TLSS 10-Q
Transportation & Logistics Systems, Inc. (TLSS)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For
the quarterly period ended
or
For the transition period from ___________ to ___________
Commission
File Number:
(Exact name of registrant as specified in its charter)
| (State
or other jurisdiction of incorporation or organization) |
(IRS
Employer Identification No.) | |
| (Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
Not applicable
(Registrant’s former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Exchange Act:
| Title of each class | Trading Symbol(s) | Name of exchange on which registered | ||
| N/A | N/A | N/A |
Securities Registered Pursuant to Section 12(g) of the Act:
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes ☐
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registration
was required to submit such files). Yes ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company | |||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of February 21, 2025, the registrant had outstanding shares of common stock.
TRANSPORTATION AND LOGISTICS SYSTEMS, INC.
FORM 10-Q
SEPTEMBER 30, 2024
TABLE OF CONTENTS
| -i- |
For purposes of this Quarterly Report on Form 10-Q (this “Quarterly Report”), unless otherwise indicated or the context otherwise requires, all references herein to “Transportation and Logistics Systems, Inc.”, the “Company”, “we”, “us”, “TLSS” and “our”, refer to Transportation and Logistics Systems, Inc., a Nevada corporation, and its wholly-owned subsidiaries: TLSS Acquisition, Inc. (“TLSSA”), TLSS Operations Holding Company, Inc. (“TLSS Ops”), Shyp FX, Inc. (“Shyp FX”), Shyp CX, Inc. (“Shyp CX”); those entities wholly-owned by TLSS Ops, TLSS-CE, Inc. (“TLSS-CE”) and TLSS-STI, Inc. (“TLSS-STI”); Cougar Express, Inc. (“Cougar Express”), a wholly-owned subsidiary of TLSS-CE through the date of deconsolidation, and JFK Cartage Co., Inc. (JFK Cartage”), a wholly-owned subsidiary of Cougar Express; Severance Trucking Co., Inc. (“Severance Trucking”), a wholly-owned subsidiary of TLSS-STI and Severance Warehousing, Inc. (“Severance Warehousing”) and McGrath Trailer Leasing, Inc. (“McGrath”), both wholly-owned subsidiaries of Severance Trucking, (Severance Trucking, Severance Warehousing, and McGrath collectively, “Severance”); and, the deconsolidated former subsidiaries, TLSS-FC, Inc. (“TLSS-FC”) and Freight Connections, Inc. (“Freight Connections”).
Hereinafter, TLSSA, TLSS Ops, Shyp FX, Shyp CX, TLSS-CE, TLSS-STI, TLSS-FC, Cougar Express, JFK Cartage, Severance and Freight Connections, are hereinafter, the “Subsidiaries”. Other than the Company, the results of operations and all accounts of the Subsidiaries for the three and nine months ended September 30, 2024 and 2023 are included as part of discontinued operations on the consolidated financial statements.
Forward-Looking Statements
Statements made in this Quarterly Report 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 and the risks set forth in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023 (our “2023 Annual Report”), these risks and uncertainties include: our ability to meet our annual and quarterly periodic reporting obligations under Securities Exchange Act of 1934, as amended (“34 Act”), including obtaining sufficient financing to fund the necessary costs related to the preparation and filing of one or more of our future periodic reports; our ability to restructure our remaining existing debts and obligations and replace our discontinued businesses and/or enter into new line(s) of business, whether by acquisition or otherwise; our ability to attract and retain key personnel and skilled labor to meet the requirements of being a public company; our history of losses, deficiency in working capital and a shareholders’ deficit and inability to achieve sustained profitability; our need to procure substantial additional financing to fund ongoing losses and the growth of our business; our ability to successfully execute our business strategies, including integration of acquisitions and the future acquisition of other businesses to grow our company; adverse or unanticipated events in the litigation to which we are currently a party (or as to which we may become a party in the future); our ability to pay expenses and liabilities as they become due; adverse or unanticipated decisions by courts construing third-party liability insurance policies to which the Company and/or its subsidiaries is a party; a failure to obtain adequate liability insurance coverage in the future; material weaknesses in our internal control over financial reporting and our ability to maintain effective controls over financial reporting in the future; financial condition and results of operations and our ability to meet our payment obligations; 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 Quarterly 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 letter. Given these uncertainties, you should not place undue reliance on these forward-looking statements and should consider various factors, including the risks described herein, and, among other places, in this Quarterly Report, as well as any amendments hereto or thereto, or other documents filed with the Securities and Exchange Commission (the “SEC”).
| -ii- |
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash | $ | $ | ||||||
| Prepaid expenses and other current assets | ||||||||
| Assets of discontinued operations | ||||||||
| Total Current Assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ DEFICIT | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Note payable, current portion | $ | $ | ||||||
| Notes payable - related parties | ||||||||
| Accounts payable | ||||||||
| Accrued expenses | ||||||||
| Accrued expenses - related parties | ||||||||
| Accrued compensation and related benefits | ||||||||
| Liabilities of discontinued operations | ||||||||
| Total Current Liabilities | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies (See Note 8) | ||||||||
| SHAREHOLDERS’ DEFICIT: | ||||||||
| Preferred stock, par value $; authorized shares: | ||||||||
| Series B convertible preferred stock, par value $ per share; shares designated; shares issued and outstanding
at September 30, 2024 and December 31, 2023 ( | ||||||||
| Series D convertible preferred stock, par value $per share; shares designated; shares issued and outstanding
at September 30, 2024 and December 31, 2023 ($ | ||||||||
| Series E convertible preferred stock, par value $ per share; shares designated; shares issued and
outstanding at September 30, 2024 and December 31, 2023 ($ | ||||||||
| Series G convertible preferred stock, par value $ per share; shares designated; and shares issued
and outstanding at September 30, 2024 and December 31, 2023, respectively ($ | ||||||||
| Series H convertible preferred stock, par value $ per share; shares designated; shares issued and outstanding
at September 30, 2024 and December 31, 2023 ( | ||||||||
| Common stock, par value $ per share; shares authorized; and shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Shareholders’ Deficit | ( | ) | ( | ) | ||||
| Total Liabilities and Shareholders’ Deficit | $ | $ | ||||||
See accompanying notes to unaudited consolidated financial statements.
| 1 |
TRANSPORTATION AND LOGISTICS SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| REVENUES | $ | $ | $ | $ | ||||||||||||
| OPERATING EXPENSES: | ||||||||||||||||
| Compensation and related benefits | ||||||||||||||||
| Legal and professional fees | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Total Operating Expenses | ||||||||||||||||
| LOSS FROM OPERATIONS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| OTHER INCOME (EXPENSES): | ||||||||||||||||
| Interest income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Interest expense - related parties | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gain on sale of subsidiary | ||||||||||||||||
| Total Other Income (Expenses) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| LOSS BEFORE INCOME TAXES | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Provision for income taxes | ||||||||||||||||
| LOSS FROM CONTINUING OPERATIONS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| DISCONTINUED OPERATIONS: | ||||||||||||||||
| Loss from discontinued operations, net of tax | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| LOSS FROM DISCONTINUED OPERATIONS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| NET LOSS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Deemed and accrued dividends | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| NET LOSS PER COMMON SHARE - BASIC AND DILUTED | ||||||||||||||||
| Net loss per share from continuing operations -basic and diluted | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| Net loss per share from discontinued operations – basic and diluted | ) | ) | ) | ) | ||||||||||||
| Net loss per share - basic and diluted | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: | ||||||||||||||||
| Basic and diluted | ||||||||||||||||
See accompanying notes to unaudited consolidated financial statements.
| 2 |
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023
(Unaudited)
| Preferred Stock Series E | Preferred Stock Series G | Preferred Stock Series H | Common Stock | Additional Paid-in | Accumulated | Total Shareholders’ | ||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||||||||||||||
| Balance, December 31, 2023 | $ | $ | $ | | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||
| Accretion of stock-based compensation | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||
| Common stock issued for conversion of Series G preferred shares | - | ( | ) | ( | ) | - | ( | ) | ||||||||||||||||||||||||||||||||||||
| Dividends accrued | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2024 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Accretion of stock-based compensation | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||
| Common stock issued for conversion of Series G preferred shares | - | ( | ) | ( | ) | - | ( | ) | ||||||||||||||||||||||||||||||||||||
| Dividends accrued | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2024 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Accretion of stock-based compensation | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||
| Common stock issued for conversion of Series G preferred shares | - | ( | ) | ( | ) | - | ( | ) | ||||||||||||||||||||||||||||||||||||
| Dividends accrued | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance, September 30, 2024 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||
| 3 |
| Preferred Stock Series E | Preferred Stock Series G | Preferred Stock Series H | Common Stock | Additional Paid-in | Accumulated | Total Shareholders’ Equity | ||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | (Deficit) | ||||||||||||||||||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||||||||
| Common stock issued for conversion of Series G preferred shares | - | ( | ) | ( | ) | - | ( | ) | ||||||||||||||||||||||||||||||||||||
| Common stock issued for services and future services | - | - | - | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Accretion of stock-based compensation | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||
| Deemed and accrued dividends | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2023 | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for services and future services | - | - | - | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Accretion of stock-based compensation | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||
| Common stock issued for warrant exercises | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Deemed and accrued dividends | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2023 | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for conversion of Series G preferred shares | - | ( | ) | ( | ) | - | ( | ) | ||||||||||||||||||||||||||||||||||||
| Cancellation of common stock issued for services due to non-vesting | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Accretion of stock-based compensation | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||
| Common stock issued for warrant exercises | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Deemed and accrued dividends | - | - | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance, September 30, 2023 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||
See accompanying notes to unaudited consolidated financial statements.
| 4 |
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2024 | 2023 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization expense - discontinued operations | ||||||||
| Stock-based compensation | ||||||||
| Impairment loss - discontinued operations | ||||||||
| Gain on deconsolidation of subsidiary - discontinued operations | ( | ) | ||||||
| Lease costs - discontinued operations | ||||||||
| Provision for credit loss (recovery) - discontinued operations | ( | ) | ||||||
| Change in operating assets and liabilities: | ||||||||
| Accounts receivable | ||||||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Security deposit | ( | ) | ||||||
| Accounts payable and accrued expenses | ||||||||
| Accrued expenses - related parties | ||||||||
| Insurance payable | ||||||||
| Accrued compensation and related benefits | ( | ) | ||||||
| NET CASH USED IN OPERATING ACTIVITIES | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of property and equipment | ( | ) | ||||||
| Proceeds from repayment of note receivable | ||||||||
| Cash acquired in acquisitions | ||||||||
| Cash used for acquisitions | ( | ) | ||||||
| NET CASH USED IN INVESTING ACTIVITIES | ( | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from the exercise of warrants | ||||||||
| Proceeds from note payable | ||||||||
| Proceeds from notes payable - related parties | ||||||||
| Proceeds from notes payable - related parties - discontinued operations | ||||||||
| Repayment of notes payable | ( | ) | ( | ) | ||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES | ||||||||
| NET DECREASE IN CASH | ( | ) | ( | ) | ||||
| CASH, beginning of period | ||||||||
| CASH, end of period | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | ||||||||
| Cash paid for: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Conversion of Series G preferred stock and accrued dividends to common stock | $ | $ | ||||||
| Accrual of preferred stock dividends | $ | $ | ||||||
| Increase in right of use assets and lease liabilities | $ | $ | ||||||
| ACQUISITIONS: | ||||||||
| Assets acquired: | ||||||||
| Accounts receivable | $ | $ | ||||||
| Prepaid expenses | ||||||||
| Property and equipment | ||||||||
| Right of use assets | ||||||||
| Security deposits | ||||||||
| Intangible assets | ||||||||
| Total assets acquired | ||||||||
| Less: liabilities assumed: | ||||||||
| Accounts payable | ||||||||
| Accrued expenses | ||||||||
| Accrued compensation and related benefits | ||||||||
| Notes payable | ||||||||
| Lease liabilities | ||||||||
| Total liabilities assumed | ||||||||
| Net assets acquired (liabilities) assumed | $ | $ | ||||||
See accompanying notes to unaudited consolidated financial statements.
| 5 |
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023
(Unaudited)
NOTE 1 – ORGANIZATION AND BUSINESS OPERATIONS
Transportation and Logistics Systems, Inc. (“TLSS” or the “Company”) is a publicly-traded holding company incorporated under the laws of the State of Nevada on July 25, 2008. Prior to mid-February 2024, when the Company ceased all remaining operations, its subsidiaries, provided 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. The Company and its subsidiaries also operated several warehouse locations located in New York, New Jersey, Connecticut and Massachusetts. The subsidiaries of the Company during the periods ended September 30, 2024 and 2023 include: Cougar Express, Inc. (“Cougar Express”) through date of deconsolidation of February 27, 2024; Freight Connections, Inc. (“Freight Connections”) through date of deconsolidation of December 1, 2023; JFK Cartage, Inc. (“JFK Cartage”); Severance Trucking Co., Inc. (“Severance Trucking”); Severance Warehousing, Inc. (“Severance Warehouse”); McGrath Trailer Leasing, Inc. (“McGrath”, and together with Severance Trucking and Severance Warehouse, hereinafter, “Severance”); TLSS Acquisition, Inc. (“TLSSA”); TLSS Operations Holding Company, Inc. (“TLSS Ops”); Shyp CX, Inc. (“Shyp CX”); Shyp FX, Inc. (“Shyp FX”); TLSS-CE, Inc. (“TLSS-CE”); TLSS-FC, Inc. (“TLSS-FC”); and TLSS-STI, Inc. (“TLSS-STI”).
Prior to ceasing operations, the Company’s historical business growth was primarily through a growth by acquisition strategy, as described below.
On November 13, 2020, the Company formed a wholly-owned subsidiary, Shyp FX under the laws of the State of New Jersey. On January 15, 2021, through Shyp FX, the Company executed an agreement to acquire substantially all of the assets and certain liabilities of Double D Trucking, Inc., a northern New Jersey-based logistics provider specializing in servicing Federal Express over the past 25 years (“DDTI”), including last-mile delivery services using vans and box trucks. On April 28, 2022, the Company entered into an agreement with an unrelated third party to sell substantially all of Shyp FX’s asset and specific liabilities in all-cash transaction that closed in June 2022.
On November 16, 2020, the Company formed a wholly-owned subsidiary, TLSSA under the laws of the State of Delaware. On March 24, 2021, TLSSA acquired all of the issued and outstanding shares of capital stock of Cougar Express, a New York-based full-service logistics provider specializing in pickup, warehousing, and delivery services in the tri-state area. On February 27, 2024, Cougar Express filed a Chapter 7 bankruptcy petition in the State of New York under the United States Bankruptcy Code (the “Cougar Bankruptcy”), assigning all of the Cougar Express assets to Mr. Andrew M. Thaler, Esq., as Trustee (the “Cougar Express Trustee”) for liquidation and unwinding of the business. The Cougar Express Trustee has been charged with liquidating the assets for the benefit of the Cougar Express creditors pursuant to the relevant provisions of the United States Bankruptcy Code. As a result of the Cougar Bankruptcy, the Cougar Express Trustee assumed all authority to manage Cougar Express. Additionally, as of February 27, 2024, Cougar Express no longer conducts any business and is not permitted by the Cougar Express Trustee to conduct any business. For these reasons, effective February 27, 2024, the Company relinquished control of Cougar Express. Therefore, the Company deconsolidated Cougar Express effective with the filing of the Cougar Bankruptcy on February 27, 2024.
On February 21, 2021, the Company formed a wholly-owned subsidiary, Shyp CX under the laws of the State of New York. Shyp CX does not engage in any revenue-generating operations and is inactive.
On
August 4, 2022, Cougar Express closed on its acquisition of all outstanding stock of JFK Cartage, a New York-based full-service logistics
provider specializing in pickup, warehousing and delivery services in the tri-state area. Joan Ton, the sole shareholder of JFK Cartage,
from whom the shares were acquired, is an unrelated party. The effective date of the acquisition was
Effective September 16, 2022, TLSS-FC closed on an acquisition of all outstanding stock of Freight Connections, a New Jersey-based company that offered an array of transportation, warehousing, consolidating, distribution, and local cartage services throughout the New York tri-state area. On December 1, 2023, TLSS-FC and its wholly-owned subsidiary Freight Connections, filed a Chapter 7 bankruptcy petition in the State of New Jersey under the United States Bankruptcy Code (the “Freight Bankruptcy”), assigning all of the TLSS-FC and Freight Connections assets to Mr. Steven P. Kartzman, Esq., as trustee (the “Freight Trustee”) for liquidation and unwinding of the business. The Freight Trustee has been charged with liquidating the assets for the benefit of the TLSS-FC and Freight Connection’s creditors pursuant to the relevant provisions of the United States Bankruptcy Code. As a result of the Freight Bankruptcy, the Freight Trustee assumed all authority to manage TLSS-FC and Freight Connections. Additionally, TLSS-FC and Freight Connections no longer conduct any business and are not permitted by the Freight Trustee to conduct any business. For these reasons, effective December 1, 2023, the Company relinquished control of TLSS-FC and Freight Connections. Therefore, the Company deconsolidated TLSS-FC and Freight Connections effective with the Freight Bankruptcy on December 1, 2023.
Effective February 3, 2023, the Company’s wholly-owned subsidiary, TLSS-STI, closed on an acquisition of all outstanding stock of each of Severance Trucking, Severance Warehouse and McGrath, which together, offered less-than-truckload (LTL) trucking services throughout New England, with an effective date as of the close of business on January 31, 2023. The sellers of the stock of each entity were Kathryn Boyd, Clyde Severance, and Robert Severance, all individuals (the “Severance Sellers”). None of the Severance Sellers were affiliated with the Company or its affiliates (See Note 3). In February 2024, due to lack of working capital to conduct its business, Severance ceased its operations and no longer conducts any business and all fixed assets of the Company were voluntarily surrendered to the Severance Sellers. For the three and nine months ended September 30, 2024 and 2023, all activities and balances of Severance are included as part of discontinued operations on the consolidated financial statements. As of the date of the issuance of these consolidated financial statements the Severance entities have not filed for bankruptcy.
