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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2023

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ___________ to ___________

 

Commission File No. 001-34970

 

Transportation and Logistics Systems, Inc.

(Exact name of registrant as specified in its charter)

 

Nevada   26-3106763
(State or Other Jurisdiction   IRS Employer
of Organization)   Identification Number

 

5500 Military Trail, Suite 22-357    
Jupiter, Florida   33458
(Address of principal executive offices)   (Zip code)

 

(833) 764-1443

(Registrant’s telephone number, including area code)

 

 

(Former name, former address and former fiscal year, if changed since last report.)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
N/A   N/A   N/A

 

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐ Accelerated filer ☐ Non accelerated filer Smaller reporting company
       
Emerging growth company      

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

 

Class   Outstanding as of August 14, 2023
Common Stock, $0.001   4,263,733,399

 

 

 

 
 

 

TRANSPORTATION AND LOGISTICS SYSTEMS, INC.

FORM 10-Q

June 30, 2023

 

INDEX

 

    Page
PART I. FINANCIAL INFORMATION  
     
Item 1. Financial Statements 3
  Consolidated Balance Sheets - As of June 30, 2023 (unaudited) and December 31, 2022 3
  Consolidated Statements of Operations - For the Three and Six Months Ended June 30, 2023 and 2022 (unaudited) 4
  Consolidated Statements of Changes in Shareholders’ Equity – For the Three and Six Months Ended June 30, 2023 and 2022 (unaudited) 5
  Consolidated Statements of Cash Flows - For the Six Months Ended June 30, 2023 and 2022 (unaudited) 6
  Notes to Unaudited Consolidated Financial Statements 7
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 32
Item 3. Quantitative and Qualitative Disclosures About Market Risk 40
Item 4. Controls and Procedures 40
     
PART II. OTHER INFORMATION  
     
Item 1. Legal Proceedings 41
Item 1A. Risk Factors 45
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 45
Item 3. Defaults Upon Senior Securities 45
Item 4. Mine Safety Disclosures 45
Item 5. Other Information 45
Item 6. Exhibits 45
Signatures 47

 

2
 

 

PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

  June 30, 2023   December 31, 2022 
   (Unaudited)      
ASSETS          
CURRENT ASSETS:          
Cash  $743,898   $1,470,807 
Accounts receivable, net   2,120,970    2,059,326 
Prepaid expenses and other current assets   548,486    613,035 
           
Total Current Assets   3,413,354    4,143,168 
           
OTHER ASSETS:          
Security deposits   454,844    377,107 
Property and equipment, net   2,862,296    1,607,212 
Right of use assets, net   11,400,490    8,457,083 
Goodwill   2,105,879    2,105,879 
Intangible assets, net   4,473,061    4,601,677 
           
Total Other Assets   21,296,570    17,148,958 
           
TOTAL ASSETS  $24,709,924   $21,292,126 
           
LIABILITIES AND SHAREHOLDERS’ EQUITY          
           
CURRENT LIABILITIES:          
Notes payable, current portion  $1,514,166   $408,407 
Notes payable - related parties, current portion   5,144,671    4,544,671 
Accounts payable (including accounts payable - related party of $279,792 and $115,117 on June 30, 2023 and December 31, 2022, respectively)   1,407,324    472,701 
Accrued expenses   1,183,183    837,170 
Insurance payable   438,080    137,477 
Lease liabilities, current portion   3,132,142    2,081,099 
Accrued compensation and related benefits   148,900    65,103 
           
Total Current Liabilities   12,968,466    8,546,628 
           
LONG-TERM LIABILITIES:          
Notes payable, net of current portion   1,499,607    831,499 
Lease liabilities, net of current portion   8,413,008    6,413,937 
           
Total Long-term Liabilities   9,912,615    7,245,436 
           
Total Liabilities   22,881,081    15,792,064 
           
Commitments and Contingencies (See Note 11)   -    - 
           
SHAREHOLDERS’ EQUITY:          
Preferred stock, par value $0.001; authorized 10,000,000 shares:          
Series B convertible preferred stock, par value $0.001 per share; 1,700,000 shares designated; No shares issued and outstanding at June 30, 2023 and December 31, 2022 (Liquidation value $0)   -    - 
Series D convertible preferred stock, par value $0.001 per share; 1,250,000 shares designated; no shares issued        and outstanding at June 30, 2023 and December 31, 2022  ($6.00 per share liquidation value)   -    - 
Series E convertible preferred stock, par value $0.001 per share; 562,250 shares designated; 21,418 shares issued and outstanding at June 30, 2023 and December 31, 2022 ($13.34 per share liquidation value)   21    21 
Series G convertible preferred stock, par value $0.001 per share; 1,000,000 shares designated; 546,000 and 575,000 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively ($10.00 per share liquidation value)   546    575 
Series H convertible preferred stock, par value $0.001 per share; 35,000 shares designated; 32,374 shares issued and outstanding at June 30, 2023 and December 31, 2022 (No per share liquidation value)   32    32 
Common stock, par value $0.001 per share; 10,000,000,000 shares authorized; 3,896,181,274 and 3,636,691,682 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively   3,896,181    3,636,692 
Additional paid-in capital   129,977,255    129,372,841 
Accumulated deficit   (132,045,192)   (127,510,099)
           
Total Shareholders’ Equity   1,828,843    5,500,062 
           
Total Liabilities and Shareholders’ Equity  $24,709,924   $21,292,126 

 

See accompanying notes to unaudited consolidated financial statements.

 

3
 

 

TRANSPORTATION AND LOGISTICS SYSTEMS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

   2023   2022   2023   2022 
   For the Three Months Ended   For the Six Months Ended 
   June 30,   June 30, 
   2023   2022   2023   2022 
                 
REVENUES  $5,061,871   $1,404,560   $10,656,767   $2,663,893 
                     
COST OF REVENUES:                    
Third parties   3,288,605    1,013,550    6,144,251    1,984,552 
Related parties   470,669    -    1,241,376    - 
                     
Total Cost of Revenues   3,759,274    1,013,550    7,385,627    1,984,552 
                     
GROSS PROFIT   1,302,597    391,010    3,271,140    679,341 
                     
OPERATING EXPENSES:                    
Compensation and related benefits   1,462,105    693,343    2,577,589    2,049,753 
Legal and professional fees   422,281    339,003    979,364    688,497 
Rent   1,137,616    110,957    2,175,699    212,294 
General and administrative expenses   536,059    252,167    1,300,895    534,110 
                     
