Transportation & Logistics Systems, Inc 8-K/A, filed Jun 20, 2023
Transportation & Logistics Systems, Inc. (TLSS)
About this 8-K/A
Transportation & Logistics Systems, Inc filed this 8-K/A on June 20, 2023, reporting on events of September 16, 2022.
Items reported
- Item 9.01: Financial statements and exhibits
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
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CURRENT REPORT
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Forward Looking Statements
Statements in this report regarding Transportation and Logistics Systems, Inc. (the “Company”) that are not historical facts are forward-looking statements and are subject to risks and uncertainties that could cause actual future events or results to differ materially from such statements. Any such forward-looking statements, including, but not limited to, financial guidance, are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include all statements that do not directly or exclusively relate to historical facts. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “would,” “expects,” “plans,” “anticipates,” “intend,” “plan,” “goal,” “seek,” “strategy,” “future,” “likely,” “believes,” “estimates,” “projects,” “forecasts,” “predicts,” “potential,” or the negative of those terms, and similar expressions and comparable terminology. These include, but are not limited to, statements relating to future events or our future financial and operating results, plans, objectives, expectations, and intentions. Although we believe that the expectations reflected in these forward-looking statements are reasonable, these expectations may not be achieved. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they represent our intentions, plans, expectations, assumptions, and beliefs about future events and are subject to known and unknown risks, uncertainties and other factors outside of our control that could cause our actual results, performance or achievement to differ materially from those expressed or implied by these forward-looking statements. In addition to the risks described above, these risks and uncertainties include: our ability to successfully execute our business strategies, including integration of acquisitions and the future acquisition of other businesses to grow our company; customers’ cancellation on short notice of master service agreements from which we derive a significant portion of our revenue or our failure to renew such master service agreements on favorable terms or at all; our ability to attract and retain key personnel and skilled labor to meet the requirements of our labor-intensive business or labor difficulties which could have an effect on our ability to bid for and successfully complete contracts; the ultimate geographic spread, duration and severity of the coronavirus outbreak and the effectiveness of actions taken, or actions that may be taken, by governmental authorities to contain the outbreak or ameliorate its effects; our failure to compete effectively in our highly competitive industry could reduce the number of new contracts awarded to us or adversely affect our market share and harm our financial performance; our ability to adopt and master new technologies and adjust certain fixed costs and expenses to adapt to our industry’s and customers’ evolving demands; our history of losses, deficiency in working capital and stockholders’ equity and our ability to achieve sustained profitability; remaining weaknesses in our internal control over financial reporting and our ability to maintain effective controls over financial reporting in the future; our remaining liabilities and indebtedness could adversely affect our business, financial condition and results of operations and our ability to meet our payment obligations; unanticipated and materially adverse developments in our few remaining litigations; the impact of new or changed laws, regulations or other industry standards that could adversely affect our ability to conduct our business; and changes in general market, economic and political conditions in the United States and global economies or financial markets, including those resulting from natural or man-made disasters.
These forward-looking statements represent our estimates and assumptions only as of the date of this report and, except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this report. Given these uncertainties, you should not place undue reliance on these forward-looking statements and should consider various factors, including the risks described, among other places, in our most recent Annual Report on Form 10-K and in our Quarterly Reports on Form 10-Q, as well as any amendments thereto, filed with the Securities and Exchange Commission.
Explanatory Note
On September 20, 2022, Transportation and Logistics Systems, Inc. (OTC PINK: TLSS) (“TLSS or the “Company”) filed a Current Report on Form 8-K (the “Initial Filing”) disclosing that, on September 16, 2022, the Company, through its wholly-owned subsidiary, TLSS-FC, Inc., closed on an acquisition of all outstanding stock of Freight Connections, Inc., a New Jersey-based company offering an array of transportation, warehousing, consolidating, distribution, and local cartage services throughout the tri-state area (“Freight Connections”) .
This Amendment No. 1 on Form 8-K/A amends the Initial Filing to include the required historical financial statements of Freight Connections and the pro forma financial information required by Items 9.01(a) and 9.01(b) of Form 8-K and should be read in conjunction with the Initial Filing.
The pro forma financial information included as Exhibit 99.2 to this Current Report on Form 8-K/A has been presented for informational purposes only, as required by Form 8-K, and does not purport to represent the actual results of operations that the Company and Freight Connections would have achieved had the companies been combined at and during the period presented in the pro forma financial information, and is not intended to project the future results of operations that the combined company may achieve following the Transaction.
Except as described above, all other information in the Initial Filing remains unchanged.
Item 9.01 Financial Statements and Exhibits.
(a) Financial statements of business acquired
The audited financial statements of Freight Connections, Inc. as of December 31, 2021, and December 31, 2020, and for the years then ended, are filed as Exhibit 99.1.
(b) Pro forma financial information
The unaudited pro forma condensed combined financial information of Transportation and Logistics Systems, Inc. and Freight Connections, Inc. as of June 30, 2022, and the six months ended June 30, 2022, for the year ended December 31, 2022, and for the year ended December 31, 2021, is filed as Exhibit 99.2
(d) Exhibits
| Exhibit No. | Description | |
| 99.1 | Audited financial statements of Freight Connections, Inc. as of December 31, 2021 and 2020, and for the years then ended | |
| 99.2 | Unaudited pro forma combined financial information of Transportation and Logistics Systems, Inc. and Freight Connections, Inc. as of June 30, 2022, and the six months ended June 30, 2022, for the year ended December 31, 2022, and for the year ended December 31, 2021 | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
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.
| Dated: June 20, 2023 | TRANSPORTATION AND LOGISTICS SYSTEMS, INC. | |
| By: | /s/ Sebastian Giordano | |
| Name: | Sebastian Giordano | |
| Title: | Chief Executive Officer | |
Exhibit 99.1
FREIGHT CONNECTIONS, INC.
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2021 AND 2020
FREIGHT CONNECTIONS, INC.
INDEX TO FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
| F-1 |
Report of Independent Registered Public Accounting Firm
To the Shareholder of:
Freight Connections, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Freight Connections, Inc. (the “Company”) as of December 31, 2021 and 2020, the related statements of operations, changes in shareholder’s equity, and cash flows, for each of the two years in the period ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on 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 the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB 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 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 provide 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. We determined that there are no critical audit matters.
/S/ Salberg & Company, P.A.
SALBERG & COMPANY, P.A.
We have served as the Company’s auditor since 2022.
Boca Raton, Florida
June 16, 2023
2295 NW Corporate Blvd., Suite 240 • Boca Raton, FL 33431
Phone: (561) 995-8270 • Toll Free: (866) CPA-8500 • Fax: (561) 995-1920
www.salbergco.com • info@salbergco.com
Member National Association of Certified Valuation Analysts • Registered with the PCAOB
Member CPAConnect with Affiliated Offices Worldwide • Member Center for Public Company Audit Firms
| F-2 |
BALANCE SHEETS
| December 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash | $ | 88,659 | $ | 292,622 | ||||
| Accounts receivable, net | 1,697,018 | 782,729 | ||||||
| Prepaid expenses and other current assets | 36,963 | 5,874 | ||||||
| Total Current Assets | 1,822,640 | 1,081,225 | ||||||
| LONG-TERM ASSETS: | ||||||||
| Security deposits | 120,000 | 83,333 | ||||||
| Property and equipment, net | 830,090 | 583,520 | ||||||
| Total Long-Term Assets | 950,090 | 666,853 | ||||||
| TOTAL ASSETS | $ | 2,772,730 | $ | 1,748,078 | ||||
| LIABILITIES AND SHAREHOLDER’S EQUITY | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Notes payable, current portion | $ | 394,235 | $ | 383,243 | ||||
| Factor financing payable | - | 265,769 | ||||||
| Accounts payable | 333,134 | 402,330 | ||||||
| Accrued expenses | 204,000 | 208,141 | ||||||
| Income taxes payable | 598,755 | 155,363 | ||||||
| Total Current Liabilities | 1,530,124 | 1,414,846 | ||||||
| LONG-TERM LIABILITIES: | ||||||||
| Notes payable, net of current portion | 354,653 | 205,886 | ||||||
| Total Long-Term Liabilities | 354,653 | 205,886 | ||||||
| Total Liabilities | 1,884,777 | 1,620,732 | ||||||
| Commitments and Contingencies (See Note 7) | ||||||||
| SHAREHOLDER’S EQUITY: | ||||||||
| Common stock, no par value; 1,000 shares authorized; 1,000 shares issued and outstanding at December 31, 2021 and 2020, respectively | 127,346 | 127,346 | ||||||
| Retained earnings | 760,607 | - | ||||||
| Total Shareholder’s Equity | 887,953 | 127,346 | ||||||
| Total Liabilities and Shareholder’s Equity | $ | 2,772,730 | $ | 1,748,078 | ||||
See accompanying notes to financial statements.
