TESI 8-K/A
Titan Environmental Solutions Inc. (TESI)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(AMENDMENT NO. 2)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of registrant under any of the following provisions:
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Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| N/A | N/A | N/A |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
EXPLAINATORY NOTE
Item 9.01 Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired
The financial statements for Standard required by Item 9.01(a) of Form 8-K are attached as Exhibit 99.1 and Exhibit 99.2 to this Amendment No. 2 and incorporated herein by reference.
(b) Pro Forma Financial Information
The unaudited pro forma condensed combined financial information for the Company required by Item 9.01(b) of Form 8-K is attached as Exhibit 99.3 to this Amendment No. 2 to the Original Form 8-K and incorporated herein by reference.
(c) Not applicable.
(d) Exhibits. The exhibits listed in the exhibit index below are being filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Date: August 16, 2024 | TITAN ENVIRONMENTAL SOLUTIONS INC. | |
| By: | /s/ Glen Miller | |
| Glen Miller | ||
| Chief Executive Officer | ||
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the use in this Current Report on Amendment No. 2 to Form 8-K/A of Titan Environmental Solutions Inc. of our report for Standard Waste Services, LLC dated April 8, 2024, relating to the financial statements of Standard Waste Services, LLC as of and for the years ended December 31, 2023 and 2022, appearing in this Current Report on Form 8-K/A.
/s/ Freed Maxick CPAs, P.C.
Buffalo, New York
August 16, 2024
Exhibit 99.1
Audited Financial Statements
Standard Waste Services, LLC
(A Limited Liability Company)
December 31, 2023 and 2022
C O N T E N T S
| Page | ||
| Report of Independent Registered Public Accounting Firm | 1 | |
| Financial Statements | ||
| Balance Sheets | 2 | |
| Statements of Income and Changes in Members’ Equity | 3 | |
| Statements of Cash Flows | 4 | |
| Notes to financial statements | 5 - 16 |
Report of Independent Registered Public Accounting Firm
To the Members of Standard Waste Services, LLC (A Limited Liability Company):
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Standard Waste Services, LLC (A Limited Liability Company) (the Company) as of December 31, 2023 and 2022, the related statements of income, changes in members’ equity, and cash flows for the years then ended, and the related notes to the financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022 and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Emphasis of Matter - Leases
As discussed in Note 1 to the financial statements, as of January 1, 2022, the Company adopted the new accounting guidance ASC Topic 842, Leases. Our opinion is not modified with respect to this matter.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits 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 audits 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 audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provides a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters 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, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. We did not identify any critical audit matters during the current period audit.
/s/ Freed Maxick CPAs, P.C.
We have served as the Company’s auditor since 2023.
Buffalo, New York
April 8, 2024
| - 1 - |
(A Limited Liability Company)
BALANCE SHEETS
| December 31, | ||||||||
| 2023 | 2022 | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash and equivalents | $ | 52,045 | $ | 137,389 | ||||
| Accounts receivable | 1,236,867 | 1,001,761 | ||||||
| Employee loans | 3,300 | - | ||||||
| Deposits on asset purchases | - | 22,000 | ||||||
| Total current assets | 1,292,212 | 1,161,150 | ||||||
| Property and Equipment, Net | 5,534,186 | 5,310,144 | ||||||
| Other Assets | ||||||||
| Security deposits | 12,900 | 12,900 | ||||||
| Goodwill | 412,800 | 412,800 | ||||||
| Operating lease right-of-use asset, net | 336,191 | 415,725 | ||||||
| Total other assets | 761,891 | 841,425 | ||||||
| Total assets | $ | 7,588,289 | $ | 7,312,719 | ||||
| LIABILITIES AND MEMBERS’ EQUITY | ||||||||
| Current Liabilities | ||||||||
| Accounts payable | $ | 890,185 | $ | 721,904 | ||||
| Accrued expenses | 39,031 | 33,440 | ||||||
| Current portion of operating lease liability | 90,992 | 86,134 | ||||||
| Current portion of finance lease liability | 27,802 | 24,654 | ||||||
| Current portion of notes payable | 982,060 | 919,337 | ||||||
| Total current liabilities | 2,030,070 | 1,785,469 | ||||||
| Noncurrent Liabilities | ||||||||
| Operating lease liability, net of current portion | 259,533 | 350,525 | ||||||
| Finance lease liability, net of current portion | 82,744 | 110,546 | ||||||
| Notes payable | 2,720,523 | 2,818,649 | ||||||
| Total noncurrent liabilities | 3,062,800 | 3,279,720 | ||||||
| Total liabilities | 5,092,870 | 5,065,189 | ||||||
| Members’ Equity | 2,495,419 | 2,247,530 | ||||||
| Total liabilities and members’ equity | $ | 7,588,289 | $ | 7,312,719 | ||||
See accompanying notes to financial statements
| - 2 - |
(A Limited Liability Company)
STATEMENTS OF INCOME AND CHANGES IN MEMBERS’ EQUITY
| For The Year Ended | ||||||||
| December 31, | ||||||||
| 2023 | 2022 | |||||||
| Revenues | $ | 9,643,074 | $ | 8,454,605 | ||||
| Cost of Revenues | 6,552,612 | 5,892,910 | ||||||
| Gross Profit | 3,090,462 | 2,561,695 | ||||||
| General and Administrative Expenses | 2,093,841 | 1,743,711 | ||||||
| Income From Operations | 996,621 | 817,984 | ||||||
| Other Income (Expense) | ||||||||
| Interest income | 28 | 83 | ||||||
| Gain on sale of property and equipment | - | 83,144 | ||||||
| Interest expense | (266,632 | ) | (254,529 | ) | ||||
| Net Other Expense | (266,604 | ) | (171,302 | ) | ||||
| Income Before Income Taxes | 730,017 | 646,682 | ||||||
| State Income Taxes | - | 500 | ||||||
| Net Income | 730,017 | 646,182 | ||||||
| Members’ Equity - Beginning | 2,247,530 | 1,859,032 | ||||||
| Member distributions | (482,128 | ) | (257,684 | ) | ||||
| Members’ Equity - Ending | $ | 2,495,419 | $ | 2,247,530 | ||||
See accompanying notes to financial statements
| - 3 - |
(A Limited Liability Company)
STATEMENTS OF CASH FLOWS
| For The Year Ended | ||||||||
| December 31, | ||||||||
| 2023 | 2022 | |||||||
| Cash Flows From Operating Activities | ||||||||
| Net income | $ | 730,017 | $ | 646,182 | ||||
| Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities: | ||||||||
| Depreciation | 766,706 | 648,787 | ||||||
| Gain on sale of property and equipment | - | (83,144 | ) | |||||
| (Increase) decrease in operating assets: | ||||||||
| Accounts receivable | (235,106 | ) | (115,245 | ) | ||||
| Employee loans | (3,300 | ) | 500 | |||||
| Deposits on asset purchases | 22,000 | (22,000 | ) | |||||
| Security deposits | - | (12,900 | ) | |||||
| Operating lease right-of-use asset | 79,534 | 35,723 | ||||||
| Increase (decrease) in operating liabilities: | ||||||||
| Accounts payable | 168,281 | 272,469 | ||||||
| Accrued expenses | 5,591 | 4,375 | ||||||
| Operating lease liability | (86,134 | ) | (14,789 | ) | ||||
| Net Cash Provided by Operating Activities | 1,447,589 | 1,359,958 | ||||||
| Cash Flows From Investing Activities | ||||||||
| Purchases of property and equipment | (67,699 | ) | (297,416 | ) | ||||
| Proceeds from the sale of property and equipment | - | 150,000 | ||||||
| Net Cash Used in Investing Activities | (67,699 | ) | (147,416 | ) | ||||
| Cash Flows From Financing Activities | ||||||||
| Principal payments on finance lease liability | (24,654 | ) | (18,575 | ) | ||||
| Principal payments on notes payable | (958,452 | ) | (818,967 | ) | ||||
| Member distributions | (482,128 | ) | (257,684 | ) | ||||
| Net Cash Used in Financing Activities | (1,465,234 | ) | (1,095,226 | ) | ||||
| Net (Decrease) Increase in Cash and Cash Equivalents | (85,344 | ) | 117,316 | |||||
| Cash and Cash Equivalents - Beginning | 137,389 | 20,073 | ||||||
| Cash and Cash Equivalents - Ending | $ | 52,045 | $ | 137,389 | ||||
| Supplementary Cash Flow Information: | ||||||||
| Cash paid for interest | $ | 266,632 | $ | 254,529 | ||||
| Cash paid for state income taxes | $ | - | $ | 500 | ||||
| Establishment of right of use asset | $ | - | $ | 451,448 | ||||
| Establishment of lease liability | $ | - | $ | 451,448 | ||||
| Non-cash financing of property and equipment acquisitions | $ | 923,049 | $ | 1,704,496 | ||||
See accompanying notes to financial statements
| - 4 - |
(A Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Standard Waste Services, LLC (a Michigan Limited Liability Company) is presented to assist in understanding the Company’s financial statements. The financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. The accounting policies conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the financial statements.
Nature of Operations
Standard Waste Services, LLC (the “Company”) is located in Detroit, Michigan. The Company provides waste management services primarily to commercial and industrial customers. The Company’s customers are primarily located in Southeast Michigan.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the use of estimates that affect certain reported amounts and disclosures. These estimates are based on management’s knowledge and experience. Accordingly, actual results could differ from these estimates.
Cash and Cash Equivalents
Cash and cash equivalents are defined as cash on hand and demand deposits in banks plus short-term investments that are readily convertible to cash as well as investments with original maturities of three months or less.
Account Receivable
Accounts receivable are recorded when billed or accrued and represent claims against third parties that will be settled in cash. The carrying value of the Company’s receivables, net of allowance for credit losses, represents their estimated net realizable value.
The allowance for credit losses is based on management’s assessment of collectability of assets pooled together with similar risk characteristics. The Company estimates its allowance for credit losses based on historical collection trends, the age of outstanding receivables, geographical location of the customer, existing economic conditions and reasonable forecasts. If events or changes in circumstances indicate that specific receivable balances may be impaired, further consideration is given to the collectability of those balances and the allowance is adjusted accordingly. Past-due receivable balances are written off when the Company’s internal collection efforts have been unsuccessful in collecting the amount due. For the years ended December 31, 2023 and 2022, the Company had no allowance for credit losses established as management’s assessment of collectability of its accounts receivables did not identify any receivables as uncollectable.
The carrying value of accounts receivable for the years ended December 31, 2023, 2022, and 2021 were $1,236,867, $1,001,761, and $886,516, respectively.
| - 5 - |
STANDARD WASTE SERVICES, LLC
(A Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS - Continued
FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued
Property and Equipment
Property and equipment are carried at cost. Maintenance, repairs and renewals which neither materially add to the value of the property nor appreciably prolong its life are charged to expense as incurred. Depreciation of equipment is provided on the straight-line method at the following rates:
| Software | 3 years | |
| Computer and office equipment | 10 years | |
| Furniture and fixtures | 10 years | |
| Trucks and tractors | 7 years | |
| Equipment | 7 - 15 years | |
| Leasehold improvements | 15 years |
Management regularly reviews property and equipment for possible impairment. The review occurs annually or more frequently if events or changes in circumstances indicate the carrying amount of the asset may not be recoverable. Based on management’s assessment, there were no indicators of impairment of the Company’s property and equipment as of December 31, 2023 and 2022.
