securities that are convertible into or exercisable for common stock in future public offerings or private placements for capital raising purposes or for other business purposes, or upon conversion or exercise of outstanding options, warrants, or preferred stock. The future issuance of a substantial amount of common stock, or the perception that such an issuance could occur, could adversely affect the prevailing market price of our common shares. A decline in the price of our common stock could make it more difficult to raise funds through future offerings of our common stock or securities convertible into common stock.
Our board of directors may issue and fix the terms of shares of our preferred stock without stockholder approval, which could adversely affect the voting power of holders of our common stock or any change in control of our company.
Our articles of incorporation authorize the issuance of up to 10,000,000 shares of “blank check” preferred stock, with such designation rights and preferences as may be determined from time to time by the board of directors. Of these authorized shares, 220,135 Series B Preferred Stock are currently outstanding. Our board of directors is empowered, without stockholder approval, to create additional series and issue additional shares of preferred stock with dividend, liquidation, conversion, voting or other rights which could adversely affect the voting power or other rights of the holders of our common stock. In the event of such issuances, the preferred stock could be used, under certain circumstances, as a method of discouraging, delaying or preventing a change in control of our company.
We do not expect to pay dividends.
We do not anticipate that we will declare or pay any dividends in the foreseeable future. Consequently, you will only realize an economic gain on your investment in our common stock if the price appreciates, which may not occur. You should not purchase our common stock expecting to receive cash dividends. Since we do not pay dividends, and if an active trading market for our shares does not develop, you may not have any manner to liquidate or receive any payment on your investment. Therefore, our failure to pay dividends may cause you to not see any return on your investment even if we are successful in our business operations. In addition, because we do not pay dividends we may have trouble raising additional funds which could affect our ability to expand our business operations.
Our common stock is subject to the “penny stock” rules of the SEC and the trading market in the securities is limited, which makes transactions in the stock cumbersome and may reduce the value of an investment in the stock.
Our common stock is subject to the “penny stock” rules of the SEC because it has historically had a market price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require:
| ● | that a broker or dealer approve a person’s account for transactions in penny stocks after compliance with various information collection rules and a suitability evaluation; | |
| ● | the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased; and | |
| ● | the broker or dealer deliver a disclosure schedule prescribed by the SEC. |
If we are successful in our application to list our stock for trading on the Nasdaq Stock Market and we are able to maintain that listing, our stock will cease to be a penny stock. However, if we cease to obtain and maintain that listing, we may again be subject to the penny stock rules. Generally, brokers may be less willing to execute transactions in securities subject to the penny stock rules. In addition, according to the SEC, the market for penny stocks has suffered in recent years from patterns of fraud and abuse. These factors may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our common stock if it were to become subject to the penny stock rules.
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If we are unable to successfully compete in the marketplace, our business and financial condition could be materially adversely affected.
The waste services industry is subject to extensive and rapidly-changing government regulation. Changes to one or more of these regulations could cause a decrease in the demand for our products and services.
Stringent government regulations at the federal, state and local level in the U.S. have a substantial impact on the waste industry and compliance with such regulations is costly. A large number of complex laws, rules, orders and interpretations govern environmental protection, health, safety, land use, zoning, transportation and related matters. Among other things, governmental regulations and enforcement actions may restrict operations within the waste industry and may adversely affect our financial condition, results of operations and cash flows.
We believe the demand for our digester product is created directly in response to recent laws and regulation prohibiting certain large, commercial food manufacturers, retailers and hospitality enterprises from discarding food wastes to landfills. Our digesters are just one solution for these businesses to comply with these regulations and other regulations. If there was a change to or elimination of these regulations, the demand for our product would almost certainly be greatly reduced and our income would, as a result, be adversely affected.
Currently, the microorganisms we employ in our digesters are approved for use to reduce food waste and to be poured into conventional sewer systems. However, if it was determined that we could no longer use these microorganisms, there is no guarantee that we could develop a replacement process to assure that we could continue to sell our products. Also, we would likely face claims from current customers were they unable to use our digesters for food waste disposal.
We may also incur the costs of defending against environmental litigation brought by governmental agencies and private parties. We may be in the future a defendant in lawsuits brought by parties alleging environmental damage, personal injury, and/or property damage, or which seek to overturn or prevent authorization of our products, all of which may result in us incurring significant liabilities.
We may not be able to identify suitable acquisition candidates. If we identify suitable acquisition candidates, we may be unable to successfully negotiate acquisitions at a price or on terms and conditions acceptable to us, and we may be unable to obtain the necessary regulatory approvals to complete potential acquisitions. If executed, acquisitions may not improve our business or may pose significant risks.
We may in the future, make acquisitions in order to acquire complementing or expanding our business, including developing additional disposal products and complementary services. We may not be able to identify suitable acquisition candidates. If we identify suitable acquisition candidates, we may be unable to successfully negotiate acquisitions at a price or on terms and conditions acceptable to us, including as a result of the limitations imposed by our debt obligations. Further, we may be unable to obtain the necessary regulatory approval, if required, to complete potential acquisitions. We may be unable to complete these transactions and, if executed, these transactions may not improve our business or may pose significant risks and could have a negative effect on our operations.
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Our ability to achieve the benefits of any potential future acquisition, including cost savings and operating efficiencies, depends in part on our ability to successfully integrate the operations of such acquired businesses with our operations. The integration of acquired businesses and other assets may require significant management time and resources that would otherwise be available for the ongoing management of our existing operations. In addition, to the extent any future acquisitions are completed, we may be unsuccessful in integrating acquired companies or their operations, or if integration is more difficult than anticipated, we may experience disruptions that could have a material adverse impact on future profitability. Some of the risks that may affect our ability to integrate, or realize any anticipated benefits from, acquisitions include:
| ● | unexpected losses of key employees or customer of the acquired company; | |
| ● | difficulties integrating the acquired company’s standards, processes, procedures and controls; | |
| ● | difficulties coordinating new product and process development; | |
| ● | difficulties hiring additional management and other critical personnel; | |
| ● | difficulties increasing the scope, geographic diversity and complexity of our operations; | |
| ● | difficulties consolidating facilities, transferring processes and know-how; | |
| ● | difficulties reducing costs of the acquired company’s business; | |
| ● | diversion of management’s attention from our management; and | |
| ● | adverse impacts on retaining existing business relationships with customers. |
We rely on highly skilled personnel and, if we are unable to retain or motivate key personnel or hire additional qualified personnel, we may not be able to grow effectively.
Our performance is largely dependent on the talents and efforts of highly skilled individuals. Our future success depends on our continuing ability to identify, hire, develop, motivate, and retain highly skilled personnel for all areas of our organization. Our continued ability to compete effectively depends on our ability to retain and motivate existing employees. Due to our reliance upon its skilled professionals and laborers, the failure to attract, integrate, motivate, and retain current and/or additional key employees could have a material adverse effect on our business, operating results and financial condition.
If we fail to manage growth or to prepare for product scalability and integration effectively, it could have an adverse effect on our employee efficiency, product quality, working capital levels and results of operations.
Any significant growth in the market for our products or our entry into new markets may require an expansion of our employee base for managerial, operational, financial, and other purposes. During any period of growth, we may face problems related to our operational and financial systems and controls, including quality control and delivery and service capacities. We would also need to continue to expand, train and manage our employee base. Continued future growth will impose significant added responsibilities upon the members of management to identify, recruit, maintain, integrate, and motivate new employees.
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Aside from increased difficulties in the management of human resources, we may need increased liquidity to finance the expansion of our existing business, the development of new products, and the hiring of additional employees. For effective growth management, we will be required to continue improving our operations, management, and financial systems and controls. Our failure to manage growth effectively may lead to operational and financial inefficiencies that will have a negative effect on our profitability. We cannot assure investors that we will be able to timely and effectively meet that demand and maintain the quality standards required by our existing and potential customers.
Our management team may not be able to successfully implement our business strategies.
If our management team is unable to execute on its business strategies, then our development, including the establishment of revenues and our sales and marketing activities, would be materially and adversely affected. In addition, we may encounter difficulties in effectively managing the budgeting, forecasting and other process control issues presented by any future growth. We may seek to augment or replace members of our management team or we may lose key members of our management team, and we may not be able to attract new management talent with sufficient skill and experience.
If we are unable to retain key executives and other key affiliates, our growth could be significantly inhibited, and our business harmed with a material adverse effect on our business, financial condition and results of operations.
Our success is, to a certain extent, attributable to the management, sales and marketing, and operational and technical expertise of certain key personnel. Ajay Sikka, our Chief Executive Officer and Chief Financial Officer, performs key functions in the operation of our business. The loss of Mr. Sikka could have a material adverse effect upon our business, financial condition, and results of operations. If we lose the services of any senior management, we may not be able to locate suitable or qualified replacements and may incur additional expenses to recruit and train new personnel, which could severely disrupt our business and prospects.
Our financial results may not meet the expectations of investors and may fluctuate because of many factors and, as a result, investors should not rely on our revenue and/or financial projections as indicative of future results.
Fluctuations in operating results or the failure of operating results to meet the expectations investors may negatively impact the value of our securities. Operating results may fluctuate due to a variety of factors that could affect revenues or expenses in any particular quarter. Fluctuations in operating results could cause the value of our securities to decline. Investors should not rely on revenue or financial projections or comparisons of results of operations as an indication of future performance. As a result of the factors listed below, it is possible that in future periods results of operations may be below the expectations of investors. This could cause the market price of our securities to decline and negatively impact our ability to raise debt and capital. Factors that may affect our operating results include:
| ● | delays in sales resulting from potential customer sales cycles; | |
| ● | variations or inconsistencies in return on investment models and results; | |
| ● | changes in competition; and | |
| ● | changes or threats of significant changes in legislation or rules or standards that would change the drivers for product adoption. |
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
TraQiQ does not own or lease any property. Our mailing address is 14205 S.E. 36th St., Suite 100, Bellevue, WA 98006.
Item 3. Legal Proceedings
From time to time we are involved in claims and legal actions that arise in the ordinary course of our business. We cannot predict the outcome of any litigation or suit to which we are a party. However, we do not believe that an unfavorable decision of any of the current claims or legal actions against us, individually or in the aggregate, will have a material adverse effect on our financial position, results of operations, liquidity or capital resources.
Item 4. Mine Safety Disclosures
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Our common stock is quoted on the OTC QB Market under the symbol “TRIQ.” The OTC QB market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions
Holders of our Common Stock
As of March 30, 2023, there were approximately 100 stockholders of record of our common stock. This number does not include shares held by brokerage clearing houses, depositories or others in unregistered form. The stock transfer agent for our securities is Equity Stock Transfer.
Dividends
The Company has never declared or paid any cash dividends on its common stock. The Company currently intends to retain future earnings, if any, to finance the expansion of its business. As a result, the Company does not anticipate paying any cash dividends in the foreseeable future.
Unregistered Sales of Equity Securities
On December 30, 2022, the Company exchanged outstanding debt securities of the Company with unpaid principal and interest in the amount of $5,786,474 for 13,002,729 shares of its common stock and 220,135 shares of its Series B Preferred stock. These transactions were with Evergreen Capital Management, LLC (“Evergreen”), the Company’s Chief Executive Officer, and other individuals who are related to the Company’s Chief Executive Officer. These sales of securities were consummated pursuant to the exemption from registration in Section 3(a)(9) of the Securities Act of 1933, as amended, because it was exclusively with existing security holders of the Company and no commission or other remuneration was given or paid, directly or indirectly, for soliciting such exchange. The sales were also exempt under Section 4(a)(2) of the Securities Act of 1933, as amended, as all of the purchasers were sophisticated in business and investment matters.
On January 5, 2023, the Company issued 150,000 shares of the Company’s common stock to Greg Rankich. These sales of securities were consummated pursuant to the exemption from registration in Section 3(a)(9) of the Securities Act of 1933, as amended, because it was exclusively with existing security holders of the Company and no commission or other remuneration was given or paid, directly or indirectly, for soliciting such exchange. The sales were also exempt under Section 4(a)(2) of the Securities Act of 1933, as amended, as the purchaser was sophisticated in business and investment matters.
Between October 1, 2022 and December 31, 2022, 394,219 options were exercised into 394,219 shares of the Company’s common stock for $0.0001. These sales of securities were consummated pursuant to the exemption from registration in Section 4(a)(2) of the Securities Act of 1933, as amended. The Company determined that all of the purchasers were sophisticated in business and investment matters.
On December 1, 2022, the Company issued 168,750 shares of its common stock in exchange for vested restricted stock awards. These sales of securities were consummated pursuant to the exemption from registration in Section 4(a)(2) of the Securities Act of 1933, as amended. The Company determined that all of the purchasers were sophisticated in business and investment matters.
Between April 1, 2022 and June 30, 2022, the Company issued 179,506 shares of its common stock in exchange for warrants. These sales of securities were consummated pursuant to the exemption from registration in Section 4(a)(2) of the Securities Act of 1933, as amended. The Company determined that all of the purchasers were sophisticated in business and investment matters.
Between October 1, 2022 and December 31, 2022, the Company issued 43,803 shares of its common stock in exchange for warrants. These sales of securities were consummated pursuant to the exemption from registration in Section 4(a)(2) of the Securities Act of 1933, as amended. The Company determined that all of the purchasers were sophisticated in business and investment matters.
Through December 31, 2022, the Company issued 223,309 shares of its common stock in exchange for warrants. These sales of securities were consummated pursuant to the exemption from registration in Section 4(a)(2) of the Securities Act of 1933, as amended. The Company determined that all of the purchasers were sophisticated in business and investment matters.
On July 5, 2022, the Company entered into a 11% OID Senior Secured Promissory Note with GS Capital Partners LLC (the “GS Capital”) in the amount of $144,000 (includes $14,000 of Original Issue Discount). The GS Capital note has a maturity of twelve months and accrues interest at a rate of 12% per year. The conversion price is equal to 86% of the lowest trading price of the Company’s common stock for the 12 Trading Days immediately preceding the delivery of a notice of conversion. In accordance with the terms of the note, the Company issued 3,000 shares of common stock as a commitment fee. These securities were issued as a private offering and sale pursuant to the exemption from registration under Section 4(a)(2) of the Securities Act of 1933, as amended. The Company determined that GS Capital Partners, LLC was sophisticated in business and investment matters.
Item 6. Selected Financial Data.
As a smaller reporting company, the Company is not required to file selected financial data.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The discussion and analysis of our financial condition and results of operations are based on our financial statements, which we have prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues and expenses during the reporting periods. On an ongoing basis, we evaluate estimates and judgments, including those described in greater detail below. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
As used in this “Management’s Discussion and Analysis of Financial Condition and Results of Operation,” except where the context otherwise requires, the term “we,” “us,” “our,” or “the Company,” refers to the business of TraQiQ, Inc.
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Overview
The Company currently markets an aerobic digestion technology solution for the disposal of food waste at the point of generation. Its line of Revolution Series Digesters has been described as self-contained, robotic digestive systems that we believe are as easy to install as a standard dishwasher with no special electrical or plumbing requirements. Units range in size depending upon capacity, with the smallest unit approximately the size of a residential washing machine. The digesters utilize a biological process to convert food waste into a liquid that we believe is safe to discharge down an ordinary drain. This process can result in a substantial reduction in costs for customers including cruise lines, restaurants, retail stores, hospitals, hotel/hospitality companies and governmental units by eliminating the transportation and logistics costs associated with food waste disposal. The Company also expects the process reduce the greenhouse gases associated with food-waste transportation and decomposition in landfills that have been linked to climate change. The Company offers its Revolution Series Digesters in several sizes targeting small- to mid-sized food waste generation sites that are often more economical than traditional disposal methods. The Revolution Series Digesters are manufactured and assembled in the United States.
In an effort to expand the capabilities of its digesters, the Company developed a sophisticated Internet of Things (“IoT”) technology platform to provide its customers with transparency into their internal and supply chain waste generation and operational practices. This patented process collects weight related data from the digesters to deliver real-time data that provides valuable information that when analyzed, can improve efficiency, and validate corporate sustainability efforts. The Company provides its IoT platform through a SaaS (“Software as a Service”) model that is either bundled in its rental agreements or sold through a separate annual software license. The Company continues to add new capacity sizes to its line of Revolution Series Digesters to meet customer needs.
The Company was incorporated in the State of California on September 9, 2009 as Thunderclap Entertainment, Inc. On July 14, 2017, Thunderclap Entertainment, Inc. changed its name to TraQiQ, Inc.
On March 18, 2022, the Financial Industry Regulatory Authority, approved a reverse 1-for-8 stock split of the Company’s common stock (the “Reverse Split”). The Reverse Split was effective on March 21, 2022. The common stock and common stock equivalents and the per-share amounts have been retroactively restated in accordance with ASC 855-10-25 and the loss per share figures have been retroactively restated in accordance with ASC 260-10-55-12.
On December 30, 2022, the Company entered into an Assignment of Stock (the “MTP Agreement”) with Mimo Technologies Private Ltd. (“MTP”) and Lathika Regunathan (“LR”), pursuant to which the Company sold, assigned and transferred to LR, and LR purchased from the Company, all of the Company’s equity interests in MTP in exchange for nominal consideration of $1.00.
On December 30, 2022, the Company entered into an Assignment of Stock (the “TSP Agreement”) with TraQiQ Solutions Private Ltd. (“TSP”) and LR, pursuant to which the Company sold, assigned and transferred to LR and LR purchased from the Company, all of the Company’s equity interests in TSP in exchange for nominal consideration of $1.00.
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On December 30, 2022, the Company entered into an Assignment of Units (the “Rohuma Agreement”, and, together with the MTP Agreement and the TSP Agreement, the “Disposition Agreements”) with Rohuma LLC (“Rohuma”) and Happy Kompany LLC (“Happy”) pursuant to which the Company sold, assigned and transferred to Happy, and Happy purchased from the Company, all of the Company’s equity interests in Rohuma, in exchange for nominal consideration of $1.00. Pursuant to the Rohuma Agreement, the Company assumed the liabilities of Rohuma with respect to two loans with Paypal/Loanbuilder in an aggregate principal amount of $155,053 plus any accumulated interest and fees.
On January 5, 2023, the Company, consummated the transactions contemplated by the Purchase Agreement among TraQiQ Environmental, Inc. (“REI”) and BioHiTech America, LLC (“BHT” and, together with REI, the “Renovare Sellers”) and the Company, pursuant to which the Renovare Sellers sold and assigned to the Company, and the Company purchased and assumed from the Renovare Sellers, (a) certain assets related to the business of (i) offering aerobic digestion technology solutions for the disposal of food waste at the point of generation and (ii) data analytics with respect to food waste (collectively, the “Digester Business”) and (b) certain specified liabilities of the Renovare Sellers, including, but not limited to, indebtedness in an amount equal to $3,017,090 (the “Michaelson Debt”) owed to Michaelson Capital Special Finance Fund II, L.P. (“Michaelson”).
In exchange for the assets of the Digester Business, the Company (a) paid the Renovare Sellers an amount equal to $150,000 and (b) issued to REI (i) 1,250,000 shares of the Company’s Series B Preferred Stock, par value $0.0001 (the “Series B Preferred Stock”), and (ii) 15,686,926 shares of the Company’s common stock, par value $0.0001 (the “Common Stock”), a portion of which is being held in escrow. The Purchase Agreement contained standard representations and warranties by the Company and the Renovare Sellers which, except for fundamental representations, remain in effect for twelve months following the closing date. 1,568,693 shares of the Common Stock portion of the closing consideration were placed into escrow, the release of which is contingent upon a mutual agreement of the parties or January 4, 2024 or if a claim is pending, a final non-appealable order of any court of competent jurisdiction. Additional agreements ancillary to the asset acquisition were also executed, including but not limited to a bill of sale, assignment and assumption agreement, an escrow agreement and a domain name assignment agreement. The Renovare Sellers also agreed that, for a period of five years from closing date, the Sellers would not engage in a business that competes with the Digester Business.
Going Concern
The Company has an accumulated deficit of $17,522,786 and a working capital deficit of $1,616,199 as of December 31, 2022, compared to an accumulated deficit of $8,953,768 and a working capital deficit of $9,844,269 as of December 31, 2021. The Company’s continuation as a going concern is dependent on its ability to generate sufficient cash flows from operations to meet its obligations, which it has not been able to accomplish to date, and/or obtain additional financing from its stockholders and/or other third parties.
