ITEM 1. DESCRIPTION OF BUSINESS.
Overview
Transportation and Logistics Systems, Inc. (“TLSS”), formerly PetroTerra Corp., was incorporated under the laws of the State of Nevada, on July 25, 2008.
On March 30, 2017 (the “Closing Date”), TLSS and Save On Transport Inc., (“Save On”) entered into a Share Exchange Agreement, dated as of the same date (the “Share Exchange Agreement”). Pursuant to the terms of the Share Exchange Agreement, on the Closing Date, Save On became a wholly-owned subsidiary of TLSS (the “Reverse Merger”). Save On was incorporated in the state of Florida and started business on July 12, 2016 (“Inception Date”). Save On is a provider of integrated transportation management solutions consisting of brokerage and logistic services such as transportation scheduling, routing and other value added services related to the transportation of automobiles and other freight. As an early stage company, TLSS’s current operations are subject to all risks inherent in the establishment of a new business enterprise
The Share Exchange was treated as a reverse merger and recapitalization of Save On for financial reporting purposes since the Save On shareholders retained an approximate 80% controlling interest in the post-merger consolidated entity. Save On was considered the acquirer for accounting purposes, and the Company’s historical financial statements before the Merger was replaced with the historical financial statements of Save On before the Merger. The balance sheets at their historical cost basis of both entities were combined at the merger date and the results of operations from the merger date forward include the historical results of Save On and results of TLSS from the merger date forward. The Merger was intended to be treated as a tax-free reorganization under Section 368(a) of the Internal Revenue Code of 1986, as amended.
On June 18, 2018 (the “Acquisition Date”), 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”), from its members pursuant to the terms and conditions of a Stock Purchase Agreement entered into among the Company and the Prime members on the Closing Date (the “SPA”). Prime is a New Jersey based transportation company with a focus on deliveries for on-line retailers in New York, New Jersey and Pennsylvania.
On July 24, 2018, the Company formed Shypdirect LLC (“Shypdirect”), a company organized under the laws of New Jersey. Shypdirect is a transportation company with a focus on tractor trailer and box truck deliveries of product on the east coast of the United States from one distributor’s warehouse to another warehouse or from a distributor’s warehouse to the post office.
TLSS and its wholly-owned subsidiaries, Save On, Prime and Shypdirect are hereafter referred to as the “Company”. Our principal executive offices are located in the United States at 2833 Exchange Court, West Palm Beach, Florida 33409, and our telephone number is [(561) 801-9188.
Company Overview
We generate our revenues through three subsidiaries, Prime, Shypdirect, and Save On.
During the year ended December 31, 2017, and for the period from January 1, 2018 to June 18, 2018, we operated in one reportable business segment consisting of brokerage and logistic services such as transportation scheduling, routing and other value added services related to the transportation of automobiles and other freight. Since June 18, 2018, we operated in three reportable business segments - (1) the transportation of automobiles and other freight (the “Save On” segment), (2) a segment which concentrates on deliveries for on-line retailers in New York, New Jersey and Pennsylvania (the “Prime” segment), and (3) a segment with a focus on tractor trailer and box truck deliveries of product on the east coast of the United States from one distributor’s warehouse to another warehouse or from a distributor’s warehouse to the post office (the “Shypdirect segment).
Prime and Shypdirect provide multiple services involving movement of goods through e-commerce. We focus primarily on the transportation of packages that are ultimately to be delivered to the business or retail consumer, with our transportation services going from the manufacturer or fulfillment center to the delivery station and from the delivery station to the end user (known as the “last mile” deliveries).
Save On is a Florida based non-asset provider of integrated transportation management solutions. Through Save On, we provide brokerage and logistics services such as transportation scheduling, routing and other value added services related to the transportation of automobiles and other freight, which involve the use of independent contractor-owned trucks and equipment.
E-Commerce Fulfillment Solutions
The rapid growth of e-commerce and the online retailing segment of e-commerce is well documented. Our technology platform positions us to provide transportation services and grow at or faster than the rapidly growing and evolving e-commerce marketplace.
Online retail brands have logistics needs that differ from those of traditional businesses. Unlike traditional inventory management, e-commerce companies need to ship items directly to customers, who expect their orders to arrive on time and as described. We have built our delivery services to perform effectively in the “on demand” shipping environment that is part of the e-commerce fulfillment solutions system.
Our e-commerce fulfillment solutions are primarily the transportation of goods between destination points along the way from the manufacturer to the customer. We provide delivery services to the end user ( “Last Mile” delivery), principally retail consumers, including deliveries which require two persons to complete the delivery of heavy or bulky items, as well as “mid-mile” delivery services between distribution centers and fulfillment centers and line-haul delivery services from the manufacturer to the distribution center. Our revenues are generated from the fixed price charged for each specific route between a delivery station to a fulfillment center or from the fulfillment center to the final destination with a fixed price per route. We currently provide the majority of our services for a leading e-commerce retailer.
In most instances we are paid a fixed fee for transporting products from one designated site to a specified delivery point without regard to the number of packages being transported. With the ongoing growth of e-commerce the specific routes between designated sites is regularly changing (primarily increasing) as the volume of the online retailing segment of e-commerce activity expands. An integral part of our strategy is to regularly be in contact with our customers to assure that we are anticipating and planning for the expansion of current routes and the addition of new routes to our service base.
The transportation network for the e-commerce marketplace is also referred to as supply chain management. Our services within the supply chain management include transportation and logistics. The e-commerce marketplace has changed the shipping and logistics performance requirements, metrics and expectations. While we are an integral part of one of the world’s largest e-commerce retailers, we anticipate that our fulfillment services will expand to include outside third parties that are utilizing our customer’s infrastructure.
We have built a network operations center (“NOC”) in Jersey City, New Jersey that allows us to track the location of each of our vehicles and address any on road disruptions. Our NOC is designed to grow with our business as we add more vehicles for additional routes and expand geographically. Presently, we utilize our NOC solely for our own business. We anticipate that as our revenues grow and the reach and scope of our transportation activities expand (both geographically and within the tristate area in which we currently operate) that we will generate revenues from services provided via our NOC to other parties.
Our infrastructure is built to support the e-commerce unique fulfillment requirements of distributing products to millions of homes instead of hundreds of stores, managing millions of stock keeping units (SKUs) instead of thousands, shipping to homes in parcels instead of truckloads to stores and transporting between fulfillment centers in addition to distribution centers. Our infrastructure is aligned with the requirements of the online retailer: Online retailers differ from traditional brick and mortar where customers visit the premises and the retailer maintains goods on the premises. Online retailers have goods located in multiple locations (3rd party warehouse, etc.) and ships items directly to the customer; customers expect their order to arrive on time and be the correct quantity and product ordered.
With our focus on on-time performance, customer satisfaction and challenging growth management opportunities for our employees, we believe we are one of the fastest growing e-commerce fulfillment services providers in the country. As an early stage company, we have experienced and anticipate that we will continue to experience the challenges that come from rapid growth in revenues such as identifying and hiring employees that are aligned with our expectations, securing assets and expanding our administrative support services for our rapidly growing operations. We believe that our ability to manage our company through this high growth is a key part of our success, as evidenced by the high performance ratings we have regularly achieved in our customers’ scoring systems. We expect to expand our revenue base as the traditional brick and mortar retailers develop omni-channel strategies of generating revenues through a combination of physical and online sales.
Automobile Transportation
At Save On, we do not own the trucks or other equipment used to transport freight. Instead we utilize our relationships with subcontracted transportation providers - typically independent contract motor carriers. However, we utilize carrier services of an affiliate entity for transportation services within Florida. We make a profit on the difference between what we charge our customers for the services we provide and what we pay to the transportation providers to transport our customers’ freight. Our success depends in large part on our ability to hire and train talented salespeople and deploy them under exceptional leaders, develop sophisticated information technology, and build relationships with the carriers in our network so that we can purchase the optimal transportation solutions for our customers. Currently, all of our revenues are derived from domestic shipments.
Our Strategy and Competitive Strengths
Our strategy is to provide on-time, high quality pick-up, transportation and delivery services. An important part of our strategy is the use of technology to plan, execute and monitor the performance of our services and transportation assets.
We have built and positioned our Company to grow at or faster than the rate e-commerce fulfillment solutions are growing. This will allow us to diversify our revenue base in conjunction with growing our revenue base. We plan on continuing our organic growth and growing through the acquisition of carriers that will provide us with geographic expansion.
While Prime has been in business for less than three years (Prime was founded in July 2016), we believe our youth as a business is a competitive advantage because we have been and continue to be focused on transportation services as part of the e-commerce fulfillment solutions. These solutions are in high demand and expected to continue to grow at a rapid pace. We believe we understand the various segments of the end-to-end solutions required to rapidly and accurately deliver goods between the various pick-up and delivery points in the e-commerce delivery chain. While we will focus on diversifying our revenue sources, we will continue to be principally focused on growing our transportation services that are part of the e-commerce fulfillment solutions required for the e-commerce marketplace.
Many of our management employees have e-commerce experience with e-commerce retailers and understand the dynamics of e-commerce growth, demands and logistics since all or the vast majority of their career has been in e-commerce businesses. In addition to the youthful, while experienced e-commerce management, we also have the competitive advantage of not having the legacy structure of the older, larger companies that existed before the e-commerce marketplace became popular.
Many of our transportation assets were initially utilized for a single route per day. As we expand, we have been able to increase utilization through use of assets on multiple routes or the addition of a second shift per day.
Our scheduled route system allows us to adjust to the regular changes in which packages are received, sorted, stored, picked, packed, shipped and housed in fulfillment centers and distribution centers. We are structured to meet the demands of “last-mile” deliveries and home grocery shopping deliveries. In addition to delivering goods in full truckloads from distribution centers to fulfillment centers, based on customer requests, we perform unscheduled pickups and deliveries of bulk products. When delivering packages to a home, we adhere to certain time slots and sometimes make “live deliveries” to ensure the customer is aware that their package has been delivered. This entails a constantly refreshed and technologically modern transportation management system (TMS).
In our automobile transportation services our growth strategy focuses on developing a full suite of automobile transportation brokerage and logistics solutions for our customers. Our service offerings consist of non-asset based transportation supply chain management, logistics and brokerage solutions. We facilitate cost-effective vehicle shipping for customers for a variety of reasons including:
● Household moves;
● Seasonal moves;
● Military moves;
● College moves;
● Company relocation;
● Internet automobile purchases;
● Classic car and collector shows; and
● Transportation for car dealerships.
Save On differentiates itself from the competition and grows its business by sustaining a high level of customer service, offering expedited and time-definite services, while providing competitive pricing.
Technology
An integral part of our operating philosophy is the utilization of technology to support our transportation services and provide our employees with real time information on the status of our operations. We believe our focus on technology as a support to our operations allows our employees to focus on performing at high levels for the benefit of our customers.
Each of our vehicles contain mobile communications devices. By being “always-connected”, we are able to monitor the real time location, performance and effectiveness of our drivers as well as the operating condition of the vehicle. The advancements in what is referred to as the telematic space allow us to develop more detailed and actionable solutions in the performance of our pick-up, transport and deliver operations - all an integral part of our e-commerce fulfillment solutions.
We regularly collect data, generate automatic reporting and measure that information against key performance indicators such as routes taken, travel time, destination arrival and departure time. Just as the e-commerce retailer instantaneously and continuously tracks what has been sold, our vehicles are tracked in parallel with the packages being tracked by our customer. Our NOC is designed to be scalable and will be expanded in reach and performance capability as our revenues grow and our assets increase in number.
Customers and Markets
Our e-commerce retailer delivery services are principally for a leading e-commerce online retailer. We have a concentration risk which we shall address by expanding our organic growth through the addition of new customers and through the acquisition of businesses that provide transportation services for new customer bases. Our automobile transportation services are provided to businesses and individuals.
Our package delivery services are currently provided primarily in New York, New Jersey and Pennsylvania while our automobile transportation services are provided from and to destinations through the contiguous forty-eight states.
We anticipate our customer base will expand and diversify as the business-to-business segment of e-commerce expands, and the traditional retailers implement e-commerce strategies that expand their sales channels. We anticipate our fulfillment solutions will become available to other retailers that utilize our principal customers’ expanding transportation and delivery services in which our system is an integral part.
Competition
Transportation services is highly competitive and composed of fragmented marketplaces, with multiple companies competing in the geographic region in which we provide services. We compete on service, reliability, scope and scale of operations, technological capabilities and price. Our competitors include local, regional and national companies that offer the same services we provide - some with larger customer bases, significantly more resources and more experience than we have. Additionally, some of our customers have internal resources that can perform services we offer. Due in part to the fragmented nature of the industry, we must strive daily to retain existing business relationships and forge new relationships.
The health of the transportation industry will continue to be a function of domestic economic growth, particularly in the e-commerce marketplace. We believe that we have positioned the Company to grow with and benefit from the e-commerce expansion. Together with our scale, technology and company-specific initiatives, we believe that our positioning should keep us growing faster than the macro environment.
Seasonality
Our business is affected by seasonality, which historically has resulted in higher sales volume during our calendar year fourth quarter, which ends December 31st. Our gross revenue was 58% higher during the fourth quarter of 2018 compared to the third quarter of 2018. Fourth quarter 2018 results include revenue attributable to Shypdirect, which we founded on July 24, 2018.
Regulation
Our operations are regulated and licensed by various governmental agencies. These regulations impact us directly and indirectly by regulating third-party transportation providers we use to transport freight for our customers.
Regulation Affecting Motor Carriers, Owner-Operators and Transportation Brokers. In the United States, our subsidiaries that operate as motor carriers have motor carrier licenses issued by the Federal Motor Carrier Safety Administration (“FMCSA”) of the U.S. Department of Transportation (“DOT”). In addition, our subsidiaries acting as property brokers have property broker licenses issued by the FMCSA. Our motor carrier subsidiaries and the third-party motor carriers must comply with the safety and fitness regulations of the DOT, including those related to drug-testing, alcohol-testing, hours-of-service, records retention, vehicle inspection, driver qualification and minimum insurance requirements. Weight and equipment dimensions also are subject to government regulations. We also may become subject to new or more restrictive regulations relating to emissions, drivers’ hours-of-service, independent contractor eligibility requirements, onboard reporting of operations, air cargo security and other matters affecting safety or operating methods. Other agencies, such as the U.S. Environmental Protection Agency (“EPA”), the Food and Drug Administration (“FDA”), and the U.S. Department of Homeland Security (“DHS”), also regulate our equipment, operations and independent contractor drivers. Like our third-party support carriers, we are subject to a variety of vehicle registration and licensing requirements in certain states and local jurisdictions where we operate. In foreign jurisdictions where we operate, our operations are regulated by the appropriate governmental authorities.
In 2010, the FMCSA introduced the Compliance Safety Accountability program (“CSA”), which uses a Safety Management System (“SMS”) to rank motor carriers on seven categories of safety-related data, known as Behavioral Analysis and Safety Improvement Categories, or “BASICs.”
Although the CSA scores are not currently publicly available, this development is likely to be temporary. As a result, our fleet could be ranked worse or better than our competitors, and the safety ratings of our motor carrier operations could be impacted. Our network of third-party transportation providers may experience a similar result. A reduction in safety and fitness ratings may result in difficulty attracting and retaining qualified independent contractors and could cause our customers to direct their business away from the Company and to carriers with more favorable CSA scores, which would adversely affect our results of operations.
In addition, nearly all carriers and drivers that are required to maintain records of duty status have been required to install and use electronic logging devices (“ELDs”). ELD installation and use may increase costs for independent contractors and other third-party support carriers who provide services to XPO and may impact driver recruitment.
Classification of Independent Contractors. Tax and other federal and state regulatory authorities, as well as private litigants, continue to assert that independent contractor drivers in the trucking industry are employees rather than independent contractors. Federal legislators have introduced legislation in the past to make it easier for tax and other authorities to reclassify independent contractors as employees, including legislation to increase the recordkeeping requirements and heighten the penalties for companies who misclassify workers and are found to have violated overtime and/or wage requirements. Additionally, federal legislators have sought to abolish the current safe harbor allowing taxpayers that meet certain criteria to treat individuals as independent contractors if they are following a longstanding, recognized practice. Federal legislators also sought to expand the Fair Labor Standards Act to cover “non-employees” who perform labor or services for businesses, even if said non-employees are properly classified as independent contractors; require taxpayers to provide written notice to workers based upon their classification as either an employee or a non-employee; and impose penalties and fines for violations of the notice requirement and/or for misclassifications. Some states have launched initiatives to increase revenues from items such as unemployment, workers’ compensation and income taxes, and the reclassification of independent contractors as employees could help states with those initiatives. Taxing and other regulatory authorities and courts apply a variety of standards in their determinations of independent contractor status. If our independent contractor drivers are determined to be employees, we would incur additional exposure under some or all of the following: federal and state tax, workers’ compensation, unemployment benefits, and labor, employment and tort laws, including for prior periods, as well as potential liability for employee benefits and tax withholdings.
Environmental Regulations. Our facilities and operations and our independent contractors are subject to various environmental laws and regulations dealing with the hauling, handling and disposal of hazardous materials, emissions from vehicles, engine-idling, fuel tanks and related fuel spillage and seepage, discharge and retention of storm water, and other environmental matters that involve inherent environmental risks. Similar laws and regulations may apply in many of the foreign jurisdictions in which we operate. We have instituted programs to monitor and control environmental risks and maintain compliance with applicable environmental laws and regulations. We may be responsible for the cleanup of any spill or other incident involving hazardous materials caused by our operations or business. In the past, we have been responsible for the costs of cleanup of diesel fuel spills caused by traffic accidents or other events, and none of these incidents materially affected our business or operations. We generally transport only hazardous materials rated as low-to-medium-risk, and a small percentage of our total shipments contains hazardous materials. We believe that our operations are in substantial compliance with current laws and regulations and we do not know of any existing environmental condition that reasonably would be expected to have a material adverse effect on our business or operating results. Future changes in environmental regulations or liabilities from newly discovered environmental conditions or violations (and any associated fines and penalties) could have a material adverse effect on our business, competitive position, results of operations, financial condition or cash flows. U.S. federal and state governments, as well as governments in certain foreign jurisdictions where we operate, have also proposed environmental legislation that could, among other things, potentially limit carbon, exhaust and greenhouse gas emissions. If enacted, such legislation could result in higher costs for new tractors and trailers, reduced productivity and efficiency, and increased operating expenses, all of which could adversely affect our results of operations.
