TLSS 10-K
Transportation & Logistics Systems, Inc. (TLSS)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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TRANSPORTATION AND LOGISTICS SYSTEMS, INC.
FORM 10-K
December 31, 2023
INDEX
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For purposes of this Annual Report on Form 10-K (this “Annual 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 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 years ended December 31, 2023 and 2022 are included as part of discontinued operations on the consolidated financial statements.
Forward-Looking Statements
Statements made in this Annual 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 this 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 stockholders’ 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 Annual 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 Annual Report, as well as any amendments hereto or thereto, or other documents filed with the Securities and Exchange Commission.
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PART I
Item 1. Description of Business.
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.
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.
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Subsequent to the cessation of all of the Company’s revenue generating operations and through the date of this Annual Report, the Company continues to remain insolvent and as a result, has been unable to meet its annual and quarterly periodic reporting obligations under 34 Act. The Company has obtained financing to enable us to complete the audit of the financial statements for this Annual Report and to commence the reviews for the subsequent 2024 quarters to enable the Company to prepare and file this Annual Report, and subsequent Quarterly Reports on Form 10-Q (the “2024 Quarterly Reports”). Following the filing of this Annual Report, we intend to continue working to complete the necessary interim financial statements and file the 2024 Quarterly Reports as soon as possible hereafter; however, the Company will require additional financing to fund the necessary costs related to the preparation and filing of one or more of the 2024 Quarterly Reports. 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.
Corporate History
TLSS was incorporated under the name “PetroTerra Corp.” in the State of Nevada on July 25, 2008. Prior to March 2017, TLSS was an independent oil or gas exploration and development company focused on the acquisition or lease of properties that potentially contained extractable oil or gas. However, at that time, we had not generated any revenues and, due to a decline in the oil and gas markets, elected to seek other business opportunities.
On March 30, 2017, TLSS entered into an agreement to acquire Save on Transport Inc., a Florida-based non-asset provider of integrated transportation management solutions, including brokerage and logistics services related to the transportation of automobiles and other freight (“Save on Transport”), as a wholly owned subsidiary. On June 18, 2018, TLSS completed the acquisition of all outstanding membership interests of Prime EFS from its members. On July 24, 2018, TLSS formed Shypdirect LLC, a company organized under the laws of New Jersey.
Between June 18, 2018 and September 30, 2020, we operated through Prime EFS and Shypdirect. The great bulk of Prime EFS’s business prior to September 30, 2020 was conducted pursuant to the Delivery Service Provider program of Amazon Logistics, Inc., a subsidiary of Amazon.com, Inc. (“Amazon”), but the program was terminated effective September 30, 2020. As a result, Prime EFS ceased operations on September 30, 2020. Shypdirect conducted its business as a carrier under a relay program service agreement with Amazon (the “Program Agreement”), but the Program Agreement expired on May 14, 2021. In June 2021, Shypdirect ceased its tractor trailer and box truck delivery services to Amazon, and in July 2021, Shypdirect ceased all operations.
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 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 August 16, 2021, Prime EFS and Shypdirect executed Deeds of Assignment for the Benefit of Creditors in the State of New Jersey pursuant to N.J.S.A. §2A:19-1, et seq. (the “ABC Statute”), assigning all Prime EFS and Shypdirect assets to Terri Jane Freedman as Assignee for the Benefit of Creditors (the “Assignee”) and filing for dissolution. An “Assignment for the Benefit of Creditors,” “general assignment” or “ABC” in New Jersey is a state-law, voluntary, judicially-supervised corporate liquidation and unwinding similar to the Chapter 7 bankruptcy process pursuant to the United States Bankruptcy Code. On September 7, 2021, the ABCs were filed with the Bergen County Clerk in Bergen County, New Jersey and filed with the Surrogate Court, Bergen County, initiating judicial proceedings. Effective September 7, 2021, we relinquished control of Prime EFS and Shypdirect. Further, on October 13, 2021, Prime EFS and Shypdirect filed for dissolution with the Secretary of State of New Jersey. Therefore, we deconsolidated Prime EFS and Shypdirect effective with the filing of executed Deeds of Assignment for the Benefit of Creditors in September 2021.
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 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. 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 January 27, 2023, the Company formed a wholly-owned subsidiary, TLSS-STI, under the laws of the State of Delaware. 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.
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.
On December 1, 2023, TLSS-FC and 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.
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.
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In February 2024, due to the lack of working capital to conduct its business, Severance Trucking ceased its operations and no longer conducts any business and all fixed assets of the Company were voluntarily surrendered to the prior owners. 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.
Our principal executive offices are located in the United States at 5500 Military Trail, Suite 22-357, Jupiter, Florida 33458, and our telephone number is (833) 764-1443. The Company’s website is www.tlss-inc.com.
Economic Factors
Our restructuring efforts and possible new business opportunities are subject to a number of general economic factors that may have a material effect on such results, many of which are largely out of our control, including our success in completing such restructuring, securing necessary financing as well as finding and closing on any new business opportunities.
Employees
As of the date of this Annual Report, we only have one employee who serves as our Chief Executive Officer and Chief Financial Officer. Since February 2024, other professional and executive services have been procured by TLSS through independent contractors.
Depending upon the outcome of our restructuring and if it leads to a new business opportunity, the Company would continue to evaluate its use of human capital measures or objectives in managing its business, such as the factors we employ or seek to employ in the development, attraction and retention of personnel and maintenance of diversity in its workforce.
Information Systems
Cougar Express, Freight Connections and Severance each used a suite of non-proprietary software programs and other technologies to manage dispatching of vehicles, employees, DOT compliance, vehicle maintenance, and scheduling. However, subsequent to the cessation of these operations and for reasons of nonpayment due to the Company’s insolvency, such information systems were no longer available to the Company.
How to Obtain our SEC Filings
We file annual, quarterly, and special reports, proxy statements, and other information with the Securities and Exchange Commission (SEC). Reports, proxy statements and other information filed with the SEC can be inspected and copied at the public reference facilities of the SEC at 100 F Street N.E., Washington, DC 20549. Such material may also be accessed electronically by means of the SEC’s website at www.sec.gov. You may also obtain our recent filings with the Securities and Exchange Commission from the “Investors—Regulatory Filings” section of our website www.tlss-inc.com.
Item 1A. Risk Factors.
Investing in our common stock involves a high degree of risk. You should not invest in our stock unless you are able to bear the complete loss of your investment. You should carefully consider the risks described below, as well as other information provided to you in this Annual Report, including information in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Cautionary Note Regarding Forward-Looking Information and Factors That May Affect Future Results” before making an investment decision. The risks and uncertainties described below are not the only ones facing TLSS. Additional risks and uncertainties not presently known to us or that we currently believe are immaterial may also impair our business operations. If any of the following risks actually occur, our business, financial condition or results of operations could be materially adversely affected, the value of our common stock could decline, and you may lose all or part of your investment.
RISKS ASSOCIATED WITH OUR BUSINESS AND INDUSTRY
We currently have no operating business and cannot determine, at this time, if we will be able to execute a go-forward restructuring of the Company.
Due to our inability to secure the requisite operating capital to meet our obligations, we ceased operations in the first quarter of 2024. Multiple of our operating subsidiaries have filed Chapter 7 and the remaining operating subsidiaries and the Company, remain insolvent. In order to pursue a possible go-forward restructuring plan, the Company must first regain compliance with its outstanding and past due SEC filings, which we are currently attempting to do. Our limited operating history and our proposed restructuring is subject to numerous risks, uncertainties, expenses and difficulties associated with an insolvent company. Such risks include, but are not limited to:
| ● | the absence of a significant operating history; | |
| ● | an inability to raise capital to complete our SEC filings, fund ongoing costs, restructure the Company, and/or secure a new business opportunity; | |
| ● | the inability to negotiate a satisfactory restructuring of our debts and obligations with creditors; | |
| ● | expected continual losses for the foreseeable future; and | |
| ● | reliance on key personnel |
Because we are subject to these and other risks, you may have a difficult time evaluating the Company and your investment in the Company. We may be unable to successfully overcome these risks which could harm the Company further.
Our restructuring strategy may be unsuccessful, and we may be unable to address the risks we face in a cost-effective manner, if at all. If we are unable to successfully address these risks the Company will be further harmed.
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We may be unable to successfully find a new business opportunity.
The Company currently intends to pursue the restructuring of our existing debts and obligations and explore new business opportunities. Exploration of potential new business opportunities, mergers or acquisitions requires significant attention to source and evaluate. In addition, we can expect to compete for new business opportunities with other companies, some of which may have greater financial and other resources than we do. We cannot ensure that we will have sufficient cash to start a new business, consummate a merger or acquisition, or otherwise be able to obtain financing under acceptable terms, or obtain financing at all, for any new business venture. If we are unable to access sufficient funding for a new business venture, we may not be able to complete transactions that we otherwise find advantageous. Any such acquisition will entail numerous risks, including:
● we may not achieve anticipated levels of revenue, efficiency, cash flows and profitability;
● we may experience difficulties managing and integrating new businesses;
● we may underestimate the resources required to support a new business opportunity;
● we may incur unanticipated costs to support a new business;
● liabilities we assume could be greater than our original estimates or may not be disclosed to us at the time of closing a new business opportunity; and
● we may incur additional indebtedness or we may issue additional equity to finance a new business venture or acquisitions, which could be dilutive to our stockholders.
To the extent we do not successfully avoid or overcome the risks or problems resulting from any new business opportunity we undertake, there could be a material adverse effect on our Company.
We have ongoing capital requirements that necessitate obtaining financing on favorable terms.
We have depended primarily on convertible and nonconvertible debt and equity financing to fund the Company. Unless financing is secured, we will continue to face liquidity constraints and may have to seek protection under the United States Bankruptcy Code. Lack of funding will adversely impact our ability to implement a business plan.
We have never been profitable and, given the cessation of our business operations, may continue to not be profitable.
Historically, the Company has never been profitable and is currently insolvent and has no operating business. There can be no assurance that we will be able to implement a business plan, generate sustainable revenue or ever achieve consistently profitable operations. If the Company continues to be insolvent, the Company may need to seek protection under the United States Bankruptcy Code or otherwise liquidate its remaining assets.
GENERAL OPERATING RISK
We incur significant costs as a result of operating as a public company, and our management is required to devote substantial time to compliance initiatives.
As a public company, we incur significant legal, accounting, and other expenses. In addition, the Sarbanes-Oxley Act of 2002, as well as rules subsequently implemented by the SEC, have imposed various requirements on public companies, including requiring establishment and maintenance of effective disclosure and financial controls as well as mandating certain corporate governance practices. In the past, our management and other personnel has devoted a substantial amount of time and financial resources to these compliance initiatives. However, due to significant cost cutting measures, the Company currently lacks the depth of management and personnel to meet such requirements.
We currently do not have a sufficiently staffed accounting and finance function to maintain internal control systems adequate to meet the demands that are placed upon us as a public company. As a result, we have been unable to report our financial results accurately or in a timely manner and our business and stock price, assuming that a market for our stock develops, has suffered and may continue to suffer. The costs of being a public company, as well as the lack of management depth, may have a material adverse effect on our future business and financial condition.
We currently lack the funds to develop a business, which may adversely affect our future growth.
The Company currently has no operations that generate revenue. Unless and until we can generate a sufficient amount of revenue, if ever, we can only expect to finance our capital needs through public or private equity offerings or debt financings. Additional funds may not be available when we need them on terms that are acceptable to us, or at all. If adequate funds are not available, we may be required to delay, reduce the scope of, our plans to grow our revenues or to consummate one or more strategic acquisitions or otherwise to scale back or abandon our business plans. In addition, we could be forced to reduce or forego any new business opportunities or file for bankruptcy. To the extent that we raise additional funds by issuing equity securities, our stockholders may experience significant dilution. In addition, debt financing, if available, may involve restrictive covenants. We may seek to access the public or private capital markets whenever conditions are favorable, even if we do not have an immediate need for additional capital at that time. Our access to the financial markets and the pricing and terms we receive in the financial markets could be adversely impacted by various factors, including changes in financial markets and interest rates.
Our forecasts regarding the sufficiency of our financial resources to support our current and planned operations are forward-looking statements and involve significant risks and uncertainties, and actual results could vary because of a number of factors, including the factors discussed elsewhere in this “Risk Factors” section. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect. Our future capital requirements may be substantial and will depend on many factors including:
| ● | revenue received from sales and operations, if any, in the future; | |
| ● | the cost of merger, acquisitions or new business opportunity; and | |
| ● | the costs associated with being a public company. |
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Raising capital in the future could cause dilution to our existing stockholders or require us to relinquish rights.
In the future, we may seek additional capital through a combination of private and public equity offerings and debt financings. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms may include liquidation or other preferences that adversely affect your rights as a shareholder. Debt financing, if available, would result in increased fixed payment obligations and may involve agreements that include covenants limiting or restricting our ability to take specific actions such as incurring additional debt, making capital expenditures or declaring dividends.
If we are unable to attract and retain qualified executive officers and managers, we will be unable to operate efficiently, which could adversely affect our business, financial condition, results of operations and prospects.
Currently, we depend on the continued efforts and abilities of our sole executive officer, Sebastian Giordano (“Mr. Giordano”), to oversee the completion of the Company’s SEC filings, restructuring, manage day-to-day business, and identify strategic opportunities. The loss of him could negatively affect our ability to execute our business strategy and adversely affect our business, financial condition, and business prospects. Competition for managerial talent with significant industry experience is high and we may lose access to executive officers for a variety of reasons, including more attractive compensation packages offered by our competitors. Although we had entered into an employment agreement with Mr. Giordano, we cannot guarantee that he or other key management personnel will remain employed by us for any length of time, especially since such employment agreement is and remains in default for nonpayment. Our inability to adequately fill vacancies in our senior executive positions on a timely basis could negatively affect our ability to implement our business strategy, which could adversely impact our results of operations and prospects.
Adverse publicity in connection with our Subsidiaries bankruptcy cases negatively affect our current and future business prospects.
Adverse publicity or news coverage relating to us or our business, including, but not limited to, publicity or news coverage in connection with our Subsidiaries that have filed for bankruptcy, may negatively impact our efforts to establish and promote our business, including with respect to our prospective customers, suppliers, and service providers.
If our cybersecurity measures are compromised or unauthorized access to customer or consumer data is otherwise obtained, our products and services may be perceived as not being secure, our reputation may be damaged and we may face further difficulties securing new business prospects.
Because our business requires the storage, transmission and utilization of consumer and customer information, we will continue to routinely be the target of attempted cybersecurity and other security threats by technically sophisticated and well-resourced outside third parties, among others, attempting to access or steal the data we store. We operate in an environment of significant risk of cybersecurity incidents resulting from unintentional events or deliberate attacks by third parties or insiders, which may involve exploiting security vulnerabilities or sophisticated attack methods. These threats include social engineering attacks, phishing attacks and other cyber-attacks, including state-sponsored cyber-attacks, industrial espionage, insider threats, denial-of-service attacks, computer viruses, ransomware and other malware, payment fraud or other cyber incidents. In addition, increased attention on and use of artificial intelligence increases the risk of cyber-attacks and data breaches, which can occur more quickly and evolve more rapidly when artificial intelligence is used. Further, use of artificial intelligence by our employees, whether authorized or unauthorized, increases the risk that our intellectual property and other proprietary information will be unintentionally disclosed.