Our consolidated financial statements have been prepared on a going concern basis, which implies the Company will continue to meet its obligations and continue its operations for the next fiscal year. The continuation of the Company as a going concern is dependent upon the ability of the Company to obtain necessary equity or debt financing to continue operations, successfully locating and negotiating with other business entities for potential acquisition and /or acquiring new clients to generate revenues. The consolidated financial statements of the Company do not include any adjustments that may result from the outcome of the uncertainties. During the year ended December 31, 2022, the Company converted $5.0 million of debt into shares of common and Series B Preferred Stock. Additionally, in the first quarter of 2023, the Company completed an acquisition of Renovare. Overall, management is focused on effectively positioning the Company for a positive increase in cash flows. The Company will continue to closely monitor the cash flows of the Company.
In order to further implement its business plan and satisfy its working capital requirements, the Company will need to raise additional capital. There is no guarantee that the Company will be able to raise additional equity or debt financing at acceptable terms, if at all.
There is no assurance that the Company will ever be profitable. These consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should the Company be unable to continue as a going concern.
Critical Accounting Policies and Estimates
Our significant accounting policies are more fully described in the notes to our consolidated financial statements. Those material accounting estimates that we believe are the most critical to an investor’s understanding of our financial results and condition are discussed immediately below and are particularly important to the portrayal of our financial position and results of operations and require the application of significant judgment by our management to determine the appropriate assumptions to be used in the determination of certain estimates.
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Consolidation
The consolidated financial statements include the accounts of TraQiQ, Inc. and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
The Company applies the guidance of Topic 810 Consolidation of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) to determine whether and how to consolidate another entity. Pursuant to ASC paragraph 810-10-15-10, all majority-owned subsidiaries—all entities in which a parent has a controlling financial interest—are consolidated except when control does not rest with the parent.
Pursuant to ASC paragraph 810-10-15-8, the usual condition for a controlling financial interest is ownership of a majority voting interest, and, therefore, as a general rule ownership by one reporting entity, directly or indirectly, of more than 50 percent of the outstanding voting shares of another entity is a condition pointing toward consolidation. The power to control may also exist with a lesser percentage of ownership, for example, by contract, lease, agreement with other stockholders, or by court decree.
In accordance with ASC 810-10-45, the Company has deconsolidated the subsidiaries of MTP, Rohuma and TSP as a result of the nonreciprocal transfer (spinoff). The Company has recognized the loss on the spinoff in net loss on the consolidated statements of operations
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. These estimates include, but are not limited to, management’s estimate of provisions required for non-collectible accounts receivable, depreciative lives of our assets, determination of technological feasibility, and valuation allowances of our deferred tax assets. Actual results could differ from those estimates.
Capitalized Software Costs
In accordance with the relevant FASB accounting guidance regarding the development of software to be sold, leased, or marketed, the Company expenses such costs as they are incurred until technological feasibility has been established, at and after which time these costs are capitalized until the product is available for general release to customers. Once the technological feasibility is established per ASC 985-20, the Company capitalizes costs associated with the acquisition or development of major software for internal and external use in the balance sheet. Costs incurred to enhance the Company’s software products, after general market release of the services using the products, is expensed in the period they are incurred. The Company only capitalizes subsequent additions, modifications or upgrades to internally developed software to the extent that such changes allow the software to perform a task it previously did not perform. The Company expenses software maintenance and training costs as incurred. As of December 31, 2022, there were no capitalized software costs.
Revenue Recognition
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), specifically ASC 606-10-50-12. This standard provides a single set of guidelines for revenue recognition to be used across all industries and requires additional disclosures. The updated guidance introduces a five-step model to achieve its core principal of the entity recognizing revenue to depict the transfer of goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company adopted the updated guidance effective January 1, 2018 using the full retrospective method, however the new standard did not have a material impact on its consolidated financial position and consolidated results of operations, as it did not change the manner or timing of recognizing revenue.
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Professional Service Revenue
TRAQ Pvt Ltd. generally derived a large part of its revenues from professional and support services, which included revenue generated from software development projects and associated fees for consulting, implementation, training, and project management provided to customers using their systems. Revenue from arrangements with customers was recognized based on the Company’s satisfaction of distinct performance obligations identified in each agreement, generally at a point in time as discussed in ASC 606. In instances where multiple performance obligations were identified, the Company allocated the transaction price to each performance obligation based on relative selling prices of each distinct product or service, and recognizes revenue related to each performance obligation at the points in time that each performance obligation is satisfied. The Company’s performance obligation included providing customization of software and the selling of licenses, where the Company typically satisfied its performance obligations prior to the submission of invoices to the customer for such services. The Company’s performance obligation for consulting and technical support was delivered on as the work was being performed, which was satisfied prior to invoicing. The Company generally collected payment within 30 to 60 days of completion of the performance obligation and there were no agency relationships.
Software development arrangements involving significant customization, modification or production were accounted for in accordance with the appropriate technical accounting guidance issued by the FASB using the percentage-of- completion method. The Company recognized revenue using periodic reported actual hours worked as a percentage of total expected hours required to complete the project arrangement and applied the percentage to the total arrangement fee.
Unbilled revenue represented earnings in excess of billings as at the end of the reporting period. Sales taxes collected from customers and remitted to governmental authorities were accounted for on a net basis and therefore were excluded from revenues in the statements of operations.
TRAQ Pvt Ltd. has deferred the revenue and costs attributable to certain process transition activities with respect to its customers where such activities do not represent the culmination of a separate earnings process. Such revenue and costs were subsequently recognized ratably over the period in which the related services were performed. Further, the deferred costs were limited to the amount of the deferred revenues. As of December 31, 2022, there was no deferred revenue.
Software Solution Revenue
Revenue from arrangements with customers was recognized based on the Company’s satisfaction of distinct performance obligations identified in each agreement, generally at a point in time as discussed in ASC 606. In instances where multiple performance obligations are identified, the Company allocated the transaction price to each performance obligation based on relative selling prices of each distinct product or service, and recognized revenue related to each performance obligation at the points in time that each performance obligation was satisfied. The Company’s performance obligation included providing connectivity to software, generally through a monthly subscription, where the Company typically satisfied its performance obligations prior to the submission of invoices to the customer for such services. The Company’s performance obligation for hardware components that were purchased by the customer in connection with the solution was delivery of the purchased device, which was satisfied prior to invoicing. The Company provided a twelve-month warranty on their hardware. All units deployed by the Company were past the twelve-month period, thus the Company did not accrue for a warranty liability. The Company generally collected payment within 30 to 60 days of completion of the performance obligation and there were no agency relationships.
Revenue From Sales of Goods
Revenue from arrangements with customers was recognized based on the Company’s satisfaction of distinct performance obligations identified in each agreement, generally at a point in time as discussed in ASC 606. The performance obligations were satisfied upon shipment of the merchandise being sold.
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Costs of Services Provided
Costs of services provided consisted of data processing costs, customer support costs including personnel costs to maintain the Company’s proprietary databases, costs to provide customer call center support, hardware and software expense associated with transaction processing systems and exchanges, telecommunication and computer network expense, and occupancy costs associated with facilities where these functions are performed. Depreciation expense was not included in costs of services provided.
Foreign Currency Transactions
The Company accounts for foreign currency transactions in accordance with ASC 830, “Foreign Currency Matters” (“ASC 830”), specifically the guidance in subsection ASC 830-20, “Foreign Currency Transactions”. The U.S. dollar is the functional and reporting currency for the Company and its subsidiaries other than the Indian subsidiaries whose functional currency is the Indian Rupee. Pursuant to ASC 830, monetary assets and liabilities denominated in foreign currencies are translated into U.S. dollars at exchange rates in effect at the balance sheet date, with the resulting gains or losses upon settlement reported in foreign exchange gain (loss) in the computation of net income (loss). Gains or losses resulting from translation adjustments are reported under accumulated other comprehensive income (loss).
Uncertain Tax Positions
The Company follows ASC 740-10, “Accounting for Uncertainty in Income Taxes”. This requires recognition and measurement of uncertain income tax positions using a “more-likely-than-not” approach. Management evaluates the Company’s tax positions on an annual basis.
The Company files income tax returns in the U.S. federal tax jurisdiction and various state and foreign tax jurisdictions. The federal and state income tax returns of the Company are subject to examination by the IRS and state taxing authorities, generally for three years after they were filed. Foreign income tax returns are subject to examination by foreign taxing authorities.
Fair Value of Financial Instruments
ASC 825, “Financial Instruments,” requires the Company to disclose estimated fair values for its financial instruments. Fair value estimates, methods, and assumptions are set forth below for the Company’s financial instruments: The carrying amount of cash, accounts receivable, prepaid and other current assets, accounts payable and accrued expenses, stockholder advances, and short-term financing approximate fair value because of the short-term maturity of those instruments. The Company does not utilize derivative instruments.
Earnings (Loss) Per Share of Common Stock
Basic net income (loss) per common share is computed using the weighted average number of common shares outstanding. Diluted earnings per share (EPS) include additional dilution from common stock equivalents, such as convertible notes, preferred stock, stock issuable pursuant to the exercise of stock options and warrants. Common stock equivalents are not included in the computation of diluted earnings per share when the Company reports a loss because to do so would be anti-dilutive for periods presented. An uncertain number of shares underlying convertible debt have been excluded from the computation of loss per share because their impact was anti-dilutive.
Related Party Transactions
Parties are considered to be related to the Company if the parties directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal stockholders of the Company, its management, members of the immediate families of principal stockholders of the Company and its management and other parties with which the Company may deal where one-party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. The Company discloses all related party transactions. All transactions shall be recorded at fair value of the goods or services exchanged. Property purchased from a related party is recorded at the cost to the related party and any payment to or on behalf of the related party in excess of the cost is reflected as compensation or distribution to related parties depending on the transaction.
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Lease Obligations
The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, current portion of operating lease liabilities and operating lease liabilities, less current portion in the Company’s consolidated balance sheets.
ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. For leases in which the rate implicit in the lease is not readily determinable, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Lease terms include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for operating lease arrangements is recognized on a straight-line basis over the lease term. The Company has lease agreements with lease and non-lease components, which are accounted for separately. There is no lease obligation as of December 31, 2022.
Results of Operations and Financial Condition for the Year Ended December 31, 2022 as Compared to the Year Ended December 31, 2021
Revenues
For the year ended December 31, 2022 compared to December 31, 2021, the Company’s revenues increased by $1,582, or 100%, from $0 in 2021 to $1,582 in 2022. As a result of operations being discontinued, a majority of revenue has been reclassified to discontinued operations, leaving a small amount or revenue remaining on the statements of operations relating to continuing operations.
Cost of Revenues
For the year ended December 31, 2022 compared to December 31, 2021, the Company’s cost of revenues increased by $54,209, or 100%, from $0 in 2021 to $54,209 in 2022. As a result of operations being discontinued, a majority of cost of revenues has been reclassified to discontinued operations, leaving a small amount of revenue remaining on the statements of operations relating to continuing operations.
Operating Expenses
For the year ended December 31, 2022 compared to December 31, 2021, the Company’s salary and salary-related costs decreased by $1,086,226, or 85%, from $1,279,860 in 2021 to $193,634 in 2022. The decrease is the result of scaling down operations in 2022, and inevitably the dispositions of Rohuma, TSP and Mimo during the year ended December 31, 2022.
During the year ended December 31, 2022 compared to December 31, 2021, the Company’s professional fees decreased by $335,680, or 48%, from $694,787 in 2021 to $359,107 in 2022. Our professional fees decreased due to the acquisitions of Rohuma and Mimo as well as fees related to the acquisitions of those companies in 2021, and due to public offering expenses in 2021.
For the year ended December 31, 2022 compared to December 31, 2021, the Company’s rent expense slightly decreased by $50, or 2%, from $2,184 in 2021 to $2,134 in 2022.
For the years ended December 31, 2022 and 2021, the Company’s depreciation and amortization expense was $33,240.
For the year ended December 31, 2022 compared to December 31, 2021, the Company’s general and administrative expenses decreased by $1,706,278, or 69%, from $2,458,206 in 2021 to $751,928 in 2022 primarily due to the cutbacks in travel and stock based compensation expenses.
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Interest Expense, net of interest income
For the year ended December 31, 2022 compared to December 31, 2021, the Company’s interest expense increased by $639,483, or 50%, from $1,266,777 in 2021 to $1,906,260 in 2022 due to higher levels of debt in 2022.
Derivative Liabilities
For the year ended December 31, 2022 compared to December 31, 2021, the Company’s change in the fair value of the derivative liability and derivative expense decreased by $221,797, from $1,077,387 in 2021 to $855,590 in 2022 due to the convertible promissory notes and related warrants being classified as derivative liabilities and the changes in the share price over the year ended December 31, 2022 compared to the year ended December 31, 2021. In addition the Company recognized a gain on extinguishment of derivative liabilities of $0 in 2022 versus $1,089,675 in 2021.
Forgiveness of Debt and Other Income
For the year ended December 31, 2022 compared to December 31, 2021, the Company’s forgiveness of debt and other income increased by $1,742,606 or 17,301%, from $10,072 in 2021 to $1,752,678 in 2022 due to the forgiveness of accrued interest on notes payable upon conversion of debt.
Loss from discontinued operations
For the year ended December 31, 2022 compared to December 31, 2021, the Company’s loss from discontinued operations, after taxes increased by $6,137,455, from $632,258 in 2021 to $6,769,713 in 2022 primarily due to the loss from disposal of subsidiaries of $5,804,121.
Net Loss
For the year ended December 31, 2022 compared to December 31, 2021, the Company’s net loss increased by $2,718,193, from $6,453,363 in 2021 to $9,171,556 in 2022 due to the changes noted herein.
Liquidity and Capital Resources
Working Capital
As of December 31, 2022, current assets were $66,460 and current liabilities outstanding were $1,682,659, which resulted in a working capital deficit of $1,616,199. As of December 31, 2021, current assets were $980,747 and current liabilities outstanding were $10,825,016, which resulted in a working capital deficit of $9,844,269.
We believe that our available cash balance as of the date of this filing will not be sufficient to fund our anticipated level of operations for at least the next 12 months. Management believes that our ability to continue our operations depends on our ability to sustain and grow revenue and results of operations as well as our ability to access capital markets when necessary to accomplish our strategic objectives. Management believes that we will continue to incur losses for the immediate future. For the year ended December 31, 2022, we incurred negative cash flow from operations. We expect to finance our cash needs from the results of operations and, depending on results of operations, we may need additional equity or debt financing until we can achieve profitability and positive cash flows from operating activities, if ever.
On or prior to March 31, 2024, we have obligations relating to the payment of indebtedness on term loans and notes payable of $3,652,890 and $1,350,037, respectively. We anticipate meeting our cash obligations on our indebtedness that is payable on or prior to March 31, 2024 from the results of operations and, depending on results of operations, we will likely need additional equity or debt financing.
Our future capital requirements for our operations will depend on many factors, including the profitability of our businesses, the number of and cash requirements of other acquisition candidates that we pursue, and the costs of our operations. Our management has taken several actions to ensure that we will have sufficient liquidity to meet our obligations through March 31, 2024, including the sale of certain of our businesses. We also are evaluating other measures to further improve our liquidity, including, the sale of equity or debt securities and entering into joint ventures with third parties. Lastly, we may elect to reduce certain related-party and third-party debt by converting such debt into preferred or common shares. Our management believes that these actions will enable us to meet our liquidity requirements through March 31, 2024. There is no assurance that we will be successful in any capital-raising efforts that we may undertake to fund operations during 2023.
We plan to generate positive cash flow from our operation; however, to execute our business plan, service our existing indebtedness and implement our business strategy, we will 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 any 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. We also may be required to recognize non-cash expenses in connection with certain securities we issue, such as convertible notes and warrants, which may adversely impact our financial condition. 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.
Sources and Uses of Cash
Net cash used in operating activities was $1,464,960 for the year ended December 31, 2022 compared to $3,163,103 in 2021. Cash used in operating activities for 2022 and 2021 was primarily related to the loss in operations offset by a loss on the disposal of subsidiaries, increases and decreases in accounts payable and accrued expenses and the changes in accounts receivable due to the lack of adequate cash flow of the Company as well as non-cash charges related to stock-based compensation, the change in the fair value of the derivative liabilities, gains and losses on extinguishment and settlement of debt and the amortization of discounts related to our debt instruments.
Net cash (used in) provided by investing activities was $(33,257) for the year ended December 31, 2022 compared to $20,941 in the year ended December 31, 2021. Cash provided by (used in) investing activities for 2022 and 2021, related to fixed asset additions in 2022 compared to cash paid for acquisitions of $21,825 and cash received in acquisitions of companies of $48,789 as well as acquisitions of fixed assets of $6,023 in 2021.
Net cash provided by financing activities for the year ended December 31, 2022 consisted of proceeds from the issuance of notes of $1,667,975. The Company repaid $388,945 in notes payable during the year ended December 31, 2022. Net cash provided by financing activities for the year ended December 31, 2021 consisted of proceeds from the issuance of common stock and warrants of $494,545 and convertible notes of $1,715,000, along with proceeds received from related party notes of $2,986,125 and $50,331 in proceeds from issuance of long-term debt. The Company repaid $1,292,397 in related party notes, $515,615 in convertible notes and $214,242 in long-term debt during the year ended December 31, 2021.
Outstanding Indebtedness
On January 5, 2023, the Company entered into a 11% OID Senior Secured Promissory Note with Evergreen Capital Management, LLC (“Evergreen”) in the amount of $480,000 (includes $80,000 of Original Issue Discount). Evergreen has a maturity of twelve months to December 30, 2023. It accrues interest at a rate of 10% per year. The conversion price Subject to the adjustments described herein, the conversion price (the “Conversion Price”) shall be equal the lesser of $0.015 or 90% of average of the two lowest VWAPs for the five consecutive trading days ending on the trading day that is immediately preceding the delivery of a notice of conversion.
On January 5, 2023, the Company, consummated the transactions contemplated by the Purchase Agreement among TraQiQ Environmental, Inc. (“REI”) and BioHiTech America, LLC (“BHT” and, together with REI, the “Renovare Sellers”) and the Company, pursuant to which the Renovare Sellers sold and assigned to the Company, and the Company purchased and assumed from the Renovare Sellers, (a) certain assets related to the business of (i) offering aerobic digestion technology solutions for the disposal of food waste at the point of generation and (ii) data analytics with respect to food waste (collectively, the “Digester Business”) and (b) certain specified liabilities of the Renovare Sellers, including, but not limited to, indebtedness in an amount equal to $3,017,090 (the “Michaelson Debt”) owed to Michaelson Capital Special Finance Fund II, L.P. (“Michaelson”).
On January 4, 2023, the Company borrowed cash in exchange for a 20% OID Senior Secured Promissory Note dated January 4, 2023 in the original principal amount of $180,000 (the “OID Note”). The OID Note matures on January 4, 2024, bears interest at the rate of ten percent (10%) per annum and has no prepayment penalty. In the event of a default by the Company under the OID Note, the outstanding principal and interest will be convertible by the holder into Common Stock at a conversion price equal to the lower of (i) $.015 per share and (ii) an amount equal to 90% of the average of the two lowest volume weighted average prices of the Common Stock for the five consecutive trading days prior to the conversion date.
On October 21, 2022, the Company entered into a 20% OID Senior Secured Promissory Note with Evergreen Capital Management, LLC (the “Evergreen Note”) in the amount of $48,000 (includes $8,000 of Original Issue Discount). The Evergreen Note has a maturity of twelve months to July 21, 2023. It accrues interest at a rate of 10% per year. The conversion price (the “Conversion Price”) is 75% of the price per share at which the common stock of the Company is sold to the public in a qualified offering. There are certain price protections, which make the conversion option a derivative liability.
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On July 5, 2022, the Company entered into a 11% OID Senior Secured Promissory Note with GS Capital Partners LLC (the “GS Capital”) in the amount of $144,000 (includes $14,000 of Original Issue Discount). The GS Capital note has a maturity of twelve months and accrues interest at a rate of 12% per year. The conversion price is equal to 86% of the lowest trading price of the Company’s common stock for the 12 trading days immediately preceding the delivery of a notice of conversion. In accordance with the terms of the note, the Company issued 3,000 shares of common stock as a commitment fee.