Goodwill
Goodwill is carried at the amount paid for a company’s assets in excess of the sum of their fair values. The Company periodically tests these assets for impairment on an annual basis or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of the assets below their carrying amounts.
The Company may elect to perform a qualitative assessment that considers economic, industry, and Company-specific factors for all or selected assets of which goodwill has been assigned at purchase. If, after completing the assessment, it is determined that it is more likely than not that the fair value of the assessed asset(s) is less than its carrying value, the Company proceeds to a quantitative test. The Company may also elect to perform a quantitative test for any or all of its assets with goodwill assigned at purchase.
Quantitative testing requires a comparison of the fair value of each asset with assigned goodwill to its carrying value. The Company uses the discounted cash flow method to estimate the fair value of the asset(s) with assigned goodwill. The discounted cash flow method incorporates various assumptions, the most significant being projected sales growth rates, operating margins and cash flows, the terminal growth rate, and the weighted average cost of capital. If the carrying value of the assets(s) with assigned goodwill exceeds its fair value, the shortfall up to the carrying value of the goodwill represents the amount of goodwill impairment.
During the years ended December 31, 2023 and 2022, the Company did not record any impairment and there were no changes in the carrying value of goodwill, respectively.
| - 6 - |
STANDARD WASTE SERVICES, LLC
(A Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS - Continued
FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued
Right of Use Assets and Lease Liabilities
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes existing guidance for accounting for leases under Topic 840, Leases. The FASB also subsequently issued several ASUs, which amend and clarify Topic 842. The most significant change in the new leasing guidance is the requirement to recognize right-of-use (ROU) assets and lease liabilities for operating leases on the balance sheet. Similar to the previous lease guidance, the update retains a distinction between finance leases (similar to capital leases in Topic 840, Leases) and operating leases, with classification affecting pattern of expense recognition in the income statement. The Company adopted this ASU effective January 1, 2022 and utilized all of the available practical expedients.
The determination of whether an arrangement is a lease is made at the lease’s inception. Under ASC 842, a contract is (or contains) a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Control is defined under the standard as having both the right to obtain substantially all of the economic benefits from use of the asset and the right to direct the use of the asset. Management only reassesses its determination if the terms and conditions of the contract are changed.
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. Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. The Company uses the implicit rate when it is readily determinable. Since the Company’s leases do not provide an implicit rate, to determine the present value of lease payments, management uses the Company’s incremental borrowing rate based on the information available at lease commencement. Operating lease ROU assets also include any lease payments made and excludes any lease incentives. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise the option.
The Company has elected to apply the short-term lease exception to all leases with a term of one year or less. Several of the Company’s leases as of December 31, 2023 and 2022 are for periods of less than 12 months, or on a month-to-month basis; therefore, lease assets and liabilities described above are not recorded on the balance sheet.
The Company has made an accounting policy election to account for lease and non-lease components in its contracts as a single lease component for its operating and finance leases.
Revenue and Cost Recognition
The Company recognizes revenue when performance obligations are satisfied in accordance with ASC 606, Revenue from Contracts with Customers. The Company’s performance obligations are satisfied at the point in time once waste is disposed of at a landfill or transfer station. The Company then invoices its customers based upon pre-negotiated rates and billed to the customer once the performance obligations have been met. Invoices for services are normally due upon receipt. There are no significant financing agreements customers in relation to revenues generated and collected.
| - 7 - |
STANDARD WASTE SERVICES, LLC
(A Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS - Continued
FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued
Revenue and Cost Recognition – Continued
The Company’s single-day contracts are invoiced by the Company at the time of the order and payment is required prior to delivery of the equipment used for hauling the waste. Based on the type of waste the customer needs disposed or hauled from the location, contract prices are negotiated in advance. If the customer requires more time than the agreed-upon contract stipulates, the Company invoices the customer on a daily basis until the customer no longer requires waste hauling by the Company.
The Company also provides waste hauling services to commercial customers which normally includes hauling away the waste and leaving equipment at the location for further use and future hauling and disposal. Invoices for these contracts are billed upon pickup and disposal of the waste at a landfill or transfer station. Invoice normally include disposal fees based on weight, type of waste to be disposed of, and fuel surcharges.
Cost of revenues earned includes direct contract costs, such as disposal fees, driver wages and related employer taxes, truck and equipment depreciation and maintenance expenses, and other costs such as customer property damages due to driver error.
Income Taxes
The Company is not a taxpaying entity for federal income tax purposes, and thus no federal income tax expense has been recorded in these financial statements. Income from the Company is taxed to the Members in their respective tax returns. The Company accounts for tax positions in accordance with the Recognition and Initial Measurement Sections of the Income Taxes Topic of Financial Accounting Standards Board (FASB) Accounting Standards Codification.
With few exceptions, the Company is subject to U.S. federal and state income tax examinations by tax authorities for the prior three years. Management has reviewed the LLC’s tax positions and determined there were no uncertain tax positions as of December 31, 2023 and 2022.
Advertising
Advertising costs are expensed as they are incurred. Advertising costs included in general and administrative expenses for the years ended December 31, 2023 and 2022 were $6,129 and $9,188, respectively.
Recently Adopted Accounting Standards
In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments.” This amendment replaces the incurred methodology in current generally accepted accounting principles with a methodology that reflects expected credit losses on instruments within its scope, including trade receivables.
| - 8 - |
STANDARD WASTE SERVICES, LLC
(A Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS - Continued
FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued
Recently Adopted Accounting Standards – Continued
This update is intended to provide financial statement users with more decision useful information about the expected credit losses. The Company adopted the standard effective January 1, 2023. The impact of the adoption was not considered material to the financial statements and primarily resulted in new and enhanced disclosures only.
On January 1, 2022, the Company adopted new guidance under Accounting Standards Codification (ASC) Topic 842, Leases. Under the new guidance, the Company recognizes right of use assets and lease liabilities for leases with terms greater than 12 months. Leases are now classified as either financial or operating leases, which dictates whether the expense is recognized based on effective interest method or on a straight-line basis over the term of the lease. The Company adopted Topic 842 using the modified retrospective method. Accordingly, the new guidance was applied retrospectively to leases that existed as of January 1, 2022 (the date of initial application). The adoption did not have a significant impact on the Company’s equity, results of operations or cash flows.
The Company elected the following practical expedients and accounting policy elections:
| 1. | Expired or existing contracts were not assessed to determine whether they are or contain leases upon adoption. |
| 2. | Previous classification of existing leases (operating or finance) was retained as of the date of adoption. |
| 3. | Initial direct costs were not reassessed upon adoption. |
| 4. | Hindsight is used in determining the lease term and in evaluating impairment of right of use assets. |
NOTE 2 – CONCENTRATION OF CREDIT RISK
The Company maintains cash and cash equivalents balances at a financial institution located in Michigan. Accounts at this institution were insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000. The Company’s cash balances at December 31, 2023 and 2022 were fully insured.
| - 9 - |
STANDARD WASTE SERVICES, LLC
(A Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS - Continued
FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022
NOTE 3 – PROPERTY AND EQUIPMENT
Property and equipment at December 31, 2023 and 2022 consisted of the following:
| 2023 | 2022 | |||||||
| Software | $ | 3,743 | $ | 3,743 | ||||
| Computer and office equipment | 23,142 | 23,142 | ||||||
| Furniture and fixtures | 9,257 | 9,257 | ||||||
| Trucks and tractors | 4,131,319 | 3,598,702 | ||||||
| Equipment | 3,685,749 | 3,230,617 | ||||||
| Leasehold improvements | 126,555 | 123,555 | ||||||
| Total undepreciated cost | 7,979,765 | 6,989,016 | ||||||
| Less: Accumulated depreciation | 2,445,579 | 1,678,872 | ||||||
| Property and equipment, net | $ | 5,534,186 | $ | 5,310,144 | ||||
Depreciation expense included in cost of revenues related to trucks and tractors and equipment for the years ended December 31, 2023 and 2022 amounted to $755,770 and $645,587, respectively. Depreciation expense included in general and administrative expenses for the years ended December 31, 2023 and 2022 amounted to $10,936 and $3,200, respectively.
NOTE 4 – LEASES
During March 2022, the Company entered into a lease agreement for its Detroit operations which commenced in August 2022 through July 2027. There is an exclusive right to purchase the premises through the original term of the lease at a fair value to be mutually agreed upon. The Company is not reasonably certain it will exercise the option and therefore, the lease is classified as an operating lease. Monthly payments required under this lease are approximately $9,000. The Company discounted the lease liability utilizing the incremental borrowing rate at lease commencement which was 5.50%. Total lease expense under this lease for the years ended December 31, 2023 and 2022 was $104,000 and $43,333, respectively. The remaining term under this lease at December 31, 2023 is 3.6 years.
Also, the Company leases a truck used for is operations under a five-year lease which commenced during May 2022 ending during May 2027, classified as a finance lease. The lease calls for monthly payments of $3,304 bearing interest at 12.08% per annum. The lease includes a purchase option upon maturity of which the Company intends to exercise. The remaining term under this lease at December 31, 2023 is 3.3 years .
The Company also leases land for equipment storage on a month-to-month basis. These monthly leases are expensed to lease expense as incurred.