On May 31, 2023, the Company formed TLSS Ops and TLSS-CE, companies organized under the laws of Delaware. Simultaneous with the formation of these entities, Cougar Express became a wholly-owned subsidiary of TLSS-CE; Severance Warehousing and McGrath became wholly-owned subsidiaries of Severance Trucking; Severance Trucking became a wholly-owned subsidiary of TLSS-STI; and each of TLSS-CE, TLSS-STI and TLSS-FC became wholly-owned subsidiaries of TLSS Ops. Other than the TLSS parent company, all entities are included as part of discontinued operations on the consolidated financial statements for the three and nine months ended September 30, 2024 and 2023.
| 6 |
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023
(Unaudited)
On February 16, 2024, Severance Trucking, along with Cougar Express and JFK Cartage, ceased all operations and, as a result, all remaining employees of Cougar Express and Severance Trucking were laid off as of February 16, 2024. On February 29, 2024, all remaining support staff, employed by TLSS Ops, were laid off.
Subsequent to the cessation of all of the Company’s revenue generating operations and through the date of the issuance of these unaudited consolidated financial statements, the Company continues to remain insolvent and as a result, has been unable to timely meet our annual and quarterly periodic reporting obligations under Securities Exchange Act of 1934, as amended (“34 Act”). Beginning in August 2024 and again in October 2024, November 2024 and January 2025, we obtained financing that enabled us to complete the audit of our consolidated financial statements for the year ended December 31, 2023, file our Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Annual Report”), review our unaudited consolidated financial statements for the periods ended March 31, 2024, June 30, 2024, and September 30, 2024 to enable us to prepare and file the associated Quarterly Reports on Form 10-Q, and commence the audit of our consolidated financial statements for the year ended December 31, 2024 to enable us to prepare the Annual Report on Form 10-K for the year ended December 31, 2024 (the “2024 Annual Report”). Following the filing of this Quarterly Report on Form 10-Q (the “Quarterly Report”), we will continue to work to complete the necessary financial statements and file the 2024 Annual Report as soon as possible hereafter; however, the Company will require additional financing to fund the necessary costs related to the preparation and filing of the 2024 Annual Report. In addition, we are also evaluating a possible restructuring of our remaining existing debts and obligations, as well as assessing the possibility of replacing our discontinued businesses and/or entering into new line(s) of business, whether by acquisition or otherwise. However, there can be no assurance that we will, in fact, be able to replace our former business and/or enter into new line(s) of business, or to do so profitably.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION
Basis of presentation and principles of consolidation
The unaudited consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and the rules and regulations of the United States Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, they do not include all the information and disclosures necessary for comprehensive presentation of financial position, results of operations or cash flow. However, these unaudited consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, which, in the opinion of management, are necessary for fair presentation of the information contained therein. It is suggested that these unaudited interim consolidated financial statements be read in conjunction with the consolidated financial statements of the Company for the year ended December 31, 2023 and notes thereto included in the 2023 Annual Report. The Company follows the same accounting policies in the preparation of its annual and interim reports. The results of operations for the interim periods are not necessarily an indication of operating results to be expected for the full year.
The consolidated financial statements of the Company include the accounts of TLSS and its wholly-owned subsidiaries, TLSSA, TLSS Ops, Shyp FX, Shyp CX, TLSS-FC, Freight Connection since its acquisition on September 16, 2022 through its deconsolidation on December 1, 2023, TLSS-CE, Cougar Express through its deconsolidation on February 27, 2024, JFK Cartage since its acquisition on July 31, 2022, TLSS-STI, and Severance since its acquisition on January 31, 2023. All intercompany accounts and transactions have been eliminated in consolidation. References below to a “Company liability” may be to a liability which is owed solely by a subsidiary and not by TLSS.
Discontinued Operations
The Company has classified the related assets and liabilities associated with its logistics and transportation services business as discontinued operations in its consolidated balance sheets and the results of its logistics and transportation services business has been presented as discontinued operations in its consolidated statements of operations for all periods presented as the discontinuation of its business had a major effect on its operations and financial results. Unless otherwise noted, discussion in the notes to consolidated financial statements refers to the Company’s continuing operations. See Note 10 — Discontinued Operations for additional information.
Deconsolidation of subsidiaries
The Company accounts for a gain or loss on deconsolidation of subsidiaries or derecognition of a group of assets in accordance with ASC 810-10-40-5. The Company measures the gain or loss as the difference between (a) the aggregate of fair value of any consideration received, the fair value of any retained noncontrolling investment and the carrying amount of any noncontrolling interest in the former subsidiary at the date the subsidiary is deconsolidated and (b) the carrying amount of the former subsidiary’s assets and liabilities or the carrying amount of the group of assets.
Going concern
These
unaudited consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets
and the settlement of liabilities and commitments in the normal course of business. As reflected in these unaudited consolidated financial
statements, the Company had a net loss of $
| 7 |
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023
(Unaudited)
Risks and uncertainties
The Company maintains its cash in bank and financial institution deposits that at times may exceed federally insured limits. On September 30, 2024 and December 31, 2023, the Company had no cash in the bank in excess of FDIC insured levels.
Use of estimates
The preparation of the consolidated 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 consolidated 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 consolidated financial statements and footnotes include the valuation of accounts receivable, the useful life of property and equipment, the valuation of intangible assets, the valuation of assets acquired and liabilities assumed in a business combination, the valuation of right of use assets and related liabilities, assumptions used in assessing impairment of long-lived assets, valuation of assets and liabilities of discontinued operations, estimates of current and deferred income taxes and deferred tax valuation allowances, the fair value of non-cash equity transactions, 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 September 30, 2024. Accordingly, the estimates presented in these consolidated 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. |
The Company measures certain financial instruments at fair value on a recurring basis. As of September 30, 2024 and December 31, 2023, 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 unaudited consolidated balance sheets for cash, prepaid expenses and other current assets, assets of discontinued operations, accounts payable, accrued expenses, insurance payable, liabilities of discontinued operations, and other payables approximate their fair values based on the short-term maturity of these instruments. The carrying amount of the Company’s promissory note obligations approximate fair value, as the terms of these instruments are consistent with terms available in the market for instruments with similar risk.
Business acquisitions
The Company accounted for business acquisitions using the acquisition method of accounting where the assets acquired and liabilities assumed are recognized based on their respective estimated fair values. The excess of the purchase price over the estimated fair values of the net assets acquired was recorded as goodwill. Determining the fair value of certain acquired assets and liabilities was subjective in nature and often involves the use of significant estimates and assumptions, including, but not limited to, the selection of appropriate valuation methodology, projected revenue, expenses, and cash flows, weighted average cost of capital, discount rates, and estimates of terminal values. Business acquisitions were included in the Company’s consolidated financial statements as of the date of the acquisition.
| 8 |
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023
(Unaudited)
Cash and cash equivalents
For purposes of the consolidated 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 September 30, 2024 and December 31, 2023, the Company did not have any cash equivalents.
Accounts receivable
Accounts receivable were presented net of an allowance for credit losses. The Company maintains allowances for credit losses 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 along with general allowance for current accounts receivable that are projected to become uncollectable. 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 to
Goodwill and other intangible assets
Intangible assets were carried at cost less accumulated amortization, computed using the straight-line method over the estimated useful life, less any impairment charges.
The Company’s business acquisitions typically resulted in the recording of goodwill and other intangible assets, which affected the amount of amortization expense and possibly impairment write-downs that the Company may incur in future periods.
Goodwill represented the excess of the purchase price paid over the fair value of the net assets acquired in business acquisitions. Goodwill is subject to impairment tests at least annually. The Company reviews the carrying amounts of goodwill by reporting unit at least annually, or when indicators of impairment are present, to determine if goodwill may be impaired. The Company includes assumptions about the expected future operating performance as part of a discounted cash flow analysis to estimate fair value. If the carrying value of these assets is not recoverable, based on the discounted cash flow analysis, management compares the fair value of the assets to the carrying value. Goodwill is considered impaired if the recorded value exceeds the fair value. The Company may first assess qualitative factors to determine whether it is more likely than not that the fair value of goodwill is less than its carrying value. The Company would not be required to quantitatively determine the fair value of goodwill unless it determines, based on the qualitative assessment, that it is more likely than not that its fair value is less than the carrying value. Future cash flows of the individual indefinite-lived intangible assets are used to measure their fair value after consideration of certain assumptions, such as forecasted growth rates and cost of capital, which are derived from internal projection and operating plans. The Company performed its annual testing for goodwill during the fourth quarter of each fiscal year or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit or the fair value of an indefinite-lived intangible asset below its carrying value.
Other intangibles, net consisted of covenants not to compete and customer relationships. All intangible assets determined to have finite lives were amortized over their estimated useful lives. The useful life of an intangible asset was the period over which the asset is expected to contribute directly or indirectly to future cash flows. In connection with the discontinuation of the Company’s logistic and transportation business, all intangible assets and goodwill were either impaired or deconsolidated and any such impairment is included in discontinued operations in fiscal year 2023.
See Note 10 for additional information regarding intangible assets and goodwill.
Leases
The Company uses Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842). The guidance requires lessees to recognize lease assets and lease liabilities for most operating leases. In addition, the guidance requires that lessors separate lease and non-lease components in a contract in accordance with the new revenue guidance in ASC 606. The Company applied the package of practical expedients to leases that commenced before the effective date whereby the Company elected to not reassess the following: (i) whether any expired or existing contracts contain leases and (ii) initial direct costs for any existing leases. For contracts entered into on or after the effective date, at the inception of a contract the Company assessed whether the contract is, or contains, a lease. The Company’s assessment is based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether it obtains the right to substantially all the economic benefit from the use of the asset throughout the period, and (3) whether it has the right to direct the use of the asset. The Company will allocate the consideration in the contract to each lease component based on its relative stand-alone price to determine the lease payments. The Company has elected not to recognize right-of-use assets and lease liabilities for short-term leases that have a term of 12 months or less.
Operating lease ROU assets represented the right to use the leased asset for the lease term and operating lease liabilities were recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most leases do not provide an implicit rate, the Company used an incremental borrowing rate based on the information available at the adoption date in determining the present value of future payments. Lease expense for minimum lease payments was amortized on a straight-line basis over the lease term. In connection with the discontinuation of the Company’s logistic and transportation business, all ROU assets were either impaired or deconsolidated and any such impairment is included in discontinued operations as of September 30, 2024 and December 31, 2023. Currently, all leased premises have been abandoned (see Note 10).
| 9 |
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023
(Unaudited)
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 three and nine months ended September 30, 2024 and 2023, the Company believes that it
operated in
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 recognized 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 recognized revenue on a gross basis. Our payment terms were generally net 30 days from acceptance of delivery. The Company did not incur incremental costs obtaining service orders from its customers, however, if the Company did, because all the Company’s customer contracts were less than a year in duration, any contract costs incurred were expensed rather than capitalized. The revenue that the Company recognized arose from deliveries of freight on behalf of the Company’s customers. Primarily, the Company’s performance obligations under these service orders corresponded to each delivery of freight that the Company made under the service agreements. Control of the freight transfers to the recipient upon delivery. Once this occurred, the Company satisfied its performance obligation and the Company recognized revenue.
The Company’s revenues were primarily derived from the transportation services it provided 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 was probable this document serves as the contract as its basis to recognized revenue under ASC 606- Revenue Recognition. The Company elected to expense initial direct costs as incurred because the average shipment cycle is less than five days. The Company recognized revenue and substantially all the purchased transportation expenses on a gross basis. Direct costs of such revenue generally included compensation and related benefits, gas costs, insurance, parking and tolls, truck rental fees, and maintenance fees. The Company directed the use of the transportation service provided and remained responsible for the complete and proper shipment. The Company recognized revenue for its performance obligations under its customer contracts over time, as its customers receive the benefits of the services in accordance with ASC 606- Revenue Recognition.
Revenue generated from warehousing services was generally recognized as the service is performed, based upon a monthly or weekly rate.
Inherent within the Company’s revenue recognition practices were estimates for revenue associated with shipments in transit. For shipments in transit, the Company recorded 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 was based on how far along in the shipment cycle each shipment was in relation to standard transit days. The estimated portion of revenue for all shipments in transit was accumulated at period end and recognized as revenue within discontinued operations. The significance of in-transit shipments to the consolidated financial statements was limited due to the short duration, generally less than five days, of the average shipment cycle.
For the three and nine months ended September 30, 2024 and 2023, all revenues and cost of revenues are included in discontinued operations.
Stock-based compensation
Stock-based compensation is accounted for based on the requirements of ASC 718 – “Compensation – Stock Compensation”, which requires recognition in the financial statements of the cost of employee, director, and non-employee services received in exchange for an award of equity instruments over the period the employee, director, or non-employee is required to perform the services in exchange for the award (presumptively, the vesting period). The ASC also requires measurement of the cost of employee, director, and non-employee services received in exchange for an award based on the grant-date fair value of the award. The Company has elected to recognize forfeitures as they occur as permitted under ASU 2016-09 Improvements to Employee Share-Based Payment.
Pursuant to ASC 260-10-45, basic loss per common share is computed by dividing net loss attributable to common shareholders by the weighted average number of shares of common stock outstanding for the periods presented. Diluted loss per share is computed by dividing net loss 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. Potentially dilutive shares of common stock consist of common stock issuable for stock options and warrants (using the treasury stock method) and shares issuable for Series E, G and H preferred shares (using the as-if converted method). These common stock equivalents may be dilutive in the future.
| 10 |
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023
(Unaudited)
| September 30, 2024 | September 30, 2023 | |||||||
| Stock warrants | ||||||||
| Stock options | ||||||||
| Series E convertible preferred stock | ||||||||
| Series G convertible preferred stock | ||||||||
| Series H convertible preferred stock | ||||||||
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 U.S. 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 adoption of this standard on January 1, 2024 had no impact on the Company’s consolidated financial statements.
The Accounting Standards Update (ASU) 2023-07 issued by the Financial Accounting Standards Board (FASB) introduced enhancements to segment reporting requirements for public entities. The update aimed to improve the transparency and usefulness of financial disclosures for investors and other stakeholders. ASU 2023-07 disclosure requirements are effective for fiscal years starting after December 15, 2023. Company management reviewed the ASU 2023-07 disclosure requirements and determined that no additional disclosures are required as the Company has only one reportable segment.
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 consolidated financial position, results of operations or cash flows upon adoption.
NOTE 3 – ACQUISITIONS
2023
Effective
January 31, 2023, TLSS-STI acquired all of the outstanding stock of each of Severance Trucking, Severance Warehouse and McGrath, which
together offered less-than-truckload (LTL) trucking services throughout New England. The total purchase price was $
In February 2024, due to the lack of working capital to conduct its business, the Severance entities ceased operations and no longer conducts any business and all fixed assets of the Severance entities were voluntarily surrendered to the prior owners. For the three and nine months ended September 30, 2024 and 2023, all activities and balances of the Severance entities are included as part of discontinued operations on the consolidated financial statements (See Note 10). As of the date of this filing, neither Severance Trucking, Severance Warehouse nor McGrath have filed bankruptcy.
The assets acquired and liabilities assumed were recorded at their estimated fair values on the acquisition date, and were subject to adjustment during the measurement period with subsequent changes recognized in earnings or loss. These estimates were inherently uncertain and were subject to refinement. Management developed estimates based on assumptions as a part of the purchase price allocation process to value the assets acquired and liabilities assumed as of the business acquisition date. As a result, during the purchase price measurement period, which may be up to one year from the business acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed based on completion of valuations, with the corresponding offset to intangible assets. Based upon the preliminary purchase price allocation, the following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the date of the acquisition:
| Severance | ||||
| Assets acquired: | ||||
| Cash | $ | |||
| Accounts receivable | ||||
| Prepaid expenses and other assets | ||||
| Property and equipment, net | ||||
| Financing lease right of use assets | ||||
| Intangible assets | ||||
| Total assets acquired at fair value | ||||
| Liabilities assumed: | ||||
| Notes payable | ||||
| Accounts payable and accrued expenses | ||||
| Lease liabilities | ||||
| Total liabilities assumed | ||||
| Net assets acquired | $ | |||
| Purchase consideration paid: | ||||
| Cash paid | $ | |||
| Promissory note | ||||
| Total purchase consideration paid | $ | |||
| 11 |
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023
(Unaudited)
NOTE 4– NOTES PAYABLE – RELATED PARTIES
On
April 14, 2023, the Company’s Board of Directors (“Board”) approved a credit facility (the “Credit Facility”)
under which the Company would obtain unsecured senior debt financing of up to $
On
October 3, 2023 and November 28, 2023, the Company issued unsecured promissory notes to Mr. Mercadante and from an individual, who is
affiliated to Mr. Mercadante in the principal amount of $
On
February 6, 2024 and February 15, 2024, the Company issued unsecured promissory notes to John Mercadante (“Mr. Mercadante”),
a Director of the Company, in the principal amounts of $
On
February 21, 2024 and February 23, 2024, the Company issued unsecured promissory notes to Norman Newton (“Mr. Newton”) and
Charles Benton (“Mr. Benton”), both members of the Company’s Board of Directors, in the principal amounts of $
As
of September 30, 2024 and December 31, 2023, aggregate notes payable to related parties in the principal amounts of $
See Note 11 for subsequent defaults.
NOTE 5– NOTE PAYABLE
On
August 12, 2024, the Company issued two (2) promissory notes (the “August 2024 Notes”) in the aggregate principal amount
of $
If
the Company defaults on the August 2024 Notes, the 2024 Lenders have the right to demand repayment of the August 2024 Notes in full upon
five (5) business days’ notice to the Company. In the event that full payment is not made upon the expiry of a thirty (30) day
period, a default penalty equal to
Concurrently with the issuance of the August 2024 Notes, the Company also entered into a letter agreement of even date (the “August 2024 Letter Agreement”) with the August 2024 Lenders setting forth, among other items, the intended use of proceeds of the August 2024 Notes which include: (i) the completion of the Company’s 2023 audit and reviews for the subsequent 2024 quarters; (ii) preparation and submission of any requisite filings with the SEC and OTC Expert Market; and (iii) maintaining good standing with requisite taxing authorities.