On January 19, 2021, the Company issued a 12% Convertible Promissory Note to GS Capital Partners, LLC (the “GS Note”) in the principal amount of $125,000. The GS Note has a maturity date of one-year from issuance and is to be repaid commencing on the fifth monthly anniversary and every month thereafter in the amount of $20,000. In the event of a payment default, the GS Note will be convertible into common stock at a conversion price of 66% of the lowest closing stock price over the previous 20 trading days. There are certain price protections for GS Capital Partners, LLC under the terms of the GS Note, which make the conversion option a derivative liability. The Company recorded an original issue discount in the amount of $10,000 and $5,000 was paid out of the proceeds for legal fees. In accordance with the terms of the GS Note, the Company issued 3,250 shares of common stock as a commitment fee and issued 21,250 shares of common stock that are returnable upon the Company repaying the GS Note in accordance with its terms. This note was paid off in 2021.
On February 12, 2021, the Company issued a 10% Convertible Promissory Note to Platinum Point Capital, LLC (the “Platinum Note”) in the principal amount of $400,000. The Platinum Note has a maturity date of one-year from issuance. The Platinum Note is convertible into common stock a conversion price of the greater of (a) $0.08 or (b) 70% of the lowest traded stock price over the previous 15 trading days, provided that the conversion price will not exceed $8.00. There are certain price protections for Platinum Point Capital, LLC under the terms of the Platinum Note, which make the conversion option a derivative liability. The Company granted 25,000 warrants to purchase shares of common stock that have a term of three-years and an exercise price of $2.00 per share with the Platinum Note. The warrants granted with the Platinum Note also contain certain price protections that make the value of the warrants a derivative liability. The Company and Platinum Point Capital, LLC entered into an amendment to exclude the Mimo warrants granted on February 17, 2021 from the price protections. In accordance with the terms of the Platinum Note, the Company issued 7,500 shares of common stock as a commitment fee. This note was repaid/ converted into shares of common stock in 2021.
Off-Balance Sheet Arrangements
We have no off-balance sheet financing arrangements.
Contractual Obligations
As a smaller reporting company we are not required to provide the information required by this Item.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
As a smaller reporting company we are not required to provide the information required by this Item.
Item 8. Financial Statements and Supplementary Data
Our consolidated financial statements and notes thereto and the report of our independent registered public accounting firm, are set forth starting on page F-1 of this report.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
On April 5, 2021, the Board of Directors of TraQiQ, Inc. approved the dismissal of AJSH & Co LLP (“AJSH”) as the Company’s independent registered public accounting firm. The Company filed a Current Report on Form 8-K on April 6, 2021 reporting on this event and stating that (1) the reports of AJSH on the Company’s consolidated financial statements for the fiscal years ended December 31, 2020 did not contain an adverse opinion or a disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principles; (2) during the fiscal years ended December 31, 2019 and December 31, 2020, there were no “disagreements” (as defined in Item 304(a)(1)(iv) of Regulation S-K and related instructions) with AJSH on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements if not resolved to the satisfaction of AJSH would have caused AJSH to make reference thereto in its reports on the consolidated financial statements for such years; and (3) during the fiscal years ended December 31, 2019 and December 31, 2020, there were no “reportable events” (as defined in Item 304(a)(1)(v) of Regulation S-K).
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On April 5, 2021, the Board approved the appointment of T R Chadha & Co LLP (“TRC”) as the Company’s new independent registered public accounting firm, effective immediately, to perform independent audit services for the fiscal year ending December 31, 2021. During the fiscal years ended December 31, 2019 and December 31, 2020 neither the Company, nor anyone on its behalf, consulted TRC regarding either (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered with respect to the consolidated financial statements of the Company, and no written report or oral advice was provided to the Company by TRC that was an important factor considered by the Company in reaching a decision as to any accounting, auditing or financial reporting issue; or (ii) any matter that was the subject of a “disagreement” (as defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions) or a “reportable event” (as that term is defined in Item 304(a)(1)(v) of Regulation S-K).
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
Based on an evaluation as of the date of the end of the period covered by this report, the Company’s Chief Executive Officer and Chief Financial Officer conducted an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as required by Exchange Act Rule 13a-15. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that, because of the disclosed material weaknesses in the Company’s internal control over financial reporting, the Company’s disclosure controls and procedures were ineffective as of the end of the period covered by this report to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms.
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in the Company’s reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the Company’s reports filed under the Exchange Act is accumulated and communicated to management, including the Company’s Certifying Officers, to allow timely decisions regarding required disclosure. Based upon the evaluation of the disclosure controls and procedures at the end of the period covered by this report, our Certifying Officers concluded that our disclosure controls and procedures were not effective as a result of continuing weaknesses in our internal control over financial reporting principally due to the following:
| - | We have not established adequate financial reporting processes or monitoring activities to ensure adequate financial reporting and to mitigate the risk of management override, specifically because there are few employees and only two officers with management functions and therefore there is lack of segregation of duties. | |
| - | An outside consultant assists in the preparation of the annual and quarterly financial statements and partners with us to ensure compliance with US GAAP and SEC disclosure requirements. | |
| - | Outside counsel assists us to review and editing of the annual and quarterly filings and to ensure compliance with SEC disclosure requirements. |
Management’s Annual Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Exchange Act Rule 13a-15(f). Management conducted an evaluation of the effectiveness of the internal control over financial reporting as of December 31, 2022, using the criteria established in Internal Control – Integrated Framework (2013 framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
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A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. As a result of management’s assessment, management has determined that there are material weaknesses due to the lack of segregation of duties and, due to the limited resources based on the size of the Company. Due to the material weaknesses management concluded that as of December 31, 2022, the Company’s internal control over financial reporting was ineffective. In order to address and resolve the weaknesses, the Company will endeavor to locate and appoint additional qualified personnel to the board of directors and pertinent officer positions as the Company’s financial means allow. To date, the Company’s limited financial resources have not allowed the Company to hire the additional personnel necessary to address the material weaknesses.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report on Form 10-K.
Changes in Internal Control Over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting that occurred during the Company’s last fiscal quarter (the Company’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
The term “internal control over financial reporting” is defined as a process designed by, or under the supervision of, the registrant’s principal executive and principal financial officers, or persons performing similar functions, and effected by the registrant’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
| (a) | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the registrant; |
| (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 |
| © | 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. |
Item 9B. Other Information
On January 1, 2023, the Company appointed Ajay Sikka, its Chairman of the Board, Chief Executive Officer and President, as its Chief Financial Officer. In addition, on January 1, 2023, the Company entered into an employment agreement with Mr. Sikka (the “Sikka Agreement”). Pursuant to the Sikka Agreement, Mr. Sikka will serve as the Company’s Chief Executive Officer and a member of the Company’s board of directors (the “Board”). The Sikka Agreement provides that Mr. Sikka will serve as an employee of the Company for a term of 36 months, unless he is earlier terminated or resigns in accordance with the terms of the Sikka Agreement.
Mr. Sikka will receive an annual salary of $300,000, and will be entitled to participate in an annual incentive compensation plan, pursuant to which, if the Company has monthly average annual recenue equal to $1,750,000 during the fourth quarter of 2023, Mr. Sikka will receive a bonus of $150,000. Mr. Sikka is also entitled to receive additional discretionary bonuses based on the achievement of certain corporate performance goals, as may be estbalished an approved from time to time by the Company. In addiiton, Mr. Sikka is entitled to a $75,000 cash bonus, payable in equal monthly installments during the first twelve months of Mr. Sikka’s employment at the Company.
In addition to the above cash compensation to which Mr. Sikka is entitled, upon commencement of the Sikka Agreement, Mr. Sikka received 5,930,000 shares of restricted common stock of the Company (“Restricted Stock”), pursuant to the Company’s 2020 Equity Incentive Compensation Plan, of which (i) 905,000 shares will vest on April 1, 2023 and the remaining 5,430,000 shares will begin to vest over a period of three years, in six equal semi-annual installments. Mr. Sikka is also entitled to receive additional shares of Restricted Stock as follows:
| 1. | In connection with the closing of a transaction pursuant to which the Company or any of its affiliates acquires at least a majority of the equity interests, or substantially all of the assets of another entity, Mr. Sikka shall receive: |
| a. | 750,000 shares of Restricted Stock for the first acquisition | |
| b. | 750,000 shares of Restricted Stock for the second acquisition |
| 2. | In the event the value of the aggregate stock of the Company traded on the OTC QB market averages at least $100,000 per day in the fourth quarter of 2023, the Company shall issue to Mr. Sikka 250,000 shares of Restricted Stock. | |
| 3. | On the date the stock of the Company is first listed on Nasdaq, the Company shall issue to Mr. Sikka 250,000 shares of Restricted Stock. | |
| 4. | Promptly following the calendar quarter during which the Company achieves a positive EBITDA calculation, the Company shall issue to Mr. Sikka 250,000 shares of Restricted Stock. | |
| 5. | In the event the Company raises at least $10,000,000 pursuant to a bona fide equity financing, the Company shall issue to Mr. Sikka 250,000 shares of Restricted Stock. | |
| 6. | For each purchase order the Mr. Sikka procures from new customers of the Company, pursuant to which such new customer commits to at least $200,000 of annual revenue of the Company, the Company shall issue to Mr. Sikka 100,000 shares of Restricted Stock; provided, however that the number of shares of Restricted Stock Mr. Sikka may be issued pursuant to this provision shall not exceed 500,000. |
In the event that Mr. Sikka’s employment with the Company is terminated for any reason, the Company shall pay Mr. Sikka (a) (i) his Base Salary, pro-rated through the date of termination to the extent not yet paid to him; (ii) any unreimbursed business expenses payable to Mr. Sikka; and (iii) any payments and benefits to which Mr. Sikka is entitled pursuant to the terms of any employee benefit or compensation plan or program in which he participates (or participated) and (b) in the event Mr. Sikka’s employment is terminated by the Company without Cause, due to Mr. Sikka’s resignation for Good Reason, or due to Mr. Sikka’s Disability (as defined in the Sikka Agreement), the Company shall also pay Mr. Sikkaan amount equal to 12 months of Mr. Sikka’s salary, less all applicable withholdings and authorized or required deductions, as salary continuation.
The foregoing description of the Sikka Agreement is not complete, and is qualified in its entirely by the Sikka Agreement, which is filed as Exhibit 10.18 hereto.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
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PART III
Item 10. Directors, Executive Officers, and Corporate Governance;
The following persons are our executive officers and directors as of March 30, 2023 and hold the positions set forth opposite their respective names. The members of the Board of Directors serve until the next annual meeting and a successor is appointed and qualified, or until resignation or removal.
| Name | Age | Position | ||
| Ajay Sikka | 55 | Chairman of the Board, Chief Executive Officer, Chief Financial Officer and President | ||
| Frank Celli | 53 | Interim Executive Chairman | ||
| James DuBois | 58 | Director | ||
| Greg Rankich | 48 | Director | ||
| Richard J. Berman | 80 | Director |
Business Experience
The following is a brief description of the business experience of our executive officers and directors:
Ajay Sikka, Chief Executive Officer, Chief Financial Officer, Chairman and President
Ajay Sikka was appointed to our Board as its Chairman and the Board appointed him as our Chief Executive Officer, President and Chief Financial Officer on July 19, 2017. From May 2014 to 2020, Mr. Sikka served as Chief Executive Officer of OmniM2M, Inc., an IioT hardware, software and services company. From March 2011 to the present, Mr. Sikka has also served as Chief Executive Officer of TraQiQ Solutions, Inc. a technology provider that is focused on providing software products, services and support to enterprise customers, including Microsoft, Staples, Accenture, and Pactera. From April 2004 to February 2011, Mr. Sikka served as Senior Director at Microsoft Corp. (“Microsoft”) a technology software company, where he worked on multiple teams, including Law & Corporate affairs, Central IT, and Business Strategy. Mr. Sikka also managed Microsoft’s CloudCRM team that provided Customer Relationship Management (CRM) services within Microsoft. From April 2000 to March 2004, Mr. Sikka served as Chief Executive Officer of IndiaHQ Solutions, Inc., a content provider (Websites, newspapers, Yellow pages) for the South Asian community. From April 1996 to April 2000, Mr. Sikka served as Group Manager at Microsoft where he drove Microsoft’s internet business and content management initiatives with telecommunications and Internet service providers. Mr. Sikka is an active angel investor and board of director member for startup companies and new ventures in the Seattle area.
Mr. Sikka has extensive software development and sales experience His service as a board member of other small companies provides him with insight into the issues facing other small companies, which are valuable to the Company.
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Frank E. Celli, Interim Executive Chairman
Mr. Celli has been in the waste and recycling industry for 35 years. Over the course of his career, he has been an owner and CEO of multiple solid waste companies, with experience in numerous facets of the industry, including waste collection, transfer station operations, landfill operations and recycling operations. Frank was co-founder and CEO of Interstate Waste Services from 2000 to 2006. Since May 2022, Mr. Celli has served as Managing Member of FC Advisory a management consulting company, and, since 2020, Mr. Celli has served as a consultant and strategic corporate advisor at Direct Waste Services, Inc., a solid waste collection and recycling company, positions that Mr. Celli continues to hold. From August 2015 until November 5, 2020, Mr. Celli served as Chief Executive Officer and from August 2015 until March 18, 2022, Mr. Celli served as Chairman of the Board, of BioHitech Global, Inc. (NASDAQ: BHTG), a waste reduction and technology company that was rebranded to Renovare Environmental, Inc. (NASDAQ:RENO) in December 2021. Over the course of his career, Mr. Celli has completed over 50 acquisitions and spearheaded multiple exits. Mr. Celli has a Bachelor of Science degree from Pace University Lubin School of Business.
James DuBois, Director
James DuBois is a member of our Board and was appointed to our Board on February 2, 2018. Since May 2016, Mr. Dubois, has served as Global IT Advisor and Board Member at Expeditors International, a global logistics company. Mr. Dubois has guided IT and business transformation, corporate governance, customer-focused strategic product/services development, security, and risk management. While at Microsoft, as CIO and Chief Information Security Officer from 2014 to 2017, Mr. DuBois was involved with directing IT modernization through corporate growth, turnaround, acquisitions integrations and divestitures.
Mr. DuBois has extensive experience in global IT operations as well as corporate governance matters, which assists TraQiQ in formulating and executing its growth strategy.
Greg Rankich, Director
Greg Rankich has been a member of our Board since May 11, 2019. Since May 2018, Mr. Rankich has been co-founder and partner at Better U Today, a program designed to help people achieve their ideal weight through food, education and lifestyle changes. Since January 2017, Mr. Rankich has also served as the managing partner of Kirkland REI, LLC a private real estate investment and management firm that focuses on four primary asset classes: Single Residential Properties, Multi-Family Properties, Commercial Properties and Land Acquisition. Since July 2013, Mr. Rankich has served as an Advisory Board Member of Ro Health, a rapidly growing medical staffing and home health agency that supplies clients and patients with healthcare providers . From July 2005 to May 2018, Mr. Rankich served as the Chief Executive Officer of Xtreme Consulting Group, Inc. (“Xtreme”) an $80 million in revenue international services firm focused on improving business performance. Prior to founding Xtreme, Mr. Rankich held many roles within Microsoft Corporation. In 2010, Mr. Rankich was a finalist for Ernst & Young “Entrepreneur of the Year” award. He is an active member of company boards and advisory panels and is also involved in numerous charities and non-profits in the northwest. Mr. Rankich graduated with a B.A. in International Business and a M.B.A. from Washington State University.
Richard Berman, Director
Richard Berman’s business career spans over 35 years of venture capital, senior management, and merger & acquisitions experience. In the past five years, Berman has served as a director of many public and private companies. Currently, he is a director of five public compani–s – Cryoport Inc. (“Cryptoport”), a cold chain logistics company, Comsovereign Holding Corp., a U.S.-based developer of 4G LTE advanced and 5G communication systems, BioVie Inc., a clinical-stage drug development company, Advaxis Inc. (“Advaxis”), a clinical-stage biotechnology company, and Cuentas, Inc., a provider of mobile banking and payment solutions serving Latino and Hispanic consumers. Over the last decade he has served on the board of five companies that have reached over one billion in market capitalizati–n – Cryoport, Advaxis, EXIDE, Internet Commerce Corporation, and Ontrak (Catasys). Previously, Berman worked at Goldman Sachs; was Senior Vice President of Bankers Trust Company, where he started the M&A and Leveraged Buyout Departments. Subsequently, he created the largest battery company in the world in the 1980’s, by merging Prestolite, General Battery and Exide to form Exide Technologies (XIDE); helped create SoHo, NYC by developing five buildings. He advised on over $4 billion M&A transactions, completing over 300 deals. Berman is a past director of the Stern School of Business of NYU where he obtained his B.S. and M.B.A. degrees. He also has U.S. and foreign law degrees from Boston College and the Hague Academy of International Law, respectively.
Mr. Berman provides the board with insights from his extensive experience in the purchase, sale and financing of businesses, his experience in financial and operational issues affecting organizations, and his knowledge of legal issues relevant to TraQiQ’s operations.
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Family Relationships
There are no family relationships among any of our directors or executive officers.
Corporate Governance
Code of Business Conduct and Ethics
TraQiQ has adopted a Code of Ethics and Business Conduct to document the ethical principles and conduct we expect from our employees, officers and directors. The Code of Ethics and Business Conduct is applicable to our employees and also includes a Code of Ethics for our chief executive and principal financial officers and any persons performing similar functions. A copy of our Code of Ethics and Business Conduct is available in the Investors section of our corporate website (https://RecoupEnv.com/). We will provide a copy of the Code of Ethics to any person without charge, upon request to TraQiQ, Inc., 14205 S.E. 36th St., Suite 100, Bellevue, WA 98006, Attention: Ajay Sikka, CEO.
Audit Committee
The Company has an audit committee consists of James DuBois and Richard Berman (the “Audit Committee”). Mr. Berman serves as Audit Committee chair. The Audit Committee’s primary responsibility is to engage our independent auditors and otherwise to monitor and oversee the audit process. The Audit Committee also undertakes other related responsibilities as detailed in the Audit Committee Charter, including monitoring our internal control over financial reporting, disclosure controls and procedures and code of business conduct and ethics, discussing our risk management policies and reviewing and approving or ratifying any related person transactions. A copy of our Audit Committee Charter is available in the Investors section of our website (https://RecoupEnv.com/. ).
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In addition to determining that the members of the Audit Committee are independent directors under the Securities Exchange Act of 1934 and the Nasdaq listing standards, the board of directors has also determined that Richard Berman is an “Audit Committee financial expert” as defined in rules adopted under the Securities Exchange Act of 1934. Each of the members of the Audit Committee is an independent director within the meaning of the Nasdaq Stock Market rules. Mr. Berman serves as chair of the Audit Committee.
Compensation Committee
The Company has a compensation committee consists of James DuBois and Greg Rankich. (the “Compensation Committee”). Mr. Rankich serves as Compensation Committee chair. The Compensation Committee undertakes responsibilities as detailed in the Compensation Committee Charter, a copy of which is available in the Investors section of our website (https://recoupenv.com/).
Nominating and Corporate Governance Committee
The company has a nominating and corporate governance committee consists of James DuBois and Richard Berman (the “Nominating and Corporate Governance Committee”). Mr. DuBois serves as Nominating and Corporate Governance Committee chair. The Nominating and Corporate Governance Committee undertakes responsibilities as detailed in the Nominating and Corporate Governance Committee Charter, a copy of which is available in the Investors section of our website (https://recoupenv.com/board-of-directors/).
Nominations for Directors
During 2022, there were no material changes to the procedures by which security holders may recommend nominees to the Company’s board of directors.
Item 11. Executive Compensation
Summary Executive Compensation Table
The following table shows, for the years ended December 31, 2022 and 2021, compensation awarded to or paid to, or earned by, our Chief Executive Officer, Chief Financial Officer and the next three most highly paid executive officers (the “Named Executive Officers”).