| - 10 - |
STANDARD WASTE SERVICES, LLC
(A Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS - Continued
FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022
NOTE 4 – LEASES – Continued
The following table summarizes right of use assets at December 31, 2023 and 2022:
| 2023 | 2022 | Location Recorded on Balance Sheet | ||||||||
| Assets | ||||||||||
| Operating lease | $ | 336,191 | $ | 415,725 | Right-of-use asset | |||||
| Finance lease | 117,162 | 139,130 | Property and equipment, net | |||||||
| Total leased assets | $ | 453,353 | $ | 554,855 | ||||||
The following table summarizes the maturities of the Company’s lease liabilities presented on the balance sheets as of December 31, 2023:
| Year | Operating Lease | Finance Lease | ||||||
| 2024 | $ | 108,000 | $ | 39,650 | ||||
| 2025 | 108,000 | 39,650 | ||||||
| 2026 | 108,000 | 39,650 | ||||||
| 2027 | 63,000 | 16,521 | ||||||
| Total lease payments | 387,000 | 135,471 | ||||||
| Less interest | 36,475 | 24,925 | ||||||
| Total lease obligations | 350,525 | 110,546 | ||||||
| Less current portion | 90,992 | 27,802 | ||||||
| Long-term lease liabilities | $ | 259,533 | $ | 82,744 | ||||
The following summarizes the composition of net lease cost during the years ended December 31, 2023 and 2022:
| 2023 | 2022 | |||||||
| Short-term lease costs | $ | 28,431 | $ | 141,163 | ||||
| Operating lease costs | 104,000 | 43,333 | ||||||
| Finance lease costs | ||||||||
| Amortization of right-to-use asset | 21,968 | 9,077 | ||||||
| Interest on lease liabilities | 14,997 | 10,040 | ||||||
| Total lease costs | $ | 169,396 | $ | 203,613 | ||||
| - 11 - |
STANDARD WASTE SERVICES, LLC
(A Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS - Continued
FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022
NOTE 5 – NOTES PAYABLE
Notes payable at December 31, 2023 and 2022 can be summarized as follows:
| Years Ended | ||||||||
| December 31, | ||||||||
| 2023 | 2022 | |||||||
| Note payable to third-party individual, secured by underlying assets, due in equal monthly payments of $6,500, beginning November 2017 and due December 2027 in full, plus interest of 5.00% per annum. | $ | 525,381 | $ | 579,822 | ||||
| Note payable to bank, secured by underlying asset, beginning August 2018, due in equal monthly payments of $3,094 plus interest of 10.19% per annum. Paid in full during 2023. | - | 32,366 | ||||||
| Note payable to bank, secured by underlying asset, due in equal monthly payments of $2,576, beginning January 2019 and due December 2023 in full, plus interest of 12.07% per annum. | 7,574 | 35,692 | ||||||
| Note payable to bank, secured by underlying assets, due in equal monthly payments of $2,315, beginning March 2019 and due March 2024 in full, plus interest of 11.27% per annum. | 15,616 | 40,121 | ||||||
| Note payable to bank, secured by underlying assets, due in equal monthly payments of $2,663, beginning May 2019 and due March 2024 in full, plus interest of 11.89% per annum. | 15,437 | 43,700 | ||||||
| Note payable to bank, secured by underlying assets, due in equal monthly payments of $1,503, beginning May 2019 and due April 2024 in full, plus interest of 10.59% per annum. | 14,324 | 29,591 | ||||||
| Note payable to bank, secured by underlying asset, due in equal monthly payments of $3,510, beginning June 2019 and due May 2024 in full, plus interest of 11.08% per annum. | 30,176 | 66,719 | ||||||
| Note payable to bank, secured by underlying asset, due in equal monthly payments of $2,639, beginning August 2019 and due July 2024 in full, plus interest of 12.56% per annum. | 17,727 | 45,264 | ||||||
| Note payable to bank, secured by underlying asset, due in equal monthly payments of $3,384, beginning February 2020 and due February 2025 in full, plus interest of 7.61% per annum. | 45,204 | 80,891 | ||||||
| Note payable to bank, secured by underlying assets, due in equal monthly payments of $1,619, beginning March 2020 and due March 2024 in full, plus interest of 8.73% per annum. | 11,013 | 28,638 | ||||||
| Subtotal | $ | 682,452 | $ | 982,804 | ||||
| - 12 - |
STANDARD WASTE SERVICES, LLC
(A Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS - Continued
FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022
NOTE 5 – NOTES PAYABLE – Continued
| 2023 | 2022 | |||||||
| Subtotal from previous page | $ | 682,452 | $ | 982,804 | ||||
| Note payable to bank, secured by underlying assets, due in equal monthly payments of $1,902, beginning June 2020 and due June 2026 in full, plus interest of 5.50% per annum. | 53,195 | 72,512 | ||||||
| Note payable to bank, secured by underlying asset, due in equal monthly payments of $2,016, beginning July 2020 and due July 2025 in full, plus interest of 12.51% per annum. | 34,584 | 53,165 | ||||||
| Note payable to bank, secured by underlying asset, due in equal monthly payments of $2,239, beginning July 2020 and due July 2025 in full, plus interest of 12.41% per annum. | 38,451 | 59,136 | ||||||
| Note payable to bank, secured by underlying assets, due in equal monthly payments of $979, beginning August 2020 and due August 2026 in full, plus interest of 5.50% per annum. | 29,069 | 38,919 | ||||||
| Note payable to bank, secured by underlying assets, due in equal monthly payments of $2,079, beginning November 2020 and due October 2025 in full, plus interest of 9.40% per annum. | 40,113 | 60,250 | ||||||
| Note payable to bank, secured by underlying assets, due in equal monthly payments of $1,940, beginning November 2020 and due October 2025 in full, plus interest of 9.42% per annum. | 31,407 | 46,393 | ||||||
| Note payable to bank, secured by underlying asset, due in equal monthly payments of $2,829, beginning December 2020 and due December 2025 in full, plus interest of 6.25% per annum. | 63,666 | 92,643 | ||||||
| Note payable to bank, secured by underlying assets, due in equal monthly payments of $3,162, beginning December 2020 and due September 2025 in full, plus interest of 8.88% per annum. | 49,428 | 74,422 | ||||||
| Note payable to bank, secured by underlying assets, due in equal monthly payments of $2,033, beginning March 2021 and due March 2026 in full, plus interest of 5.99% per annum. | 51,222 | 71,868 | ||||||
| Note payable to bank, secured by underlying asset, due in equal monthly payments of $2,855, beginning May 2021 and due May 2026 in full, plus interest of 6.95% per annum. | 75,603 | 103,541 | ||||||
| Subtotal | $ | 1,149,190 | $ | 1,655,653 | ||||
| - 13 - |
STANDARD WASTE SERVICES, LLC
(A Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS - Continued
FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022
NOTE 5 – NOTES PAYABLE – Continued
| 2023 | 2022 | |||||||
| Subtotal from previous page | $ | 1,149,190 | $ | 1,655,653 | ||||
| Note payable to bank, secured by underlying asset, due in equal monthly payments of $2,967, beginning August 2021 and due August 2028 in full, plus interest of 6.10% per annum. | 144,271 | 170,208 | ||||||
| Note payable to bank, secured by underlying asset, due in equal monthly payments of $2,275, beginning August 2021 and due August 2026 in full, plus interest of 6.92% per annum. | 66,289 | 88,167 | ||||||
| Note payable to bank, secured by underlying asset, due in equal monthly payments of $3,176, beginning September 2021 and due September 2026 in full, plus interest of 6.72% per annum. | 95,440 | 126,010 | ||||||
| Note payable to bank, secured by underlying asset, due in equal monthly payments of $3,225, beginning November 2021 and due November 2026 in full, plus interest of 6.73% per annum. | 102,226 | 132,915 | ||||||
| Note payable to bank, secured by underlying assets, due in equal monthly payments of $3,586, beginning December 2021 and due December 2026 in full, plus interest of 5.99% per annum. | 117,906 | 152,740 | ||||||
| Note payable to bank, secured by underlying asset, due in equal monthly payments of $3,134, beginning February 2022 and due February 2026 in full, plus interest of 7.50% per annum. | 74,982 | 105,700 | ||||||
| Note payable to bank, secured by underlying asset, due in equal monthly payments of $3,000, beginning March 2022 and due February 2029 in full, plus interest of 4.99% per annum. | 165,428 | 192,213 | ||||||
| Note payable to bank, secured by underlying asset, due in equal monthly payments of $3,063, beginning April 2022 and due April 2029 in full, plus interest of 5.64% per annum. | 171,205 | 197,493 | ||||||
| Note payable to bank, secured by underlying asset, due in equal monthly payments of $3,381, beginning July 2022 and due July 2029 in full, plus interest of 6.29% per annum. | 190,626 | 218,261 | ||||||
| Note payable to bank, secured by underlying asset, due in equal monthly payments of $3,427, beginning July 2022 and due July 2026 in full, plus interest of 7.90% per annum. | 95,816 | 127,979 | ||||||
| Subtotal | $ | 2,373,379 | $ | 3,167,339 | ||||
| - 14 - |
STANDARD WASTE SERVICES, LLC
(A Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS - Continued
FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022
NOTE 5 – NOTES PAYABLE – Continued
| 2023 | 2022 | |||||||
| Subtotal from previous page | $ | 2,373,379 | $ | 3,167,339 | ||||
| Note payable to bank, secured by underlying assets, due in equal monthly payments of $3,674, beginning July 2022 and due August 2027 in full, plus interest of 4.91% per annum. | 141,455 | 180,477 | ||||||
| Note payable to bank, secured by underlying assets, due in equal monthly payments of $3,674, beginning July 2022 and due August 2027 in full, plus interest of 4.91% per annum. | 141,455 | 180,477 | ||||||
| Note payable to bank, secured by underlying asset, due in equal monthly payments of $3,071, beginning July 2022 and due August 2027 in full, plus interest of 9.26% per annum. | 114,199 | 139,200 | ||||||
| Note payable to bank, secured by underlying assets, due in equal monthly payments of $1,446, beginning November 2022 and due November 2027 in full, plus interest of 8.50% per annum. | 58,676 | 70,493 | ||||||
| Note payable to bank, secured by underlying assets, due in equal monthly payments of $1,850, beginning March 2023 and due January 2029 in full, plus interest of 6.76% per annum. | 96,587 | - | ||||||
| Note payable to bank, secured by underlying assets, due in equal monthly payments of $5,590, beginning March 2023 and due March 2028 in full, plus interest of 7.35% per annum. | 244,214 | - | ||||||
| Note payable to bank, secured by underlying asset, due in equal monthly payments of $4,213, beginning December 2023 and due December 2030 in full, plus interest of 8.47% per annum. | 266,434 | - | ||||||
| Note payable to bank, secured by underlying asset, due in equal monthly payments of $4,269, beginning December 2023 and due December 2030 in full, plus interest of 8.90% per annum. | 266,184 | - | ||||||
| Total notes payable | 3,702,583 | 3,737,986 | ||||||
| Less: current portion of notes payable | 982,060 | 919,337 | ||||||
| Notes payable - long-term portion | $ | 2,720,523 | $ | 2,818,649 | ||||
| - 15 - |
STANDARD WASTE SERVICES, LLC
(A Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS - Continued
FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022
NOTE 5 – NOTES PAYABLE – Continued
Principal payments on notes payable for the next five years ending December 31 and thereafter as follows:
| 2024 | $ | 982,060 | ||
| 2025 | 849,498 | |||
| 2026 | 647,485 | |||
| 2027 | 743,898 | |||
| 2028 | 250,302 | |||
| Thereafter | 229,340 |
Total interest expense included on the statements of income and changes in members’ equity for the years ended December 31, 2023 and 2022 amounted to $251,883 and $244,620, respectively.
NOTE 6 – CONTINGENCIES
From time to time, the Company is involved in routine litigation that arises in the ordinary course of business. During 2022, the Company was party to litigation with its previous lessor over rent increases. The Company settled during November 2022 and paid $85,000 to the previous lessor. This amount is included in lease expense in general and administrative expenses on the statement of income and changes in members’ equity for the year ended December 31, 2022.
NOTE 7 – RELATED PARTY TRANSACTIONS
During the years ended December 31, 2023 and 2022, the Company conducted business with an entity owned by a family member of one of the Company’s members. The related party performs waste hauling services similar to the Company. During the year ended December 31, 2022, brokerage fees were paid to the related party for providing successful sales leads to the Company. Further, during both years ended December 31, 2023 and 2022, the Company provided services to the related party due to the related party being at full capacity and requiring additional equipment and hauling in order to service its customers of which the Company provided.