Cybersecurity breaches could expose us to a risk of loss, the unauthorized disclosure of consumer or customer information, significant litigation, regulatory fines, penalties, loss of customers or reputational damage, indemnity obligations and other liability. There is no assurance that the programs, technologies and processes that we have put in place in an effort to maintain the security and protection of our non-public information and that of our customers will be fully implemented, complied with or effective. If our cybersecurity measures are breached as a result of third-party action, employee error, malfeasance or otherwise, and as a result, someone obtains unauthorized access to our systems or to consumer or customer information, sensitive data may be accessed, stolen, disclosed or lost, our reputation may be damaged, our business may suffer and we could incur significant liability. Because the techniques used to obtain unauthorized access, disable or degrade service or to sabotage systems change frequently and generally are not recognized until launched against a target, or even for some time after, we may be unable to anticipate these techniques, implement adequate preventative measures or remediate any intrusion on a timely or effective basis. Because a successful breach of our computer systems, software, networks or other technology asset could occur and persist for an extended period of time before being detected, we may not be able to immediately address the consequences of a cybersecurity incident.
Risks Related to Our Financial Results and Financing Plans
We have a history of losses and may continue to incur losses in the future.
The accompanying consolidated financial statements have been prepared on the basis of continuity of operations, realization of assets and the satisfaction of liabilities and commitments in the ordinary course of business.
Historically, we have primarily funded our operations with proceeds from sales of convertible debt, notes and convertible preferred stock. Since our inception, we have incurred recurring losses, including a net loss of $14,264,646 and $8,076,066 for the years ended December 31, 2023 and 2022, respectively. Until such time that we implement business operations, either internally or through an acquisition, we expect to continue to generate operating losses in the foreseeable future, mostly due to corporate overhead and costs of being a public company. These losses may increase, and we may never achieve profitability for a variety of reasons, including due to a lack of revenue generating operations, and other factors described elsewhere in this “Risk Factors” section.
As of December 2, 2024 and December 31, 2023, we had a cash balance of $257,628 and $218,152, respectively. Our cash balance as of December 2, 2024, will not be sufficient to fund our operations for at least the next twelve months from the date of this Annual Report and we will need to raise additional working capital.
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We have identified material weaknesses in our internal control over financial reporting, and we cannot assure you that additional material weaknesses or significant deficiencies will not occur in the future. If our internal control over financial reporting or our disclosure controls and procedures are not effective, we may not be able to accurately report our financial results or prevent fraud, which may cause investors to lose confidence in our reported financial information and may lead to a decline in our stock price.
We have historically had a small internal accounting and finance staff with limited experience in public reporting. This lack of adequate accounting resources has resulted in the identification of material weaknesses in our internal controls over financial reporting. A “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our consolidated financial statements will not be prevented or detected on a timely basis. In connection with the preparation of our consolidated financial statements for the years ended December 31, 2023 and 2022, our management team identified material weaknesses relating to, among other matters:
| ● | We lack multiples levels of management review on complex business, accounting and financial reporting issues, and, | |
| ● | We lack of adequate segregation of duties as a result of our limited financial resources to support hiring of personnel. |
We plan to take steps to seek to remediate these material weaknesses and to improve our financial reporting systems and implement new policies, procedures, and controls. However, as of the date of this Annual Report, due to cost cutting measures, we only have one employee dedicated to our financial and other public reporting obligations and have been untimely in reporting our financial results. If we continue to be unsuccessful in remediating the material weaknesses described above, or if other material weaknesses or other deficiencies arise in the future, we continue to be unable to accurately report our financial results on a timely basis. In addition, due to our lack of accounting and finance personnel our reported financial results may be materially misstated and require restatement which could result in the loss of investor confidence, delisting and/or cause the market price of our common stock to decline.
The control deficiencies in our internal control over financial reporting may until remedied cause errors in our financial statements or cause our filings with the SEC to not be timely.
There may be errors in our financial statements that could require a restatement, or our filings may not be timely made with the SEC. Based on the work undertaken and performed by us, however, we believe the financial statements contained in our reports filed with the SEC are fairly stated in all material respects in accordance with generally accepted accounting principles (“GAAP”) for each of the periods presented. At present, our internal control over financial reporting or disclosure controls and procedures are not effective. We identified material weaknesses including lack of sufficient internal accounting personnel in order to ensure complete documentation of complex transactions and adequate financial reporting.
We intend to implement additional corporate governance and control measures to strengthen our control environment as we are able, but we may not achieve our desired objectives. We may identify material weaknesses and control deficiencies in our internal control over financial reporting in the future that may require remediation and could lead investors losing confidence in our reported financial information, which could lead to a decline in our stock price.
Our preferred stock securities purchase agreements impose restrictions on us that may prevent us from engaging in beneficial transactions.
We have entered into preferred stock securities purchase agreements that contain covenants that restrict our ability to, among other things:
| ● | make certain payments, including the payment of dividends; | |
| ● | redeem or repurchase our capital stock; | |
| ● | incur additional indebtedness and issue additional preferred stock; | |
| ● | make investments or create liens; | |
| ● | merge or consolidate with another entity; | |
| ● | sell certain assets; and | |
| ● | enter into transactions with affiliates. |
Actual results could differ from the estimates and assumptions that we use to prepare our consolidated financial statements.
To prepare consolidated financial statements in conformity with GAAP, management is required to make estimates and assumptions as of the date of the consolidated financial statements that affect the reported values of assets and liabilities, revenues and expenses, and disclosures of contingent assets and liabilities. Areas requiring significant estimates by our management include:
| ● | the valuation of accounts receivable; | |
| ● | the useful life of property and equipment; the valuation of intangible assets; | |
| ● | the valuation of right of use asset and related liability; | |
| ● | the valuation of assets acquired and liabilities assumed; | |
| ● | 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; and | |
| ● | the value of claims against the Company. |
At the time the estimates and assumptions are made, we believe they are accurate based on the information available. However, our actual results could differ from, and could require adjustments to, those estimates.
A further decline in our available cash could result in our liquidation.
If we were to sustain a further decline in our or available cash, we could experience future difficulties in complying with our various financial obligations. The failure to comply with such obligations could result in an event of default under the various financial instruments that may then become immediately due and payable. In addition, should an event of default occur, such lenders could elect to terminate their commitments thereunder, cease making loans and institute foreclosure proceedings against our assets.
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RISKS RELATED TO OWNERSHIP OF OUR COMMON STOCK
As a result of our ceasing of operations, we may be considered a “shell company” in which case shares of our common stock will subject to restrictions on resale.
Due to our ceasing of operations, we may currently have nominal operations with our assets consisting mostly of cash, and/or cash equivalents. Accordingly, we may be deemed a “shell company” as defined in Rule 12b-2 of the 34 Act. If we are deemed a “shell” company, until we are no longer a “shell company,” we would need to file a Form 10 level disclosure, and continue to be a reporting company pursuant to the 34 Act, as amended, and for twelve months, stockholders holding restricted, non-registered shares will not be able to use the exemptions provided under Rule 144 for the resale of their shares of common stock. Preclusion from any prospective investor using the exemptions provided by Rule 144 may be more difficult for us to sell equity securities or equity-related securities in the future to investors that require a shorter period before liquidity or may require us to expend limited funds to register their shares for resale in a future prospectus.
Conversion and/or exercise of our preferred stock and/or warrants, has, and is likely to continue to dilute the ownership interest of our existing stockholders, including holders who had previously converted their notes and preferred stock or exercised their warrants, and has and may continue to depress the price of our common stock, and may impede our ability to raise funds in the future.
In conjunction with capital raising efforts during 2022 and 2021, the Company made commitments to stockholders, preferred stockholders, and warrant holders to issue, or keep available for issuance, additional shares of common stock of the Company. On December 31, 2023 and 2022, the closing trading price of our common stock as quoted on OTC Pink market was $0.0008 and $0.0039, respectively. Anti-dilution protection features contained in our preferred stock securities purchase agreements and warrants only provide for one-way adjustment. If we issue or sell, or are deemed to have issued or sold, additional shares of common stock, options, warrants of convertible instruments, other than certain exempt issuances, 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 (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. As a result, the existing stockholders, including holders who earlier converted their notes or preferred stock, or exercised their warrants, will continue to be subject to substantial dilution.
The past and potential future dilution, and the potential lack of sufficient authorized shares, could make it more difficult for us to raise funds through future offerings of common stock, warrants or convertible securities, and could adversely impact the terms under which we could obtain additional capital. In addition, the existence of our convertible notes may encourage short selling by market participants because the conversion of any convertible notes or preferred shares could be used to satisfy short positions.
Our shares of common stock are currently quoted on the OTC Experts Market and there is a limited trading market for our common stock.
On July 17, 2024, our common stock was downgraded to the OTC Experts Market, after having been quoted on the OTC Pink Tier since August 21, 2022.
There is currently an active trading market for our common stock, but our common stock has traded in recent years only on a limited basis. Although there is an active trading market for our common stock, there are no assurances that trading activity will be sustained.
The public market for our common stock may be volatile. This may affect the ability of our investors to sell their shares as well as the price at which they sell their shares.
The market price for shares of our common stock may be significantly affected by factors such as variations in quarterly and yearly operating results, general trends in the transportation and logistics industry, and changes in state or federal regulations affecting us and our industry. Furthermore, in recent years the stock market has experienced extreme price and volume fluctuations that are unrelated or disproportionate to the operating performance of the affected companies. Such broad market fluctuations may adversely affect the market price of our common stock if a market for it develops.
Our common stock price has fluctuated in recent years, and the trading price of our common stock is likely to continue to reflect changes, which could result in losses to investors and litigation.
In addition to changes to market prices based on our results of operations and the factors discussed elsewhere in this “Risk Factors” section, the market price of and trading volume for our common stock may change for a variety of other reasons, not necessarily related to our actual operating performance. The capital markets have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our common stock. In addition, the average daily trading volume of the securities of small companies can be very low, which may contribute to future volatility. Factors that could cause the market price of our common stock to fluctuate significantly include:
| ● | the results of operating and financial performance and prospects of other companies in our industry; | |
| ● | strategic actions by us or our competitors, such as acquisitions or restructurings; | |
| ● | the public’s reaction to our press releases, media coverage and other public announcements, and filings with the SEC; | |
| ● | lack of securities analyst coverage or speculation in the press or investment community about us or opportunities in the markets in which we compete; | |
| ● | changes in government policies in the United States; | |
| ● | changes in earnings estimates or recommendations by securities or research analysts who track our common stock or failure of our actual results of operations to meet those expectations; | |
| ● | dilution caused by the conversion into common stock of preferred shares and exercise of warrants; | |
| ● | market and industry perception of our success, or lack thereof, in pursuing our growth strategy; | |
| ● | changes in accounting standards, policies, guidance, interpretations, or principles; | |
| ● | any lawsuit involving us or our services; | |
| ● | arrival and departure of key personnel; | |
| ● | sales of common stock by us, our investors, or members of our management team; 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 and armed conflicts. |
Any of these factors, as well as broader market and industry factors, may result in large and sudden changes in the trading volume of our common stock and could seriously harm the market price of our common stock, regardless of our operating performance. This may prevent stockholders from being able to sell their shares at or above the price they paid for shares of our common stock, if at all. In addition, following periods of volatility in the market price of a company’s securities, stockholders often institute securities class action litigation against that company. Our involvement in any class action suit or other legal proceeding, including the existing lawsuits filed against us and described elsewhere in this report, could divert our senior management’s attention, and could adversely affect our business, financial condition, results of operations and prospects.
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FINRA sales practice requirements may also limit a stockholder’s ability to buy and sell our common stock.
The Financial Industry Regulatory Authority (“FINRA”) has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low-priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.
We do not intend to pay cash dividends in the foreseeable future.
We have never paid dividends on our common stock and do not presently intend to pay any dividends in the foreseeable future. We anticipate that any funds available for payment of dividends will be re-invested into our company to further its business strategy. Because we do not anticipate paying dividends in the future, the only opportunity for our stockholders to realize value in our common stock will likely be through a sale of those shares.
All of our debt obligations will have priority over our common stock with respect to payment in the event of a bankruptcy, liquidation dissolution or winding up and the convertible notes may be accelerated upon certain events of default.
In any bankruptcy, liquidation, dissolution or winding up of the Company, shares of common stock would rank in right of payment or distribution below all debt claims against us. As a result, holders of common stock will not be entitled to receive any payment or distribution in respect of their shares prior to the discharge of all debt claims against us. As a result, holders of shares of common stock will not be entitled to receive any payment or other distribution of assets in the event of a bankruptcy or upon a liquidation or dissolution until after all of our obligations to our debt holders. Accordingly, holders of common stock may lose their entire investment in the event of a bankruptcy, liquidation, dissolution or winding up of the Company.
Future sales of our securities could adversely affect the market price of our common stock and our future capital-raising activities could involve the issuance of equity securities, which would dilute your investment and could result in a decline in the trading price of our common stock.
We may sell securities in the public or private equity markets if and when conditions are favorable, or at prices per share below the current market price of our common stock, even if we do not have an immediate need for additional capital at that time. Sales of substantial amounts of shares of our common stock, or the perception that such sales could occur, could adversely affect the prevailing market price of our shares and our ability to raise capital. We may issue additional shares of common stock in future financing transactions or as incentive compensation for our executive management and other key personnel, consultants and advisors. Issuing any equity securities would be dilutive to the equity interests represented by our then-outstanding shares of common stock. Moreover, sales of substantial amounts of shares in the public market, or the perception that such sales could occur, may adversely affect the prevailing market price of our common stock and make it more difficult for us to raise additional capital. In addition, we have existing series of preferred stock outstanding that, if converted into shares of our common stock, would cause additional dilution to our existing stockholders. In future offerings, we may also be required to grant potential investors new securities rights, preferences, or privileges senior to those possessed by our then-existing stockholders to induce them to invest in our company. The issuance of these senior securities may adversely affect the holders of our common stock as a result of preferential dividend and liquidation rights over the common stock and dilution of the voting power of the common stock.
Item 1B. Unresolved Staff Comments.
As of the filing of this Annual Report on Form 10-K, there were no unresolved comments from the staff of the SEC.
Item 1C. Cybersecurity.
Given the size of our company and the nature of our operations, we do not believe that we face significant cybersecurity risk.
We have not adopted any cybersecurity risk management program or formal processes for assessing cybersecurity risk. We utilize standard commercial software for business operations, which includes basic security features such as password protection and data encryption. Our management is generally responsible for assessing and managing any cybersecurity threats.