SUMMARY COMPENSATION TABLE
Name and principal position (a) |
Year (b) |
Salary ($) (c) |
Bonus ($) (d) |
Stock Awards ($) (e) |
Option Awards (1) ($) (f) |
Non-Equity Incentive Plan Compensation ($) (g) |
Nonqualified Deferred Compensation Earnings ($) (h) |
All Other Compensation ($) (i) |
Total ($) (j) |
|||||||||||||||||||||||||||
| Ajay Sikka, | 2021 | $ | 180,000 | - | 1,078,560 | $ | - | - | - | - | $ | 1,258,560 | ||||||||||||||||||||||||
| CEO, CFO (1/1/21-9/30/21 & 10/3/22-present) and Director | 2022 | $ | 157,500 | - | $ | 47,188 | $ | - | - | - | - | $ | 204,688 | |||||||||||||||||||||||
| Michael Pollack, | 2021 | $ | - | - | - | - | - | - | $ | 39,025 | $ | 39,025 | ||||||||||||||||||||||||
| Interim CFO (1/1/21-10/3/22) (2) | 2022 | $ | - | - | - | - | - | - | $ | 60,875 | $ | 60,875 | ||||||||||||||||||||||||
| (1) | The fair value of each option awarded is estimated on the date of grant using a Black-Scholes option-pricing model. The expected volatility is based on the Company’s stock having just commenced trading on the grant date. The risk-free interest rate for periods within the life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. In calculating the fair value of the Company’s options on the date of grant during the year ended December 31, 2020, the Company assumed a risk-free interest rate of 0.58%, an expected dividend yield of 0%, an expected life of 2 years and an expected volatility of 100%. |
| (2) | Mr. Pollack is a contracted consultant and is paid through his company KBL, LLP. Amounts represent payments to KBL, LLP for the period September 2021 through December 2021. |
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Employment Agreement
In 2022 and 2021, Mr. Sikka received a salary of $157,500 and $180,000, respectively. In October 2020, the Company entered into an employment agreement with Mr. Sikka. The agreement has a five year term, subject to earlier termination. Under the agreement, he receives an annual salary of $180,000 and was issued options in connection with his service as chief executive officer to purchase up to 187,500 shares of common stock at an exercise price of $0.44 per share. Of these, 156,250 shares are to vest based on performance over five years with milestones. The remaining 31,250 options have service-based vesting over four years. Mr. Sikka also received options on October 19, 2020 for 31,250 shares of common stock in connection with his service on the Company’s board of directors at an exercise price of $0.44 per share, which vest over one year from grant.
Grants of Plan-Based Awards Table
On October 9, 2020, the Board of Directors approved the TraQiQ, Inc. Equity Compensation Plan which was adopted on October 11, 2020. Under this plan our named executive officers received grants of 0 and 218,750 during the years ended December 31, 2022 and 2021, respectively.
There were no equity awards outstanding for any of our named executive officers as of the year ended December 31, 2022.
Director Compensation
For the year ended December 31, 2022, directors of the Company received no salary compensation for their service on the Company’s board of directors. Directors were entitled to option awards as compensation for their service.
In the table below, we have set forth information regarding compensation for 2022 received by each of our directors who is not an officer of the Company. The dollar amounts in the table below for option awards are the grant date fair market values associated with such awards.
2022 Director Compensation Table
| Fees Earned or | Stock | Option | All Other | |||||||||||||||||
| Name | Paid in Cash | Awards | Awards (1) | Compensation | Total | |||||||||||||||
| James DuBois | $ | — | $ | 47,188 | $ | — | — | $ | 47,188 | |||||||||||
| Greg Rankich | — | 47,188 | — | — | 47,188 | |||||||||||||||
| Richard Berman | — | 47,188 | — | — | 47,188 | |||||||||||||||
| (1) | The Company granted in January 2021 (12,500 shares) and April 2021 (31,250 shares) restricted common stock that vest over a three-year period. These grants are service-based grants and are being expensed in accordance with ASC 718 ratably over the three-year period. |
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Directors’ and Officers’ Liability Insurance
The Company maintains directors’ and officers’ liability insurance insuring its directors and officers against liability for acts or omissions in their capacities as directors or officers, subject to certain exclusions. Such insurance also insures the Company against losses which we may incur in indemnifying our officers and directors.
Compensation Committee Interlocks and Insider Participation
The members of the Compensation Committee are James DuBois, Richard Berman and Greg Rankich, each of whom is an independent director within the meaning of the Nasdaq Stock Market rules. No member of the Compensation Committee is or was formerly an officer or an employee of the Company. No executive officer of the Company serves as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of the Company’s board of directors or compensation committee, nor has such an interlocking relationship existed in the past.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following tables set forth certain information regarding the ownership of our common stock as of March 30, 2023, by:
| ● | each director; | |
| ● | each person known by us to own beneficially 5% or more of our Common Stock; | |
| ● | each officer named in the summary compensation table elsewhere in this Current Report on Form 8-K; and | |
| ● | all directors and executive officers as a group. |
As of March 30, 2023, there were 39,939,965 shares of our common stock issued and outstanding. The following table shows, as of that date, the number of shares and the percentage of our common stock held by each person known to us to own beneficially more than five percent of the Company’s issued and outstanding common stock, by each of our executive officers and directors, and by our executive officers and directors as a group. Unless otherwise specified, the address of each person listed is: 14205 SE 36th Street, Suite 100, Bellevue, WA 98006.
The amounts and percentages of common stock beneficially owned are reported on the basis of regulations of the SEC governing the determination of beneficial ownership of securities. Under the rules of the SEC, a person is deemed to be a “beneficial owner” of a security if that person has or shares “voting power,” which includes the power to vote or to direct the voting of such security, or “investment power,” which includes the power to dispose of or to direct the disposition of such security. A person is also deemed to be a beneficial owner of any securities of which that person has the right to acquire beneficial ownership within 60 days. Under these rules more than one person may be deemed a beneficial owner of the same securities and a person may be deemed to be a beneficial owner of securities as to which such person has no economic interest. The percentages of common stock beneficially owned are calculated on the basis of 39,939,965 total shares of common stock issued and outstanding as of March 30, 2023.
Unless otherwise indicated below, to the best of our knowledge each beneficial owner named in the table has sole voting and sole investment power with respect to all shares beneficially owned, subject to community property laws where applicable.
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| Common Stock | ||||||||
| Current directors and executive officers | Amount
and Nature of Beneficial Ownership |
Percent
of Class |
||||||
| Ajay Sikka | 11,992,951 | (1) | 35.34 | % | ||||
| James DuBois | 55,654 | * | % | |||||
| Greg Rankich | 233,750 | * | % | |||||
| Richard Berman | 63,750 | * | % | |||||
| All Executive Officers and Directors as a Group (4 persons) | 12,346,105 | 36.38 | % | |||||
| 5% Beneficial Owners | ||||||||
| Renovare Environmental, Inc. (2) | 14,118,233 | 41.60 | % | |||||
* Less than 1%.
| (1) | Consists of 11,765,605 shares owned individually, 227,346 shares owned by his spouse and 0 shares represented by stock options exercisable currently or within 60 days of March 30, 2023. |
| (2) | The address of Renovare Environmental, Inc. is 80 Red Schoolhouse Road, Suite 101, Chestnut Ridge, NY 10977. |
Changes in Control
Except for matters described in this Annual Report regarding the Share Exchange Agreement, we are unaware of any contract or other arrangement or provisions of our Articles or Bylaws the operation of which may at a subsequent date result in a change of control of us. There are not any provisions in our Articles or Bylaws, the operation of which would delay, defer, or prevent a change in control of the Company.
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Equity Compensation Plan Information
The following table gives information about our common stock that may be issued upon the exercise of options, warrants and rights under our 2020 Equity Compensation Plan as of December 31, 2022.
| Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | |||||||||
| (a) | (b) | (c) | ||||||||||
| Equity compensation plans approved by security holders | - | $ | - | - | ||||||||
| Equity compensation plans not approved by security holders | - | - | - | |||||||||
| Total | - | $ | - | - | ||||||||
Item 13. Certain Relationships and Related Transactions and Director Independence
Certain Relationships and Related Party Transactions
The following includes a summary of transactions during our fiscal years ended December 31, 2022 and December 31, 2021 to which we have been a party in which the amount involved in the transaction exceeds the lesser of $120,000 or 1% of the average of our total assets at year-end for the last two completed fiscal years, and in which any of our directors, executive officers or, to our knowledge, beneficial owners of more than 5% of our capital stock or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest, other than equity and other compensation, termination, change in control and other arrangements, which are described elsewhere in this Annual Report on Form 10-K. We are not otherwise a party to a current related party transaction, and no transaction is currently proposed, in which the amount of the transaction exceeds the lesser of $120,000 or 1% of the average of our total assets at year-end for the last two completed fiscal years and in which a related person had or will have a direct or indirect material interest.
On multiple occasions, from 2017 thru 2022, Ajay Sikka, our Chief Executive Officer, Chief Financial Officer and Chairman advanced us amounts totaling $2,908,562. These advances were recorded as an unsecured loan accruing interest at a rate of 15% annually. On December 31, 2022, the entirety of Mr. Sikka’s loan was converted to common stock, and a balance of $7,000 remains outstanding.
On September 13, 2018, Kunaal Sikka, the son of our Chief Executive Officer, Chief Financial Officer and Chairman advanced us $15,000, maturing on December 31, 2019. The loan was unsecured and accrued interest at a rate of 12% annually. The note went into default on December 31, 2019, at which time the interest rate became 18% annually in accordance with its terms. On June 25, 2021, the maturity date of the loan was extended to December 31, 2022, and the interest rate was amended to accrue at a rate of 6% annually. On December, 31, 2022, the loan was paid back in full and is no longer outstanding.
On December 15, 2021, Kunaal Sikka advanced us $250,000, maturing on December 31, 2022. The loan was unsecured and accrued interest at a rate of 15% annually. On December 31, 2022, the loan was paid back in full and is no longer outstanding.
On January 3, 2017 and February 1, 2017, Swarn Singh, the father-in-law of our Chief Executive Officer, Chief Financial Officer and Chairman advanced us $25,000 and $20,000, respectively, each maturing on December 31, 2019. The loans were unsecured and accrued interest at a rate of 15% annually. The notes went into default on December 31, 2019, at which time the interest rate of each became 21% annually in accordance with their terms. On December 31, 2022, both loans were paid back in full and are no longer outstanding.
On December 15, 2021, Swarn Singh advanced us $150,000, maturing on December 31, 2022. The loan was unsecured and accrued interest at a rate of 15% annually. On December 31, 2022, the loan was paid back in full and is no longer outstanding.
On June 15, 2021, Greg Rankich, one of our directors, advanced to us $400,000, maturing on December 21, 2021. In exchange for the loan, Mr. Rankich received 37,500 shares of our common stock. On January 5, 2023, Evergreen assumed Mr. Rankich’s loan in the form of an 11% OID $480,000 note that matures on January 5, 2024.
Policy on Future Related Party Transactions
The Company requires that any related party transactions be approved by a majority of the Company’s independent directors.
Board Independence
Our board of directors currently consists of 4 members. Of these, our board has determined that James DuBois, Richard Berman and Gregory Rankich qualify as “independent directors” under the listing standards of The Nasdaq Stock Market LLC and do not have any material relationships with TraQiQ that might interfere with their exercise of independent judgment. In making such a determination, our board has reviewed and discussed information provided by the directors and us with regard to each director’s business and personal activities and relationships as they may relate to us and our management. In addition, TraQiQ is a “Controlled Company” as defined in the Nasdaq listing standards because more than 50% of the company’s voting power is held by one individual. The company is, therefore, pursuant to Nasdaq Marketplace Rule 5615(c)(2), exempt from certain aspects of Nasdaq’s listing standards relating to independent directors. Nevertheless, the company has voluntarily complied with some of such rules, and a majority of the members of the board of directors are “independent directors” under Nasdaq rules.
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Item 14. Principal Accounting Fees and Services.
The aggregate fees incurred for each of the last two years for professional services rendered by T R Chadha & Co LLP (“TRC”) in 2022 and 2021, the independent registered public accounting firms for the audits of the Company’s annual financial statements included in the Company’s Form 10-K and reviews of financial statements for its quarterly reports (Form 10-Q) are reported below. See Item 9A for further information on the change in the independent registered public accounting firms that took place on April 5, 2021:
| Audit Fees | Audit Related Fees | Tax Fees | All Other Fees | Total | ||||||||||||||||
| TRC | ||||||||||||||||||||
| 2022 | $ | 36,000 | $ | - | $ | - | $ | - | $ | 36,000 | ||||||||||
| 2021 | 31,300 | - | - | - | 31,300 | |||||||||||||||
Audit Fees
The aggregate fees incurred by the Company’s principal accountant for the audit of the Company’s annual financial statements, review of financial statements included in the quarterly reports and other fees that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for the years ended December 31, 2022 and 2021.
Audit Related Fees
The aggregate fees billed for professional services that are reasonably related to the performance of the audit or review of the Company’s financial statements but are not reported “Audit Fees” for the years ended December 31, 2022 and 2021.
Tax Fees
The aggregate fees billed for professional services rendered by principal accountant for tax compliance, tax advice and tax planning during the years ended December 31, 2022 and 2021.
All Other Fees
Other fees billed for products or services provided by the Company’s principal accountant during the years ended December 31, 2022 and 2021.
PART IV
Item 15. Exhibits, Financial Statement Schedules
Financial Statements
The financial statements filed as a part of this report are set forth beginning on page F-1.
Financial Statement Schedules
No financial statement schedules are required to be filed with this report.
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Exhibits
The following exhibits are filed or incorporated by reference as a part of this report:
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+ Management contract or compensatory plan.
Item 16. Form 10-K Summary
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| TraQiQ, Inc. | ||
| Date: March 31, 2023 | By: | /s/ Ajay Sikka |
| Name: | Ajay Sikka | |
| Title: | Chief Executive Officer and Chief Financial Officer | |
| (Principal Executive Officer and Principal Financial Officer) | ||
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| F-1 |
Report of Independent Registered Public Accounting Firm
To the Board of Directors and
Shareholders of TraQiQ Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of TraQiQ, Inc. and its subsidiaries (collectively, the “Company”) as on December 31, 2022 and December 31, 2021, the related consolidated statements of operations, changes in stockholders’ deficit and cash flows, for the year ended December 31, 2022 and December 31, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and December 31, 2021, and the results of its operations and its cash flows for the year ended December 31, 2022 and December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.