Employees
As of the date of this filing, we have one full time employee, our chief executive officer, whose salary is paid by Save On. Save On has six (6) additional full-time employees, Prime EFS has 500 employees, most of which are full-time and Shypdirect has 35 employees, most of which are full time.
Marketing and Significant Customers
A vast majority of our Prime EFS and Shypdirect revenue comes from one large ecommerce retailer. Save On customers are primarily different and distinct individuals and dealerships introduced through referral sources. Our business serves the North American market, with a total concentration in the United States.
To best serve our Save On customers, we will need to hire and maintain a significant staff of sales representatives and related support personnel. Our sales strategy is twofold: we seek to establish long-term relationships with new accounts and to increase the amount of business generated from our existing customer base. We believe that these attributes are competitive advantages in the transportation and logistics industry.
Information Systems
We utilize two main cloud based information systems for our Save On Business: jTracker for taking customer orders and Central Dispatch for posting orders for carrier communications. Prime and Shypdirect use a suite of non-proprietary software programs and other technologies to manage dispatching of vehicles, employees, Department of Transportation compliance, vehicle maintenance, and scheduling.
Competition
The transportation and logistics industry is highly competitive, with thousands of companies competing in the domestic and international markets. Our competitors include local, regional, national and international companies with the same services that our business provides. Due in part to the fragmented nature of the industry, our business units must strive daily to retain existing business relationships and forge new relationships.
We compete on service, reliability and price. Some competitors have larger customer bases, significantly more resources and more experience than we do. The health of the transportation and logistics industry will continue to be a function of domestic and global economic growth.
Properties
Our principal executive offices are located in the United States at 2833 Exchange Court, Suite A, West Palm Beach, Florida 33409, comprised of 400 square feet of office space. The company executed a sublease agreement with an affiliate for office space for a one-year term. The sublease commenced on August 1, 2016 at a rate of $300 a month. The sublease was extended on August 1, 2017 and terminated on December 14, 2017, at which point the Company signed a new one-year term lease with the third-party landlord directly for the entire space previously occupied by the affiliate. The monthly rent under the renewed lease is $1,600 plus maintenance charges and taxes. The Company also has office space in Northern New Jersey that it rents on a month to month basis.
On November 30, 2018, we entered into a commercial lease agreement for the lease of sixty parking spaces under an operating lease through November 2023 for a monthly rental fee of $6,000. Either party can cancel this lease on the annual anniversary date of the lease provided that the party who wishes to terminate provides the other party with at least 30-day prior written notice of such termination.
In December 2018, we entered into a lease agreement for the lease of office and warehouse space and parking spaces under a non-cancelable operating lease through December 2023. From the lease commencement date until the last day of the second lease year, monthly rent shall be $14,000. At the beginning of the 30th month following the commencement date and through the end of the term, minimum rent shall be $14,420 per month. The Company shall have one option to renew the term of this lease for an additional five years.
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. We are not currently a party to any legal proceeding that we believe would have a material adverse effect on our business, financial condition, or operating results.
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.
ITEM 1A.
ITEM 1A. RISK FACTORS
RISKS ASSOCIATED WITH OUR BUSINESS AND INDUSTRY
We lack an established operating history on which to evaluate our business and determine if we will be able to execute our business plan, and can give no assurance that operations will result in profits.
We have only been engaged in our current and proposed business operations since July 2016. As a result, we have a limited operating history upon which you may evaluate our proposed business and prospects. Our proposed business operations are subject to numerous risks, uncertainties, expenses and difficulties associated with early stage enterprises. You should consider an investment in our company in light of these risks, uncertainties, expenses and difficulties. Such risks include:
● the absence of an operating history at our current scale;
● our ability to raise capital to develop our business and fund our operations;
● expected continual losses for the foreseeable future;
● our ability to anticipate and adapt to a developing market(s);
● acceptance by customers;
● limited marketing experience;
● competition from internet-based logistics and freight companies;
● competitors with substantially greater financial resources and assets;
● the ability to identify, attract and retain qualified personnel;
● our ability to provide superior customer service; and
● reliance on key personnel.
Because we are subject to these risks, you may have a difficult time evaluating our business and your investment in our company. We may be unable to successfully overcome these risks which could harm our business.
Our business 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 our business will be harmed.
We may not successfully manage our growth.
We have grown rapidly and substantially over prior years, including by expanding our internal resources, making acquisitions and entering into new markets, and we intend to continue to focus on rapid growth, including organic growth and additional acquisitions. We may experience difficulties and higher-than-expected expenses in executing this strategy as a result of unfamiliarity with new markets, changes in revenue and business models, entering into new geographic areas and increased pressure on our existing infrastructure and information technology systems.
Our growth will place a significant strain on our management, operational, financial and information technology resources. We will need to continually improve existing procedures and controls, as well as implement new transaction processing, operational and financial systems, and procedures and controls to expand, train and manage our employee base. Our working capital needs will continue to increase as our operations grow. Failure to manage our growth effectively, or obtain necessary working capital, could have a material adverse effect on our business, results of operations, cash flows, stock price and financial condition.
Economic recessions and other factors that reduce freight volumes could have a material adverse impact on our business.
The transportation industry historically has experienced cyclical fluctuations in financial results due to economic recession, downturns in business cycles of our customers, increases in prices charged by third-party carriers, interest rate fluctuations and other U.S. and global economic factors beyond our control. During economic downturns, reduced overall demand for transportation services will likely reduce demand for our services and exert downward pressures on rates and margins. In periods of strong economic growth, demand for limited transportation resources can result in increased network congestion and resulting operating inefficiencies. In addition, deterioration in the economic environment subjects our business to various risks that may have a material impact on our operating results and cause us to not reach our long-term growth goals. These risks may include the following:
● A reduction in overall freight volumes in the marketplace reduces our opportunities for growth.
● A downturn in our customers’ business cycles causes a reduction in the volume of freight shipped by those customers.
● Some of our customers may face economic difficulties and may not be able to pay us, and some may go out of business.
● Some of our customers may not pay us as quickly as they have in the past, causing our working capital needs to increase.
● A significant number of our transportation providers may go out of business and we may be unable to secure sufficient equipment or other transportation services to meet our commitments to our customers.
● We may not be able to appropriately adjust our expenses to changing market demands.
We have ongoing capital requirements that necessitate sufficient cash flow from operations and/or obtaining financing on favorable terms.
We have depended on cash from operations to expand the size of our operations and upgrade and expand the size of our revenue equipment fleet. In the future, we could face inabilities with generating sufficient cash from operations or obtaining sufficient financing on favorable terms. If any of these events occur, then we may face liquidity constraints or be forced to enter into less than favorable financing arrangements. Additionally, such events could adversely impact our ability to provide services to our customers.
We may not be profitable.
There can be no assurance that we will be able to implement our business plan, generate sustainable revenue or ever achieve consistently profitable operations. We cannot assure you that we can achieve or sustain profitability on a quarterly or annual basis in the future.
Our success is dependent on our newly elected Chief Executive Officer and other key personnel.
Our success depends on the continuing services of our Chief Executive Officer, John Mercadante. Mr. Mercadante joined our Company effective with the filing of this annual report. Mr. Mercadante shall be charged with overseeing the growth of our business while identifying and hiring personnel with the required talent and experience to grow our business.
The success of our Save On segment depends on the continuing services of our Chief Executive Officer through the date of this filing, Steve Yariv. Mr. Yariv shall be charged with overseeing the growth of our business of Save On.
The success of our Prime and Shypdirect segments depends on the continuing services of Prime’s Chief Operating Officer, Frank Mazzola. Mr. Mazzola shall be charged with overseeing the growth of our business of Prime and Shypdirect.
Over time, our success will depend on attracting and retaining qualified personnel, including a senior management team. Competition for senior management is intense, and we may not be able to retain our management team or attract additional qualified personnel. The loss of a member of senior management would require our remaining senior officers to divert immediate and substantial attention to fulfilling the duties of the departing executive and to seeking a replacement. The 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.
Changes in our relationships with our significant customers, including the loss or reduction in business from one or more of them, could have an adverse impact on us.
For the year ended December 31, 2018, one customer represented 74.1% of the Company’s total net revenues. This revenue is from one Prime customer for the period from June 19, 2018 to December 31, 2018. Two customers accounted for 35% of our revenue for 2017. The loss of our Prime customer would materially impair our overall consolidated financial condition or consolidated results of operations. For Save On, our contractual relationships with customers generally are terminable at will by the customers on short notice and do not require the customer to provide any minimum commitment. Our customers could choose to divert all or a portion of their business with us to one of our competitors, demand rate reductions for our services, require us to assume greater liability that increases our costs, or develop their own logistics capabilities. Failure to retain our existing customers or enter into relationships with new customers could materially impact the growth in our business and the ability to meet our current and long-term financial forecasts. For Prime, in connection with our primary customer, we operate under a one-year renewable contract which is due to expire in July 2019. We anticipate that this contract will be renewed.
We depend on third-parties in the operation of our business.
In our Save On business, which consists of forwarding and freight brokerage operations, we do not own or control the transportation assets that deliver our customers’ freight, and we do not employ the people directly involved in delivering the freight. Accordingly, we are dependent on third-parties to provide truck, rail, ocean, air and other transportation services and to report certain events to us, including delivery information and cargo claims. This reliance could cause delays in reporting certain events, including recognizing revenue and claims. Our inability to maintain positive relationships with independent transportation providers could significantly limit our ability to serve our customers on competitive terms. If we are unable to secure sufficient equipment or other transportation services to meet our commitments to our customers or provide our services on competitive terms, our operating results could be materially and adversely affected and our customers could switch to our competitors temporarily or permanently. Many of these risks are beyond our control, including the following:
● equipment shortages in the transportation industry, particularly among contracted truckload carriers and railroads;
● interruptions in service or stoppages in transportation as a result of labor disputes, network congestion, weather-related issues, “Acts of God,” or acts of terrorism;
● changes in regulations impacting transportation;
● increases in operating expenses for carriers, such as fuel costs, insurance premiums and licensing expenses, that result in a reduction in available carriers; and
● changes in transportation rates.
In our Prime business, we rent or lease to own delivery vans and trucks on a daily, weekly or monthly basis from approximately five vendors. Any shortage of supply of vans available to rent to the Company could have a material adverse effect on our business, financial condition and results of operations.
Increases in independent contractor driver compensation or other difficulties attracting and retaining qualified independent contractor drivers could adversely affect our profitability and ability to maintain or grow our independent contractor driver fleet.
Our Save On business operates through fleets of vehicles that are owned and operated by independent contractors. These independent contractors are responsible for maintaining and operating their own equipment and paying their own fuel, insurance, licenses and other operating costs. Turnover and bankruptcy among independent contractor drivers often limit the pool of qualified independent contractor drivers and increase competition for their services. In addition, regulations such as the FMCSA Compliance Safety Accountability program may further reduce the pool of qualified independent contractor drivers. Thus, our continued reliance on independent contractor drivers could limit our ability to grow our ground transportation fleet.
In the future, we may experience difficulty in attracting and retaining sufficient numbers of qualified independent contractor drivers. Additionally, our agreements with independent contractor drivers are terminable by either party upon short notice and without penalty. Consequently, we regularly need to recruit qualified independent contractor drivers to replace those who have left our fleet. If we are unable to retain our existing independent contractor drivers or recruit new independent contractor drivers, our business and results of operations could be adversely affected.
The compensation we offer our independent contractor drivers is subject to market conditions and we may find it necessary to continue to increase independent contractor drivers’ compensation in future periods. If we are unable to continue to attract and retain a sufficient number of independent contractor drivers, we could be required to increase our mileage rates and accessorial pay or operate with fewer trucks and face difficulty meeting shipper demands, all of which would adversely affect our profitability and ability to maintain our size or to pursue our growth strategy.
We are dependent on computer and communications systems; and a systems failure or data breach could cause a significant disruption to our business.
Our business depends on the efficient and uninterrupted operation of our computer and communications hardware systems and infrastructure. Our operations and those of our technology and communications service providers are vulnerable to interruption by fire, earthquake, natural disasters, power loss, telecommunications failure, terrorist attacks, Internet failures, computer viruses, data breaches (including cyber-attacks or cyber intrusions over the Internet, malware and the like) and other events generally beyond our control. We mitigate the risk of business interruption by maintaining redundant computer systems, redundant networks, and backup systems. In the event of a significant system failure, our business could experience significant disruption.
We operate in a highly competitive industry and, if we are unable to adequately address factors that may adversely affect our revenue and costs, our business could suffer.
Competition in the transportation services industry is intense. Increased competition may lead to revenue reductions, reduced profit margins, or a loss of market share, any one of which could harm our business. There are many factors that could impair our profitability, including the following:
● competition with other transportation services companies, some of which offer different services or have a broader coverage network, more fully developed information technology systems and greater capital resources than we do;
● reduction by our competitors of their rates to gain business, especially during times of declining economic growth, which reductions may limit our ability to maintain or increase rates, maintain our operating margins or maintain significant growth in our business;
● solicitation by shippers of bids from multiple transportation providers for their shipping needs and the resulting depression of freight rates or loss of business to competitors;
● establishment by our competitors of cooperative relationships to increase their ability to address shipper needs;
● our current or prospective customers may decide to develop internal capabilities for some of the services that we provide; and
● the development of new technologies or business models could result in our disintermediation in certain businesses, such as freight brokerage.
Our results of operations may be affected by seasonal factors.
Our productivity may decrease during the winter season when severe winter weather impedes operations. Also, some shippers may reduce their shipments after the winter holiday season. At the same time, operating expenses may increase and fuel efficiency may decline due to engine idling during periods of inclement weather. Harsh weather conditions generally also result in higher accident frequency, increased freight claims, and higher equipment repair expenditures.
Status of independent contractors.
In recent years, the topic of the classification of individuals as employees or independent contractors has gained increased attention among federal and state regulators as well as the plaintiffs’ bar. Various legislative or regulatory proposals have been introduced at the federal and state levels that may affect the classification status of individuals as independent contractors or employees for either employment tax purposes (withholding, social security, Medicare and unemployment taxes) or other benefits available to employees (most notably, workers’ compensation benefits). Recently, certain states (most prominently, California) have seen significant increased activity by tax and other regulators and numerous class action lawsuits filed against transportation companies that engage independent contractors.
Our Save On subsidiary classifies its third party shipping providers as independent contractors for all purposes, including employment tax and employee benefits. There can be no assurance that legislative, judicial, administrative or regulatory (including tax) authorities will not introduce proposals or assert interpretations of existing rules and regulations that would change the employee/independent contractor classification of third party shipping providers doing business with the Company. Although we believe that there are no proposals currently pending that would significantly change the employee/independent contractor classification of third party shipping providers doing business with the Company, potential changes, if any, could have a material adverse effect on our operating model. Further, the costs associated with any such potential changes could have a material adverse effect on the Company’s results of operations and financial condition if we were unable to pass through to our customers an increase in price corresponding to such increased costs. Moreover, class action litigation in this area against other transportation companies has resulted in significant damage awards and/or monetary settlements for workers who have been allegedly misclassified as independent contractors and the legal and other related expenses associated with litigating these cases can be substantial.
Our business is subject to the risks of earthquakes, fire, power outages, floods and other catastrophic events, and to interruption by man-made problems such as strikes and terrorism.
Natural disasters such as earthquakes, tsunamis, hurricanes, tornadoes, floods or other adverse weather and climate conditions, whether occurring in the United States or abroad, could disrupt our operations or the operations of our customers or could damage or destroy infrastructure necessary to transport products as part of the supply chain. Specifically, these events may damage or destroy our assets, disrupt fuel supplies, increase fuel costs, disrupt freight shipments or routes, and affect regional economies. As a result, these events could make it difficult or impossible for us to provide logistics and transportation services; disrupt or prevent our ability to perform functions at the corporate level; and/or otherwise impede our ability to continue business operations in a continuous manner consistent with the level and extent of business activities prior to the occurrence of the unexpected event, which could adversely affect our business and results of operations or make our results more volatile.
GENERAL OPERATING RISK
We have insufficient funds to develop our business, which may adversely affect our future growth.
We will need to raise substantial additional capital to fund our operations and to develop and launch our services. We may need to sell equity securities or borrow funds in order to develop these growth strategies and our inability to raise the additional capital and/or borrow the funds needed to implement these plans may adversely affect our business and future growth.
Our future capital requirements may be substantial and will depend on many factors including:
● marketing and developing expenses;
● revenue received from sales and operations, if any, in the future;
● the expenses needed to attract and retain skilled personnel; and
● the costs associated with being a public company.
Raising capital in the future could cause dilution to our existing shareholders, and may restrict our operations or require us to relinquish rights.
In the future, we may seek additional capital through a combination of private and public equity offerings, debt financings and collaborations and strategic and licensing arrangements. 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 debt, making capital expenditures or declaring dividends. If we raise additional funds through collaboration, strategic alliance and licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams or product candidates, or grant licenses on terms that are not favorable to us.
We will incur significant costs as a result of operating as a public company, and our management may be required to devote substantial time to compliance initiatives.
As a public company, we incur significant legal, accounting and other expenses, which are approximately $300,000 annually. In addition, the Sarbanes-Oxley Act, 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. Our management and other personnel will devote a substantial amount of time and financial resources to these compliance initiatives.
If we fail to staff our accounting and finance function adequately, or maintain internal control systems adequate to meet the demands that are placed upon us as a public company, we may be 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, may suffer. The costs of being a public company, as well as diversion of management’s time and attention, may have a material adverse effect on our future business, financial condition and results of operations.