Total Operating Expenses   3,558,061    1,395,470    7,033,547    3,484,654 
                     
LOSS FROM OPERATIONS   (2,255,464)   (1,004,460)   (3,762,407)   (2,805,313)
                     
OTHER INCOME (EXPENSES):                    
Interest income   -    -    992    - 
Interest expense   (83,947)   (1,895)   (146,816)   (9,762)
Interest expense - related parties   (129,972)   -    (206,348)   - 
(Loss) gain on sale of subsidiary’s assets   -    296,689    (720)   296,689 
Settlement income (expense)   (9,408)   700    (9,408)   (227,811)
                     
Total Other Income (Expenses)   (223,327)   295,494    (362,300)   59,116 
                     
LOSS BEFORE INCOME TAXES   (2,478,791)   (708,966)   (4,124,707)   (2,746,197)
                     
Provision for income taxes   -    -    -    - 
                     
NET LOSS   (2,478,791)   (708,966)   (4,124,707)   (2,746,197)
                     
Deemed and accrued dividends   (309,976)   (106,834)   (410,386)   (215,885)
                     
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS  $(2,788,767)  $(815,800)  $(4,535,093)  $(2,962,082)
                     
NET LOSS PER COMMON SHARE - BASIC AND DILUTED                    
Basic and diluted  $(0.00)  $(0.00)  $(0.00)  $(0.00)
                     
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:                    
Basic and diluted   3,716,404,651    3,316,885,235    3,701,199,946    3,179,603,803 

 

See accompanying notes to unaudited consolidated financial statements.

 

4
 

 

TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2023 AND 2022

(Unaudited)

 

   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Deficit   Equity 
   Preferred Stock
Series B
   Preferred Stock
Series E
   Preferred Stock
Series G
   Preferred Stock
Series H
   Common Stock  

Additional

Paid-in

   Accumulated  

Total

Shareholders’

 
   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Deficit   Equity 
                                                     
Balance, December 31, 2022   -   $-    21,418   $21    575,000   $575    32,374   $32    3,636,691,682   $3,636,692   $129,372,841   $(127,510,099)  $5,500,062 
                                                                  
Common stock issued for conversion of Series G preferred shares   -    -    -    -    (29,000)   (29)   -    -    43,684,680    43,685    (23,600)   -    20,056 
                                                                  
Common stock issued for services and future services   -    -    -    -    -    -    -    -    21,634,615    21,634    (21,634)   -    - 
                                                                  
Accretion of stock-based compensation   -    -    -    -    -    -    -    -    -    -    117,292    -    117,292 
                                                                  
Accrued dividends   -    -    -    -    -    -    -    -    -    -    -    (100,410)   (100,410)
                                                                  
Net loss   -    -    -    -    -    -    -    -    -    -    -    (1,645,916)   (1,645,916)
                                                                  
Balance, March 31, 2023   -    -    21,418    21    546,000    546    32,374    32    3,702,010,977    3,702,011    129,444,899    (129,256,425)   3,891,084 
                                                                  
Common stock issued for services and future services   -    -    -    -    -    -    -    -    12,535,439    12,535    (12,535)   -    - 
                                                                  
Accretion of stock-based compensation   -    -    -    -    -    -    -    -    -    -    145,172    -    145,172 
                                                                  
Common stock issued for warrant exercises   -    -    -    -    -    -    -    -    181,634,858    181,635    181,635    -    363,270 
                                                                  
Deemed and accrued dividends   -    -    -    -    -    -    -    -    -    -    218,084    (309,976)   (91,892)
                                                                  
Net loss   -    -    -    -    -    -    -    -    -    -    -    (2,478,791)   (2,478,791)
                                                                  
Balance, June 30, 2023   -   $-    21,418   $21    546,000   $546    32,374   $32    3,896,181,274   $3,896,181   $129,977,255   $(132,045,192)  $1,828,843 

 

   Preferred Stock
Series B
   Preferred Stock
Series E
   Preferred Stock
Series G
   Preferred Stock
Series H
   Common Stock  

Additional

 Paid-in

   Accumulated  

Total

Shareholders’

 
    Shares    Amount    Shares    Amount    Shares    Amount    Shares    Amount    Shares    Amount    Capital    Deficit    Equity 
                                                                  
Balance, December 31, 2021   700,000   $700    51,605   $52    615,000   $615    -   $-    2,926,528,666   $2,926,529   $124,604,718   $(119,016,487)  $8,516,127 
                                                                  
Common stock issued for warrant exercise   -    -    -    -    -    -    -    -    24,571,429    24,571    221,143    -    245,714 
                                                                  
Common stock issued for services and future services   -    -    -    -    -    -    -    -    161,671,888    161,672    88,328    -    250,000 
                                                                  
Accretion of stock-based compensation   -    -    -    -    -    -    -    -    -    -    586,133    -    586,133 
                                                                  
Sales of Series G preferred share units   -    -    -    -    95,000    95    -    -    -    -    854,905    -    855,000 
                                                                  
Common stock issued for conversion of Series E preferred shares   -    -    (19,947)   (20)   -    -    -    -    75,000,000    75,000    (74,980)   -    - 
                                                                  
Dividends accrued   -    -    -    -    -    -    -    -    -    -    -    (109,051)   (109,051)
                                                                  
Net loss   -    -    -    -    -    -    -    -    -    -    -    (2,037,231)   (2,037,231)
                                                                  
Balance, March 31, 2022   700,000    700    31,658    32    710,000    710    -    -    3,187,771,983    3,187,772    126,280,247    (121,162,769)   8,306,692 
                                                                  
Common stock issued for warrant exercise   -    -    -    -    -    -    -    -    40,086,207    40,086    (40,086)   -    - 
                                                                  
Common stock issued for services and future services   -    -    -    -    -    -    -    -    969,149    969    9,031    -    10,000 
                                                                  
Accretion of stock-based compensation   -    -    -    -    -    -    -    -    -    -    204,034    -    204,034 
                                                                  
Common stock issued for conversion of Series E preferred shares   -    -    (10,420)   (11)   -    -    -    -    38,500,868    38,501    (62,490)   -    (24,000)
                                                                  
Common stock issued for conversion of Series G preferred shares   -    -    -    -    (92,500)   (92)   -    -    129,272,885    129,273    (108,047)   -    21,134 
                                                                  
Cancellation of Series B preferred in connection with settlement   (700,000)   (700)   -    -    -    -    -    -    -    -    -    -    (700)
                                                                  
Dividends accrued   -    -    -    -    -    -    -    -    -    -    -    (106,834)   (106,834)
                                                                  
Net loss   -    -    -    -    -    -    -    -    -    -    -    (708,966)   (708,966)
                                                                  
Balance, June 30, 2022   -   $-    21,238   $21    617,500   $618    -   $-    3,396,601,092   $3,396,601   $126,282,689   $(121,978,569)  $7,701,360 

 

See accompanying notes to unaudited consolidated financial statements.