To date, we have not experienced any material cybersecurity incidents, and there has been no known unauthorized access to our systems. Should any reportable cybersecurity incident arise, our management shall promptly report such matters to the Company’s Board of Directors (the “Board”) for further actions, including regarding the appropriate disclosure in accordance with SEC regulations, mitigation, and other response or actions that the Board deems appropriate to take.
Item 2. Properties.
Our principal executive offices are located in the United States at 5500 Military Trail, Suite 22-357, Jupiter, Florida 33458.
Due to the discontinuation of all of our operating businesses, we abandoned all leases related to properties used by Freight Connections, Severance, Cougar Express and JFK Cartage. Accordingly, during the year ended December 31, 2023, we wrote off the remaining balance of these right of use assets and recorded a loss on lease abandonment of $2,127,807. Additionally, in connection with the deconsolidation of Freight Connections, we wrote off the remaining right of use asset balances of $7,774,566, which was part of loss on deconsolidation of subsidiary. These losses are included in loss from discontinued operations.
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Item 3. 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.
The Company believes it has substantial defenses to all claims alleged in SCS’s complaint, as well as valid affirmative defenses and counterclaims. The Company therefore intends to defend this case vigorously.
Because there have been no further filings or proceedings on this case since July 2024, it is not possible to evaluate the likelihood of a favorable or unfavorable outcome, nor is it possible to estimate the amount or range of any potential loss in the matter. The Company is currently in settlement discussions with SCS.
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.
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.
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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.
The Company believes the action to be frivolous and intend to mount a vigorous defense to this action. 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.
Because no discovery has occurred in the case, it is not possible to evaluate the likelihood of a favorable or unfavorable outcome, nor is it possible to estimate the amount or range of any potential loss in the matter. In a derivative case, any recovery is to be paid to the corporation; however, the individual defendants in this case are fully indemnified by the Company unless a final judgment is entered against them for deliberate or intentional misconduct.
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.
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.)
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TLSS intends to vigorously defend itself in this action and to pursue the third-party actions, in the name and right of Prime and Shypdirect, against both County Hall and TCE/ Acrisure.
All discovery in this case was completed on or before August 31, 2024.
Currently, there are 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, has 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. At this time, the parties are tentatively scheduled for mediation on December 6, 2024.
Because of this complex litigation involving multiple parties and claims, we cannot evaluate the likelihood of an adverse outcome or estimate the Company’s liability, if any, in connection with this claim.
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 stockholder (including for attorneys’ fees) as well as set-off rights against notes payable to the selling stockholder.
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”) 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 stockholder 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 the 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 scheduled for trial on September 16, 2024; however, the case settled before the 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.
However, CE has not received a copy, nor any notification, of the filing.
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Perez was employed by CE as a dock worker beginning on 3/8/2022 and last worked 9/27/2022. 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 12/27/22, 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”), 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 stockholder 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.
Other than discussed above, as of the date of this Annual 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 4. Mine Safety Disclosures.
Not applicable.
PART II
Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities.
Our common stock was quoted on the OTC Pink Tier under the symbol “TLSS” from August 21, 2022, until July 17, 2024 when our common stock was moved to the OTC Experts Market. Trading in OTC Expert Market stocks can be volatile, sporadic, and risky, as thinly traded stocks tend to move more rapidly in price than more liquid securities. Such trading may also depress the market price of our common stock and make it difficult for our stockholders to resell their common stock. The following table reflects the high and low bid price for our common stock for the period indicated. The bid information for our common stock can be obtained from the OTC Markets Group, Inc. and reflects inter-dealer prices, without retail mark-up, markdown, or commission, and may not necessarily represent actual transactions.
| Quarter | High | Low | ||||||||
| Year ended December 31, 2024 | First | $ | 0.0009 | $ | 0.0001 | |||||
| Second | $ | 0.0002 | $ | 0.0000 | ||||||
| Third | $ | 0.0002 | $ | 0.0000 | ||||||
| Quarter | High | Low | ||||||||
| Year ended December 31, 2023 | First | $ | 0.0076 | $ | 0.0036 | |||||
| Second | $ | 0.0050 | $ | 0.0033 | ||||||
| Third | $ | 0.0036 | $ | 0.0008 | ||||||
| Fourth | $ | 0.0010 | $ | 0.0005 | ||||||
| Quarter | High | Low | ||||||||
| Year ended December 31, 2022 | First | $ | 0.0180 | $ | 0.0102 | |||||
| Second | $ | 0.0112 | $ | 0.0042 | ||||||
| Third | $ | 0.0085 | $ | 0.0051 | ||||||
| Fourth | $ | 0.0060 | $ | 0.0033 | ||||||
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Holders
As of November 29, 2024, there were 100 record holders of our common stock.
Dividends
We have not previously declared or paid any dividends on our common stock and do not anticipate declaring any dividends in the foreseeable future. The payment of dividends on our common stock is within the discretion of our board of directors. We intend to retain any earnings for use in our operations and the expansion of our business. Payment of dividends in the future will depend on our future earnings, future capital needs and our operating and financial condition, among other factors that our board of directors may deem relevant. We are not under any contractual restriction as to our present or future ability to pay dividends.
Securities Authorized for Issuance Under Equity Compensation Plans
The Company does not currently have any equity compensation plans.
Recent Sales of Unregistered Securities
None
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
Item 6. Selected Financial Data.
Not applicable.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Overview
TLSS is a publicly-traded holding company whose common stock was listed on OTC: PINK but was downgraded to the OTC Experts Market as of July 17, 2024.
The Company has ceased all remaining operations as of mid-February 2024. Prior to that, the Company and its 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. An asset-based delivery company, as compared to a non-asset-based delivery company, owns the majority of its transportation equipment and employs the majority of its drivers. The Company and its Subsidiaries operated several warehouse locations located in New York, New Jersey, Connecticut and Massachusetts.
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 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. The Company’s other subsidiaries have all ceased operations since mid-February 2024 and have not filed bankruptcy.
Subsequent to the cessation of all of the Company’s revenue generating operations and through the date of this Annual Report, the Company continues to remain insolvent and as a result, has been unable to meet its annual and quarterly periodic reporting obligations under the 34 Act. The Company has obtained financing to enable us to complete the audit of the financial statements included in this Annual Report and to commence reviews for the 2024 Quarterly Reports. Following the filing of this Annual Report, we are going to continue working to complete the necessary financial statements and file the 2024 Quarterly Reports as soon as possible hereafter; however, the Company will require additional financing to fund the necessary costs related to the preparation and filing of one or more of the 2024 Quarterly Reports. 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 consolidated financial statements contained in this Annual Report, which have been prepared in accordance with GAAP. You should read the discussion and analysis together with such 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.
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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 year ended December 31, 2023 compared with the year ended December 31, 2022
The following table sets forth our revenues, expenses and net loss for the years ended December 31, 2023 and 2022.
For the Year Ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Revenues | $ | - | $ | - | ||||
| Operating expenses | 2,458,141 | 4,214,373 | ||||||
| Loss from operations | (2,458,141 | ) | (4,214,373 | ) | ||||
| Other (expenses) income, net | (68,060 | ) | 82,829 | |||||
| Loss from continuing operations | (2,526,201 | ) | (4,131,544 | ) | ||||
| Loss from discontinued operations | (11,738,445 | ) | (3,944,522 | ) | ||||
| Net loss | (14,264,646 | ) | (8,076,066 | ) | ||||
| Deemed and accrued dividends | (558,553 | ) | (417,546 | ) | ||||
| Net loss attributable to common stockholders | $ | (14,823,199 | ) | $ | (8,493,612 | ) | ||
Results of Operations
Revenue
For the years ended December 31, 2023 and 2022, total revenue is reflected as $0 as all activities of the Subsidiaries were reclassified as discontinued operations on our consolidated financial statements.
Operating Expenses
For the year ended December 31, 2023, total operating expenses amounted to $2,458,141 as compared to $4,214,373 for the year ended December 31, 2022, a decrease of $1,756,232, or 41.7%, as reflected in the accompanying chart and described more fully below.
For the years ended December 31, 2023 and 2022, operating expenses consisted of the following:
For the Year Ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Compensation and related benefits | $ | 1,270,883 | $ | 2,532,634 | ||||
| Legal and professional fees | 983,868 | 1,216,551 | ||||||
| General and administrative expenses | 353,390 | 265,188 | ||||||
| Contingency (gain) loss | (150,000 | ) | 200,000 | |||||
| Total Operating Expenses | $ | 2,458,141 | $ | 4,214,373 | ||||
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Compensation and related benefits
For the year ended December 31, 2023, compensation and related benefits amounted to $1,270,883 as compared to $2,532,634 for the year ended December 31, 2022, a decrease of $1,261,751, or 49.8%. During the year ended December 31, 2023, the overall decrease in compensation and related benefits as compared to the year ended December 31, 2022 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 $958,424.
Legal and professional fees
For the year ended December 31, 2023, legal and professional fees were $983,868 as compared to $1,216,551 for the year ended December 31, 2022, a decrease of $232,683, or 19.1%, which was primarily attributable to a decrease in accounting and auditing fees of $198,813 and a net decrease in other professional fees of $33,870.
General and administrative expenses
General and administrative expenses include insurance expense and other general and administrative expenses. For the year ended December 31, 2023, general and administrative expenses were $353,390 as compared to $265,188 for the year ended December 31, 2022, an increase of $88,202, or 33.3%. The increase was primarily attributable to an increase in insurance expense related to directors’ and officers’ insurance and a net increase in other general and administrative expenses. We expect future decreases in general and administrative expenses due to cost-cutting measures taken and the cessation of operations.
Contingency (gain) loss
For the year ended December 31, 2022, contingency loss amounted to $200,000 as compared to a contingency gain of ($150,000) for the year ended December 31, 2023, a change of $350,000, or 175.0%. In connection with the finalization of the assignment for the benefit of creditors executed between Prime EFS and Shypdirect, in 2022, Terri Jane Freedman, as assignee, had demanded a one-time payment of $200,000 to close out the estates of Prime EFS and Shypdirect. During 2023, we negotiated this amount and settled on a payment of $50,000. Accordingly, during the year ended December 31, 2023 we recorded a contingency gain of $150,000 and during the year ended December 31, 2022, we recorded a contingency loss of $200,000. As of December 31, 2023 and 2022, accrued expenses related to this settlement amounted to $50,000 and $200,000, respectively, which is included in accrued expenses on the accompanying consolidated balance sheets.
Loss from operations
For the year ended December 31, 2023, loss from operations amounted to $2,458,141 as compared to $4,214,373 for the year ended December 31, 2022, a decrease of $1,756,232, or 41.7 %, primarily due to: (i) decreases in compensation and other benefits of $1,261,751 and legal expenses of $232,683 due to the cessation of business operations; offset by (ii) a $350,000 increase in contingency gain attributable to reduced settlement amount as discussed above. Such decreases were partially offset by an increase in general and administrative expenses of $88,202.
Other (expenses) income, net
Total other income (expenses) includes interest income, interest expense, derivative expense, warrant exercise inducement expense, gain on debt extinguishment, settlement expense, gain on deconsolidation of subsidiaries, and other income. For the years ended December 31, 2023 and 2022, other (expenses) income consisted of the following:
| For the Year Ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Interest income | $ | 992 | $ | 31,166 | ||||
| Interest expense | (10,160 | ) | (4,351 | ) | ||||
| Interest expense – related parties | (68,875 | ) | - | |||||
| Gain on sale of subsidiary | 9,983 | 293,975 | ||||||
| Settlement expense | - | (237,961 | ) | |||||
| Total Other (Expenses) Income, net | $ | (68,060 | ) | $ | 82,829 | |||
For the year ended December 31, 2023 and 2022, interest income was $992 and $31,166, respectively, a decrease of $30,176, or 96.8% due to lower cash balances in 2023 as compared to 2022.
For the year ended December 31, 2023 and 2022, aggregate interest expense was $79,035 and $4,351, respectively, an increase of $74,684. The increase in interest expense was primarily attributable to an increase in related party notes payable.
During the year ended December 31, 2023 and 2022, we recorded a gain from the sale of assets of our subsidiary, Shyp FX, of $9,983 to reflect miscellaneous post-closing adjustments and $293,975 to record the gain referenced herein, as of the closing date of the transaction, respectively.
During the year ended December 31, 2022, we recorded settlement expense of $237,961 as compared to $0 for the year ended December 31, 2023 related to a one-time settlement expense paid to Bellridge Capital, L.P.
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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 years ended December 31, 2023 and 2022 related to discontinued operations.
For the Year Ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Revenues | $ | 19,619,681 | $ | 7,744,477 | ||||
| Cost of revenues | 14,278,251 | 5,216,839 | ||||||
| Gross profit | 5,341,430 | 2,527,618 | ||||||
| Operating expenses | (15,504,921 | ) | (6,351,129 | ) | ||||
| Other expenses, net | (1,574,954 | ) | (121,031 | ) | ||||
| Loss from discontinued operations | $ | (11,738,445 | ) | $ | (3,944,522 | ) | ||
During the year ended December 31, 2023, operating expenses of discontinued operations included an impairment loss of $4,107,226 from the write down of property and equipment, right of use assets, intangible assets and goodwill. During the year ended December 31, 2022, operating expenses of discontinued operations included an impairment loss of $2,090,567 from the write down of intangible assets and goodwill.
Net loss
Due to factors discussed above, for the year ended December 31, 2023 and 2022, net loss amounted to $14,264,646 and $8,076,066, respectively. For the year ended December 31, 2023, net loss attributable to common stockholders, which included dividends accrued on Series E and Series G preferred stock of $558,553, amounted to $14,823,199, or $(0.00) per basic and diluted common share. For the year ended December 31, 2022, net loss attributable to common stockholders, which included dividends accrued on Series E and Series G preferred stock of $417,546, amounted to $8,493,612, or $(0.00) per basic and diluted common share.
LIQUIDITY AND CAPITAL RESOURCES
On December 31, 2023, and December 31, 2022 we had a cash balance of $218,152 and $1,470,807, respectively. Our working capital deficit was $7,997,436 and $4,403,460 on December 31, 2023 and December 31, 2022, respectively. We reported a net decrease in cash for the year ended December 31, 2023 of $1,252,655 primarily as a result of the use of cash used to purchase property and equipment of $519,644, cash used in operations of $2,812,443, net cash used for acquisitions of $506,115, and the repayment of notes payable of $445,656, offset by net cash proceeds received from the exercise of warrants of $619,111, proceeds from notes payable of $997,092, proceeds from related party notes payable of $1,160,000, and proceeds from the collection of a note receivable of $255,000. As of December 2, 2024, the Company had $257,628 in cash, primarily attributable to the issuance of two (2) unsecured promissory notes in each of August 2024 and October 2024 and one (1) unsecured promissory note in November 2024 in the aggregate principal amounts of $150,000, $100,000, and $50,000 respectively, as discussed below.