| F-3 |
STATEMENTS OF OPERATIONS
| For the Year Ended | ||||||||
| December 31, | ||||||||
| 2021 | 2020 | |||||||
| REVENUES | $ | 8,919,377 | $ | 6,356,267 | ||||
| COST OF REVENUES | 4,820,965 | 3,575,566 | ||||||
| GROSS PROFIT | 4,098,412 | 2,780,701 | ||||||
| OPERATING EXPENSES: | ||||||||
| Compensation and related benefits | 702,577 | 850,331 | ||||||
| Rent | 1,362,016 | 996,752 | ||||||
| General and administrative expenses | 596,890 | 398,304 | ||||||
| Total Operating Expenses | 2,661,483 | 2,245,387 | ||||||
| INCOME FROM OPERATIONS | 1,436,929 | 535,314 | ||||||
| OTHER INCOME (EXPENSES): | ||||||||
| Interest expense | (41,461 | ) | (27,438 | ) | ||||
| Gain on debt extinguishment | 82,504 | - | ||||||
| Other income | - | 10,000 | ||||||
| Total Other Income (Expenses) | 41,043 | (17,438 | ) | |||||
| INCOME BEFORE INCOME TAXES | 1,477,972 | 517,876 | ||||||
| Provision for income taxes | (443,392 | ) | (155,363 | ) | ||||
| NET INCOME | $ | 1,034,580 | $ | 362,513 | ||||
| NET INCOME PER COMMON SHARE - BASIC AND DILUTED | ||||||||
| Basic and Diluted | $ | 1,034.58 | $ | 362.51 | ||||
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: | ||||||||
| Basic and Diluted | 1,000 | 1,000 | ||||||
See accompanying notes to financial statements.
| F-4 |
STATEMENTS OF CHANGES IN SHAREHOLDER’S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020
| Retained Earnings | Total | |||||||||||||||
| Common Stock | (Accumulated | Shareholder’s | ||||||||||||||
| Shares | Amount | Deficit) | Equity | |||||||||||||
| Balance, December 31, 2019 | 1,000 | $ | 366,461 | $ | (235,587 | ) | $ | 130,874 | ||||||||
| Shareholder distributions, net | - | (239,115 | ) | (126,926 | ) | (366,041 | ) | |||||||||
| Net income | - | - | 362,513 | 362,513 | ||||||||||||
| Balance, December 31, 2020 | 1,000 | 127,346 | - | 127,346 | ||||||||||||
| Shareholder distributions, net | - | - | (273,973 | ) | (273,973 | ) | ||||||||||
| Net income | - | - | 1,034,580 | 1,034,580 | ||||||||||||
| Balance, December 31, 2021 | 1,000 | $ | 127,346 | $ | 760,607 | $ | 887,953 | |||||||||
See accompanying notes to financial statements.
| F-5 |
STATEMENTS OF CASH FLOWS
| For the Year Ended | ||||||||
| December 31, | ||||||||
| 2021 | 2020 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net income | $ | 1,034,580 | $ | 362,513 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation and amortization expense | 114,523 | 70,931 | ||||||
| Non-cash portion of gain on extinguishment of debt, net | (82,504 | ) | - | |||||
| Bad debt expense | 138,757 | 21,921 | ||||||
| Change in operating assets and liabilities: | ||||||||
| Accounts receivable | (1,053,046 | ) | (150,902 | ) | ||||
| Prepaid expenses and other current assets | (31,089 | ) | 193,765 | |||||
| Security deposit | (36,667 | ) | (8,333 | ) | ||||
| Accounts payable and accrued expenses | (73,337 | ) | (203,319 | ) | ||||
| Income taxes payable | 443,392 | 155,363 | ||||||
| NET CASH PROVIDED BY OPERATING ACTIVITIES | 454,609 | 441,939 | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of property and equipment | (361,093 | ) | (202,423 | ) | ||||
| NET CASH USED IN INVESTING ACTIVITIES | (361,093 | ) | (202,423 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from overdrawn bank account | - | 73,237 | ||||||
| Proceeds from factor advances | 1,316,670 | 2,172,117 | ||||||
| Repayment of factor advances | (1,582,439 | ) | (2,148,844 | ) | ||||
| Proceeds from notes payable | 395,977 | 429,997 | ||||||
| Repayment of notes payable | (153,714 | ) | (107,360 | ) | ||||
| Net shareholder distributions | (273,973 | ) | (366,041 | ) | ||||
| NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES | (297,479 | ) | 53,106 | |||||
| NET (DECREASE) INCREASE IN CASH | (203,963 | ) | 292,622 | |||||
| CASH, beginning of year | 292,622 | - | ||||||
| CASH, end of year | $ | 88,659 | $ | 292,622 | ||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | ||||||||
| Cash paid for: | ||||||||
| Interest | $ | 41,461 | $ | 27,438 | ||||
| Income taxes | $ | - | $ | - | ||||
See accompanying notes to financial statements.
| F-6 |
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2021 and 2020
NOTE 1 – ORGANIZATION AND BUSINESS OPERATIONS
Freight Connections, Inc. (“FC” or the “Company”) is a company incorporated under the laws of the State of New Jersey, on June 9, 2016. The Company offers an array of transportation, warehousing, consolidating, distribution, and local cartage services throughout the New York tri-state area. Freight Connections was founded in 2016 and is a privately held transportation and logistics carrier headquartered in Ridgefield Park, New Jersey. The Company currently operates with 30 power units and 50 trailers, including dry vans, pups, flatbeds, step decks, and double drop trailers out of three buildings in the area with 200,000 square feet of warehouse and cross dock space, strategically located within one mile of each other. Freight Connections offers customers an array of services including truckload, LTL, and consolidating of cartage, construction-trade, air, and rail freight, as well as warehousing and distribution services.
Effective September 16, 2022, the Company sold all its outstanding stock to TLSS-FC, Inc., a wholly owned subsidiary of Transportation and Logistics, Inc., a publicly-traded company (“TLSS”). TLSS is a holding company incorporated under the laws of the State of Nevada, on July 25, 2008. Its active wholly-owned operating subsidiaries, Cougar Express, Inc., Freight Connections, Inc., JFK Cartage, Inc. and Severance Trucking Co., Inc. (along with Severance Warehousing, Inc. and McGrath Leasing, Inc., together Severance Trucking, Inc.), together provide a full suite of logistics and transportation services, specializing in ecommerce fulfillment, last mile deliveries, two-person home delivery, mid-mile, and long-haul services.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION
Basis of presentation
This summary of significant accounting policies of the Company are presented to assist in understanding the Company’s financial statements. The financial statements and the notes are the representation of the Company’s management, who are responsible for their integrity and objectivity. These accounting policies conform to U.S. generally accepted accounting principles (“US GAAP”) and have been consistently applied in the preparation of the financial statements.