On February 7, 2025, the maturity date for the outstanding principal and interest due on the August 2024 Notes was extended to August 12, 2025.
See Note 11 for subsequent extension of maturity date.
| 12 |
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023
(Unaudited)
NOTE 6– SHAREHOLDERS’ EQUITY (DEFICIT)
Preferred stock
The Company has authorized shares of preferred stock, $ par value per share. The Company’s Amended and Restated Articles of Incorporation explicitly authorize the Board to issue any or all of such shares of preferred stock in one (1) or more classes or series and to fix the designations, powers, preferences and rights, the qualifications, limitations or restrictions thereof, including dividend rights, dividend rates, conversion rights, voting rights, terms of redemption, redemption prices, liquidation preferences and the number of shares constituting any class or series, without further vote or action by the shareholders.
Series B preferred stock
On
August 16, 2019, the Company filed the Certificate of Designation, Preferences, and Rights of Series B Convertible Preferred Shares with
the Secretary of State of the State of Nevada (the “Series B Preferred COD”) designating shares of Series B Convertible
Preferred Stock with a par value of $ and a stated value of $ (the “Series B Preferred”). The Series B Preferred
have no voting rights and are not redeemable.
As of September 30, 2024 and December 31, 2023, shares of Series B preferred stock were issued or outstanding.
Series D preferred stock
On July 20, 2020, the Board filed the Certificate of Designation of Preferences (“COD”), Rights and Limitations of Series D Preferred Stock (the “Series D COD”) with the Secretary of State of the State of Nevada designating shares of preferred stock as Series D. The Series D preferred stock (“Series D Preferred”) does not have the right to vote. The Series D Preferred has a stated value of $ per share (the “Series D Stated Value”). Subject only to the liquidation rights of the holders of Series B Preferred that is currently issued and outstanding, upon the liquidation, dissolution or winding up of the business of the Company, whether voluntary or involuntary, the Series D Preferred holders are entitled to receive an amount per share equal to the Series D Stated Value and then receive a pro-rata portion of the remaining assets available for distribution to the holders of common stock on an as-converted to common stock basis.
Approval of at least a majority of the outstanding Series D Preferred is required to: (a) amend or repeal any provision of, or add any provision to, the Company’s Articles of Incorporation or bylaws, or file any Certificate of Designation (however such document is named) or articles of amendment to create any class or any series of preferred stock, if such action would adversely alter or change in any respect the preferences, rights, privileges or powers, or restrictions provided for the benefit, of the Series D Preferred, regardless of whether any such action shall be by means of amendment to the Articles of Incorporation or bylaws or by merger, consolidation or otherwise or filing any Certificate of Designation, it being understood that the creation of a new security having rights, preferences or privileges senior to or on parity with the Series D Preferred in a future financing will not constitute an amendment, addition, alteration, filing, waiver or repeal for these purposes; (b) increase or decrease (other than by conversion) the authorized number of Series D Preferred; (c) issue any Series D Preferred, other than to the Investors; or (d) without limiting any provision hereunder, whether or not prohibited by the terms of the Series D Preferred, circumvent a right of the Series D Preferred.
As of September 30, 2024 and December 31, 2023, shares of Series D Preferred were issued or outstanding.
Series E preferred stock
On October 6, 2020, the Board filed the Certificate of Designation of Preferences, Rights and Limitations of Series E Convertible Preferred Stock (the “Series E COD”) with the Secretary of State of the State of Nevada designating shares of preferred stock as Series E Preferred.
On December 28, 2020, the Board filed an Amended and Restated Certificate of Designation of Preferences, Rights and Limitations of Series E Convertible Preferred Stock (the “Amended Series E COD”) with the Secretary of State of the State of Nevada. The Series E Preferred has a stated value of $ per share (the “Series E Stated Value”). Pursuant with the Amended Series E COD:
| ● | Each holder of Series E Preferred has the right to cast the number of votes equal to the number of whole shares of common stock into which the shares of Series E Preferred held by such holder are convertible as of the applicable record date. | |
| ● | Unless
prohibited by Nevada law governing distributions to shareholders, for a period of one-year beginning with the Original Issuance Date,
as defined, the Corporation shall have the right but not the obligation to redeem all outstanding Series E Preferred (and not any
part of the Series E Preferred) at a price equal to |
| 13 |
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023
(Unaudited)
Subject
to a beneficial ownership limitation of 4.99% or 9.99%, at any time during the period commencing on the date of the occurrence of a Triggering
Event and ending on the date of the cure of such Triggering Event (the “Triggering Event Period”), a holder may, at such
holder’s option, by delivery of a conversion notice to the Company to convert all, or any number of Series E Preferred (such conversion
amount of the Series E Preferred to be converted pursuant to this Section 6(b) (the “Triggering Event Conversion Amount”),
into shares of common stock at the Triggering Event Conversion Price. The “Triggering Event Conversion Amount” means
If and whenever on or after the initial issuance date but not after two years from the original issuance date, the Company issues or sells, or is deemed to have issued or sold, additional shares of common stock, options, warrants of convertible instruments, other than an exempt issuance, for a consideration per share (the “Base Share Price”) less than a price equal to the conversion price in effect immediately prior to such issuance or sale or deemed issuance or sale (such conversion price then in effect is reflected to herein as the “Applicable Price”) (the foregoing a “Dilutive Issuance”), then immediately after such Dilutive Issuance, the conversion price then in effect shall be reduced to an amount equal to the base share price.
From
and after the Original Issuance Date, cumulative dividends on each share of Series E Preferred shall accrue, whether or not declared
by the Board and whether or not there are funds legally available for the payment of dividends, on a daily basis in arrears at the rate
of
On a pari passu basis with the holders of Series D Preferred that was issued and outstanding, upon the liquidation, dissolution or winding up of the business of the Company, whether voluntary or involuntary, the Series E Preferred is entitled to receive an amount per share equal to the Series E Stated Value and then receive a pro-rata portion of the remaining assets available for distribution to the holders of common stock on an as-converted to common stock basis. Until the date that such Series E Preferred holder no longer owns at least 50% of the Series E Preferred, the holders of Series E Preferred have the right to participate, pro rata, in each subsequent financing in an amount up to 25% of the total proceeds of such financing on the same terms, conditions and price otherwise available in such subsequent financing.
Approval of at least a majority of the outstanding Series E Preferred is required to: (a) amend or repeal any provision of, or add any provision to, the Company’s Articles of Incorporation or bylaws, or file any Certificate of Designation (however such document is named) or articles of amendment to create any class or any series of preferred stock, if such action would adversely alter or change in any respect the preferences, rights, privileges or powers, or restrictions provided for the benefit, of the Series E Preferred, regardless of whether any such action shall be by means of amendment to the Articles of Incorporation or bylaws or by merger, consolidation or otherwise or filing any Certificate of Designation, but the creation of a new security having rights, preferences or privileges senior to or on parity with the Series E Preferred in a future financing will not constitute an amendment, addition, alteration, filing, waiver or repeal for these purposes; (b) increase or decrease (other than by conversion) the authorized number of Series E Preferred; (c) issue any Series D Preferred, (d) issue any Series E Preferred in excess of or (e) without limiting any provision under the Series E COD, whether or not prohibited by the terms of the Series E Preferred, circumvent a right of the Series E Preferred.
These
Series E Preferred issuances with redemption provisions that permit the issuer to settle in either cash or common stock, at the option
of the issuer, were evaluated to determine whether temporary or permanent equity classification on the consolidated balance sheet was
appropriate. As per the terms of the Amended Series E COD, the Company shall have the right but not the obligation to redeem all outstanding
Series E Preferred (and not any part of the Series E Preferred) at a price equal to
The Company concluded that the Series E Preferred represented an equity host and, therefore, the redemption feature of the Series E Preferred was considered to be clearly and closely related to the associated equity host instrument. The redemption features did not meet the net settlement criteria of a derivative and, therefore, were not considered embedded derivatives that required bifurcation. The Company also concluded that the conversion rights under the Series E Preferred were clearly and closely related to the equity host instrument. Accordingly, the conversion rights feature on the Series E Preferred were not considered an embedded derivative that required bifurcation.
On
June 22, 2023, the Company offered holders of warrants issued in the Series E Offering and warrants issued in the Series G Offering (as
described below) to purchase up to an aggregate of
| 14 |
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023
(Unaudited)
The
Company agreed with the holders of outstanding Series E Preferred that did not participate in the Offer that, contingent on the Offer
being exercised with regard to Eligible Warrants aggregating the minimum proceeds, the Company would reduce the conversion price of the
Series E Preferred and warrants issued in the Series E Offering to $
During the nine months ended September 30, 2024 and the year ended December 31, 2023, there were conversions of shares of Series E Preferred.
As of September 30, 2024 and December 31, 2023, shares of Series E Preferred were issued and outstanding.
Series G preferred stock
On
December 31, 2021, we entered into securities purchase agreements with investors pursuant to which the Company issued an aggregate of
(i) shares of a newly created series of preferred stock called the Series G Convertible Preferred Stock (the “Series G
Preferred”) and (ii) common stock purchase warrants to purchase up to
Pursuant to the Series G COD,
| ● | Each holder of Series G Preferred has the right to cast the number of votes equal to the number of whole shares of common stock into which the shares of Series G Preferred held by such holder are convertible as of the applicable record date. | |
| ● | Unless
prohibited by Nevada law governing distributions to shareholders, for a period of one-year beginning with the original issuance date,
as defined, the Company shall have the right but not the obligation to redeem all outstanding Series G Preferred (and not any part
of the Series G Preferred) at a price equal to |
If and whenever on or after the initial issuance date but not after two years from the original issuance date, the Company issues or sells, or is deemed to have issued or sold, additional shares of common stock, options, warrants of convertible instruments, subject to certain exceptions, for a consideration per share (the “Base Share Price”) less than a price equal to the applicable conversion price in effect immediately prior to such issuance or sale or deemed issuance or sale (such conversion price then in effect is reflected to herein as the “Applicable Price”) (the foregoing a “Dilutive Issuance”), then immediately after such Dilutive Issuance, the conversion price then in effect shall be reduced to an amount equal to the Base Share Price.
From
and after the original issuance date, cumulative dividends on each share of Series G Preferred shall accrue, whether or not declared
by the Board and whether or not there are funds legally available for the payment of dividends, on a daily basis in arrears at the rate
of
On
a pari passu basis with the holders of Series E Preferred, upon the liquidation, dissolution or winding up of the business of the Company,
whether voluntary or involuntary, the Series G Preferred is entitled to receive an amount per share equal to the Series G Stated Value
and then receive a pro-rata portion of the remaining assets available for distribution to the holders of common stock on an as-converted
to common stock basis. The holders of Series G Preferred have the right to participate, pro rata, in each subsequent financing in an
amount up to
Approval of at least two-thirds of the outstanding Series G Preferred is required to: (a) amend or repeal any provision of, or add any provision to, the Company’s Articles of Incorporation or bylaws, or file any Certificate of Designation (however such document is named) or articles of amendment to create any class or any series of preferred stock, if such action would adversely alter or change in any respect the preferences, rights, privileges or powers, or restrictions provided for the benefit, of the Series G Preferred, regardless of whether any such action shall be by means of amendment to the Articles of Incorporation or bylaws or by merger, consolidation or otherwise or filing any Certificate of Designation, but the creation of a new security having rights, preferences or privileges senior to or on parity with the Series G Preferred in a future financing will not constitute an amendment, addition, alteration, filing, waiver or repeal for these purposes; (b) increase or decrease (other than by conversion) the authorized number of Series G Preferred; (c) issue any Series E Preferred or Series D Preferred, (d) issue any Series G Preferred in excess of or (e) without limiting any provision under the Series G COD, whether or not prohibited by the terms of the Series G Preferred, circumvent a right of the Series G Preferred.
Under
the terms of the Series G Preferred, if the Company issues or sells (or is deemed to have issued or sold) additional shares of common
stock for a price-per-share that is less than the price equal to the conversion price of the Series G Preferred held by the holders of
the Series G Preferred immediately prior to such issuance, then the conversion price of the Series G Preferred will be reduced to the
price per share of such dilutive issuance. As a result of the issuance of common stock on the exercise of certain Eligible Warrants at
an exercise price of $
| 15 |
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023
(Unaudited)
The
Series G Preferred share issuances with redemption provisions that permit the issuer to settle in either cash or common stock, at the
option of the issuer, were evaluated to determine whether temporary or permanent equity classification on the consolidated balance sheet
was appropriate. As per the terms of the Series G preferred stock agreements, the Company shall have the right but not the obligation
to redeem all outstanding Series G Preferred (and not any part of the Series E Preferred) at a price equal to
The Company concluded that the Series G Preferred represented an equity host and, therefore, the redemption feature of the Series G Preferred was considered to be clearly and closely related to the associated equity host instrument. The redemption features did not meet the net settlement criteria of a derivative and, therefore, were not considered embedded derivatives that required bifurcation. The Company also concluded that the conversion rights under the Series G Preferred were clearly and closely related to the equity host instrument. Accordingly, the conversion rights feature on the Series G Preferred were not considered an embedded derivative that required bifurcation.
On
June 22, 2023, the Company offered holders of warrants issued in the Series E Offering and warrants issued in the Series G Offering to
purchase up to an aggregate of
During
the year ended December 31, 2023, the Company received proceeds of $
During
the three months ended March 31, 2023, the Company issued shares of its common stock in connection with the conversion of
shares of Series G Preferred and accrued dividends payable of $
During
the three months ended September 30, 2023, the Company issued shares of its common stock in connection with the conversion
of shares of Series G and accrued dividends payable of $
During
the three months ended March 31, 2024, the Company issued shares of its common stock in connection with the conversion of
shares of Series G Preferred and accrued dividends payable of $
During
the three months ended June 30, 2024, the Company issued shares of its common stock in connection with the conversion of
shares of Series G Preferred and accrued dividends payable of $
During
the three months ended September 30, 2024, the Company issued shares of its common stock in connection with the conversion
of shares of Series G Preferred and accrued dividends payable of $
As of September 30, 2024 and December 31, 2023, and shares of Series G Preferred were issued and outstanding, respectively.
Series H preferred stock
On September 20, 2022, the Company filed the Certificate of Designation of Preferences, Rights and Limitations of Series H Convertible Preferred Stock (the “Series H COD”) with the Secretary of State of the State of Nevada designating shares of preferred stock as Series H (“Series H Preferred”). The Series H Preferred has no stated value and pursuant to the Series H COD:
| ● | Each share of Series H Preferred shall have no voting rights. | |
| ● | Each
share of Series H Preferred shall be convertible into shares of the Company’s common stock, subject to the beneficial
ownership limitations. | |
| ● | Upon the liquidation, dissolution or winding up of the business of the Company, whether voluntary or involuntary, each holder of Series H Preferred stock shall be entitled to receive out of assets of the Company legally available therefor the same amount that a holder of the Company’s common stock would receive on an as-converted basis (without regard to the beneficial ownership limitation or any other conversion limitations hereunder). The right of a Series H Holder to receive such payment shall be preferential to the right of holders of common stock but shall be subordinate to the rights of the holder of any other series of preferred stock of the Company. |
In
connection with the acquisitions of Freight Connections, on September 16, 2022, the Company issued shares of Series H Preferred.
These shares were valued in the amount of $
As of both September 30, 2024 and December 31, 2023, shares of Series H Preferred were issued and outstanding.
| 16 |
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023
(Unaudited)
Series I Preferred Stock
On July 14, 2023, the Company filed the Certificate of Designation, Rights and Limitations of Series I Preferred Shares with the Secretary of State of the State of Nevada (the “Series B Preferred COD”) designating share of Series I Preferred Stock with a par value of $ (the “Series I Preferred”).
Since a substantial portion of the unissued shares of Common Stock are held in reserve in connection with rights of conversion of convertible preferred stock and/or debt and/or exercise of warrants and/or options, the Company will not be able to issue shares in connection with additional equity investments (including any requirements by investors to place shares of Common Stock in reserve for conversion of convertible preferred stock and/or debt and/or exercise of warrants and/or options), unless the Company amends its Articles of Incorporation to authorize the issuance of additional Common Stock. Senior management believed it was in the interest of the Company that the Articles of Incorporation of the Company be amended to authorize the issuance of shares of Common Stock (the “Authorized Share Increase Proposal”).
In
connection with obtaining expeditious shareholder approval of the amendment to its Articles of Incorporation for the Authorized Share
Increase Proposal, the Company issued a new series of Series I Preferred having the right to vote and/or consent solely on the Authorized
Share Increase Proposal.
In July 2023, John Mercadante, a member of the Board, was issued share of Series I Preferred, which was determined to have no value.
Upon approval of the Authorized Share Increase Proposal on July 27, 2023, the Series I Preferred issued and outstanding was automatically surrendered to the Company and cancelled for no consideration upon the effectiveness of the amendment to the Company’s Articles of Incorporation that was authorized by shareholder approval of such Authorized Share Increase Proposal. Upon such surrender and cancellation, all rights of the Series I Preferred Stock ceased and terminated, and the Series I Preferred Stock was retired and returned to the status of authorized and unissued preferred stock.
Common stock
On
July 27, 2023,
Shares issued in connection with conversion of Series G preferred shares
During
the three months ended March 31, 2023, the Company issued shares of its common stock in connection with the conversion of
shares of Series G Preferred and accrued dividends payable of $
During
the three months ended September 30, 2023, the Company issued shares of its common stock in connection with the conversion
of shares of Series G and accrued dividends payable of $
During
the three months ended March 31, 2024, the Company issued shares of its common stock in connection with the conversion of
shares of Series G Preferred and accrued dividends payable of $
During
the three months ended June 30, 2024, the Company issued shares of its common stock in connection with the conversion of
shares of Series G Preferred and accrued dividends payable of $
During
the three months ended September 30, 2024, the Company issued shares of its common stock in connection with the conversion
of shares of Series G Preferred and accrued dividends payable of $
Shares issued upon exercise of warrants
During
the three months ended June 30, 2023, the Company issued shares of its common stock and received proceeds of $
During
the three months ended September 30, 2023, the Company issued shares of its common stock and received proceeds of $
During the three and nine months ended September 30, 2024, the Company did t issue any shares of its common stock from the exercise of warrants.