RISKS RELATED TO OWNERSHIP OF OUR COMMON STOCK
If a public market for our common stock develops, it 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 medical wholesaling 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.
As an “emerging growth company” under the JOBS Act, we are permitted to rely on exemptions from certain disclosure requirements.
We qualify as an “emerging growth company” under the JOBS Act. As a result, we are permitted to and may rely on exemptions from certain disclosure requirements. For so long as we are an emerging growth company, we will not be required to:
● have an auditor report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act;
● comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis);
● submit certain executive compensation matters to shareholder advisory votes, such as “say-on-pay”, “say-on-frequency” and “say-on-golden parachute;” and
● disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the Chief Executive’s compensation to median employee compensation.
In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We are not choosing to “opt out” of this provision. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.
We will remain an “emerging growth company” until the last day of our fiscal year following the fifth anniversary of the date of our first sale of common equity securities pursuant to an effective registration under the Securities Act, or until the earliest of (i) the last day of the first fiscal year in which our total annual gross revenues exceed $1 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, which would occur if the market value of our ordinary shares that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year period.
Until such time, however, we cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
Our common stock price has fluctuated in recent years, and the trading price of our common stock is likely to continue 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;
● announcements of innovations, increased service capabilities, new or terminated customers or new, amended or terminated contracts by our competitors;
● 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 and, as our international business increases, in other foreign countries;
● 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 convertible debt securities;
● 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, our services or our products;
● 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.
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.
If we do not meet the listing standards of a national securities exchange our investors’ ability to make transactions in our securities will be limited and we will be subject us to additional trading restrictions.
Our securities currently are traded over-the-counter on the OTC Pink market and are not qualified to be listed on a national securities exchange, such as NASDAQ. Accordingly, we face significant material adverse consequences, including:
● a limited availability of market quotations for our securities;
● reduced liquidity with respect to our securities;
● our shares of common stock are currently classified as “penny stock” which requires brokers trading in our shares of common stock to adhere to more stringent rules, resulting in a reduced level of trading activity in the secondary trading market for our shares of common stock;
● a limited amount of news and analyst coverage for our company; and
● a decreased ability to issue additional securities or obtain additional financing in the future.
Our shares of common stock are subject to penny stock regulations. Because our common stock is a penny stock, holders of our common stock may find it difficult or may be unable to sell their shares.
The SEC has adopted rules that regulate broker/dealer practices in connection with transactions in penny stocks. Penny stocks generally are equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange system). The penny stock rules require a broker/dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document prepared by the SEC that provides information about penny stocks and the nature and level of risks in the penny stock market. The broker/dealer also must provide the customer with bid and offer quotations for the penny stock, the compensation of the broker/dealer, and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer’s account. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from such rules, the broker/dealer must make a special written determination that a penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in any secondary market for a stock that becomes subject to the penny stock rules, and accordingly, holders of our common stock may find it difficult or may be unable to sell their 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 the Company to further its business strategy. Because we do not anticipate paying dividends in the future, the only opportunity for our stockholders to realize the creation of value in our common stock will likely be through a sale of those shares.
ITEM 1B.
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 2.
ITEM 2. DESCRIPTION OF PROPERTIES
Our principal executive offices are located in the United States at 2833 Exchange Court, Suite A, West Palm Beach, Florida 33409, comprised of 400 square feet of office space. The company executed a sublease agreement with an affiliate for office space for a one-year term. The sublease commenced on August 1, 2016 at a rate of $300 a month. The sublease was extended on August 1, 2017 and terminated on December 14, 2017, at which point the Company signed a new one-year term lease with the third-party landlord directly for the entire space previously occupied by the affiliate. The monthly rent under the renewed lease is $1,600 plus maintenance charges and taxes.
On November 30, 2018, we entered into a commercial lease agreement for the lease of sixty parking spaces under an operating lease through November 2023 for a monthly rental fee of $6,000. Either party can cancel this lease on the annual anniversary date of the lease provided that the party who wishes to terminate provides the other party with at least 30-day prior written notice of such termination.
In December 2018, we entered into a lease agreement for the lease of office and warehouse space and parking spaces under a non-cancelable operating lease through December 2023. From the lease commencement date until the last day of the second lease year, monthly rent shall be $14,000. At the beginning of the 30th month following the commencement date and through the end of the term, minimum rent shall be $14,420 per month. The Company shall have one option to renew the term of this lease for an additional five years
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Our Common Stock has been quoted on OTC Pink under the symbol “PTRA” through August 13, 2018 and “TLSS” beginning on August 14, 2018. Trading in OTC Pink 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. Our common stock does not have an established public trading market. The following table reflects the high and low bid price for our common stock for the period indicated. The bid information was 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.
Our common stock is considered to be penny stock under rules promulgated by the Securities and Exchange Commission. Under these rules, broker-dealers participating in transactions in these securities must first deliver a risk disclosure document which describes risks associated with these stocks, broker-dealers’ duties, customers’ rights and remedies, market and other information, and make suitability determinations approving the customers for these stock transactions based on financial situation, investment experience and objectives. Broker-dealers must also disclose these restrictions in writing, provide monthly account statements to customers, and obtain specific written consent of each customer. With these restrictions, the likely effect of designation as a penny stock is to decrease the willingness of broker- dealers to make a market for the stock, to decrease the liquidity of the stock and increase the transaction cost of sales and purchases of these stocks compared to other securities.
Holders
As of April 13, 2019, there were 19 record holders of our common stock, and there were 10,191,525 shares of our common stock outstanding.
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
In October 2018, we issued 50,000 shares of our common stock to the related party lender in connection with loans made between July and October 2018. The shares were valued at $100,000, or $2.00 per share, based on the quoted trading price on the date of grant. The shares were deemed restricted and were issued pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
A smaller reporting company is not required to provide the information in this Item.
ITEM 7.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
Statements made in this Form 10-K that are not historical or current facts are “forward-looking statements” made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements often can be identified by the use of terms such as “may,” “will,” “expect,” “believe,” “anticipate,” “estimate,” “approximate” or “continue,” or the negative thereof. We intend that such forward-looking statements be subject to the safe harbors for such statements. We wish to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Any forward-looking statements represent management’s best judgment as to what may occur in the future. However, forward-looking statements are subject to risks, uncertainties and important factors beyond our control that could cause actual results and events to differ materially from historical results of operations and events and those presently anticipated or projected. We disclaim any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statement or to reflect the occurrence of anticipated or unanticipated events.
Overview
We were incorporated under the laws of the State of Nevada on July 25, 2008 and prior to the reverse merger discussed below, were inactive.
On March 30, 2017 (the “Closing Date”), TLSI and Save On Transport Inc. (“Save On”) entered into a Share Exchange Agreement, dated as of the same date (the “Share Exchange Agreement”). Pursuant to the terms of the Share Exchange Agreement, on the Closing Date, Save On became a wholly-owned subsidiary of TLSI (the “Reverse Merger”). Save On was incorporated in the State of Florida and started business on July 12, 2016 (“Inception Date”). Save On is a provider of integrated transportation management solutions consisting of brokerage and logistics services such as transportation scheduling, routing and other value added services related to the transportation of automobiles and other freight. As an early stage company, TLSI’s current operations are subject to all risks inherent in the establishment of a new business enterprise.
The Share Exchange was treated as a reverse merger and recapitalization of Save On for financial reporting purposes since the Save On shareholders retained an approximate 80% controlling interest in the post-merger consolidated entity. Save On was considered the acquirer for accounting purposes, and the Company’s historical financial statements before the Merger were replaced with the historical financial statements of Save On before the Merger. The balance sheets at their historical cost basis of both entities were combined at the merger date and the results of operations from the merger date forward include the historical results of Save On and results of TLSI from the merger date forward. The Merger was intended to be treated as a tax-free reorganization under Section 368(a) of the Internal Revenue Code of 1986, as amended.
On June 18, 2018 (the “Acquisition Date”), we completed the acquisition of 100% of the issued and outstanding membership interests of Prime EFS, LLC, a New Jersey limited liability company (“Prime”), from its members pursuant to the terms and conditions of a Stock Purchase Agreement entered into among us and the Prime members on the Closing Date (the “SPA”). Prime is a New Jersey based transportation company with a focus on deliveries for on-line retailers in New York, New Jersey and Pennsylvania.
On July 16, 2018, we filed a Certificate of Amendment to the Amended and Restated Articles of Incorporation (the “Certificate of Amendment”) with the Secretary of State of the State of Nevada to (1) change the name of the Company from PetroTerra Corp. to Transportation and Logistics Systems, Inc., (2) authorize an increase of the shares of the preferred stock to 10,000,000 shares, par value $0.001 per share and (3) effect a 1-for-250 reverse stock split (the “Reverse Stock Split”) with respect to the outstanding shares of the Company’s common stock. The Certificate of Amendment became effective on July 17, 2018. The corporate name change, increase of authorized shares of preferred stock and Reverse Stock Split were previously approved by the sole director and the majority of stockholders of the Company. The corporate name change and the Reverse Stock Split were deemed effective at the open of business on July 18, 2018. All share and per share data in the accompanying consolidated financial statements and within this Annual Report have been retroactively restated to reflect the effect of the recapitalization.
On July 24, 2018, the Company formed Shypdirect LLC (“Shypdirect”), a company organized under the laws of New Jersey. Shypdirect is a transportation company with a focus on tractor trailer and box truck deliveries of product on the east coast of the United States from one distributor’s warehouse to another warehouse or from a distributor’s warehouse to the post office.
The following discussion highlights the results of our operations and the principal factors that have affected its 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 is based on the consolidated financial statements contained in this Annual Report, which has been prepared in accordance with generally accepted accounting principles in the United States. You should read the discussion and analysis together with such consolidated financial statements and the related notes thereto.
Basis of Presentation
The consolidated financial statements for the years ended December 31, 2018 and 2017 include a summary of our significant accounting policies and should be read in conjunction with the discussion below.
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.
We expect we will require additional capital to meet our long term operating requirements. We expect to raise additional capital through, among other things, the sale of equity or debt securities.
For the year ended December 31, 2018 compared with the year ended December 31, 2017
The following table sets forth our revenues, expenses and net income (loss) for the year ended December 31, 2018 and 2017. The financial information below is derived from our consolidated financial statements included in this Annual Report.
Results of Operations
Revenues
For the year ended December 31, 2018, our revenues were $18,118,659 as compared to $1,301,332 for the year ended December 31, 2017, an increase of $16,817,327. This increase was a result of our acquisition of Prime on June 18, 2018. Revenue of $13,411,210 was attributable to the business of Prime which focuses on deliveries for on-line retailers in New York, New Jersey and Pennsylvania. In future periods, we expect the revenue generated by Prime to be a material part of our total revenues. The remaining increase in revenue primarily results from an increase in revenue from Save On. The increase in Save On revenue compared to the prior year is a shift away from individual customers to corporate customers, which offers the potential for more frequent business. Save On consists of individual and corporate customers contracting to transport a vehicle from location to location; primarily auto dealers, contracting to transport purchased vehicles from location to location. During the six months ended December 31, 2018, revenue related to our newly formed subsidiary, Shypdirect amounted to $208,950.
Cost of Revenue
For the year ended December 31, 2018, our cost of revenues were $16,223,981 compared to $992,514 for the year ended December 31, 2017, an increase of $15,231,467. This increase was a direct result of our acquisition of Prime on June 18, 2018. Cost of revenue of $12,456,635 was attributable to the business of Prime. In future periods, we expect the cost of revenue generated by Prime to be a material part of our total cost of revenues. The remaining increase in cost of revenue of $2,774,832 primarily results from an increase in cost of revenue from Save On. The increase in Save On cost of revenue compared to the prior year is a shift away from individual customers to corporate customers, which offers the potential for more frequent business. Save On consists of individual and corporate customers contracting to transport a vehicle from location to location; primarily auto dealers, contracting to transport purchased vehicles from location to location. Cost of revenues relating to our Prime segment consists of truck and van rental fees, insurance, gas, maintenance, and compensation and related benefits. Cost of revenues for our Save On segment consists primarily of carrier fees of which $50,625 was to a related party affiliate. During the six months ended December 31, 2018, cost of revenue related to our newly formed subsidiary, Shypdirect amounted to $328,790.
Gross Profit
For the year ended December 31, 2018, our gross profit was $1,894,678, or 10.5% of revenue, as compared to $308,818, or 23.7% of revenue, for the year ended December 31, 2017, an increase of $1,585,860. The decrease in gross profit percentage related to the effect of the acquisition of Prime on June 18, 2018 which had a lower gross profit percentage compared to Save On. For the period from June 19, 2018 to September 30, 2018, gross profit and gross profit percentage for Prime amounted to $954,575, or 7.1% compared to gross profit and gross profit percentage for Save On of $1,059,943, or of 23.6%.
Operating Expenses
For the year ended December 31, 2018, total operating expenses amounted to $8,863,449 as compared to $441,855 for the year ended December 31, 2017, an increase of $8,421,594. For the year ended December 31, 2018 and 2017, operating expenses consisted of the following:
Compensation and related benefits
For the year ended December 31, 2018, compensation and related benefits amounted to $5,350,595 compared to $57,209 for the year ended December 31, 2017. Compensation and related benefits for 2018 included stock-based compensation of $3,090,000 from the granting of 1,500,000 shares of our common stock to our chief executive officer for services rendered. Additionally, compensation and related benefits attributed to the business of Prime, which was acquired on June 18, 2018, were $1,385,620, compensation and related benefits attributed to the business of Shypdirect was $56,208, and compensation and related benefits attributed to the business of Save On increased by $761,558.
Legal and professional fees
For the year ended December 31, 2018, legal and professional fees amounted to $1,993,130 as compared to $200,600 for the year ended December 31, 2017, an increase of $1,792,530. During the year ended December 31, 2018, we incurred stock-based consulting fees of $1,236,000 from issuance of our shares to consultants for business development services rendered. Additionally, legal and professional fees attributed to the business of Prime, which was acquired on June 18, 2018, were $478,589.
General and administrative expenses
General and administrative expenses include office expenses and supplies, travel and entertainment, depreciation and amortization, and other expenses. For the year ended December 31, 2018, general and administrative expenses amounted to $1,474,449 as compared to $142,230 for the year ended December 31, 2017, an increase of $1,332,219. The increase in operating expenses compared to the prior year period is due to the Company’s organic growth and growth through the acquisition of Prime, including the expansion of office space. Additionally, general and administrative expenses attributed to the business of Prime, which was acquired on June 18, 2018, were $1,340,029, which includes depreciation and amortization expense of $664,350.
Loss from Operations
For the year ended December 31, 2018, loss from operations amounted to $6,968,771 as compared to $133,037 for the year ended December 31, 2017, an increase of $6,835,734.
Other Expenses
Total other expenses include interest expense, derivative expense, and a bargain purchase gain. For the year ended December 31, 2018 and 2017, other expenses consisted of the following:
For the years ended December 31, 2018 and 2017, interest expense was $1,720,075 and $312,416, respectively. The increase in interest expense resulted from an increase in interest-bearing loans and an increase in the amortization in debt discount.
For the years ended December 31, 2018 and 2017, derivative expense was $5,799,282 and $309,521, respectively, an increase of $5,489,761. In connection with the issuance of a certain Note, Warrant and Placement Warrant, during 2018, the initial measurement date, the fair values of the embedded conversion option derivative and warrant derivatives of $8,326,852 was recorded as derivative liabilities and was allocated as a debt discount of $1,487,787, with the remainder of $6,839,065 charged to current period operations as initial derivative expense. Additionally, for the year ended December 31, 2018, we adjusted our derivative liabilities to fair value and recorded a derivative gain of $1,039,783.
In connection with the acquisition of Prime, for the year ended December 31, 2018, we recognized $203,588 of bargain purchase gain. The bargain purchase gain of $203,588 represents the amount by which the acquisition-date fair value of the net assets acquired exceeded the fair value of the consideration paid.
Net Loss
Due to factors discussed above, for the years ended December 31, 2018 and 2017, net loss amounted to $14,478,157, or $(5.75) per basic and diluted common share, and $744,805, or $(1.37) per basic and diluted common share, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. At December 31, 2018, we had a cash balance of $296,196. Our working capital deficit was $12,923,440 at December 31, 2018.
We reported a net increase in cash for the year ended December 31, 2018 of $189,620.
Recent developments
On April 9, 2019, we entered into an agreement with Bellridge Capital, L.P. (“Bellridge”) that modifies its existing obligations to Bellridge as follows:
● the overall principal amount of that certain Convertible Promissory Note, dated June 18, 2018, issued by the Company in favor of Bellridge (the “Note”) was reduced from $2,497,502 to $1,800,000, in exchange for the issuance to Bellridge of 800,000 shares of restricted common stock;
● the maturity date of the Note was extended to August 31, 2020;
● the interest rate was reduced from 10% to 5% per annum;
● if the Company completes an offering of equity or equity linked securities (including warrants, convertible preferred stock, convertible debentures or convertible promissory note) which results in gross proceeds to the Company of at least $4,000,000, then the Company shall use a portion of the proceeds thereof to repay not less than half of the obligations then outstanding pursuant to the Note;
● if the Company completes an offering of debt which results in gross proceeds to the Company of at least $3,000,000, then the Company shall use a portion of the proceeds thereof to repay any remaining obligations then outstanding pursuant to the Note;
● the convertibility of the Note will now be amended such that the Note shall only be convertible at a conversion price to be mutually agreed upon between the Company and the Holder;
● the registration rights previously granted to Bellridge have now been eliminated; and
● those certain Warrants, dated June 18, 2018 and December 27, 2018, respectively, issued by the Company in favor of Bellridge shall be cancelled and of no further force or effect. In exchange, the Company will issue Bellridge 360,000 shares of restricted common stock.
In addition, on April 9, 2019, warrant holders holding warrants exercisable into an aggregate of 4.75% of the outstanding common stock of the Company all agreed to exercise such warrants for an aggregate of 240,000 shares of common stock of the Company.