The following summarizes the Company’s related party transactions as of and for the years ended December 31, 2023 and 2022:
| 2023 | 2022 | |||||||
| Statements of Income: | ||||||||
| Revenues for services provided | $ | 169,322 | $ | 3,750 | ||||
| Brokerage fees paid | - | 1,302 | ||||||
| Assets: | ||||||||
| Accounts receivable | 53,177 | 500 | ||||||
NOTE 8 – SUBSEQUENT EVENTS
Management has evaluated subsequent events that occurred after the balance sheet date, up to the date that the financial statements were issued.
The Company is currently in negotiations to sell its assets and operations to a third party. As of the date of these financial statements the transaction has not completed and both parties are working on due diligence that include operational and financial information. Closing of the transaction is currently expected to occur during April 2024.
| - 16 - |
Exhibit 99.2
Standard Waste Services, LLC
(A Limited Liability Company)
March 31, 2024 and 2023
C O N T E N T S
| Page | ||
| Financial Statements | ||
| (UNAUDITED) Balance Sheets | 2 | |
| (UNAUDITED) Statements of Income and Changes in Members’ Equity | 3 | |
| (UNAUDITED) Statements of Cash Flows | 4 | |
| Notes to financial statements | 5 - 16 |
STANDARD WASTE SERVICES, LLC
(A Limited Liability Company)
(UNUAUDITED) BALANCE SHEETS
March 31, 2024 | December 31, 2023 | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable | ||||||||
| Employee loans | ||||||||
| Total current assets | ||||||||
| Property and Equipment, Net | ||||||||
| Other Assets | ||||||||
| Security deposits | ||||||||
| Goodwill | ||||||||
| Operating lease right-of-use asset, net | ||||||||
| Total other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND MEMBERS’ EQUITY | ||||||||
| Current Liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Current portion of operating lease liability | ||||||||
| Current portion of finance lease liability | ||||||||
| Current portion of notes payable | ||||||||
| Total current liabilities | ||||||||
| Noncurrent Liabilities | ||||||||
| Operating lease liability, net of current portion | ||||||||
| Finance lease liability, net of current portion | ||||||||
| Notes payable, net of current portion | ||||||||
| Total noncurrent liabilities | ||||||||
| Total liabilities | ||||||||
| Members’ Equity | ||||||||
| Total liabilities and members’ equity | $ | $ | ||||||
See accompanying notes to financial statements
| - 2 - |
STANDARD WASTE SERVICES, LLC
(A Limited Liability Company)
(UNAUDITED) STATEMENTS OF INCOME AND CHANGES IN MEMBERS’ EQUITY
| For the Three-Months Ended | ||||||||
| March 31, | ||||||||
| 2024 | 2023 | |||||||
| Revenues | $ | $ | ||||||
| Cost of Revenues | ||||||||
| Gross Profit | ||||||||
| General and Administrative Expenses | ||||||||
| Income From Operations | ||||||||
| Other Income (Expense) | ||||||||
| Interest income | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Net Other Expense | ( | ) | ( | ) | ||||
| Net Income | ||||||||
| Members’ Equity - Beginning | ||||||||
| Member distributions | ( | ) | ( | ) | ||||
| Members’ Equity - Ending | $ | $ | ||||||
See accompanying notes to financial statements
| - 3 - |
STANDARD WASTE SERVICES, LLC
(A Limited Liability Company)
(UNAUDITED) STATEMENTS OF CASH FLOWS
| For the Three-Months Ended | ||||||||
| March 31, | ||||||||
| 2024 | 2023 | |||||||
| Cash Flows From Operating Activities | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities: | ||||||||
| Depreciation | ||||||||
| (Increase) decrease in operating assets: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Employee loans | ( | ) | ||||||
| Operating lease right-of-use asset | ||||||||
| Increase (decrease) in operating liabilities: | ||||||||
| Accounts payable | ( | ) | ||||||
| Accrued expenses | ||||||||
| Operating lease liability | ( | ) | ( | ) | ||||
| Net Cash Provided by Operating Activities | ||||||||
| Cash Flows From Investing Activities | ||||||||
| Purchases of property and equipment | ( | ) | ||||||
| Net Cash Used in Investing Activities | ( | ) | ||||||
| Cash Flows From Financing Activities | ||||||||
| Principal payments on finance lease liability | ( | ) | ( | ) | ||||
| Principal payments on notes payable | ( | ) | ( | ) | ||||
| Member distributions | ( | ) | ( | ) | ||||
| Net Cash Used in Financing Activities | ( | ) | ( | ) | ||||
| Net Decrease in Cash and Cash Equivalents | ( | ) | ( | ) | ||||
| Cash and Cash Equivalents - Beginning | ||||||||
| Cash and Cash Equivalents - Ending | $ | $ | ||||||
| Supplementary Cash Flow Information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Non-cash financing of property and equipment acquisitions | $ | $ | ||||||
See accompanying notes to financial statements
| - 4 - |
STANDARD WASTE SERVICES, LLC
(A Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE-MONTHS ENDED MARCH 31, 2024 AND 2023
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Standard Waste Services, LLC (a Michigan Limited Liability Company) is presented to assist in understanding the Company’s financial statements. The financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. The accounting policies conform to accounting principles generally accepted in the United States of America (U.S. GAAP) and the regulations of the United States Securities and Exchange Commission and have been consistently applied in the preparation of the financial statements.
Nature of Operations
Standard Waste Services, LLC (the “Company”) is located in Detroit, Michigan. The Company provides waste management services primarily to commercial and industrial customers. The Company’s customers are primarily located in Southeast Michigan.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires the use of estimates that affect certain reported amounts and disclosures. These estimates and assumptions are based on management’s knowledge and experience. Accordingly, actual results could differ from these estimates.
Cash and Cash Equivalents
Cash and cash equivalents are defined as cash on hand and demand deposits in banks plus short-term investments that are readily convertible to cash as well as investments with original maturities of three months or less.
Account Receivable
Accounts receivable are recorded when billed or accrued and represent claims against third parties that will be settled in cash. The carrying value of the Company’s receivables, net of allowance for credit losses, represents their estimated net realizable value.
The
allowance for credit losses is based on management’s assessment of collectability of assets pooled together with similar risk characteristics.
The Company estimates its allowance for credit losses based on historical collection trends, the age of outstanding receivables, geographical
location of the customer, existing economic conditions and reasonable forecasts. If events or changes in circumstances indicate that
specific receivable balances may be impaired, further consideration is given to the collectability of those balances and the allowance
is adjusted accordingly. Past-due receivable balances are written off when the Company’s internal collection efforts have been
unsuccessful in collecting the amount due. For the three-months ended March 31, 2024 and 2023, the Company had
The
carrying value of accounts receivable as of March 31, 2024 and December 31, 2023 was $
| - 5 - |
STANDARD WASTE SERVICES, LLC
(A Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS - Continued
AS OF MARCH 31, 2024 AND DECEMBER 31, 2023
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued
Property and Equipment
Property and equipment are carried at cost. Maintenance, repairs and renewals which neither materially add to the value of the property nor appreciably prolong its life are charged to expense as incurred. Depreciation of equipment is provided on the straight-line method at the following rates:
| Software | ||||
| Computer and office equipment | ||||
| Furniture and fixtures | ||||
| Trucks and tractors | ||||
| Equipment | ||||
| Leasehold improvements |
Management regularly reviews property and equipment for possible impairment. The review occurs annually or more frequently if events or changes in circumstances indicate the carrying amount of the asset may not be recoverable. Based on management’s assessment, there were no indicators of impairment of the Company’s property and equipment as of March 31, 2024 and December 31, 2023.
Goodwill
Goodwill is carried at the amount paid for a company’s assets in excess of the sum of their fair values. The Company periodically tests these assets for impairment on an annual basis or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of the assets below their carrying amounts.
The Company may elect to perform a qualitative assessment that considers economic, industry, and Company-specific factors for all or selected assets of which goodwill has been assigned at purchase. If, after completing the assessment, it is determined that it is more likely than not that the fair value of the assessed asset(s) is less than its carrying value, the Company proceeds to a quantitative test. The Company may also elect to perform a quantitative test for any or all of its assets with goodwill assigned at purchase.
Quantitative testing requires a comparison of the fair value of each asset with assigned goodwill to its carrying value. The Company uses the discounted cash flow method to estimate the fair value of the asset(s) with assigned goodwill. The discounted cash flow method incorporates various assumptions, the most significant being projected sales growth rates, operating margins and cash flows, the terminal growth rate, and the weighted average cost of capital. If the carrying value of the assets(s) with assigned goodwill exceeds its fair value, the shortfall up to the carrying value of the goodwill represents the amount of goodwill impairment.
During the three-months ended March 31, 2024 and 2023, the Company did not record any impairment and there were no changes in the carrying value of goodwill, respectively.
| - 6 - |
STANDARD WASTE SERVICES, LLC
(A Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS - Continued
AS OF MARCH 31, 2024 AND DECEMBER 31, 2023
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued
Right of Use Assets and Lease Liabilities
The determination of whether an arrangement is a lease is made at the lease’s inception. Under ASC 842, a contract is (or contains) a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Control is defined under the standard as having both the right to obtain substantially all of the economic benefits from use of the asset and the right to direct the use of the asset. Management only reassesses its determination if the terms and conditions of the contract are changed.
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. Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. The Company uses the implicit rate when it is readily determinable. Since the Company’s leases do not provide an implicit rate, to determine the present value of lease payments, management uses the Company’s incremental borrowing rate based on the information available at lease commencement. Operating lease ROU assets also include any lease payments made and excludes any lease incentives. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise the option.
The Company has elected to apply the short-term lease exception to all leases with a term of one year or less. Several of the Company’s leases as of March 31, 2024 and December 31, 2023 are for periods of less than 12 months, or on a month-to-month basis; therefore, lease assets and liabilities described above are not recorded on the balance sheets.
The Company has made an accounting policy election to account for lease and non-lease components in its contracts as a single lease component for its operating and finance leases.
Revenue and Cost Recognition
The Company recognizes revenue when performance obligations are satisfied in accordance with ASC 606, Revenue from Contracts with Customers. The Company’s performance obligations are satisfied at the point in time once waste is disposed of at a landfill or transfer station. The Company then invoices its customers based upon pre-negotiated rates and billed to the customer once the performance obligations have been met. Invoices for services are normally due upon receipt. There are no significant financing agreements customers in relation to revenues generated and collected.
| - 7 - |
STANDARD WASTE SERVICES, LLC
(A Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS - Continued
AS OF MARCH 31, 2024 AND DECEMBER 31, 2023
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued
Revenue and Cost Recognition – Continued
The Company’s single-day contracts are invoiced by the Company at the time of the order and payment is required prior to delivery of the equipment used for hauling the waste. Based on the type of waste the customer needs disposed or hauled from the location, contract prices are negotiated in advance. If the customer requires more time than the agreed-upon contract stipulates, the Company invoices the customer on a daily basis until the customer no longer requires waste hauling by the Company.
The Company also provides waste hauling services to commercial customers which normally includes hauling away the waste and leaving equipment at the location for further use and future hauling and disposal. Invoices for these contracts are billed upon pickup and disposal of the waste at a landfill or transfer station. Invoices normally include disposal fees based on weight, type of waste to be disposed of, and fuel surcharges.