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 consolidated financial statements, we had a net loss of $14,264,646 and $8,076,066 for the years ended December 31, 2023 and 2022, respectively. The net cash used in operations was $2,812,443 and $3,422,359 for the years ended December 31, 2023 and 2022, respectively. Additionally, we had an accumulated deficit and working capital deficit of $142,333,298 and $7,997,436, respectively, on December 31, 2023. 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 Annual Report.
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 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.
| 16 |
On November 22, 2024, 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 of even date (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.
Management cannot provide assurance that we will ultimately get 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 year ended December 31, 2023 amounted to $2,812,443. During the year ended December 31, 2023, net cash used in operating activities was primarily attributable to a net loss of $14,264,646, adjusted for the add back (reduction) of non-cash items such as depreciation and amortization expense of $1,487,813, non-cash impairment loss from discontinued operations of $4,107,226, non-cash loss from the deconsolidation of subsidiaries of $391,558, loss on disposal of property and equipment of $88,995 and bad debt expense of $397,346 and changes in operating assets and liabilities such as a decrease in accounts receivable of $991,985, a decrease in prepaid expenses and other current assets of $32,244, decrease in security deposit of $89,171, an increase in accounts payable and accrued expenses of $3,077,389, an increase in accrued expenses – related parties of $68,875, and an decrease in accrued compensation and related benefits of $77,631.
Net cash flows used in operating activities for the year ended December 31, 2022 amounted to $3,422,359. During the year ended December 31, 2022, net cash used in operating activities was primarily attributable to net loss of $8,076,066, adjusted for the add back (reduction) of non-cash items such as depreciation and amortization expense of $1,134,037, stock-based compensation of $1,386,570, stock-based professional fees of $10,000, impairment loss of $2,090,567, related to the impairment of intangible assets, bad debt expense of $162,400, and a non-cash gain from the sale of the assets of Shyp FX of $296,689, and changes in operating assets and liabilities such as a decrease in accounts receivable of $450,715, a decrease in prepaid expenses and other current assets of $110,606, a decrease in security deposit of $20,185, a decrease in accounts payable and accrued expenses of $218,364, a decrease in insurance payable of $130,590, and a decrease in accrued compensation and related benefits of $102,983.
Investing activities
Net cash used in investing activities for the year ended December 31, 2023 amounted to $770,759 and consisted of net cash used for acquisitions of $713,586, and cash used for the purchase on transportation equipment of $519,644 offset by cash proceeds from a note receivable of $255,000 and the cash received from acquisitions of $207,471.
| 17 |
Net cash used in investing activities for the year ended December 31, 2022 amounted to $1,384,633, which consisted of cash used for acquisitions of $1,930,712, cash used for the purchase of property and equipment of $143,948, and cash used for investment on note receivable of $255,000, offset by net proceeds received from the sale of the assets of Shyp FX of $748,500 and cash acquired in acquisitions of $196,527.
Financing activities
For the year ended December 31, 2023, net cash provided by financing activities totaled $2,330,547. During the year ended December 31, 2023, we received cash proceeds of $1,160,000 from notes payable from related parties, $997,092 from notes payable and $619,111 from the exercise of warrants, offset by the repayment of notes payable of $445,656.
For the year ended December 31, 2022, net cash provided by financing activities totaled $210,107. During the year ended December 31, 2022, we received proceeds from the sale of shares of Series G preferred stock of $855,000, cash proceeds of $245,714 from the exercise of warrants, and cash from notes payable of $108,395, offset by the repayment of notes payable of $975,002 and the payment of liquidating damages of $24,000.
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 Annual Report.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk.
Not Applicable
Item 8. Financial Statements and Supplementary Data.
| 18 |
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2023 AND 2022
| 19 |
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2023 AND 2022
| F-1 |
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of:
Transportation and Logistics Systems, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Transportation and Logistics Systems, Inc. and Subsidiaries (the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of operations, changes in shareholders’ equity (deficit) and cash flows for each of the two years in the period ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2023 and 2022, and the consolidated results of its operations and its cash flows for each of the two years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company had a net loss and cash used in operations of $14,264,646 and $2,812,443, respectively for the year ended December 31, 2023. Additionally, the Company had an accumulated deficit and working capital deficit of $142,333,298 and $7,997,436, respectively, on December 31, 2023. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
/s/ Salberg & Company, P.A.
We have served as the Company’s auditor since 2017.
December 5, 2024
2295 NW Corporate Blvd., Suite 240 ● Boca Raton, FL 33431-7328
Phone: (561) 995-8270 ● Toll Free: (866) CPA-8500 ● Fax: (561) 995-1920
www.salbergco.com ● [email protected]
Member National Association of Certified Valuation Analysts ● Registered with the PCAOB
Member CPAConnect with Affiliated Offices Worldwide ● Member AICPA Center for Audit Quality
| F-2 |
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| December 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash | $ | $ | ||||||
| Prepaid expenses and other current assets | ||||||||
| Assets of discontinued operations | ||||||||
| Total Current Assets | ||||||||
| OTHER ASSETS: | ||||||||
| Assets of discontinued operations | ||||||||
| Total Other Assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ (DEFICIT) EQUITY | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Notes payable - related parties | $ | $ | ||||||
| Accounts payable | ||||||||
| Accrued expenses | ||||||||
| Accrued expenses - related parties | ||||||||
Accrued compensation and related benefits | ||||||||
| Liabilities of discontinued operations | ||||||||
| Total Current Liabilities | ||||||||
| LONG-TERM LIABILITIES: | ||||||||
| Liabilities of discontinued operations | ||||||||
| Total Long-term Liabilities | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies (See Note 8) | ||||||||
| SHAREHOLDERS’ (DEFICIT) EQUITY: | ||||||||
| Preferred stock, par value $; authorized shares: | ||||||||
| Series B convertible preferred stock, par value $ per share; shares
designated; shares issued and outstanding at December 31, 2023 and 2022 (Liquidation value $ | ||||||||
| Series D convertible preferred stock, par value $ per share; shares designated; shares issued and outstanding
at December 31, 2023 and 2022 ($ | ||||||||
| Series E convertible preferred stock, par value $ per share; shares designated; shares issued and
outstanding at December 31, 2023 and 2022 ($ | ||||||||
| Series G convertible preferred stock, par value $ per share; shares designated;
and shares issued and outstanding at December 31, 2023 and 2022, respectively ($ | ||||||||
| Series H convertible preferred stock, par value $ per share; shares designated; shares issued and outstanding
at December 31, 2023 and 2022 ( | ||||||||
| Common stock, par value $ per share; shares authorized; and shares issued and outstanding at December 31, 2023 and 2022, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Shareholders’ (Deficit) Equity | ( | ) | ||||||
| Total Liabilities and Shareholders’ (Deficit) Equity | $ | $ | ||||||
See accompanying notes to consolidated financial statements.
| F-3 |
TRANSPORTATION AND LOGISTICS SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
| For the Year Ended | ||||||||
| December 31, | ||||||||
| 2023 | 2022 | |||||||
| REVENUES | $ | $ | ||||||
| OPERATING EXPENSES: | ||||||||
| Compensation and related benefits | ||||||||
| Legal and professional fees | ||||||||
| General and administrative expenses | ||||||||
| Contingency (gain) loss | ( | ) | ||||||
| Total Operating Expenses | ||||||||
| LOSS FROM OPERATIONS | ( | ) | ( | ) | ||||
| OTHER INCOME (EXPENSES): | ||||||||
| Interest income | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Interest expense - related parties | ( | ) | ||||||
| Gain on sale of subsidiary | ||||||||
| Settlement expense | ( | ) | ||||||
| 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 consolidated financial statements.
| F-4 |
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022
| Preferred Stock Series B | 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 | Shares | Amount | Capital | Deficit | (Deficit) | ||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for warrant exercise | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for services and future services | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||
| Accretion of stock-based compensation | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||
| Sales of Series G preferred share units | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for conversion of Series E preferred shares | - | ( | ) | ( | ) | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Common stock issued for conversion of Series G preferred shares | - | - | ( | ) | ( | ) | - | ( | ) | |||||||||||||||||||||||||||||||||||||||||||
| Series H preferred and common stock issued in connection with acquisition | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Cancellation of Series B preferred in connection with settlement | ( | ) | ( | ) | - | - | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
| Dividends accrued | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2022 | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for conversion of Series G preferred shares | - | - | ( | ) | ( | ) | - | ( | ) | |||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for services and future services | - | - | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||
| 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, December 31, 2023 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||||||||
See accompanying notes to consolidated financial statements.
| F-5 |
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the Year Ended | ||||||||
| December 31, | ||||||||
| 2023 | 2022 | |||||||
| 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 | ||||||||
| Stock-based professional fees | ||||||||
| Impairment loss - discontinued operations | ||||||||
| Non-cash gain from sale of subsidiary | ( | ) | ||||||
| Loss on deconsolidation of subsidiary - discontinued operations | ||||||||
| Loss on disposal or sale of property and equipment | ||||||||
| Lease costs - discontinued operations | ||||||||
| Bad debt expense | ||||||||
| Non-cash gain on settlement | ( | ) | ||||||
| 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 | ( | ) | ( | ) | ||||
| Increase in note receivable | ( | ) | ||||||
| Proceeds from repayment of note receivable | ||||||||
| Cash acquired in acquisitions | ||||||||
| Cash used for acquisitions | ( | ) | ( | ) | ||||
| Cash proceeds from sale of subsidiary | ||||||||
| NET CASH USED IN INVESTING ACTIVITIES | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Net proceeds from sale of series G preferred share units | ||||||||
| Payment of liquidated damages on Series E preferred shares | ( | ) | ||||||
| Proceeds from exercise of warrants | ||||||||
| Proceeds from notes payable | ||||||||
| Proceeds from notes payable - related parties | ||||||||
| Repayment of notes payable | ( | ) | ( | ) | ||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES | ||||||||
| NET DECREASE IN CASH | ( | ) | ( | ) | ||||
| CASH, beginning of year | ||||||||
| CASH, end of year | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | ||||||||
| Cash paid for: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Conversion of Series E preferred stock to common stock | $ | $ | ||||||
| Conversion of Series G preferred stock and accrued dividends to common stock | $ | $ | ||||||
| Accrual of preferrerd stock dividends | $ | $ | ||||||
| Issuance of common stock for future services | $ | $ | ||||||
| Increase in right of use assets and lease liabilities | $ | $ | ||||||
| Reclassification of right of use assets to property and equipment | $ | $ | ||||||
| Cancellation of common stock issued for services due to non-vesting | $ | $ | ||||||
| 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 consolidated financial statements.
| F-6 |
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2023 and 2022
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 year ended December 31, 2023 include: Cougar Express, Inc. (“Cougar Express”); Freight Connections, Inc. (“Freight Connections”); 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”).
Until 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 (see Note 3).
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 in 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. In connection with this deconsolidation, the Company recognized a loss on
deconsolidation of $
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 years ended December 31, 2023 and 2022, 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 financial statements the Severance entities have not filed 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 years ended December 31, 2023 and 2022.
| F-7 |
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2023 and 2022
Subsequent to the cessation of all of the Company’s revenue generating operations and through the date of the issuance of these financial statements, the Company continues to remain insolvent and as a result, has been unable to meet its annual and quarterly periodic reporting obligations under Securities Exchange Act of 1934, as amended (“34 Act”). The Company has obtained financing to enable us to complete the audit of these financial statements for the year ended December 31, 2023 and to commence the reviews for the subsequent 2024 quarters to enable the Company to prepare and file our Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Annual Report”), and subsequent Quarterly Reports on Form 10-Q (the “2024 Quarterly Reports”). Following the filing of the 2023 Annual Report of which these financial statements form a part, we intend to continue working to complete the necessary financial statements and file the 2024 Quarterly Reports 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 Quarterly Reports. 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 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, 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
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 consolidated financial statements,
the Company had a net loss of $
Risks and uncertainties
The Company maintains its cash in bank and financial institution deposits that at times may exceed federally insured limits. On December 31, 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.
| F-8 |
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2023 and 2022
Fair value of financial instruments
The Financial Accounting Standards Board (“FASB”) issued ASC 820 — Fair Value Measurements and Disclosures, which defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 requires disclosures about the fair value of all financial instruments, whether or not recognized, for financial statement purposes. Disclosures about the fair value of financial instruments are based on pertinent information available to the Company on December 31, 2023. 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 December 31, 2023 and 2022, 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 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.
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 December 31, 2023, the Company did not have any cash equivalents.
Accounts receivable
Accounts receivable were presented net of an allowance for doubtful accounts. The Company maintains allowances for doubtful accounts for estimated losses. The Company reviews the accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances along with general reserves 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
| F-9 |
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2023 and 2022
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 2023.
Based
on the Company’s impairment analysis, management determined that an intangible impairment charge was required for the year ended
December 31, 2022 and accordingly, recorded an impairment loss of $
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 December 31, 2023. Currently, all leased premises have been abandoned.
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 years ended December 31, 2023 and 2022, the Company believes that it operated in
| F-10 |
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2023 and 2022
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 are less than a year in duration, any contract costs incurred would be 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 is 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 is 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. On December 31, 2023 and 2022, any reductions to operating revenue and accounts receivable to reflect in transit shipments were insignificant.
For the years ended December 31, 2023 and 2022, 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.
| December 31, 2023 | December 31, 2022 | |||||||
| Stock warrants | ||||||||
| Stock options | ||||||||
| Series E convertible preferred stock | ||||||||
| Series G convertible preferred stock | ||||||||
| Series H convertible preferred stock | ||||||||
| F-11 |
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2023 and 2022
Recent accounting pronouncements
In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40)—Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The ASU simplifies accounting for convertible instruments by removing major separation models required under current GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for the exception. The ASU also simplifies the diluted net income per share calculation in certain areas. The new guidance is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years, and early adoption is permitted. The adoption of this standard on January 1, 2024 had no impact on the Company’s consolidated financial statements.
There are currently no other accounting standards that have been issued but not yet adopted that we believe will have a significant impact on our consolidated financial position, results of operations or cash flows upon adoption.