Shares issued for compensation
On January 3, 2023, the Board granted the chief operating officer shares of its common stock which were valued at $, or $ per common share, based on the quoted closing price of the Company’s common stock on the measurement date. These shares will vest in equal quarterly installments with the first installment of shares vesting on March 31, 2023, and shares vesting each quarter through December 31, 2023. The Company valued these shares of common stock at a fair value of $ and will record stock-based compensation expense over the one-year vesting period.
| 17 |
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023
(Unaudited)
On
April 1, 2023, the Company agreed to grant restricted stock awards to three independent members of the Company’s board of directors
for an aggregate of common shares of the Company which were valued at $
During the three months ended June 30, 2023, the Company’s Board of Directors granted certain employees an aggregate of shares of its common stock which were valued at $, or $ per common share, based on the quoted closing price of the Company’s common stock on the measurement date. These shares will vest in equal quarterly installments from the gate of grant. In connection with these shares, the Company valued these common shares at a fair value of $ and will record stock-based compensation expense over the one-year vesting period. On July 31, 2023, non-vested shares were cancelled due to the departure of an employee.
During the nine months ended September 30, 2024 and 2023, aggregate accretion of stock-based compensation expense on the above granted shares, which is net of the reversal of previously recognized stock-based expense due to forfeiture, amounted to $ and $, respectively. Total unrecognized compensation expense related to these vested and unvested shares of common stock on September 30, 2024 amounted to $.
The following table summarizes activity related to non-vested shares:
| Number of Non-Vested Shares | Weighted Average Grant Date Fair Value | |||||||
| Non-vested, December 31, 2023 | $ | |||||||
| Shares vested | ( | ) | ( | ) | ||||
| Non-vested, September 30, 2024 | $ | |||||||
Warrants
Warrant activities for the nine months ended September 30, 2024 are summarized as follows:
| Number of Shares Issuable Upon Exercise of Warrants | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value | |||||||||||||
| Balance Outstanding December 31, 2023 | $ | $ | ||||||||||||||
| Expired | ( | ) | ( | ) | - | - | ||||||||||
| Balance Outstanding September 30, 2024 | $ | $ | ||||||||||||||
| Exercisable, September 30, 2024 | $ | $ | ||||||||||||||
Stock options
| Number of Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value | |||||||||||||
| Balance Outstanding December 31, 2023 | $ | $ | ||||||||||||||
| Expired | ( | ) | - | - | ||||||||||||
| Balance Outstanding September 30, 2024 | $ | - | $ | |||||||||||||
| Exercisable, September 30, 2024 | $ | - | $ | |||||||||||||
NOTE 7 – ASSIGNMENT FOR THE BENEFIT OF CREDITORS
In
connection with the finalization of the deeds of assignment for the benefit of creditors, the Assignee demanded a one-time payment of
$
| 18 |
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023
(Unaudited)
NOTE 8 – 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, as of September 30, 2024.
SCS, LLC v. TLSS
On November 17, 2020, a former financial consultant to the Company, SCS, LLC, filed an action against the Company in the Circuit Court of the 15th Judicial Circuit, Palm Beach County, Florida, captioned SCS, LLC v. Transportation and Logistics Systems, Inc. The case was assigned Case No. 50-2020-CA-012684.
In
this action, SCS alleges that it entered into a renewable six-month consulting agreement with the Company dated September 5, 2019 and
that the Company failed to make certain monthly payments due thereunder for the months of October 2019 through March 2020, summing to
$
On
February 9, 2021, the Company filed its answer, defenses and counterclaims in this action. Among other things, the Company avers that
SCS’s claims are barred by its unclean hands and other inequitable conduct, including breach of its duties (i) to maintain the
confidentiality of information provided to SCS and (ii) to work only in furtherance of the Company’s interests, not in furtherance
of SCS’s own, and conflicting, interests. The Company also avers, in its counterclaims, that SLS owes the Company damages in excess
of the $
A two-day non-jury trial was held in this action in Palm Beach County, Florida, on April 20-21, 2022. However, at the end of the second day a mistrial was declared because SCS had not withdrawn its motion to strike and answered the counterclaims.
On July 20, 2023, SCS moved for summary judgment in this action. On July 27, 2023, the Company filed papers opposing the motion. On August 21, 2023, the court conferenced SCS’s motion for summary judgment and SCS’s motion to strike counterclaims and dismiss the counterclaims. The court indicated it would deny the first motion and grant the second motion. On September 5, 2023, the Company filed Amended Affirmative Defenses and an Amended Counterclaim. On October 2, 2023, SCS filed a motion to Dismiss the Amended Counterclaim but it did not file a motion to strike the Amended Affirmative Defenses. On October 3, 2023, the Company filed a motion to strike SCS’s Motion to Dismiss the Amended Counterclaim on the grounds that SCS’s motion was not filed within ten (10) days as required under Florida law. On July 19, 2024, the court denied SCS’s motion for summary judgment on all claims in its entirety.
In February 2025, the parties agreed to settle all claims in this matter and thereafter executed a Confidential Settlement Agreement and Mutual Release effective on February 13, 2025. All asserted claims in this matter will be dismissed with prejudice upon the appropriate court filing and approval by the court.
Shareholder Derivative Action
On June 25, 2020, the Company was served with a putative shareholder derivative action filed in the Circuit Court of the 15th Judicial Circuit in and for Palm Beach County, Florida (the “Court”) captioned SCS, LLC, derivatively on behalf of Transportation and Logistics Systems, Inc. v. John Mercadante, Jr., Douglas Cerny, Sebastian Giordano, Ascentaur LLC and Transportation and Logistics Systems, Inc. The action has been assigned Case No. 2020-CA-006581.
The plaintiff in this action, SCS, alleges it is a limited liability company formed by a former chief executive officer and director of the Company, Lawrence Sands. The complaint alleges that between April 2019 and June 2020, the immediately prior chairman and chief executive officer of the Company, Mercadante, the former chief development officer of the Company, Cerny, and, since February 2020, the Company’s then restructuring consultant who is now chairman and chief executive officer of the Company, Giordano, breached fiduciary duties owed to the Company. Prior to becoming CEO, Giordano rendered his services to the Company through the final named defendant in the action, Ascentaur LLC.
The complaint alleges that Mercadante breached duties to the Company by, among other things, requesting, in mid-2019, that certain preferred equity holders, including SCS, convert their preferred shares into Company common stock in order to facilitate an equity offering by the Company and then not consummating that offering. The complaint also alleges that Mercadante and Cerny caused the Company to engage in purportedly wasteful and unnecessary transactions such as taking merchant cash advances (MCA) on disadvantageous terms. The complaint further alleges that Mercadante and Cerny “issued themselves over two million shares of common stock without consideration.” The complaint seeks unspecified compensatory and punitive damages on behalf of the Company for breach of fiduciary duty, negligent breach of fiduciary duty, constructive fraud, and civil conspiracy and the appointment of a receiver or custodian for the Company.
Company
management tendered the complaint to the Company’s directors’ and officers’ liability carrier for defense and indemnity
purposes, which coverage is subject to a $
| 19 |
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023
(Unaudited)
By order dated September 15, 2022, the Circuit Judge assigned to this case dismissed the original Complaint in the matter, finding (a) that SCS had failed to adequately allege it has standing and (b) that the complaint fails to adequately allege a cognizable claim. The dismissal was without prejudice, meaning SCS could attempt to replead its claims.
On October 5, 2022, SCS filed an Amended Complaint in this action. By order dated December 19, 2022, the Circuit Judge assigned to this case once again dismissed the case, finding (a) that SCS still failed to adequately allege it has standing and (b) that the complaint still fails to adequately allege a cognizable claim. Once again, however, the dismissal was without prejudice.
On January 18, 2023, SCS filed a Second Amended Complaint in this action. All defendants once again moved to dismiss the pleading or in the alternative for summary judgment on it in their favor. The Court heard argument on that motion on March 9, 2023. On May 15, 2023, the Court issued a summary order denying the defendants’ motion to dismiss. On June 1, 2023, all defendants moved for reconsideration of the May 15 order. On November 28, 2023, the Court denied the motion for reconsideration.
On September 15, 2024, the defendants filed a Motion to Strike Plaintiff’s Pleadings and to Preclude Plaintiff from Calling Any Witnesses or Introducing Any Exhibits at Trial to Plaintiff’s failure to (i) comply with the court’s Pretrial Order; and (ii) produce discovery.
In February 2025, the parties agreed to settle all claims in this matter and thereafter executed a Confidential Settlement Agreement and Mutual Release effective on February 13, 2025. All asserted claims in this matter will be dismissed with prejudice upon the appropriate court filing and approval by the court.
Jose R. Mercedes-Mejia v. Shypdirect LLC, Prime EFS LLC et al.
On August 4, 2020, an action was filed against Shypdirect, Prime EFS and others in the Superior Court of New Jersey for Bergen County captioned Jose R. Mercedes-Mejia v. Shypdirect LLC, Prime EFS LLC et al. The case was assigned docket number BER-L-004534-20.
In
this action, the plaintiff seeks reimbursement of his medical expenses and damages for personal injuries following an accident with a
box truck leased by Shypdirect and subleased to Prime EFS and being driven by a Prime EFS employee, in which the plaintiff’s ankle
was injured. Plaintiff has thus far transmitted medical bills exceeding $
On November 9, 2020, Prime EFS and Shypdirect filed their answer to the complaint in this action and also filed a third-party action against the insurance company in an effort to obtain defense and indemnity for this action.
On May 21, 2021, Prime EFS and Shypdirect also filed an action in the Supreme Court, State of New York, Suffolk County (the “Suffolk County Action”), seeking defense and indemnity for this claim from the insurance brokerage, TCE/Acrisure LLC, which sold the County Hall insurance policy to Shypdirect.
On August 19, 2021, the Plaintiff filed a motion for leave to file a First Amended Complaint to name four (4) additional parties as defendants – TLSS, Shyp CX, Inc., Shyp FX, Inc. and Cougar Express, Inc. In the claim against TLSS, Plaintiff seeks to “pierce the corporate veil” and hold TLSS responsible for the alleged liabilities of Prime and/or Shypdirect as the supposed alter ego of these subsidiaries. In the claims against Shyp CX, Inc., Shyp FX, Inc. and Cougar Express, Inc., Plaintiff seeks to hold these entities responsible for the alleged liabilities of Prime and/or Shypdirect on a successor liability theory.
On September 16, 2021, each of these entities filed papers in opposition to this motion.
On September 24, 2021, the Court granted Plaintiff’s motion for leave to amend the complaint, thus adding TLSS, Shyp CX, Inc., Shyp FX, Inc. and Cougar Express, Inc. as Defendants.
On October 22, 2021, Acrisure stipulated to consolidate the Suffolk County Action into and with the Bergen County action.
On November 22, 2021, all Defendants filed their Answer to the First Amended Complaint. On November 3, 2021, Prime EFS and Shypdirect refiled their Third-Party Complaint against TCI/Acrisure in the Bergen County action. On December 23, 2021, Acrisure filed its Answer to the Third-Party Complaint, denying its material allegations.
On March 2, 2022, Plaintiff sought and was granted leave to file a Second Amended Complaint, bringing claims against Prime and Shypdirect’s vehicle liability carrier, County Hall (for discovery) as well as the producing broker, TCE/Acrisure. Plaintiff also asserted additional alter ego allegations against TLSS.
On February 15, 2023, Plaintiff filed a motion for leave to file a Third Amended Complaint in this action, seeking to assert claims against TLSS’s former CEO, John Mercadante, also on a “pierce the corporate veil” theory. On March 9, 2023, TLSS, Prime and Shypdirect opposed the motion for leave to add Mercadante, arguing that any claim against Mercadante would be both futile and time-barred. On March 31, 2023, the Court denied Plaintiff’s motion to add Mr. Mercadante as a party.
In January and February, 2023, numerous depositions were taken in the case, including those of Messrs. Giordano and Mercadante.
On September 16, 2024, the court entered an order granting Plaintiff’s motion for final judgment by default on liability against Defendants Shypdirect, Prime EFS, Shyp CX, Shyp FX, and Cougar Express.
To date, to the best of the Company’s knowledge, information and belief, no discovery has been taken in this action which would permit the imposition of successor liability on Shyp CX, Inc., Shyp FX, Inc. and/or Cougar Express, Inc. for the subject accident.
| 20 |
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023
(Unaudited)
Under
a so-called MCS-90 reimbursement endorsement to the County Hall policy, TLSS believes that Prime and Shypdirect may have up to $
All discovery in this case was completed on or before August 31, 2024.
There were pending cross-motions for summary judgment filed by Plaintiff, Defendants/Third-Party Plaintiffs Jose A. Mercedes-Mejia, Prime EFS, Shypdirect, LLC, and TLSS, and Defendant/Third-Party Defendant County Hall Insurance. The insurance broker, Acrisure, had also filed a motion on the malpractice claim against it. On November 8, 2024, the court granted Defendant/Third-Party Plaintiff Ryder Truck Rental, Inc.’s motion for summary judgment. On December 6, 2024, the parties engaged in a mediation session. While a settlement was not reached on the day the meditation session was held, the parties continued to discuss a potential resolution.
On January 31, 2025, Plaintiff and TLSS, Shypdirect, and Prime EFS executed a binding term sheet which settled the matter with no liability on the part of TLSS, Shypdirect or Prime EFS and requires that a Stipulation of Dismissal will be filed with the court which dismisses all claims with prejudice.
Maria Lugo v. JFK Cartage
The Company’s JFK Cartage, Inc. subsidiary is one of three defendants in an action captioned Maria Lugo v. JFK Cartage, Inc. d/b/a Fifth Dimension Logistix, Joan Ton, individually, and Chris Bartley, individually. The case is pending in Supreme Court, State of New York, Queens County, Index No. 704862/2022.
In this action, which was filed March 4, 2022, a former employee of JFK Cartage alleges that she suffered discrimination and retaliation in violation of the New York City Human Rights Law and the New York State Human Rights Law. The former employee alleges that on December 28, 2021, she had Covid-19 symptoms, advised the defendants she was feeling ill and went home early to take a home test. She further alleges that on December 30, 2021, she tested positive for Covid-19 and informed defendants she had to isolate for 10 days. Plaintiff alleges that she returned to work on January 7, 2022, but that her employment was terminated later that day by defendant Bartley who “questioned the authenticity of the at-home test, accusing her of fraud.” Plaintiff claims her employment “was terminated due to her disability (a Covid-19 infection) and in retaliation for her requesting reasonable accommodation for the illness she suffered.” She seeks unspecified compensatory damages, including lost pay and benefits, punitive damages and attorneys’ fees.
On December 16, 2022, all defendants filed an answer and affirmative defenses, denying all claims for statutory violations. The conduct alleged in the complaint occurred prior to the Company’s July 31, 2022, acquisition of JFK Cartage, Inc. The Company believes that, in relation to this action, it has a right to full indemnification from the selling shareholder (including for attorneys’ fees) as well as set-off rights against notes payable to the selling shareholder.
On September 4, 2024, a Stipulation of Discontinuance was filed which resulted in the dismissal of this case and closure of the entire action.
Elaine Pryor v. Rocio Perez, et al.
The Company’s Freight Connections, Inc. subsidiary (“FCI”) (which was deconsolidated from TLSS operations as of December 1, 2023) was one of three named defendants in an action captioned Elaine Pryor v. Rocio Perez, North Trucking & Logistics, LLC and Freight Connections, Inc. in the 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 FCI. Plaintiff alleges that the truck was owned by FCI and leased to North Trucking & Logistics at the time.
Two other actions related to insurance coverage for the accident were filed. 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). However, these two actions involving insurance coverage issues 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 conduct alleged in the Pryor complaint occurred prior to the Company’s September 16, 2022, acquisition of FCI. The selling shareholder of FCI has advised the Company that the truck in question was not owned by FCI at the time of the accident and hence that FCI is not a proper party defendant in this action.
On May 8, 2023, the Court in the Elaine Pryor action entered an order, on the consent of counsel for all parties, directing that the name of defendant FCI be changed to Freight Connections LLC and that this change be reflected in the caption of the case (the “May 8, 2023 Order”). Freight Connections LLC is not a corporate affiliate of FCI but is rather an independent trucking company that is wholly-owned by the individual who sold the stock of FCI to TLSS-FC effective September 16, 2022. (See Note 1 above.)
In light of the May 8, 2023 Order, the Company does not believe that it can be adjudged liable for any verdict or settlement in the Elaine Pryor action.
The case was settled before the September 16, 2024 scheduled trial date and a Stipulation of Dismissal was filed by all parties on September 25, 2024. The Company has no liability in this matter.
Josh Perez v. Cougar Express, Inc.
An attorney for a former Cougar Express (CE) employee, Josh Perez (“Perez”), has advised CE that he has filed a charge of discrimination against CE with the U.S. Equal Employment Opportunity Commission (EEOC).
| 21 |
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023
(Unaudited)
Perez allegedly is asserting claims against CE for: gender discrimination under Title VII and the New York State Human Rights Law (“NYSHRL”); pregnancy/childbirth discrimination under Title VII of the federal Civil Rights Act of 1964, as amended; retaliation under Title VII and NYSHRL; and familial status discrimination under NYSHRL.
However, CE has not received a copy, nor any notification, of the filing.
Perez was employed by CE as a dock worker beginning on March 8, 2022 and last worked September 27, 2022. He alleges that in or around July 2022, he informed CE that he was expecting a child. Perez has not provided any details regarding the individual(s) with CE he allegedly informed. On 9/27/22, Perez requested that CE complete the employer section of his New York Paid Family Leave (“PFL”) paperwork, which CE did. Thereafter, Perez ceased communicating with CE. Further, CE did not receive any confirmation that Perez had in fact filed for PFL or that his PFL was approved.