Cost of revenues earned includes direct contract costs, such as disposal fees, driver wages and related employer taxes, truck and equipment depreciation and maintenance expenses, and other costs such as customer property damages due to driver error.
Income Taxes
The Company is not a taxpaying entity for federal income tax purposes, and thus no federal income tax expense has been recorded in these financial statements. Income from the Company is taxed to the Members in their respective tax returns. The Company accounts for tax positions in accordance with the Recognition and Initial Measurement Sections of the Income Taxes Topic of Financial Accounting Standards Board (FASB) Accounting Standards Codification.
With few exceptions, the Company is subject to U.S. federal and state income tax examinations by tax authorities for the prior three years. Management has reviewed the Company’s tax positions and determined there were no uncertain tax positions as of March 31, 2024 and December 31, 2023.
Advertising
Advertising
costs are expensed as they are incurred. Advertising costs included in general and administrative expenses for the three-months ended
March 31, 2024 and 2023 were $
Recently Adopted Accounting Standards
In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments.” This amendment replaces the incurred methodology in current generally accepted accounting principles with a methodology that reflects expected credit losses on instruments within its scope, including trade receivables.
| - 8 - |
STANDARD WASTE SERVICES, LLC
(A Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS - Continued
AS OF MARCH 31, 2024 AND DECEMBER 31, 2023
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued
Recently Adopted Accounting Standards – Continued
This update is intended to provide financial statement users with more decision useful information about the expected credit losses. The Company adopted the standard effective January 1, 2023. The impact of the adoption was not considered material to the financial statements and primarily resulted in new and enhanced disclosures only.
NOTE 2 – CONCENTRATION OF CREDIT RISK
The
Company maintains cash and cash equivalents balances at a financial institution located in Michigan. Accounts at this institution were
insured by the Federal Deposit Insurance Corporation (FDIC) up to $
NOTE 3 – PROPERTY AND EQUIPMENT
Property and equipment at March 31, 2024 and December 31, 2023 consisted of the following:
March 31, 2024 | December 31, 2023 | |||||||
| Software | $ | $ | ||||||
| Computer and office equipment | ||||||||
| Furniture and fixtures | ||||||||
| Trucks and tractors | ||||||||
| Equipment | ||||||||
| Leasehold improvements | ||||||||
| Total undepreciated cost | ||||||||
| Less: Accumulated depreciation | ||||||||
| Property and equipment, net | $ | $ | ||||||
Depreciation
expense included in cost of revenues related to trucks and tractors and equipment for the three-months ended March 31, 2024 and 2023
amounted to $
| - 9 - |
STANDARD WASTE SERVICES, LLC
(A Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS - Continued
AS OF MARCH 31, 2024 AND DECEMBER 31, 2023
NOTE 4 – LEASES
During
March 2022, the Company entered into a lease agreement for its Detroit operations which commenced in August 2022 through July 2027. There
is an exclusive right to purchase the premises through the original term of the lease at a fair value to be mutually agreed upon. The
Company is not reasonably certain it will exercise the option and therefore, the lease is classified as an operating lease. Monthly payments
required under this lease are approximately $
Also,
the Company leases a truck used for is operations under a five-year lease which commenced during May 2022 ending during May 2027, classified
as a finance lease. The lease calls for monthly payments of $
The Company also leases land for equipment storage on a month-to-month basis. These monthly leases are expensed to lease expense as incurred.
The following table summarizes right of use assets at March 31, 2024 and December 31, 2023:
March 31, 2024 | December 31, 2023 | Location Recorded on Balance Sheet | ||||||||
| Assets | ||||||||||
| Operating lease | $ | $ | Right-of-use asset | |||||||
| Finance lease | Property and equipment, net | |||||||||
| Total leased assets | $ | $ | ||||||||
The following table summarizes the maturities of the Company’s lease liabilities presented on the balance sheets as of March 31, 2024 for each of the twelve months ended March 31:
| Year | Operating Lease | Finance Lease | ||||||
| 2025 | $ | $ | ||||||
| 2026 | ||||||||
| 2027 | ||||||||
| 2028 | ||||||||
| Total lease payments | ||||||||
| Less interest | ||||||||
| Total lease obligations | ||||||||
| Less current portion | ||||||||
| Long-term lease liabilities | $ | $ | ||||||
| - 10 - |
STANDARD WASTE SERVICES, LLC
(A Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS - Continued
AS OF MARCH 31, 2024 AND DECEMBER 31, 2023
NOTE 4 – LEASES – Continued
The following summarizes the composition of net lease cost during the three-months ended March 31, 2024 and 2023:
| 2024 | 2023 | |||||||
| Short-term lease costs | $ | $ | ||||||
| Operating lease costs | ||||||||
| Finance lease costs | ||||||||
| Amortization of right-to-use asset | ||||||||
| Interest on lease liability | ||||||||
| Total lease costs | $ | $ | ||||||
NOTE 5 – NOTES PAYABLE
Notes payable at March 31, 2024 and December 31, 2023 can be summarized as follows:
March 31, 2024 | December 31, 2023 | |||||||
| Note payable to third-party individual, secured by underlying assets, due in equal monthly payments of $ | $ | $ | ||||||
Note
payable to bank, secured by underlying asset, due in equal monthly payments of $ | ||||||||
| Note payable to bank, secured by underlying assets, due in equal monthly payments of $ | ||||||||
| Note payable to bank, secured by underlying assets, due in equal monthly payments
of $ | ||||||||
| Subtotal | $ | $ | ||||||
| - 11 - |
STANDARD WASTE SERVICES, LLC
(A Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS - Continued
AS OF MARCH 31, 2024 AND DECEMBER 31, 2023
NOTE 5 – NOTES PAYABLE – Continued
March 31, 2024 | December 31, 2023 | |||||||
| Subtotal from previous page | $ | $ | ||||||
| Note payable to bank, secured by underlying assets, due in equal monthly payments of $ | ||||||||
| Note payable to bank, secured by underlying asset, due in equal monthly payments of $ | ||||||||
| Note payable to bank, secured by underlying asset, due in equal monthly payments of $ | ||||||||
| Note payable to bank, secured by underlying asset, due in equal monthly payments of $ | ||||||||
| Note payable to bank, secured by underlying assets, due in equal monthly payments of $ | ||||||||
| Note payable to bank, secured by underlying assets, due in equal monthly payments of $ | ||||||||
| Note payable to bank, secured by underlying asset, due in equal monthly payments of $ | ||||||||
| Note payable to bank, secured by underlying asset, due in equal monthly payments of $ | ||||||||
| Note payable to bank, secured by underlying assets, due in equal monthly payments of $ | ||||||||
| Note payable to bank, secured by underlying assets, due in equal monthly payments of $ | ||||||||
| Subtotal | $ | $ | ||||||
| - 12 - |
STANDARD WASTE SERVICES, LLC
(A Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS - Continued
AS OF MARCH 31, 2024 AND DECEMBER 31, 2023
NOTE 5 – NOTES PAYABLE – Continued
March 31, 2024 | December 31, 2023 | |||||||
| Subtotal from previous page | $ | $ | ||||||
| Note payable to bank, secured by underlying assets, due in equal monthly payments of $ | ||||||||
| Note payable to bank, secured by underlying asset, due in equal monthly payments of $ | ||||||||
| Note payable to bank, secured by underlying assets, due in equal monthly payments of $ | ||||||||
| Note payable to bank, secured by underlying assets, due in equal monthly payments of $ | ||||||||
| Note payable to bank, secured by underlying asset, due in equal monthly payments of $ | ||||||||
| Note payable to bank, secured by underlying asset, due in equal monthly payments of $ | ||||||||
| Note payable to bank, secured by underlying asset, due in equal monthly payments of $ | ||||||||
| Note payable to bank, secured by underlying asset, due in equal monthly payments of $ | ||||||||
| Note payable to bank, secured by underlying asset, due in equal monthly payments of $ | ||||||||
| Note payable to bank, secured by underlying assets, due in equal monthly payments of $ | ||||||||
| Subtotal | $ | $ | ||||||
| - 13 - |
STANDARD WASTE SERVICES, LLC
(A Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS - Continued
AS OF MARCH 31, 2024 AND DECEMBER 31, 2023
NOTE 5 – NOTES PAYABLE – Continued
March 31, 2024 | December 31, 2023 | |||||||
| Subtotal from previous page | $ | $ | ||||||
| Note payable to bank, secured by underlying asset, due in equal monthly payments of $3,134, beginning February 2022 and due February 2026 in full, plus interest of 7.50% per annum. | ||||||||
| Note payable to bank, secured by underlying asset, due in equal monthly payments of $3,000, beginning March 2022 and due February 2029 in full, plus interest of 4.99% per annum. | ||||||||
| Note payable to bank, secured by underlying asset, due in equal monthly payments of $3,063, beginning April 2022 and due April 2029 in full, plus interest of 5.64% per annum. | ||||||||
| Note payable to bank, secured by underlying asset, due in equal monthly payments of $3,381, beginning July 2022 and due July 2029 in full, plus interest of 6.29% per annum. | ||||||||
| Note payable to bank, secured by underlying asset, due in equal monthly payments of $3,427, beginning July 2022 and due July 2026 in full, plus interest of 7.90% per annum. | ||||||||
| Note payable to bank, secured by underlying assets, due in equal monthly payments of $3,674, beginning July 2022 and due August 2027 in full, plus interest of 4.91% per annum. | ||||||||
| Note payable to bank, secured by underlying assets, due in equal monthly payments of $3,674, beginning July 2022 and due August 2027 in full, plus interest of 4.91% per annum. | ||||||||
| Note payable to bank, secured by underlying asset, due in equal monthly payments of $3,071, beginning July 2022 and due August 2027 in full, plus interest of 9.26% per annum. | ||||||||
| Note payable to bank, secured by underlying assets, due in equal monthly payments of $1,446, beginning November 2022 and due November 2027 in full, plus interest of 8.50% per annum. | ||||||||
| Note payable to bank, secured by underlying assets, due in equal monthly payments of $1,850, beginning March 2023 and due January 2029 in full, plus interest of 6.76% per annum. | ||||||||
| Subtotal | $ | $ | ||||||
| - 14 - |
STANDARD WASTE SERVICES, LLC
(A Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS - Continued
AS OF MARCH 31, 2024 AND DECEMBER 31, 2023
NOTE 5 – NOTES PAYABLE – Continued
| 2024 | 2023 | |||||||
| Subtotal from previous page | $ | $ | ||||||
| Note payable to bank, secured by underlying assets, due in equal monthly payments of $ | ||||||||
| Note payable to bank, secured by underlying asset, due in equal monthly payments of $ | ||||||||
| Note payable to bank, secured by underlying asset, due in equal monthly payments
of $ | ||||||||
| Total notes payable | ||||||||
| Less: current portion of notes payable | ||||||||
| Notes payable - long-term portion | $ | $ | ||||||
Principal payments on notes payable for the next five years as of March 31 and thereafter as follows:
| 2025 | $ | |||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| Thereafter | ||||
| Total | $ |
Total
interest expense included on the statements of income and changes in members’ equity for the three-months ended March 31, 2024
and 2023 amounted to $
NOTE 6 – RELATED PARTY TRANSACTIONS
During the three-months ended March 31, 2024, the Company conducted business with an entity owned by a family member of one of the Company’s members. The related party performs waste hauling services similar to the Company.