Going Concern Uncertainty
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered recurring losses from operations and has a accumulated deficit of $17,522,786 and working capital deficit of $1,616,199, that raise substantial doubt about its ability to continue as a going concern. Management’s plans including recent acquisition, conversion of debt into equity are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of financial statement. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Going concern- refer to note 2 of the financial statements
| Critical audit matter description | The Company raised a substantial doubt about the entity’s ability to continue as a going concern for a reasonable period of time. The financial statements for the year under audit have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. See the explanatory paragraph of the opinion paragraph. |
How the Critical Audit Matter was addressed in the Audit |
● | We evaluated whether there is substantial doubt about the entity’s ability to continue as a going concern for a reasonable period of time. | |
| ● | Reviewed the agreement executed for new business acquisition in exchange of stock in subsequent period, reviewed agreement for conversion of various debt into equity. | ||
| ● | We obtained information about management’s plans that are intended to mitigate the effect of such conditions or events, and assess the likelihood that such plans can be effectively implemented. | ||
| ● | Reviewed the carrying value of asset. | ||
| ● | Inquiry to entity’s legal counsel about litigation, claims and assessment | ||
| ● | We added explanatory paragraph to the audit report as required by auditing standard. |
Disposal of Subsidiaries - refer to note 3 of the financial statements
| Critical audit matter description | The Company has disposed off four of its subsidiaries including one stepdown subsidiary during the year ended December 31, 2022 at consideration of $1 per subsidiary and accordingly retrospectively recast, its consolidated statements of operations and balance sheet for previous year presented. The company has not segregated the cash flow statement. While ascertaining operation related to discontinued operation Management has made certain assumption and applied judgement to determine historical numbers related to discontinued operation presented in prior period. |
How the Critical Audit Matter was |
● | Reviewed and recomputed loss on disposal of subsidiaries. | |
| addressed in the Audit | ● | Reviewed and verified derecognition of assets, liabilities and transactions pertaining to disposal of these subsidiaries. | |
| ● | Reviewed Management assumption and judgement for determining historical numbers related to discontinued business. | ||
| ● | We obtained information about management’s plans to ascertain the impact on going concern. |
/s/
We have served as the Company’s auditor since April, 2021
March 30, 2023
| F-2 |
TRAQIQ, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2022 AND 2021
IN US$
| DECEMBER 31, | DECEMBER 31, | |||||||
| 2022 | 2021 | |||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
Prepaid expenses and other current assets | ||||||||
Other current assets – discontinued operations | ||||||||
| Total Current Assets | ||||||||
Other assets – discontinued operations | ||||||||
| Total Non-current Assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| LIABILITIES | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Accrued payroll and related taxes | ||||||||
| Derivative liability | ||||||||
| Contingent consideration - Rohuma | ||||||||
| Contingent consideration - Mimo | ||||||||
| Current portion - long-term debt - related parties | ||||||||
| Current portion - long-term debt | ||||||||
| Current portion - convertible notes payable, net of discounts | ||||||||
| Current liabilities – discontinued operations | ||||||||
| Total Current Liabilities | ||||||||
| Long-term debt, net of current portion | ||||||||
| Long-term liabilities – discontinued operations | ||||||||
| Total Non-current Liabilities | ||||||||
| Total Liabilities | ||||||||
| Commitments and contingencies (Note 18) | ||||||||
| STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| Convertible preferred stock, par value $, shares authorized: | ||||||||
| Preferred stock, par value, $, Series A Convertible Preferred, shares issued and outstanding | ||||||||
| Preferred stock, par value, $, Series B Convertible Preferred, and shares issued and outstanding, respectively | ||||||||
| Common stock, par value, $, shares authorized, and | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income | ||||||||
| Total Stockholders’ Deficit before Non-controlling Interest | ( | ) | ( | ) | ||||
| Non-controlling interest | ( | ) | ||||||
| Total Stockholders’ Deficit | ( | ) | ( | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-3 |
TRAQIQ, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
IN US$
| YEARS ENDED | ||||||||
| DECEMBER 31, | ||||||||
| 2022 | 2021 | |||||||
| REVENUE | $ | $ | ||||||
| COST OF REVENUES | ||||||||
| GROSS LOSS | ( | ) | ||||||
| OPERATING EXPENSES | ||||||||
| Salaries and salary related costs | ||||||||
| Professional fees | ||||||||
| Rent expense | ||||||||
| Depreciation and amortization expense | ||||||||
| General and administrative expenses | ||||||||
| Total Operating Expenses | ||||||||
| OPERATING LOSS | ( | ) | ( | ) | ||||
| OTHER INCOME (EXPENSE) | ||||||||
| Change in fair value of derivative liability | ( | ) | ( | ) | ||||
| Derivative expense | ( | ) | ||||||
| Gain on debt extinguishment | ||||||||
| Gain (loss) on settlement of debt, net | ( | ) | ||||||
| PPP forgiveness and other income | ||||||||
| Interest expense, net of interest income | ( | ) | ( | ) | ||||
| Total other expense | ( | ) | ( | ) | ||||
| NET LOSS FROM CONTINUING OPERATIONS, BEFORE PROVOISION FOR INCOME TAXES | ( | ) | ( | ) | ||||
| Provision for income taxes | ||||||||
| NET LOSS FROM CONTINUING OPERATIONS | ( | ) | ( | ) | ||||
| NET LOSS FROM DISCONTINUED OPERATIONS, AFTER TAXES (INCLUDING LOSS ON DISPOSAL
OF SUBSIDIARIES OF $ | ( | ) | ( | ) | ||||
| NET LOSS | ( | ) | ( | ) | ||||
| NET LOSS ATTRIBUTABLE TO PRIOR NON-CONTROLLING INTEREST | ||||||||
| NET LOSS ATTRIBUTABLE TO CONTROLLING INTEREST | $ | ( | ) | $ | ( | ) | ||
| Other comprehensive loss | ||||||||
| Foreign currency translations adjustment | ||||||||
| Comprehensive loss | $ | ( | ) | $ | ( | ) | ||
| Basic and diluted loss from continuing operations per share | $ | ( | ) | $ | ( | ) | ||
| Basic and diluted loss from discontinued operations per share | $ | ( | ) | $ | ( | ) | ||
| Basic and diluted net loss per share | $ | ( | ) | $ | ( | ) | ||
| Weighted average common shares outstanding - basic and diluted | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-4 |
TRAQIQ, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT
FOR THE Years ENDED DECEMBER 31, 2022 AND 2021
IN US $
| Additional | Accumulated | |||||||||||||||||||||||||||||||||||||||||||||||
| Series A Preferred | Series B Preferred | Common Stock | Paid-In Capital - | Accumulated | Subscription | Other Comprehensive | Non-controlling | |||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Common | Deficit | Receivable | Income (Loss) | Interest | Total | |||||||||||||||||||||||||||||||||||||
| Balance – January 1, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | $ | $ | ( | ) | ||||||||||||||||||||||||||||||||||||
| Shares of stock issued for cash | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
| Shares of stock issued for conversion of notes payable and accrued interest | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
| Shares of stock issued for services rendered | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
| Shares of stock issued for acquisition of Rohuma (first tranche) | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
| Shares of stock issued for providing note payable | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
| Conversion of Series A Preferred Stock to Common Stock | ( | ) | ( | ) | - | |||||||||||||||||||||||||||||||||||||||||||
| Shares issued for exercise of warrants | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation on granting of options | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation - warrants granted for consulting | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation for restricted stock grants (shares not issued) | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Warrants earned for acquisition of Mimo | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Net loss for the year | - | - | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Balance - December 31, 2021 | $ |
| $ | $ | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||
| Additional | Accumulated | |||||||||||||||||||||||||||||||||||||||||||||||
| Series A Preferred | Series B Preferred | Common Stock | Paid-In Capital - | Accumulated | Subscription | Other Comprehensive | Non-controlling | |||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Common | Deficit | Receivable | Income (Loss) | Interest | Total | |||||||||||||||||||||||||||||||||||||
| Balance – January 1, 2022 | $ |
$ | $ | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||
| Fractional share adjustment | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation on granting of options | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation for restricted stock grants (shares not issued) | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Warrants earned for acquisition of Mimo | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Shares of stock issued in warrant exercises | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
| Shares of stock issued for acquisition of Rohuma (second tranche) | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
| Shares of stock issued with convertible debt | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
| Shares of stock issued upon exercise of stock options | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
| Shares of stock issued upon exercise of restricted stock grants | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
| Shares of stock issued upon conversion of debt | ||||||||||||||||||||||||||||||||||||||||||||||||
| Cancelled warrants | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Deconsolidation of subsidiaries | - | - | - | ( | ) | |||||||||||||||||||||||||||||||||||||||||||
| Net loss for the period | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Balance - December 31, 2022 | $ |
$ | $ | $ | $ | ( | ) | $ | $ | $ | $ | ( | ) | |||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-5 |
TRAQIQ, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
IN US$
| 2022 | 2021 | |||||||
| CASH FLOW FROM OPERTING ACTIVIITES | ||||||||
| Net loss attributable to controlling interest | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
| Change in non-controlling interest | ( | ) | ||||||
| Bad debt expense | ||||||||
| Forgiveness of debt | ( | ) | ( | ) | ||||
| Depreciation and amortization | ||||||||
| Lease cost, net of repayment | ( | ) | ||||||
| Foreign currency (gain) loss | ( | ) | ||||||
| Stock-based compensation | ||||||||
| Common stock issued with convertible debt | ||||||||
| Change in fair value of derivative liability and derivative expense | ||||||||
| Gain on extinguishment of derivative liability | ( | ) | ||||||
| Loss on settlement of debt | ||||||||
| Amortization of discounts on debt | ||||||||
| Gain on sale of property plant and equipment | ( | ) | ( | ) | ||||
| Loss on disposal of subsidiaries | ||||||||
| Fees paid in debt financing | ||||||||
| Changes in assets and liabilities | ||||||||
| Accounts receivable | ( | ) | ||||||
| Prepaid expenses and other current assets | ||||||||
| Accounts payable, accrued expenses and deferred taxes | ||||||||
| Accrued payroll and payroll taxes | ( | ) | ||||||
| Accrued duties and taxes | ( | ) | ||||||
| Total adjustments | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITES | ||||||||
| Cash received in acquisition of Mimo | ||||||||
| Cash received in acquisition of Rohuma | ||||||||
| Acquisition of Mimo | ( | ) | ||||||
| Acquisition of fixed assets | ( | ) | ( | ) | ||||
| Net cash (used in) provided by investing activities | ( | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITES | ||||||||
| Increase in cash overdraft | ||||||||
| Proceeds from the issuance of common stock | ||||||||
| Proceeds from the exercise of warrants | ||||||||
| Proceeds from convertible notes | ||||||||
| Repayment of convertible notes | ( | ) | ( | ) | ||||
| Proceeds from long-term debt - related parties | ||||||||
| Repayment of long-term debt - related parties | ( | ) | ( | ) | ||||
| Proceeds from long-term debt | ||||||||
| Repayments of long-term debt | ( | ) | ( | ) | ||||
| Net cash provided by financing activities | ||||||||
| NET (DECREASE) INCREASE IN CASH AND RESTRICTED CASH | ( | ) | ||||||
| CASH AND RESTRICTED CASH - BEGINNING OF YEAR | ||||||||
| CASH AND RESTRICTED CASH - END OF YEAR | $ | $ | ||||||
| CASH AND RESTRICTED CASH - END OF YEAR | ||||||||
CASH AND RESTRICTED CASH - END OF YEAR – INCLUDED IN DISCONTINUED OPERATIONS | ||||||||
CASH AND RESTRICTED CASH - END OF YEAR | ||||||||
| CASH PAID DURING THE PERIOD FOR: | ||||||||
| Interest expense | $ | $ | ||||||
| Income taxes | $ | $ | ||||||
| SUMMARY OF NON-CASH ACTIVITIES: | ||||||||
| Acquisition of Rohuma: | ||||||||
| Accounts receivable | $ | $ | ||||||
| Prepaid and other current assets | ||||||||
| Fixed assets | ||||||||
| Investment | ||||||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| Accrued duties and taxes | ( | ) | ||||||
| Long-term debt - related parties | ( | ) | ||||||
| Long-term debt | ( | ) | ||||||
| Cash overdraft | ( | ) | ||||||
| - | ||||||||
| Cash | ||||||||
| Total net assets acquired | ( | ) | ||||||
| Consideration per Share Exchange Agreement | ||||||||
| Goodwill/(Bargain Purchase Gain) | $ | $ | ||||||
| Acquisition of Mimo Technologies: | ||||||||
| Accounts receivable | $ | $ | ||||||
| Prepaid and other current assets | ||||||||
| Fixed assets | ||||||||
| Intellectual property | ||||||||
| Tradenames | ||||||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| Accrued payroll and related taxes | ( | ) | ||||||
| Accrued duties and taxes | ( | ) | ||||||
| Long-term debt - related parties | ( | ) | ||||||
| Long-term debt | ( | ) | ||||||
| Comprehensive income | ( | ) | ||||||
| Cash | ||||||||
| Total net assets acquired | ( | ) | ||||||
| Consideration per Share Exchange Agreement | ||||||||
| Goodwill/(Bargain Purchase Gain) | $ | $ | ||||||
| Right of use asset for lease liability | $ | $ | ||||||
| Conversion of debt and extinguishment of derivative liabilities upon conversion of debt | $ | $ | ||||||
| Common stock issued for conversion of long-term debt, related and unrelated parties | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-6 |
TRAQIQ , INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022 AND 2021
NOTE 1 – ORGANIZATION AND NATURE OF OPERATIONS
TraQiQ, Inc. (along with its wholly owned subsidiaries, referred to herein as the “Company”) was incorporated in the State of California on September 9, 2009 as Thunderclap Entertainment, Inc. On July 14, 2017, Thunderclap Entertainment, Inc. changed its name to TraQiQ, Inc. On July 19, 2017, the Company entered into a Share Exchange Agreement (“Share Exchange”) with the stockholders of OmniM2M, Inc. (“OmniM2M”) and TraQiQ Solutions, Inc. dba Ci2i Services, Inc. (formerly Ci2i Services, Inc. – amended November 6, 2019) (“Ci2i”) whereby the stockholders of Omni and Ci2i exchanged all of their respective shares, representing % ownership in OmniM2M and Ci2i in exchange for shares of the Company’s common stock, respectively. The OmniM2M Shareholders and the Ci2i Shareholders have each been issued their respective shares on a pro rata basis based on their respective holdings in OmniM2M and Ci2i in the Share Exchange Agreement. The Share Exchange was accounted for as a reverse merger whereas Ci2i is considered the accounting acquirer and TraQiQ,Inc. is considered the accounting acquiree. For accounting purposes, the acquisition of Omni is recorded at historical cost in accordance with Accounting Standard Codification (“ASC”) 805-50-25-2 as this is considered an acquisition of entities under common control as the management of the Company and Omni control the activities of the respective companies. Prior to the merger with Ci2i and acquisition of Omni, the Company was considered a shell company under Rule 12b-2 of the Exchange Act. On December 1, 2017, The Company entered into a Share Purchase Agreement (the “Share Exchange Agreement”) with Ajay Sikka (“Sikka”), the sole shareholder of Transport IQ, Inc. whereby Sikka agreed to sell all of the shares in TransportIQ, Inc. (“TransportIQ”) in exchange for $, in the form of cancellation of all of the debt of TransportIQ that is owed to the Company. The transaction became effective upon the execution of the Share Exchange Agreement by Sikka and the Company; and Transport IQ, Inc, is now a wholly-owned subsidiary of the Company. Because TransportIQ was commonly controlled and owned, the transaction was recorded at the historical carrying value of TransportIQ’s assets and liabilities.
The
Financial Industry Regulatory Authority on March 18, 2022, approved a
Overview of the Company
With operations concentrated in India, Southeast Asia and Latin America, the Company helps businesses in emerging markets leverage the “gig” or task economy by providing both technology solutions and a network of workers required to fulfill those tasks. The Company provides software as a service that enables clients to build and manage a network of contract task workers. This platform can also be used by business clients to manage their employees who are performing services, such as PC repair or food delivery. In addition, with the recent acquisition of Mimo Technologies Private Limited (“Mimo”), Mimo operates a network of over 14,000 task workers in India who make deliveries, collect payments, do background verifications, and fulfill tasks across the supply chain, as needed by business clients to deliver their products and services to their respective markets and customers.
TraQSuite
is a cloud based software platform with a revenue model based on initial and transaction-based licensing fees as well as consulting fees.
Licensees pay an initial per-module fee that varies depending on the number of modules that are licensed. This fee is typically $
The Company’s TraQSuite software platform powers the last mile distribution network, allowing business users to target customers, facilitate and validate transactions, track and manage task workers, manage funds and run a distribution network. Key features of the TraQSuite software include:
| ● | Last Mile delivery: TraQSuite’s Last-Mile software module enables a business to manage thousands of task workers across multiple geographies to deliver products and services to the users. The software platform, operating through mobile apps, allows for data sharing, delivery validation, geo-tagging and know-your-customer (KYC) requirements and can even measure customer satisfaction. |
| F-7 |
| ● | Transact: TraQSuite enables task workers to facilitate transactions by meeting the end customers. They can collect payments via credit cards, smart-phone swipes, SMS messages or cash. Both banked and unbanked users can buy products and services and pay with their mobile devices. | |
| ● | Target: TraQSuite enables customer transactions to be rewarded with loyalty credits, tokens or points that can be redeemed by the customer for free products, discounts and benefits. The software analyzes these transactions and purchase behaviors by using leading AI models and can deliver real time, automated and targeted offers and recommendations for additional purchases and customer retention. |
The Mimo delivery and task service in India runs on the TraQSuite platform and performs deliveries and fulfills tasks for some of the largest businesses in India. Mimo provides delivery and pickup services for the banking and insurance industry, performing verifications, field investigations for loan requests, business verification, employment verification, collection of documents and customer data and assistance in filling out forms for banks. Mimo works with microfinance institutions to collect cash, such as loan payments, convert cash to digital forms such as debit cards, and conduct data collection and surveys. For consumer goods companies, Mimo does promotional marketing, last mile (hyper-local) delivery, merchant onboarding or activation, store audits, and route optimization for delivery.
The Company’s strategy is to grow the business through a combination of organic growth and strategic investments that bring new functionality and revenue streams to the Company. The plan is to enhance the functionality of our existing products, increase sales in the Indian market and entry into new emerging markets. The Company has a presence in India, Southeast Asia and Latin America, and recently added new customers in Australia, New Zealand and parts of Africa.
TraQiQ Solutions, Inc.
Ci2i is a services company founded in 1998 that develops and deploys intelligent technologies and products in order to meet the demand for sustainable, integrated solutions. Ci2i’s primary focus has been in the analytics and intelligence segments. The Company is investing significantly in building products in the area of supply chain and last mile delivery.
Ci2i’s cloud solutions and analytics services comprise software development, program management, project management, and business analytics services.
TraQiQ Solutions Private Limited
On May 16, 2019, the Company entered into a Share Exchange Agreement with Mann-India Technologies Private Ltd., an Indian Corporation (“Mann”). On January 2, 2020, Mann changed its name to TraQiQ Solutions Private Limited (“TRAQ Pvt Ltd”). Pursuant to the Share Exchange Agreement with Mann, the Company acquired % of the shares of Mann and assumed certain net liabilities in exchange for warrants exercisable over a -years to purchase shares of common stock of the Company valued at $. The warrants will be exercisable as follows: (i) warrants immediately; (ii) warrants exercisable one-year after the date of closing, which was extended to March 31, 2021; and (iii) warrants exercisable two-years after the date of closing. This transaction is being recorded as a business combination under ASC 805. There were of these warrants exercised during 2021 and warrants remain outstanding as of December 31, 2021.
The warrants that are exercisable in one-year and two-years are conditioned upon TRAQ Pvt Ltd. achieving certain revenue figures and pre-tax profit percentages. TRAQ Pvt Ltd. must achieve target revenue of $ million (US$) and pre-tax profit of % (US$). Should TRAQ Pvt Ltd. be unable to achieve these criteria, the warrants will be reduced proportionately. A total of of these warrants were cancelled effective May 16, 2021 as a result of these criteria not being achieved.
Mann-India Private limited was renamed to TraQiQ Solutions Private Limited shortly after acquisition by TraQiQ Inc.
| F-8 |
TRAQ Pvt Ltd. was established in May 2000 and is headquartered in New Delhi, India. TRAQ Pvt Ltd. is a leading software development company which, with the advent of technology, has evolved as a mature and fast-growing company committed to provide reliable and cost-effective software solutions across industries all over the world.
TRAQ Pvt Ltd. has its own experienced team of software developers dedicated towards developing various kinds of customized software.
TraQ Pvt Ltd. has been doing business around the world for over 15 years, with particular emphasis on Latin America and India. The customer list includes large enterprise Finance and Insurance companies across Latin America. The company’s product portfolio has evolved rapidly and now includes enterprise ready solutions for payment processing, mobile wallets, micro lending solutions and digital transformation.
On December 30, 2022, the Company entered into an Assignment of Stock (the “TSP Agreement”) with TraQiQ Solutions Private Ltd. (“TSP”) and LR, pursuant to which the Company sold, assigned and transferred to LR and LR purchased from the Company, all of the equity interests in TSP in exchange for nominal consideration of $.
Rohuma, LLC
On January 22, 2021, the Company entered into a Share Exchange Agreement with Rohuma, LLC, a Delaware limited liability company (“Rohuma”) and its members, whereby the Rohuma members agreed to exchange all of their respective membership interests in Rohuma in exchange for shares of common stock, of which the first tranche of shares were issued on March 1, 2021 totaling shares, with the remaining value reflected as contingent consideration until the shares vest at which time they will be issued. The transaction was valued at $ ($ per share). The Company is making final determination on the revenue targets to ascertain that the second tranche of shares should be issued. Rohuma has an Indian affiliate that is owned % by Rohuma and % by its founding member. Rohuma controls this entity and the % ownership by the member is now less than % upon acquisition by the Company. This amount is reflected as a non-controlling interest.
Rohuma dba Kringle.ai is a California based software solutions company that enables digital and mobile commerce by providing enterprise class applications that cover loyalty and rewards products, payments, online ordering, distribution logistics for retail and more. Kringle analyzes customers’ omni-channel behaviors and transactions. Using AI for digital commerce, Kringle is able to deliver real time, automated 1:1 recommendations and personalized content across all customer touch points.
On December 30, 2022, the Company entered into an Assignment of Units (the “Rohuma Agreement”, and, together with the MTP Agreement and the TSP Agreement, the “Disposition Agreements”) with Rohuma LLC (“Rohuma”) and Happy Kompany LLC (“Happy”) pursuant to which the Company sold, assigned and transferred to Happy, and Happy purchased from the Company, all of the equity interests in Rohuma in exchange for nominal consideration of $. Pursuant to the Rohuma Agreement, the Company assumed the liabilities of Rohuma with respect to two loans with Paypal/Loanbuilder in an aggregate principal amount of $ plus any accumulated interest and fees.
Mimo Technologies Private Limited
On February 17, 2021, the Company entered into a Share Exchange Agreement with Mimo Technologies Private Ltd., and Indian corporation (“Mimo”) and its shareholders, whereby the Mimo shareholders agreed to exchange all of their respective shares in Mimo in exchange for warrants to purchase shares of the Company’s common stock. Of these warrants, were earned at the date of acquisition, with the remaining expected to be earned over the next two years from grant based on revenue goals for Mimo. The warrants have a term of three years and an exercise price of $ and value in the amount of $, of which $ is reflected in additional paid in capital, with the remaining $ reflected as contingent consideration. The Company is making final determination on the revenue targets to ascertain that the second tranche of warrants should be vested. In addition to the issuance of the warrants, TRAQ Pvt Ltd, wrote off $ in amounts due from a note receivable, $ in accounts receivable and $ in a debenture from Mimo. In addition, a cash payment was made to one of the minority shareholders of Mimo in the amount of $. The Company acquired over % of Mimo with the remaining percentage of less than % reflected as a non-controlling interest.
TraQiQ operates the Mimo delivery and task service in India. This service runs on the TraQSuite platform. Mimo has 14,000+ independent contractors across India performing deliveries and fulfilling tasks for the largest corporations in the country. Our team at Mimo uses a sophisticated technology platform and a smartphone app to get their tasks completed. This is coupled with a verification and billing system that allows customers of all sizes to leverage this distribution infrastructure.
Mimo offers a broad set of services. These offerings can be classified into three broad categories:
| ● | Data collection and client verification (surveys, verification, on-boarding), | |
| ● | Cash management & handling services, and | |
| ● | Distribution and demand generation (order fulfilment, demand generation, delivery services for e-commerce companies) |
| F-9 |
Mimo assists the delivery and pickup segment of the banking and insurance industry by performing verifications, field investigations for loan requests, business verifications and employment verification, and also collects documents, assists in filling forms for banks, and completes data collection from customers.
Mimo works with microfinance institutions to collect cash, such as loan payments, convert cash to digital means like debit cards, and conduct data collection and surveys.
For consumer goods companies, Mimo does promotional marketing, Last mile (hyper-local) delivery, merchant onboarding or activation, store audits, and route optimization for delivery. Mimo provides efficient end-to-end transshipment logistics. The framework manages and optimizes last-mile delivery & e-commerce logistics across the entire distribution chain with transparency and seamless integration.
Mimo is currently in the planning stages to provide food, alcohol & medicine deliveries as well.
During the COVID-19 pandemic, Mimo leveraged video as a platform for verification and document delivery. Now, the task workers include people who are in the field on bikes and trucks, people on a video screen, as well as people on the phone.
There are also data digitization tasks being done by Mimo task workers across the country. In a country like India where there are over 20 languages and multiple dialects, the task workers convert paper documents into electronic form in the same language or translate them into another language.