Risks and uncertainties
The Company maintains its cash in bank and financial institution deposits that at times may exceed federally insured limits. On December 31, 2021, cash in bank did not exceed FDIC insured level. On December 31, 2020, the Company had approximately $42,622 of cash in excess of FDIC limits of $250,000. To date, the Company has not experienced any losses on its invested cash.
Use of estimates
The preparation of the financial statements, in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Significant estimates included in the accompanying financial statements and footnotes include the valuation of accounts receivable, the useful life of property and equipment, assumptions used in assessing impairment of long-lived assets, estimates of current and deferred income taxes, and the value of claims against the Company.
Fair value of financial instruments
The Financial Accounting Standards Board (“FASB”) issued ASC 820 — Fair Value Measurements and Disclosures, which defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 requires disclosures about the fair value of all financial instruments, whether or not recognized, for financial statement purposes. Disclosures about the fair value of financial instruments are based on pertinent information available to the Company on December 31, 2021. Accordingly, the estimates presented in these financial statements are not necessarily indicative of the amounts that could be realized on disposition of the financial instruments. ASC 820 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement).
The three levels of the fair value hierarchy are as follows:
| ● | Level 1-Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date. | |
| ● | Level 2-Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data. | |
| ● | Level 3-Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information. |
| F-7 |
FREIGHT CONNECTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2021 and 2020
The Company measures certain financial instruments at fair value on a recurring basis. As of December 31, 2021 and 2020, the Company had no assets and liabilities measured at fair value on a recurring basis.
ASC 825-10 “Financial Instruments”, allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstanding instruments.
The carrying amounts reported in the balance sheets for cash, accounts receivable, prepaid expenses and other current assets, accounts payable, accrued expenses and income taxes payable approximate their fair values based on the short-term maturity of these instruments. The carrying amount of the Company’s promissory note and factor payable obligations approximate fair value, as the terms of these instruments are consistent with terms available in the market for instruments with similar risk.
Cash and cash equivalents
For purpose of the statements of cash flows, the Company considers all highly liquid instruments with a maturity of three months or less at the purchase date and money market accounts to be cash equivalents. On December 31, 2021 and 2020, the Company did not have any cash equivalents.
Accounts receivable
Accounts receivable are presented net of an allowance for doubtful accounts. The Company maintains allowances for doubtful accounts for estimated losses. The Company reviews the accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, a customer’s historical payment history, its current credit-worthiness and current economic trends. Accounts are written off after exhaustive efforts at collection.
Property and equipment
Property and equipment are stated at cost and are depreciated using the straight-line method over their estimated useful lives of five to twenty years. Leasehold improvements are depreciated over the shorter of the useful life or lease term including scheduled renewal terms. Revenue equipment acquired through acquisitions is generally revalued to current market values as of the acquisition date. Assets obtained more than a year prior to the acquisition by the acquired company are depreciated on a straight-line basis aligned with the remaining period of expected use, whereas those obtained less than a year prior are depreciated consistent with newly purchased assets. In addition to purchasing new revenue equipment, the Company may rebuild the engines of its tractors. Because rebuilding an engine increases its useful life, the Company capitalizes these costs and depreciates the cost over the remaining useful life of the unit. Maintenance and repairs are charged to expense as incurred. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition. The Company examines the possibility of decreases in the value of these assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable.
Impairment of long-lived assets
In accordance with ASC Topic 360, the Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value.
Segment reporting
The Company uses “the management approach” in determining reportable operating segments. The management approach considers the internal organization and reporting used by the Company’s chief operating decision maker for making operating decisions and assessing performance as the source for determining the Company’s reportable segments. The Company’s chief operating decision maker is the chief executive officer of the Company, who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company. During the year ended December 31, 2021 and 2020, the Company believes that it operates in one operating segment related to its full suite of logistics and transportation services, specializing in ecommerce fulfillment, last mile deliveries, two-person home delivery, mid-mile, and long-haul services.
| F-8 |
FREIGHT CONNECTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2021 and 2020
Revenue recognition and cost of revenue
The Company adopted Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers. This ASC is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASC also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer service orders, including significant judgments.
The Company recognizes revenues and the related direct costs of such revenue which generally include compensation and related benefits, gas costs, insurance, parking and tolls, truck rental fees, and maintenance fees, as of the date the freight is delivered which is when the performance obligation is satisfied. In accordance with ASC Topic 606, the Company recognizes revenue on a gross basis. Our payment terms are generally net thirty days from acceptance of delivery. The Company does not incur incremental costs obtaining service orders from its customers, however, if the Company did, because all of the Company’s customer contracts are less than a year in duration, any contract costs incurred would be expensed rather than capitalized. The revenue that the Company recognizes arises from deliveries of packages on behalf of the Company’s customers. Primarily, the Company’s performance obligations under these service orders correspond to each delivery of packages that the Company makes under the service agreements. Control of the package transfers to the recipient upon delivery. Once this occurs, the Company has satisfied its performance obligation and the Company recognizes revenue.
The Company covers a 100-mile radius around each of its terminals and each individual shipment accepted by the Company is considered a separate contract with the performance obligation being the delivery of the freight. Our average length of haul for each load of freight generally equals less than one week of continuous transit time.
The Company’s revenues are primarily derived from the transportation services we provide through the delivery of goods over the duration of a shipment. The bill of lading is a legally enforceable agreement between two parties, and where collectability is probable this document serves as the contract as our basis to recognized revenue under ASC 606- Revenue Recognition. The Company has elected to expense initial direct costs as incurred because the average shipment cycle is less five days. The Company recognizes revenue and substantially all the purchased transportation expenses on a gross basis. Direct costs of such revenue generally include compensation and related benefits, gas costs, insurance, parking and tolls, truck rental fees, and maintenance fees. The Company directs the use of the transportation service provided and remains responsible for the complete shipment. The Company recognizes revenue for its performance obligation under its customer contracts over time, as its customers receive the benefits of the services in accordance with ASC 606- Revenue Recognition.
Inherent within the Company’s revenue recognition practices are estimates for revenue associated with shipments in transit. For shipments in transit, the Company records revenue based on the percentage of service completed as of the period end and recognizes delivery costs as incurred. The percentage of service completed for each shipment is based on how far along in the shipment cycle each shipment is in relation to standard transit days. The estimated portion of revenue for all shipments in transit is accumulated at period end and recognized as operating revenue. The significance of in transit shipments to the financial statements is limited due to the short duration, generally less than five days, of the average shipment cycle. On December 31, 2021 and 2020, any reductions to operating revenue and accounts receivable to reflect in transit shipments were insignificant.
Revenue generated from warehousing services is generally recognized as the service is performed, which is the passage of time, based upon a monthly or weekly rate.
The following table summarizes the Company’s revenue by service for the years ended December 31, 2021 and 2020:
| For the Years Ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| Transportation services | $ | 7,983,644 | $ | 5,428,027 | ||||
| Warehousing services | 935,733 | 928,240 | ||||||
| Total | $ | 8,919,377 | $ | 6,356,267 | ||||
Basic and diluted income per share
Pursuant to ASC 260-10-45, basic (loss) income per common share is computed by dividing net (loss) income attributable to common shareholders by the weighted average number of shares of common stock outstanding for the periods presented. Diluted (loss) income per share is computed by dividing net (loss) income attributable to common shareholders by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during the period. As of December 31, 2021 and 2020, the Company did not have any potentially dilutive securities.
| F-9 |
FREIGHT CONNECTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2021 and 2020
Income tax
Deferred income tax assets and liabilities arise from temporary differences between the financial statements and tax basis of assets and liabilities, as measured by the enacted tax rates, which are expected to be in effect when these differences reverse. Deferred tax assets and liabilities are classified as current or non-current, depending upon the classification of the asset or liabilities to which they relate. Deferred tax assets and liabilities not related to an asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
The Company follows the provisions of FASB ASC 740-10, “Uncertainty in Income Taxes”. Certain recognition thresholds must be met before a tax position is recognized in the financial statements. An entity may only recognize or continue to recognize tax positions that meet a “more-likely-than-not” threshold. The Company does not believe it has any uncertain tax positions as of December 31, 2021 and 2020 that would require either recognition or disclosure in the accompanying financial statements.