Further, during the three-months ended March 31, 2024, the Company provided services to the related party due to the related party being at full capacity and requiring additional equipment and hauling in order to service its customers of which the Company provided. No transactions were conducted with this related party during and as of the three months-ended March 31, 2023.
| - 15 - |
STANDARD WASTE SERVICES, LLC
(A Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS - Continued
AS OF MARCH 31, 2024 AND DECEMBER 31, 2023
NOTE 6 – RELATED PARTY TRANSACTIONS – Continued
The following summarizes the Company’s related party transactions as of and for the three-months ended March 31, 2024 and 2023:
| 2024 | 2023 | |||||||
| Statements of Income: | ||||||||
| Revenues for services provided | $ | $ | ||||||
| Assets: | ||||||||
| Accounts receivable | $ | $ | ||||||
NOTE 7 – SUBSEQUENT EVENTS
Management has evaluated subsequent events that occurred after the balance sheet date, up to the date that the financial statements were issued.
On
January 12, 2024, Titan Environmental Solutions Inc. through its wholly-owned subsidiary, Titan Trucking, LLC, entered into a Membership
Interest Purchase Agreement with Domonic Campo and Sharon Campo (the “Sellers”), and the Company. The Membership Interest
Purchase Agreement was amended on February 21, 2024, May 20, 2024 and on May 30, 2024. The transaction closed on May 31, 2024. Together
with the amendments, the Membership Interest Purchase Agreement is referred to herein as the “Standard
Purchase Agreement.” Pursuant to the terms of the Standard Purchase Agreement, Titan Trucking, LLC, purchased ownership of all
the outstanding membership interests of the Company. In exchange, Titan Environmental Solutions, Inc. issued the Sellers shares
of the Company’s Series A Preferred Stock, issued to the Sellers debt instruments with a total principal value of $
| - 16 - |
Exhibit 99.3
TITAN ENVIRONMENTAL SOLUTIONS INC.
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
AS OF MARCH 31, 2024
(UNAUDITED)
On January 12, 2024, Titan Environmental Solutions Inc. (the “Company”, “TESI”), through its wholly-owned subsidiary, Titan Trucking, LLC, entered into a Membership Interest Purchase Agreement with Domonic Campo and Sharon Campo (the “Sellers”), and Standard Waste Services, LLC (“Standard”). The Membership Interest Purchase Agreement was amended on February 21, 2024, May 20, 2024 and on May 30, 2024. The transaction closed on May 31, 2024. Together with the amendments, the Membership Interest Purchase Agreement is referred to herein as the “Standard Purchase Agreement.” Pursuant to the terms of the Standard Purchase Agreement, the Company’s subsidiary, Titan Trucking, LLC, purchased ownership of all the outstanding membership interests of Standard (the “Standard Acquisition”). In exchange, the Company issued the Sellers 612,000 shares of the Company’s Series A Preferred Stock, issued to the Sellers debt instruments with a total principal value of $2,859,898, and paid cash consideration of $4,652,500 (inclusive of a $652,500 closing deposit).
The Company also signed a Guaranty Fee Agreement (the “Guaranty Agreement”) with Charles B Rizzo (“Rizzo”) whereby Rizzo agreed to guarantee the Company’s payment of the debt instruments with a total principal value of $2,859,898 issued to the Sellers and the payment of certain debts owed to the Sellers by the Company as a result of the Standard Purchase Agreement. In exchange, the Company issued Rizzo’s designee 215,000 shares of the Company’s Series A Preferred Stock. Additionally, Dominic Campo and Sharon Campo each signed a consulting agreement (the “Standard Consulting Agreements”) with the Company.
The cash consideration paid to the Sellers for the Standard Acquisition was funded through the sale of Series B Preferred Stock and warrants (the “Acquisition Financing”). The Company sold 422,200 shares of its Series B Preferred Stock and 42,220,000 warrants in exchange for consideration of $4,222,000, net of $290,390 of placement and legal fees. Additionally, the Company funded the Standard Acquisition by issuing a series of note payables (the “Closing Notes”) with an aggregate principal amount of $590,000, which were subsequently exchanged for Series B Preferred Stock and Warrants.
The Standard Acquisition was accounted for as a business combination acquisition with the Company as the accounting acquiror of Standard. The Company, as the accounting acquirer, recorded the assets and liabilities of Standard at their fair values as of the acquisition date. The unaudited pro forma condensed combined statements of operations of the Company for the year ended December 31, 2023 and for the three months ended March 31, 2024 is based on the historical consolidated financial statements of the Company and the historical financial statements of Standard.
The transaction accounting adjustments consist of those necessary to account for the Standard Acquisition. The unaudited pro forma condensed combined statement of financial position as of March 31, 2024, gives effect to the Standard Purchase Agreement, the Guaranty Agreement, the Standard Consulting Agreements, the Acquisition Financing, and the Closing Notes as if the transactions had occurred on March 31, 2024, and includes all adjustments necessary to reflect the application of acquisition accounting for the Standard Acquisition. The unaudited pro forma condensed combined statements of operations for the year ended December 31, 2023, and the three months ended March 31, 2024, give effect to the Standard Purchase Agreement, the Guaranty Agreement, the Standard Consulting Agreements, the Acquisition Financing, and the Closing Notes as if they had occurred on January 1, 2023 and includes all adjustments necessary to reflect the application of acquisition accounting for the Standard Acquisition.
The unaudited pro forma condensed combined financial information does not give effect to any cost savings, operating synergies or revenue synergies that may result from the Standard Acquisition or the costs to achieve any synergies.
The unaudited pro forma condensed combined financial statements are presented for informational purposes only, in accordance with Article 11 of Regulation S-X, and are not intended to represent or to be indicative of the income or financial position that the Company would have reported had the Standard Acquisition been completed as of the dates set forth in the unaudited pro forma condensed combined financial statements due to various factors. The unaudited pro forma condensed combined statement of financial position does not purport to represent the future financial position of the Company and the unaudited pro forma condensed combined statements of operations do not purport to represent the future results of operations of the Company.
The unaudited pro forma condensed combined financial statements reflect management’s preliminary estimates of the fair value of purchase consideration and the fair values of tangible and intangible assets acquired and liabilities assumed in the Standard Acquisition. Since these unaudited pro forma condensed combined financial statements have been prepared based on preliminary estimates of the fair value of warrants and fair values of assets acquired and liabilities assumed, the actual amounts to be reported in future filings may differ materially from the amounts used in the pro forma condensed combined financial statements.
The unaudited pro forma condensed combined financial information is presented to illustrate the estimated effects of the Standard Acquisition, and should be read in conjunction with the following:
| i. | The audited financial statements of Standard as of and for the years ended December 31, 2023 and 2022; | |
| ii. | The audited consolidated financial statements of the Company as of and for the years ended December 31, 2023 and 2022; as filed with the Securities and Exchange Commission on April 15, 2024, included herein by reference. | |
| iii. | The unaudited financial statements of the Company as of March 31, 2024 and December 31, 2023 and for the three months ended March 31, 2024 and 2023; as filed with the Securities and Exchange Commission on May 15, 2024, included herein by reference. | |
| iv. | The unaudited financial statements of Standard as of March 31, 2024 and December 31, 2023 and for the three months ended March 31, 2024 and 2023. |
TITAN ENVIRONMENTAL SOLUTIONS INC.
PRO FORMA CONDENSED COMBINED BALANCE SHEET
MARCH 31, 2024
(UNAUDITED)
| AS OF MARCH 31, 2024 | ||||||||||||||||
| Transaction | ||||||||||||||||
| Historical | Historical | Accounting | Pro Forma | |||||||||||||
| TESI | Standard | Adjustments | Combined | |||||||||||||
| ASSETS | ||||||||||||||||
| Current Assets: | ||||||||||||||||
| Cash and cash equivalents | $ | 3,427 | $ | 9,545 | $ | 3,931,610 | (A) | $ | 534,582 | |||||||
| - | (4,000,000 | )(B) | ||||||||||||||
| 590,000 | (F) | |||||||||||||||
| Accounts receivable, net | 934,880 | 1,284,899 | (6,514 | )(B) | 2,213,265 | |||||||||||
| Prepaid expenses and other current assets | 218,957 | - | - | 218,957 | ||||||||||||
| Employee loans | - | 1,500 | - | 1,500 | ||||||||||||
| Inventory | 219,919 | - | - | 219,919 | ||||||||||||
| Total Current Assets | 1,377,183 | 1,295,944 | 515,096 | 3,188,223 | ||||||||||||
| Property and equipment, net | 6,402,837 | 5,318,328 | 11,721,165 | |||||||||||||
| Other assets | 668,168 | 12,900 | (652,500 | )(B) | 28,568 | |||||||||||
| Goodwill and intangible assets, net | 12,978,836 | 412,800 | (412,800 | )(B) | 26,916,014 | |||||||||||
| 13,930,664 | (B) | |||||||||||||||
| 6,514 | (B) | |||||||||||||||
| Right-of-use asset | 1,480,770 | 322,037 | (14,415 | )(B) | 1,788,392 | |||||||||||
| TOTAL ASSETS | $ | 22,907,794 | $ | 7,362,009 | $ | 13,372,559 | $ | 43,642,362 | ||||||||
| LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY | ||||||||||||||||
| LIABILITIES | ||||||||||||||||
| Current Liabilities: | ||||||||||||||||
| Accounts payable and accrued expenses | $ | 5,216,118 | $ | 874,452 | $ | - | 6,090,570 | |||||||||
| Customer deposits | 523,814 | - | - | 523,814 | ||||||||||||
| Accrued payroll and related taxes | 160,608 | 44,289 | - | 204,897 | ||||||||||||
| Convertible notes payable | 2,983,767 | - | - | 2,983,767 | ||||||||||||
| Convertible notes payable - related parties | 749,520 | - | - | 749,520 | ||||||||||||
| Notes payable | 3,558,582 | 942,738 | 500,000 | (B) | 4,741,320 | |||||||||||
| (500,000 | )(C) | |||||||||||||||
| 240,000 | (F) | |||||||||||||||
| Notes payable - related parties | 861,000 | - | 350,000 | (F) | 1,211,000 | |||||||||||
| Operating lease liability, current | 397,497 | 91,828 | (23,751 | )(B) | 465,574 | |||||||||||
| Finance lease liability, current | - | 28,650 | 4,755 | (B) | 33,405 | |||||||||||
| Shares to be issued | 50,000 | - | 50,000 | |||||||||||||
| Total Current Liabilities | 14,500,906 | 1,981,957 | 571,004 | 17,053,867 | ||||||||||||
| Notes payable, net of current portion | 2,743,512 | 2,507,863 | 2,359,898 | (B) | 5,101,273 | |||||||||||
| (2,510,000 | )(C) | |||||||||||||||
| Notes payable, net of current portion - related parties | 537,470 | - | 537,470 | |||||||||||||