Mimo provides delivery and task worker solutions across India. Mimo works with Banking, Financial, Logistics and Distribution companies, to take their products and services to semi-urban and rural India. Mimo trains the agents in each Product or Service through an online and classroom training platform. The company powers the gig economy task workers throughout the country and provides a very valuable source of employment for young people who may or may not have a high school diploma.
On December 30, 2022, the Company entered into an Assignment of Stock (the “MTP Agreement”) with Mimo Technologies Private Ltd. (“MTP”) and Lathika Regunathan (“LR”), pursuant to which the Company sold, assigned and transferred to LR, and LR purchased from the Company, all of the Company’s equity interests in MTP in exchange for nominal consideration of $.
NOTE 2 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the regulations of the United States Securities and Exchange Commission.
Consolidation
The consolidated financial statements include the accounts of TraQiQ, Inc. and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
The Company applies the guidance of Topic 810 Consolidation of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) to determine whether and how to consolidate another entity. Pursuant to ASC paragraph 810-10-15-10, all majority-owned subsidiaries—all entities in which a parent has a controlling financial interest—are consolidated except when control does not rest with the parent.
Pursuant to ASC paragraph 810-10-15-8, the usual condition for a controlling financial interest is ownership of a majority voting interest, and, therefore, as a general rule ownership by one reporting entity, directly or indirectly, of more than 50 percent of the outstanding voting shares of another entity is a condition pointing toward consolidation. The power to control may also exist with a lesser percentage of ownership, for example, by contract, lease, agreement with other stockholders, or by court decree.
In
accordance with ASC 810-10-45, the Company has deconsolidated the subsidiaries of MTP, Rohuma and TSP as a result of the nonreciprocal
transfer (spinoff). The Company has recognized the loss of $
| F-10 |
Noncontrolling Interests
In accordance with ASC 810-10-45 Noncontrolling Interests in Consolidated Financial Statements, the Company classifies noncontrolling interests as a component of equity within the consolidated balance sheet. In January 2021, the acquisition of Rohuma resulted in a less than 1% non-controlling interest of the Indian affiliate of that company. In February 2021, the acquisition of Mimo resulted in a less than 1% non-controlling interest of that company. On December 31, 2022, the Company sold its equity interest in Rohuma and Mimo.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. These estimates include, but are not limited to, management’s estimate of provisions required for non-collectible accounts receivable, depreciative lives of our assets, determination of technological feasibility, and valuation allowances of our deferred tax assets. Actual results could differ from those estimates.
Foreign Currency Transactions
The Company accounts for foreign currency transactions in accordance with ASC 830, “Foreign Currency Matters” (“ASC 830”), specifically the guidance in subsection ASC 830-20, “Foreign Currency Transactions”. The U.S. dollar is the functional and reporting currency for the Company and its subsidiaries other than TRAQ Pvt Ltd. whose functional currency is the Indian Rupee. Pursuant to ASC 830, monetary assets and liabilities denominated in foreign currencies are translated into U.S. dollars at exchange rates in effect at the balance sheet date, with the resulting gains or losses upon settlement reported in foreign exchange gain (loss) in the computation of net income (loss). Gains or losses resulting from translation adjustments are reported under accumulated other comprehensive income (loss).
Reclassification
Certain prior period amounts have been reclassified to conform with current period presentation with no effect on the Company’s net loss, total assets, liabilities equity or cash flows.
Cash and Cash Equivalents
Cash
and cash equivalents include cash on hand and on deposit at banking institutions as well as all highly liquid short-term investments
with original maturities of 90 days or less of $
Restricted Cash
The
Company’s restricted cash balance consists of time deposits with financial institutions which are valued at cost and
approximate fair value. Interest earned on these deposits in included in interest income. The carrying value of our restricted cash
at December 31, 2022 and 2021 was $ and $
Accounts Receivable and Concentration of Credit Risk
The Company considers accounts receivable, net of allowance for returns and doubtful accounts, to be fully collectible. The allowance is based on management’s estimate of the overall collectability of accounts receivable, considering historical losses and economic conditions. Based on these same factors, individual accounts are charged off against the allowance when management determines those individual accounts are uncollectible.
Credit
extended to customers is generally uncollateralized. Past-due status is based on contractual terms. Management has determined that an
allowance of $
| F-11 |
Property and Equipment and Long-Lived Assets
Fixed
assets are stated at cost. Depreciation on fixed assets are computed using the straight-line method over the estimated useful lives of
the assets, which range from to
FASB Codification Topic 360 “Property, Plant and Equipment” (ASC 360), requires that long-lived assets and certain identifiable intangibles held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The application of ASC 360 has not materially affected the Company’s reported earnings, financial condition or cash flows.
Intangible
assets with definite useful lives are stated at cost less accumulated amortization. Intangible assets represent purchased intangible
assets of TRAQ Pvt Ltd., and Mimo which includes customer relationships and trademarks. The Company amortizes these intangible assets
on a straight-line basis over their estimated useful lives of up to
The Company has adopted Accounting Standard Update (“ASU”) 2017-04 Intangibles – Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment. The adoption of this ASU did not have a material impact on our consolidated financial statements. The Company reviews recoverability of long-lived assets on a periodic basis whenever events and changes in circumstances have occurred which may indicate a possible impairment. The assessment for potential impairment is based primarily on the Company’s ability to recover the carrying value of its long-lived assets from expected future cash flows from its operations on an undiscounted basis. If such assets are determined to be impaired, the impairment recognized is the amount by which the carrying value of the assets exceeds the fair value of the assets.
The Company will assess the impairment of identifiable intangibles whenever events or changes in circumstances indicate that the carrying value may not be recoverable at the time they do have intangible assets. Factors the Company considers to be important which could trigger an impairment review include the following:
1. Significant underperformance relative to expected historical or projected future operating results;
2. Significant changes in the manner of use of the acquired assets or the strategy for the overall business; and
3. Significant negative industry or economic trends.
When the Company determines that the carrying value of intangibles may not be recoverable based upon the existence of one or more of the above indicators of impairment and the carrying value of the asset cannot be recovered from projected undiscounted cash flows, the Company records an impairment charge. The Company will measure any impairment based on a projected discounted cash flow method using a discount rate determined by management to be commensurate with the risk inherent in the current business model. Significant management judgment is required in determining whether an indicator of impairment exists and in projecting cash flows. Management has determined that impairment of long-lived assets is required for the year ended December 31, 2022. See Note 8. Management has determined that goodwill was impaired as a result of the disposal of subsidiaries for the year ended December 31, 2021.
Capitalized Software Costs
In accordance with the relevant FASB accounting guidance regarding the development of software to be sold, leased, or marketed, the Company expenses such costs as they are incurred until technological feasibility has been established, at and after which time these costs are capitalized until the product is available for general release to customers. Once the technological feasibility is established per ASC 985-20, the Company capitalizes costs associated with the acquisition or development of major software for internal and external use in the balance sheet.
Costs incurred to enhance the Company’s software products, after general market release of the services using the products, is expensed in the period they are incurred.
| F-12 |
The
Company only capitalizes subsequent additions, modifications or upgrades to internally developed software to the extent that such
changes allow the software to perform a task it previously did not perform. The Company expenses software maintenance and training
costs as incurred. The Company acquired $
Revenue Recognition
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), specifically ASC 606-10-50-12. This standard provides a single set of guidelines for revenue recognition to be used across all industries and requires additional disclosures. The updated guidance introduces a five-step model to achieve its core principal of the entity recognizing revenue to depict the transfer of goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company adopted the updated guidance effective January 1, 2018 using the full retrospective method, however the new standard did not have a material impact on its consolidated financial position and consolidated results of operations, as it did not change the manner or timing of recognizing revenue.
Professional Service Revenue
TRAQ Pvt Ltd. derives a large part of its revenues from professional and support services, which includes revenue generated from software development projects and associated fees for consulting, implementation, training, and project management provided to customers using their systems. Revenue from arrangements with customers is recognized based on the Company’s satisfaction of distinct performance obligations identified in each agreement, generally at a point in time as discussed in ASC 606. In instances where multiple performance obligations are identified, the Company allocates the transaction price to each performance obligation based on relative selling prices of each distinct product or service, and recognizes revenue related to each performance obligation at the points in time that each performance obligation is satisfied. The Company’s performance obligation includes providing customization of software’s, selling of licenses, where the Company typically satisfies its performance obligations prior to the submission of invoices to the customer for such services. The Company’s performance obligation for consulting and technical support is delivered on as the work is being performed, which is satisfied prior to invoicing.
The Company generally collects payment within 30 to 60 days of completion of the performance obligation and there are no agency relationships.
Software development arrangements involving significant customization, modification or production are accounted for in accordance with the appropriate technical accounting guidance issued by the FASB using the percentage-of- completion method. The Company recognizes revenue using periodic reported actual hours worked as a percentage of total expected hours required to complete the project arrangement and applies the percentage to the total arrangement fee.
Unbilled revenue represents earnings in excess of billings as at the end of the reporting period. Sales taxes collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore are excluded from revenues in the statements of operations.
TRAQ Pvt Ltd. has deferred the revenue and costs attributable to certain process transition activities with respect to its customers where such activities do not represent the culmination of a separate earnings process. Such revenue and costs are subsequently recognized ratably over the period in which the related services are performed. Further, the deferred costs are limited to the amount of the deferred revenues. As of December 31, 2022, there was deferred revenue.
| F-13 |
Software Solution Revenue
Revenue from arrangements with customers is recognized based on the Company’s satisfaction of distinct performance obligations identified in each agreement, generally at a point in time as discussed in ASC 606. In instances where multiple performance obligations are identified, the Company allocates the transaction price to each performance obligation based on relative selling prices of each distinct product or service, and recognizes revenue related to each performance obligation at the points in time that each performance obligation is satisfied. The Company’s performance obligation includes providing connectivity to software, generally through a monthly subscription, where the Company typically satisfies its performance obligations prior to the submission of invoices to the customer for such services. The Company’s performance obligation for hardware components that are purchased by the customer in connection with the solution is delivery of the purchased device, which is satisfied prior to invoicing. The Company provides a twelve-month warranty on their hardware. All units deployed by the Company are past the twelve-month period, thus the Company has not accrued for a warranty liability. The Company generally collects payment within 30 to 60 days of completion of the performance obligation and there are no agency relationships.
TraQSuite
is a cloud based software platform with a revenue model based on initial and transaction-based licensing fees as well as consulting fees.
Licensees pay an initial per-module fee that varies depending on the number of modules that are licensed. This fee is typically $
Revenue From Sales of Goods
Revenue from arrangements with customers is recognized based on the Company’s satisfaction of distinct performance obligations identified in each agreement, generally at a point in time as discussed in ASC 606. The performance obligations are satisfied upon shipment of the merchandise being sold.
The following is a summary of revenue for the years ended December 31, 2022 and 2021, disaggregated by type from continuing operations:
| 2022 | 2021 | |||||||
| Professional Services Revenue | $ | $ | ||||||
| Sale of goods | ||||||||
| Software Solution Revenue | ||||||||
| $ | $ | |||||||
The following is a summary of revenue for the years ended December 31, 2022 and 2021, disaggregated by type from discontinued operations:
| 2022 | 2021 | |||||||
| Professional Services Revenue | $ | $ | ||||||
| Sale of goods | ||||||||
| Software Solution Revenue | ||||||||
| $ | $ | |||||||
Costs of Services Provided
Costs of services provided consist of purchase of goods, data processing costs, customer support costs including personnel costs to maintain the Company’s proprietary databases, costs to provide customer call center support, hardware and software expense associated with transaction processing systems and exchanges, telecommunication and computer network expense, and occupancy costs associated with facilities where these functions are performed. Depreciation expense is not included in costs of services provided.
Lease Obligations
The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, current portion of operating lease liabilities and operating lease liabilities, less current portion in the Company’s consolidated balance sheets.
ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. For leases in which the rate implicit in the lease is not readily determinable, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.
| F-14 |
Lease terms include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for operating lease arrangements is recognized on a straight-line basis over the lease term. The Company had lease agreements with lease and non-lease components, which were accounted for separately. There is no lease obligation as of December 31, 2022.
Income Taxes
Income taxes are accounted under the asset and liability method. The current charge for income tax expense is calculated in accordance with the relevant tax regulations applicable to entity. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and for operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred tax assets are reduced by a valuation allowance if, based on available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
Uncertain Tax Positions
The Company follows ASC 740-10, “Accounting for Uncertainty in Income Taxes”. This requires recognition and measurement of uncertain income tax positions using a “more-likely-than-not” approach. Management evaluates their tax positions on an annual basis.
TraQiQ, Inc.and TraQiQ Solutions, Inc, file a consolidated income tax return and Rohuma US files a separate tax return in the U.S. federal tax jurisdiction and various state tax jurisdictions. TRAQ Pvt Ltd. as well as Mimo and Rohuma India file separate individual income tax returns in the India tax jurisdictions. The U.S. federal and state income tax returns of the Company are subject to examination by the IRS and state taxing authorities, generally for three years after they were filed. The India tax returns of are subject to examination by the India Income Tax Department and India state taxing authority, generally for 12 months after the relevant tax year, 24 months after the relevant tax year in case transfer pricing provisions are applicable.
Fair Value of Financial Instruments
ASC 825, “Financial Instruments,” requires the Company to disclose estimated fair values for its financial instruments. The carrying amount of cash, accounts receivable, prepaid and other current assets, accounts payable and accrued expenses, stockholder advances, short term financing and convertible debt approximate fair value because of the short-term maturity of those instruments. The Company does not utilize derivative instruments.
Fair Value Measurements
ASC 820 “Fair Value Measurements” defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosure about fair value measurements.
The following provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which fair value is observable:
Level 1- fair value measurements are those derived from quoted prices (unadjusted in active markets for identical assets or liabilities);
Level 2- fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
Level 3- fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).
Financial instruments classified as Level 1 - quoted prices in active markets include cash.
| F-15 |
These consolidated financial instruments are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment to estimation. Valuations based on unobservable inputs are highly subjective and require significant judgments. Changes in such judgments could have a material impact on fair value estimates.
In addition, since estimates are as of a specific point in time, they are susceptible to material near-term changes. Changes in economic conditions may also dramatically affect the estimated fair values.
Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management for the respective periods. The respective carrying value of certain financial instruments approximated their fair values due to the short-term nature of these instruments. These financial instruments include cash, investments, short-term notes payable, accounts payable and accrued expenses.
Derivative Financial Instruments
Derivatives are recorded on the consolidated balance sheet at fair value. The conversion features of the convertible instruments are embedded derivatives and are separately valued and accounted for on the consolidated balance sheet with changes in fair value recognized during the period of change as a separate component of other income/expense. Fair values for exchange-traded securities and derivatives are based on quoted market prices. Valuations derived from various models are subject to ongoing internal and external verification and review. Model used incorporate market-sourced inputs such as interest rates and stock price volatilities. Selection of these inputs involves management’s judgment and may impact net income (loss).
With the issuance of the July 2017 FASB ASU 2017-11, “Earnings Per Share (Topic 260) Distinguishing Liabilities from Equity (Topic 480) Derivatives and Hedging (Topic 815),” which addresses the complexity of accounting for certain financial instruments with down round features, the Company has chosen the early adopt retroactively the amendments in Part I of the standard whereby fair value derivative liabilities previously recognized were derecognized in the current and comparative periods. Under the amendments included in this update, the Company is no longer required to record changes in fair value during the period of change as a separate component of other income (expense) in the consolidated Statements of Operations.
The amendments in Part I of this Update change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified financial instruments, the amendments require entities that present earnings per share (EPS) in accordance with Topic 260 to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. Convertible instruments with embedded conversion options that have down round features are now subject to the specialized guidance for contingent beneficial conversion features (in Subtopic 470-20, “Debt—Debt with Conversion and Other Options”), including related EPS guidance (in Topic 260).
The amendments in Part II of this Update recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Codification, to a scope exception. Those amendments do not have an accounting effect.
Under current GAAP, an equity-linked financial instrument with a down round feature that otherwise is not required to be classified as a liability under the guidance in Topic 480 is evaluated under the guidance in Topic 815, “Derivatives and Hedging,” to determine whether it meets the definition of a derivative. If it meets that definition, the instrument (or embedded feature) is evaluated to determine whether it is indexed to an entity’s own stock as part of the analysis of whether it qualifies for a scope exception from derivative accounting.
| F-16 |
Generally, for warrants and conversion options embedded in financial instruments that are deemed to have a debt host (assuming the underlying shares are readily convertible to cash or the contract provides for net settlement such that the embedded conversion option meets the definition of a derivative), the existence of a down round feature results in an instrument not being considered indexed to an entity’s own stock. This results in a reporting entity being required to classify the freestanding financial instrument or the bifurcated conversion option as a liability, which the entity must measure at fair value initially and at each subsequent reporting date.
The amendments in this Update revise the guidance for instruments with down round features in Subtopic 815-40, “Derivatives and Hedging—Contracts in Entity’s Own Equity,” which is considered in determining whether an equity-linked financial instrument qualifies for a scope exception from derivative accounting. An entity still is required to determine whether instruments would be classified in equity under the guidance in Subtopic 815-40 in determining whether they qualify for that scope exception. If they do qualify, freestanding instruments with down round features are no longer classified as liabilities and embedded conversion options with down round features are no longer bifurcated.
For entities that present EPS in accordance with Topic 260, and when the down round feature is included in an equity-classified freestanding financial instrument, the value of the effect of the down round feature is treated as a dividend when it is triggered and as a numerator adjustment in the basic EPS calculation. This reflects the occurrence of an economic transfer of value to the holder of the instrument, while alleviating the complexity and income statement volatility associated with fair value measurement on an ongoing basis. Convertible instruments are unaffected by the Topic 260 amendments in this Update.
Those amendments in Part I of this Update are a cost savings relative to current GAAP. This is because, assuming the required criteria for equity classification in Subtopic 815-40 are met, an entity that issued such an instrument no longer measures the instrument at fair value at each reporting period (in the case of warrants) or separately accounts for a bifurcated derivative (in the case of convertible instruments) on the basis of the existence of a down round feature. For convertible instruments with embedded conversion options that have down round features, applying specialized guidance such as the model for contingent beneficial conversion features rather than bifurcating an embedded derivative also reduces cost and complexity. Under that specialized guidance, the issuer recognizes the intrinsic value of the feature only when the feature becomes beneficial instead of bifurcating the conversion option and measuring it at fair value each reporting period.
The amendments in Part II of this Update replace the indefinite deferral of certain guidance in Topic 480 with a scope exception. This has the benefit of improving the readability of the Codification and reducing the complexity associated with navigating the guidance in Topic 480.
For public business entities, the amendments in Part I of this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted for all entities, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The amendments in Part 1 of this Update should be applied in either of the following ways:
| 1. | retrospectively to outstanding financial instruments with a down round feature by means of a cumulative-effect adjustment to the statement of financial position as of the beginning of the first fiscal year and interim period(s) in which the pending content that links to this paragraph is effective; or | |
| 2. | retrospectively to outstanding financial instruments with a down round feature for each prior reporting period presented in accordance with the guidance on accounting changes in paragraphs 250-10-45-5 through 45-10. |
The amendments in Part II of this Update do not require any transition guidance because those amendments do not have an accounting effect.
| F-17 |
Basic net income (loss) per common share is computed using the weighted average number of common shares outstanding. Diluted earnings per share (EPS) include additional dilution from common stock equivalents, such as convertible notes, preferred stock, stock issuable pursuant to the exercise of stock options and warrants. Common stock equivalents are not included in the computation of diluted earnings per share when the Company reports a loss because to do so would be anti-dilutive for periods presented.
Related Party Transactions
Parties are considered to be related to the Company if the parties directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal stockholders of the Company, its management, members of the immediate families of principal stockholders of the Company and its management and other parties with which the Company may deal where one-party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. The Company discloses all related party transactions. All transactions shall be recorded at fair value of the goods or services exchanged. Property purchased from a related party is recorded at the cost to the related party and any payment to or on behalf of the related party in excess of the cost is reflected as compensation or distribution to related parties depending on the transaction.