Because CE did not hear from Perez or receive any confirmation concerning his application for or approval of PFL, CE concluded that Perez had resigned. Another worker was hired to fill Perez’s former position. Then, on or about December 27, 2022, Perez contacted CE attempting to return to work and was informed that there was no position for him.
CE categorically denies Perez’s allegations and any purported wrongdoing. Because this matter is apparently pending with the EEOC and CE has neither received a copy of the filing nor any notification of the filing, the Company cannot evaluate the likelihood of an adverse outcome or estimate the Company’s liability, if any, in connection with it.
Joseph Corbisiero v. Freight Connections, Inc., TLSS and TLSS-FC
On October 19, 2023, Joseph Corbisiero (“Corbisiero”) filed an action in the Superior Court of the State of New Jersey, Bergen County, against the Company’s subsidiary, Freight Connections, Inc. (“FC”) (which was deconsolidated from TLSS operations as of December 1, 2023), the Company, and the Company’s TLSS-FC, Inc. subsidiary. The case has been assigned # BER-L-005669-23. Corbisiero, who was then the sole shareholder of FC, sold all outstanding shares of FC capital stock to TLSS-FC effective September 16, 2022 (the “FC Closing Date”) and has acted as the CEO of FC since then.
The
complaint in this action contained two counts, one for the alleged breach of a $
In the complaint, Corbisiero alleged that FC defaulted on the FC Promissory Note by failing to pay monthly interest beginning in or around August 1, 2023. Plaintiff also alleges that, by reason of its default, FC is also liable for default interest of 18% per annum plus late charges of 5% each delinquent payment, plus costs of collection. The complaint further alleged that by reason of FC’s default, FC became liable for the full repayment of principal prior to the December 31, 2023, maturity date set forth in the note (see Note 10).
The complaint also contained a single paragraph in which it is alleged that “TLSS and TLSS-FC are necessary and indispensable parties to the instant action by virtue of each entity’s express covenant and agreement to indemnify, defend, protect and hold harmless Plaintiff from and against all losses incurred by Plaintiff in connection with, among other things, any breach or nonfulfillment of any covenant or agreement on the part of TLSS-FC and TLSS under the stock purchase and sale agreement pursuant to which, as amended, TLSS-FC (the “FC SPSA”) acquired the then-outstanding capital stock of FC.”
On May 13, 2024, a Notice of Voluntary Dismissal Without Prejudice was filed by Corbisiero and this case was dismissed due to the petitions for relief filed by Freight Connections and TLSS-FC under chapter 7 of title 11 of the United States Bankruptcy Code. Plaintiff expressly reserved all claims, causes of action, and defenses against the Company, both individually and collectively, in connection with this dispute.
Emerson Swan v. Severance Trucking Co., Inc.
On
April 1, 2024, a judgment was entered against Severance Trucking on behalf of Emerson Swan, Inc. (“Emerson”) in the amount
of $
Ryder Truck Rental, Inc. v. Severance Trucking Co., Inc.
On
April 30, 2024, Severance Trucking received a letter from Ryder Truck Rental, Inc. requesting payment in the amount of $
| 22 |
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023
(Unaudited)
Employment agreements
On
January 4, 2022,
NOTE 9 – RELATED PARTY TRANSACTIONS AND BALANCES
Due to related parties
Freight
Connections incurred outside trucking costs with companies owned by the chief executive officer of Freight Connections. During the three
and nine months ended September 30, 2024 and 2023, Freight Connections recorded aggregate outside trucking expense of $
Notes payable – related parties
On
April 14, 2023, the Board approved the Credit Facility under which the Company would obtain unsecured senior debt financing of up to
$
On
October 3, 2023 and November 28, 2023, the Company issued unsecured promissory notes to Mr. Mercadante and from an individual, who is
affiliated to Mr. Mercadante in the principal amounts of $
On
February 6, 2024 and February 15, 2024, the Company issued unsecured promissory notes to Mr. Mercadante in the principal amounts of
$
On
February 21, 2024 and February 23, 2024, the Company issued unsecured promissory notes to Mr. Newton and Mr. Benton, both members of
the Board, in the principal amounts of $
As
of September 30, 2024 and December 31, 2023, aggregate notes payable to related parties in the principal amounts of $
See Note 11 for subsequent defaults.
NOTE 10 – DISCONTINUED OPERATIONS
On December 1, 2023, the Company ceased operations of its Freight Connections subsidiary and the Freight Bankruptcy occurred. Additionally, on February 27, 2024, the Cougar Bankruptcy occurred. The Company and its other subsidiaries ceased all remaining logistic and transportation service operations in mid-February 2024. As a result, accordingly, the Company has classified the related assets and liabilities associated with its logistics and transportation services business as discontinued operations in its consolidated balance sheets and the results of its logistics and transportation services business has been presented as discontinued operations in its consolidated statements of operations for all periods presented as the discontinuation of its business had a major effect on its operations and financial results. Unless otherwise noted, discussion in the other notes to consolidated financial statements refers to the Company’s continuing operations.
| 23 |
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023
(Unaudited)
The following table presents the major classes of assets and liabilities of the discontinued operations related to the Subsidiaries:
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Assets of discontinued operations: | ||||||||
| Accounts receivable, net | $ | $ | ||||||
| Prepaid expenses and other current assets | ||||||||
| Property and equipment, net | ||||||||
| Assets of discontinued operations, current portion | ||||||||
| Total assets of discontinued operations | $ | $ | ||||||
| Liabilities of discontinued operations: | ||||||||
| Notes payable, current portion | $ | $ | ||||||
| Accounts payable | ||||||||
| Accrued expenses | ||||||||
| Lease liabilities, current portion | ||||||||
| Liabilities of discontinued operations, current portion | ||||||||
| Total liabilities of discontinued operations | $ | $ | ||||||
The following table summarizes the results of operations of the discontinued operations:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of revenues, excluding depreciation and amortization | ||||||||||||||||
| Gross profit (loss) | ( | ) | ( | ) | ||||||||||||
| Operating expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Impairment loss | ( | ) | ||||||||||||||
| Other (expenses) income, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss from discontinued operations | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
During
the nine months ended September 30, 2024, discontinued operations included an impairment loss of $
Accounts receivable
On September 30, 2024 and December 31, 2023, accounts receivable, net included in assets from discontinued operations consisted of the following:
| September 30, 2024 | December 31, 2023 | |||||||
| Accounts receivable | $ | $ | ||||||
| Allowance for credit losses | ( | ) | ( | ) | ||||
| Accounts receivable, net | $ | $ | ||||||
Property and equipment, net
As of September 30, 2024 and December 31, 2023, property and equipment included in assets from discontinued operations consisted of the following:
| Useful Life | September 30, 2024 | December 31, 2023 | ||||||||
| Revenue equipment | $ | $ | ||||||||
| Machinery and equipment | ||||||||||
| Office equipment and furniture | ||||||||||
| Leasehold improvements | ||||||||||
| Subtotal | ||||||||||
| Less: accumulated depreciation | ( | ) | ||||||||
| Property and equipment, net | $ | $ | ||||||||
| 24 |
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023
(Unaudited)
For
the three months ended September 30, 2024 and 2023, depreciation expense amounted to $
Due
to the Cougar Express Bankruptcy and the assignment of all of the Cougar Express assets to the Cougar Express Trustee for liquidation
and unwinding of the business, during the nine months ended September 30, 2024, the Company recognized a loss on deconsolidation of the
Cougar Express property and equipment, net of $
During
the nine months ended September 30, 2024 and 2023, the Company wrote down property and equipment to net realizable value and recorded
an impairment loss of $
Intangible Assets and Goodwill
For
the nine months ended September 30, 2024 and 2023, amortization of intangible assets amounted to $
As
of September 30, 2024 and December 31, 2023, intangible assets subject to amortization and goodwill amounted to $
Notes Payable
On September 30, 2024 and December 31, 2023, notes payable included in liabilities of discontinued operations consisted of the following:
| September 30, 2024 | December 31, 2023 | |||||||
| Principal amounts | $ | $ | ||||||
| Less: current portion of notes payable | ( | ) | ( | ) | ||||
| Notes payable – long-term | $ | $ | ||||||
JFK Cartage acquisition promissory note
On
July 31, 2022, in connection with the acquisition of JFK Cartage, JFK Cartage issued a promissory note in the amount of $
| (i) | An
interest payment in the amount of $ | |
| (ii) | 23
equal weekly payments of interest only, each in the amount of $ | |
| (iii) | $ | |
| (iv) | $ | |
| (v) | $l |
On
September 30, 2024 and December 31, 2023, the principal amount related to the Amended Note was $
Severance Trucking acquisition promissory note
On
January 31, 2023, in connection with the acquisition of the Severance entities, Severance Trucking issued a promissory note in the amount
of $
On
January 26, 2024, the Company received a: (i) Notice of Default and Demand Under Promissory Note and Security Agreement (“Payment
Default Notice”) in connection with the Company’s failure to timely pay in accordance with that certain loan agreement (the
“Severance Trucking Note”) entered into by and among the Severance Sellers, collectively as lender (“Severance Trucking
Lenders”) and TLSS-STI, Severance Trucking, Severance Warehouse and McGrath, collectively as promissors (each a “Severance
Trucking Debtor”, and collectively, the “Severance Trucking Debtors”) and (ii) Notice of Default and Demand Under Guaranty
(“Guaranty Default Notice” and together with the Payment Default Notice, the “Default Notices”), in connection
with an Absolute, Unconditional and Continuing Guaranty, dated February 1, 2023 between TLSS, as guarantor (the “Guarantor”),
and the Severance Trucking Lenders, which guaranty secured the Severance Trucking Note. The Severance Trucking Note became immediately
due and payable upon the Severance Trucking Debtors’ failure to make a payment in the amount of Fifty-Three Thousand Dollars ($
| 25 |
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023
(Unaudited)
The
Severance Trucking Lenders demanded that the Severance Trucking Debtors and the Guarantor make the immediate full payment of (i) the
entire principal balance due under the Severance Trucking Note, together with all interest accrued thereon, and (ii) a late charge of
five percent (
Equipment and auto notes payable
In
connection with the acquisition of JFK Cartage, on July 31, 2022, the Company assumed several equipment notes payable due to entities
amounting to $
On
July 7, 2022, Cougar Express entered into a promissory note for the purchase of a truck in the amount of $
On
September 22, 2022, JFK Cartage entered into a promissory note for the purchase of a truck in the amount of $
On
January 17, 2023, Cougar Express entered into a promissory note for the purchase of two trucks in the amount of $
In
connection with the acquisition of the Severance entities, on January 31, 2023, the Company assumed an equipment note payable due to
an entity amounting to $
On
April 1, 2023, Severance Trucking entered into a promissory note for the purchase of a yard truck in the amount of $
On
April 14, 2023, Severance Trucking entered into a promissory note for the purchase of a truck in the amount of $
On
July 13, 2023, Severance Trucking entered into a promissory note for the purchase of three trucks in the amount of $
On
September 8, 2023, Severance Trucking entered into a promissory note for the purchase of two trucks in the amount of $
In
December 2023, Cougar Express entered into two Merchant Loan (the “Merchant Loans”) with lenders in the aggregate principal
amount of $
| 26 |
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023
(Unaudited)
Operating and Financing Lease Right-Of-Use (“ROU”) Assets and Operating and Financing Lease Liabilities
As a result of the acquisition of JFK Cartage and Freight Connections, the Company assumed several non-cancelable operating leases for the lease of office, warehouse spaces, and parking spaces. Additionally, as a result of the acquisition of Severance Trucking, the Company assumed several non-cancelable financing leases for revenue equipment.
Effective
January 1, 2023, Freight Connections entered into a lease agreement for warehouse space in Ridgefield, NJ. The lease was for a period
of
Effective
February 1, 2023, Severance Trucking entered into a lease agreement for warehouse space in North Haven, CT. The lease is for a period
of
On
December 1, 2023, in connection with the Freight Bankruptcy and the assignment of all of the TLSS-FC and Freight Connections assets to
the Freight Trustee for liquidation and unwinding of the business, Freight Connection abandoned all of its leased premises and during
the year ended December 31, 2023, the Company recognized a loss on deconsolidation of the Freight Connections right of use assets of
$
Additionally,
in February 2024, the Company abandoned all remaining leased premises and as of December 31, 2023, the Company wrote off its remaining
right of use assets and related security deposits and recorded an impairment loss of $
The
significant assumption used to determine the present value of the lease liabilities was discount rates ranging from
On September 30, 2024 and December 31, 2023, right-of-use asset (“ROU”) included in assets of discontinued operations is summarized as follows:
| September 30, 2024 | December 31, 2023 | |||||||
| Office leases and equipment right of use assets | $ | $ | ||||||
| Less: accumulated amortization | ||||||||
| Balance of ROU assets | $ | $ | ||||||
On September 30, 2024 and December 31, 2023, operating and financing lease liabilities related to the ROU assets are included in liabilities of discontinued operations and are summarized as follows:
| September 30, 2024 | December 31, 2023 | |||||||
| Lease liabilities related to office leases and revenue equipment right of use assets | $ | $ | ||||||
| Less: current portion of lease liabilities | ( | ) | ( | ) | ||||
| Lease liabilities – long-term | $ | $ | ||||||
Other liabilities of discontinued operations
On
April 1, 2024, a judgment was entered against Severance Trucking on behalf of Emerson in the amount of $
On
April 30, 2024, Severance Trucking received a letter from Ryder Truck Rental, Inc. requesting payment in the amount of $
On
August 24, 2024, TLSS Ops received a Notice of Default and Demand for Payment from RxBenefits, Inc. (“RxBenefits”) due to
the Company’s failure to pay certain invoices, plus interest and late service charges due under the Administrative Services Agreement
by and between RxBenefits and TLSS Operations Holding, in the amount of $
| 27 |
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023
(Unaudited)
NOTE 11 – SUBSEQUENT EVENTS
Due to the Company’s financial condition, beginning on February 16, 2024, Mr. Giordano agreed to temporarily defer cash compensation and receipt of benefits until a date that was to be mutually agreed upon; however, such compensation and other benefits due to Mr. Giordano under the CEO Employment Agreement, continue to accrue. On May 15, 2024, the Company received the Termination Notice, for the nonpayment of compensation and other benefits due under such CEO Employment Agreement. Under the terms of the CEO Employment Agreement, the Company had until July 15, 2024 to cure such default or else Mr. Giordano’s termination pursuant to the Termination Notice would be effective on July 15, 2024. The Company was unable to cure such default; however, on July 15, 2024, the Company and Mr. Giordano agreed to a extend the termination date until August 15, 2024. On August 15, 2024, the Company and Mr. Giordano further extended the termination date to November 15, 2024. On November 14, 2024, the parties further extended the termination date to February 15, 2025. On February 10, 2025, the parties further extended the termination date to May 31, 2025.
Through the extended termination date, all existing wage and benefit provisions of the CEO Employment Agreement shall continue to accrue; however, the claims under the Termination Notice remain in force, including that any granted, but unvested Restricted Stock Units, if any, have been deemed fully vested under the Termination Notice. In addition, the remaining of unvested Restricted Stock Units (“RSUs”) of the RSUs originally granted to Mr. Giordano in March 2022 will be deemed fully vested as of the date the CEO Employment Agreement terminates.
In connection with the extension of the term of the CEO Employment Agreement, the Company acknowledged that as of and through January 31, 2025, the amount of compensation and benefit amounts due to Mr. Giordano total:
| (i) Unpaid base salary – February 16, 2024 – January 31, 2025 | $ | |||
| (ii) Accrued vacation pay – through January 31, 2025 | $ | |||
| (iii) Health insurance premium – February 16, 2024 – January 31, 2025 | $ | |||
| Total | $ |
The
above amounts do not include the severance payment that became due and payable under the terms of the CEO Employment Agreement as a result
of the Company’s failure to cure the default as discussed above, which is equal to Mr. Giordano’s annual base salary for
the one-year subsequent to the termination of the CEO Employment Agreement ($
On
October 1, 2024, the Company received default notices for its failure to pay outstanding principal and interest due on unsecured
promissory notes that were issued on February 21, 2024 and February 23, 2024 to Mr. Newton and Mr. Benton in the principal amounts
of $
On
October 9, 2024, the Company issued two (2) unsecured non-convertible promissory notes (the “October 2024 Notes”) in the
aggregate principal amount of $
On
November 22, 2024, Company issued an unsecured non-convertible promissory note (the “November 2024 Note”) in the
aggregate principal amount of $
On
January 21, 2025, the Company issued an unsecured non-convertible promissory note (the “January 2025 Note”) in the
aggregate principal amount of $
On
February 7, 2025, the Company received a default notice for its failure to pay outstanding principal and interest due on an
unsecured promissory note that was issued on February 6, 2024 to Mr. Mercadante in the principal amount of $
and was due on February 6, 2025. As such, the interest rate on such note was increased to
On February 10, 2025, the August 2024 Notes were amended whereby the due date for the outstanding principal and interest of the August 2024 Notes to be due and paid in full was extended from February 12, 2025 to August 12, 2025 (see Note 5).
On
February 21, 2025, the Company received a default notice for its failure to pay outstanding principal and interest due on an
unsecured promissory note that was issued on February 15, 2024 to Mr. Mercadante in the principal amount of $
and was due on February 15, 2025. As such, the interest rate on such note was increased to
| 28 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and plan of operations together with unaudited consolidated financial statements and the related notes appearing elsewhere in this Quarterly Report. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included in our Annual Report. All amounts in this report are in U.S. dollars, unless otherwise noted.
Overview
Transportation and Logistics Systems, Inc. is a publicly-traded holding company. Until July 17, 2024, our shares of common stock were traded on the OTC: PINK market and are currently traded on the OTC Expert Market.