On April 9, 2019, we entered into agreements with another institutional investor, RedDiamond Partners LLC, holding convertible notes representing an aggregate principal amount of $510,000, and agreed with such holder to:
●
extend the maturity date of the notes to December 31, 2020;
●
remove all convertibility features of the notes; and
●
if the Company completes an offering of equity or equity linked securities (including warrants, convertible preferred stock, convertible debentures or convertible promissory note) which results in gross proceeds to the Company of at least $4,000,000, then the Company shall use a portion of the proceeds thereof to repay not less than half of the obligations then outstanding pursuant to the notes.
On April 9, 2019, we entered into agreements with all holders of their Series A Convertible Preferred Stock to exchange all 4 million outstanding shares of preferred stock for an aggregate of 2.6 million shares of restricted common stock.
Operating activities
Net cash flows used in operating activities for the year ended December 31, 2018 amounted to $283,678. During the year ended December 31, 2018, net cash used in operating activities was primarily attributable to a net loss of $14,478,157 adjusted for the add back (reduction) of non-cash items such as depreciation and amortization expense of $664,350, derivative expense of $5,799,282, amortization of debt discount of $1,566,847, loss of disposal of property and equipment of $14,816, stock-based compensation of $4,326,000, and a bargain purchase gain of $(203,588), and changes in operating assets and liabilities such as a decrease in accounts receivable of $707,329, an increase in accounts payable and accrued expenses of $907,143 an increase in insurance payable of $587,945, and an increase in accrued compensation and related benefits of $191,471, offset by an increase in prepaid expenses and other current assets of $366,766. Net cash flows used in operating activities for the year ended December 31, 2017 amounted to $152,185. During the year ended December 31, 2017, net cash used in operating activities was primarily attributable to a net loss of $744,805 adjusted for the add back of non-cash items such as derivative expense of $309,521 and amortization of debt discount of $277,951, and changes in operating assets and liabilities such as an increase in accounts receivable of $255,450 and an increase in accounts payable and accrued expenses of $197,810.
Investing activities
Net cash used in investing activities for the year ended December 31, 2018 amounted to $932,802 and consisted of cash received in the acquisition of $38,198 offset by cash paid for the acquisition of $489,174 and the purchase of property and equipment of $481,826. Net cash flows used in investing activities for the year ended December 31, 2017 amounted to $26,500 and was comprised of a $10,000 cash escrow acquired on March 30, 2017 in connection with the reverse merger, to be held for a six month period to pay unpaid liabilities in conjunction with the Reverse Merger offset by an investment in a license of $36,500.
Financing activities
For the year ended December 31, 2018 and 2017, net cash provided by financing activities totaled $1,406,100 and $273,536, respectively. For the year ended December 31, 2018, we received gross proceeds from convertible notes of $2,497,503, proceeds from notes payable of $2,409,898, proceeds from related party notes if $1,050,000, and net cash proceeds from related party advances of $265,768 offset by the repayment of related party notes of $930,000, the payment of debt issue costs of $1,009,714 and the repayment of notes payable of $2,877,355. For the year ended December 31, 2017, we received net proceeds from convertible notes of $280,000 and we repaid notes of $6,464.
Going Concern Consideration
Our accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities and commitments in the normal course of business. As reflected in the accompanying consolidated financial statements, we had a net loss of $14,478,157 for the year ended December 31, 2018. The net cash used in operations was $283,678 for the year ended December 31, 2018. Additionally, we had an accumulated deficit, shareholders’ deficit, and a working capital deficit of $15,222,936, $7,737,294 and $12,923,440, respectively, at December 31, 2018. Furthermore, the Company failed to make required payments of principal and interest on its convertible debt instruments and defaulted on other provisions in these Notes. On April 9, 2019, the Company entered into agreements with these lenders that modified these Notes (See Note 15 - Subsequent Events in the notes to consolidated financial statements). It is management’s opinion that these factors raise substantial doubt about our 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 we will ultimately achieve profitable operations or 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 operations in the future. Although we have historically raised capital from sales of common shares and from the issuance of convertible promissory notes, there is no assurance that we will be able to continue to do so.
If we are unable to raise additional capital or secure additional lending in the near future, management expects that we will need to curtail our operations. These 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.
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.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
Critical Accounting Policies and Significant Accounting 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, 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 derivative liabilities, and the fair value of assets acquired and liabilities assumed in the business acquisition.
We have identified the accounting policies below as critical to our business operation:
Accounts receivable
Accounts receivable are presented net of an allowance for doubtful accounts. The Company maintains allowances for doubtful accounts for estimated losses. The Company reviews the accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, a customer’s historical payment history, its current credit-worthiness and current economic trends. Accounts are written off after exhaustive efforts at collection.
Derivative Financial Instruments
We have certain financial instruments that are embedded derivatives associated with capital raises. We evaluate all our financial instruments to determine if those contracts or any potential embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with ASC 810-10-05-4 and 815-40. This accounting treatment requires that the carrying amount of any embedded derivatives be recorded at fair value at issuance and marked-to-market at each balance sheet date. In the event that the fair value is recorded as a liability, as is the case with the Company, the change in the fair value during the period is recorded as either other income or expense. Upon conversion, exercise or repayment, the respective derivative liability is marked to fair value at the conversion, repayment or exercise date and then the related fair value amount is reclassified to other income or expense as part of gain or loss on extinguishment.
Revenue recognition and cost of revenue
On January 1, 2018, we adopted ASC 606, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in Accounting Standards Codification (ASC) Topic 605, Revenue Recognition. 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.
For the Company’s Save On business activities, we recognize revenues and the related direct costs of such revenue which includes carrier fees and dispatch costs as of the date the freight is delivered by the carrier which is when the performance obligation is satisfied. Customer payments received prior to delivery are recorded as a deferred revenue liability and related carrier fees if paid prior to delivery are recorded as a deferred expense asset. In accordance with ASC Topic 606, we recognize revenue on a gross basis. Our payment terms for corporate customers are net 30 days from acceptance of delivery and individual customers generally must pay in advance. We do not incur incremental costs obtaining service orders from our Save On customers, however, if we did, because all of Save On customer’s contracts are less than a year in duration, any contract costs incurred would be expensed rather than capitalized. Our adoption of this ASC, resulted in no cumulative effect at January 1, 2018 and no change prospectively to our results of operations or financial condition. The revenue that we recognize arises from service orders we receive from our Save On customers. Our performance obligations under these service orders correspond to each delivery of a vehicle that we make for our customer under the service orders; as a result, each service order generally contains only one performance obligation based on the delivery to be completed.
For the Company’s Prime and Shypdirect business activities, we recognize 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, we recognize revenue on a gross basis. Our payment terms are net seven days from acceptance of delivery. We do not incur incremental costs obtaining service orders from our Prime customers, however, if we did, because all of Prime and Shypdirect’s customer contracts are less than a year in duration, any contract costs incurred would be expensed rather than capitalized. The revenue that we recognize arises from deliveries of packages on behalf of the Company’s customers. Primarily, our performance obligations under these service orders correspond to each delivery of packages that we make under the service agreements. Control of the delivery transfers to the recipient upon delivery. Once this occurs, we have satisfied our performance obligation and we recognize revenue.
Stock-based compensation
Stock-based compensation is accounted for based on the requirements of the Share-Based Payment Topic of ASC 718 which requires recognition in the consolidated financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director 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 and director services received in exchange for an award based on the grant-date fair value of the award.
Through the current reporting period, pursuant to ASC 505-50 - “Equity-Based Payments to Non-Employees”, all share-based payments to non-employees, including grants of stock options, were recognized in the consolidated financial statements as compensation expense over the service period of the consulting arrangement or until performance conditions are expected to be met. Using a Black-Scholes valuation model, the Company periodically reassessed the fair value of non-employee options until service conditions are met, which generally aligns with the vesting period of the options, and the Company adjusts the expense recognized in the consolidated financial statements accordingly. In June 2018, the FASB issued ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting, which simplifies several aspects of the accounting for nonemployee share-based payment transactions by expanding the scope of the stock-based compensation guidance in ASC 718 to include share-based payment transactions for acquiring goods and services from non-employees. ASU No. 2018-07 is effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods. Early adoption is permitted, but entities may not adopt prior to adopting the new revenue recognition guidance in ASC 606. The Company early adopted ASU No. 2018-07 in the second quarter of 2018 and there was no cumulative effect of adoption.
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 financial consolidated statements filed with this Annual Report.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
A smaller reporting company is not required to provide the information in this Item.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
PART I. FINANCIAL INFORMATION
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2018 AND 2017
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of:
Transportation and Logistics Systems, Inc. (Formerly known as PetroTerra Corp.)
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Transportation and Logistics Systems, Inc. (Formerly known as PetroTerra Corp.) and Subsidiaries (the “Company”) as of December 31, 2018 and 2017, 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, 2018, 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, 2018 and 2017, and the consolidated results of its operations and its cash flows for each of the two years in the period ended December 31, 2018, 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 has a net loss and cash used in operations of $14,478,157 and $283,678, respectively, in 2018 and has a working capital deficit, shareholders’ deficit and accumulated deficit of $12,923,440, $7,737,294 and $15,222,936, respectively, at December 31, 2018. Furthermore, the Company has been late on certain loan payments. These matters raise substantial doubt about the Company’s ability to continue as a going concern. Management’s Plan in regards to these matters is also 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.
/s/ SALBERG & COMPANY, P.A.
SALBERG & COMPANY, P.A.
We have served as the Company’s auditor since 2017.
Boca Raton, Florida
April 16, 2019
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 ● info@salbergco.com
Member National Association of Certified Valuation Analysts ● Registered with the PCAOB
Member CPAConnect with Affiliated Offices Worldwide ● Member AICPA Center for Audit Quality
TRANSPORTATION AND LOGISTICS SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
See accompanying notes to consolidated financial statements.
TRANSPORTATION AND LOGISTICS SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
See accompanying notes to consolidated financial statements.
TRANSPORTATION AND LOGISTICS SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
See accompanying notes to consolidated financial statements.
TRANSPORTATION AND LOGISTICS SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
See accompanying notes to consolidated financial statements.
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
NOTE 1 - ORGANIZATION AND BUSINESS OPERATIONS
Transportation and Logistics Systems, Inc. (“TLSS”), formerly PetroTerra Corp., was incorporated under the laws of the State of Nevada, on July 25, 2008.
On March 30, 2017 (the “Closing Date”), TLSS and Save On Transport Inc. (“Save On”) entered into a Share Exchange Agreement, dated as of the same date (the “Share Exchange Agreement”). Pursuant to the terms of the Share Exchange Agreement, on the Closing Date, Save On became a wholly-owned subsidiary of TLSS (the “Reverse Merger”). Save On was incorporated in the state of Florida and started business on July 12, 2016. Save On is a provider of integrated transportation management solutions consisting of brokerage and logistic services such as transportation scheduling, routing and other value added services related to the transportation of automobiles and other freight. As an early stage company, TLSS’s current operations are subject to all risks inherent in the establishment of a new business enterprise
The Share Exchange was treated as a reverse merger and recapitalization of Save On for financial reporting purposes since the Save On shareholders retained an approximate 80% controlling interest in the post-merger consolidated entity. Save On was considered the acquirer for accounting purposes, and the Company’s historical financial statements before the Merger was replaced with the historical financial statements of Save On before the Merger. The balance sheets at their historical cost basis of both entities were combined at the merger date and the results of operations from the merger date forward include the historical results of Save On and results of TLSS from the merger date forward. The Merger was intended to be treated as a tax-free reorganization under Section 368(a) of the Internal Revenue Code of 1986, as amended.
On June 18, 2018 (the “Acquisition Date”), 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”), from its members pursuant to the terms and conditions of a Stock Purchase Agreement entered into among the Company and the Prime members on the Closing Date (the “SPA”) (See Note 3). Prime is a New Jersey based transportation company with a focus on deliveries for on-line retailers in New York, New Jersey and Pennsylvania.
On July 24, 2018, the Company formed Shypdirect LLC (“Shypdirect”), a company organized under the laws of New Jersey. Shypdirect is a transportation company with a focus on tractor trailer and box truck deliveries of product on the east coast of the United States from one distributor’s warehouse to another warehouse or from a distributor’s warehouse to the post office.
TLSS and its wholly-owned subsidiaries, Save On, Prime and Shypdirect are hereafter referred to as the “Company”.
On July 16, 2018, the Company filed a Certificate of Amendment to the Amended and Restated Articles of Incorporation (the “Certificate of Amendment”) with the Secretary of State of the State of Nevada to (1) change the name of the Company from PetroTerra Corp. to Transportation and Logistics Systems, Inc., (2) authorize an increase of the shares of the preferred stock to 10,000,000 shares, par value $0.001 per share and (3) effect a 1-for-250 reverse stock split (the “Reverse Stock Split”) with respect to the outstanding shares of the Company’s common stock. The Certificate of Amendment became effective on July 17, 2018. The corporate name change, increase of authorized shares of preferred stock and Reverse Stock Split were previously approved by the sole director and the majority of stockholders of the Company. The corporate name change and the Reverse Stock Split were deemed effective at the open of business on July 18, 2018. All share and per share data in the accompanying consolidated financial statements have been retroactively restated to reflect the effect of the recapitalization.
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, Save On, Prime and Shypdirect. All intercompany accounts and transactions have been eliminated in consolidation.
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
Going concern
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities and commitments in the normal course of business. As reflected in the accompanying consolidated financial statements, for the years ended December 31, 2018 and 2017, the Company had a net loss of $14,478,157 and $744,805 and net cash used in operations was $283,678 and $152,185, respectively. Additionally, the Company had an accumulated deficit, shareholders’ deficit, and a working capital deficit of $15,222,936, $7,737,294 and $12,923,440, respectively, at December 31, 2018. Furthermore, the Company failed to make required payments of principal and interest on its convertible debt instruments and defaulted on other provisions in these Notes. On April 9, 2019, the Company entered into agreements with these lenders that modified these Notes (See Note 15 - Subsequent Events). It is management’s opinion that 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 common shares and from the issuance of 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 will need to curtail its operations. These 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.
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, 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 derivative liabilities, and the fair value of assets acquired and liabilities assumed in the business acquisition.
Fair value of financial instruments
FASB ASC 820 - Fair Value Measurements and Disclosures, 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. FASB 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, 2018. Accordingly, the estimates presented in these financial statements are not necessarily indicative of the amounts that could be realized on disposition of the financial instruments. FASB 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).
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
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. Assets and liabilities measured at fair value on a recurring basis are as follows at December 31, 2018 and 2017:
A roll forward of the level 3 valuation financial instruments is as follows:
The Company accounts for its derivative financial instruments, consisting of certain conversion options embedded in our convertible instruments and warrants, at fair value using level 3 inputs. The Company determined the fair value of these derivative liabilities using the Black-Scholes option pricing model, binomial lattice models, or other accepted valuation practices. When determining the fair value of its financial assets and liabilities using these methods, the Company is required to use various estimates and unobservable inputs, including, among other things, expected terms of the instruments, expected volatility of its stock price, expected dividends, and the risk-free interest rate. Changes in any of the assumptions related to the unobservable inputs identified above may change the fair value of the instrument. Increases in expected term, anticipated volatility and expected dividends generally result in increases in fair value, while decreases in the unobservable inputs generally result in decreases in fair value.
ASC 825-10 “Financial Instruments”, allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstanding instruments.
The carrying amounts reported in the balance sheets for cash, accounts receivable, accounts payable and accrued expenses approximate their fair values based on the short-term maturity of these instruments. The carrying amount of the Company’s convertible notes payable and 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.
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. At December 31, 2018 and 2017, the Company did not have any cash equivalents.
The Company maintains its cash in bank and financial institution deposits that at times may exceed federally insured limits. There were no balances in excess of FDIC insured levels as of December 31, 2018 and 2017. The Company has not experienced any losses in such accounts through December 31, 2018.
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
Accounts receivable
Accounts receivable are presented net of an allowance for doubtful accounts. The Company maintains allowances for doubtful accounts for estimated losses. The Company reviews the accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, a customer’s historical payment history, its current credit-worthiness and current economic trends. Accounts are written off after exhaustive efforts at collection.
Property and equipment
Property are stated at cost and are depreciated using the straight-line method over their estimated useful lives of five years. Leasehold improvements are depreciated over the shorter of the useful life or lease term including scheduled renewal terms. 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.
Intangible asset
Intangible assets are carried at cost less accumulated amortization, computed using the straight-line method over the estimated useful life. In November 2017 the Company acquired a Motor Carrier number (MC) and a Department of Transportation number (DOT) from a third party for $36,500. The Company reviews its intangible assets for impairment annually and determined that the carrying value was not recoverable in accordance with ASC 350, Intangibles - Goodwill and Other. During the year ended December 31, 2017, an impairment loss of $36.500 was recorded for the entire amount. At December 31, 2018, intangible asset consists of a customer relationship acquired on June 18, 2018 which is being amortized over a period of five years.
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.
Derivative financial instruments
The Company has certain financial instruments that are embedded derivatives associated with capital raises. The Company evaluates all its financial instruments to determine if those contracts or any potential embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with ASC 810-10-05-4 and 815-40. This accounting treatment requires that the carrying amount of any embedded derivatives be recorded at fair value at issuance and marked-to-market at each balance sheet date. In the event that the fair value is recorded as a liability, as is the case with the Company, the change in the fair value during the period is recorded as either other income or expense. Upon conversion, exercise or repayment, the respective derivative liability is marked to fair value at the conversion, repayment or exercise date and then the related fair value amount is reclassified to other income or expense as part of gain or loss on extinguishment.
Bargain purchase gain
In connection with the acquisition of Prime, the Company allocated the purchase price to the acquired assets and intangible asset and assumed liabilities of Prime based on their estimated fair values as of the acquisition date. The excess of the estimated fair values of net assets acquired over the acquisition consideration paid was recorded as a bargain purchase gain in other income in the consolidated statements of operations. The determination of the fair values of the assets acquired and liabilities assumed requires significant judgment, including valuation estimates relating to the value of the acquired customer relationship.