Recent accounting pronouncements
In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40)—Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The ASU simplifies accounting for convertible instruments by removing major separation models required under current GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for the exception. The ASU also simplifies the diluted net income per share calculation in certain areas. The new guidance is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years, and early adoption is permitted. The Company is currently evaluating the impact of the adoption of the standard on the financial statements.
In February 2016, the FASB issued ASC 842, ASU 2016-02, Leases (Topic 842), which was amended by subsequent Accounting Standard Updates (“ASUs”), to enhance the comparability and usefulness of financial reporting around leasing activity. The new standard supersedes the existing authoritative literature for lease accounting under ASC 840, with a focus on applying a “right-of-use model.” The guidance for leases under ASC 842 results in a right-of-use asset (“ROU asset”) and lease liability being reported on the balance sheet for leases with a lease term greater than twelve months. The Company is currently evaluating the effect of the adoption of this standard on the Company’s balance sheets, statements of operations, and statements of cash flows.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses, which replaces the incurred loss impairment methodology in current US GAAP with a methodology that requires the reflection of expected credit losses and also requires consideration of a broader range of reasonable and supportable information to determine credit loss estimates. It also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. For most financial instruments, the standard requires the use of a forward-looking expected loss model rather than the incurred loss model for recognizing credit losses, which generally results in the earlier recognition of credit losses on financial instruments. The Company adopted ASC 2016-13 on January 1, 2023. The impact of adopting the new standard did not have a material impact on the Company’s financial statements.
There are currently no other accounting standards that have been issued but not yet adopted that we believe will have a significant impact on our financial position, results of operations or cash flows upon adoption.
NOTE 3 – ACCOUNTS RECEIVABLE
On December 31, 2021 and 2020, accounts receivable, net consisted of the following:
| December 31, 2021 | December 31, 2020 | |||||||
| Accounts receivable | $ | 1,927,340 | $ | 874,294 | ||||
| Allowance for doubtful accounts | (230,322 | ) | (91,565 | ) | ||||
| Accounts receivable, net | $ | 1,697,018 | $ | 782,729 | ||||
| F-10 |
FREIGHT CONNECTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2021 and 2020
During the years ended December 31, 2021 and 2020, the Company recorded bad debt expenses of $138,757 and $21,921, respectively, which is included in general and administrative expenses on the accompanying statements of operations.
NOTE 4 - PROPERTY AND EQUIPMENT
On December 31, 2021 and 2020, property and equipment consisted of the following:
| Useful Life | December 31, 2021 | December 31, 2020 | ||||||||
| Revenue equipment | 2 - 20 years | $ | 1,017,411 | $ | 688,663 | |||||
| Machinery and equipment | 2 - 15 years | 147,014 | 116,614 | |||||||
| Office equipment and furniture | 2 - 3 years | 11,041 | 9,096 | |||||||
| Subtotal | 1,175,466 | 814,373 | ||||||||
| Less: accumulated depreciation | (345,376 | ) | (230,853 | ) | ||||||
| Property and equipment, net | $ | 830,090 | $ | 583,520 | ||||||
For the years ended December 31, 2021 and 2020, depreciation expenses are included in general and administrative expenses and amounted to $114,523 and $70,931, respectively.
NOTE 5 – NOTES PAYABLE AND LINE OF CREDIT
Promissory notes
During 2021 and 2020, the Company maintained merchant loans with Paypal. These loans bear interest ranging from 12% to 16% per annum and require monthly payments of principal and interest. As of December 31, 2021 and 2020, the merchant loan balance amounted to $50,000 and $0, respectively, which was due in full and fully repaid during December 2022.
Equipment notes payable
In connection with the acquisition of revenue equipment and machinery and equipment, the Company entered into promissory notes. The notes bear interest ranging from 4.0% to 16.5% are due in monthly installments through 2026. The notes are secured by the underlying equipment. On December 31, 2021 and 2020, the equipment notes payable to various entities amounted to $520,763 and $326,274, respectively.
Small Business Administration Promissory Notes
In June 2020, the Company entered into a promissory note with the Small Business Administration (“SBA”)” in the amount of $150,000. On December 31, 2021 and 2020, principal amounts outstanding under the SBA promissory note amounted to $150,000. In September 2022, this promissory note was repaid in full.
During 2020, the Company entered into a Paycheck Protection Program promissory note (the “PPP Loan”) in the amount of $82,504 under the SBA Paycheck Protection Program of the CARES Act. The Company filed for forgiveness of this loan and on May 7, 2021, the Company received a Notice of Paycheck Protection Program Forgiveness Payment from the SBA. Accordingly, during the year ended December 31, 2021, the PPP Loan was reversed and the Company recorded a gain on debt extinguishment of $82,504, which is included in other income on the accompanying statement of operations. On December 31, 2021 and 2020, principal amounts outstanding under the PPP Loan amounted to $0 and $82,504, respectively.
Line of credit
During 2021 and 2020. the Company maintained a $35,000 line of credit with the bank. This line of credit incurred interest at 8.25% per annum and is payable on demand. On December 31, 2021 and 2020, principal amounts outstanding under the line of credit amounted to $28,125 and $30,351, respectively.
On December 31, 2021 and 2020, notes payable consisted of the following:
| December 31, 2021 | December 31, 2020 | |||||||
| Principal amounts | $ | 748,888 | $ | 589,129 | ||||
| Less: current portion of notes payable and line of credit | (394,235 | ) | (383,243 | ) | ||||
| Notes payable – long-term | $ | 354,653 | $ | 205,886 | ||||
| F-11 |
FREIGHT CONNECTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2021 and 2020
As of December 31, 2021, future maturities of notes payable are as follows:
| Year ending December 31: | Amount | |||
| 2022 | $ | 394,235 | ||
| 2023 | 132,293 | |||
| 2024 | 124,336 | |||
| 2025 | 76,138 | |||
| 2026 | 21,886 | |||
| $ | 748,888 | |||
NOTE 6– FACTOR FINANCING PAYABLE
On April 30, 2019, the Company entered into a Factoring and Security Agreement (the “Factoring Agreement”) with a third party (“Factor”) whereby the Factor agreed to purchase certain accounts receivable, with recourse, from the Company (the “Purchased Receivables”) and the Factor will advance funds to the Company, less any discounts and fees or amounts held in reserve. The Company shall pay to the Factor a factoring fee upon purchase of receivables by the Factor equal to 2.50% of the gross face value of the purchased receivable and an advance fee of 1% of the purchased amount. Additionally, on past due Purchased Receivables, the Company shall pay the Factor a default discount fee on the past due Purchased Receivables of 0.027% per day.
During the year ended December 31, 2021 and 2020, the Company paid $31,199 and $61,015 in factoring fees, respectively. These amounts are included in general and administrative expenses in the accompanying statements of operations.
During the year ended December 31, 2021, the Company received factor advances of $1,316,670 and repaid factor advances of $1,582,439. During the year ended December 31, 2020, the Company received factor advances of $2,172,117 and repaid factor advances of $2,148,844.
As of December 31, 2021 and 2020, the Company owed the Factor $0 and $265,769 under the Factoring Agreement, respectively.
In December 2021, the Factor Agreement was terminated.
NOTE 7 – COMMITMENTS AND CONTINGENCIES
Legal matters
From time to time, we may be involved in litigation or receive claims arising out of our operations in the normal course of business. Other than discussed below, we are not currently a party to any other legal proceeding or are aware of claims that we believe would, if decided adversely, have a material adverse effect on our business, financial condition, or operating results. We also disclose any recent settlements and accruals taken in connection therewith, whether material or not.