 

5
 

 

TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

   2023   2022 
   For the Six Months Ended 
   June 30, 
   2023   2022 
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net loss  $(4,124,707)  $(2,746,197)
Adjustments to reconcile net (loss) income to net cash used in operating activities:          
Depreciation and amortization expense   775,500    377,500 
Stock-based compensation   262,464    1,040,167 
Stock-based professional fees   -    8,333 
Gain from sale of subsidiary’s assets   -    (296,689)
Non-cash portion of gain on settlement   -    (700)
Lease costs   106,707    - 
Bad debt recovery   (22,776)   - 
Change in operating assets and liabilities:          
Accounts receivable   798,018    8,094 
Prepaid expenses and other current assets   (157,391)   (156,126)
Security deposits   (70,737)   (6,245)
Accounts payable and accrued expenses   869,779    (50,014)
Insurance payable   300,603    42,424 
Accrued compensation and related benefits   (68,834)   (39,151)
           
NET CASH USED IN OPERATING ACTIVITIES   (1,331,374)   (1,818,604)
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
Purchase of property and equipment   (311,396)   - 
Proceeds from repayment of note receivable   255,000    - 
Cash proceeds from sale of subsidiary’s assets   -    748,500 
Cash acquired in acquisitions   207,471    - 
Cash used for acquisitions   (687,808)   - 
           
NET CASH (USED IN) PROVIDED BY  INVESTING ACTIVITIES   (536,733)   748,500 
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Payment of liquidated damages on Series E preferred shares   -    (24,000)
Net proceeds from sale of series G preferred share units   -    855,000 
Proceeds from exercise of warrants   363,270    245,714 
Proceeds from notes payable - related parties   600,000    - 
Proceeds from notes payable   300,609    - 
Repayment of notes payable   (122,681)   (295,596)
           
NET CASH PROVIDED BY FINANCING ACTIVITIES   1,141,198    781,118 
           
NET DECREASE IN CASH   (726,909)   (288,986)
           
CASH, beginning of period   1,470,807    6,067,692 
           
CASH, end of period  $743,898   $5,778,706 
           
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION          
Cash paid for:          
Interest  $126,811   $9,762 
Income taxes  $-   $- 
           
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:          
Conversion of Series E preferred stock to common stock  $-   $31 
Conversion of Series G preferred stock and accrued dividends to common stock  $20,056   $21,226 
Accrual of preferrerd stock dividends  $410,386   $215,885 
Issuance of common stock for future services  $-   $5,000 
Increase in right of use assets and lease liabilities  $3,958,260   $- 
           
ACQUISITIONS:          
Assets acquired:          
Accounts receivable  $836,886   $- 
Prepaid expenses   18,454    - 
Property and equipment   1,186,198    - 
Right of use assets   457,239    - 
Security deposits   7,000    - 
Intangible assets   404,374    - 
Total assets acquired   2,910,151    - 
Less: liabilities assumed:          
Accounts payable   211,303    - 
Accrued expenses   12,702    - 
Accrued compensation and related benefits   152,631    - 
Notes payable   1,595,939    - 
Lease liabilities   457,239    - 
Total liabilities assumed   2,429,814    - 
Net assets acquired  $480,337   $- 

 

See accompanying notes to unaudited consolidated financial statements.

 

6
 

 

TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2023
(Unaudited)

 

NOTE 1 – ORGANIZATION AND BUSINESS OPERATIONS

 

Transportation and Logistics Systems, Inc. (“TLSS” or the “Company”) is a holding company incorporated under the laws of the State of Nevada, on July 25, 2008. Its active wholly-owned operating subsidiaries, Cougar Express, Inc., Freight Connections, Inc., JFK Cartage, Inc., and Severance Trucking Co., Inc. (acquired in 2023), along with Severance Warehousing, Inc. and McGrath Trailer Leasing, Inc., and hereafter referred to as “Severance Trucking”, together provide a full suite of logistics and transportation services, specializing in ecommerce fulfillment, last mile deliveries, two-person home delivery, mid-mile, and long-haul services. Such entities operate several warehouse locations located in New York, New Jersey, Connecticut and Massachusetts. Inactive subsidiaries include: TLSS Acquisition, Inc. (“TLSSA”), Shyp CX, Inc. (“Shyp CX”), Shyp FX, Inc. (“Shyp FX”), TLSS-FC, Inc. (“TLSS-FC”) and TLSS-STI, Inc. (“TLSS-STI”), TLSS Operations Holding Company, Inc. (“TLSS Operations Holding”), and TLSS-CE, Inc. (“TLSS-CE”).

 

On June 18, 2018, the Company completed the acquisition of 100% of the issued and outstanding membership interests of Prime EFS, LLC, a New Jersey limited liability company (“Prime EFS”), from its members pursuant to the terms and conditions of a Stock Purchase Agreement. Prime EFS was a New Jersey based transportation company that generated substantially all its revenues from Amazon Logistics, Inc. (“Amazon”) until it ceased operations on September 30, 2020 due to Amazon’s non-renewal of its Delivery Service Partner (DSP) Agreement with Prime EFS, as described below.

 

On July 24, 2018, the Company formed Shypdirect LLC (“Shypdirect”), a company organized under the laws of New Jersey. Since its inception, Shypdirect generated substantially all of its revenues from Amazon, Inc. As described below, Amazon elected to terminate its Amazon Relay Carrier Terms of Service with Shypdirect. Accordingly, in June 2021, Shypdirect ceased its tractor trailer and box truck delivery services to Amazon, and in July 2021, Shypdirect ceased all operations.

 

On August 19, 2021, the Company’s former subsidiaries, 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 of the Prime EFS and Shypdirect assets to Terri Jane Freedman as Assignee for the Benefit of Creditors (the “Assignee”) and filing for dissolution. (See Note 11).

 

Since exiting the Amazon business, the Company has pursued a growth by acquisitions strategy as set forth below and as such, continues to pursue potential acquisition opportunities.