NOTE 3 – ACQUISITIONS AND DISPOSITION
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 years ended December 31, 2023 and 2022, 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 | $ | |||
| F-12 |
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2023 and 2022
2022
On
August 4, 2022, the Company’s wholly-owned subsidiary, 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, was an unrelated party (the “JFK Cartage
Seller”). The effective date of the acquisition was July 31, 2022. Pursuant to the Stock Purchase and Sale Agreement with Cougar
Express and JFK Cartage dated May 24, 2022, the purchase price was $
Effective
September 16, 2022, the Company’s wholly-owned subsidiary, TLSS-FC, closed on an acquisition of all outstanding stock of Freight
Connections, a company offering an array of transportation, warehousing, consolidating, distribution, and local cartage services throughout
the New York tri-state area. Joseph Corbisiero, the sole shareholder of Freight Connections, from whom the shares were acquired (the
“Freight Connections Seller”). Freight Connections was founded in 2016 and is a transportation and logistics carrier headquartered
in Ridgefield Park, New Jersey. Prior to the closing, the Company, TLSSA and Freight Connections Seller entered into an amendment to
their Stock Purchase and Sale Agreement, dated as of May 23, 2022 (the “Amended SPA”), and TLSSA assigned its interest in
the Amended SPA to TLSS-FC. Pursuant to the Amended SPA, the total purchase price was $
On
December 1, 2023, the Freight Bankruptcy occurred and all of the TLSS-FC and Freight Connections assets were assigned to the Freight
Trustee for the 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 3, 2023 and the Company recognized a
loss on deconsolidation of $
| F-13 |
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2023 and 2022
The assets acquired and liabilities assumed were recorded at their estimated fair values on the respective acquisition date, subject to adjustment during the measurement period with subsequent changes recognized in earnings or loss. These estimates are inherently uncertain and are subject to refinement. Management develops 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. After the purchase price measurement period, the Company may record any adjustments to assets acquired or liabilities assumed in operating expenses in the period in which the adjustments may have been determined. Based upon the adjusted purchase price allocations, the following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the date of the respective 2022 acquisition:
| JFK Cartage | Freight Connections | Total | ||||||||||
| Assets acquired: | ||||||||||||
| Cash | $ | $ | $ | |||||||||
| Accounts receivable, net | ||||||||||||
| Other assets | ||||||||||||
| Property and equipment | ||||||||||||
| Right of use assets | ||||||||||||
| Other intangible assets | ||||||||||||
| Goodwill | ||||||||||||
| Total assets acquired at fair value | ||||||||||||
| Liabilities assumed: | ||||||||||||
| Notes payable | ( | ) | ( | ) | ( | ) | ||||||
| Accounts payable | ( | ) | ( | ) | ( | ) | ||||||
| Accrued expenses | ( | ) | ( | ) | ( | ) | ||||||
| Lease liabilities | ( | ) | ( | ) | ( | ) | ||||||
| Total liabilities assumed | ( | ) | ( | ) | ( | ) | ||||||
| Net asset acquired | $ | $ | $ | |||||||||
| Purchase consideration paid: | ||||||||||||
| Cash paid | $ | $ | $ | |||||||||
| Notes payable | ||||||||||||
| Common stock and Series H preferred stock issued | ||||||||||||
| Total purchase consideration paid | $ | $ | $ | |||||||||
Disposition
Sale of Shyp FX assets
On
June 21, 2022, the Company sold substantially all of the assets of Shyp FX in an all-cash transaction. The purchaser was Farhoud Logistics
Inc., a New Jersey corporation, an unrelated party. Under the terms of the sale, The Company sold the assets of Shyp FX consisting of
transportation equipment and other equipment and the business of Shyp FX for $
| Year Ended December 31, 2023 | Year Ended December 31, 2022 | |||||||
| Total sale price consideration received | $ | $ | ||||||
| Less: | ||||||||
| Commissions and other fees paid | ||||||||
| Write-off of unamortized intangible assets | ||||||||
| Net book value of property and equipment sold | ||||||||
| Post-closing adjustment | ( | ) | ||||||
| ( | ) | |||||||
| Gain on sale of subsidiary | $ | $ | ||||||
NOTE 4 – NOTE RECEIVABLE
On
October 31, 2022, the Company entered into a promissory note receivable with Recommerce Group, Inc (“Recommerce”), a third
party, in the amount of $
NOTE 5– 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 $
| F-14 |
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2023 and 2022
On
November 1, 2023, the Board approved and received an additional loan under the Credit Facility in the amount of $
On
December 31, 2023, the aggregate principal amount related to these four (4) notes to three (3) related parties referenced above was $
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 stockholders.
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.
In
April 2022, the Company and Bellridge Capital, L.P. entered into a settlement agreement pursuant to which all shares of Series
B Preferred shares were cancelled and the Company recorded settlement income of $
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 December 31, 2023 and 2022, shares of Series D Preferred were outstanding.
| F-15 |
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2023 and 2022
Series E preferred stock
On
October 8, 2020, the Company entered into a securities purchase agreement with certain investors to sell (i) shares of a newly
created series of preferred stock called the Series E Convertible Preferred Stock (the “Series E Preferred”), and (ii) warrants
to purchase up to an aggregate of
In connection with the Series E Offering, the Company entered into Registration Rights Agreements (the “Series E Registration Rights Agreements”) pursuant to which the Company agreed to file a registration statement to register the resale of the shares of common stock issuable to the holders of the Series E Preferred upon conversion of the Series E Preferred and exercise of the warrants offering in the Series E Offering. The Company failed to file its initial registration statement and have the Securities and Exchange Commission (“SEC”) declared such registration statement effective within the time limits outlined in the Series E Registration Rights Agreements. The Company filed a registration statement for the resale of the shares underlying the Series E Preferred and warrants issued in the Series E Offering on April 22, 2021, and such registration statement was declared effective by the SEC on May 5, 2021.
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 stockholders, 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 |
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.
| F-16 |
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2023 and 2022
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
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
2022, the Company issued shares of its common stock in connection with the conversion of shares of Series E Preferred
and paid liquidating damages of $
During 2023, there were conversions of shares of Series E Preferred.
As of December 31, 2023 and 2022, shares of Series E Preferred were 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
The Company failed to file its initial registration statement and have the Securities and Exchange Commission (“SEC”) declared such registration statement effective within the time limits outlined in the Registration Rights Agreements. The Company filed a registration statement for the resale of the shares underlying the Series E Preferred and warrants issued in the Series E Offering on April 22, 2021, and such registration statement was declared effective by the SEC on May 5, 2021.
In connection with the Series G Offerings, the Company entered into Registration Rights Agreements (the “Series G Registration Rights Agreements”) pursuant to which the Company agreed to file a registration statement to register the resale of the shares of common stock issuable to the holders of the Series G Preferred upon conversion of the Series G Preferred and exercise of the warrants offering in the Series G Offering. The Company failed to file its initial registration statement and have the Securities and Exchange Commission (“SEC”) declared such registration statement effective within the time limits outlined in the Series G Registration Rights Agreements. The Company filed a registration statement for the resale of the shares underlying the Series G Preferred and warrants issued in the Series G Offering on January 28, 2022, and such registration statement was declared effective by the SEC on May 13, 2022.
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 stockholders, 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 |
| F-17 |
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2023 and 2022
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 $
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
January 25, 2022, the Company entered into Securities Purchase Agreements with investors pursuant to which the Company, on January 25,
2022, issued to the investors units which consisted of an aggregate of (i) shares of Series G Preferred and (ii) warrants to purchase
up to
On
March 4, 2022, the Company entered into a Securities Purchase Agreement with an investor pursuant to which the Company, on March 4, 2022,
issued to the investors units which consisted of an aggregate of (i) shares of Series G Preferred and (ii) warrants to purchase
up to
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
| F-18 |
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2023 and 2022
During
the year ended December 31, 2023, the Company received proceeds of $
During
the year ended December 31, 2022, 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 year ended December 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 $
As of December 31, 2023 and 2022, and shares of Series G Preferred were 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 December 31, 2023 and 2022, shares of Series H Preferred were outstanding.
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 stockholder 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 stockholder 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.
| F-19 |
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2023 and 2022
Common stock
On
July 27, 2023,
Shares issued in connection with conversion of Series E preferred shares
During
the year ended December 31, 2022, the Company issued shares of its common stock in connection with the conversion of
shares of Series E Preferred and paid liquidating damages of $
Shares issued in connection with conversion of Series G preferred shares
During
the year ended December 31, 2022, 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 year ended December 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 $
Shares issued upon exercise of warrants
During
the year ended December 31, 2022, the Company issued shares of its common stock attributed to: (i) shares in connection
with the receipt of proceeds of $
During
the year ended December 31, 2023, the Company issued shares of its common stock attributed to: (i) shares of
its common stock in connection with the receipt of proceeds of $
Shares issued in connection with acquisition
In
connection with the acquisition of Freight Connections in fiscal 2022, as part of the purchase price consideration, the Company issued
shares of its common stock. The Company valued these shares of common stock at a fair value of $
Shares issued for compensation
On March 11, 2022, pursuant to an employment agreement with the Company’s chief executive officer dated January 4, 2022 (the “CEO Employment Agreement”), the Board granted the chief executive 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 vest in equal annual installments with the first installment of shares vesting on January 3, 2022, and shares of common stock shares vesting each year through January 3, 2025. In connection with these shares, the Company valued these shares of common stock at a fair value of $ and will record stock-based compensation expense over the vesting period which is included in the aggregate accretion of stock-based compensation reflected below. Notwithstanding the foregoing, the remaining of unvested Restricted Stock Units (“RSUs”) of the shares originally granted to Mr. Giordano in March 2022 have been deemed fully vested as of the Termination Date (See Note 12).
On
March 11, 2022 and effective January 4, 2022, the Company agreed to grant restricted stock awards to three independent members of the
Board for an aggregate of shares of common stock of the Company which were valued at $
On
March 11, 2022 and effective January 4, 2022, the Company agreed to grant restricted stock awards to the Company’s former chief
financial officer for shares of common stock of the Company which were valued at $
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.
| F-20 |
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2023 and 2022
On
January 23, 2023, the Company agreed to grant restricted stock awards to three independent members of the Board for an aggregate of
shares of common stock of the Company which were valued at $
During the year ended December 31, 2023, the Board 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 vested in equal quarterly installments from the gate of grant. 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. On July 31, 2023, non-vested shares were cancelled due to the departure of an employee.
During the years ended December 31, 2023 and 2022, 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 December 31, 2023 amounted to $, which will be amortized over the remaining vesting period of approximately .
On
March 11, 2022, the Company agreed to grant restricted stock awards to the Company’s former chief executive officer and current
member of the Board for shares of common stock of the Company which were valued at $
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, 2021 | $ | |||||||
| Granted | ||||||||
| Shares vested | ( | ) | ( | ) | ||||
| Non-vested, December 31, 2022 | ||||||||
| Granted | ||||||||
| Forfeited | ( | ) | ( | ) | ||||
| Shares vested | ( | ) | ( | ) | ||||
| Non-vested, December 31, 2023 (1) | $ | |||||||
| (1) |
Shares issued for professional fees
On
May 1, 2022, pursuant to a three-month consulting agreement executed on February 1, 2022, which was extended for additional three-months
on April 14, 2022, the Company issued an aggregate of shares of its common stock. These shares were valued at $
Warrants
Warrants issued and exercised in connection with Series E Offering
During
the year ended December 31, 2022, the Company issued shares of its common stock and received proceeds of $
During the year ended December 31, 2022, the Company issued shares of its common stock in connection with the cashless exercise of warrants. The exercise price was based on contractual terms of the related warrant.
Warrants issued and exercised in connection with Series G Offering
In
connection with the sale of Series G Preferred, during the three months ended March 31, 2022, the Company issued warrants to purchase
On
June 22, 2023, the Company offered holders of certain warrants to purchase
| F-21 |
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2023 and 2022
Under
the terms of the Eligible Warrants, if, other than upon conversion of existing convertible preferred stock, the Company issues shares
of common stock, or securities exercisable to purchase or convertible into, shares of common stock, for a purchase price that is less
than the exercise price of Eligible Warrants in effect at such time, then the exercise price of all Eligible Warrants 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 $
On
June 29, 2023, the Company calculated the fair value of the Eligible Warrants prior to the ratchet provision and the fair value of the
Eligible warrants after the ratchet provision using a Binomial pricing model. Based on this calculation, the incremental value received
by the warrant holders was calculated and amounted to $. This incremental value was allocated as follows: $
During
the year ended December 31, 2023, the Company issued shares of its common stock and received proceeds of $
Warrant activities for the years ended December 31, 2023 and 2022 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, 2021 | $ | $ | ||||||||||||||
| Granted | ||||||||||||||||
| Exercised | ( | ) | ( | ) | ||||||||||||
| Balance Outstanding December 31, 2022 | ||||||||||||||||
| Exercised | ( | ) | ( | ) | - | - | ||||||||||
| Balance Outstanding December 31, 2023 | $ | $ | ||||||||||||||
| Exercisable, December 31, 2023 | $ | $ | ||||||||||||||
Stock options
| Number of Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value | |||||||||||||
| Balance Outstanding December 31, 2021 | $ | $ | ||||||||||||||
| Granted/Cancelled | - | - | ||||||||||||||
| Balance Outstanding December 31, 2022 | ||||||||||||||||
| Granted/Cancelled | - | - | ||||||||||||||
| Balance Outstanding December 31, 2023 | $ | $ | ||||||||||||||
| Exercisable, December 31, 2023 | $ | $ | ||||||||||||||
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
$
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, during the years ended December 31, 2022 and December 31, 2023.
| F-22 |
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2023 and 2022
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.
The Company believes it has substantial defenses to all claims alleged in SCS’s complaint, as well as valid affirmative defenses and counterclaims. The Company therefore intends to defend this case vigorously.
Because there have been no further filings or proceedings on this case since July 2024, it is not possible to evaluate the likelihood of a favorable or unfavorable outcome, nor is it possible to estimate the amount or range of any potential loss in the matter. The Company is currently in settlement discussion with SCS.
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 $
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.
| F-23 |
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2023 and 2022
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.
The Company believes the action to be frivolous and intend to mount a vigorous defense to this action. 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.
Because no discovery has occurred in the case, it is not possible to evaluate the likelihood of a favorable or unfavorable outcome, nor is it possible to estimate the amount or range of any potential loss in the matter. In a derivative case, any recovery is to be paid to the corporation; however, the individual defendants in this case are fully indemnified by the Company unless a final judgment is entered against them for deliberate or intentional misconduct.
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 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.
| F-24 |
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2023 and 2022
Under
a so-called MCS-90 reimbursement endorsement to the County Hall policy, TLSS believes that Prime and Shypdirect may have up to $
The Company intends to vigorously defend itself in this action and to pursue the third-party actions, in the name and right of Prime and Shypdirect, against both County Hall and TCE/ Acrisure.
All discovery in this case, other than discovery pertaining to alter ego liability and successor liability discussed above, was completed on or before August 31, 2024.
Currently, there are 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, has 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. At this time, the parties are tentatively scheduled for mediation on December 6, 2024.
Because of this complex litigation involving multiple parties and claims, the Company cannot evaluate the likelihood of an adverse outcome or estimate the Company’s liability, if any, in connection with this claim.
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 stockholder (including for attorneys’ fees) as well as set-off rights against notes payable to the selling stockholder.
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 stockholder 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 scheduled for trial on September 16, 2024; however, the case settled before the trial date and a Stipulation of Dismissal was filed by all parties on September 25, 2024.
| F-25 |
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2023 and 2022
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.
However, CE has not received a copy, nor any notification, of the filing.