Elaine Pryor v. Rocio Perez, et al.
The Company is one of three (3) named defendants in an action captioned Elaine Pryor v. Rocio Perez, North Trucking & Logistics, LLC and Freight Connections, Inc. The case is pending in Superior Court of New Jersey, Essex County, Docket No. ESX-L-5147-18.
In this action, which was filed in 2018, plaintiff alleges that on February 1, 2017, she suffered personal injuries in a collision between her motor vehicle and a truck operated by a then employee of the Company. Plaintiff alleges that the truck was owned by the Company and leased to North Trucking & Logistics at the time.
At present, there are two other actions pending related to insurance coverage for the accident. They are Acceptance Indemnity Insurance Company v. Freight Connections, LLC (Superior Court of New Jersey, Essex County, Docket No. ESX-L-7144-19) and New Jersey Manufacturers Insurance Company, as subrogee of Elaine Pryor v. Acceptance Indemnity Insurance Company (Superior Court of New Jersey, Essex County, Docket No. ESX-L-5120). These two actions involving insurance coverage questions have been consolidated with the Pryor personal injury claim.
In an opinion issued November 16, 2022, the court denied all parties’ motions for summary judgment on the insurance coverage issues.
The truck in question was not owned by the Company at the time of the accident. The Company is currently investigating this issue as well as who the driver’s employer was at the time of the accident.
| F-12 |
FREIGHT CONNECTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2021 and 2020
Owing to (among other things) the above uncertainties, it is not possible to evaluate the likelihood of a favorable or unfavorable outcome, nor is it possible to estimate the amount or range of any potential loss in the matter.
Other than discussed above, as of December 31, 2021, and as of the date of this filing, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect on the Company’s results of our operations.
Operating lease agreements
Effective June 1, 2017 and amended on March 1, 2018, the Company entered into a commercial sublease agreement for the lease of office, warehouse and parking spaces under an operating lease through September 2026 for a monthly base rate rent ranging from $66,877 to $75,171 plus common area maintenance and other charges.
Effective April 1, 2021, the Company entered into a lease agreement for the lease of office and warehouse space and parking spaces under a non-cancelable operating lease through March 31, 2026 for a monthly base rate rent ranging from $29,500 to $33,203 plus common area maintenance and other charges.
For the year ended December 31, 2021 and 2020, rent expenses amounted to $1,362,016 and $996,752, respectively.
On December 31, 2021, future minimum lease payments due under operating leases is as follows:
| Year | Amount | |||
| 2022 | $ | 1,170,509 | ||
| 2023 | 1,205,624 | |||
| 2024 | 1,241,793 | |||
| 2025 | 1,279,047 | |||
| 2026 | 777,044 | |||
| Total | $ | 5,674,017 | ||
NOTE 8– RELATED PARTY TRANSACTIONS
During the years ended December 31, 2021 and 2020, the Company incurred outside trucking costs, outside labor costs and other dumpster and warehouse costs with companies owned by the Company’s chief executive officer. In connection with these costs, the Company recorded aggregate outside trucking expense, outside labor costs and other warehouse costs of $1,338,941 and $35,627, which is included in costs of sales on the accompanying statement of operations, respectively. As of December 31, 2021 and 2020, the Company did not owe these companies any amounts.
NOTE 9 – CONCENTRATIONS
For the years ended December 31, 2021 and 2020, one customer represented 11.9% and 16.3% of the Company’s total net revenues, respectively.
On December 31, 2021 and 2020, no customer represented over 10.0% of the Company’s net accounts receivable balance.
All revenues are derived from customers in the United States.
NOTE 10 – SHAREHOLDER’S EQUITY
In 2016, the Company issued 1,000 shares of its common stock to its sole shareholder. As of December 31, 2021 and 2020, the Company had 1,000 common shares issued and outstanding.
During the years ended December 31, 2021 and 2020, the Company made net distributions to the sole shareholder of $366,041 and $273,973, respectively. The Company first applies any net distribution against retained earnings and if there is no retained earnings, the remainder is applied to common stock.
| F-13 |
FREIGHT CONNECTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2021 and 2020
NOTE 11 – INCOME TAXES
The Company accounts for income tax using the liability method prescribed by ASC 740, “Income Taxes”. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the year in which the differences are expected to reverse.
The items accounting for the difference between income taxes at the effective statutory rate and the Company’s effective tax rate for the years ended December 31, 2021 and 2020 were as follows:
Year Ended December 31, 2021 | Year Ended December 31, 2020 | |||||||
| Income tax provision at U.S. statutory rate | 21.0 | % | 21.0 | % | ||||
| Income tax provision – State | 9.0 | % | 9.0 | % | ||||
| Permanent items | - | % | - | % | ||||
| Effect of change in valuation allowance | - | % | - | % | ||||
| Effective income tax rate | 30.0 | % | 30.0 | % | ||||
As of December 31, 2021 and 2020, the Company did not have any temporary timing difference that would require a deferred tax asset or liability.
The Company does not have any uncertain tax positions or events leading to uncertainty in a tax position. The Company’s 2018 to 2021 Corporate Income Tax Returns are subject to Internal Revenue Service examination.
NOTE 12 – SUBSEQUENT EVENTS
In preparing these financial statements, the Company evaluated events that occurred after the balance sheet date through June 16, 2023, which is the date the financial statements were available to be issued.
Acquisition
Effective September 16, 2022, the Company sold all its outstanding stock to TLSS-FC, Inc., a wholly owned subsidiary of Transportation and Logistics, Inc., a publicly-traded company (“TLSS”). TLSS is a holding company incorporated under the laws of the State of Nevada, on July 25, 2008. Its active wholly-owned operating subsidiaries, Cougar Express, Inc., Freight Connections, Inc., JFK Cartage, Inc. and Severance Trucking Co., Inc. (along with Severance Warehousing, Inc. and McGrath Leasing, Inc., together Severance Trucking, Inc.), together provide a full suite of logistics and transportation services, specializing in ecommerce fulfillment, last mile deliveries, two-person home delivery, mid-mile, and long-haul services.
On September 16, 2022, in connection with the acquisition of the Company by TLSS, the Company issued a promissory note in the amount of $4,544,671 to the Company’s Seller. The secured promissory accrues interest at the rate of 5% per annum and then 10% per annum as of March 1, 2023. The entire unpaid principal under the note, together with all accrued and unpaid interest thereon and all other amounts payable thereunder, shall be due and payable in one balloon payment on December 31, 2023, unless paid sooner. The promissory note is secured solely by the assets of the Company.
Operating leases
Subsequent to December 31, 2021, the Company entered into several non-cancelable operating leases for the lease of office, warehouse spaces, and parking spaces. These operating leases require monthly base rent payments plus common areas maintenance and real estate tax charges through December 2027.
| F-14 |
Exhibit 99.2
Pro Forma Financial Information.
The following unaudited pro forma combined balance sheet has been derived from the unaudited consolidated balance sheet of Transportation and Logistics Systems, Inc. and Subsidiaries. (the “Company” or “we”) on June 30, 2022, and adjusts such information to give the effect of 1) the acquisition of Freight Connections, Inc. (“Freight Connections”), as if it would have existed on June 30, 2022. The unaudited pro forma combined balance sheets gives effect to the share exchange agreement between the Company and the sole shareholder of Freight Connections.
The following unaudited pro forma combined statements of operations for the year ended December 31, 2022 and 2021, and for the six months ended June 30, 2022 have been derived from the consolidated statement of operations of Transportation and Logistics Systems, Inc. and Subsidiaries. The following unaudited pro forma combined statements of operations for the period from January 1, 2022 to September 16, 2022 (date of acquisition), for the year ended December 31, 2021, and for the six months ended June 30, 2022 have been derived from the statement of operations of Freight Connections.