| Convertible notes payable, net of current portion | 176,965 | - | 176,965 | |||||||||||||
| Convertible notes payable, net of current portion - related parties | 59,023 | - | 59,023 | |||||||||||||
| Operating lease liability, net of current portion | 1,199,536 | 243,876 | (4,331 | )(B) | 1,439,081 | |||||||||||
| Finance lease liability, net of current portion | - | 75,256 | (565 | )(B) | 74,691 | |||||||||||
| Total Liabilities | 19,217,412 | 4,808,952 | 416,006 | 24,442,370 | ||||||||||||
| MEZZANINE EQUITY | ||||||||||||||||
| Titan: | ||||||||||||||||
| Preferred stock, series B | - | - | 42 | (A) | 5,488,642 | |||||||||||
5,488,600 | (A) | |||||||||||||||
| STOCKHOLDERS’ EQUITY | ||||||||||||||||
| Titan: | ||||||||||||||||
| Preferred stock, series A | 63 | - | 61 | (B) | 146 | |||||||||||
| 22 | (C) | |||||||||||||||
| Common stock | 2,539 | - | 2,539 | |||||||||||||
| Additional paid-in capital | 156,889,062 | - | 4,221,958 | (A) | 166,909,947 | |||||||||||
| - | 8,567,939 | (B) | ||||||||||||||
| 3,009,978 | (C) | |||||||||||||||
(5,488,600 | )(A) | |||||||||||||||
| (290,390 | )(A) | |||||||||||||||
| Accumulated deficit | (153,201,282 | ) | - | (153,201,282 | ) | |||||||||||
| Members’ Equity | - | 2,553,057 | (2,553,057 | )(G) | - | |||||||||||
| Total Stockholders’/Members’ Equity | 3,690,382 | 2,553,057 | 12,956,553 | 19,199,992 | ||||||||||||
| TOTAL LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY | $ | 22,907,794 | $ | 7,362,009 | $ | 13,372,559 | $ | 43,642,362 | ||||||||
TITAN ENVIRONMENTAL SOLUTIONS INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2024
(UNAUDITED)
| Transaction | |||||||||||||||||
| Historical | Historical | Accounting | Pro Forma | ||||||||||||||
| TESI | Standard | Adjustments | Combined | ||||||||||||||
| REVENUE | $ | 1,755,750 | $ | 2,304,226 | 4,059,976 | ||||||||||||
| COST OF REVENUES | 1,623,156 | 1,612,136 | 3,235,292 | ||||||||||||||
| GROSS PROFIT | 132,594 | 692,090 | - | 824,684 | |||||||||||||
| OPERATING EXPENSES | |||||||||||||||||
| Salaries and salary related costs | 487,031 | - | (19,526 | ) | (E) | 467,505 | |||||||||||
| Professional fees | 873,439 | - | 31,250 | (D) | 974,689 | ||||||||||||
| 70,000 | (D) | ||||||||||||||||
| Depreciation and amortization | 192,867 | - | 192,867 | ||||||||||||||
| General and administrative expenses | 401,640 | 435,035 | 836,675 | ||||||||||||||
| Total operating expenses | 1,954,977 | 435,035 | 81,724 | 2,471,736 | |||||||||||||
| OPERATING (LOSS) INCOME | (1,822,383 | ) | 257,055 | (81,724 | ) | (1,647,052 | ) | ||||||||||
| OTHER (EXPENSE) INCOME: | |||||||||||||||||
| Change in fair value of derivative liability | 17,500 | - | 17,500 | ||||||||||||||
| Interest expense, net of interest income | (510,454 | ) | (65,487 | ) | (98,987 | ) | (B) | (1,185,182 | ) | ||||||||
| (510,254 | ) | (C) | |||||||||||||||
| Other income (expense), net | 56,393 | - | 56,393 | ||||||||||||||
| Total other (expense) income, net | (436,561 | ) | (65,487 | ) | (609,241 | ) | (1,111,289 | ) | |||||||||
| Provision for income taxes | - | ||||||||||||||||
| Net (loss) income | (2,258,944 | ) | 191,568 | (690,965 | ) | (2,758,341 | ) | ||||||||||
| Deemed dividend | (862,289 | ) | - | - | (862,289 | ) | |||||||||||
| Net income (loss) available to common stockholders | (3,121,233 | ) | 191,568 | (690,965 | ) | (3,620,630 | ) | ||||||||||
| Net loss per share | |||||||||||||||||
| Basic and diluted | (0.01 | ) | N/A | (0.02 | ) | ||||||||||||
| Weighted-average common shares outstanding | |||||||||||||||||
| Basic and diluted | 222,067,042 | N/A | 222,067,042 | ||||||||||||||
TITAN ENVIRONMENTAL SOLUTIONS INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2023
(UNAUDITED)
| Transaction | |||||||||||||||||
| Historical | Historical | Accounting | Pro Forma | ||||||||||||||
| TESI | Standard | Adjustments | Combined | ||||||||||||||
| REVENUE | $ | 7,624,584 | $ | 9,643,074 | 17,267,658 | ||||||||||||
| COST OF REVENUES | 6,503,135 | 6,552,612 | 13,055,747 | ||||||||||||||
| GROSS PROFIT | 1,121,449 | 3,090,462 | - | 4,211,911 | |||||||||||||
| OPERATING EXPENSES | |||||||||||||||||
| Salaries and salary related costs | 1,720,492 | 1,720,492 | |||||||||||||||
| Stock-based compensation | 5,590,486 | (73,639 | ) | (E) | 5,516,847 | ||||||||||||
| Professional fees | 3,146,692 | 125,000 | (D) | 3,551,692 | |||||||||||||
| 280,000 | (D) | ||||||||||||||||
| Depreciation and amortization | 505,434 | - | 505,434 | ||||||||||||||
| General and administrative expenses | 1,074,634 | 2,093,841 | 3,168,475 | ||||||||||||||
| Goodwill impairment | 20,364,001 | - | 20,364,001 | ||||||||||||||
| Total operating expenses | 32,401,739 | 2,093,841 | 331,361 | 34,826,941 | |||||||||||||
| OPERATING (LOSS) INCOME | (31,280,290 | ) | 996,621 | (331,361 | ) | (30,615,030 | ) | ||||||||||
| OTHER (EXPENSE) INCOME: | |||||||||||||||||
| Change in fair value of derivative liability | 41,670 | 41,670 | |||||||||||||||
| Interest expense, net of interest income | (1,380,122 | ) | (266,604 | ) | (324,486 | ) | (B) | (3,320,450 | ) | ||||||||
| (8,476 | ) | (B) | |||||||||||||||
(15,219 |
) | (F) | |||||||||||||||
| (1,325,542 | ) | (C) | |||||||||||||||
| Gain on forgiveness of note payable | 91,803 | - | 91,803 | ||||||||||||||
| Other income (expense), net | 113,212 | - | 113,212 | ||||||||||||||
| Loss on extinguishment of debt and issuance of common share rights | (116,591,322 | ) | - | (116,591,322 | ) | ||||||||||||
| Gain on issuance of warrants | |||||||||||||||||
| Total other (expense) income, net | (117,724,759 | ) | (266,604 | ) | (1,673,724 | ) | (119,665,087 | ) | |||||||||
| Provision for income taxes | - | - | - | ||||||||||||||
| Net (loss) income | (149,005,049 | ) | 730,017 | (2,005,085 | ) | (150,280,117 | ) | ||||||||||
| Deemed dividend | (1,075,000 | ) | - | (4,307,589 |
)(A) | (5,382,589 | ) | ||||||||||
| Net income (loss) available to common stockholders | (150,080,049 | ) | 730,017 | (6,312,674 | ) | (155,662,706 | ) | ||||||||||
| Net loss per share | |||||||||||||||||
| Basic and diluted | (0.88 | ) | N/A | (0.91 | ) | ||||||||||||
| Weighted-average common shares outstanding | |||||||||||||||||
| Basic and diluted | 170,715,695 | N/A | 170,715,695 | ||||||||||||||
TITAN ENVIRONMENTAL SOLUTIONS INC.NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
MARCH 31, 2024 AND DECEMBER 31, 2023
(UNAUDITED)
NOTE 1 — BASIS OF PRO FORMA PRESENTATION
The accompanying unaudited pro forma condensed combined financial information has been prepared in accordance with Article 11 of Regulation S-X. The unaudited pro forma condensed combined financial information has been prepared to illustrate the effect of the Standard Purchase Agreement, the Guaranty Agreement, the Standard Consulting Agreements, the Acquisition Financing, and the Closing Notes (the “Acquisition Transactions”) and have been prepared for informational purposes only.
The unaudited pro-forma condensed combined balance sheet as of March 31, 2024, assumes that the Acquisition Transactions occurred on March 31, 2024. The unaudited pro forma condensed combined income statements for the three months ended March 31, 2024 and for the year ended December 31, 2023 assume that the Acquisition Transactions occurred on January 1, 2023.
Management has made significant estimates and assumptions in its determination of the transaction accounting adjustments. As the unaudited pro forma condensed combined financial information has been prepared based on these preliminary estimates, the final amounts recorded may differ materially from the information presented.
The unaudited pro forma condensed combined financial information does not give effect to any anticipated synergies, operating efficiencies, tax savings, or cost savings that may be associated with the Titan Merger.
The transaction accounting adjustments reflecting the completion of the Acquisition Transactions are based on currently available information and assumptions and methodologies that management believes are reasonable under the circumstances. The unaudited transaction accounting adjustments, which are described in the accompanying notes, may be revised as additional information becomes available and is evaluated. Therefore, it is likely that the actual adjustments will differ from the transaction accounting adjustments, and it is possible the difference may be material. Management believes that its assumptions and methodologies provide a reasonable basis for presenting all the significant effects of the Acquisition Transactions based on information available to management at the current time and that the transaction accounting adjustments give appropriate effect to those assumptions and are properly applied in the unaudited pro forma condensed combined financial information.
In accordance with ASC 805 – Business Combinations, the Standard Acquisition was accounted for as a business combination with Titan being deemed the accounting acquirer of Standard.
The unaudited pro forma condensed combined financial information is not necessarily indicative of what the actual results of operations and financial position of the Company would have been had the acquisition taken place on the date indicated, nor are they indicative of the future consolidated results of operations or financial position of the post-combination company. They should be read in conjunction with the historical financial statements and notes thereto of the Company and Titan.
NOTE 2 —ACCOUNTING POLICIES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The unaudited pro forma condensed combined financial statements do not reflect any differences in accounting policies. The Company has completed the review of Standard’s accounting policies and has concluded that differences between the accounting policies of the two companies are not material.
NOTE 3 — TRANSACTION ACCOUNTING ADJUSTMENTS TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The transaction accounting adjustments included in the unaudited pro forma condensed combined balance sheet as of March 31, 2024 and the unaudited condensed combined pro forma statements of operations for the three months ended March 31, 2024 and the year ended December 31, 2023 are as follows:
| A. | Acquisition Financing |
The pro forma condensed combined financial statements include the effects of the financing transaction entered into in order to secure enough funds to close the acquisition of Standard. The Company recorded the issuance of 422,200 shares of redeemable convertible Series B Preferred Stock and Warrants to purchase an aggregate of 42,220,000 shares of Common Stock for an aggregate purchase price of $4,222,000, less $290,390 in offering costs for net proceeds of $3,931,610. Par value of the convertible Series B Preferred Stock was recorded at $42. In addition to the $290,390 of offering costs the Company also issued 8,440,000 placement agent warrants. The warrants were analyzed to be equity warrants and therefore classified within equity. The redeemable convertible preferred series B shares and the warrants were allocated value based on the relative value of the financing, redeemable convertible Series B was $1,568,895 and warrants were $2,653,105.