 

On November 13, 2020, the Company formed a wholly-owned subsidiary, Shyp FX, Inc., a company incorporated under the laws of the State of New Jersey (“Shyp FX”). On January 15, 2021, through Shyp FX, the Company executed an asset purchase agreement (“APA”) and closed a transaction 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 Asset Purchase Agreement (the “Asset Purchase Agreement” with an unrelated third party. Pursuant to the Asset Purchase Agreement, Shyp FX sold substantially all its asset and specific liabilities. The Asset Purchase Agreement closed in June 2022.

 

On November 16, 2020, the Company formed a wholly-owned subsidiary, TLSSA, a company incorporated under the laws of the State of Delaware. On March 24, 2021, TLSS acquired all of the issued and outstanding shares of capital stock of Cougar Express, Inc., a New York-based full-service logistics provider specializing in pickup, warehousing, and delivery services in the tri-state area (“Cougar Express”). Cougar Express was a family-owned full-service transportation business that has been in operation for more than 30 years providing one-to-four person deliveries and offering white glove services. It utilizes its own fleet of trucks, warehouse/driver/office personnel and on-call subcontractors from its convenient and secure New York JFK airport area location, allowing it to pick-up and deliver throughout the New York tri-state area. Cougar Express serves a diverse base of commercial accounts, which are freight forwarders that work with some of the most notable retail businesses in the country.

 

On February 21, 2021, the Company 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.

 

On August 4, 2022, the Company’s wholly-owned subsidiary, Cougar Express, closed on its acquisition of all outstanding stock of JFK Cartage, Inc., a New York-based full-service logistics provider specializing in pickup, warehousing and delivery services in the tri-state area (“JFK Cartage”). 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 July 31, 2022. With annual revenues of $3.6 million in 2021 and approximately $2.0 million for the first six months of 2022, JFK Cartage operates from a 30,000 square foot warehouse with ten drive-in doors and is strategically located approximately six miles from JFK International Airport. JFK Cartage has been in business since 2008 and has been providing warehousing, cross-dock services, pickup and deliveries, and general trucking, handling airfreight, trade show freight, expedited and hotshot demand work, LTL/cartage as well as FTL, reverse logistics, white glove and residential delivery services to a broad base of over 95 commercial accounts and residential customers. JFK Cartage operates a wide-ranging fleet of specialty vehicles, from its Sprinter vans to full 53-ft. tractor trailers. JFK Cartage, with its assets, fleet and warehouse is believed to be one of the largest leading cartage agents serving the New York Tri-State area (See Note 3).

 

Effective September 16, 2022, the Company’s newly formed wholly-owned subsidiary, TLSS-FC, closed on an acquisition of all outstanding stock of Freight Connections, Inc., a New Jersey-based company offering an array of transportation, warehousing, consolidating, distribution, and local cartage services throughout the New York tri-state area (“Freight Connections”). Joseph Corbisiero, the sole shareholder of Freight Connections, from whom the shares were acquired. Freight Connections was founded in 2016 and is a privately held transportation and logistics carrier headquartered in Ridgefield Park, New Jersey. Freight Connections currently operates with 30 power units and 50 trailers, including dry vans, pups, flatbeds, step decks, and double drop trailers out of three buildings in the area with 200,000 square feet of warehouse and cross dock space, strategically located within one mile of each other. Freight Connections offers customers an array of services including truckload, LTL, and consolidating of cartage, construction-trade, air, and rail freight, as well as warehousing and distribution services (See Note 3).

 

7
 

 

TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2023
(Unaudited)

 

Effective February 3, 2023, the Company’s newly formed wholly-owned subsidiary, TLSS-STI, closed on an acquisition of all outstanding stock of Severance Trucking, which together, offer 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 “Sellers”). None of the Sellers are affiliated with the Company or its affiliates. Severance Trucking is a privately-owned full-service transportation carrier and logistics business that has been in operation for over 100 years specializing in LTL trucking that provides next day service to major cities in New England and New York, with cartage and interline agreements with respected carriers that ensure reliable deliveries anywhere in the United States and Canada. With annual revenues of over $13.0 million in 2022, Severance Trucking currently operates with over 120 power units and trailers and has two locations, comprised of approximately 18,000 square feet of warehouse and cross dock space, 9,000 square feet of office and 5,750 square feet of repair facilities located in Dracut, Massachusetts and approximately 16,000 square feet of warehouse space in North Haven, Connecticut (See Note 3).

 

On May 31, 2023, the Company formed TLSS Operations Holding and TLSS-CE, companies organized under the laws of Delaware.

 

Unless the context otherwise requires, TLSS and its wholly-owned subsidiaries, TLSSA, TLSS-FC, Cougar Express, Shyp FX, Shyp CX, JFK Cartage, Freight Connections, TLSS-STI, Severance Trucking, TLSS Operations Holding and TLSS-CE are hereafter referred to as the “Company”. References herein to a “Company liability” may be to a liability which is owed solely by a subsidiary and not by TLSS.

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION

 

Basis of presentation and principles of consolidation

 

The unaudited consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and the rules and regulations of the United States Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, they do not include all the information and disclosures necessary for comprehensive presentation of financial position, results of operations or cash flow. However, these unaudited consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, which, in the opinion of management, are necessary for fair presentation of the information contained therein. It is suggested that these unaudited interim consolidated financial statements be read in conjunction with the consolidated financial statements of the Company for the year ended December 31, 2022 and notes thereto included in the Company’s annual report on SEC Form 10-K, filed on March 31, 2023.

 

The Company follows the same accounting policies in the preparation of its annual and interim reports. The results of operations in interim periods are not necessarily an indication of operating results to be expected for the full year.

 

The consolidated financial statements of the Company include the accounts of TLSS and its wholly owned subsidiaries, TLSSA, TLSS-FC, Cougar Express, Shyp FX, Shyp CX, TLSS-STI, TLSS Operations Holding, TLSS-CE, JFK Cartage since its acquisition on July 31, 2022, Freight Connection since its acquisition on September 16, 2022, and Severance Trucking 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.

 

Going concern

 

These unaudited consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying unaudited consolidated financial statements, the Company had a net loss of $4,124,707 and $2,746,197 for the six months ended June 30, 2023 and 2022, respectively. The net cash used in operations was $1,331,374 and $1,818,604 for the six months ended June 30, 2023 and 2022, respectively. Additionally, the Company had an accumulated deficit and working capital deficit of $132,045,192 and $9,555,112, respectively, on June 30, 2023. These factors raise substantial doubt about the Company’s ability to continue as a going concern for a period of twelve months from the issuance date of this report. Management cannot provide assurance that the Company will ultimately achieve profitable operations or become cash flow positive or raise additional debt and/or equity capital. The Company is seeking to raise capital through additional debt and/or equity financings to fund its operations in the future. Although the Company has historically raised capital from sales of preferred shares, from the issuance of promissory notes and convertible promissory notes, and from the exercise of warrants, 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 will need to curtail its operations. These unaudited 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 the Company be unable to continue as a going concern.