Freight Connections offers an array of transportation, warehousing, consolidating, distribution, and local cartage services throughout the New York tri-state area. Freight Connections was founded in 2016 and is a privately held transportation and logistics carrier headquartered in Ridgefield Park, New Jersey. The Company currently operates with 30 power units and 50 trailers, including dry vans, pups, flatbeds, step decks, and double drop trailers out of three buildings in the area with 200,000 square feet of warehouse and cross dock space, strategically located within one mile of each other. Freight Connections offers customers an array of services including truckload, LTL, and consolidating of cartage, construction-trade, air, and rail freight, as well as warehousing and distribution services.
The unaudited pro forma combined balance sheet and unaudited combined statements of operations are presented for informational purposes only and do not purport to be indicative of the combined financial condition that would have resulted if the acquisition would have existed on June 30, 2022 and December 31, 2021.
| 1 |
TRANSPORTATION AND LOGISTICS SYSTEMS INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEETS
June 30, 2022
| Transportation and Logistics Systems, Inc. | Freight | |||||||||||||||||||
| and Subsidiaries | Connections, Inc. | |||||||||||||||||||
| June 30, | June 30, | Pro Forma Adjustments | Pro Forma | |||||||||||||||||
| 2022 | 2022 | Dr | Cr | Balances | ||||||||||||||||
| ASSETS | ||||||||||||||||||||
| CURRENT ASSETS: | ||||||||||||||||||||
| Cash | $ | 5,778,706 | $ | 22,060 | $ | - | (1) | $ | 1,525,000 | $ | 4,275,766 | |||||||||
| Accounts receivable, net | 473,640 | 2,157,495 | - | - | 2,631,135 | |||||||||||||||
| Prepaid expenses and other current assets | 355,129 | 197,179 | - | - | 552,308 | |||||||||||||||
| Total Current Assets | 6,607,475 | 2,376,734 | - | 1,525,000 | 7,459,209 | |||||||||||||||
| OTHER ASSETS: | ||||||||||||||||||||
| Security deposit | 39,585 | 220,825 | - | - | 260,410 | |||||||||||||||
| Property and equipment, net | 229,424 | 811,860 | - | - | 1,041,284 | |||||||||||||||
| Goodwill | - | - | (1) | 1,628,237 | - | 1,628,237 | ||||||||||||||
| Intangible assets | 1,695,852 | - | (1) | 7,407,080 | (2) | 598,755 | 8,504,177 | |||||||||||||
| Total Other Assets | 1,964,861 | 1,032,685 | 9,035,317 | 598,755 | 11,434,108 | |||||||||||||||
| TOTAL ASSETS | $ | 8,572,336 | $ | 3,409,419 | $ | 9,035,317 | $ | 2,123,755 | $ | 18,893,317 | ||||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||||||||
| CURRENT LIABILITIES: | ||||||||||||||||||||
| Notes payable, current portion, net of debt discount | $ | - | $ | 195,012 | $ | - | $ | - | $ | 195,012 | ||||||||||
| Accounts payable | 301,684 | 209,135 | - | - | 510,819 | |||||||||||||||
| Accrued expenses | 368,800 | 147,187 | - | - | 515,987 | |||||||||||||||
| Insurance payable | 140,679 | 141,713 | - | - | 282,392 | |||||||||||||||
| Income taxes payable | - | 598,755 | (2) | 598,755 | - | - | ||||||||||||||
| Accrued compensation and related benefits | 59,813 | 31,835 | - | - | 91,648 | |||||||||||||||
| Total Current Liabilities | 870,976 | 1,323,637 | 598,755 | - | 1,595,858 | |||||||||||||||
| LONG-TERM LIABILITIES: | ||||||||||||||||||||
| Notes payable, net of current portion | - | 518,459 | - | (1) | 4,544,671 | 5,063,130 | ||||||||||||||
| Total Long-term Liabilities | - | 518,459 | - | 4,544,671 | 5,063,130 | |||||||||||||||
| Total Liabilities | 870,976 | 1,842,096 | 598,755 | 4,544,671 | 6,658,988 | |||||||||||||||
| SHAREHOLDERS’ EQUITY: | ||||||||||||||||||||
| Preferred stock, par value $0.001; authorized 10,000,000 shares: | - | - | - | - | - | |||||||||||||||
| Series B convertible preferred stock, par value $0.001 per share; 1,700,000 shares designated; No shares issued and outstanding at June 30, 2022 (Liquidation value $0) | - | - | - | - | - | |||||||||||||||
| Series E convertible preferred stock, par value $0.001 per share; 562,250 shares designated; 51,605 shares issued and outstanding at June 30, 2022 ($13.34 per share liquidation value) | 21 | - | - | - | 21 | |||||||||||||||
| Series G convertible preferred stock, par value $0.001 per share; 1,000,000 shares designated; 617,500 shares issued and outstanding at June 30, 2022 ($10.00 per share liquidation value) | 618 | - | - | - | 618 | |||||||||||||||
| Series H convertible preferred stock, par value $0.001 per share; 35,000 shares designated; 0 shares and 32,374 proforma shares issued and outstanding at June 30, 2022, respectively (No per share liquidation value) | - | - | - | (1) | 32 | 32 | ||||||||||||||
| Common stock, par value $0.001 per share; 10,000,000,000 shares authorized; 3,396,601,092 shares and 3,575,512,936 proforma shares issued and outstanding at June 30, 2022, respectively | 3,396,601 | - | (1) | 178,912 | 3,575,513 | |||||||||||||||
| Additional paid-in capital | 126,282,689 | - | - | (1)(3) | 4,354,025 | 130,636,714 | ||||||||||||||
| Accumulated deficit | (121,978,569 | ) | 1,567,323 | (3) | 1,567,323 | - | (121,978,569 | ) | ||||||||||||
| Total Shareholders’ Equity | 7,701,360 | 1,567,323 | 1,567,323 | 4,532,969 | 12,234,329 | |||||||||||||||
| Total Liabilities and Shareholders’ Equity | $ | 8,572,336 | $ | 3,409,419 | $ | 2,166,078 | $ | 9,077,640 | $ | 18,893,317 | ||||||||||
See accompanying notes to unaudited pro forma combined financial statements.