Perez was employed by CE as a dock worker beginning on 3/8/2022 and last worked 9/27/2022. 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 12/27/22, 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 stockholder 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
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 $
Employment agreements
On
January 4, 2022,
| F-26 |
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2023 and 2022
On
January 3, 2022, the Company retained the services of Mr. James Giordano (no relation to Mr. Sebastian Giordano) as Chief Financial Officer.
In addition, Mr. James Giordano was appointed the Company’s Treasurer. Mr. James Giordano’s employment with the Company was
at will. He received annual compensation of $
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 years
ended December 31, 2023 and 2022, Freight Connections recorded aggregate outside trucking expense of $
Notes payable – related parties
On
September 16, 2022, in connection with the acquisition of Freight Connections, Freight Connections issued a promissory note in the
amount of $
On
April 14, 2023, the Board approved a credit facility (the “Credit Facility”) under which the Company would obtain unsecured
senior debt financing of up to $
On
November 1, 2023, the Company approved and received an additional loan under the Credit Facility in the amount of $
On
December 31, 2023, the aggregate principal amount related to these four (4) notes to three (3) related parties was $
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.
| F-27 |
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2023 and 2022
The following table presents the major classes of assets and liabilities of the discontinued operations related to the Subsidiaries:
| December 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Assets of discontinued operations: | ||||||||
| Accounts receivable, net | $ | $ | ||||||
| Prepaid expenses and other current assets | ||||||||
| Property and equipment, net | ||||||||
| Assets of discontinued operations, current portion | ||||||||
| Security deposits | ||||||||
| Property and equipment, net | ||||||||
| Lease right of use asset, net | ||||||||
| Intangibles, net | ||||||||
| Goodwill | ||||||||
| Assets of discontinued operations, long-term portion | ||||||||
| Total assets of discontinued operations | $ | $ | ||||||
| Liabilities of discontinued operations: | ||||||||
| Notes payable, current portion | $ | $ | ||||||
| Note payable, related party | ||||||||
| Accounts payable | ||||||||
| Accrued expenses | ||||||||
| Lease liabilities, current portion | ||||||||
| Liabilities of discontinued operations, current portion | ||||||||
| Notes payable, long-term portion | ||||||||
| Lease liabilities, long-term portion | ||||||||
| Liabilities of discontinued operations, long-term portion | ||||||||
| Total liabilities of discontinued operations | $ | $ | ||||||
The following table summarizes the results of operations of the discontinued operations:
| Year Ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Revenues | $ | $ | ||||||
| Cost of revenues, excluding depreciation and amortization | ||||||||
| Gross profit | ||||||||
| Operating expenses | ( | ) | ( | ) | ||||
Impairment loss | ( | ) | ( | ) | ||||
| Other expenses | ( | ) | ( | ) | ||||
| Loss from discontinued operations | $ | ( | ) | $ | ( | ) | ||
Accounts receivable
On December 31, 2023 and 2022, accounts receivable, net included in assets from discontinued operations consisted of the following:
| December 31, 2023 | December 31, 2022 | |||||||
| Accounts receivable | $ | $ | ||||||
| Allowance for doubtful accounts for estimated losses | ( | ) | ( | ) | ||||
| Accounts receivable, net | $ | $ | ||||||
| F-28 |
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2023 and 2022
Property and equipment, net
As of December 31, 2023 and 2022, property and equipment included in assets from discontinued operations consisted of the following:
| Useful Life | December 31, 2023 | December 31, 2022 | ||||||||
| Revenue equipment | $ | $ | ||||||||
| Machinery and equipment | ||||||||||
| Office equipment and furniture | ||||||||||
| Leasehold improvements | ||||||||||
| Subtotal | ||||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||||
| Property and equipment, net | $ | $ | ||||||||
On
June 21, 2022, in connection with the sale of net assets of Shyp FX, the Company sold delivery trucks and equipment with a net book value
of $
For
the years ended December 31, 2023 and 2022, depreciation expenses amounted to $
Due
to 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, the Company recognized a loss on deconsolidation of the Freight Connections property and equipment, net
of $
During
the years ended December 31, 2023 and 2022, the Company wrote down property and equipment to net realizable value and recorded an impairment
loss of $
Intangible Assets and Goodwill
As
a result of the acquisitions of JFK Cartage and Freight Connections, during the year ended December 31, 2022, there was a $
As
a result of the acquisition of the Severance entities, during the year ended December 31, 2023, there was a $
On
December 1, 2023, due to 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, the Company recognized a loss on deconsolidation of the Freight Connections intangible
assets and goodwill, net of $
During
the years ended December 31, 2023 and 2022, the Company recorded an impairment loss from the write off intangible assets and goodwill
of $
For
the years ended December 31, 2023 and 2022, amortization of intangible assets amounted to $
As
of December 31, 2023, intangible assets subject to amortization amounted to $
| 2022 | ||||||||||||||
| Amortization period (years) | Gross Amount | Accumulated Amortization | Net finite intangible assets | |||||||||||
| Customer relationships | $ | $ | $ | |||||||||||
| Covenants not to compete | ||||||||||||||
| Other intangible assets | ||||||||||||||
| $ | $ | $ | ||||||||||||
On December 31, 2023 and 2022, goodwill included in assets from discontinued operations consisted of the following:
| Useful life | December 31, 2023 | December 31, 2022 | ||||||||||
| Goodwill (1) | $ | $ | ||||||||||
| $ | $ | |||||||||||
| (1) |
Notes Payable
On December 31, 2023 and 2022, notes payable included in liabilities of discontinued operations consisted of the following:
| December 31, 2023 | December 31, 2022 | |||||||
| Principal amounts | $ | $ | ||||||
| Less: current portion of notes payable | ( | ) | ( | ) | ||||
| Notes payable – long-term | $ | $ | ||||||
| F-29 |
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2023 and 2022
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
December 31, 2023 and 2022, the principal amount related to the Amended Note was $
In
connection with the acquisition of JFK Cartage, on July 31, 2022, the Company assumed an SBA loan that existed on the books of JFK Cartage
in the amount of $
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 $
Freight Connection acquisition promissory note
On
September 16, 2022, in connection with the acquisition of Freight Connections, Freight Connections issued a promissory note in the
amount of $
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 $
In
connection with the acquisition of Freight Connections, on September 16, 2022, the Company assumed several equipment notes payable due
to entities amounting to $
On
September 22, 2022, JFK Cartage entered into a promissory note for the purchase of a truck in the amount of $
| F-30 |
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2023 and 2022
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 $
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 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 December 31, 2023 and 2022, right-of-use asset (“ROU”) included in assets of discontinued operations is summarized as follows:
| December 31, 2023 | December 31, 2022 | |||||||
| Office leases and equipment right of use assets | $ | $ | ||||||
| Less: accumulated amortization | ( | ) | ||||||
| Balance of ROU assets | $ | $ | ||||||
| F-31 |
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2023 and 2022
On December 31, 2023 and 2022, operating and financing lease liabilities related to the ROU assets are included in liabilities of discontinued operations and are summarized as follows:
| December 31, 2023 | December 31, 2022 | |||||||
| Lease liabilities related to office leases and revenue equipment right of use assets | $ | $ | ||||||
| Less: current portion of lease liabilities | ( | ) | ( | ) | ||||
| Lease liabilities – long-term | $ | $ | ||||||
NOTE 11 – INCOME TAXES
The Company accounts for income tax using the liability method prescribed by ASC 740, “Income Taxes”. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the year in which the differences are expected to reverse. The deferred tax assets on December 31, 2023 and 2022 consist only of net operating loss carryforwards. The net deferred tax asset has been fully offset by a valuation allowance because of the uncertainty of the attainment of future taxable income.
The items accounting for the difference between income taxes at the effective statutory rate and the Company’s effective tax rate for the years ended December 31, 2023 and 2022 were as follows:
Year Ended December 31, 2023 | Year Ended December 31, 2022 | |||||||
| Income tax benefit at U.S. statutory rate | ( | )% | ( | )% | ||||
| Income tax benefit – State | ( | )% | ( | )% | ||||
| Permanent items | % | % | ||||||
| Deferred tax true up | % | % | ||||||
| Effect of change in valuation allowance | ( | )% | % | |||||
| Effective income tax rate | % | % | ||||||
The Company’s approximate net deferred tax asset as of December 31, 2023 and 2022 was as follows:
| December 31, 2023 | December 31, 2022 | |||||||
| Deferred Tax Asset: | ||||||||
| Net operating loss carryover | $ | $ | ||||||
| Less: valuation allowance | ( | ) | ( | ) | ||||
| Net deferred tax asset | $ | $ | ||||||
The
net operating loss carryforward was approximately $
The Company does not have any uncertain tax positions or events leading to uncertainty in a tax position. The Company’s 2019 to 2023 Corporate Income Tax Returns are subject to Internal Revenue Service examination.
NOTE 12 – SUBSEQUENT EVENTS
On
January 26, 2024, the Company received a: (i) Notice of Default and Demand Under Promissory Note (“Severance Trucking Note”)
and Security Agreement (together, the “Documents”) entered into between the Severance Sellers, (“Severance Trucking
Lenders”) with respect to the loan made by made by TLSS-STI, Severance Trucking, Severance Warehouse and McGrath, (each a “Severance
Trucking Debtor”, and collectively, the “Severance Trucking Debtors”) and due to the Severance Trucking Debtors’
failure to make the January 1, 2024 payment in the amount of Fifty-Three Thousand Dollars ($
| F-32 |
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2023 and 2022
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 (
On February 26, 2024, the Company voluntarily surrendered the unencumbered owned fixed assets of Severance Trucking operations to the Severance Trucking Lenders (see Note 10).
In addition, the Severance Trucking received a Notice of Default and Demand for Rent for its failure to pay rent due on December 1, 2023, and January 1, 2024 under the terms of a lease entered into on February 1, 2023 between Severance Trucking and the Severance Family Realty Trust. On February 26, 2024, Severance voluntarily vacated such premises (see Note 10).
On
February 6, 2024 and February 15, 2024, the Company issued unsecured promissory notes to Mr. Mercadante, a member of the Company’s
Board, in the principal amount of $
On February 16, 2024, Severance Trucking, along with the following subsidiaries of the Company, Cougar Express, Inc. and JFK Cartage, Inc. (collectively, “Cougar”) ceased all operation and, as a result, all remaining employees of Cougar Express and Severance Trucking were laid off as of February 16, 2024.
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. Due to the Cougar bankruptcy, it is anticipated that the Cougar Express Trustee will effectuate a sale of Cougar Express’s assets. To the extent there are net proceeds from the sale(s) of the assets, such net proceeds would be paid to Cougar Express’s creditors and other stakeholders in accordance with the priorities established by law.
On February 29, 2024, all remaining support staff, employed by TLSS Ops, were laid off.
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, in the principal amount of $
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 $
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.
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 November 15, 2024 the amount of compensation and benefit amounts due to Mr. Giordano total:
| (i) Unpaid base salary – February 16 – November 15, 2024 | $ | |||
| (ii) Accrued vacation pay – through November 15, 2024 | $ | |||
| (iii) Health insurance premium – (March – November 2024) | $ | |||
| 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 ($
| F-33 |
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2023 and 2022
On
May 21, 2024, the Company received default notices for its failure to pay outstanding principal and interest due on unsecured promissory
notes that were issued on April 17, 2023 to Mr. Mercadante and on April 21, 2023 to Mr. Giordano in the principal amounts of $
On
July 1, 2024, 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 October 3, 2023 to John Mercadante in the principal amount of $
On July 17, 2024, our common stock, which was quoted on the OTC Pink Tier under the symbol “TLSS” was moved to the OTC Experts Market.
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
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 $
On
October 9, 2024, the Company issued two (2) unsecured non-convertible promissory notes (the “October 2024 Notes”) in the
aggregate principal amount of $
Concurrently with the issuance of the October 2024 Notes, the Company also entered into a letter agreement of even date (the “October 2024 Letter Agreement”) with the 2024 Lenders setting forth, among other items, the intended use of proceeds of the October 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
November 22, 2024, Company issued an unsecured non-convertible promissory note (the “November 2024 Note”) in the aggregate
principal amount of $
Concurrently with the issuance of the November 2024 Note, the Company also entered into a letter agreement of even date (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.
From
January 1, 2024 and through December 4, 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 $
| F-34 |
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Not Applicable
Item 9A. 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 report for the purpose of ensuring that the information required to be disclosed by us in this Annual 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-K.
The matters involving internal controls and procedures that our management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board are described below and were identified by our Chief Executive Officer who also serves as our Chief Financial Officer in connection with the above annual evaluation in consultation with the Company’s independent public accounting firm. 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.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our Chief Executive Officer, who also serves as our Chief Financial Officer, the Company conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that (a) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (b) provide reasonable assurance that transactions are recorded as necessary to permit the preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the Company are being made only in accordance with authorizations of the our management and directors; and (c) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. Based on our evaluation under the framework in Internal Control—Integrated Framework (2013), our management concluded that our internal control over financial reporting was not effective as of December 31, 2023 due to the following material weaknesses:
| 1) | The Company lacks segregation of duties; and | |
| 2) | There is a lack of segregation of duties and monitoring controls regarding accounting because there are only a few outside accountants maintaining the books and records. |
However, we do not believe the material weaknesses described above caused any significant misreporting of our consolidated financial condition and results of operations for the year ended December 31, 2023.
Management Plan to Remediate Material Weaknesses
During 2023 and 2022, we had taken steps to seek to remediate these material weaknesses and to improve our financial reporting systems and implement new policies, procedures, and controls. However, due to a lack of working capital and the departure of key accounting staff, we were not able to continue to implement our remediation plan for the foreseeable future. We plan on implementing policies and procedures to address and mitigate all material weaknesses if we receive additional funding and are able to expand our accounting staff.
| 20 |
We are committed to the improvement of our internal control processes and will continue to review our financial reporting controls and procedures diligently and vigorously. As we continue to evaluate and work to improve our internal control over financial reporting, we may determine to take additional measures to address control deficiencies.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting, except as discussed above (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the fourth quarter of 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
This Annual Report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the SEC that permit the Company to provide only the management’s report in this Annual Report.
Limitations on the effectiveness of Controls
Management recognizes that any disclosure controls and procedures no matter how well designed and operated, can only provide reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our management has reassessed the effectiveness of our disclosure controls and procedures and based upon that evaluation, our sole officer.
Item 9B. Other Information.
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions That Prevent Inspections.
Not applicable.
PART III
Item 10. Directors, Executive Officers, and Corporate Governance.