 

Risks and uncertainties

 

The Company maintains its cash in bank and financial institution deposits that at times may exceed federally insured limits. On June 30, 2023, the Company had no cash in bank in excess of FDIC insured levels. On March 12, 2023, Signature Bank, the Company’s financial institution, was closed by its state chartering authority, the New York State Department of Financial Services. On that same date the FDIC was appointed as receiver and transferred all the deposits and substantially all of the assets of Signature Bank to Signature Bridge Bank, N.A., a full-service bank that is being operated by the FDIC. At the time of closing, the Company had all of its cash at Signature Bank. The Company did not lose access to its accounts or experience interruptions in banking services, and it suffered no losses with respect to its deposits at Signature Bank as a result of the bank’s closure. Normal banking activities resumed on Monday, March 13, 2023. On March 19, 2023 Signature Bridge Bank N.A. was acquired by New York Community Bancorp Inc., which is the parent of Flagship Bank, N.A. The Company continually reviews its banking options to ensure that its exposure is limited or reduced to the FDIC protection limits.

 

The COVID-19 pandemic and resulting global disruptions have affected the Company’s businesses, as well as those of the Company’s customers and their third-party suppliers and sellers. To serve the Company’s customers while also providing for the safety of the Company’s employees and service providers, the Company has adapted numerous aspects of its logistics and transportation processes. The Company continues to monitor the rapidly evolving situation and expect to continue to adapt its operations to address federal, state, and local standards as well as to implement standards or processes that the Company determines to be in the best interests of its employees, customers, and communities. The impact of the pandemic and actions taken in response to it had some effects on the Company’s results of operations. Effects include increased fulfilment costs and cost of sales, primarily due to investments in employee hiring, pay, and benefits, as well as costs to maintain safe workplaces, and higher shipping costs. The Company continues to be affected by possible procurement and shipping delays, supply chain interruptions, and increased fulfilment costs and cost of sales as a percentage of net sales and it is not possible to determine the duration and spread of the pandemic or such actions, the ultimate impact on the Company’s results of operations during 2023, or whether other currently unanticipated consequences of the pandemic are reasonably likely to materially affect the Company’s results of operations.

 

8
 

 

TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2023
(Unaudited)

 

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 unaudited 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, and the value of claims against the Company.

 

Fair value of financial instruments

 

The Financial Accounting Standards Board (“FASB”) issued ASC 820 — Fair Value Measurements and Disclosures, which defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 requires disclosures about the fair value of all financial instruments, whether or not recognized, for financial statement purposes. Disclosures about the fair value of financial instruments are based on pertinent information available to the Company on June 30, 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 June 30, 2023 and December 31, 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, accounts receivable, prepaid expenses and other current assets, accounts payable, accrued expenses, insurance payable, 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 is recorded as goodwill. Determining the fair value of certain acquired assets and liabilities is 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 are 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 June 30, 2023, the Company did not have any cash equivalents.

 

Accounts receivable

 

Accounts receivable are presented net of an allowance for doubtful accounts. The Company maintains allowances for doubtful accounts for estimated losses. The Company reviews the accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances 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.

 

9
 

 

TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2023
(Unaudited)

 

Property and equipment

 

Property and equipment are stated at cost and are depreciated using the straight-line method over their estimated useful lives of one to twenty years. Leasehold improvements are depreciated over the shorter of the useful life or lease term including scheduled renewal terms. Revenue equipment acquired through acquisitions is generally revalued to current market values as of the acquisition date. Assets obtained more than a year prior to the acquisition by the acquired company are depreciated on a straight-line basis aligned with the remaining period of expected use, whereas those obtained less than a year prior are depreciated consistent with newly purchased assets. In addition to purchasing new revenue equipment, the Company may rebuild the engines of its tractors. Because rebuilding an engine increases its useful life, the Company capitalizes these costs and depreciates the cost over the remaining useful life of the unit. Maintenance and repairs are charged to expense as incurred. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition. The Company examines the possibility of decreases in the value of these assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable.

 

Goodwill and other intangible assets

 

Intangible assets are 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 result in the recording of goodwill and other intangible assets, which affect the amount of amortization expense and possibly impairment write-downs that the Company may incur in future periods.

 

Goodwill represents 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 performs 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 consists of covenants not to compete and customer relationships. All intangible assets determined to have finite lives are amortized over their estimated useful lives. The useful life of an intangible asset is the period over which the asset is expected to contribute directly or indirectly to future cash flows. The Company periodically evaluates both finite and indefinite lived intangible assets for impairment upon occurrence of events or changes in circumstances that indicate the carrying amount of intangible assets may not be recoverable.

 

See Note 6 for additional information regarding intangible assets and goodwill.

 

Leases

 

On January 1, 2019, the Company adopted Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842). The updated guidance requires lessees to recognize lease assets and lease liabilities for most operating leases. In addition, the updated 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 represents the right to use the leased asset for the lease term and operating lease liabilities are 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 uses 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 is amortized on a straight-line basis over the lease term and is included in general and administrative expenses in the consolidated statements of operations.

 

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 six months ended June 30, 2023 and 2022, the Company believes that it operates in one operating segment related to its full suite of logistics and transportation services, specializing in last mile deliveries, two-person home and commercial deliveries, mid-mile, and long-haul services.

 

10
 

 

TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2023
(Unaudited)

 

Revenue recognition and cost of revenue

 

The Company adopted Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers. This ASC is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASC also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer service orders, including significant judgments.

 

The Company recognizes revenues and the related direct costs of such revenue which generally include compensation and related benefits, gas costs, insurance, parking and tolls, truck rental fees, and maintenance fees, as of the date the freight is delivered which is when the performance obligation is satisfied. In accordance with ASC Topic 606, the Company recognizes revenue on a gross basis. Our payment terms are generally net 30 days from acceptance of delivery. The Company does not incur incremental costs obtaining service orders from its customers, however, if the Company did, because all the Company’s customer contracts are less than a year in duration, any contract costs incurred would be expensed rather than capitalized. The revenue that the Company recognizes arises from deliveries of freight on behalf of the Company’s customers. Primarily, the Company’s performance obligations under these service orders correspond to each delivery of freight that the Company makes under the service agreements. Control of the freight transfers to the recipient upon delivery. Once this occurs, the Company has satisfied its performance obligation and the Company recognizes revenue.