| 2 |
TRANSPORTATION AND LOGISTICS SYSTEMS INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
| Transportation and Logistics Systems, Inc. | Freight | |||||||||||||||||||
| and Subsidiaries | Connections, Inc. | |||||||||||||||||||
| For the Year | For the Period From | |||||||||||||||||||
| Ended December 31, | January 1, 2022 to September 16, | Pro Forma Adjustments | Pro Forma | |||||||||||||||||
| 2022 | 2022 | Dr | Cr. | Balances | ||||||||||||||||
| SALES | $ | 7,744,477 | $ | 7,044,250 | $ | - | $ | - | $ | 14,788,727 | ||||||||||
| COST OF SALES | 5,216,839 | 3,339,993 | - | - | 8,556,832 | |||||||||||||||
| GROSS PROFIT | 2,527,638 | 3,704,257 | - | - | 6,231,895 | |||||||||||||||
| OPERATING EXPENSES: | ||||||||||||||||||||
| Compensation and related benefits | 3,742,676 | 658,473 | - | - | 4,401,149 | |||||||||||||||
| Legal and professional fees | 1,327,172 | 20,250 | - | - | 1,347,422 | |||||||||||||||
| Rent | 1,398,401 | 1,712,474 | - | - | 3,110,875 | |||||||||||||||
| General and administrative expenses | 1,806,686 | 208,887 | - | - | 2,015,573 | |||||||||||||||
| Contingency loss | 200,000 | - | - | - | 200,000 | |||||||||||||||
| Impairment loss | 2,090,567 | - | - | - | 2,090,567 | |||||||||||||||
| Total Operating Expenses | 10,565,502 | 2,600,084 | - | - | 13,165,586 | |||||||||||||||
| (LOSS) INCOME FROM OPERATIONS | (8,037,864 | ) | 1,104,173 | - | - | (6,933,691 | ) | |||||||||||||
| OTHER INCOME (EXPENSES): | ||||||||||||||||||||
| Interest income | 31,166 | - | - | - | 31,166 | |||||||||||||||
| Interest expense | (125,382 | ) | (75,390 | ) | - | - | (200,772 | ) | ||||||||||||
| Gain on sale of subsidiary | 293,975 | - | - | - | 293,975 | |||||||||||||||
| Settlement expense | (237,961 | ) | - | - | - | (237,961 | ) | |||||||||||||
| Total Other Income (Expenses) | (38,202 | ) | (75,390 | ) | - | - | (113,592 | ) | ||||||||||||
| INCOME BEFORE PROVISION FOR INCOME TAXES | (8,076,066 | ) | 1,028,783 | - | - | (7,047,283 | ) | |||||||||||||
| INCOME TAXES | - | (308,635 | ) | - | - | (308,635 | ) | |||||||||||||
| NET INCOME | (8,076,066 | ) | 720,148 | - | - | (7,355,918 | ) | |||||||||||||
| Deemed dividends, beneficial conversion features, and accrued dividends | (417,546 | ) | - | - | - | (417,546 | ) | |||||||||||||
| NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS | $ | (8,493,612 | ) | $ | 720,148 | $ | - | $ | - | $ | (7,773,464 | ) | ||||||||
| NET INCOME PER COMMON SHARE: | ||||||||||||||||||||
| Basic | $ | (0.00 | ) | $ | (0.00 | ) | ||||||||||||||
| Diluted | $ | (0.00 | ) | $ | (0.00 | ) | ||||||||||||||
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: | ||||||||||||||||||||
| Basic | 3,359,982,502 | 3,486,446,217 | ||||||||||||||||||
| Diluted | 3,359,982,502 | 3,486,446,217 | ||||||||||||||||||
See accompanying notes to unaudited pro forma combined financial statements.
| 3 |
TRANSPORTATION AND LOGISTICS SYSTEMS INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
| Transportation and Logistics Systems, Inc. | Freight | |||||||||||||||||||
| and Subsidiaries | Connections, Inc. | |||||||||||||||||||
| For the Six Months | For the Six Months | |||||||||||||||||||
| Ended June 30, | Ended June 30, | Pro Forma Adjustments | Pro Forma | |||||||||||||||||
| 2022 | 2022 | Dr | Cr. | Balances | ||||||||||||||||
| SALES | $ | 2,663,893 | $ | 4,963,899 | $ | - | $ | - | $ | 7,627,792 | ||||||||||
| COST OF SALES | 1,984,552 | 2,315,979 | - | - | 4,300,531 | |||||||||||||||
| GROSS PROFIT | 679,341 | 2,647,920 | - | - | 3,327,261 | |||||||||||||||
| OPERATING EXPENSES: | ||||||||||||||||||||
| Compensation and related benefits | 2,049,753 | 451,301 | - | - | 2,501,054 | |||||||||||||||
| Legal and professional fees | 688,497 | 12,463 | - | - | 700,960 | |||||||||||||||
| Rent | 212,294 | 1,091,673 | - | - | 1,303,967 | |||||||||||||||
| General and administrative expenses | 534,110 | 246,412 | - | - | 780,522 | |||||||||||||||
| Total Operating Expenses | 3,484,654 | 1,801,849 | - | - | 5,286,503 | |||||||||||||||
| (LOSS) INCOME FROM OPERATIONS | (2,805,313 | ) | 846,071 | - | - | (1,959,242 | ) | |||||||||||||
| OTHER INCOME (EXPENSES): | ||||||||||||||||||||
| Interest expense | (9,762 | ) | (34,046 | ) | - | - | (43,808 | ) | ||||||||||||
| Gain on sale of subsidiary’s asset | 296,689 | - | - | - | 296,689 | |||||||||||||||
| Settlement expense | (227,811 | ) | - | - | - | (227,811 | ) | |||||||||||||
| Total Other Income (Expenses) | 59,116 | (34,046 | ) | - | - | 25,070 | ||||||||||||||
| (LOSS) INCOME BEFORE PROVISION FOR INCOME TAXES | (2,746,197 | ) | 812,025 | - | - | (1,934,172 | ) | |||||||||||||
| INCOME TAXES | - | (243,608 | ) | - | - | (243,608 | ) | |||||||||||||
| NET (LOSS) INCOME | (2,746,197 | ) | 568,417 | - | - | (2,177,780 | ) | |||||||||||||
| Preferred Stock Dividend and Deemed Dividend | (215,885 | ) | - | - | - | (215,885 | ) | |||||||||||||
| NET (LOSS) INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS | $ | (2,962,082 | ) | $ | 568,417 | $ | - | $ | - | $ | (2,393,665 | ) | ||||||||
| NET LOSS PER COMMON SHARE: | ||||||||||||||||||||
| Basic | $ | (0.00 | ) | $ | (0.00 | ) | ||||||||||||||
| Diluted | $ | (0.00 | ) | $ | (0.00 | ) | ||||||||||||||
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: | ||||||||||||||||||||
| Basic | 3,179,603,803 | 3,358,515,647 | ||||||||||||||||||
| Diluted | 3,179,603,803 | 3,358,515,647 | ||||||||||||||||||
See accompanying notes to unaudited pro forma combined financial statements.
| 4 |
TRANSPORTATION AND LOGISTICS SYSTEMS INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
| Transportation and Logistics Systems, Inc. | Freight | |||||||||||||||||||
| and Subsidiaries | Connections, Inc. | |||||||||||||||||||
| For the Year | For the Year | |||||||||||||||||||
| Ended December 31, | Ended December 31, | Pro Forma Adjustments | Pro Forma | |||||||||||||||||
| 2021 | 2021 | Dr | Cr. | Balances | ||||||||||||||||
| SALES | $ | 5,495,146 | $ | 8,919,377 | $ | - | $ | - | $ | 14,414,523 | ||||||||||
| COST OF SALES | 5,408,143 | 4,820,965 | - | - | 10,229,108 | |||||||||||||||
| GROSS PROFIT | 87,003 | 4,098,412 | - | - | 4,185,415 | |||||||||||||||
| OPERATING EXPENSES: | ||||||||||||||||||||
| Compensation and related benefits | 1,403,311 | 702,577 | - | - | 2,105,888 | |||||||||||||||
| Legal and professional fees | 2,160,081 | - | - | - | 2,160,081 | |||||||||||||||
| Rent | 599,820 | 1,362,016 | - | - | 1,961,836 | |||||||||||||||
| General and administrative expenses | 1,115,187 | 596,890 | - | - | 1,712,077 | |||||||||||||||
| Contingency loss | 30,000 | - | - | - | 30,000 | |||||||||||||||
| Loss on lease abandonment | 1,223,628 | - | - | - | 1,223,628 | |||||||||||||||
| Total Operating Expenses | 6,532,027 | 2,661,483 | - | - | 9,193,510 | |||||||||||||||
| (LOSS) INCOME FROM OPERATIONS | (6,445,024 | ) | 1,436,929 | - | - | (5,008,095 | ) | |||||||||||||
| OTHER INCOME (EXPENSES): | ||||||||||||||||||||
| Interest expense | (349,544 | ) | (41,461 | ) | - | - | (391,005 | ) | ||||||||||||
| Interest expense - related parties | (74,959 | ) | - | - | - | (74,959 | ) | |||||||||||||
| Warrant exercise inducement expense | (4,431,853 | ) | - | - | - | (4,431,853 | ) | |||||||||||||
| Gain on debt extinguishment, net | 1,564,941 | 82,504 | - | - | 1,647,445 | |||||||||||||||
| Gain on debt extinguishment - related party | 148,651 | - | - | - | 148,651 | |||||||||||||||
| Other income | 194,823 | - | - | - | 194,823 | |||||||||||||||
| Gain on deconsolidation of subsidiaries | 12,363,449 | - | - | - | 12,363,449 | |||||||||||||||
| Derivative income, net | 3,284,306 | - | - | - | 3,284,306 | |||||||||||||||
| Total Other Income (Expenses) | 12,699,814 | 41,043 | - | - | 12,740,857 | |||||||||||||||
| INCOME BEFORE PROVISION FOR INCOME TAXES | 6,254,790 | 1,477,972 | - | - | 7,732,762 | |||||||||||||||
| INCOME TAXES | - | (443,392 | ) | - | - | (443,392 | ) | |||||||||||||
| NET INCOME | 6,254,790 | 1,034,580 | - | - | 7,289,370 | |||||||||||||||
| Deemed dividends, beneficial conversion features, and accrued dividends | (2,650,217 | ) | - | - | - | (2,650,217 | ) | |||||||||||||
| NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS | $ | 3,604,573 | $ | 1,034,580 | $ | - | $ | - | $ | 4,639,153 | ||||||||||
| NET INCOME PER COMMON SHARE: | ||||||||||||||||||||
| Basic | $ | 0.00 | $ | 0.00 | ||||||||||||||||
| Diluted | $ | 0.00 | $ | 0.00 | ||||||||||||||||
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: | ||||||||||||||||||||
| Basic | 2,341,907,998 | 2,520,819,842 | ||||||||||||||||||
| Diluted | 3,728,170,026 | 3,907,081,870 | ||||||||||||||||||
See accompanying notes to unaudited pro forma combined financial statements.