In connection with the issuance, the Company entered into a Registration Rights Agreement whereby the Company agreed to file a registration statement registering the resale of the shares of Common Stock issuable upon conversion of the Series B Preferred Stock and upon exercise of the Warrants within 20 calendar days of the earlier of (i) the date of the consummation of the listing of the Common Stock on any of the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange, the Cboe or their respective successors and (ii) the six-month anniversary of the Registration Rights Agreement (the “Trigger Date”). The Company agreed to use its best efforts to have the registration statement declared “effective” within 60 calendar days from the Trigger Date.
The Company determined the redeemable convertible Series B Preferred Stock is classified as temporary mezzanine equity because redemption could be required at (1) a fixed or determinable date, (2) at the option of the holder, and (3) upon occurrence of a contingent event. The redemption feature is initially recorded at fair value and will be accreted to redemption value. The Company valued the redemption feature at fair value based on the present value of future cash flows using the following assumptions, (1) term of 1.17 years, (2) dividend rate of 10%, (2) effective interest rate of 8.12%, (3) and redemption value of $5,488,600. Accretion was recorded to reflect the fair value of the Convertible Series B Preferred Stock for the three months ending March 31, 2024 and year ending December 31, 2023 for $0 and $4,307,589, respectively. Accretion was recorded as a debit to additional paid in capital and credit to the Series B Preferred Stock.
| B. | Effect of Standard Waste Services, LLC Business Combination (“Standard Acquisition”) |
In accordance with ASC 805 – Business Combinations, the Standard Acquisition was accounted for as a business combination with the Company being deemed the accounting acquirer of Standard. The Company, as the accounting acquirer, recorded the assets and liabilities of Standard at their fair values as of the acquisition date.
The Company was deemed to be the accounting acquirer based on the following facts and circumstances: (1) the Company’s owners owned approximately 75% of the voting interests of the combined company immediately following the transaction; (2) the governing body of the combined entity (the Board of Directors) is composed of the same individuals as the pre-combination company; (3) the senior management of the Company did not change as a result of the Standard Acquisition. The Company paid a combined $4,652,500, which was broken out as $4,000,000 in cash and $652,500 in a cash deposit. In addition, two note payables were issued in the amounts of $2,359,898 and $500,000, respectively. As a result of the transaction there was $13,930,664 of goodwill recorded related to the acquisition, $6,514 of goodwill was recorded due to adjustment of accounts receivable and $412,800 of goodwill was extinguished which was previously on the acquiree’s books. Lastly, 612,000 shares of Series A Preferred Stock, with an estimate fair value of $8,568,000 ($61 allocated par value and $8,567,939 allocated to additional paid in capital) was issued as consideration related to the acquisition of Standard.
The Company assumed an operating lease and finance lease, which were remeasured as of May 31, 2024. Related to the operating lease the right-of-use asset was decreased by $14,415. The short term and long-term lease liability was decreased by $23,751 and $4,331, respectively. The finance lease liability was adjusted by approximately $4,755 and $565 due to the remeasurement related to the acquisition of Standard.
This entry was made to record the accounts receivable balance at fair value. The company has evaluated the Standard accounts receivable and allowance for doubtful accounts and determined that an estimated loss rate of 1% or $6,514 for all other receivables is appropriate. This entry was made to record the accounts receivable balance at fair value.
Interest expense related to notes payable of $98,987 and $324,486 was recorded for the three months ended March 31, 2024 and year ended December 31, 2023, respectively. Additional interest incurred was recorded for $8,476 as of the year ended December 31, 2023.
The Company accounted for the Titan Merger as a business combination using acquisition accounting. The purchase consideration is as follows:
| March 31, 2024 | ||||
| Cash | $ | 4,000,000 | ||
| Closing Deposit (Prepaid Cash) | 652,500 | |||
| Long-Term Note Payable | 2,359,898 | |||
| Promissory Note | 500,000 | |||
| Series A Preferred Stock (612,000 shares) | 8,568,000 | |||
| Total purchase consideration | $ | 16,080,398 | ||
The Company recorded all of its tangible and intangible assets and its liabilities at their preliminary estimated fair values on the acquisition date. The following represents the allocation of the estimated purchase consideration as if the transaction had occurred on March 31, 2024:
| March 31, 2024 | ||||
| Assets acquired | ||||
| Cash | 9,545 | |||
| Accounts receivable, net | 1,284,899 | |||
| Employee loans | 1,500 | |||
| Property and equipment, net | 5,318,328 | |||
| Security deposit | 12,900 | |||
| Goodwill and intangible assets | 13,930,664 | |||
| Right-of-use asset | 307,622 | |||
| 20,865,458 | ||||
| Liabilities assumed: | ||||
| Accounts payable | 874,452 | |||
| Accrued expenses | 44,289 | |||
| Current portion of operating lease liability | 68,077 | |||
| Current portion of finance lease liability | 33,405 | |||
| Current portion of notes payable | 942,738 | |||
| Operating lease liability, net of current portion | 239,545 | |||
| Finance lease liability, net of current portion | 74,691 | |||
| Notes payable | 2,507,863 | |||
| 4,785,060 | ||||
| Net fair value of assets acquired (liabilities assumed) | 16,080,398 | |||
| C. | Effect of the Guaranty Agreement |
The pro forma financial statements include the effects of the 215,000 shares of the Company’s Series A Preferred Stock related to a Guarantee Fee Agreement pursuant to which certain outstanding indebtedness owed by the Company to the sellers of Standard is guaranteed. Pursuant to the Guarantee Fee Agreement, Charles B. Rizzo shall personally guarantee the obligations of Standard and the Company. In exchange for providing the guarantees, the Company agreed to provide compensation consisting of a deposit fee, a guarantee fee, and an annual fee. The guarantee fee consists of 15,000,000 shares of common stock or the equivalent shares of Series A Preferred Stock, and the deposit fee consists of 6,500,000 shares of common stock or the equivalent shares of Series Preferred Stock. The total value of the 215,000 shares of Series A Preferred Stock issued as of March 31, 2024 and January 1, 2023 was $3,010,000. Related to March 31, 2024 and December 31, 2023 the guaranteed fee was recorded as a debt issuance cost of $3,010,000. Amortization expense for the three months ended March 31, 2024 and year ended December 31, 2023 was $510,254 and $1,325,542, respectively.
| D. | Standard Consulting Agreements |
The Company engaged the Sellers for consulting services in the period following the Standard Acquisition. Dominic Campo and Sharon Campo each signed a consulting agreement (the “Standard Consulting Agreements”) with the Company.
The first consulting agreement is effective as of May 20, 2024, and has a term of five years. Commencing on June 1, 2024, and in exchange for consulting services provided, the consultant is to receive a monthly retainer of $23,333. In the event that the consultant meets their demise during the term of the agreement, the retainer shall be reduced to $11,667 per month. The pro forma condensed combined statement of operations for the year ended December 31, 2023 and the three months ended March 31, 2024 recognize consulting expenses from the first consulting agreement of $280,000 and $70,000, respectively.
The second consulting agreement is effective as of June 4, 2024, and has a term of five years. Commencing on June 4, 2024, and in exchange for consulting services provided, the consultant is to receive a monthly retainer of $10,417 ($125,000 annually). The pro forma condensed combined statement of operations for the year ended December 31, 2023 and the three months ended March 31, 2024 recognize consulting expenses from the second consulting agreement of $125,000 and $31,250, respectively.
| E. | Effect of the Standard Acquisition on Salaries and Salary Related Costs |
As a result of the Standard Acquisition, Standard had a reduction in headcount that resulted in decreased salary and salary related expenses. This effect is reflected in the pro forma condensed combined statement of operations for the year ended December 31, 2023 and three months ended March 31, 2024 as $73,639 and $19,526, respectively.
| F. | The Closing Notes |
The Company partially funded the cash consideration for the Standard Acquisition by issuing a series of note payables (the “Closing Notes”) with an aggregate principal amount of $590,000. Information related to these note payables is shown below.
| Effective Date | Maturity Date | Interest Rate | Principal | |||||||||
| Note Payables | $ | |||||||||||
| Lender A – Closing Note #1 | 5/30/2024 | 9/30/2024 | 10 | % | 50,000 | |||||||
| Lender A – Closing Note #2 | 5/31/2024 | 6/7/2024 | 10 | % | 100,000 | |||||||
| Lender A – Closing Note #3 | 6/7/2024 | 9/30/2024 | 10 | % | 90,000 | |||||||
| $ | 240,000 | |||||||||||
| Related Party Note Payables | ||||||||||||
| Lender B – Closing Note #4 | 5/30/2024 | 9/30/2024 | 10 | % | $ | 200,000 | ||||||
| Lender C – Closing Note #5 | 5/30/2024 | 6/28/2024 | 10 | % | 50,000 | |||||||
| Lender D – Closing Note #6 | 5/30/2024 | 9/30/2024 | 10 | % | 100,000 | |||||||
| $ | 350,000 | |||||||||||
The pro forma statement of operations for the year ended December 31, 2023, recognizes interest expense from the Closing Notes of $15,219, which assumes the repayments of the notes based on their contractual terms.
| G. | Elimination of the Historical Members’ Equity Balance of Standard |
The pro forma financial statements account for the Standard Acquisition as a business combination in accordance with ASC 805 - Business Combinations, with the Company treated as the accounting acquirer and Standard treated as the accounting acquiree. As the accounting acquiree, Standard’s legal capital of $2,553,057 was eliminated and the Company has acquired Standard’s assets and assumed Standard’s liabilities. Therefore, the transaction adjustment eliminates the historical Members’ Equity balance of Standard.
NOTE 3 — PRO FORMA NET LOSS PER SHARE
The pro forma basic and diluted net loss per share amounts were calculated using the Company’s historical weighted average common shares outstanding for the three months ended March 31, 2024 and the year ended December 31, 2023. The following table presents the computation of pro forma basic and diluted net loss per share:
| March 31, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Numerator: | ||||||||
| Pro forma net loss | $ | (3,620,630 | ) | $ | (155,662,706 | ) | ||
| Denominator: | ||||||||
| Weighted average common shares outstanding (basic and diluted) | 222,067,042 | 170,715,695 | ||||||
| Pro forma basic and diluted net loss per share | $ | (0.02 | ) | $ | (0.91 | ) | ||
NOTE 4 — INCOME TAXES
The pro forma condensed combined financial statements do not include an income tax provision as it is more likely than not that the Company will not be able to utilize the loss carry forwards. Titan Environmental Solutions Inc. is subject to income taxation in the U.S. federal tax jurisdiction and various state tax jurisdictions. The Company and its U.S. subsidiaries file a consolidated federal income tax return and is taxed as a C-Corporation, whereby it is subject to federal and state income taxes.