 

The Company covers a 100-mile radius around each of its terminals and each individual shipment accepted by the Company is considered a separate contract with the performance obligation being the delivery of the freight. Our average length of haul for each load of freight generally equals less than one week of continuous transit time.

 

The Company’s revenues are primarily derived from the transportation services we provide through the delivery of goods over the duration of a shipment. The bill of lading is a legally enforceable agreement between two parties, and where collectability is probable this document serves as the contract as our basis to recognized revenue under ASC 606- Revenue Recognition. The Company has elected to expense initial direct costs as incurred because the average shipment cycle is less than five days. The Company recognizes revenue and substantially all the purchased transportation expenses on a gross basis. Direct costs of such revenue generally include compensation and related benefits, gas costs, insurance, parking and tolls, truck rental fees, and maintenance fees. The Company directs the use of the transportation service provided and remains responsible for the complete and proper shipment. The Company recognizes 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.

 

Inherent within the Company’s revenue recognition practices are estimates for revenue associated with shipments in transit. For shipments in transit, the Company records revenue based on the percentage of service completed as of the period end and recognizes delivery costs as incurred. The percentage of service completed for each shipment is based on how far along in the shipment cycle each shipment is in relation to standard transit days. The estimated portion of revenue for all shipments in transit is accumulated at period end and recognized as operating revenue. The significance of in transit shipments to the consolidated financial statements is limited due to the short duration, generally less than five days, of the average shipment cycle. On June 30, 2023 and 2022, any reductions to operating revenue and accounts receivable to reflect in transit shipments were insignificant.

 

Revenue generated from warehousing services is generally recognized as the service is performed, based upon a monthly or weekly rate.

 

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.

 

Basic and diluted loss per share

 

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 common shares 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.

 

Potentially dilutive common shares were excluded from the computation of diluted shares outstanding for the six months ended June 30, 2023 and 2022 as they would have an anti-dilutive impact on the Company’s net losses in that period and consisted of the following:

 

SCHEDULE OF POTENTIALLY DILUTIVE SHARES EXCLUDED FROM COMPUTATION OF DILUTED SHARES OUTSTANDING

   June 30, 2023   June 30, 2022 
Stock warrants   1,076,373,251    1,258,008,109 
Stock options   80,000    80,000 
Series E convertible preferred stock   95,238,667    28,571,600 
Series G convertible preferred stock   2,730,000,000    617,500,000 
Series H convertible preferred stock   323,740,000    - 
Antidilutive securities excluded from computation of earnings per share   4,225,431,918    1,904,159,709 

 

11
 

 

TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2023
(Unaudited)

 

Recent accounting pronouncements

 

In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40)—Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The ASU simplifies accounting for convertible instruments by removing major separation models required under current GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for the exception. The ASU also simplifies the diluted net income per share calculation in certain areas. The new guidance is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years, and early adoption is permitted. The Company is currently evaluating the impact of the adoption of the standard on the consolidated financial statements.

 

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which significantly changes how entities will measure credit losses for most financial assets, including accounts receivable. ASU No. 2016-13 will replace today’s “incurred loss” approach with an “expected loss” model, under which companies will recognize allowances based on expected rather than incurred losses. On November 15, 2019, the FASB delayed the effective date of Topic 326 for certain small public companies and other private companies until fiscal years beginning after December 15, 2022 for SEC filers that are eligible to be smaller reporting companies under the SEC’s definition, as well as private companies and not-for-profit entities. The adoption of this new guidance did not have a material impact on the Company’s unaudited consolidated financial statements.

 

In March 2022, the FASB issued ASU No. 2022-02, Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. The guidance was issued as improvements to ASU No. 2016-13 described above. The vintage disclosure changes require an entity to disclose current-period gross write-offs by year of origination for financing receivables. The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. The amendments should be applied prospectively. Early adoption of the amendments is permitted, including adoption in an interim period. The adoption of this new guidance did not have a material impact on the Company’s unaudited 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.

 

Reclassification

 

Certain reclassifications have been made in the consolidated financial statements to conform to the current period presentation. Such reclassifications had no impact on the Company’ previously reported consolidated financial position or results of operations. Specifically, on the consolidated balance sheets, a note payable was reclassified from notes payable to the notes payable – related parties, and on the consolidated statements of operations, certain interest expense was reclassified from interest expense to interest expense – related parties.

 

NOTE 3 – ACQUISITIONS AND DISPOSITION

 

Acquisitions

 

2023

 

Effective February 3, 2023, the Company’s newly formed wholly-owned subsidiary, TLSS-STI, closed on an acquisition of all outstanding stock of Severance Trucking, which together, offer 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 “Sellers”). None of the Sellers are affiliated with the Company or its affiliates.

 

Prior to the acquisition, Severance Trucking was a privately-owned full-service transportation carrier and logistics business that had been in operation for over 100 years specializing in LTL trucking that provided next day service to major cities in New England and New York, with cartage and interline agreements with respected carriers that ensure reliable deliveries anywhere in the United States and Canada. With annual revenues of over $13.0 million in 2022, Severance Trucking currently operates with over 120 power units and trailers and has two locations, comprised of approximately 18,000 square feet of warehouse and cross dock space, 9,000 square feet of office and 5,750 square feet of repair facilities located in Dracut, Massachusetts and approximately 16,000 square feet of warehouse space in North Haven, Connecticut.

 

The total purchase price was $2,250,000 plus closing expenses of $10,747. TLSS-STI: (i) paid $687,808 in cash, and (ii) entered into a $1,572,939 secured promissory note with the Seller, with interest accruing at the rate of 12% per annum. The entire unpaid principal under the note, shall be due and payable in three equal payments on August 1, 2023, February 1, 2024, and August 1, 2024, respectively, together with all accrued and unpaid interest thereunder, unless paid sooner. As of the date of this report, the first payment due on August 1, 2023 has not been paid. The Severance Trucking Sellers have not declared a default and the Company is in discussion with the noteholder to renegotiate the terms of the promissory note. The promissory note is secured solely by the assets of Severance Trucking and a corporate guaranty from TLSS. The purchase price is subject to a post-closing adjustment, up or down, determined by the amount by which Severance Trucking working capital as of the close of business on January 31, 2023, exceeds or falls short of the target working capital, as of September 30, 2022, on which the purchase price was calculated, which has not been calculated as of the date of this report.