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
Revenue recognition and cost of revenue
On January 1, 2018, the Company adopted ASC 606, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in Accounting Standards Codification (ASC) Topic 605, Revenue Recognition. 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.
For the Company’s Save On business activities, the Company recognizes revenues and the related direct costs of such revenue which includes carrier fees and dispatch costs as of the date the freight is delivered by the carrier which is when the performance obligation is satisfied. Customer payments received prior to delivery are recorded as a deferred revenue liability and related carrier fees if paid prior to delivery are recorded as a deferred expense asset. In accordance with ASC Topic 606, the Company recognizes revenue on a gross basis. Our payment terms for corporate customers are net 30 days from acceptance of delivery and individual customers generally must pay in advance. The Company does not incur incremental costs obtaining service orders from our Save On customers, however, if the Company did, because all of the Save On customer’s contracts are less than a year in duration, any contract costs incurred would be expensed rather than capitalized. The Company’s adoption of this ASC, resulted in no cumulative effect at January 1, 2018 and no change prospectively to the Company’s results of operations or financial condition. The revenue that the Company recognizes arises from service orders it receives from its Save On customers. The Company’s performance obligations under these service orders correspond to each delivery of a vehicle that the Company makes for its customer under the service orders; as a result, each service order generally contains only one performance obligation based on the delivery to be completed.
For the Company’s Prime and Shypdirect business activities, 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 net seven days from acceptance of delivery. The Company does not incur incremental costs obtaining service orders from its Prime customers, however, if the Company did, because all of Prime and Shypdirect customer contracts are less than a year in duration, any contract costs incurred would be expensed rather than capitalized. The revenue that the Company recognizes arises from deliveries of packages on behalf of the Company’s customers. Primarily, the Company’s performance obligations under these service orders correspond to each delivery of packages that the Company makes under the service agreements. Control of the package transfers to the recipient upon delivery. Once this occurs, the Company has satisfied its performance obligation and the Company recognizes revenue.
Revenue disaggregation disclosure required pursuant to ASC 606 are disclosed in Note 14- Segment Information.
Stock-based compensation
Stock-based compensation is accounted for based on the requirements of the Share-Based Payment Topic of ASC 718 which requires recognition in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director 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 and director services received in exchange for an award based on the grant-date fair value of the award.
Through March 31, 2018, pursuant to ASC 505-50 - “Equity-Based Payments to Non-Employees”, all share-based payments to non-employees, including grants of stock options, were recognized in the consolidated financial statements as compensation expense over the service period of the consulting arrangement or until performance conditions are expected to be met. Using a Black-Scholes valuation model, the Company periodically reassessed the fair value of non-employee options until service conditions are met, which generally aligns with the vesting period of the options, and the Company adjusts the expense recognized in the consolidated financial statements accordingly. In June 2018, the FASB issued ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting, which simplifies several aspects of the accounting for nonemployee share-based payment transactions by expanding the scope of the stock-based compensation guidance in ASC 718 to include share-based payment transactions for acquiring goods and services from non-employees. ASU No. 2018-07 is effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods. Early adoption is permitted, but entities may not adopt prior to adopting the new revenue recognition guidance in ASC 606. The Company early adopted ASU No. 2018-07 in the second quarter of 2018 and there was no cumulative effect of adoption.
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
Basic and diluted loss per share
Pursuant to ASC 260-10-45, basic loss per common share is computed by dividing net loss 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 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 warrants (using the treasury stock method) and shares issuable for convertible debt (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 as they would have an anti-dilutive impact on the Company’s net losses and consisted of the following:
Recent Accounting Pronouncements
On February 25, 2016, the FASB issued ASU No. 2016-02 (“ASU 2016-02”) to amend the accounting guidance for leases. The accounting applied by a lessor is largely unchanged under ASU 2016-02. However, the standard requires lessees to recognize lease assets and lease liabilities for leases classified as operating leases on the balance sheet. Lessees will recognize in the statement of financial position a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it will recognize lease expense for such leases generally on a straight-line basis over the lease term. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 and early adoption is permitted. The adoption of ASU 2016-02 is not expected to have a material impact on the Company’s consolidated financial position, results of operations and cash flows.
In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Non-controlling Interests with a Scope Exception. For public business entities, the amendments in Part I of this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. For all other entities, the amendments in Part I of this Update are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted for all entities, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The amendments in Part II of this Update do not require any transition guidance because those amendments do not have an accounting effect. The Company is currently in the process of evaluating the impact of the adoption on its consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13 to modify the disclosure requirements on fair value measurements. The amendments are effective beginning after December 15, 2019. An entity is permitted to early adopt any removed or modified disclosures and delay adoption of the additional disclosures until the effective date. Most amendments should be applied retrospectively, but certain amendments will be applied prospectively. The Company is in the process of assessing the impact of the standard on the Company’s fair value disclosures. However, the standard is not expected to have an impact on the Company’s consolidated financial position, results of operations and cash flows.
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 - ACQUISITION
On June 18, 2018, (the “Closing Date”), the Company completed the acquisition of 100% of the issued and outstanding membership interests of Prime from its members pursuant to the terms and conditions of a SPA entered into among the Company and the Prime members on the Closing Date. Prime is a New Jersey based transportation company with a focus on deliveries for on-line retailers in New York, New Jersey and Pennsylvania. The Company’s acquisition of Prime diversified the Company’s revenue sources and gives the Company access to the growing market of on line retail deliveries.
Pursuant to the terms of the SPA, as amended in September 2018 to correct the purchase price error in the original SPA, the Company paid $489,174 in cash which under the SPA was loaned back to Prime and therefore was included, net of repayments, in due to related parties at December 31, 2018, and the Company issued 1,500,000 shares of its common stock in exchange for 100% of the issued and outstanding membership units of Prime. These shares were valued at $3,090,000, or $2.06 per share, the fair value of the Company’s common stock based on the quoted closing price of the Company’s common stock on the Closing Date.
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
Additionally, the Company shall issue additional shares of its common stock intended to true-up the Purchase Interests such that the aggregate value of the Purchase Interests would be equal to the trailing twelve-month gross profit of the Company (the “True-Up Value”), to be calculated as of December 31, 2018 (the “True-up Stock”). On April 15, 2019, the Company shall issue to the sellers such aggregate number of True-up Stock equal to (i) the True-Up Value minus $3,750,000 divided by (ii) the lower of (A) $2.50, (B) the closing price of the Company’s common stock on April 15, 2019 or (C) the lowest price per share (as adjusted for any stock splits) paid upon conversion of the Company’s series A convertible preferred stock on or prior to April 15, 2019. Based on Prime’s initial estimate of the 2018 gross profit, no contingent consideration was recorded on the acquisition date. Based on actual 2018 gross profit, no additional True-up stock will be issued and therefore, no additional contingent consideration was recorded as of December 31, 2018. Prime became a wholly owned subsidiary of the Company as of the Closing Date.
On June 18, 2018, the Company entered into an employment agreement with a party related to the majority selling member of Prime which did not represent additional purchase consideration.
The fair value of the assets acquired and liabilities assumed are based on management’s initial estimates of the fair values on June 18, 2018 and on subsequent measurement adjustments as of December 31, 2018. Based upon the purchase price allocation, the following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition:
In connection with the acquisition, the Company recognized $203,588 of bargain purchase gain and a $5,235,515 intangible asset related to the acquisition of a customer relationship. The bargain purchase gain of $203,588 represents the amount by which the acquisition-date fair value of the net assets acquired exceeded the fair value of the consideration paid. The bargain purchase gain is reported as other income in the consolidated statements of operations. Prior to recognizing a bargain purchase, management reassessed whether all assets acquired and liabilities assumed had been correctly identified, and reviewed the key valuation assumptions and business combination accounting procedures for this acquisition. After careful consideration and review, management concluded that the recognition of a bargain purchase gain was appropriate for this acquisition.
The assets acquired and liabilities assumed are recorded at their estimated fair values on the acquisition date as adjusted 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 goodwill or bargain purchase gain. After the purchase price measurement period, the Company will record adjustments to assets acquired or liabilities assumed in operating expenses in the period in which the adjustments were determined.
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
The Company shall record acquisition and transaction related expenses in the period in which they are incurred. During the year ended December 31, 2018, acquisition and transaction related expenses primarily consisted of legal fees of approximately $24,000 and $1,236,000 of stock-based professional fees from the granting of 600,000 shares of the Company’s common stock to two consultants for services rendered in connection with the acquisition. Additionally, debt issue costs were incurred relating to a loan in which a portion of the proceeds were used to pay the cash portion of the purchase consideration (see Note 7 “Bellridge Capital LLC”).
In the event of Buyer’s failure to satisfy the conditions set forth in the SPA, the former majority member, (the “Manager”), acting in her sole discretion on behalf of the Sellers, shall have the right, for the one year period following the Closing, to unwind the transactions and return the Purchase Price in exchange for 90% of the Interests of Prime. Conditions include:
1) Within twelve months from the Closing Date, the Company shall apply (the “Application”) to have its common stock listed and trading on the (i) New York Stock Exchange, (ii) NASDAQ Global Select Market, (iii) NASDAQ Global Market, (iv) NASDAQ Capital Market, or (v) NYSE American (each, a “Selected Market”). At the time of submitting the Application, the Company shall meet all of the quantitative initial listing standards and corporate governance standards of such Selected Market. The Company shall use its best efforts to have its application approved by the Selected Market.
2) The Company covenants and agrees that, from and after the Closing Date for a period of twelve months, the Company shall not sell, transfer, assign and convey its interests in Prime without the prior written consent of the Manager.
3) The Sellers shall have the right to appoint one nominee to the Board of Directors of the Company for a period of three years beginning on the Closing Date.
4) The Company shall provide at least $267,000 of cash in additional working capital to the Company within six months from the Closing Date.
The following unaudited pro forma consolidated results of operations have been prepared as if the acquisition of Prime had occurred as of the beginning of the following periods:
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.
NOTE 4 - ACCOUNTS RECEIVABLE
At December 31, 2018 and 2017, accounts receivable, net consisted of the following:
NOTE 5 - PROPERTY AND EQUIPMENT
At December 31, 2018 and 2017, property and equipment consisted of the following:
For the years ended December 31, 2018 and 2017, depreciation expense is included in general and administrative expenses and amounted to $97,169 and $0, respectively. During the year ended December 31, 2018, the Company traded in delivery trucks and vehicles of $72,342 with related accumulated depreciation of $603 and reduced notes payable of $56,933, resulting in a loss of $14,816 which is included in general and administrative expenses on the accompanying consolidated statement of operations.
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
NOTE 6 - INTANGIBLE ASSET
At December 31, 2018 and 2017, intangible asset consisted of the following:
For the years ended December 31, 2018 and 2017, amortization of intangible assets amounted to $567,181 and $0, respectively. Amortization of intangible assets attributable to future periods is as follows:
NOTE 7 - CONVERTIBLE PROMISSORY NOTES PAYABLE
Red Diamond Partners LLC
On April 25, 2017, the Company entered into a Securities Purchase Agreement with RedDiamond Partners LLC (“RedDiamond”) pursuant to which the Company would issue to RedDiamond Convertible Promissory Notes in an aggregate principal amount of up to $355,000, which includes a purchase price of $350,000 and transaction costs of $5,000. Pursuant to this securities purchase agreement, on April 25, 2017, the Company entered into a convertible promissory note in the aggregate principal amount of $100,000 and the Company received $95,000 after giving effect to the original issue discount of $5,000. This note matured on April 25, 2018 and each tranche will mature 1 year after the date of such funding. The second Tranche was received on June 2, 2017 for $85,000 and the third Tranche for $85,000 was received on August 8, 2017 upon filing of the Registration Statement. The fourth Tranche was to be for $85,000 and was to occur ninety days after the First Closing, however, as of the date of this filing, the fourth tranche has not yet been received. The Purchaser shall not be required to fund any Tranche subsequent to the first Tranche if there is an event of default as described in the promissory notes. Through date of default, the RedDiamond Notes bore interest at a rate of 12% per annum and are convertible into shares of the Company’s common stock at RedDiamond’s option at 65% of the lowest VWAP for the previous ten trading days preceding the conversion.
During 2018, the Company failed to make its required maturity date payments of principal and interest on a Convertible Promissory Notes of $270,000. In accordance with these notes, the Company entered into default on April 27, 2018, June 2, 2018 and August 8, 2018, which increased the interest rate to 18.0% per annum. As of the date of this report the lender has not notified the Company of default and has not exercised any of its remedies provided for in the note. One of the remedies the lender may request is an immediate repayment of the loans at 125% of the principal balance, which would result in the recording of penalty expenses of $67,500 and the related liability.
In connection with the issuance of the Convertible Promissory Note above, the Company determined that the terms of the Convertible Promissory Note included a down-round provision under which the conversion price could be affected by future equity offerings undertaken by the Company.
These convertible promissory notes contain cross default provisions whereby a default in any one note greater than $25,000 will cause a default in all the notes, however, this provision is only effective if there is a formal notice of default by the lender.
We evaluated these convertible promissory note transactions in accordance with ASC Topic 815, Derivatives and Hedging, and determined that the conversion feature of the convertible promissory notes were not afforded the exemption for conventional convertible instruments due to their respective variable conversion rate and price protection provision. Accordingly, under the provisions of FASB ASC Topic No. 815-40, “Derivatives and Hedging - Contracts in an Entity’s Own Stock”, the embedded conversion option contained in the convertible instruments were accounted for as derivative liabilities at the date of issuance and shall be adjusted to fair value through earnings at each reporting date.
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
The fair value of the embedded conversion option derivatives were determined in 2017 using the Black-Scholes valuation model. During 2017, on the initial measurement dates of each tranche received, the fair value of the embedded conversion option derivatives of $376,841 was recorded as derivative liabilities and was allocated as a debt discount up to the net proceeds of the Convertible Promissory Notes of $265,000 with the remainder of $111,841 charged as initial derivative expense.
The balance of the note payable as of December 31, 2018 and 2017 amounted to $270,000 and $151,630, comprised of principal balance of $270,000 and $270,000, respectively, net of debt discount relating to the bifurcated derivative of $0 and $118,370, respectively. On April 9, 2019, the Company entered into a new agreement with this lender that modified these Notes (See Note 15 - Subsequent Events).
RDW Capital, LLC.
On June 30, 2017, the Company issued RDW Capital, LLC a senior convertible note in the aggregate principal amount of $240,000, for an aggregate purchase price of $30,000 of which $15,000 had been recorded as advance from lender as of March 31, 2017 and the remaining $15,000 received on June 30, 2017. Through date of default, the principal due under the Note accrued interest at a rate of 12% per annum. All principal and accrued interest under the Note was due six months following the issue date of the Note, and is convertible into shares of the Company’s common stock, at a conversion price equal to fifty (50%) of the lowest volume-weighted average price for the previous ten trading days immediately preceding the conversion. The Note includes anti-dilution protection, including a down-round provision under which the conversion price could be affected by future equity offerings undertaken by the Company, as well as customary events of default, including non-payment of the principal or accrued interest due on the Note. Upon an event of default, all obligations under the Note will become immediately due and payable and the Company will be required to make certain payments to the Lender.
On December 31, 2017 the Company failed to make its required maturity date payment of principal and interest. In accordance with the note, the Company entered into default on January 3, 2018, which increased the interest rate to 24% per annum. As of the date of this report the lender has not notified the Company of default and has not exercised any of its remedies provided for in the note. One of the remedies the lender may request is an immediate repayment of the loan at 125% of the principal balance, which would result in the recording of $60,000 penalty expense and the related liability.
Under the provisions of FASB ASC Topic No. 815-40, “Derivatives and Hedging - Contracts in an Entity’s Own Stock”, the embedded conversion option contained in this convertible instruments were accounted for as derivative liabilities at the date of issuance and shall be adjusted to fair value through earnings at each reporting date. The fair value of the embedded conversion option derivatives were determined in 2017 using the Black-Scholes valuation model. On June 30, 2017, on the initial measurement date, the fair value of the embedded conversion option derivatives of $527,477 was recorded as derivative liabilities and was allocated as a debt discount up to the net proceeds of the Convertible Promissory Notes of $30,000 with the remainder of $497,477 charged as initial derivative expense.
The balance as of December 31, 2018 and 2017 amounted to $240,000 and $120,986, comprised of principal balance of $240,000 and $240,000, respectively, net of Original Issue Discount (OID) of $0 and $104,137 and debt discount relating to the bifurcated derivative of $0 and $14,877, respectively. On April 9, 2019, the Company entered into a new agreement with this lender that modified these Notes (See Note 15 - Subsequent Events).
Bellridge Capital, LLC.
On June 18, 2018, the Company entered into a securities purchase agreement (the “Purchase Agreement”), whereby it issued to an institutional investor (the “Lender”) a senior secured convertible note in the aggregate principal amount of $2,497,503 (the “Note”), for an aggregate purchase price of $1,665,000, net of an original issue discount of $832,503. In addition, the Company paid issue costs of $177,212. The original issue discount and issue costs were recorded as a debt discount to be amortized over the Note term. The principal due under the Note accrues interest at a rate of 10% per annum. Principal and interest payments of $232,940 were payable monthly beginning on December 18, 2018 and were due monthly over the term of the Note in cash or common stock of the Company, at the Lender’s discretion.
In August 2018, the Company defaulted on its convertible note payable with Bellridge due to (i) default on the payment of monthly interest payments due, (ii) default caused by the late filing of the Company’s report on Form 10-Q for the periods ended June 30, 2018 and September 30, 2018 and (iii) default of filing of a registration statement (See Note 7). Upon an event of default, all principal, accrued interest, and liquating damages and penalties were due upon request of the lender at 125% of such amounts.
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
On December 27, 2018, the lender waived any and all defaults in existence on the Note and the Company agreed to issue a warrant that is convertible into 2% of the issued and outstanding shares existing as the time the Company files a registration statement or makes an application to up list to a national stock exchange. Additionally, the principal interest amount due under the Note was modified with a monthly payment of principal and interests due beginning on January 18, 2019 of $156,219 with all remaining principal and interest amounts on the Note due on December 18, 2019. This modification was not considered a debt extinguishment, On April 9, 2019, the Company entered into a new agreement with this lender that modified these Notes (See Note 15 - Subsequent Events).