Until February 2024, the Company’s Subsidiaries provided a full suite of asset-based logistics and transportation services, specializing in ecommerce fulfillment, last mile deliveries, two-person home delivery, mid-mile, and long-haul services. The Company and its Subsidiaries operated several warehouse locations located in New York, New Jersey, Connecticut and Massachusetts. The Company and its Subsidiaries ceased all remaining operations as of mid-February 2024.
On December 1, 2023, TLSS-FC, Inc. and Freight Connections filed voluntary bankruptcy petitions under Chapter 7 of the United States Bankruptcy Code in the State of New Jersey. On February 27, 2024, Cougar Express filed a voluntary bankruptcy petition under Chapter 7 of the United States Bankruptcy Code in the State of New York. The Severance entities, JFK Cartage, TLSSA, TLSS Ops, Shyp CX, Shyp FX, TLSS-CE, TLSS-FC, and TLSS-STI have all ceased operations since mid-February 2024. Besides TLSS-FC, Inc., Freight Connections, and Cougar Express, none of the other Subsidiaries have filed bankruptcy.
On November 13, 2020, TLSS formed a wholly-owned subsidiary, Shyp FX, under the laws of the State of New Jersey. On January 15, 2021, through Shyp FX, we simultaneously executed an asset purchase agreement and closed a transaction to acquire substantially all the assets and certain liabilities of Double D Trucking, Inc., a northern New Jersey-based logistics provider specializing in servicing Federal Express over the past 25 years (“DDTI”). On April 28, 2022, we entered into an asset purchase agreement with an unrelated third party to sell substantially all of the assets and specific liabilities of Shyp FX. On June 21, 2022, we closed the transaction and sold substantially all the assets of Shyp FX in an all-cash transaction.
On November 16, 2020, we formed a wholly owned subsidiary, TLSSA, under the laws of the State of Delaware. On March 24, 2021, TLSSA, acquired all the issued and outstanding shares of capital stock of Cougar Express, a New York-based full-service logistics provider specializing in pickup, warehousing, and delivery services in the New York City tri-state area. On February 27, 2024, Cougar Express, filed a Chapter 7 bankruptcy petition in the State of New York under the United States Bankruptcy Code, assigning all of the Cougar Express assets to Mr. Andrew M. Thaler, Esq., as Trustee (the “Cougar Express Trustee”) for liquidation and unwinding of the business. The Cougar Express Trustee has been charged with liquidating the assets for the benefit of the Cougar Express creditors pursuant to the provisions of the Chapter 7 Statute. As a result of Cougar Express filing the Chapter 7 petition, the Trustee assumed all authority to manage Cougar Express. Additionally, as of February 27, 2024, Cougar Express no longer conducts any business and is not permitted by the Trustee to conduct any business. For these reasons, effective February 27, 2024, the Company relinquished control of Cougar Express. Therefore, the Company deconsolidated Cougar Express, effective with the filing of the Chapter 7 bankruptcy petition on February 27, 2024.
On February 21, 2021, we formed a wholly-owned subsidiary, Shyp CX, a company incorporated under the laws of the State of New York. Shyp CX does not engage in any revenue-generating operations and is currently inactive.
On August 4, 2022, Cougar Express closed on its acquisition of all outstanding stock of JFK Cartage, a New York-based full-service logistics provider specializing in pickup, warehousing and delivery services in the tri-state area. In February 2024, due to lack of working capital to conduct its business, JFK Cartage ceased its operations and no longer conducts any business and all of its assets of the Company were voluntarily conveyed to the Cougar Trustee.
On August 17, 2022, the Company formed a wholly-owned subsidiary, TLSS-FC, under the laws of the State of Delaware. Effective September 16, 2022, TLSS-FC closed on an acquisition to acquire all outstanding stock of Freight Connections, a New Jersey-based company that offered an array of transportation, warehousing, consolidating, distribution, and local cartage services throughout the New York tri-state area. On December 1, 2023, TLSS-FC and its wholly-owned subsidiary, Freight Connections, filed a Chapter 7 bankruptcy petition in the State of New Jersey under the United States Bankruptcy Code, assigning all of the TLSS-FC and Freight Connections assets to Mr. Steven P Kartzman, Esq., as Trustee (the “TLSS Trustee”) for liquidation and unwinding of the business. The TLSS Trustee has been charged with liquidating the assets for the benefit of the TLSS-FC and Freight Connection’s creditors pursuant to the provisions of the Chapter 7 Statute. As a result of TLSS-FC and Freight Connections filing of the Chapter 7 petition, the TLSS Trustee assumed all authority to manage TLSS-FC and Freight Connections. Additionally, TLSS-FC and Freight Connections no longer conduct any business and are not permitted by the TLSS Trustee to conduct any business. For these reasons, effective December 1, 2023, the Company relinquished control of TLSS-FC and Freight Connections. Therefore, the Company deconsolidated TLSS-FC and Freight Connections effective with the filing of the Chapter 7 petition on December 3, 2023. In November 2023, the Company fully impaired the goodwill, intangible assets and other long-lived assets of Freight Connection and the Company recognized a loss on deconsolidation of approximately $400,000.
On January 27, 2023, the Company formed a wholly-owned subsidiary, TLSS-STI, under the laws of the State of Delaware. TLSS-STI does not engage in any revenue-generating operations and is currently inactive. Effective January 31, 2023, TLSS-STI acquired all of the outstanding stock of each of Severance Trucking, Severance Warehouse and McGrath, which together offered less-than-truckload (LTL) trucking services throughout New England. In February 2024, due to the lack of working capital to conduct its business, Severance ceased its operations and no longer conducts any business and all fixed assets of the Company were voluntarily surrendered to the prior owners.
On May 31, 2023, the Company formed TLSS Ops and TLSS-CE. Simultaneously with the formation of these entities, Cougar Express became a wholly-owned subsidiary of TLSS-CE; Severance Warehousing and McGrath became wholly-owned subsidiaries of Severance Trucking; Severance Trucking became a wholly-owned subsidiary of TLSS-STI; and each of TLSS-CE, TLSS-STI and TLSS-FC became wholly-owned subsidiaries of TLSS Ops.
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On December 1, 2023, two of the Company’s subsidiaries, TLSS-FC, Inc. and Freight Connections filed voluntary bankruptcy petitions under Chapter 7 of the United States Bankruptcy Code in the State of New Jersey. JFK Cartage, the Severance entities, TLSSA, TLSS Ops, Shyp CX, Shyp FX, TLSS-CE, TLSS-FC, and TLSS-STI have all ceased operations since mid-February 2024.
Subsequent to the cessation of all of the Company’s revenue generating operations and through the date of these unaudited consolidated financial statements, the Company continues to remain insolvent and as a result, has been unable to timely meet our annual and quarterly periodic reporting obligations under the 34 Act. Beginning in August 2024 and again in October 2024, November 2024 and January 2025, we obtained financing that enabled us to complete the audit of our consolidated financial statements for the year ended December 31, 2023, file our 2023 Annual Report, review our unaudited consolidated financial statements for the quarters ended March 31, 2024, June 30, 2024, and September 30, 2024 to enable us to prepare and file the associated Quarterly Reports on Form 10-Q, and commence the audit of our consolidated financial statements for the year ended December 31, 2024 to enable us to prepare our Annual Report on Form 10-K for the year ended December 31, 2024 (the “2024 Annual Report”). Following the filing of this Quarterly Report, we will continue to work to complete the necessary financial statements and file the 2024 Annual Report as soon as possible hereafter; however, the Company will require additional financing to fund the necessary costs related to the preparation and filing of the 2024 Annual Report. In addition, we are also evaluating a possible restructuring of our remaining existing debts and obligations, as well as assessing the possibility of replacing our discontinued businesses and/or entering into new line(s) of business, whether by acquisition or otherwise. However, there can be no assurance that we will, in fact, be able to replace our former business and/or enter into new line(s) of business, or to do so profitably.
The following discussion highlights the results of our operations and the principal factors that have affected the Company’s consolidated financial condition as well as its liquidity and capital resources for the periods described and provides information that management believes is relevant for an assessment and understanding of the consolidated financial condition and results of operations presented herein. The following discussion and analysis are based on the unaudited consolidated financial statements contained in this Quarterly Report, which have been prepared in accordance with U.S. GAAP. You should read the discussion and analysis together with such unaudited consolidated financial statements and the related notes thereto.
Critical Accounting Policies and Estimates
The methods, estimates, and judgments that we use in applying our accounting policies have a significant impact on the results that we report in our consolidated financial statements. Some of our accounting policies require us to make difficult and subjective judgments, often as a result of the need to make estimates regarding matters that are inherently uncertain. Significant estimates included in the accompanying consolidated financial statements and footnotes include the valuation of accounts receivable, the useful life of property and equipment, the valuation of intangible assets, the valuation of assets acquired and liabilities assumed in a business combination, the valuation of right of use assets and related liabilities, assumptions used in assessing impairment of long-lived assets, estimates of current and deferred income taxes and deferred tax valuation allowances, the fair value of non-cash equity transactions, the valuation of assets and liabilities of discontinued operations, and the value of claims against the Company. Of the above significant estimates, we do not consider any to be critical given the discontinued operations presentation.
Management believes the following critical accounting policies affect our more significant judgments and estimates used in the preparation of the consolidated financial statements.
Discontinued Operations
The Company has classified the related assets and liabilities associated with our logistics and transportation services business as discontinued operations in our consolidated balance sheets and the results of our logistics and transportation services business has been presented as discontinued operations in our consolidated statements of operations for all periods presented as the discontinuation of our business had a major effect on our operations and financial results.
Deconsolidation of subsidiaries
The Company accounts for a gain or loss on deconsolidation of subsidiaries or derecognition of a group of assets in accordance with ASC 810-10-40-5. The Company measures the gain or loss as the difference between (a) the aggregate of fair value of any consideration received, the fair value of any retained noncontrolling investment and the carrying amount of any noncontrolling interest in the former subsidiary at the date the subsidiary is deconsolidated and (b) the carrying amount of the former subsidiary’s assets and liabilities or the carrying amount of the group of assets.
RESULTS OF OPERATIONS
Our consolidated financial statements have been prepared assuming that we will continue as a going concern and, accordingly, do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should we be unable to continue our operation. Our results of operations reflect our continuing operations and reflect losses from discontinued operations related to the discontinuation of our logistics businesses. All financial information has been restated to reflect our discontinued operations for all periods presented.
For the three and nine months ended September 30, 2024 compared with the three and nine months ended September 30, 2023
The following table sets forth our revenues, expenses and net loss for the three and nine months ended September 30, 2024 and 2023.
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Revenues | $ | - | $ | - | $ | - | $ | - | ||||||||
| Operating expenses | 411,697 | 749,485 | 1,479,030 | 2,829,497 | ||||||||||||
| Loss from operations | (411,697 | ) | (749,485 | ) | (1,479,030 | ) | (2,829,497 | ) | ||||||||
| Other expenses, net | (63,035 | ) | (21,543 | ) | (165,070 | ) | (29,009 | ) | ||||||||
| Loss from continuing operations | (474,732 | ) | (771,028 | ) | (1,644,100 | ) | (2,858,506 | ) | ||||||||
| Loss from discontinued operations | (134,180 | ) | (1,896,967 | ) | (1,603,306 | ) | (3,934,196 | ) | ||||||||
| Net loss | (608,912 | ) | (2,667,995 | ) | (3,247,406 | ) | (6,792,702 | ) | ||||||||
| Deemed and accrued dividends | (76,571 | ) | (62,660 | ) | (232,691 | ) | (473,046 | ) | ||||||||
| Net loss attributable to common shareholders | $ | (685,483 | ) | $ | (2,730,655 | ) | $ | (3,480,097 | ) | $ | (7,265,748 | ) | ||||
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Results of Operations
Revenue
For the three and nine months ended September 30, 2024 and 2023, total revenue is reflected as $0 as all activities of the Subsidiaries were reclassified as discontinued operations on our unaudited consolidated financial statements.
Operating Expenses
For the three months ended September 30, 2024, total operating expenses amounted to $411,697 as compared to $749,485 for the three months ended September 30, 2023, a decrease of $337,788, or 45.1%, as reflected in the accompanying chart and described more fully below. For the nine months ended September 30, 2024, total operating expenses amounted to $1,479,030 as compared to $2,829,497 for the nine months ended September 30, 2023, a decrease of $1,350,467, or 47.7%, as reflected in the accompanying chart and described more fully below.
For the three and nine months ended September 30, 2024 and 2023, operating expenses consisted of the following:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Compensation and related benefits | $ | 206,964 | $ | 368,573 | $ | 992,346 | $ | 1,404,195 | ||||||||
| Legal and professional Fees | 198,806 | 296,521 | 366,783 | 1,185,097 | ||||||||||||
| General and administrative expenses | 5,927 | 84,391 | 119,901 | 240,205 | ||||||||||||
| Total Operating Expenses | $ | 411,697 | $ | 749,485 | $ | 1,479,030 | $ | 2,829,497 | ||||||||
Compensation and related benefits
For the three months ended September 30, 2024, compensation and related benefits amounted to $206,964 as compared to $368,573 for the three months ended September 30, 2023, a decrease of $161,609, or 43.9%. During the three months ended September 30, 2024, the overall decrease in compensation and related benefits as compared to the three months ended September 30, 2023 was primarily attributable to a decrease in compensation paid to significant employees, including the departure of our chief financial officer in October 2023, a decrease in administrative staff due to lack of working capital and a decrease in stock-based compensation of $30,875.
For the nine months ended September 30, 2024, compensation and related benefits amounted to $992,346 as compared to $1,404,195 for the nine months ended September 30, 2023, a decrease of $411,849, or 29.3%. During the nine months ended September 30, 2024, the overall decrease in compensation and related benefits as compared to the nine months ended September 30, 2023 was primarily attributable to a decrease in compensation paid to significant employees, including the departure of our chief financial officer in October 2023, a decrease in administrative staff due to lack of working capital and a decrease in stock-based compensation of $237,365, offset by the accrual of a termination fee of $400,000 resulting from the Termination for Good Cause Notice sent by Mr. Giordano that the Company received on May 15, 2024, in connection with his employment agreement with the Company, dated January 4, 2022.
Legal and professional fees
For the three months ended September 30, 2024, legal and professional fees were $198,806 as compared to $296,521 for the three months ended September 30, 2023, a decrease of $97,715, or 33.0%, which was primarily attributable to a decrease in accounting and auditing fees of $46,340, a decrease in legal fees of $15,870, and a net decrease in other professional fees of $35,505.
For the nine months ended September 30, 2024, legal and professional fees were $366,783 as compared to $1,185,097 for the nine months ended September 30, 2023, a decrease of $818,314, or 69.1%, which was primarily attributable to a decrease in accounting and auditing fees of $509,721, a decrease in legal fees of $230,505, and a net decrease in other professional fees of $78,088.
General and administrative expenses
General and administrative expenses include insurance expense and other general and administrative expenses. For the three months ended September 30, 2024, general and administrative expenses were $5,927 as compared to $84,391 for the three months ended September 30, 2023, a decrease of $78,464, or 93.0%. The decrease was primarily attributable to the cessation of operations and cost-cutting measures taken. For the nine months ended September 30, 2024, general and administrative expenses were $119,901 as compared to $240,205 for the nine months ended September 30, 2023, a decrease of $120,304, or 50.0%. The decrease was primarily attributable to the cessation of operations and cost-cutting measures taken.
Loss from operations
For the three months ended September 30, 2024, loss from operations amounted to $411,697 as compared to $749,485 for the three months ended September 30, 2023, a decrease of $337,788, or 45.1%, primarily due to changes in operating expenses discussed above. For the nine months ended September 30, 2024, loss from operations amounted to $1,479,030 as compared to $2,829,497 for the nine months ended September 30, 2023, a decrease of $1,350,467, or 47.7 %, primarily due to changes in operating expenses discussed above.
Other (expenses) income, net
Total other income (expenses) includes interest income, interest expense, derivative expense, and other income.
For the three months ended September 30, 2024, other expenses amounted to $63,035 and $21,543 respectively, an increase of $41,492, or 192.6%, attributable to an increase in interest expense related to an increase in notes payable – related parties.
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For the nine months ended September 30, 2024, other expenses, net amounted to $165,070 and $29,009, respectively, an increase of $136,061, or 469.0%, primarily attributable to an increase in interest expense related to an increase in notes payable – related parties. Additionally, during the nine months ended September 30, 2023, we recorded a gain from the sale of assets of our subsidiary, Shyp FX, of $9,983 as of compared to $0 for the nine months ended September 30, 2024.
Loss from discontinued operations
In November 2023, we ceased operations of our Freight Connections subsidiary and on December 1, 2023, Freight Connections and TLSS-FC filed a Chapter 7 bankruptcy petition in the State of New Jersey under the United States Bankruptcy Code. Additionally, in February 2024, we ceased operations of all remaining logistic and transportation services subsidiaries, and on February 27, 2024, Cougar Express filed a Chapter 7 bankruptcy petition in the State of New York under the United States Bankruptcy Code. Accordingly, the financial position and results of operations of all our Subsidiaries are reflected as discontinued operations for all periods presented.
The following table sets forth our revenues, expenses and net loss for the three and nine months ended September 30, 2024 and 2023 related to discontinued operations.
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Revenues | $ | - | $ | 4,947,683 | $ | 1,371,993 | $ | 15,604,450 | ||||||||
| Cost of revenues, excluding depreciation and amortization | 1,193 | 3,769,556 | 1,413,146 | 11,155,183 | ||||||||||||
| Gross profit (loss) | (1,193 | ) | 1,178,127 | (41,153 | ) | 4,449,267 | ||||||||||
| Operating expenses | (43,246 | ) | (2,755,864 | ) | (759,714 | ) | (7,709,399 | ) | ||||||||
| Impairment loss | - | - | (555,628 | ) | - | |||||||||||
| Other (expenses) income, net | (89,741 | ) | (319,230 | ) | (246,811 | ) | (674,064 | ) | ||||||||
| Loss from discontinued operations | $ | (134,180 | ) | $ | (1,896,967 | ) | $ | (1,603,306 | ) | $ | (3,934,196 | ) | ||||
During the nine months ended September 30, 2024, discontinued operations included an impairment loss of $555,628 from the write down of property and equipment.