 

One of the Sellers also entered into a consulting agreement, including non-competition and non-solicitation provisions, to continue with Severance Trucking after the acquisition for a period of no less than three (3) months and no more than one (1) year.

 

12
 

 

TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2023
(Unaudited)

 

The assets acquired and liabilities assumed were recorded at their estimated fair values on the 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 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 Trucking 
Assets acquired:     
Cash  $207,471 
Accounts receivable   836,886 
Prepaid expenses and other assets   25,454 
Property and equipment, net   1,186,198 
Financing lease right of use assets   457,239 
Intangible assets   404,374 
Total assets acquired at fair value   3,117,622 
Liabilities assumed:     
Notes payable   23,000 
Accounts payable and accrued expenses   376,636 
Lease liabilities   457,239 
Total liabilities assumed   856,875 
Net assets acquired  $2,260,747 
Purchase consideration paid:     
Cash paid  $687,808 
Promissory note   1,572,939 
Total purchase consideration paid  $2,260,747 

 

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, is an unrelated party (the “JFK Cartage Seller”). The effective date of the acquisition was July 31, 2022. JFK Cartage operates from a 30,000 square foot warehouse with ten drive-in doors and is strategically located approximately six miles from JFK International Airport. JFK Cartage has been in business since 2008 and has been providing warehousing, cross-dock services, pickup and deliveries, and general trucking, handling airfreight, trade show freight, expedited and hotshot demand work, LTL/cartage as well as FTL, reverse logistics, white glove and residential delivery services to a broad base of over 95 commercial accounts and residential customers. JFK Cartage operates a wide-ranging fleet of specialty vehicles, from its Sprinter vans to full 53-ft. tractor trailers. JFK Cartage, with its assets, fleet and warehouse is believed to be one of the largest leading cartage agents serving the New York Tri-State area. Pursuant to the Stock Purchase and Sale Agreement with Cougar Express and JFK Cartage dated May 24, 2022, the purchase price was $1,700,000, subject to certain adjustments. The Company: (i) paid $405,712 in cash at closing; and (ii) JFK Cartage entered into a $696,935 promissory note with the JFK Cartage Seller, $98,448 of which is payable weekly, in the amount of 25% of accounts receivable collected, but in any event, no later than October 4, 2022, with the remaining balance of $598,487, payable in three annual installments of $199,496, with interest at 5.0% percent per annum on July 31, 2023, July 31, 2024 and July 31, 2025, respectively. As of the date of this report, the first payment due on July 31, 2023 has not been paid. The JFK Cartage Seller has not declared a default and the Company is in discussion with the noteholder to renegotiate the terms of the promissory note. Additionally, Cougar Express agreed to pay the $503,065 Small Business Administration (“SBA”) loan that existed on the books of JFK Cartage, which was paid in August 2022; and (iv) agreed to pay certain accrued liabilities and other notes payable that exists on the books of JFK Cartage. For accounting purposes, the total purchase consideration paid, after closing adjustments, was deemed to be $1,102,647, which includes cash of $405,712 plus the $696,935 promissory note that is in the name of JFK Cartage. The purchase consideration amount did not include the SBA loan of $503,065, and accrued liabilities and other notes payable which were treated as assumed liabilities in the purchase price allocation.

 

Effective September 16, 2022, the Company’s newly formed wholly-owned subsidiary, TLSS-FC, closed on an acquisition of all outstanding stock of Freight Connections, a company offering an array of transportation, warehousing, consolidating, distribution, and local cartage services throughout the New York tri-state area. Joseph Corbisiero, the sole shareholder of Freight Connections, from whom the shares were acquired (the “Freight Connections Seller”). Freight Connections was founded in 2016 and is a transportation and logistics carrier headquartered in Ridgefield Park, New Jersey. Freight Connections currently operates with 30 power units and 50 trailers, including dry vans, pups, flatbeds, step decks, and double drop trailers out of three buildings in the area with 200,000 square feet of warehouse and cross dock space, strategically located within one mile of each other. Freight Connections offers customers an array of services including truckload, LTL, and consolidating of cartage, construction-trade, air, and rail freight, as well as warehousing and distribution services. Prior to the closing, the Company, TLSSA and Freight Connections Seller entered into an amendment to their Stock Purchase and Sale Agreement, dated as of May 23, 2022 (the “Amended SPA”), and TLSSA assigned its interest in the Amended SPA to TLSS-FC. Pursuant to the Amended SPA, the total purchase price was $9,365,000, subject to certain adjustment. TLSS-FC: (i) paid $1,525,000 in cash at closing, (ii) Freight Connections entered into a $4,544,671 secured promissory note with the Freight Connections Seller, with interest accruing at the rate of 5% per annum and then 10% per annum as of March 1, 2023 (The entire unpaid principal under the note, together with all accrued and unpaid interest thereon and all other amounts payable thereunder, shall be due and payable in one balloon payment on December 31, 2023, unless paid sooner. The promissory note is secured solely by the assets of Freight Connections), and (iii) assumed certain debt. The Company issued to the Freight Connections Seller 178,911,844 shares of the Company’s common stock and 32,374 shares of the Company’s Series H preferred stock which is convertible into an aggregate of 323,740,000 shares of the Company’s common stock based on a conversion of 10,000 shares of common stock for each share of Series H preferred stock outstanding. The common stock and the as if converted number of Series H preferred stock were valued at $0.0059 per share based on the quoted closing price of the Company’s common stock on the measurement date, for an aggregate fair value of $2,965,646. The number of shares was calculated as follows: (a) shares of common stock of the Company equal to no more than 4.99% of the number of shares of common stock outstanding immediately after such issuance, and (b) the balance of the shares in Series H Convertible Preferred Stock, a new series of non-voting, convertible preferred stock issuable to sellers in connection with acquisitions or strategic transactions approved by a majority of the directors of the Company. TLSS-FC agreed to pay certain accrued liabilities and other notes payable that existed on the books of Freight Connections and agreed to pay the $4,544,671 secured promissory note which was assumed by Freight Connections. For accounting purposes, the total purchase consideration paid, after closing adjustments, was deemed to be $9,035,317 which includes (i) cash paid of $1,525,000, (ii) the aggregate fair value of common shares and Series H preferred shares issued to Freight Connections Seller of $2,965,646, and (iii) the $4,544,671 secured promissory note in the name of Freight Connections. The purchase consideration amount does not include accrued liabilities and other notes payable which were treated as assumed liabilities in the purchase price allocation.