Directors and Executive Officers
Below are the names of and certain information regarding the Company’s current executive officers and directors:
| Name | Age | Position | Date Named to Board of Directors or as Executive Officer | |||
| Sebastian Giordano | 67 | Chief Executive Officer, Chief Financial Officer, Treasurer and Chairman of the Board of Directors | January 4, 2022 | |||
| Charles Benton | 74 | Director | January 20, 2022 | |||
| John Mercadante | 80 | Director | April 16, 2019 | |||
| Norman Newton | 58 | Director | January 20, 2022 |
Sebastian Giordano - Chief Executive Officer, Chief Financial Officer, Treasurer and Chairman of the Board of Directors
Since 2002, Mr. Giordano, age 67, has been the Chief Executive Officer of Ascentaur, LLC (“Ascentaur”), providing C-Level consulting services to a diverse roster of predominantly technology-centric clients, including start-ups, turnarounds, and established businesses across many industries, including providing such consulting services to TLSS from 2020 through 2021, prior to becoming the Company’s Chief Executive Officer and Chairman in January 2022 and its Chief Financial Officer in March 2024. From 2013 to 2018, he served as Chief Executive Officer of WPCS International Incorporated, (Nasdaq:WPCS), a low-voltage contracting company.
Charles Benton – Director
Mr. Benton, age 74, has served as a director and Chairman of the Audit Committee of Vision Hydrogen Corp. (OTC: VIHD), a company focused on the production, storage and distribution of hydrogen for the green energy economy supply chain, from January 2019. From February 2014 to January 2018, Mr. Benton has served as Chairman of the Audit Committee of the Board of Directors of WPCS International Incorporated (Nasdaq: WPCS), a design-build engineering firm focused on the deployment of wireless networks and related services including site design, technology integration, electrical contracting, construction and maintenance, and served as Chairman of the Board from April 2017 through January 2018.
John Mercadante - Director
Mr. Mercadante, age 80, served as the Chairman of the Board, Chief Executive Officer and Chief Financial Officer of the Company from April 16, 2019 until January 3, 2024. Since January 2022, Mr. Mercadante has been a consultant and a manager of his personal investments. Mr. Mercadante co-founded Leisure Line, Inc., a motor coach company serving New York City and Atlantic City, New Jersey, in 1970 and served as its Chief Executive Officer for a ten-year period through the sale of the company to Golden Nugget in 1980.
| 21 |
Norman Newton - Director
Mr. Newton, age 58, has served as the President and Chief Executive Officer of AmeriCasa Solutions, LLC, a vertically integrated provider of housing to the Hispanic Community in the United States, since 2017. Since 2008, Mr. Newton has served as the Managing Director of Newton Vision Corporation, a privately held investment and consulting company with deep experience in business process reengineering, optimization, and digital transformation.
Family Relationships
There are no family relationships among our directors and executive officers.
Involvement in Certain Legal Proceedings
Except as set forth below, our directors and executive officers have not been involved in any of the following events during the past 10 years:
| 1. | any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time, except that: (i) Mr. Mercadante was Chief Executive Officer of Prime EFS and Shypdirect at the time each filed an ABC when it filed for bankruptcy and (ii) Mr. Giordano was Chief Executive Officer of TLSS-FC and Freight Connections at the time each filed for bankruptcy and Chief Executive Officer and Chief Financial Officer of Cougar Express at the time it filed for bankruptcy; | |
| 2. | any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); | |
| 3. | being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; | |
| 4. | being found by a court of competent jurisdiction (in a civil action), the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated; | |
| 5. | being the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of: (i) any federal or state securities or commodities law or regulation; or (ii) any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease- and-desist order, or removal or prohibition order; or (iii) any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or | |
| 6. | being the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member. |
Code of Ethics
We have not yet adopted a Code of Ethics although we expect to do so as we develop our infrastructure and business. Our board of directors and executive officers have focused on identifying and hiring the personnel required to manage the growth of the Company and will be adopting a Code of Ethics that will be implemented in conjunction with completing the hiring of additional personnel.
Independent Directors
Mr. Charles Benton, Mr. John Mercadante, and Mr. Norman Newton are “independent directors” as defined under the rules of the SEC relating to director independence requirements.
Board of Directors and Board Committees
Directors are elected to serve until their successors are elected and qualified. Directors are elected by a plurality of the votes cast at the annual meeting of stockholders and hold office until the expiration of the term for which he or she was elected and until a successor has been elected and qualified.
Our Board currently has three committees: the Audit Committee, the Compensation Committee, and the Nomination Committee. As of the date of this Annual Report, the members and Chairs of our standing Board committees were:
| Audit | Compensation | Nominating | ||||
| Independent Directors | ||||||
| Charles Benton | Chair | X | ||||
| John Mercadante | Chair | X | ||||
| Norman Newton | X | Chair | ||||
| Non-Independent Director | ||||||
| Sebastian Giordano |
| 22 |
Audit Committee
All Audit Committee members are “independent” which satisfies the OTC Expert Market listing standards and the applicable SEC rules and regulations. Our Board of Directors has determined that one of the members of the Audit Committee, Mr. Benton, meets the definition of an “audit committee financial expert” as established by the SEC. The Audit Committee provides assistance to the Board in fulfilling its oversight responsibilities relating to the quality and integrity of the financial reports of the Company. The Audit Committee has the sole authority to appoint, review and discharge our independent accountants, and has established procedures for the receipt, retention, response to and treatment of complaints regarding accounting, internal controls and audit matters. In addition, the Audit Committee is responsible for:
| ● | reviewing the scope, results, timing and costs of the audit with our independent accountants and reviewing the results of the annual audit examination and any accompanying management letters; | |
| ● | assessing the independence of the outside accountants on an annual basis, including receipt and review of a written report from the independent accountants regarding their independence consistent with the independence standards of the board; | |
| ● | reviewing and approving the services provided by the independent accountants; | |
| ● | overseeing the internal audit function; and | |
| ● | reviewing our significant accounting policies, financial results and earnings releases, and the adequacy of our internal controls and procedures. |
Compensation Committee
The Compensation Committee assists the Board in fulfilling its oversight responsibilities relating to executive compensation, employee compensation and benefit programs and plans, and leadership development and succession planning. In addition, the Compensation Committee is responsible for:
| ● | reviewing the performance of our Chief Executive Officer; | |
| ● | determining the compensation and benefits for our Chief Executive Officer and other executive officers; | |
| ● | establishing our compensation policies and practices; | |
| ● | administering our incentive compensation and stock plans (except for the issuance of securities to non-employee directors for services which is administered by the Board); and | |
| ● | approving the adoption of material changes to or the termination of our benefit plans. |
The Compensation Committee reviews and discusses with management the disclosures regarding executive compensation to be included in our annual proxy statement. The responsibilities of the Compensation Committee are more fully described in the Compensation Committee’s charter.
Nominating Committee
The Nominating Committee considers a number of qualifications relating to management and leadership experience, background and integrity and professionalism in evaluating a person’s candidacy for membership on our board of directors. The Nominating Committee may have required certain skills or attributes, such as financial or accounting experience, to meet specific board needs that may arise from time to time and also considered the overall experience and makeup of its members to obtain a broad and diverse mix of board members. The Nominating Committee does not distinguish among nominees recommended by stockholders and other persons.
| 23 |
Item 11. Executive Compensation.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth information concerning the total compensation paid or accrued by us during the last two fiscal years indicated to the named executive officers:
| Name & Principal Position | Fiscal Year ended Dec. 31, | Salary ($) | Bonus ($) | Stock ($) (4) | Option ($) | Non-Equity Incentive Plan Compensation ($) | Non-Qualified ($) | All Other Compensation ($) | Total ($) | |||||||||||||||||||||||||
| Sebastian Giordano, | ||||||||||||||||||||||||||||||||||
| Chief Executive Officer, Chief Financial Officer, Treasurer | 2023 | 400,000 | 0 | 0 | 0 | 0 | 0 | 9,600 | 409,600 | |||||||||||||||||||||||||
| and Chairman (1) | 2022 | 400,000 | 0 | 1,343,391 | 0 | 0 | 0 | 0 | 1,743,391 | |||||||||||||||||||||||||
| James Giordano, | ||||||||||||||||||||||||||||||||||
| Former Chief Financial Officer, | 2023 | 211,225 | 0 | 0 | 0 | 0 | 0 | 8,400 | 219,625 | |||||||||||||||||||||||||
| Secretary and Treasurer (2) | 2022 | 250,000 | 0 | 125,000 | 0 | 0 | 0 | 9,600 | 384,600 | |||||||||||||||||||||||||
| Justin Frey, | 2023 | 225,000 | 0 | 90,865 | 0 | 0 | 0 | 8,800 | 324,665 | |||||||||||||||||||||||||
| Former Chief Operating Officer (3) | 2022 | 65,625 | 0 | 0 | 0 | 0 | 0 | 0 | 65,625 | |||||||||||||||||||||||||
| (1) | Mr. Sebastian Giordano has served as chief executive officer since January 4, 2022. On March 11, 2022, pursuant to an employment agreement with the Mr. Giordano dated January 4, 2022, the Company’s Board of Directors granted Mr. Giordano 122,126,433 shares of its common stock, which were valued at $1,343,391, or $0.011 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 annual installments with the first installment of 30,531,608 shares vesting on January 3, 2022, and 30,531,608 common shares vesting each year through January 3, 2025. Other compensation consists of an auto allowance of $9,600 in 2023. | |
| (2) | Mr. James Giordano served as chief financial officer from January 3, 2022 to October 13, 2023. On March 11, 2022 and effective January 4, 2022, the Company granted restricted stock awards to Mr. James Giordano for 11,363,636 common shares of the Company which were valued at $125,000, or $0.011 per common share, based on the quoted closing price of the Company’s common stock on the measurement date. These shares vested quarterly during 2022. Other compensation includes an auto allowance of $8,400 and $9,600 in 2023 and 2022, respectively. | |
| (3) | Mr. Justin Frey served as chief operating officer from September 12, 2022 to February 16, 2024. On January 3, 2023, the Company granted restricted stock awards to Mr. Frey for 21,634,615 common shares of the Company which were valued at $90,865, or $0.0042 per common share, based on the quoted closing price of the Company’s common stock on the measurement date. These shares vested quarterly during 2023. Other compensation includes an auto allowance of $8,800 in 2023. | |
| (4) | As required by SEC rules, the amounts in this column reflect the grant date or modification date fair value as required by FASB ASC Topic 718. |
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth information about options and stock awards outstanding on December 31, 2023.
| OUTSTANDING EQUITY AWARDS AT 2023 FISCAL YEAR-END | ||||||||||||||||||||||||||||||||||
| OPTION AWARDS | STOCK AWARDS | |||||||||||||||||||||||||||||||||
| Name | Number of Securities Underlying Unexercised options (#) Exercisable | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) Unexercisable | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock that have not Vested (#) | Market Value of Shares or Units of Stock that Have not Vested ($) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights that have not Vested (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or other Rights that have not Vested ($) | |||||||||||||||||||||||||
| Sebastian Giordano | 25,000,000 | (1) | - | — | 0.06 | 6/16/2025 | 61,063,216 | 48,851 | — | — | ||||||||||||||||||||||||
| (1) | The options were fully vested on the date of grant (6/16/20). |
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Employment Agreements
Mr. Sebastian Giordano
On January 4, 2022, the Company and Mr. Giordano, our then Chief Executive Officer, entered into an employment agreement (the “CEO Employment Agreement”) with a term extending through December 31, 2025, which provides for annual compensation of $400,000 as well as annual discretionary bonuses based on the Company’s achievement of performance targets, grants of options, restricted stock or other equity (with prior grants made to Ascentaur (a company owned by Mr. Giordano)), at the discretion of the Board, up to 5% of the outstanding common stock of the Company, vesting over the term of the CEO Employment Agreement, business expense reimbursement and benefits as generally made available to the Company’s executives. On March 11, 2022, pursuant to the CEO Employment Agreement, the Board granted Mr. Giordano 122,126,433 shares of our common stock which were valued at $1,343,391, or $0.011 per common share, based on the quoted closing price of the Company’s common stock on the measurement date. These shares vest in equal annual installments with the first installment of 30,531,608 shares vesting on January 3, 2022, and 30,531,608 common shares vesting each year through January 3, 2025.
On March 1, 2024, the Board, appointed Mr. Giordano to the additional offices of Chief Financial Officer and Treasurer of the Company. Due to the Company’s financial condition, beginning on February 16, 2024, Mr. Giordano agreed to temporarily defer his cash compensation and receipt of benefits, and has continued to do so, for at least some period of time, however, such cash compensation and other benefits due to Mr. Giordano under the CEO Employment Agreement, continue to accrue. On May 15, 2024, the Company received a Termination for Good Reason (“Termination Notice”) related to the CEO Employment Agreement for the nonpayment of compensation and other benefits due under the CEO Employment Agreement. Under the terms of the CEO Employment Agreement, if the Company did not cure such defaults by June 15, 2024, then then 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 extend the termination date until August 15, 2024. On August 15, 2024, the Company and Mr. Giordano further extended the termination date until November 15, 2024, and on November 14, 2024, the termination date was further extended to February 15, 2025. All existing wage and benefit provisions of the CEO Employment Agreement will 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 due to the Termination of Good Reason.
Mr. James Giordano
On January 3, 2022, the Company retained the services of Mr. James Giordano (no relation to Mr. Sebastian Giordano) as Chief Financial Officer. In addition, Mr. James Giordano was appointed the Company’s Treasurer. Previously, Mr. James Giordano served as Chief Financial Officer and consultant to Freight Connections, Inc., an LTL / line haul transportation services and warehousing provider. Prior to that, he served as Chief Financial Officer for Farren International, a global supplier of transportation and rigging services. Mr. James Giordano’s employment with the Company was at will. He received annual compensation of $250,000 as well as annual discretionary bonuses and equity grants, business expense reimbursement and benefits as generally made available to the Company’s executives.
On July 6, 2022, the Company entered into a definitive employment agreement with James Giordano for Mr. Giordano to serve as the Company’s Chief Financial Officer (the “CFO Engagement Agreement”). The term the CFO Employment Agreement was for a period of two and one-half years through December 31, 2025, which term may not be terminated early by the Company except for “cause” as defined in such agreement. Annual base compensation was $250,000, with an annual bonus for 2022 in total up to a maximum of $125,000 per year conditioned on the achievement of specified milestones, and future annual bonuses to be conditioned on achievement of milestones to be negotiated based on the circumstances of the Company at such time. On March 11, 2022, we agreed to grant restricted stock awards to Mr. James Giordano for 11,363,636 common shares of the Company which were valued at $125,000, or $0.011 per common share, based on the quoted closing price of the Company’s common stock on the measurement date. These shares vested in equal quarterly installments with the first installment of 2,840,909 shares vesting on March 31, 2022, and 2,840,909 common shares vesting each quarter through December 31, 2022. On September 15, 2023, we entered into a separation agreement with James Giordano, covering his resignation from the office of Chief Financial Officer which became effective as of October 13, 2023.
Director Compensation
The following table sets forth compensation paid, earned or awarded during 2023 to each of our directors, other than Sebastian Giordano, whose compensation is described above in the “2023 Summary Compensation Table”.