Pursuant to the warrant, at any time on or before the date that the Company files a registration statement on form S-l or applies for up-listing to a National Exchange, and on or prior to the close of business on the early of the first year anniversary of the issuance of December 27, 2018 (the “Termination Date”), Bellridge can to subscribe for and purchase from the Company up to 2% in shares (as subject to adjustment as defined in the warrant (the “Warrant Shares”) of common stock for an aggregate exercise price of $100. In connection with the issuance of this Warrant, the Company determined that this Warrant contains terms that are not fixed monetary amounts at inception. Accordingly, under the provisions of ASC Topic No. 815-40, “Derivatives and Hedging - Contracts in an Entity’s Own Stock”, the embedded conversion option contained in this Warrant shall be accounted for as derivative liabilities at the date of issuance and shall be adjusted to fair value through earnings at each reporting date. The fair value of this Warrant shall be determined using the Monte-Carlo simulation model. On April 9, 2019, the Company entered into a new agreement with this lender that cancelled these warrants (See Note 15 - Subsequent Events).
All principal and accrued interest under the Note is convertible into shares of the Company’s common stock, at a conversion price equal to the lower of $1.50 and 65% of the lowest traded price during the fifteen trading days immediately prior to the conversion date. The Note includes anti-dilution protection, as well as customary events of default, including, but not limited to, non-payment of the principal or accrued interest due on the Note and cross default provisions on other Company obligations or contracts. Upon an event of default, all obligations under the Note will become immediately due and payable and the Company will be required to make certain payments to the Lender. In addition, on June 18, 2018, the Lender was issued a warrant, with a term of two years, to purchase up to 4.75% of the fully-diluted outstanding Common Stock of the Company, for an aggregate purchase price of $100 (the “Warrant”). On April 9, 2019, the Company entered into a new agreement with this lender that cancelled these warrants (See Note 15 - Subsequent Events).
The Lender was granted a right of first refusal on future financing transactions of the Company while the Note remains outstanding, plus an additional three months thereafter. In connection with the issuance of the Note, the Company entered into a security agreement with the Lender (the “Security Agreement”) pursuant to which the Company agreed that obligations under the Note and related documents will be secured by all of the assets of the Company. In addition, all of the Company’s subsidiaries are guarantors of the Company’s obligations to the Lender pursuant to the Note and have granted a similar security interest over substantially all of their assets. A portion of the proceeds of the Note were used to acquire 100% of the membership interests of Prime (See Note 3).
During the term of this Note, in the event that the Company consummates any public or private offering or other financing or capital raising transaction of any kind ( each a “Subsequent Offering”), in which the Company receives, in one or more contemporaneous transactions, gross proceeds of at least $5,000,000, at any time upon ten (10) days written notice to the Holder, but subject to the Holder’s conversion rights set forth in the Purchase Agreement, then the Company shall use 20% of the gross proceeds of the Subsequent Offering and shall make payment to the Holder of an amount in cash equal to the product of (i) the sum of (x) the then outstanding principal amount of this Note and (y) all accrued but unpaid interest, multiplied by (ii) (x) 110%, if the Prepayment Date is within 90 days of the date hereof the Closing Date (as defined in the Purchase Agreement), or (y) 125%, if the Prepayment Date is after the 90th day following the Closing Date, to which calculated amount the Company shall add all other amounts owed pursuant to this Note, including, but not limited to, all Late Fees and liquidated damages.
In connection with the Purchase agreement, the Company entered into a registration rights agreement which, among other things, required the Company to file a registration statement with the Securities and Exchange Commission no later than 120 days after June 18, 2018. The Company failed to file such registration statement. Accordingly, in addition to any other rights the Holders may have hereunder or under applicable law, on the default date and on each monthly anniversary of each such default date (if the applicable event shall not have been cured by such date) until the ninetieth day from such Event Date, the Company shall pay to each Holder an amount in cash, as partial liquidated damages and not as a penalty, equal to the product of one percent (1%) multiplied by the aggregate subscription amount paid by the Holder pursuant to the Purchase Agreement. Subsequent to the ninetieth day from such default date, the one percent (1%) penalty described in the foregoing sentence shall increase to two percent (2%), with an aggregate cap of twenty percent (20%) per annum. If the Company fails to pay any of these partial liquidated damages in full within seven days after the date payable, the Company will pay interest thereon at a rate of 18% per annum to the Holder, accruing daily from the date such partial liquidated damages are due until such amounts, plus all such interest thereon, are paid in full. The partial liquidated damages pursuant to the terms hereof shall apply on a daily pro rata basis for any portion of a month prior to the cure of an Event. On December 27, 2018, the lender waived any and all defaults.
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
In connection with this Purchase Agreement, the Company paid a placement agent $120,000 in cash which is included in issue costs previously discussed above and this placement agent was issued a warrant, with a term of two years, to purchase up to 4.75% of the fully-diluted outstanding Common Stock of the Company, for an aggregate purchase price of $100 (the “Placement Warrant”).
In connection with the issuance of this Note, Warrants, and Placement Warrant, the Company determined that this Note and there Warrants contains terms that are not fixed monetary amounts at inception. Accordingly, under the provisions of FASB ASC Topic No. 815-40, “Derivatives and Hedging - Contracts in an Entity’s Own Stock”, the embedded conversion option contained in the convertible instrument and the Warrant and Placement Warrant were accounted for as derivative liabilities at the date of issuance and shall be adjusted to fair value through earnings at each reporting date. The fair value of this embedded conversion option derivative, and the Warrant and Placement Warrant were determined using the Binomial valuation model and Monte-Carlo simulation model, respectively.
In connection with the issuance of this Note, Initial Warrant and Placement Warrant, on June 18, 2018, the initial measurement date, the fair values of the embedded conversion option derivative and warrant derivatives of $8,326,853 was recorded as derivative liabilities and was allocated as a debt discount of $1,487,788, with the remainder of $6,839,065 charged to current period operations as initial derivative expense.
Summary of derivative liabilities
At the end of the period, the Company revalued the embedded conversion option and warrant derivative liabilities. In connection with these revaluations and the initial derivative expense, the Company recorded derivative expense of $5,799,282 and $309,521 for the years ended December 31, 2018 and 2017, respectively
During the years ended December 31, 2018 and 2017, the fair value of the derivative liabilities was estimated using the Black-Sholes valuation model, Binomial valuation model, and the Monte-Carlo simulation model with the following assumptions:
At December 31, 2018 and 2017, convertible promissory notes are as follows:
For the years ended December 31, 2018 and 2017, amortization of debt discounts related to these convertible notes amounted to $1,139,259 and $277,951, respectively, which has been included in interest expense on the accompanying consolidated statements of operations. The weighted average interest rate during the year ended December 31, 2018 and 2017 was approximately 21.2% and 10.0%, respectively.
NOTE 8 - NOTES PAYABLE
Secured merchant loans
In connection with the acquisition of Prime (See Note 3), the Company assumed several notes payable liabilities amounting to $944,281 pursuant to secured merchant agreements (the “Assumed Secured Merchant Loans”). Pursuant to the Assumed Secured Merchant Loans, the Company is required to repay the noteholders by making daily payments on each business day or on demand payments until the loans amounts are paid in full. Each payment is deducted directly from the Company’s bank accounts. The Assumed Secured Merchant Loans are secured by the assets of Prime, and are personally guaranteed by the former majority member of Prime. During the period from acquisition date of Prime (June 18, 2018) to December 31, 2018, the Company repaid $786,330 of these notes. At December 31, 2018, notes payable related to Assumed Secured Merchant Loans amounted to $157,951.
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
On September 20, 2018, the Company entered into a secured Merchant Loan in the amount of $521,250 and received net proceeds of $375,000, net of original issue discount of $146,250. Pursuant to this Secured Merchant Loan, the Company is required to repay the noteholders by making daily payments of $3,724 on each business day until the loans amounts are paid in full. Each payment is deducted directly from the Company’s bank accounts. This Secured Merchant Loan is secured by the Company’s assets and are personally guaranteed by the former majority member of Prime. During the period from September 20, 2018 to December 31, 2018, the Company repaid $256,956 of this note. At December 31, 2018, note payable related to this Secured Merchant Loan amounted to $190,125, which is net of unamortized debt discount of $74,169.
On October 1, 2018, the Company entered into a secured Merchant Loan in the amount of $209,850 and received net proceeds of $137,962, net of original issue discount of $59,850 and net of origination fees of $12,038. Pursuant to this Secured Merchant Loan, the Company is required to repay the noteholders by making daily payments of $1,749 on each business day until the loans amounts are paid in full. Each payment is deducted directly from the Company’s bank accounts. Additionally, on October 1, 2018, the Company entered into a second secured Merchant Loan in the amount of $139,900 and received net proceeds of $92,000, net of original issue discount of $39,900 and net of origination fees of $8,000. Pursuant to this Secured Merchant Loan, the Company is required to repay the noteholders by making daily payments of $1,166 on each business day until the loans amounts are paid in full. Each payment is deducted directly from the Company’s bank accounts. These Secured Merchant Loans are secured by the Company’s assets and are personally guaranteed by the former majority member of Prime. During the period from October 1, 2018 to December 31, 2018, the Company repaid $169,653 of these notes. At December 31, 2018, notes payable related to these Secured Merchant Loans amounted to $128,726, which is net of unamortized debt discount of $51,371.
On October 12, 2018, the Company entered into a secured Merchant Loan in the amount of $420,000. The Company simultaneously repaid a prior loan of $31,634, paid an origination fee of $10,500 and received net proceeds of $254,552, net of original issue discount of $123,314. Pursuant to this Secured Merchant Loan, the Company is required to repay the noteholder by making daily payments of $3,000 on each business day until the loans amounts are paid in full. Each payment is deducted directly from the Company’s bank accounts. This Secured Merchant Loans is secured by the Company’s assets and are personally guaranteed by the former majority member of Prime. During the period from October 12, 2018 to December 31, 2018, the Company repaid $162,000 of this note. At December 31, 2018, note payable related to this Secured Merchant Loan amounted to $171,752, which is net of unamortized debt discount of $86,248.
Promissory notes
In connection with the acquisition of Prime (See Note 3), the Company assumed several notes payable liabilities due to former members of Prime amounting to $459,750 (the “Member Notes”). The Member Notes have effective interest rates ranging from 7% to 10%, and are unsecured. During the period from acquisition date of Prime (June 18, 2018) to December 31, 2018, the Company repaid $459,750 of these notes. At December 31, 2018, notes payable related to former Member Notes amounted to $0.
In connection with the acquisition of Prime (See Note 3), the Company assumed several notes payable liabilities due to entities or individuals amounting to $297,005 (the “Note”). These notes have effective interest rates ranging from 7% to 10%, and are unsecured. During the period from acquisition date of Prime (June 18, 2018) to December 31, 2018, the Company borrowed an addition $50,000 and repaid $217,005 of these notes. At December 31, 2018, notes payable to these entities or individuals amounted to $130,000.
On August 1, 2018, the Company entered into a 10% Original Discount Senior Secured Demand Promissory Note with an investor. Pursuant to this promissory note, the Company borrowed $165,000 and received net proceeds of $150,000. The promissory note is payable on demand at any time prior to December 31, 2018. The promissory note was secured by the Company’s assets. On August 20, 2018, the Company repaid this promissory note of $165,000. Additionally, from October 31, 2018 to December 31, 2018, the Company entered into additional Original Discount Senior Secured Demand Promissory Notes with an investor (the “Promissory Note”). Pursuant to the Promissory Notes, the Company borrowed an aggregate of $770,000 and received net proceeds of $699,955, net of original issue discount of $70,000 and fees of $45. In December 2018, the Company repaid $220,000 of these promissory notes. At December 31, 2018, notes payable to this entity amounted to $505,945, which is net of unamortized debt discount of $44,055. The remaining notes are payable on demand at any time prior to March 15, 2019. These promissory notes are secured by the Company’s assets.
In October 2018, the Company entered into a promissory notes with an individual totaling $110,000 and received net proceeds of $100,000, net of original issue discount of $10,000. In December 2018, the Company repaid this note.
From November 2018 to December 2018, the Company entered into separate promissory notes with two individual totaling $215,000 and received net proceeds of $200,000, net of original issue discounts of $15,000. In December 2018, the Company repaid these loans.
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
Equipment and auto notes payable
In connection with the acquisition of Prime (See Note 3), the Company assumed several equipment notes payable liabilities due to entities amounting to $523,207 (the “Equipment Notes”). These Equipment Notes have effective interest rates ranging from 6.0% to 9.4%, and are secured by the underlying van or trucks. During the period from acquisition date of Prime (June 18, 2018) to December 31, 2018, the Company borrowed funds pursuant to Equipment Note agreements of $135,845, repaid $113,830 of these Equipment Notes, and reduce Equipment Notes by $56,933 related to the trade in of certain vans. At December 31, 2018, equipment notes payable to these entities amounted to $488,289.
During October and November 2018, the Company entered into auto financing agreements in the amount of $162,868. During the period from October 2018 to December 31, 2018, the Company repaid $1,832 of these notes. At December 31, 2018, auto notes payable to these entities amounted to $161,036.
At December 31, 2018 and 2017, notes payable consisted of the following:
NOTE 9 - COMMITMENTS AND CONTINGENCIES
Related party - lease
The Company executed a sublease agreement with an affiliate for office space for a one-year term. The sublease commenced on August 1, 2016 at a rate of $300 per month. The sublease was extended on August 1, 2017 and terminated on December 14, 2017, at which point the Company signed a new one-year term lease with the third-party landlord directly for the entire space previously occupied by the affiliate. The monthly rent under the renewed lease is $1,600 plus maintenance charges and taxes.
Common stock ownership
As a result of the Company’s non-effectiveness of the 1 for 30 reverse stock-split, which was previously represented to have been effective prior to the March 30, 2017 reverse merger, the Company’s Chief Executive Officer’s post reverse merger common stock ownership percentage has been reduced from approximately 99% to approximately 80%. The Company and the Chief Executive Officer are exploring remedies, which may include capital stock or other consideration, to correct this situation.
Employment agreement
On June 18, 2018, the Company entered into an employment agreement with the chief operating officer of Prime. The Company shall pay to this executive a base salary of $520,000 per year, payable in accordance with the Company’s usual pay practices. The executive’s base salary will increase by $260,000 per year upon (i) Prime achieving revenue of $20 million on an annualized basis (the “Initial Target Goal”) for four consecutive weeks; and (ii) each time Prime achieves revenue of an additional $10 million increment above the Initial Target Goal (i.e., $30 million, $40 million, $50 million, etc.) on an annualized basis for four consecutive weeks. Executive’s base salary shall be subject to review annually by the Manager and may be increased (but not decreased). The executive shall be entitled to participate in any bonus plan that the Manager or its designee may approve for the senior executives of the Company and shall be entitled to participate in benefits under the Company’s benefit plans, profit sharing and arrangements, including, without limitation, any employee benefit plan or arrangement made available in the future by the Company to its employees or senior executives, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and arrangements. Notwithstanding the foregoing, during the Employment, the Company will provide, at the Company’s expense, health and major medical insurance benefits to the Executive and his family members which are at least equal to the benefits provided to the Executive and his family members immediately prior to the Effective Date. The term of this Agreement (as it may be extended by the following sentence or terminated earlier pursuant to terms in the employment agreement shall begin on the Effective Date and end on the close of business on May 31, 2023. The Employment Term shall be automatically extended for additional one-year periods unless, at least sixty (60) days prior to the end of the expiration of the Employment Term.
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
Operating lease agreements
On November 30, 2018, the Company entered into a commercial lease agreement for the lease of sixty parking spaces under an operating lease through November 2023 for a monthly rental fee of $6,000. Either party can cancel this lease on the annual anniversary date of the lease provided that the party who wishes to terminate provides the other party with at least 30-day prior written notice of such termination.
In December 2018, the Company entered into a lease agreement for the lease of office and warehouse space and parking spaces under a non-cancelable operating lease through December 2023. From the lease commencement date until the last day of the second lease year, monthly rent shall be $14,000. At the beginning of the 30th month following the commencement date and through the end of the term, minimum rent shall be $14,420 per month. The Company shall have one option to renew the term of this lease for an additional five years. In January 2019, the Company paid a security deposit of $28,000.
At December 31, 2018, future minimum lease payments due under operating leases is as follows:
Other
From time to time, we may be involved in litigation relating to claims arising out of our operation in the normal course of business. As of December 31, 2018, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect on results of our operations.
NOTE 10- STOCKHOLDERS’ DEFICIT
Preferred stock
The preferred stock is designated Series A Convertible Preferred Stock. Each share of preferred stock has a par value of $.001 and a stated value of $1.00. Dividends are payable at the rate per share of 7% per annum cumulative based on the stated value. The Series A preferred shares have no voting rights, except as required by law. Each share of preferred stock is convertible based on the stated value at a conversion price of $20.83 at the option of the holder; provided, however, if a triggering event occurs, as defined in the document, the conversion price shall thereafter be reduced, and only reduced, to equal forty percent of the lowest VWAP during the thirty consecutive trading day period prior to the conversion date. As of December 31, 2018, the Company believes a triggering event has occurred. The beneficial ownership limitation attached to conversion is 4.99%, which can be decreased or increased, upon not less than 61 days’ notice to the Company, but in no event exceeding 19.99% of the number of shares of common stock outstanding immediately after giving effect to the issuance of common stock upon conversion of the preferred stock. After 36 months, the Company has the right to redeem all, but not less than all, of the outstanding preferred shares in cash at a price equal to 130% of the stated value plus any accrued but unpaid dividends thereon. Undeclared cumulative preferred stock dividends were approximately $560,000 as of December 31, 2018.