Net loss
Due to factors discussed above, for the three months ended September 30, 2024 and 2023, net loss amounted to $608,912 and $2,667,995, respectively, and for the nine months ended September 30, 2024 and 2023, net loss amounted to $3,247,406 and $6,792,702, respectively.
For the three months ended September 30, 2024, net loss attributable to common shareholders, which included dividends accrued on Series E and Series G preferred stock of $76,571, amounted to $685,483, or $(0.00) per basic and diluted share of common stock. For the three months ended September 30, 2023, net loss attributable to common shareholders, which included dividends accrued on Series E and Series G preferred stock of $62,660, amounted to $2,730,655, or $(0.00) per basic and diluted share of common stock.
For the nine months ended September 30, 2024, net loss attributable to common shareholders, which included dividends accrued on Series E and Series G preferred stock of $232,691, amounted to $3,480,097, or $(0.00) per basic and diluted share of common stock. For the nine months ended September 30, 2023, net loss attributable to common shareholders, which included dividends accrued on Series E and Series G preferred stock of $473,046, amounted to $7,265,748, or $(0.00) per basic and diluted share of common stock.
LIQUIDITY AND CAPITAL RESOURCES
On September 30, 2024 and December 31, 2023, we had a cash balance of $181,032 and $218,152, respectively. Our working capital deficit was $11,237,376 and $7,997,436 on September 30, 2024 and December 31, 2023, respectively. We reported a net decrease in cash for the nine months ended September 30, 2024 of $37,120 primarily as a result of cash used in operations of $232,924, offset by cash provided by financing activities of $195,804 resulting from cash received from related party notes of $391,838, offset by the repayment of notes payable of $346,034. As of February 21, 2025, the Company had $181,255 in cash, consisting of: (i) $37,108 remaining from the issuance of an unsecured promissory note in January 2025 in the aggregate principal amount of $50,000 and (ii) $144,147 related to Severance Trucking.
Although we had historically raised capital from sales of shares of common stock, the sale of Series E and Series G preferred stock, and from the issuance of convertible promissory notes and notes payable, the Company, in mid-February 2024, was unable to raise additional capital or secure additional lending to meet its debt and liability obligations and, as a result, the Company had to cease its remaining operations.
Our consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying unaudited consolidated financial statements, we had a net loss of $3,247,406 and $6,792,702 for the nine months ended September 30, 2024 and 2023, respectively. The net cash used in operations was $232,924 and $2,127,806 for the nine months ended September 30, 2024 and 2023, respectively. Additionally, we had an accumulated deficit and working capital deficit of $145,813,395 and $11,237,376, respectively, on September 30, 2024. These factors, in addition to the cessation of all operations, raises substantial doubt about our ability to continue as a going concern for a period of twelve months from the date of this Quarterly Report.
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On August 12, 2024, the Company issued two (2) promissory notes (the “August 2024 Notes”) in the aggregate principal amount of $150,000, with two lenders, who are holders of shares of the Company’s Series E and Series G preferred stock (the “2024 Lenders”). The August 2024 Notes have an interest rate of 10% per annum that mature six (6) months from the date of issuance. The primary purpose of the use of proceeds from the August 2024 Notes were to fund initial costs related to: (i) the commencement of the Company’s 2023 audit and quarterly reviews for 2024; (ii) regaining compliance with required SEC filings; (iii) maintaining the Company’s OTC listing; and (iv) keeping the Company in good standing with requisite taxing authorities. Such financing anticipates the Company would secure additional financing to complete such audit and file its past due SEC filings, although there is no guarantee that any such additional financing will be secured.
If the Company defaults on the August 2024 Notes, the 2024 Lenders have the right to demand repayment of the August 2024 Notes in full upon five (5) business days’ notice to the Company. In the event that full payment is not made upon the expiry of a thirty (30) day period, a default penalty equal to 5.0% per month during the period of default in addition to the 10% interest rate will apply to the entire amount of the August Notes outstanding, including any accrued but unpaid interest. On February 10, 2025, the August 2024 Notes were amended whereby the due date for the outstanding principal and interest of the August 2024 Notes to be due and paid in full was extended from February 12, 2025 to August 12, 2025.
On October 9, 2024, the Company issued two unsecured non-convertible promissory notes (the “October 2024 Notes”) in the aggregate principal amount of $100,000, with an interest rate of 10% per annum that mature six months from the date of issuance, to the 2024 Lenders. If the Company defaults on the October 2024 Notes, the 2024 Lenders have the right to demand repayment of the October 2024 Notes in full upon five business days’ notice to the Company. In the event that full payment is not made upon the expiry of a thirty-day period, a default penalty equal to 5.0% per month during the period of default in addition to the 10% interest rate will apply to the entire amount of the October 2024 Notes outstanding, including any accrued but unpaid interest. The primary use of the proceeds from the October 2024 Notes were for use in (i) the Company’s 2023 audit and quarterly reviews for 2024; (ii) regaining compliance with required SEC filings; (iii) maintaining the Company’s OTC listing; (iv) keeping the Company in good standing with requisite taxing authorities; and (v) fees for routine litigation matters in the ordinary course of business.
Similar to the August 2024 Notes, if the Company defaults on the October 2024 Notes, the 2024 Lenders have the right to demand repayment of the October 2024 Notes in full upon five (5) business days’ notice to the Company. In the event that full payment is not made upon the expiry of a thirty (30) day period, a default penalty equal to 5.0% per month during the period of default in addition to the 10% interest rate will apply to the entire amount of the October Notes outstanding, including any accrued but unpaid interest.
On November 22, 2024, the Company issued an unsecured non-convertible promissory note (the “November 2024 Note”) in the aggregate principal amount of $50,000, with an interest rate of 10% per annum that matures six (6) months from the date of issuance, to the 2024 Lenders. If the Company defaults on the November 2024 Note, the 2024 Lenders have the right to demand repayment of the November 2024 Note in full upon five (5) business days’ notice to the Company. In the event that full payment is not made upon the expiry of a thirty (30) day period, a default penalty equal to 5.0% per month during the period of default in addition to the 10% interest rate will apply to the entire amount of the November 2024 Note outstanding, including any accrued but unpaid interest.
Concurrently with the issuance of the November 2024 Note, the Company also entered into a letter agreement (the “November 2024 Letter Agreement”) with the 2024 Lenders setting forth, among other items, the intended use of proceeds of the November 2024 Notes which include: (i) the completion of the Company’s 2023 audit and reviews for the subsequent 2024 quarters; (ii) preparation and submission of any requisite filings with the SEC and OTC Expert Market; (iii) maintaining good standing with requisite taxing authorities; and (iv) fees for routine litigation matters in the ordinary course of business.
On January 21, 2025, the Company issued an unsecured non-convertible promissory note (the “January 2025 Note”) in the aggregate principal amount of $50,000, with an interest rate of 10% per annum that mature six (6) months from the date of issuance, to one of the 2024 Lenders. If the Company defaults on the January 2025 Note, the 2024 Lender has the right to demand repayment of the January 2025 Note in full upon five (5) business days’ notice to the Company.
In the event that full payment is not made upon the expiry of a thirty (30) day period, a default penalty equal to 5.0% per month during the period of default in addition to the 10% interest rate will apply to the entire amount of the January 2025 Note outstanding, including any accrued but unpaid interest.
Concurrently with the issuance of the January 2025 Note, the Company also entered into a letter agreement of even date (the “January 2025 Letter Agreement”) with the 2024 Lenders setting forth, among other items, the intended use of proceeds of the January 2025 Notes which include: (i) the completion of the Company’s 2024 second and third quarter reviews; (ii) preparation and submission of any requisite filings with the SEC and OTC Expert Market; (iii) maintaining good standing with requisite taxing authorities; and (iv) fees for routine litigation matters in the ordinary course of business.
Management cannot provide assurance that we will ultimately get and remain current in our SEC filings, successfully restructure its debts and liabilities, find a new business opportunity, achieve profitable operations, become cash flow positive or raise additional debt and/or equity capital. We are seeking to raise capital through additional debt and/or equity financings to fund our Company in the future and to pay our debt obligations. Although we have historically raised capital from sales of preferred shares, and from the issuance of promissory notes and convertible promissory notes, there is no assurance that it will be able to continue to do so. If the Company is unable to raise additional capital or secure additional lending in the near future, management expects that the Company would need to filing bankruptcy. Our consolidated financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.
Cash Flows
Operating activities
Net cash flows used in operating activities for the nine months ended September 30, 2024 amounted to $232,924. During the nine months ended September 30, 2024, net cash used in operating activities was primarily attributable to a net loss of $3,247,406, adjusted for the add back (reduction) of non-cash items such as depreciation and amortization expense of $39,018, non-cash impairment loss from discontinued operations of $555,628, non-cash gain from the deconsolidation of Cougar Express of $158,347, stock-based compensation of $111,949 and bad debt recovery of $3,937 and changes in operating assets and liabilities such as a decrease in accounts receivable of $636,839, a decrease in prepaid expenses and other current assets of $233,332, a decrease in security deposit of $6,155, an increase in accounts payable and accrued expenses of $723,284, an increase in accrued expenses – related parties of $162,301, and an increase in accrued compensation and related benefits of $708,260.
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Net cash flows used in operating activities for the nine months ended September 30, 2023 amounted to $2,127,806. During the nine months ended September 30, 2023, net cash used in operating activities was primarily attributable to net loss of $6,792,702, adjusted for the add back (reduction) of non-cash items such as depreciation and amortization expense of $1,182,810, stock-based compensation of $349,314, non-cash rent expense of $242,569, and bad debt expense of $81,872, and changes in operating assets and liabilities such as a decrease in accounts receivable of $777,042, an increase in prepaid expenses and other current assets of $123,459, an increase in security deposits of $89,171, a decrease in accrued compensation and related benefits of $42,780, an increase in accounts payable and accrued expenses of $2,005,406, and an increase in insurance payable of $281,293.
Investing activities
Net cash used in investing activities for the nine months ended September 30, 2024 amounted to $0.
Net cash used in investing activities for the nine months ended September 30, 2023 amounted to $930,994, which consisted of cash used for acquisitions of $713,586 and cash used for the purchase of property and equipment of $679,879, offset by cash received from the collection of a note receivable of $255,000 and cash acquired in acquisitions of $207,471.
Financing activities
For the nine months ended September 30, 2024, net cash provided by financing activities totaled $195,804. During the nine months ended September 30, 2024, we received cash proceeds of $391,838 from notes payable from related parties, and proceeds from notes payable of $150,000, offset by the repayment of notes payable of $346,034.
For the nine months ended September 30, 2023, net cash provided by financing activities totaled $1,686,629. During the nine months ended September 30, 2023, we received proceeds from notes payable of $662,092 used to buy revenue equipment, we received proceeds from notes payable – related parties of $600,000 and we received proceed from the exercise of warrants of $619,111, offset by the repayment of notes payable of $194,574.
Contractual Obligations
We have certain fixed contractual obligations and commitments that include future estimated payments. Changes in our business needs, cancellation provisions, changing interest rates, and other factors may result in actual payments differing from the estimates. We cannot provide certainty regarding the timing and amounts of payments.
Effects of Inflation
We do not believe that inflation has had a material impact on our business, revenues, or operating results during the periods presented.
Recently Enacted Accounting Standards
For a description of accounting changes and recent accounting standards, including the expected dates of adoption and estimated effects, if any, on our consolidated financial statements, see “Note 2: Recent Accounting Pronouncements” in the consolidated financial statements filed with this Quarterly Report.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are not required to provide the information required by this Item as we are a “smaller reporting company,” as defined in Rule 12b-2 of the 34 Act.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Based on their evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as amended) our management, with the participation of our Chief Executive Officer who also serves as our Chief Financial Officer, has concluded that our disclosure controls and procedures were ineffective as of the end of the period covered by this Quarterly Report for the purpose of ensuring that the information required to be disclosed by us in this Quarterly Report is made known to them by others on a timely basis, and that the information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, in order to allow timely decisions regarding required disclosure, and that such information is recorded, processed, summarized, and reported by us within the time periods specified in the SEC’s rules and instructions for Form 10-Q.
The ineffectiveness of our internal control over financial reporting was due to the following material weaknesses which we identified in our internal control over financial reporting:
| ● | We lack segregation of duties within accounting functions duties as a result of our limited financial resources to support hiring of personnel; and. | |
| ● | We have not implemented adequate system and manual controls. |
Management believes that these material weaknesses did not have an effect on our financial results. However, management believes that these material weaknesses resulted in ineffective oversight in the establishment and monitoring of required internal controls and procedures, which could result in a material misstatement in our financial statements in future periods. Management recognizes that its controls and procedures would be substantially improved if the Company had adequate staffing and an audit committee and as such is actively seeking to remediate this issue.
Our Chief Executive Officer who also serves as our Chief Financial Officer does not expect that our disclosure controls and procedures or our internal controls over financial reporting will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.
Until such time as we expand our staff to include additional accounting personnel, it is likely we will continue to report material weaknesses in our internal control over financial reporting.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during the period covered by this Quarterly Report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we may be involved in litigation relating to 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 that we believe would have a material adverse effect on our business, financial condition, or operating results.
SCS, LLC v. TLSS
On November 17, 2020, a former financial consultant to the Company, SCS, LLC, filed an action against the Company in the Circuit Court of the 15th Judicial Circuit, Palm Beach County, Florida, captioned SCS, LLC v. Transportation and Logistics Systems, Inc. The case was assigned Case No. 50-2020-CA-012684.
In this action, SCS alleges that it entered into a renewable six-month consulting agreement with the Company dated September 5, 2019 and that the Company failed to make certain monthly payments due thereunder for the months of October 2019 through March 2020, summing to $42,000. The complaint alleges claims for breach of contract, quantum meruit, unjust enrichment and account stated.
On February 9, 2021, the Company filed its answer, defenses and counterclaims in this action. Among other things, the Company avers that SCS’s claims are barred by its unclean hands and other inequitable conduct, including breach of its duties (i) to maintain the confidentiality of information provided to SCS and (ii) to work only in furtherance of the Company’s interests, not in furtherance of SCS’s own, and conflicting, interests. The Company also avers, in its counterclaims, that SLS owes the Company damages in excess of the $42,000 sought in the main action because SLS was at least grossly negligent in any due diligence it undertook before recommending that the Company acquire Prime EFS LLC in June 2018. SCS filed a motion to strike TLSS’s defenses and counterclaims, and TLSS opposed that application. Those motions remain sub judice.
A two-day non-jury trial was held in this action in Palm Beach County, Florida, on April 20-21, 2022. However, at the end of the second day a mistrial was declared because SCS had not withdrawn its motion to strike and answered the counterclaims.
On July 20, 2023, SCS moved for summary judgment in this action. On July 27, 2023, the Company filed papers opposing the motion. On August 21, 2023, the court conferenced SCS’s motion for summary judgment and SCS’s motion to strike counterclaims and dismiss the counterclaims. The court indicated it would deny the first motion and grant the second motion. On September 5, 2023, the Company filed Amended Affirmative Defenses and an Amended Counterclaim. On October 2, 2023, SCS filed a motion to Dismiss the Amended Counterclaim but it did not file a motion to strike the Amended Affirmative Defenses. On October 3, 2023, the Company filed a motion to strike SCS’s Motion to Dismiss the Amended Counterclaim on the grounds that SCS’s motion was not filed within ten (10) days as required under Florida law. On July 19, 2024, the court denied SCS’s motion for summary judgment on all claims in its entirety.
In February 2025, the parties agreed to settle all claims in this matter and thereafter executed a Confidential Settlement Agreement and Mutual Release effective on February 13, 2025. All asserted claims in this matter will be dismissed with prejudice upon the appropriate court filing and approval by the court.
Shareholder Derivative Action
On June 25, 2020, the Company was served with a putative shareholder derivative action filed in the Circuit Court of the 15th Judicial Circuit in and for Palm Beach County, Florida (the “Court”) captioned SCS, LLC, derivatively on behalf of Transportation and Logistics Systems, Inc. v. John Mercadante, Jr., Douglas Cerny, Sebastian Giordano, Ascentaur LLC and Transportation and Logistics Systems, Inc. The action has been assigned Case No. 2020-CA-006581.
The plaintiff in this action, SCS, alleges it is a limited liability company formed by a former chief executive officer and director of the Company, Lawrence Sands. The complaint alleges that between April 2019 and June 2020, the immediately prior chairman and chief executive officer of the Company, Mercadante, the former chief development officer of the Company, Cerny, and, since February 2020, the Company’s then restructuring consultant who is now chairman and chief executive officer of the Company, Giordano, breached fiduciary duties owed to the Company. Prior to becoming CEO, Giordano rendered his services to the Company through the final named defendant in the action, Ascentaur LLC.
The complaint alleges that Mercadante breached duties to the Company by, among other things, requesting, in mid-2019, that certain preferred equity holders, including SCS, convert their preferred shares into Company common stock in order to facilitate an equity offering by the Company and then not consummating that offering. The complaint also alleges that Mercadante and Cerny caused the Company to engage in purportedly wasteful and unnecessary transactions such as taking merchant cash advances (MCA) on disadvantageous terms. The complaint further alleges that Mercadante and Cerny “issued themselves over two million shares of common stock without consideration.” The complaint seeks unspecified compensatory and punitive damages on behalf of the Company for breach of fiduciary duty, negligent breach of fiduciary duty, constructive fraud, and civil conspiracy and the appointment of a receiver or custodian for the Company.
Company management tendered the complaint to the Company’s directors’ and officers’ liability carrier for defense and indemnity purposes, which coverage is subject to a $250,000 self-insured retention. Each of the individual defendants and Ascentaur LLC has advised that they vigorously deny each and every allegation of wrongdoing alleged in the complaint. Among other things, Mercadante asserts that he made every effort to consummate an equity offering in late 2019 and early 2020 and could not do so solely because of the Company’s precarious financial condition. Mercadante also asserts that he made clear to SCS and other preferred equity holders, before they converted their shares into common stock, that there was no guarantee the Company would be able to consummate an equity offering in late 2019 or early 2020. In addition, Mercadante and Cerny assert that they received equity in the Company on terms that were entirely fair to the Company and entered into MCA transactions solely because no other financing was available to the Company.