Retirement Benefits to Employees
Defined Contribution Plan
In India, the employees receive benefits from a provident fund, where the employer and employees each make monthly contributions to the plan at a pre-determined rate to the Regional Provident Fund Commissioner. Employer’s contributions to the fund is charged as an expense in the Statements of Operations.
Defined Benefit Plan
In accordance with the Payment of Gratuity Act, 1972, applicable for Indian companies, our Indian entities provide for a lump sum payment to eligible employees, at retirement or termination of employment based on the last drawn salary and years of employment with the Company. Current service costs for defined benefit plans are accrued in the period to which they relate. The liability in respect of defined benefit plans is calculated annually by the Indian entities. The Indian entities record annual amounts relating to their defined benefit plans based on calculations that incorporate various actuarial and other assumptions, including discount rates, mortality, assumed rates of return, compensation increases and turnover rates. The Indian entities reserves its assumptions on an annual basis and makes modifications to the assumptions based on current rates and trends when it is appropriate to do so. The Indian entities obligation in respect of the gratuity plan, which is a defined benefit plan, is provided for based on actuarial valuation.
Other Long-Term Employee Benefits
The Indian entities net obligation in respect of leave encashment is the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value, and the fair value of any related assets is deducted. The discount rate is based on the prevailing market yields of Indian government securities at the reporting date that have maturity dates approximating the terms of the Indian entities obligations. The calculation is performed using the projected unit credit method. Any actuarial gains or losses are recognized.
Investments
The Company’s investments are in debt and equity instruments. These investments are accounted for in accordance with ASC 320 Investments – Debt Securities and ASC 321 Investments – Equity Securities. Interest earned under such investments are included in interest income.
| F-18 |
Segment Reporting
For purposes of segment disclosures, two or more operating segments should be grouped only if the segments meet all the requirements of paragraph 280-10-50-11, including the requirements for similar economic characteristics.
As a result, all operating units perform similar services, and approximately 99% of the Company’s revenue is generated from its Indian subsidiary. The Company believes that no segment reporting is required as all remaining operations outside of the Indian subsidiary is immaterial.
Recently Issued Accounting Standards
There were updates recently issued, most of which represent technical corrections to the accounting literature or application to specific industries or transactions that are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.
Going Concern
The
Company has an accumulated deficit of $
These consolidated financial statements of the Company have been prepared assuming that the Company will continue as a going concern, which contemplates, among other things, the realization of assets and the satisfaction of liabilities in the normal course of business over a reasonable period. The consolidated financial statements of the Company do not include any adjustments that may result from the outcome of the uncertainties.
The
Company has recently filed a Registration Statement on Form S-1 and engaged an investment banker to undertake an offering of approximately
$
NOTE 3: DISCONTINUED OPERATIONS
As
discussed in Note 1, the Company sold Rohuma, Mimo and TSP in December 2022. As a result, these entities were deconsolidated from the
Company’s financial statement resulting in a loss of $
| F-19 |
The following table presents a reconciliation of the major financial lines constituting the results of operations for discontinued operations to the net income (loss) from discontinued operations presented separately in the consolidated statement of operations for the year ended December 31, 2022:
| Rohuma | Mimo | TSP | Total | |||||||||||||
| December 31, 2022 | December 31, 2022 | December 31, 2022 | December 31, 2022 | |||||||||||||
| REVENUE | $ | $ | $ | $ | ||||||||||||
| COST OF REVENUE | ||||||||||||||||
| GROSS PROFIT (LOSS) | ( | ) | ||||||||||||||
| OPERATING EXPENSES | ||||||||||||||||
| Salaries and salary related costs | ||||||||||||||||
| Professional fees | ||||||||||||||||
| Rent expense | ||||||||||||||||
| Depreciation and amortization expense | ||||||||||||||||
| (Loss) gain from disposal of subsidiaries | ( | ) | ||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Total Operating Expenses | ||||||||||||||||
| OPERATING (LOSS) INCOME | ( | ) | ( | ) | ( | ) | ||||||||||
| OTHER INCOME (EXPENSE) | ||||||||||||||||
| PPP forgiveness and other expense | ( | ) | ( | ) | ( | ) | ||||||||||
| Interest expense, net of interest income | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other income (expense) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| NET (LOSS) INCOME FROM DISTCONTINUED OPERATIONS, BEFORE PROVISION FOR INCOME TAXES | ( | ) | ( | ) | ( | ) | ||||||||||
| Provision for income taxes | ||||||||||||||||
| NET (LOSS) INCOME FROM DISTCONTINUED OPERATIONS | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
| F-20 |
The following table presents a reconciliation of the major financial lines constituting the results of operations for discontinued operations to the net income (loss) from discontinued operations presented separately in the consolidated statement of operations for the year ended December 31, 2021:
| Rohuma | Mimo | TSP | Total | |||||||||||||
| December 31, 2021 | December 31, 2021 | December 31, 2021 | December 31, 2021 | |||||||||||||
| REVENUE | $ | $ | $ | $ | ||||||||||||
| COST OF REVENUE | ||||||||||||||||
| GROSS PROFIT (LOSS) | ( | ) | ||||||||||||||
| OPERATING EXPENSES | ||||||||||||||||
| Salaries and salary related costs | ||||||||||||||||
| Professional fees | ||||||||||||||||
| Rent expense | ||||||||||||||||
| Depreciation and amortization expense | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Total Operating Expenses | ||||||||||||||||
| OPERATING (LOSS) INCOME | ( | ) | ( | ) | ( | ) | ||||||||||
| OTHER INCOME (EXPENSE) | ||||||||||||||||
| PPP forgiveness and other expense | ||||||||||||||||
| Interest expense, net of interest income | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other income (expense) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| NET (LOSS) INCOME FROM DISTCONTINUED OPERATIONS, BEFORE PROVISION FOR INCOME TAXES | ( | ) | ( | ) | ( | ) | ||||||||||
| Provision for income taxes | ||||||||||||||||
| NET (LOSS) INCOME FROM DISTCONTINUED OPERATIONS | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
| F-21 |
The detail of the consolidated balance for the discontinued operations is as stated below for the year ended December 31, 2021:
| Rohuma | Mimo | TSP | Total | |||||||||||||
| December 31, 2021 | December 31, 2021 | December 31, 2021 | December 31, 2021 | |||||||||||||
| Current Assets: | ||||||||||||||||
| Cash | $ | $ | $ | $ | ||||||||||||
| Accounts receivable, net | ||||||||||||||||
| Prepaid expenses and other current assets | ||||||||||||||||
| Current Assets – Discontinued Operations | $ | $ | $ | $ | ||||||||||||
| Fixed assets, net | $ | $ | $ | $ | ||||||||||||
| Intangible assets, net | ||||||||||||||||
| Goodwill | ||||||||||||||||
| Restricted cash | ||||||||||||||||
| Deferred tax asset | ||||||||||||||||
| Right-of-use asset | ||||||||||||||||
| Long-term taxes receivable | ||||||||||||||||
| Other assets | ||||||||||||||||
| Other Assets – Discontinued Operations | $ | $ | $ | $ | ||||||||||||
| Current Liabilities: | ||||||||||||||||
| Accounts payable and accrued expenses | $ | $ | $ | $ | ||||||||||||
| Cash overdraft | ||||||||||||||||
| Accrued payroll and related taxes | ||||||||||||||||
| Accrued taxes and duties payable | ||||||||||||||||
| Deferred revenue | ||||||||||||||||
| Current portion - lease liability | ||||||||||||||||
| Current portion - long-term debt - related parties | ||||||||||||||||
| Current portion - long-term debt | ||||||||||||||||
| Current Liabilities – Discontinued Operations | $ | $ | $ | $ | ||||||||||||
| Lease liability, net of current portion | $ | $ | $ | $ | ||||||||||||
| Long-term Liabilities – Discontinued Operations | $ | $ | $ | $ | ||||||||||||
The following table presents a reconciliation of Rohuma, Mimo, and TSP net cash flow from operating, investing and financing activities for the periods indicated below:
| 2022 | 2021 | |||||||
| Net cash (used in) provided by operating activities - discontinued operations | $ | ( |
) | $ | ||||
| Net cash (used in) provided by investing activities - discontinued operations | $ | ( |
) | $ | ||||
| Net cash provided by (used in) financing activities - discontinued operations | $ | $ | ( |
) | ||||
NOTE 4: ACQUISITIONS
ROHUMA
On January 22, 2021, the Company entered into a Share Exchange Agreement with Rohuma, LLC, a Delaware limited liability company (“Rohuma”) and its members, whereby the Rohuma members agreed to exchange all of their respective membership interests in Rohuma in exchange for shares of common stock, of which the first tranche of shares were issued on March 1, 2021 totaling shares, with the remaining value reflected as contingent consideration until the shares vest at which time they will be issued. The transaction was valued at $ ($ per share). The Company is making final determination on the revenue targets to ascertain that the second tranche of shares should be issued. Rohuma has an Indian affiliate that is owned % by Rohuma and % by its founding member. Rohuma controls this entity and the % ownership by the member is now less than % upon acquisition by the Company. This amount is reflected as a non-controlling interest.
The Company acquired the assets and liabilities noted below in exchange for the shares noted herein and accounted for the acquisition in accordance with ASC 805.
| F-22 |
| Cash | $ | |||
| Accounts receivables, net | ||||
| Prepaid expenses and other current assets | ||||
| Fixed assets | ||||
| Investment | ||||
| Accounts payable and accrued expenses | ( | ) | ||
| Accrued duties and taxes | ( | ) | ||
| Cash overdraft | ( | ) | ||
| Debt- related parties | ( | ) | ||
| Debt | ( | ) | ||
| $ | ( | ) |
The
difference between the net liabilities acquired of $
MIMO TECHNOLOGIES
On
February 17, 2021, the Company entered into a Share Exchange Agreement with Mimo Technologies Private Ltd., and Indian corporation (“Mimo”)
and its shareholders, whereby the Mimo shareholders agreed to exchange all of their respective shares in Mimo in exchange for warrants
to purchase shares of the Company’s common stock. Of these warrants, were earned at the date of acquisition, with
the remaining expected to be earned over the next two years from grant based on revenue goals for Mimo. The warrants have a term
of three years and an exercise price of $ and value in the amount of $, of which $ is reflected in additional paid
in capital, with the remaining $ reflected as contingent consideration. The Company is making final determination on the revenue
targets to ascertain that the second tranche of warrants should be vested. In addition to the issuance of the warrants, TRAQ Pvt Ltd,
wrote off $
The Company acquired the assets and liabilities noted below in exchange for the warrants noted herein and accounted for the acquisition in accordance with ASC 805.
| Cash | $ | |||
| Accounts receivables, net | ||||
| Prepaid expenses and other current assets | ||||
| Fixed assets | ||||
| Intellectual property | ||||
| Tradenames | ||||
| Accounts payable and accrued expenses | ( | ) | ||
| Accrued payroll and related taxes | ( | ) | ||
| Accrued duties and taxes | ( | ) | ||
| Comprehensive income | ( | ) | ||
| Debt – related parties | ( | ) | ||
| Debt | ( | ) | ||
| $ | ( | ) |
| F-23 |
The
difference between the net liabilities acquired of $(
The following table shows pro-forma results for the year ended December 31, 2021 as if the acquisition had occurred on January 1, 2020. These unaudited pro forma results of operations are based on the historical financial statements and related notes of Rohuma, Mimo and the Company.
For the year ended December 31, 2021 | ||||
| Revenues | $ | |||
| Net loss | $ | ( | ) | |
| Net loss per share | $ | ( | ) | |
NOTE 5: CASH AND RESTRICTED CASH
Cash and restricted cash are as follows:
December 31, 2022 | December 31, 2021 | |||||||
| Cash on hand | $ | $ | ||||||
| Bank balances | ||||||||
| Bank balances – discontinued operations | ||||||||
| Restricted cash – discontinued operations | ||||||||
| Total | $ | $ | ||||||
ASU
2016-18, “Statements of Cash Flows” (Topic 230) was adopted by the Company in 2017. In accordance with this standard, restricted
cash and restricted cash equivalents is included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period
total amounts shown on the Statements of Cash Flows. During the years ended December 31, 2022 and 2021 there were
NOTE 6: FIXED ASSETS
As of December 31, 2021, all fixed assets were held by Rohuma, Mimo and TSP, and were sold as of December 31, 2022. The Company’s property and equipment, which is included in other assets – discontinued operations on the consolidated balance sheets, is as follows:
| December 31, 2022 | December 31, 2021 | Estimated Life | ||||||||
| Property and equipment – TRAQ Pvt Ltd. | $ | $ | ||||||||
| Property and equipment – Rohuma US | ||||||||||
| Property and equipment – Rohuma India | ||||||||||
| Property and Equipment – Mimo Technologies | ||||||||||
| Less: accumulated depreciation | ( | ) | ||||||||
| Net | $ | $ | ||||||||
Depreciation
expense for the years ended December 31, 2022 and 2021 was $
| F-24 |
NOTE 7: INTANGIBLE ASSETS
As of December 31, 2021, all intangible assets were held by Rohuma, Mimo and TSP, and were fully impaired due to the disposal as of December 31, 2022. The Company’s intangible assets, which is included in other assets – discontinued operations on the consolidated balance sheets, is as follows:
December 31, 2022 | December 31, 2021 | |||||||
| Customer relationships | $ | $ | ||||||
| Intellectual property | ||||||||
| Tradenames | ||||||||
| Software | ||||||||
| Less: accumulated amortization | ( | ) | ||||||
| Net | $ | $ | ||||||
Amortization expense for the years ended December 31, 2022 and 2021 was
$
NOTE 8: GOODWILL
As of December 31, 2021, all goodwill was held by Rohuma, Mimo and TSP, and was fully impaired due to the disposal as of December 31, 2022. The Company’s goodwill is as follows:
December 31, 2022 | December 31, 2021 | |||||||
| Rohuma | $ | $ | ||||||
| Mimo Technologies | ||||||||
| Net | $ | $ | ||||||
For
the year ended December 31, 2021, there were no indicators of impairment noted. For the year ended December 31, 2022, due to the disposal
of Rohuma and Mimo, the Company fully impaired the goodwill resulting in impairment expense of $
| F-25 |
NOTE 9: CONVERTIBLE NOTES PAYABLE
As of December 31, 2022 and 2021, the Company had the following convertible notes outstanding, all of which are current liabilities:
| December 31, 2022 | December 31, 2021 | |||||||||||
| Evergreen Capital Management LLC | (a) | $ | $ | |||||||||
| GS Capital | (b) | |||||||||||
| Total Convertible Notes Payable | $ | $ | ||||||||||
| Less: Discounts | ( | ) | ( | ) | ||||||||
| $ | $ | |||||||||||
| (a) |
On
October 8, 2021, the Company entered into a
As
a commission on this note, the Company granted to the investment bankers,
On
October 15, 2021, the Company entered into a
As
a commission on this note, the Company granted to the investment bankers,
As
of June 17, 2021, the Evergreen 1 note is in default as the Company has not repaid the note. Both Evergreen 2 and Evergreen 3 through
July 15, 2022 are also in default as the Company has not repaid these notes by the maturity date. As these notes are in default,
these notes are subject to the default interest rate of
On
October 21, 2022, the Company entered into a
On
December 31, 2022, the total outstanding principal and accrued interest balance of $
Interest
expense on these notes for years ended December 31, 2022 and 2021 is $ | |
| (b) |
| F-26 |
NOTE 10: LONG-TERM DEBT RELATED PARTIES
The following is a summary of the current portion - long-term debt - related parties as of December 31, 2021 and 2020:
December 31, 2022 | December 31, 2021 | |||||||||||
| Unsecured advances - CEO | (a) | $ | $ | |||||||||
| Notes payable - Satinder Thiara | (b) | |||||||||||
| Promissory notes – Kunaal Sikka | (c) | |||||||||||
| Notes payable – Swarn Singh | (d) | |||||||||||
| Note payable – Chaudhary – discontinued operations | (e) | |||||||||||
| Note payable - Director | (g) | |||||||||||
| Advances –officers – discontinued operations | (f) | |||||||||||
Long-term debt related parties | ||||||||||||
| Current portion of long-term debt related parties | ( | ) | ( | ) | ||||||||
| Current portion of long-term debt related parties – discontinued operations | ( | ) | ||||||||||
| Long-term debt – related parties | $ | $ | ||||||||||
| (a) | |
| (b) | |
| (c) | |
| Unsecured
promissory note from Kunaal Sikka, the CEO’s son, dated December 15, 2021, in the amount of $ |
| (d) | |
| Unsecured
promissory note to Swarn Singh, father-in-law of the CEO, dated December 15, 2021, in the amount of $ | |
| (e) | |
| (f) | |
| (g) | |
| (h) |
Interest
expense on these notes for the years ended December 31, 2022 and 2021 are $
| F-27 |
NOTE 11: LONG-TERM DEBT
The following is a summary of the long-term debt as of December 31, 2022 and 2021:
December 31, 2022 | December 31, 2021 | |||||||||||
| Other debt – in default | (a) | $ | $ | |||||||||
| Auto loan – ICICI Bank | (d) | |||||||||||
| Baxter Credit Union | (e) | |||||||||||
| UGECL | (f) | |||||||||||
| Diagonal Lending ( FKA Sixth Street Lending), net of discounts of $ | (b) | |||||||||||
| Loan Builder | (g) | |||||||||||
| Loan Builder #2 | (g) | |||||||||||
| Loan Builder #3 | (k) | |||||||||||
| Satin | (c) | |||||||||||
| Union Bank | (h) | |||||||||||
| Individual | (i) | |||||||||||
| Kabbage Loan | (j) | |||||||||||
| Forward Finance | (l) | |||||||||||
| Celtic | (m) | |||||||||||
| SBA - Rohuma | ||||||||||||
| Total | $ | $ | ||||||||||
| Current portion | ( | ) | ( | ) | ||||||||
| Current portion – discontinued operations | ( | ) | ||||||||||
| Long-term debt, net of current portion | $ | $ | ||||||||||
| (a) | |
| (b) |
| (c) | |
| (d) | |
| (e) | |
| (f) | |
| (g) |
In
February 2022 the Company’s subsidiary Rohuma, borrowed $
In
July 2022 the Company’s subsidiary Rohuma borrowed $
As of December 31, 2022, these loans are in default.
|
| (h) |
| (i) |
In
February 2022 the Company’s subsidiary Rohuma, borrowed $ |
| (j) | |
| (k) | |
| (l) | |
| (m) |
As of December 31, 2022, $
Interest
expense on these notes for years ended December 31, 2022 and 2021 are $
| F-28 |
| (a) | In
connection with the reverse merger in July 2017, the Company and two stockholders, who had provided related party advances to the
Company, agreed to exchange their related party advances for | |
During
the year ended December 31, 2018, the Company received additional proceeds from a related
party of $
The remaining notes and all accrued interest were paid in October 2021. As the notes were settled in cash, no additional conversion premium is due. |
Interest
expense on these notes for the years ended December 31, 2022 and 2021 was $
| F-29 |
NOTE 13: STOCKHOLDERS’ DEFICIT
Series A Convertible Preferred Stock
On
July 19, 2017, the Company approved the issuance of shares of its Series A Convertible Preferred Stock to its CEO and, on August
1, 2017, the Company sold and issued the shares of its Series A Convertible Preferred Stock to its CEO at a price of $ per
share for $
Each outstanding share of Series A Convertible Preferred Stock is convertible into the number of shares of the Company’s common stock (the “Common Stock”) determined by dividing the Stated Value by the Conversion Price as defined below, at the option of any Series A Convertible Preferred Stock shareholder in whole or in part, at any time commencing no earlier than six (6) months after the issuance date; provided that any conversion under this section must be made during the ten (10) day period immediately following the date on which the corporation files with the Securities and Exchange Commission any periodic report on form 10-Q, 10-K or the equivalent form; provided further that, any conversion under this Section IV: (a) shall be for a minimum Stated Value of $ of Series A Convertible Preferred Stock.
The
Conversion Price for each share of Series A Convertible Preferred Stock in effect on any Conversion Date shall be
On September 22, 2021, the CEO converted all shares of Series A Convertible Preferred Stock at the conversion price of $ per share into common shares. As a result, as of December 31, 2022 and 2021, there are Series A Convertible Preferred shares issued and outstanding.