Recapitalization
On March 30, 2017, the Company closed the Share Exchange Agreement between Save-On and the Company was deemed to have issued 4,000,000 Series A convertible preferred shares and 113,294 common shares to the original shareholders of the Company. In connection with the recapitalization, the Company acquired assets of $10,000 and assumed liabilities of $48,458.
Common stock issued for services
On June 18, 2018, the Company granted 1,500,000 shares of its common stock to the Company chief executive officer for services rendered. The shares were valued at $3,090,000, or $2.06 per share, based on the quoted trading price on the date of grant. In connection with these shares, the Company recorded stock-based compensation of $3,090,000.
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
On June 18, 2018, the Company granted 600,000 shares of its common stock to two consultants for services rendered. The shares were valued at $1,236,000, or $2.06 per share, based on the quoted trading price on the date of grant. In connection with these shares, the Company recorded stock-based professional fees of $1,236,000.
Common stock issued for acquisition
In connection with the acquisition (See Note 3), the Company issued 1,500,000 unregistered shares of its common stock valued at $3,090,000, or $2.06 per share, the fair value of the Company’s common stock based on the quoted closing price of the Company’s common stock on the Closing Date.
Common stock issued as loan fee
In October 2018, the Company issued 50,000 shares of its common stock to the related party lender in connection with loans made between July and October 2018. The shares were valued at $100,000, or $2.00 per share, based on the quoted trading price on the date of grant. In connection with these shares, the Company recorded interest expense - related party of $100,000.
Warrants
In connection with the Purchase Agreement (See Note 7 under Bellridge), the Lender was issued a warrant, with a term of two years, to purchase up to 4.75% of the fully-diluted outstanding Common Stock of the Company, for an aggregate purchase price of $100. Additionally, the placement agent was issued a warrant, with a term of two years, to purchase up to 4.75% of the fully-diluted outstanding Common Stock of the Company, for an aggregate purchase price of $100.
On December 27, 2018, the lender waived any and all defaults in existence on the Note and the Company agreed to issue a warrant that is convertible into 2% of the issued and outstanding shares existing as the time the Company files a registration statement or makes an application to up list to a national stock exchange (See Note 7 under Bellridge).
Warrant activities for the year ended December 31, 2018 are summarized as follows:
NOTE 11- RELATED PARTY TRANSACTIONS AND BALANCES
In 2016, the Company executed a sublease agreement with an affiliate for office space for a one-year term. The sublease commenced on August 1, 2016 at a rate of $300 per month. The sublease was extended on August 1, 2017 and terminated on December 14, 2017, at which point the Company signed a new one-year term lease with the third-party landlord directly for the entire space previously occupied by the affiliate. Rent expense to the affiliate was $0 and $3,300 for the year ended December 31, 2018 and 2017, respectively.
In 2017, the Company utilized various ancillary services of the affiliate including software and certain technology without any charge by the affiliate. Additionally, in 2017, the Company utilized certain employees of the affiliate without any charge by the affiliate. As a result the Company did not incur any labor charges for the period January 1, 2017 through December 15, 2017, except the salary of the Chief Executive Officer.
Accounts payable - related party
In 2018 and 2017, the Company utilized an affiliate company as one of the carriers, providing auto transportation, in the normal course of business. The carrier fees incurred to this affiliate were $50,625 and $13,350 for the years ended December 31, 2018 and 2017, respectively. At December 31, 2018, amount due to this affiliate amounted to $3,700 and is included in accounts payable - related party on the accompanying consolidated balance sheets.
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
Due to related parties
During 2018 and 2017, certain revenue and related costs initially recorded by the Company were deemed as affiliate revenue and related costs and were therefore reversed. This was caused by either customers who had not yet approved the Company as a vendor or remittances which were made to the affiliate directly. Such remittances were then remitted from the affiliate back to the Company. The outcome resulted in a net due to affiliate of $0 and $23,551 as of December 31, 2018 and 2017, respectively.
In connection with the acquisition of Prime (See Note 3), the Company acquired a balance of $14,019 that was due from the former majority owner of Prime. Pursuant to the terms of the SPA, the Company agreed to pay $489,174 in cash to the former majority owner of Prime who then advanced back the $489,174 to Prime. During the period from acquisition date of Prime (June 18, 2018) to December 31, 2018, the Company repaid $216,155 of this advance. This advance is non-interest bearing and is due on demand. At December 31, 2018, amount due to this related party amounted to $259,000.
During the period from acquisition date of Prime (June 18, 2018) to December 31, 2018, an employee of Prime who exerts significant influence over the business of Prime, paid costs and expenses of $56,507 on behalf of the Company and was reimbursed $40,207 by the company. These advances are non-interest bearing and is due on demand. At December 31, 2018, amounts due to this related party amounted to $16,300.
Notes payable - related party
From July 25, 2018 through December 31, 2018, the Company entered into a Promissory Notes with the Company’s chief executive office or the spouse of the Company’s chief executive officer. Pursuant to these promissory notes, the Company borrowed an aggregate of $1,150,000 and received net proceeds of $1,050,000, net of original issue discounts of $100,000. From July 25, 2018 through December 31, 2018, $930,000 of these loans were repaid. At December 31, 2018, notes payable - related party amounted to $213,617, which is net of unamortized debt discount of $6,383.
NOTE 12 - 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 at December 31, 2018 and 2017 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.
On December 22, 2017, the Tax Cuts and Jobs Act (“the Act”) was signed into law, a tax reform bill which, among other items, reduces the current federal income tax rate to 21% from 34%. The rate reduction is effective January 1, 2018, and is permanent. The Act has caused the Company’s deferred income taxes to be revalued. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through income tax expense. Pursuant to the guidance within SEC Staff Accounting Bulletin No. 118 (“SAB 118”), as of December 31, 2017, the Company recognized the provisional effects of the enactment of the Act for which measurement could be reasonably estimated. Since the Company has provided a full valuation allowance against its deferred tax assets, the revaluation of the deferred tax assets did not have a material impact on any period presented. The ultimate impact of the Act may differ from these estimates due to the Company’s continued analysis or further regulatory guidance that may be issued as a result of the Act.
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, 2018 and 2017 were as follows:
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
The Company’s approximate net deferred tax asset as of December 31, 2018 and 2017 was as follows:
The net operating loss carryforward was approximately $4,139,807 at December 31, 2018. The Company provided a valuation allowance equal to the net deferred income tax asset as of December 31, 2018 because it was not known whether future taxable income will be sufficient to utilize the loss carryforward. During the year ended December 31, 2018, the valuation allowance increased by $1,011,942. Additionally, the future utilization of the net operating loss carryforward to offset future taxable income is subject to an annual limitation as a result of ownership changes that may occur in the future. The 2017 estimated loss carry forward of $120,600 expires on December 31, 2037. The 2018 estimated loss carry forward may be carried forward indefinitely subject to annual usage limitations.
The Company does not have any uncertain tax positions or events leading to uncertainty in a tax position. The Company’s 2015 to 2018 Corporate Income Tax Returns are subject to Internal Revenue Service examination.
NOTE 13 - CONCENTRATIONS
For the year ended December 31, 2018, one customer represented 74.1% of the Company’s total net revenues. This revenue is from one Prime customer for the period from June 19, 2018 to December 31, 2018. For the year ended December 31, 2017, two customers represented 23% and 12% respectively of the Company’s total net revenues. At December 31, 2018, one customer represented 54.5% of the Company’s accounts receivable balance. As of December 31, 2017, two customers represented 12% and 10% of the Company’s accounts receivable balance.
For the year ended December 31, 2018 and 2017, the Company had no carriers that were in excess of 10% of carrier fees.
During the period from June 19, 2018 and December 31, 2018, the Company rented delivery vans from one vendor. Any shortage of supply of vans available to rent to the Company could have a material adverse effect on the Company’s business, financial condition and results of operations.
All revenues are derived from customers in the United States.
NOTE 14 - SEGMENT INFORMATION
During the year ended December 31, 2017, and for the period from January 1, 2018 to June 18, 2018, the Company operated in one reportable business segment consisting of brokerage and logistic services such as transportation scheduling, routing and other value added services related to the transportation of automobiles and other freight. Since June 18, 2018, the Company operated in three reportable business segments - (1) the transportation of automobiles and other freight (the “Save On” segment), (2) a segment which concentrates on deliveries for on-line retailers in New York, New Jersey and Pennsylvania (the “Prime” segment), and (3) a segment with a focus on tractor trailer and box truck deliveries of product on the east coast of the United States from one distributor’s warehouse to another warehouse or from a distributor’s warehouse to the post office. The Company’s reportable segments were strategic business units that offered different products. They were managed separately based on the fundamental differences in their operations and locations.
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
Information with respect to these reportable business segments for the years ended December 31, 2018 and 2017 was as follows:
(a) The Company does not allocate any general and administrative expense of its holding company activities to its reportable segments, because these activities are managed at the corporate level.
NOTE 15 - SUBSEQUENT EVENTS
Secured merchant loans
On January 14, 2019, the Company entered into a secured Merchant Loan in the amount of $764,500. The Company simultaneously repaid a prior loan of $223,329 which was entered into during September 2018, paid an origination fee of $10,034 and received net proceeds of $316,637, net of original issue discount of $214,500. Pursuant to this Secured Merchant Loan, the Company is required to repay the noteholders by making daily payments of $6,371 on each business day until the loans amounts are paid in full. Each payment is deducted directly from the Company’s bank account. This Secured Merchant Loans is secured by the Company’s assets and are personally guaranteed by the former majority member of Prime.
On January 24, 2019, the Company entered into a secured Merchant Loan in the amount of $417,000. The Company simultaneously paid an origination fee of $7,998 and received net proceeds of $292,002, net of original issue discount of $117,000. Pursuant to this Secured Merchant Loan, the Company is required to repay the noteholders by making daily payments of $3,972 on each business day until the loans amounts are paid in full. Each payment is deducted directly from the Company’s bank account. This Secured Merchant Loans is secured by the Company’s assets and are personally guaranteed by the former majority member of Prime.
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
On January 28, 2019, the Company entered into a secured Merchant Loan in the amount of $759,000 and received net cash of $315,097 after paying origination fee of $25,750, an original issue discount of $209,000, and the repayment of previous loans and interest due to this lender of $209,153. Pursuant to this Secured Merchant Loan, the Company is required to repay the noteholders by making daily payments of $4,897 on each business day until the loans amounts are paid in full. Each payment is deducted directly from the Company’s bank account. This Secured Merchant Loans is secured by the Company’s assets and are personally guaranteed by the former majority member of Prime.
From February 25, 2019 to March 6, 2019, the Company entered into four secured Merchant Loans in the aggregate amount of $1,199,200. The Company simultaneously repaid prior loans of $69,327 which were entered into during October 2018, paid origination fees totaling $78,286 and received net proceeds of $652,387, net of original issue discounts of $399,200. Pursuant to these four secured Merchant Loans, the Company was required to pay the noteholders by make daily payments aggregating $11,993 on each business day until the loan amounts were paid in full. Each payment was deducted from the Company’s bank account. On April 10, 2019, the Company paid off these secured Merchant Loans in full by paying an aggregate amount of $703,899. As a result of paying off these loans early, the noteholders reduced the origination fees and debt discounts by $229,195 in the aggregate.
Promissory Notes
From January 2019 to April 2019, the Company entered into separate promissory notes with seven individuals totaling $1,616,250 and received net proceeds of $1,435,000, net of original issue discounts of $181,250. These Notes are due between 45 and 273 days from the respective Note date. Other than the original issue discount, no additional interest is due to the holders. In connection with these promissory notes, the Company issued 53,000 warrants to purchase 53,000 shares of the Company’s common stock at an exercise price of $1.00 per share. The warrants are exercisable over a five year period.
During January 2019, the Company entered into a separate promissory note with an individual totaling $26,900 at a simple annual interest rate of 15% bring the total promissory note balance to $77,090 for this individual. From February 2019 to April 2019, the Company repaid $60,000 of these promissory notes. In connection with this promissory note, the Company issued warrants to purchase 1,000 shares of the Company’s common stock at an exercise price of $1.00 per share. The warrants are exercisable over a five year period.
During March 2019, the Company entered into two separate promissory notes with an entity totaling $165,000 and received net proceeds of $150,000, net of original issue discounts of $15,000. During March 2019, the Company repaid $55,000 of these promissory notes.
Notes payable - related parties
During January 2019, the Company repaid an existing promissory note totaling $220,000 with the spouse of the Company’s chief executive officer. In addition, during February 2019, the Company entered into another promissory note with the spouse of the chief executive officer totaling $230,000, net of an original issue discount of $30,000.
Convertible debt and related warrants
On April 9, 2019, the Company entered into an agreement with Bellridge Capital, L.P. (“Bellridge”) that modifies its existing obligations to Bellridge (See Note 7) as follows:
● the overall principal amount of that certain Convertible Promissory Note, dated June 18, 2018, issued by the Company in favor of Bellridge (the “Note”) was reduced from $2,497,502 to $1,800,000, in exchange for the issuance to Bellridge of 800,000 shares of restricted common stock, which shall be delivered to Bellridge, either in whole or in part, at such time or times as when the beneficial ownership of such shares by Bellridge will not result in Bellridge’s beneficial ownership of more than the Beneficial Ownership Limitation and such shares will be issued within three business days of the date the Bellridge has represented to the Company that it is below the Beneficial Ownership Limitation. Such issuances will occur in increments of no fewer than the lesser of (i) 50,000 shares and (ii) the balance of the 800,000 shares owed. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Company’s common stock outstanding immediately after giving effect to the issuance of shares of common stock issuable pursuant to this Agreement. As of April 15, 2019, 100,000 of these shares have been issued;
● the maturity date of the Note was extended to August 31, 2020;
● the interest rate was reduced from 10% to 5% per annum;
● if the Company completes an offering of equity or equity linked securities (including warrants, convertible preferred stock, convertible debentures or convertible promissory note) which results in gross proceeds to the Company of at least $4,000,000, then the Company shall use a portion of the proceeds thereof to repay not less than half of the obligations then outstanding pursuant to the Note;
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
● if the Company completes an offering of debt which results in gross proceeds to the Company of at least $3,000,000, then the Company shall use a portion of the proceeds thereof to repay any remaining obligations then outstanding pursuant to the Note;
● the convertibility of the Note will now be amended such that the Note shall only be convertible at a conversion price to be mutually agreed upon between the Company and the Holder;
● the registration rights previously granted to Bellridge have now been eliminated; and
● those certain Warrants, dated June 18, 2018 and December 27, 2018, respectively, issued by the Company in favor of Bellridge shall be cancelled and of no further force or effect. In exchange, the Company will issue Bellridge 360,000 shares of restricted common stock.
In addition, on April 9, 2019, warrant holders holding warrants exercisable into an aggregate of 4.75% of the outstanding common stock of the Company all agreed to exercise such warrants for an aggregate of 240,000 shares of common stock of the Company.
On April 9, 2019, the Company entered into agreements with another institutional investor, RedDiamond Partners LLC, holding convertible notes representing an aggregate principal amount of $510,000, and agreed with such holder to:
●
extend the maturity date of the notes to December 31, 2020;
●
remove all convertibility features of the notes; and
●
if the Company completes an offering of equity or equity linked securities (including warrants, convertible preferred stock, convertible debentures or convertible promissory note) which results in gross proceeds to the Company of at least $4,000,000, then the Company shall use a portion of the proceeds thereof to repay not less than half of the obligations then outstanding pursuant to the notes.
On March 13, 2019, the Company entered into a convertible note agreement with an individual in the amount of $500,000. Commencing on April 11, 2019, and continuing on the eleventh day of each month thereafter, payments of interest only on the outstanding principal balance of this Note of $7,500 shall be due and payable. Commencing on October 11, 2019 and continuing on the eleventh day of each month thereafter through April 11, 2021, payments of principal and interest of $31,902 shall be made, if not sooner converted as provided in the note agreement. The payment of all or any portion of the principal and accrued interest may be paid prior to the April 11, 2021. Interest shall accrue with respect to the unpaid principal sum identified above until such principal is paid or converted as provided below at a rate equal to 18% per annum compounded annually. All past due principal and interest on this Note shall bear interest from maturity of such principal or interest (in wha1ever manner same may be brought about) until paid at the lesser of (i) 20% per annum, or (ii) the highest non-usurious rate allowed by applicable law. This Note may be converted by Holder at any time in principal amounts of $100,000 in accordance with the terms by delivery of written notice to the Company, into that number of shares of common stock equal to the amount obtained by dividing the portion of the aggregate principal amount of this Note that is being converted by $1.37.
On April 11, 2019, the Company entered into a convertible note agreement with an entity in the amount of $2,000,000. Commencing on May 11, 2019, and continuing on the eleventh day of each month thereafter, payments of interest only on the outstanding principal balance of this Note of $30,000 shall be due and payable. Commencing on November 11, 2019 and continuing on the eleventh day of each month thereafter through April 11, 2021, payments of principal and interest of $117,611, if not sooner converted as provided in the note agreement. The payment of all or any portion of the principal and accrued interest may be paid prior to the April 11, 2021. Interest shall accrue with respect to the unpaid principal sum identified above until such principal is paid or converted as provided below at a rate equal to 18% per annum compounded annually. All past due principal and interest on this Note shall bear interest from maturity of such principal or interest (in wha1ever manner same may be brought about) until paid at the lesser of (i) 20% per annum, or (ii) the highest non-usurious rate allowed by applicable law. This Note may be converted by Holder at any time in principal amounts of $100,000 in accordance with the terms by delivery of written notice to the Company, into that number of shares of common stock equal to the amount obtained by dividing the portion of the aggregate principal amount of this Note that is being converted by $11.81.
Series A preferred stock
On April 9, 2019, the Company entered into agreements with all holders of their Series A Convertible Preferred Stock to exchange all 4,000,000 outstanding shares of preferred stock for an aggregate of 2,600,000 shares of restricted common stock.