| 5 |
Notes to Unaudited Pro Forma Combined Financial Statements
Effective September 16, 2022, the Company’s newly formed wholly-owned subsidiary, TLSS-FC, closed on an acquisition of all outstanding stock of Freight Connections, a company offering an array of transportation, warehousing, consolidating, distribution, and local cartage services throughout the New York tri-state area. Joseph Corbisiero, the sole shareholder of Freight Connections, from whom the shares were acquired (the “Freight Connections Seller”). Freight Connections was founded in 2016 and is a transportation and logistics carrier headquartered in Ridgefield Park, New Jersey. Freight Connections currently operates with 30 power units and 50 trailers, including dry vans, pups, flatbeds, step decks, and double drop trailers out of three buildings in the area with 200,000 square feet of warehouse and cross dock space, strategically located within one mile of each other. Freight Connections offers customers an array of services including truckload, LTL, and consolidating of cartage, construction-trade, air, and rail freight, as well as warehousing and distribution services. Prior to the closing, the Company, TLSSA and Freight Connections Seller entered into an amendment to their Stock Purchase and Sale Agreement, dated as of May 23, 2022 (the “Amended SPA”), and TLSSA assigned its interest in the Amended SPA to TLSS-FC. Pursuant to the Amended SPA, the total purchase price was $9,365,000, subject to certain adjustment. TLSS-FC: (i) paid $1,525,000 in cash at closing, (ii) Freight Connections entered into a $4,544,671 secured promissory note with the Freight Connections Seller, with interest accruing at the rate of 5% per annum and then 10% per annum as of March 1, 2023 (The entire unpaid principal under the note, together with all accrued and unpaid interest thereon and all other amounts payable thereunder, shall be due and payable in one balloon payment on December 31, 2023, unless paid sooner. The promissory note is secured solely by the assets of Freight Connections), and (iii) assumed certain debt. The Company issued to the Freight Connections Seller 178,911,844 shares of the Company’s common stock and 32,374 shares of the Company’s Series H preferred stock which is convertible into an aggregate of 323,740,000 shares of the Company’s common stock based on a conversion of 10,000 shares of common stock for each share of Series H preferred stock outstanding. The common stock and the as if converted number of Series H preferred stock were valued at $0.0059 per share based on the quoted closing price of the Company’s common stock on the measurement date, for an aggregate fair value of $2,965,646. The number of shares was calculated as follows: (a) shares of common stock of the Company equal to no more than 4.99% of the number of shares of common stock outstanding immediately after such issuance, and (b) the balance of the shares in Series H Convertible Preferred Stock, a new series of non-voting, convertible preferred stock issuable to sellers in connection with acquisitions or strategic transactions approved by a majority of the directors of the Company. TLSS-FC agreed to pay certain accrued liabilities and other notes payable that existed on the books of Freight Connections and agreed to pay the $4,544,671 secured promissory note which was assumed by Freight Connections. For accounting purposes, the total purchase consideration paid, after closing adjustments, was deemed to be $9,035,317 which includes (i) cash paid of $1,525,000, (ii) the aggregate fair value of common shares and Series H preferred shares issued to Freight Connections Seller of $2,965,646, and (iii) the $4,544,671 secured promissory note in the name of Freight Connections. The purchase consideration amount does not include accrued liabilities and other notes payable which were treated as assumed liabilities in the purchase price allocation.
We have derived the Company’s historical financial data on June 30, 2022 and for the six months ended June 30, 2022 from its unaudited consolidated financial statements contained in Form 10-Q as filed with the Securities and Exchange Commission, and for the year ended December 31, 2022 and 2021 from its audited consolidated financial statements contained in Form 10-K as filed with the Securities and Exchange Commission, respectively.
We have derived Freight Connection’s historical financial statements as of June 30, 2022, for the six months ended June 30, 2022, and for the period from January 1, 2022 to September 16, 2022 (date of acquisition) from Freight Connection’s unaudited financial statements, and for the year ended December 31, 2021 from Freight Connection’s audited financial statements contained in this Report on Form 8-K/A.
| 6 |
The unaudited combined pro forma balance sheet on June 30, 2022 gives effect to 1) the issuance of 178,911,844 common shares for the acquisition of 100% of Freight Connections, 2) the issuance of 32,374 Series H shares of preferred stock, 3) the issuance of a note payable to the seller of Freight Connections in the amount of $4,544,671, and 4) the payment of cash of $1,525,000, and includes the following pro forma adjustments:
| Debit | Credit | |||||||
| On June 30, 2022 | ||||||||
| 1) To reflect the issuance of 178,911,844 shares of common stock and 32,374 shares of Series H preferred stock at fair value, and the issuance of a promissory note for the acquisition of Freight Connections | ||||||||
| Intangible assets | 7,407,080 | |||||||
| Goodwill | 1,628,237 | |||||||
| Cash | 1,525,000 | |||||||
| Series H preferred stock, par value | 32 | |||||||
| Common stock, par value | 178,912 | |||||||
| Additional paid-in capital | 2,786,702 | |||||||
| Note payable | 4,544,671 | |||||||
| 2) To reverse income tax payable not assumed in acquisition | ||||||||
| Income taxes payable | 598,755 | |||||||
| Intangible assets | 598,755 | |||||||
| 3) To net out retained earnings to additional paid-in capital upon acquisition | ||||||||
| Retained earnings | 1,567,323 | |||||||
| Additional paid-in capital | 1,567,323 | |||||||
The information presented in the unaudited pro forma combined financial statements does not purport to represent what our financial position or results of operations would have been had the Share Exchange Agreement and related Merger and all related transactions occurred as of the dates indicated, nor is it indicative of our future combined financial position or combined results of operations for any period. You should not rely on this information as being indicative of the historical results that would have been achieved had the companies always been combined or the future results that the combined company will experience after the Share Exchange Agreement and all related transactions.
These unaudited pro forma combined financial statements should be read in conjunction with the accompanying notes and assumptions and the historical financial statements and related notes of the Company and Freight Connections.
| 7 |