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By order dated September 15, 2022, the Circuit Judge assigned to this case dismissed the original Complaint in the matter, finding (a) that SCS had failed to adequately allege it has standing and (b) that the complaint fails to adequately allege a cognizable claim. The dismissal was without prejudice, meaning SCS could attempt to replead its claims.
On October 5, 2022, SCS filed an Amended Complaint in this action. By order dated December 19, 2022, the Circuit Judge assigned to this case once again dismissed the case, finding (a) that SCS still failed to adequately allege it has standing and (b) that the complaint still fails to adequately allege a cognizable claim. Once again, however, the dismissal was without prejudice.
On January 18, 2023, SCS filed a Second Amended Complaint in this action. All defendants once again moved to dismiss the pleading or in the alternative for summary judgment on it in their favor. The Court heard argument on that motion on March 9, 2023. On May 15, 2023, the Court issued a summary order denying the defendants’ motion to dismiss. On June 1, 2023, all defendants moved for reconsideration of the May 15 order. On November 28, 2023, the Court denied the motion for reconsideration.
On September 15, 2024, the defendants filed a Motion to Strike Plaintiff’s Pleadings and to Preclude Plaintiff from Calling Any Witnesses or Introducing Any Exhibits at Trial to Plaintiff’s failure to (i) comply with the court’s Pretrial Order; and (ii) produce discovery.
In February 2025, the parties agreed to settle all claims in this matter and thereafter executed a Confidential Settlement Agreement and Mutual Release effective on February 13, 2025. All asserted claims in this matter will be dismissed with prejudice upon the appropriate court filing and approval by the court.
Jose R. Mercedes-Mejia v. Shypdirect LLC, Prime EFS LLC et al.
On August 4, 2020, an action was filed against Shypdirect, Prime EFS and others in the Superior Court of New Jersey for Bergen County captioned Jose R. Mercedes-Mejia v. Shypdirect LLC, Prime EFS LLC et al. The case was assigned docket number BER-L-004534-20.
In this action, the plaintiff seeks reimbursement of his medical expenses and damages for personal injuries following an accident with a box truck leased by Shypdirect and subleased to Prime EFS and being driven by a Prime EFS employee, in which the plaintiff’s ankle was injured. Plaintiff has thus far transmitted medical bills exceeding $789,000. Prime EFS and Shypdirect demanded their vehicle liability carrier assume the defense of this action. To date, the carrier has not done so, allegedly because, among other reasons, the box truck was not on the list of insured vehicles at the time of the accident.
On November 9, 2020, Prime EFS and Shypdirect filed their answer to the complaint in this action and also filed a third-party action against the insurance company in an effort to obtain defense and indemnity for this action.
On May 21, 2021, Prime EFS and Shypdirect also filed an action in the Supreme Court, State of New York, Suffolk County (the “Suffolk County Action”), seeking defense and indemnity for this claim from the insurance brokerage, TCE/Acrisure LLC, which sold the County Hall insurance policy to Shypdirect.
On August 19, 2021, the Plaintiff filed a motion for leave to file a First Amended Complaint to name four (4) additional parties as defendants – TLSS, Shyp CX, Inc., Shyp FX, Inc. and Cougar Express, Inc. In the claim against TLSS, Plaintiff seeks to “pierce the corporate veil” and hold TLSS responsible for the alleged liabilities of Prime and/or Shypdirect as the supposed alter ego of these subsidiaries. In the claims against Shyp CX, Inc., Shyp FX, Inc. and Cougar Express, Inc., Plaintiff seeks to hold these entities responsible for the alleged liabilities of Prime and/or Shypdirect on a successor liability theory.
On September 16, 2021, each of these entities filed papers in opposition to this motion.
On September 24, 2021, the Court granted Plaintiff’s motion for leave to amend the complaint, thus adding TLSS, Shyp CX, Inc., Shyp FX, Inc. and Cougar Express, Inc. as Defendants.
On October 22, 2021, Acrisure stipulated to consolidate the Suffolk County Action into and with the Bergen County action.
On November 22, 2021, all Defendants filed their Answer to the First Amended Complaint. On November 3, 2021, Prime EFS and Shypdirect refiled their Third-Party Complaint against TCI/Acrisure in the Bergen County action. On December 23, 2021, Acrisure filed its Answer to the Third-Party Complaint, denying its material allegations.
On March 2, 2022, Plaintiff sought and was granted leave to file a Second Amended Complaint, bringing claims against Prime and Shypdirect’s vehicle liability carrier, County Hall (for discovery) as well as the producing broker, TCE/Acrisure. Plaintiff also asserted additional alter ego allegations against TLSS.
On February 15, 2023, Plaintiff filed a motion for leave to file a Third Amended Complaint in this action, seeking to assert claims against TLSS’s former CEO, John Mercadante, also on a “pierce the corporate veil” theory. On March 9, 2023, TLSS, Prime and Shypdirect opposed the motion for leave to add Mercadante, arguing that any claim against Mercadante would be both futile and time-barred. On March 31, 2023, the Court denied Plaintiff’s motion to add Mr. Mercadante as a party.
In January and February, 2023, numerous depositions were taken in the case, including those of Messrs. Giordano and Mercadante.
On September 16, 2024, the court entered an order granting Plaintiff’s motion for final judgment by default on liability against Defendants Shypdirect, Prime EFS, Shyp CX, Shyp FX, and Cougar Express.
To date, to the best of the Company’s knowledge, information and belief, no discovery has been taken in this action which would permit the imposition of alter ego liability on TLSS for the subject accident.
To date, to the best of the Company’s knowledge, information and belief, no discovery has been taken in this action which would permit the imposition of successor liability on Shyp CX, Inc., Shyp FX, Inc. and/or Cougar Express, Inc. for the subject accident.
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Under a so-called MCS-90 reimbursement endorsement to the County Hall policy, TLSS believes that Prime and Shypdirect may have up to $750,000 in coverage under a 1980 federal law under which County Hall is “require[d] to pay damages for certain claims or ‘suits’ that are not covered by the policy.” (See Endorsement CHI – 290 (02/19) to County Hall policy effective May 31, 2019.)
All discovery in this case was completed on or before August 31, 2024.
There were pending cross-motions for summary judgment filed by Plaintiff, Defendants/Third-Party Plaintiffs Jose A. Mercedes-Mejia, Prime EFS, Shypdirect, LLC, and TLSS, and Defendant/Third-Party Defendant County Hall Insurance. The insurance broker, Acrisure, had also filed a motion on the malpractice claim against it. On November 8, 2024, the court granted Defendant/Third-Party Plaintiff Ryder Truck Rental, Inc.’s motion for summary judgment. On December 6, 2024, the parties engaged in a mediation session. While a settlement was not reached on the day the mediation session was held, the parties continued to discuss a potential resolution.
On January 31, 2025, Plaintiff and TLSS, Shypdirect, and Prime EFS executed a binding term sheet which settled the matter with no liability on the part of TLSS, Shypdirect or Prime EFS and requires that a Stipulation of Dismissal will be filed with the court which dismisses all claims with prejudice.
Maria Lugo v. JFK Cartage
The Company’s JFK Cartage, Inc. subsidiary is one of three defendants in an action captioned Maria Lugo v. JFK Cartage, Inc. d/b/a Fifth Dimension Logistix, Joan Ton, individually, and Chris Bartley, individually. The case is pending in Supreme Court, State of New York, Queens County, Index No. 704862/2022.
In this action, which was filed March 4, 2022, a former employee of JFK Cartage alleges that she suffered discrimination and retaliation in violation of the New York City Human Rights Law and the New York State Human Rights Law. The former employee alleges that on December 28, 2021, she had Covid-19 symptoms, advised the defendants she was feeling ill and went home early to take a home test. She further alleges that on December 30, 2021, she tested positive for Covid-19 and informed defendants she had to isolate for 10 days. Plaintiff alleges that she returned to work on January 7, 2022, but that her employment was terminated later that day by defendant Bartley who “questioned the authenticity of the at-home test, accusing her of fraud.” Plaintiff claims her employment “was terminated due to her disability (a Covid-19 infection) and in retaliation for her requesting reasonable accommodation for the illness she suffered.” She seeks unspecified compensatory damages, including lost pay and benefits, punitive damages and attorneys’ fees.
On December 16, 2022, all defendants filed an answer and affirmative defenses, denying all claims for statutory violations. The conduct alleged in the complaint occurred prior to the Company’s July 31, 2022, acquisition of JFK Cartage, Inc. The Company believes that, in relation to this action, it has a right to full indemnification from the selling shareholder (including for attorneys’ fees) as well as set-off rights against notes payable to the selling shareholder.
On September 4, 2024, a Stipulation of Discontinuance was filed which resulted in the dismissal of this case and closure of the entire action.
Elaine Pryor v. Rocio Perez, et al.
The Company’s Freight Connections, Inc. subsidiary (“FCI”) (which was deconsolidated from TLSS operations as of December 1, 2023) was one of three named defendants in an action captioned Elaine Pryor v. Rocio Perez, North Trucking & Logistics, LLC and Freight Connections, Inc. in the 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 FCI. Plaintiff alleges that the truck was owned by FCI and leased to North Trucking & Logistics at the time.
Two other actions related to insurance coverage for the accident were filed. 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). However, these two actions involving insurance coverage issues 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 conduct alleged in the Pryor complaint occurred prior to the Company’s September 16, 2022, acquisition of FCI. The selling shareholder of FCI has advised the Company that the truck in question was not owned by FCI at the time of the accident and hence that FCI is not a proper party defendant in this action.
On May 8, 2023, the Court in the Elaine Pryor action entered an order, on the consent of counsel for all parties, directing that the name of defendant FCI be changed to Freight Connections LLC and that this change be reflected in the caption of the case (the “May 8, 2023 Order”). Freight Connections LLC is not a corporate affiliate of FCI but is rather an independent trucking company that is wholly-owned by the individual who sold the stock of FCI to TLSS-FC effective September 16, 2022. (See Note 1 above.)
In light of the May 8, 2023 Order, the Company does not believe that it can be adjudged liable for any verdict or settlement in the Elaine Pryor action.
The case was settled before the September 16, 2024 scheduled trial date and a Stipulation of Dismissal was filed by all parties on September 25, 2024.
Josh Perez v. Cougar Express, Inc.
An attorney for a former Cougar Express (CE) employee, Josh Perez (“Perez”), has advised CE that he has filed a charge of discrimination against CE with the U.S. Equal Employment Opportunity Commission (EEOC).
Perez allegedly is asserting claims against CE for: gender discrimination under Title VII and the New York State Human Rights Law (“NYSHRL”); pregnancy/childbirth discrimination under Title VII of the federal Civil Rights Act of 1964, as amended; retaliation under Title VII and NYSHRL; and familial status discrimination under NYSHRL.
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However, CE has not received a copy, nor any notification, of the filing.
Perez was employed by CE as a dock worker beginning on March 8, 2022 and last worked September 27, 2022. He alleges that in or around July 2022, he informed CE that he was expecting a child. Perez has not provided any details regarding the individual(s) with CE he allegedly informed. On September 27, 2022, Perez requested that CE complete the employer section of his New York Paid Family Leave (“PFL”) paperwork, which CE did. Thereafter, Perez ceased communicating with CE. Further, CE did not receive any confirmation that Perez had in fact filed for PFL or that his PFL was approved.
Because CE did not hear from Perez or receive any confirmation concerning his application for or approval of PFL, CE concluded that Perez had resigned. Another worker was hired to fill Perez’s former position. Then, on or about December 27, 2022, Perez contacted CE attempting to return to work and was informed that there was no position for him.
CE categorically denies Perez’s allegations and any purported wrongdoing. Because this matter is apparently pending with the EEOC and CE has neither received a copy of the filing nor any notification of the filing, the Company cannot evaluate the likelihood of an adverse outcome or estimate the Company’s liability, if any, in connection with it.
Joseph Corbisiero v. Freight Connections, Inc., TLSS and TLSS-FC
On October 19, 2023, Joseph Corbisiero (“Corbisiero”) filed an action in the Superior Court of the State of New Jersey, Bergen County, against the Company’s subsidiary, Freight Connections, Inc. (“FC”) (which was deconsolidated from TLSS operations as of December 1, 2023), the Company, and the Company’s TLSS-FC, Inc. subsidiary. The case has been assigned # BER-L-005669-23. Corbisiero, who was then the sole shareholder of FC, sold all outstanding shares of FC capital stock to TLSS-FC effective September 16, 2022 (the “FC Closing Date”) and has acted as the CEO of FC since then.
The complaint in this action contained two counts, one for the alleged breach of a $4,544.671.23 secured promissory note executed by FC in Corbisiero’s favor as of the FC Closing Date (the “FC Promissory Note”), and the other for enforcement of a security agreement, also dated as of the FC Closing Date, pursuant to which FC granted Corbiserio a lien and security interest “on all” of FC’s property, assets and rights of every kind (the “FC Security Agreement”). Neither the Company, nor TLSS-FC, is a party to the FC Promissory Note or the FC Security Agreement. In the lawsuit, the Company and TLSS-FC are each denominated a “Nominal Defendant” and the complaint does not seek relief from either entity.
In the complaint, Corbisiero alleged that FC defaulted on the FC Promissory Note by failing to pay monthly interest beginning in or around August 1, 2023. Plaintiff also alleges that, by reason of its default, FC is also liable for default interest of 18% per annum plus late charges of 5% each delinquent payment, plus costs of collection. The complaint further alleged that by reason of FC’s default, FC became liable for the full repayment of principal prior to the December 31, 2023, maturity date set forth in the note.
The complaint also contained a single paragraph in which it is alleged that “TLSS and TLSS-FC are necessary and indispensable parties to the instant action by virtue of each entity’s express covenant and agreement to indemnify, defend, protect and hold harmless Plaintiff from and against all losses incurred by Plaintiff in connection with, among other things, any breach or nonfulfillment of any covenant or agreement on the part of TLSS-FC and TLSS under the stock purchase and sale agreement pursuant to which, as amended, TLSS-FC (the “FC SPSA”) acquired the then-outstanding capital stock of FC.”
On May 13, 2024, a Notice of Voluntary Dismissal Without Prejudice was filed by Corbisiero and this case was dismissed due to the petitions for relief filed by Freight Connections and TLSS-FC under chapter 7 of title 11 of the United States Bankruptcy Code. Plaintiff expressly reserved all claims, causes of action, and defenses against the Company, both individually and collectively, in connection with this dispute.
Emerson Swan v. Severance Trucking Co., Inc.
On April 1, 2024, a judgment was entered against Severance Trucking on behalf of Emerson Swan, Inc. (“Emerson”) in the amount of $96,226, including prejudgment interest, statutory costs and legal fees. Emerson, which was a customer of Severance Trucking, claimed that an employee of Severance Trucking stole $75,209 of Emerson’s products while under Severance Trucking’s control. We did not accrue this claim and believes it is not liable since the accusation was made prior to the Severance Trucking acquisition date in January 2023.
Ryder Truck Rental, Inc. v. Severance Trucking Co., Inc.
On April 30, 2024, Severance Trucking received a letter from Ryder Truck Rental, Inc. requesting payment in the amount of $581,507 comprised of outstanding unpaid Truck Lease and Service Agreement charges of $55,136 in open invoices, $399,177 in early termination charges and $134,194 in attorney’s fees. As of September 30, 2024 and December 31, 2023, such amounts are recorded as a liability of Severance Trucking and included in liabilities of discontinued operations.
Other than discussed above, as of the date of this Quarterly Report, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect on the results of our operations.
ITEM 1A. RISK FACTORS
Risk factors that affect our business and financial results are discussed in Part I, Item 1A “Risk Factors,” in our Annual Report. There have been no material changes in our risk factors from those previously disclosed in our Annual Report. You should carefully consider the risks described in our Annual Report, which could materially affect our business, financial condition or future results. The risks described in our Annual Report are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, and/or operating results. If any of the risks actually occur, our business, financial condition, and/or results of operations could be negatively affected.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the three months ended September 30, 2024, the Company issued 211,458,441 shares of its common stock in connection with the conversion of 6,657 shares of Series G Preferred and accrued dividends payable of $1,099 for an average conversion price of $.0003 per share. The conversion ratio was based on the Series G COD. The shares of common stock were issued in reliance on Section 3(a)(9) of the Securities Act of 1933, as amended.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
On February 7, 2025, we received a default notice for our failure to pay outstanding principal and interest due on an unsecured promissory note that was issued on February 6, 2024 to Mr. Mercadante in the principal amount of $64,534.96 and was due on February 6, 2025. As such, the interest rate on such note was increased to 17% per annum as of February 7, 2025 (see Note 4).
On February 21, 2025, we received a default notice for our failure to pay outstanding principal and interest due on an unsecured promissory note that was issued on February 15, 2024 to Mr. Mercadante in the principal amount of $319,195 and was due on February 15, 2025. As such, the interest rate on such note was increased to 17% per annum as of February 15, 2025 (see Note 4).
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ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
On February 15, 2024, we issued an unsecured promissory note to Mr. Mercadante, in the principal amounts of $319,195. The unsecured promissory note had a maturity date of one year from the date of issuance and accrues interest at a rate per annum of 12%. On February 21, 2025, the Company received a default notice for its failure to pay outstanding principal and interest due on such unsecured promissory note that was issued on February 15, 2024 and was due on February 15, 2025. As a result of such default, the interest rate of such unsecured promissory note was increased to 17% per annum as of February 15, 2025.
ITEM 6. EXHIBITS
| * | Furnished herewith. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| TRANSPORTATION AND LOGISTICS SYSTEMS, INC. | ||
| Dated: February 25, 2025 | By: | /s/ Sebastian Giordano |
| Name: | Sebastian Giordano | |
| Title: | Chief
Executive Officer and Chief Financial Officer (Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer) | |
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