Shares issued for services
On February 25, 2019, the Company granted an aggregate of 2,670,688 shares of its common stock to an executive officer, employees and consultants of the Company for services rendered. The shares were valued at $2,750,809, or $1.03 per share, based on the quoted trading price on the date of grant. In connection with these shares, the Company recorded stock-based compensation of $2,750,809.
ITEM 9.
ITEM 9. DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
We did not have any disagreements on accounting and financial disclosures with our present independent registered public accounting firm during the reporting period.
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, consisting of our sole officer, carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Exchange Rule 13a-15(e)) for the year ended December 31, 2018. 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 concluded that our disclosure controls and procedures were not effective as of December 31, 2018 because of the items set forth below under “Management’s Report on Internal Control over Financial Reporting”:
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 sole 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, 2018.
1) Lack of a functioning audit committee due to a lack of a majority of independent board members and a lack of a majority of outside directors on our board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures;
2) The Company lacks segregation of duties as our sole director is also our sole officer;
3) There is a lack of segregation of duties and monitoring controls regarding accounting because there are only a few accountants maintaining the books and records;
4) Our Chief Executive Officer does not have significant financial experience resulting in the Company’s use of an outside consultant to assist in financial expertise;
5) The Company does not have adequate controls over pre-closing legal and accounting review of business acquisition and loan transactions;
6) The Company did not have adequate controls over accounting systems that would prohibit unauthorized changes to historical accounting records. Recently, the Company implemented controls to address this situation;
7) The Company lacks supervision of outside consultants who may negotiate transactions on behalf of the Company;
8) The Company has not yet implemented any internal controls over financial reporting at its recently acquired subsidiary, and:
9) The Company lacks control over who is granted authorization to bind the Company or its subsidiaries to legal contracts.
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, 2018. However, management believes that the lack of a functioning audit committee and the lack of a majority of outside directors on our board of directors results in ineffective oversight in the establishment and monitoring of required internal controls and procedures, which could result in a material misstatement in our consolidated financial statements in future periods.
Management Plan to Remediate Material Weaknesses
Management is pursuing the implementation of corrective measures to address the material weaknesses described above. In an effort to remediate the identified material weaknesses and other deficiencies and enhance our internal controls, we have initiated, or plan to initiate, the following series of measures:
We will create a position to segregate duties consistent with control objectives and will increase our personnel resources and technical accounting expertise within the accounting function when funds are available to us. We plan to appoint one or more outside directors to our Board of Directors who shall be appointed to an audit committee resulting in a fully functioning audit committee who will undertake the oversight in the establishment and monitoring of required internal controls and procedures such as reviewing and approving estimates and assumptions made by management when funds are available to us.
We plan on implementing other policies and procedures to address all remaining material weaknesses discussed above.
We believe the remediation measures described above will remediate the material weaknesses we have identified and strengthen our internal control over financial reporting. We are committed to continuing to improve our internal control processes and will continue to diligently and vigorously review our financial reporting controls and procedures. 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 or determine to modify, or in appropriate circumstances not to complete, certain of the remediation measures described above.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the most recent fiscal year 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.
ITEM 9B.
ITEM 9B. OTHER INFORMATION.
Not applicable.
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
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/as
Executive Officer
Steven Yariv (1)
Chief Executive Officer and Director
March 30, 2017
(1) Steven Yariv had been the Chief Executive Officer and Sole Director of Save on Transport since its inception.
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.
A majority of the authorized number of directors constitutes a quorum of the Board of Directors for the transaction of business. The directors must be present at the meeting to constitute a quorum. However, any action required or permitted to be taken by the Board of Directors may be taken without a meeting if all members of the Board of Directors individually or collectively consent in writing to the action. Executive officers are appointed by the Board of Directors and serve at its pleasure.
The principal occupation and business experience during at least the past five years for our executive officers and directors is as follows:
Steven Yariv - Chief Executive Officer and Director through date of this annual report
Steven Yariv is Chief Executive Officer and Chairman of the Board of Directors of the Company and the Chief Executive Officer of Save on Transport. Mr. Yariv has been the Chief Executive Officer/President of Save on Transport since inception, and he has been involved in the transportation industry for 15 years.
Effective with the filing of this Annual Report on Form 10-K for the fiscal year ended December 31, 2018, Steven Yariv, our current Chief Executive Officer and sole director, has agreed to resign from his position as Chief Executive Officer of the Company. However, he will remain as a board member and will continue to be involved in the operations of Save On. The Board of Directors (the “Board”) of the Company has appointed John Mercadante as Chief Executive Officer and President of the Company and Doug Cerny as Chief Development Officer of the Company, effective immediately upon the filing of this 10-K. The Board also has agreed to appoint John Mercadante and Doug Cerny as directors to fill vacancies on the Board, effective immediately upon the filing of this 10-K. John Mercadante will serve as Chairman of the Board. Mr. Mercadante and Mr. Cerny’s bios appear below:
John Mercadante - Chairman of the Board, President and Chief Executive Officer
John Mercadante, age 74. John cofounded Leisure Line, Inc., a motor coach company serving New York City and Atlantic City, New Jersey, in 1970 and served as the Chief Executive Officer for a ten year period through the sale of the company to Golden Nugget in 1980. At the time of the sale Leisure Line was generating approximately $11 million in annual revenues. In 1988 John cofounded Cape Transit, Inc., a motor coach company servicing Atlantic City, Philadelphia and South New Jersey under John Mercadante’s leadership as CEO. Annual revenues at Cape Transit grew from $2 million to more than $11 million. In May 1996, Cape Transit became one of the founding companies of Coach USA, Inc. and John Mercadante became Coach USA’s president and Chief Operating Officer. John was an integral part of growing Coach’s annual revenues from $100 million to over $1 billion in revenues in just three years.
Doug Cerny - Director, Chief Development Officer
Doug Cerny, age 60. Doug was the Senior Vice President and General Counsel of Coach USA, Inc. A major portion of the acquisitions completed by Coach USA were through the teamwork of Doug and John Mercadante in conjunction with personnel experienced in financial, integration and human capital management. Doug has extensive experience in mergers and acquisitions and business transactions. Doug earned a Bachelor’s of Science Civil Engineering from Valparaiso University, and his law degree and his Masters of Business Administration from the University of Houston, Houston, Texas.
Director Independence
We are not currently subject to the listing requirements of any national securities exchange or inter-dealer quotation system which has requirements that a majority of the Board of Directors be “independent” and, as a result, we are not at this time required to have our Board of Directors comprised of a majority of “independent directors.” We do not have an independent director under the applicable standards of the SEC and the Nasdaq stock market.
Family Relationships
There are no family relationships among our directors and executive officers.
Involvement in Certain Legal Proceedings
None of our directors or executive officers has been involved in any of the following events during the past ten years:
● 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;
● any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offences);
● 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 or her involvement in any type of business, securities or banking activities; or
● being found by a court of competent jurisdiction (in a civil action), the Commission 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.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers, and persons who own more than 10% of our outstanding common stock, to file with the SEC initial reports of ownership and reports of changes in ownership of common stock. Officers, directors and greater than 10% stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file.
Based solely upon a review by us of Forms 3 and 4 relating to fiscal years 2018 and 2017 as furnished to us under Rule 16a-3(d) under the Act, and Forms 5 and amendments thereto furnished to us with respect to fiscal year 2017, we believe that during the fiscal years ended December 31, 2018 and 2017, there was no failure to comply with Section 16(a) filing requirements applicable to our officers, directors and 10% stockholders.
Code of Ethics
The Company expects to adopt a code of ethics during fiscal year 2019.
Audit Committee
We do not have an audit committee and as a result our board of directors performs the duties of an audit committee. Our board of directors evaluates the scope and cost of the engagement of an auditor before the auditor renders audit and non-audit services.
Compensation Committee
We do not have a compensation committee and as a result our board of directors performs the duties of a compensation committee. Our board of directors reviews and approves various compensation policies and matters and reviews and approves salaries, bonuses and other matters relating to our officers.
Family Relationships
There are no family relationships among our directors and executive officers. No director or executive officer has been a director or executive officer of any business, which has filed a bankruptcy petition, or had a bankruptcy petition filed against it. No director or executive officer has been convicted of a criminal offense within the past five years or is the subject of a pending criminal proceeding. No director or executive officer has been the subject of any order, judgment or decree of any court permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities. No director or officer has been found by a court to have violated a federal or state securities or commodities law.
Director Independence
The Company does not currently have any independent directors.
Options/SAR Grants and Fiscal Year End Option Exercises and Values
We have not had a stock option plan or other similar incentive compensation plan for officers, directors and employees, and no stock options, other than as is discussed in this Annual Report.
Item 11.
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 (i) all individuals that served as our principal executive officer or acted in a similar capacity for us at any time during the most recent fiscal year indicated; (ii) the two most highly compensated executive officers who were serving as executive officers of us at the end of the most recent fiscal year indicated that received annual compensation during such fiscal year in excess of $100,000; and (iii) up to two additional individuals for whom disclosure would have been provided pursuant to clause (ii) above but for the fact that the individual was not serving as an executive officer of us at the end of the most recent fiscal year indicated.
(1) Reflects compensation received from Save on Transport.
(2) Reflects grant date fair value of restricted stock awards computed in accordance with FASB ASC Topic 718.
Employment Agreements
The Company has no executive officer employment agreements in place as of April 13, 2019.
We have no plans in place and have never maintained any plans that provide for the payment of retirement benefits or benefits that will be paid primarily following retirement including, but not limited to, tax qualified deferred benefit plans, supplemental executive retirement plans, tax-qualified deferred contribution plans and nonqualified deferred contribution plans. The Company also does not currently offer or have any benefits, such as health or life insurance, available to its employees.
Outstanding Equity Awards at Fiscal Year-End
At fiscal year ended, we did not have any outstanding equity awards to our officer.
Director Compensation
Steve Yariv, the Company’s sole director receives no compensation as director, however, Mr. Yariv was paid $441,000 in compensation in his role as Chief Executive Officer as such during the 2018 period covered by this Annual Report.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. In accordance with Securities and Exchange Commission rules, shares of our Common Stock which may be acquired upon exercise of stock options or warrants which are currently exercisable or which become exercisable within 60 days of the date of the applicable table below are deemed beneficially owned by the holders of such options and warrants and are deemed outstanding for the purpose of computing the percentage of ownership of such person, but are not treated as outstanding for the purpose of computing the percentage of ownership of any other person. Subject to community property laws, where applicable, the persons or entities named in the tables below have sole voting and investment power with respect to all shares of our Common Stock indicated as beneficially owned by them.
The following table sets forth information with respect to the beneficial ownership of our Common Stock as of April 13, 2019, by (i) each stockholder known by us to be the beneficial owner of more than 5% of our Common Stock (our only class of voting securities), (ii) each of our directors and executive officers, and (iii) all of our directors and executive officers as a group. 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 c/o Save on Transport, 2833 Exchange Court, West Palm Beach, FL 33409.
(1) Applicable percentage ownership is based on 10,191,525 shares of Common Stock outstanding as of April 15, 2019.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In 2016, we executed a sublease agreement with an affiliate for office space for a one-year term. The sublease commenced on August 1, 2016 at a rate of $300 per month. The sublease was extended on August 1, 2017 and terminated on December 14, 2017, at which point the Company signed a new one-year term lease with the third-party landlord directly for the entire space previously occupied by the affiliate. Rent expense to the affiliate was $0 and $3,300 for the year ended December 31, 2018 and 2017, respectively.
In 2017, we utilized various ancillary services of the affiliate including software and certain technology without any charge by the affiliate. Additionally, in 2017, we utilized certain employees of the affiliate without any charge by the affiliate. As a result we did not incur any labor charges for the period January 1, 2017 through December 15, 2017, except the salary of the Chief Executive Officer.
Accounts payable - related party
In 2018 and 2017, we utilized an affiliate company as one of the carriers, providing auto transportation, in the normal course of business. The carrier fees incurred to this affiliate were $50,625 and $13,350 for the years ended December 31, 2018 and 2017, respectively. At December 31, 2018, amount due to this affiliate amounted to $3,700 and is included in accounts payable - related party on the accompanying consolidated balance sheets.
Due to related parties
During 2018 and 2017, certain revenue and related costs initially recorded by the Company were deemed as affiliate revenue and related costs and were therefore reversed. This was caused by either customers who had not yet approved the Company as a vendor or remittances which were made to the affiliate directly. Such remittances were then remitted from the affiliate back to the Company. The outcome resulted in a net due to affiliate of $0 and $23,551 as of December 31, 2018 and 2017, respectively.
In connection with the acquisition of Prime, we acquired a balance of $14,019 that was due from the former majority owner of Prime. Pursuant to the terms of the SPA, we agreed to pay $489,174 in cash to the former majority owner of Prime who then advanced back the $489,174 to Prime. During the period from acquisition date of Prime (June 18, 2018) to December 31, 2018, we repaid $216,155 of this advance. This advance is non-interest bearing and is due on demand. At December 31, 2018, amount due to this related party amounted to $259,000.
During the period from acquisition date of Prime (June 18, 2018) to December 31, 2018, an employee of Prime who exerts significant influence over the business of Prime, paid costs and expenses of $56,507 on behalf of the Company and was reimbursed $40,207 by the Company. These advances are non-interest bearing and is due on demand. At December 31, 2018, amounts due to this related party amounted to $16,300.
Notes payable - related party
From July 25, 2018 through December 31, 2018, we entered into a Promissory Notes with our chief executive officer or his spouse. Pursuant to these promissory notes, we borrowed an aggregate of $1,150,000 and received net proceeds of $1,050,000, net of original issue discounts of $100,000. From July 25, 2018 through December 31, 2018, $930,000 of these loans were repaid. At December 31, 2018, notes payable - related party amounted to $213,617, which is net of unamortized debt discount of $6,383.
There are not currently any conflicts of interest by or among its 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.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Aggregate fees billed or incurred related to the following years for professional services rendered by our independent auditor, Salberg & Company, PA for 2018 and 2017 are set forth below.
We do not have an audit committee and as a result our board of directors performs the duties of an audit committee. Our board of directors evaluates the scope and cost of the engagement of an auditor before the auditor renders audit and non-audit services.
ITEM 15.
ITEM 15. EXHIBITS FINANCIAL STATEMENT SCHEDULES.
The following financial information is filed as part of this report:
(a)
(1) FINANCIAL STATEMENTS
(2) SCHEDULES
(3) EXHIBITS. The following exhibits required by Item 601 to be filed herewith are incorporated by reference to previously filed documents:
Exhibit Number
Description
2.1
Share Exchange Agreement, dated as of March 30, 2017, by and among the Registrant and Save on Transport Inc. (incorporated by reference to Exhibit 2.1 to our Form 8-K dated April 5, 2017).
3.1
Articles of Incorporation, as amended (incorporated by reference to Exhibit 3.1 to our Form 10-K dated June 30, 2015).
3.2
Certificate of Change filed with the Nevada Secretary of State, dated December 18, 2013 (incorporated by reference to Exhibit 3.1 to our Form 8-K dated December 24, 2013).
3.3
Bylaws (incorporated by reference to Exhibit 3.2 to our Form 8-K dated December 20, 2011).
3.4
Certificate of Amendment to Amended and Restated Articles of Incorporation dated July 16, 2018 (incorporated by reference to Exhibit 3.1 to our Form 8-K dated July 23, 2018).
4.1
Form of Senior Convertible Promissory Note from 2017 (incorporated by reference to Exhibit 4.1 to our Form 8-K dated April 27, 2017).
4.2
Certificate of Amendment to the Certificate of Designation, Preferences and Rights of the Series A Convertible Preferred Stock of PetroTerra Corp., dated August 7, 2017 (incorporated by reference to Exhibit 4.1 to our Form 8-K dated August 8, 2017).
4.3
Form of Senior Secured Convertible Promissory Note dated June 16, 2018 (incorporated by reference to Exhibit 4.1 to our Form 8-K dated June 27, 2018).
4.4
Common Stock Purchase Warrant, issued by the Company on June 19, 2018 (incorporated by reference to Exhibit 4.2 to our Form 8-K dated June 27, 2018).
10.1
Securities Purchase Agreement, dated as of April 25, 2017, by and among the Company and the Lender (incorporated by reference to Exhibit 10.1 to our Form 8-K dated April 27, 2017).
10.2
Securities Purchase Agreement, dated June 18, 2018, between the Company and an institutional investor (incorporated by reference to Exhibit 10.1 to our Form 8-K dated June 27, 2018).
10.3
Security Agreement, dated June 18, 2018, between the Company and an institutional investor (incorporated by reference to Exhibit 10.2 to our Form 8-K dated June 27, 2018).
10.4
Stock Purchase Agreement, dated June 18, 2018, between the Company, Prime EFS LLC and the sellers signatory thereto. (incorporated by reference to Exhibit 10.3 to our Form 8-K dated June 26, 2018).
10.5
Agreement, dated April 9, 2019, by and between the Company and Bellridge Capital, L.P. (incorporated by reference to Exhibit 10.1 to our Form 8-K dated April 10, 2019).
10.6
Form of Agreements, by and between the Company and RedDiamond Partners LLC incorporated by reference to Exhibit 10.1 to our Form 8-K dated April 10, 2019).
10.7
Form of Series A Convertible Preferred Stock Exchange Agreement incorporated by reference to Exhibit 10.1 to our Form 8-K dated April 10, 2019).
31.1*
Certification of Principal Executive Officer pursuant to Section 302
31.2*
Certification of Principal Financial Officer pursuant to Section 302
32.1*
Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906
101.INS*
XBRL Instances Document
101.SCH*
XBRL Taxonomy Extension Schema Document
101.CAL*
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*
XBRL Taxonomy Extension Label Linkbase Document
101.PRE*
XBRL Taxonomy Extension Presentation Linkbase Document
* Filed Herewith.
Item 16. Form 10-K Summary.
None
SIGNATURES
In accordance with Section 12 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 on April 16, 2019.
TRANSPORTATION AND LOGISTICS SYSTEMS, INC. CORP.
By: /s/ Steven Yariv
Steven Yariv, Principal Executive Officer, Principal Financial Officer and Sole Director