2023 Director Compensation
| Name | Fees Earned or Paid in Cash ($) | Stock Awards ($) (2) | All Other Compensation ($) | Total ($) | ||||||||||||
| Charles Benton (1) | 7,500 | 9,636 | - | 17,136 | ||||||||||||
| John Mercadante (1) | 7,500 | 9,636 | - | 17,136 | ||||||||||||
| Norman Newton (1) | 7,500 | 9,636 | - | 17,136 | ||||||||||||
| (1) | On January 23, 2023, each director listed above received 1,818,182 shares of common stock valued at $9,636, or $0.0053 per share, based on the quoted closing price of the Company’s common stock on the measurement date. |
| (2) | As required by SEC rules, the amounts in this column reflect the grant date or modification date fair value as required by FASB ASC Topic 718. See Note 6, “Shareholder’s Equity (Deficit)” in the Notes to the Company’s Consolidated Financial Statements for the fiscal year ended 2023 included in this Annual Report for more information regarding the Company’s accounting for share-based compensation plans. |
Director Compensation Program
Our current director compensation program is designed to align our director compensation program with the long-term interests of our stockholders by implementing a program comprised of cash and equity compensation.
In setting director compensation, we consider the amount of time that directors expend in fulfilling their duties to the Company as well as the skill level and experience required by our board of directors. We also consider board compensation practices at similarly situated companies, while keeping in mind the compensation philosophy of us and the stockholders’ interests. The directors also receive reimbursement for expenses, including reasonable travel expenses to attend board and committee meetings, reasonable outside seminar expenses, and other special board-related expenses.
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Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table sets forth information with respect to the beneficial ownership of our common stock and our outstanding series of preferred stock as of November 29, 2024, by (i) each stockholder known by us to be the beneficial owner of more than 5% of our capital stock, (ii) each of our directors and executive officers, and (iii) all of our directors and executive officers as a group. The percentage ownership information is based on 5,887,267,891 shares of common stock, 21,418 shares of Series E Convertible Preferred Stock (“Series E Preferred”), 406,500 shares of Series G Convertible Preferred Stock (“Series G Preferred”), and 32,374 shares of Series H Convertible Preferred Stock (“Series H Preferred”) outstanding as of November 29, 2024. Information with respect to beneficial ownership has been furnished by each director, officer or beneficial owner of more than 5% of our common stock. We have determined beneficial ownership in accordance with the rules of the SEC. These rules generally attribute beneficial ownership of securities to persons who possess sole or shared voting power or investment power with respect to those securities. In addition, the rules attribute beneficial ownership of securities as of a particular date to persons who hold convertible preferred stock, options or warrants to purchase shares of common stock and that are exercisable within 60 days of such date. These shares are deemed to be outstanding and beneficially owned by the person holding those convertible preferred stock, options or warrants for the purpose of computing the percentage ownership of that person, but they are not treated as outstanding for the purpose of computing the percentage ownership of any other person. Except as otherwise indicated, the persons named in the table below have sole voting and investment power with respect to all shares beneficially owned, subject to community property laws, where applicable. To the best of our knowledge, except as otherwise indicated, each of the persons named in the table has sole voting and investment power with respect to the shares of our common stock beneficially owned by such person, except to the extent such power may be shared with a spouse. To our knowledge, none of the shares listed below are held under a voting trust or similar agreement, except as noted. To our knowledge, there is no arrangement, including any pledge, by any person of securities of the Company or any of its parents, the operation of which may at a subsequent date result in a change of control of the Company.
Unless otherwise indicated in the following table, the address for each person named in the table is 5500 Military Trail, Suite 22-357, Jupiter, FL 33458.
| Shares of Common Stock Beneficially Owned | Shares of Series E Preferred Beneficially Owned | Shares of Series G Preferred Beneficially Owned | Shares of Series H Preferred Beneficially Owned | |||||||||||||||||||||||||||||
| Name and address of beneficial owner | Amount and nature of beneficial ownership | Percent of class(1) | Amount and nature of beneficial ownership | Percent of class (2) | Amount and nature of beneficial ownership | Percent of class (3) | Amount and nature of beneficial ownership | Percent of class (4) | ||||||||||||||||||||||||
| Directors and Executive Officers | ||||||||||||||||||||||||||||||||
| Sebastian Giordano(5) | 147,126,433 | 2.49 | % | - | - | - | - | - | - | |||||||||||||||||||||||
| Charles Benton(6) | 3,636,364 | * | - | — | - | - | - | - | ||||||||||||||||||||||||
| John Mercadante | 27,663,637 | * | - | - | - | - | - | - | ||||||||||||||||||||||||
| Norman Newton(6) | 3,636,364 | * | - | - | - | - | - | - | ||||||||||||||||||||||||
| All directors and executive officers as a group (4 persons) | 182,062,798 | 3.08 | % | - | - | - | - | - | - | |||||||||||||||||||||||
| 5% Stockholders | ||||||||||||||||||||||||||||||||
| Joseph Corbisiero(7) | 502,651,844 | 8.54 | % | - | - | - | - | 32,374 | 100 | % | ||||||||||||||||||||||
| Cavalry Fund I LP | - | - | 21,418 | 100 | % | 50,000 | 11.52 | % | - | - | ||||||||||||||||||||||
| Morningview Financial LLC | - | - | - | - | 112,500 | 25.92 | % | - | - | |||||||||||||||||||||||
| Mercer Street Global Opportunity Fund, LLC | - | - | - | - | 100,000 | 23.04 | % | - | - | |||||||||||||||||||||||
| BHP Capital NY, Inc. | - | - | - | - | 36,000 | 8.29 | % | - | - | |||||||||||||||||||||||
| Puritan Partners LLC | - | - | - | - | 27,574 | 6.35 | % | - | - | |||||||||||||||||||||||
| Cavalry Investment Fund LP | - | - | - | - | 25,000 | 5.76 | % | - | - | |||||||||||||||||||||||
| Cavalry Special Ops Fund LP | - | - | - | - | 25,000 | 5.76 | % | - | - | |||||||||||||||||||||||
| * | less than 1%. |
| (1) | Applicable percentage ownership is based on 5,887,267,891 shares of common stock outstanding as of November 29, 2024. | |
| (2) | Applicable percentage ownership is based on 21,418 shares of Series E Preferred outstanding as of November 29, 2024. | |
| (3) | Applicable percentage ownership is based on 406,500 shares of Series G Preferred outstanding as of November 29, 2024. | |
| (4) | Applicable percentage ownership is based on 32,374 shares of Series H Preferred outstanding as of November 29, 2024. | |
| (5) | Includes 122,126,433 shares of common stock held directly by Mr. Giordano and 25,000,000 shares of common stock issuable upon the exercise of warrants to purchase up to 25,000,000 shares of common stock at an exercise price of $0.06 per share held by Ascentaur LLC, a company controlled by Mr. Giordano. | |
| (6) | Consists of 3,636,364 shares of common. | |
| (7) | Mr. Joseph Corbisiero was the chief executive officer of Freight Connections until December 1, 2023. Includes 178,911,844 shares of common stock held directly by Mr. Corbisiero and 323,740,000 shares of common issuable upon the conversion of 32,374 shares of Series H Preferred, at a conversion price of $0.0001 per share. |
Securities Authorized for Issuance Under Equity Compensation Plans
The Company does not currently have any securities authorized for issuance under any equity compensation plans.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Director Independence
Three of our four board members are independent. The Board has determined that each of Messrs. Benton, Mercadante, and Newton is an independent director pursuant to the OTC Expert Markets listing standards. Under the OTC Expert Markets listing standards, an “independent director” is a non-employee of the Company that does not have a relationship with the Company that, in the Board’s opinion, would interfere with the exercise of independent judgment in carrying out director responsibilities.
In assessing the independence of our directors, the Board considers all the business relationships between the Company and our directors and their respective affiliated companies. This review is based primarily on the Company’s review of its own records and on responses of the directors to questions in a questionnaire regarding employment, business, familial, compensation and other relationships with the Company and our management. Where relationships exist, the Board determines whether the relationship between the Company and the directors or the directors’ affiliated companies impairs the directors’ independence. After consideration of the directors’ relationships with the Company, the Board has affirmatively determined that none of the individuals serving as non-employee directors as of the date of this Annual Report has a material relationship with us and that each of such non-employee directors is independent.
Related Party Transactions
Other than as described below, there have been no transactions since January 1, 2022, whether directly or indirectly, between us an any of the Company’s officers, directors, beneficial owners of more than 5% of outstanding shares of common stock that exceeded the lesser of (i) $120,000 or (ii) one percent (1%) of the average of the Company’s total assets at year-end for the last two fiscal years.
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Due to related parties
During the period from September 17, 2022 to December 31, 2022 and for the year ended December 31, 2023, Freight Connections incurred outside trucking costs with companies owned by the Freight Connection’s Seller, who is currently Freight Connection’s chief executive officer. In connection with the outside trucking services, Freight Connections recorded aggregate outside trucking expense of $759,614 and $1,716,732, respectively, which is included in loss from discontinued operations on the accompanying consolidated statement of operations. As of December 31, 2022 and 2023, the aggregate amount due to these companies amounted to $115,117 and $0, respectively, which is included in liabilities of discontinued operations on the accompanying consolidated balance sheets.
Notes payable – related parties
On April 17, 2023, the Company issued an unsecured promissory note to Mr. Mercadante in the principal amount of $500,000. Such unsecured promissory note matured on December 31, 2023 and accrues interest at a rate per annum of 12%. On May 21,2024, Mr. Mercadante filed a notice of default, resulting in an increase in the rate of interest to 17% which began to apply to the outstanding principal and accrued interest as of the date of default, or January 1, 2024.
On April 21, 2023, the Company issued an unsecured promissory note to Mr. Giordano in the principal amount of $100,000. Such unsecured promissory note matured on December 31, 2023 and accrues interest at a rate per annum of 12%. On May 21, 2024, Mr. Giordano filed a notice of default, resulting in an increase in the rate of interest to 17% as of the date of default.
On October 3, 2023, the Company issued an additional unsecured promissory note to Mr. Mercadante in the principal amount of $500,000. Such unsecured promissory note matured on June 24, 2024 and accrues interest at a rate per annum of 12%. On July 1, 2024, Mr. Mercadante filed a notice of default, resulting in an increase in the rate of interest to 17% as of the date of default.
On November 28, 2023, the Company issued an unsecured promissory note to an affiliate of Mr. Mercadante in the principal amount of $60,000. Such unsecured promissory note matures one year from the date of issuance and accrues interest at a rate per annum of 12%.
On February 6, 2024 and February 15, 2024, Mr. Mercadante issued unsecured promissory notes to the Company in the principal amount of $64,534 and $319,194, respectively. Each unsecured promissory note matures one year from the date of issuance and accrues interest at a rate per annum of 12%.
On February 21, 2024 and February 23, 2024, Mr. Norman Newton and Mr. Charles Benton, both members of the Company’s Board, issued unsecured promissory notes to the Company in the principal amount of $1,000 and $3,109, respectively. Each unsecured promissory note matured on September 30, 2024, and accrues interest at the rate per annum of 12%. On October 1, 2024, both Mr. Newton and Mr. Benton each filed a notice of default, resulting in an increase in the rate of interest to 17% as of the date of default.
There are not currently any conflicts of interest by or among the Company’s current officers, directors, key employees, or advisors. The Company has not yet formulated a policy for handling conflicts of interest; however, it intends to do so prior to hiring any additional employees.
Item 14. Principal Accountant Fees and Services.
Aggregate fees billed or incurred related to the following years for professional services rendered by our independent registered public accounting firm, Salberg & Company, P.A. for 2023 and 2022 are set forth below.
| 2023 | 2022 | |||||||
| Audit fees | $ | 131,000 | $ | 265,045 | ||||
| Audit-related fees | 135,000 | 31,255 | ||||||
| Tax fees | - | - | ||||||
| All other fees | - | - | ||||||
| Total | $ | 266,000 | $ | 296,300 | ||||
Audit Fees
Audit fees consist of fees billed for professional services rendered for the audit of our consolidated annual financial statements and review of the interim consolidated financial statements included in quarterly reports and services that are normally provided by our auditors in connection with statutory and regulatory filings or engagements.
Audit-Related Fees
Audit-related fees consist of services by our independent auditors that, including accounting consultations on transaction related matters, are reasonably related to the performance of the audit or review of our financial statements and are not reported above under audit fees.
Tax Fees
For the Company’s fiscal years ended December 31, 2022 and December 31, 2023, Salberg & Company, P.A. did not provide any professional services for tax compliance, tax advice, and tax planning.
Pre-Approval of Services
The Audit Committee has reviewed and discussed with management the audited financial statements for the year ended December 31, 2023. The Audit Committee also discussed all the matters required by professional auditing standards to be discussed with the Company’s independent registered public accounting firm, Salberg & Company, P.A., the matters required to be discussed by the applicable requirements of the Public Company Accounting Oversight Board and the Securities and Exchange Commission. In addition, Audit Committee has received from the independent registered public accounting firm written disclosure required by the Public Company Accounting Oversight Board Ethics and Independence Rule 3526 and has discussed with the independent registered public accounting firm its independence from the Company and its management. Based on its review and discussions, including discussions without management or members of the independent registered public accounting firm present, the board of directors has approved, that the audited financial statements be included in this Annual Report.
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To safeguard the continued independence of the Company’s independent registered public accounting firm, the board of directors requires all audit and non-audit services, subject to a de minimis exception pursuant to SEC Regulation S-X Rule 2-01(c)(7)(i)(C), to be performed by the Company’s independent registered public accounting firm, to be pre-approved by the board of directors prior to such services being performed. All audit services performed by the Company’s independent registered public accounting firm during the year ended December 31, 2023 and 2022 were approved by the audit committee.
Item 15. Exhibits and Financial Statement Schedules.
The following financial information is filed as part of this report:
(a)
| (1) | FINANCIAL STATEMENTS | |
| (2) | SCHEDULES | |
| (3) | EXHIBITS. |
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* Filed herewith.
+ Indicates a management contract or any compensatory plan, contract or arrangement.
# The certification attached as Exhibit 32.1 that accompanies this Form 10-K is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Transportation and Logistics Systems, Inc. under the Securities Act or the Exchange Act, whether made before or after the date of this Form 10-K, irrespective of any general incorporation language contained in such filing.
Item 16. Form 10-K Summary.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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. | ||
| December 5, 2024 | ||
| By: | /s/ Sebastian Giordano | |
Sebastian
Giordano (Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer) | ||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signature | Title | Date | ||
| /s/ Sebastian Giordano | Chief Executive Officer, Chief Financial Officer, Treasurer and Chairman of the Board of Directors | December 5, 2024 | ||
| Sebastian Giordano | (Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer) | |||
| /s/ Charles Benton | Director | December 5, 2024 | ||
| Charles Benton | ||||
| /s/ John Mercadante | Director | December 5, 2024 | ||
| John Mercadante | ||||
| /s/ Norman Newton | Director | December 5, 2024 | ||
| Norman Newton |
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