Series B Convertible Preferred Stock
As of December 31, 2022, shares of Series B Preferred Stock are outstanding.
Each outstanding share of Series B Convertible Preferred Stock is convertible into the 100 shares of the Company’s common stock at any time commencing after the issuance date. Series B Convertible Stock has no voting rights. Upon any liquidation, dissolution, or winding-up of the Corporation, whether voluntary or involuntary (a “Liquidation”), the Series B Holders shall be entitled to receive out of the assets of the Corporation, whether capital or surplus, the same amount that a holder of Common Stock would receive if the Series B Preferred were fully converted. Except for stock dividends or distributions for, Series B Holders are entitled to receive, and the Company shall pay, dividends on shares of Series B Preferred equal (on an as-if-converted-to-Common-Stock basis) to and in the same form as dividends actually paid on shares of the Common Stock when, as, and if such dividends are paid on shares of the Common Stock. No other dividends shall be paid on shares of Series B Preferred.
On December 30, 2022,
the Company exchanged outstanding debt securities of the Company with unpaid principal and interest in the amount of $
Common Stock
As of December 31, 2022, the Company has shares issued and outstanding.
During the year ended December 31, 2022, there was shares offered as commitment shares as additional consideration for the purchase of a convertible note.
On
December 30, 2022, the Company exchanged outstanding debt securities of the Company with unpaid principal and interest in the amount
of $
Between October 1, 2022 and December 31, 2022, options were exercised into shares of the Company’s common stock for no consideration. Upon issuance, the remaining $ of stock-based compensation was expensed.
On
December 1, 2022, the Company issued shares of its common stock in exchange for vested restricted stock awards valued at $
During the three months ended December 31, 2022, the Company issued shares of its common stock in exchange for warrants for no consideration.
During
the three months ended June 30, 2022, there was a fractional adjustment of shares,
During
the three months ended March 31, 2022, the
During the three months ended December 31, 2021, the Company (a) issued common shares in conversion of a convertible note payable; and (b) had common shares returned upon repayment of a convertible note.
During
the three months ended September 30, 2021, the Company (a) issued common shares in conversion of Series A Convertible Preferred
Stock; (b) issued common shares in the exercise of
During
the three months ended June 30, 2021, the Company (a) issued shares of common stock for services valued at $
During
the three months ended March 31, 2021, the Company (a) issued shares of common stock for $
| F-30 |
On April 12, 2018, the Company amended its Articles of Incorporation to forward split all outstanding shares of common stock such that all issued and outstanding shares of Common Stock shall be automatically combined and reclassified such that each share of Pre-Forward Split Stock shall be combined and reclassified into four shares of Common Stock. The number of shares for all periods presented has been retroactively restated to reflect the forward split.
Common Stock Warrants
The following schedule summarizes the changes in the Company’s common stock warrants:
| Weighted | Weighted | |||||||||||||||||||||||
| Warrants Outstanding | Average | Average | ||||||||||||||||||||||
| Number | Exercise | Remaining | Aggregate | Exercise | ||||||||||||||||||||
| Of | Price | Contractual | Intrinsic | Price | ||||||||||||||||||||
| Shares | Per Share | Life | Value | Per Share | ||||||||||||||||||||
| Balance at December 31, 2020 | $ | years | $ | $ | ||||||||||||||||||||
| Warrants granted | | $ | - | - | - | $ | - | |||||||||||||||||
| Warrants exercised | ( | ) | $ | - | - | - | $ | - | ||||||||||||||||
| Warrants expired/cancelled | ( | ) | $ | - | - | - | $ | - | ||||||||||||||||
| Balance at December 31, 2021 | $ | - | years | $ | $ | |||||||||||||||||||
| Warrants granted | $ | - | - | $ | - | |||||||||||||||||||
| Warrants exercised/exchanged | ( | ) | $ | - | - | $ | - | |||||||||||||||||
| Warrants expired/cancelled | ( | ) | $ | - | - | $ | - | |||||||||||||||||
| Balance at December 31, 2022 | $ | - | years | $ | $ | |||||||||||||||||||
| Exercisable at December 31, 2022 | $ | - | years | $ | $ | |||||||||||||||||||
Changes to these inputs could produce a significantly higher or lower fair value measurement. The fair value of each option/warrant is estimated using the Black-Scholes valuation model. The following assumptions were used for warrants granted during the years ended December 31, 2022 and 2021:
| Year Ended December 31, 2022 | Year Ended December 31, 2021 | |||||||
| Expected term | years | |||||||
| Expected volatility | % | - | % | |||||
| Expected dividend yield | ||||||||
| Risk-free interest rate | % | % | ||||||
| F-31 |
On May 16, 2019, the Company entered into a Share Exchange Agreement with Mann-India Technologies Private Ltd., an Indian Corporation. Pursuant to the Share Exchange Agreement, the Company acquired % of the shares of TRAQ Pvt Ltd. and assumed certain net liabilities in exchange for warrants exercisable over a -years to purchase shares of common stock of the Company valued at $. The warrants will be exercisable as follows: (i) warrants immediately upon closing; (ii) warrants exercisable one-year after the date of closing, which was extended to March 31, 2021; and (iii) warrants exercisable -years after the date of closing. The value of the transaction totaled $ and is reflected as an increase to additional paid in capital. A total of of these warrants were cancelled effective May 16, 2021 as a result of these criteria not being achieved.
On
February 16, 2021, the Company entered into several stock purchase agreements for the issuance of shares for cash in the amount
of $
On
February 17, 2021, the Company entered into a Share Exchange Agreement with Mimo Technologies Private Ltd., and Indian corporation
(“Mimo”) and its shareholders, whereby the Mimo shareholders agreed to exchange all of their respective shares in Mimo
in exchange for warrants to purchase
shares of the Company’s common stock. Of these warrants,
were earned at the date of acquisition, with the remaining
expected to be earned over the next two years from grant based on revenue goals for Mimo. The warrants have a term of and an exercise price of $
and value in the amount of $,
of which $
is reflected in additional paid in capital, with the remaining $
reflected as contingent consideration. The Company is made its final determination on the revenue targets to ascertain that the
second tranche of warrants should be vested. In addition to the issuance of the warrants, TRAQ Pvt Ltd, wrote off $
On
March 8, 2021, the Company entered into a consulting agreement to provide advisory services regarding strategic planning. The agreement
is for a term of one-year. The agreement calls for payments to be paid monthly in the amount of $ and the issuance of stock at the
commencement of the agreement for shares, and a -year warrant for
On
February 12, 2021, in connection with the Platinum Point Capital note, the Company granted warrants with a term of three years,
at an exercise price of $
On
September 17, 2021, the Company granted warrants with a term of
On
October 8, 2021, the Company granted warrants with a term of
On
October 15, 2021, the Company granted warrants with a term of
In
June 2022, there were
In
December 2022, there were
| F-32 |
Options
On November 23, 2020, the Board of Directors of the Company approved the 2020 Equity Incentive Plan.
On October 19, 2020, the Company granted stock options to board members, advisory board members, employees and consultants. The options have a -year term, and are both service based grants, as well as performance-based grants.
In the year ended December 31, 2021, an additional options vested for a total vested amount of .
In the year ended December 31, 2022, stock options were exercised into shares of the Company’s common stock, and stock options were forfeited. As of December 31, 2022, there were no outstanding options.
In the years ended December 31, 2022 and 2021, the Company recognized $ and $, respectively, in stock-based compensation.
Year Ended December 31, 2022 | Year Ended December 31, 2021 | |||||||||||||||
| Number | Weighted Average Exercise Price | Number | Weighted Average Exercise Price | |||||||||||||
| Beginning balance | $ | $ | ||||||||||||||
| Granted | ||||||||||||||||
| Exercised | ( | ) | ||||||||||||||
| Forfeited | ( | ) | ||||||||||||||
| Expired | ||||||||||||||||
| Ending balance | $ | $ | ||||||||||||||
| Intrinsic value of options | $ | $ | ||||||||||||||
| Weighted Average Remaining Contractual Life (Years) | - | - | ||||||||||||||
NOTE 14: OPERATING LEASE
The
Company has adopted ASU No. 2016-02, Leases (Topic 842), as of January 1, 2019 and will account for their lease in terms of the
right of use assets and offsetting lease liability obligations for this new lease under this pronouncement. In accordance with ASC 842
- Leases, effective January 1, 2019, the Company up until May 16, 2019 did not have any long-term lease commitments. On May 17, 2019
with the Company’s acquisition of TRAQ Pvt Ltd., recorded a lease right of use asset and a lease liability at present value of
$
The Company has chosen to implement this standard using the modified retrospective model approach with a cumulative-effect adjustment, which does not require the Company to adjust the comparative periods presented when transitioning to the new guidance on January 1, 2019. The Company has also elected to utilize the transition related practical expedients permitted by the new standard. The modified retrospective approach provides a method for recording existing leases at adoption and in comparative periods that approximates the results of a modified retrospective approach.
| F-33 |
In
February 2022, the Company entered into a new lease with a right of use asset and lease liability value of $
The
lease right of use asset of in the original amount of $
During
the year ended December 31, 2020, the Company renegotiated their leases with the landlord for TRAQ Pvt Ltd. As a result of this renegotiation,
the Company vacated one of their two leases, and as a result, impaired $
As
of December 31, 2021, the value of the unamortized lease right of use asset is $
For
the years ended December 31, 2022 and 2021 the Company recorded rent expense on this lease of $
NOTE 15: DERIVATIVE LIABILITIES
On
January 19, 2021, the Company entered into a 12% Convertible Promissory Note with GS Capital Partners, LLC (the “GS Note”)
in the amount of $
On
February 12, 2021, the Company entered into a 10% Convertible Promissory Note with Platinum Point Capital, LLC (the “Platinum Note”).
The Platinum Note has a maturity of -year.
| F-34 |
On
September 17, 2021, the Company entered into a 20% OID Senior Secured Promissory Note with Evergreen Capital Management LLC (the “Evergreen
1”) in the amount of $
On
October 8, 2021, the Company entered into a 20% OID Senior Secured Promissory Note in the amount of $
On
October 15, 2021, the Company entered into a 20% OID Senior Secured Promissory Note in the amount of $
On
July 5, 2022, the Company entered into a 11% OID Senior Secured Promissory Note with GS Capital Partners LLC (the “GS Capital”)
in the amount of $
On
October 21, 2022, the Company entered into a 20% OID Senior Secured Promissory Note with Evergreen Capital Management, LLC
(“Evergreen 4”) in the amount of $
Changes to these inputs could produce a significantly higher or lower fair value measurement. The fair value of each warrant is estimated using the Black-Scholes valuation model. The following assumptions were used in December 31, 2022 and 2021:
| Year Ended December 31, 2022 | Year Ended December 31, 2021 | |||||||
| Expected term | ||||||||
| Expected volatility | % | % | ||||||
| Expected dividend yield | ||||||||
| Risk-free interest rate | % | % | ||||||
| F-35 |
The Company’s derivative liabilities are as follows:
December 31, 2022 | December 31, 2021 | |||||||
| Fair value of the Platinum Point warrants ( | $ | $ | ||||||
| Fair value of the Evergreen 1 conversion option | ||||||||
| Fair value of the Evergreen 1 warrants ( | ||||||||
| Fair value of the Evergreen 2 conversion option | ||||||||
| Fair value of the Evergreen 2 warrants ( | ||||||||
| Fair value of the Evergreen 3 conversion option | ||||||||
| Fair value of the Evergreen 3 warrants ( | ||||||||
| Fair value of the Evergreen 4 conversion option | ||||||||
| Fair value of the GS Capital conversion option | ||||||||
| $ | $ | |||||||
On December 30, 2022, Evergreen notes 1 through 3 were converted into shares of the Company common stock and Series b Preferred Stock, resulting in the extinguishment of the derivative liability due to conversion. See Note 9.
Activity related to the derivative liabilities for the year ended December 31, 2022 is as follows:
| Beginning balance as of December 31, 2021 | $ | |||
| Issuances of warrants/conversion option – derivative liabilities | ||||
| Extinguishment of derivative liability upon conversion/repayment of convertible notes and cancellation of warrants | ( | ) | ||
| Change in fair value of warrants/conversion option - derivative liabilities | ||||
| Ending balance as of December 31, 2022 | $ |
nOTE 16: CONCENTRATIONS
During
both the years ended December 31, 2022 and 2021, the Company had two major customers comprising
The Company does not believe that the risk associated with these customers or vendors will have an adverse effect on the business.
nOTE 17: CONTINGENCY
During
the year ended December 31, 2018, the Company charged an independent truck driver approximately $
nOTE 18: COMMITMENTS AND CONTINGENCIES
Commitments and contingencies in respect of TRAQ Pvt Ltd;
| (i) | TRAQ Pvt Ltd had applied for compounding of the TDS liability for the assessment year 2014-2015 and 2015-2016 in accordance with Indian Income Tax Laws. However, no amount payable for tax and penalty was confirmed by the Income Tax Department. |
| (ii) | TRAQ
Pvt Ltd has outstanding Gratuity for $ |
| (iii) | TRAQ Pvt Ltd has delayed in complying with provisions related to Foreign Direct Investment and Transfer of Shares to Non-resident as per the Master Circulars and notification issued by Reserve Bank of India, therefore, is liable for imposition of penalty. Since the amount of the penalty for the same is not ascertainable, no effect was given in the Consolidated Financial Statements. |
| (iv) | Prior
to its acquisition in May 2019, TRAQ Pvt Ltd, had provided a guarantee in favor of State Bank of India for $ |
| (v) | TRAQ
Pvt Ltd has a contingent liability of $ |
| The
Traq Pvt Ltd has defaulted in making the payment towards statutory liability with respect to the Provident fund and TDS, The total
outstanding amount as on December 31, 2022 is Approximately $ |
Commitments and contingencies in respect of Mimo Technologies Pvt Ltd;
| (i) | During
the year, Mimo Technologies Pvt. Ltd. has received funds from TraQiQ Inc, a US company amounting to approximately $ |
| (ii) | Mimo Technologies Pvt Ltd has delayed in complying with provisions related to Foreign Direct Investment and Transfer of Shares to Non-resident as per the Master Circulars and notification issued by Reserve Bank of India, and therefore, is liable for imposition of penalty. Since the amount of the penalty is not ascertainable, no effect was given in the Consolidated Financial Statements. |
| (iii) | The
Mimo Technologies Pvt Ltd has defaulted in making the payment towards statutory liability with respect to the Provident
fund and TDS , The total outstanding amount as of December 31, 2022 was approximately $ |
NOTE 19: PROVISION FOR INCOME TAXES
The provision (benefit) for income taxes for the years ended December 31, 2022 and 2021 differs from the amount which would be expected as a result of applying the statutory tax rates to the losses before income taxes due primarily to the valuation allowance to fully reserve net deferred tax assets.
| F-36 |
All United States based entities:
The following table summarizes the significant differences between the U.S. Federal statutory tax rate and the Company’s effective tax rate for financial statement purposes for the years ended December 31, 2022 and 2021:
| 2022 | 2021 | |||||||
| Federal income taxes at statutory rate | % | % | ||||||
| State income taxes at statutory rate | ( | )% | % | |||||
| Temporary differences | ( | )% | % | |||||
| Permanent differences | ( | )% | ( | )% | ||||
| Change in valuation allowance | ( | )% | ( | )% | ||||
| Totals | % | % | ||||||
Realization of deferred tax assets is dependent upon sufficient future taxable income during the period that deductible temporary differences and carry-forwards are expected to be available to reduce taxable income. As the achievement of required future taxable income is uncertain, the Company recorded a valuation allowance.
| As of | As of | |||||||
| December
31, 2022 | December
31, 2021 | |||||||
| Deferred tax assets: | ||||||||
| Net operating losses before non-deductible items | $ | $ | ||||||
| Stock-based compensation | ||||||||
| Other | ||||||||
| Depreciation | ( | ) | ||||||
| Total deferred tax assets | ||||||||
| Less: Valuation allowance | ( | ) | ( | ) | ||||
| Net deferred tax assets | $ | $ | ||||||
As
of December 31, 2022, the Company has a net operating loss carry forward of $
The Company classifies income tax penalties and interest, if any, as part of other general and administrative expenses in the accompanying consolidated statements of operations and comprehensive loss. The Company did not expense any penalties or interest during the years ended December 31, 2022 or 2021 and did not accrue any penalties or interest as of December 31, 2022 or 2021.
| F-37 |
India based entity:
Significant components of deferred tax liabilities as of December 31, 2022 and 2021:
| As
of December 31, 2022 | As
of December 31, 2021 | |||||||
| Deferred Tax Assets: | ||||||||
| Difference between book and tax base of fixed assets | $ | $ | ||||||
| Provision for gratuity | ||||||||
| Provision for leave encashment | ||||||||
| Operating lease | ||||||||
| NOL carryforward (based on last tax return filed per Indian Income Tax laws) | ||||||||
| Timing difference on TDS under 40a(ia) | ||||||||
| MAT credit | ||||||||
| Deferred Tax Assets | ||||||||
| Net Deferred Tax Assets | - | |||||||
| Less: Valuation allowance | - | ( | ) | |||||
| Net Deferred Tax Asset | $ | - | $ | |||||
Deferred tax assets and liabilities are recognized for future tax consequences attributable to temporary differences between the financial statement carrying values of assets and liabilities and their respective tax bases.
On December 30, 2022, the Company entered into an assignment of stock agreement for all of the India based entities. Accordingly, the deferred tax assets were included in the transfer and no longer included in the consolidated financial statements.
nOTE 20: SUBSEQUENT EVENTS
Acquisition of Assets
On
January 5, 2023, TraQiQ, Inc., a California corporation (the “Company”), consummated the transactions contemplated by
the Asset Purchase Agreement dated as of December 30, 2022 (the “Purchase Agreement”) among Renovare Environmental, Inc.
(“REI”) and BioHiTech America, LLC (“BHT” and, together with REI, the “ Renovare Sellers” or
“Sellers”) and the Company, pursuant to which the Sellers sold and assigned to the Company, and
In
exchange for the assets of the Digester Business, the Company (a) paid the Renovare Sellers an amount equal to $
Additional agreements ancillary to the asset acquisition were also executed, including but not limited to a bill of sale, assignment and assumption agreement, an escrow agreement and a domain name assignment agreement.
The Renovare Sellers also agreed that, for a period of five years from closing date, the Sellers would not engage in a business that competes with the Digester Business.
OID Promissory Notes
To
facilitate the Company’s payment of the Cash Consideration, on January 4, 2023, the Company borrowed the full amount of the Cash
Consideration from an accredited investor in exchange for a 20% OID Senior Secured Promissory Note dated January 4, 2023 in the original
principal amount of $
On
January 5, 2023, the Company entered into a 11% OID Senior Secured Promissory Note with Evergreen in the amount of $
Assumption Agreement
In connection with the Company’s assumption of the Michaelson Debt, pursuant to the Purchase Agreement, Michaelson, the Company, the Renovare Sellers, BHT Financial, LLC (“BHTF”), BioHiTech Europe, PLC (“BHTE”), E.N.A. Renewables (“ENA”) and New Windsor Resource Recovery (together with the Sellers, BHTF, BHTE and ENA, the “Renovare Companies”) entered into an Assumption Agreement (the “Assumption Agreement”), pursuant to which the Company assumed all of the obligations and liabilities with respect to the Michaelson Debt.
Secured Term Note
In
connection with the transactions contemplated by the Purchase Agreement and the Assumption Agreement, on January 5, 2023, the Company
issued to Michaelson an Amended and Restated Senior Secured Term Note (the “Michaelson Note”) in the principal amount equal
to the Michaelson Debt. The Michaelson Note is payable in five principal installments, with the first four installments each in the principal
amount of $
Security Agreement
In connection with the transactions contemplated by the Purchase Agreement, the Assumption Agreement and the Michaelson Note, the Company entered into a Security Agreement with Michaelson, pursuant to which the Company granted to Michaelson a security interest and lien upon all of the Company’s personal property, tangible or intangible, and whether then owned or thereafter acquired, or in which the Company has or at any time obtains any right, title or interest, in each case to collateralize the Company’s obligations under the Michaelson Note and the Assumption Agreement.
| F-38 |