 

13
 

 

TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2023
(Unaudited)

 

Pursuant to the Amended SPA, the purchase price shall be adjusted up or down by comparing Freight Connection’s target working capital as of March 31, 2022, as defined in the Stock Purchase and Sale Agreement, dated as of May 23, 2022, and the closing working capital, as well as the actual trailing twelve-month EBITDA from the Closing Date. The Company and the Freight Connections Seller are in the process of finalizing the post-closing adjustments and the Company expects that there will be a reduction in the purchase price based on this calculation.

 

The Freight Connections Seller also entered into an employment agreement, including non-competition provisions, to continue with Freight Connections after the acquisition.

 

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:

 

SCHEDULE OF FAIR VALUE OF ASSETS ACQUIRED AND LIABILITIES ASSUMED

   JFK Cartage   Freight Connections   Total 
Assets acquired:               
Cash  $29,280   $167,247   $196,527 
Accounts receivable, net   280,815    1,909,892    2,190,707 
Other assets   206,591    428,666    635,257 
Property and equipment   44,839    1,296,974    1,341,813 
Right of use assets   1,172,972    7,911,622    9,084,594 
Other intangible assets   752,025    4,892,931    5,644,956 
Goodwill   502,642    1,603,237    2,105,879 
Total assets acquired at fair value   2,989,164    18,210,569    21,199,733 
Liabilities assumed:               
Notes payable   (515,096)   (598,886)   (1,113,982)
Accounts payable   (10,559)   (422,902)   (433,461)
Accrued expenses   (187,890)   (241,842)   (429,732)
Lease liabilities   (1,172,972)   (7,911,622)   (9,084,594)
Total liabilities assumed   (1,886,517)   (9,175,252)   (11,061,769)
Net asset acquired  $1,102,647   $9,035,317   $10,137,964 
Purchase consideration paid:               
Cash paid  $405,712   $1,525,000   $1,930,712 
Notes payable   696,935    4,544,671    5,241,606 
Common shares and Series H preferred shares issued   -    2,965,646    2,965,646 
Total purchase consideration paid  $1,102,647   $9,035,317   $10,137,964 

 

The following unaudited pro forma consolidated results of operations have been prepared as if the acquisition of JFK Cartage, Freight Connections and Severance Trucking had occurred as of the beginning of the following periods:

 

SCHEDULE OF UNAUDITED PRO FORMA CONSOLIDATION

   For the Six Months Ended
June 30, 2023
   For the Six Months Ended
June 30, 2022
 
Net Revenues  $11,418,827   $15,566,202 
Net Loss  $(4,450,014)  $(2,404,863)
Net Loss Attributable to Common Shareholders  $(4,860,400)  $(2,620,748)
Net Loss per Share  $(0.00)  $(0.00)

 

14
 

 

TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2023
(Unaudited)

 

Pro forma data does not purport to be indicative of the results that would have been obtained had these events actually occurred at the beginning of the periods presented and is not intended to be a projection of future results.

 

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 $825,000. The Company received net proceeds of $748,500 which is net of a broker commission of $75,000 and other expenses of $4,214. $25,000 was being held in escrow, pending bulk sale tax clearance from the State of New Jersey and to cover the estimated cost of a vehicle repair. The Company received the escrowed funds during the fourth quarter of 2022. In connection with the sale of these assets, for the six months ended June 30, 2022, the Company recorded a gain on the sale of $296,689. A loss on the sale of $720 was recorded during the six months ended June 30, 2023.

 

NOTE 4 – ACCOUNTS RECEIVABLE AND NOTE RECEIVABLE

 

Accounts receivable

 

On June 30, 2023 and December 31, 2022, accounts receivable, net consisted of the following:

 

   June 30, 2023   December 31, 2022 
Accounts receivable  $2,744,475   $2,523,778 
Allowance for doubtful accounts   (623,505)   (464,452)
Accounts receivable, net  $2,120,970   $2,059,326 

 

During the six months ended June 30, 2023 and 2022, the Company recorded bad debt expense (recovery) of $(22,776) and $0, respectively, which is included in general and administrative expenses on the accompanying unaudited consolidated statements of operations.

 

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 $283,333. In connection with the note receivable, the Company disbursed $255,000 to Recommerce, which is net of an original issue discount of $28,333. The promissory note bears interest at the rate of 6% per annum and matured on December 31, 2022 (the “Maturity Date”). On December 31, 2022, the note receivable amounted to $283,333 and accrued interest receivable amounted to $2,833, which is included in prepaid expenses and other current assets on the accompanying unaudited consolidated balance sheet. During the year ended December 31, 2022, in connection with this note receivable, the Company recorded interest income of $31,166. In January 2023, Recommerce repaid this note receivable plus all interest due.

 

NOTE 5 - PROPERTY AND EQUIPMENT

 

On June 30, 2023 and December 31, 2022, property and equipment consisted of the following:

 

   Useful Life  June 30, 2023   December 31, 2022 
Revenue equipment  3 - 20 years  $2,635,170   $1,316,518 
Machinery and equipment  1 - 10 years   568,136    440,863 
Office equipment and furniture  1 - 3 years   116,460    106,172 
Leasehold improvements  1 - 3 years   63,710    22,329 
Subtotal      3,383,476    1,885,882 
Less: accumulated depreciation      (521,180)   (278,670)
Property and equipment, net     $2,862,296   $1,607,212 

 

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 $257,306 (See Note 3).

 

For the six months ended June 30, 2023 and 2022, depreciation expense amounted to $242,510 and $90,475, respectively, and is included in general and administrative expenses.

 

NOTE 6 – INTANGIBLE ASSETS AND GOODWILL

 

As a result of the acquisition of Severance Trucking, during the six months ended June 30, 2023, there was a $404,374 increase in the gross intangible assets made up of $404,374 of finite lived intangible assets (See Note 3). The increase in gross finite lived intangible assets is associated with customer relationships that have finite lives.

 

As a result of the acquisitions of JFK Cartage and Freight Connections, during the year ended December 31, 2022, there was a $7,750,835 increase in the gross intangible assets made up of $1,753,237 of finite lived intangible assets and $5,997,598 of goodwill (See Note 3). The increase in gross finite lived intangible assets is associated with customer relationships and covenants not to compete and have finite lives.

 

15
 

 

TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2023
(Unaudited)

 

On June 30, 2023, intangible assets subject to amortization consisted of the following:

 

   Amortization
period (years)
   Gross Amount