FORWARD LOOKING STATEMENTS
Statements made in this Form 10-Q 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 using 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. Factors that may affect the results of our
operations include, among others: our ability to successfully execute our
business strategies, including integration of acquisitions and the future
acquisition of other businesses to grow our Company; customers' cancellation on
short notice of master service agreements from which we derive a significant
portion of our revenue or our failure to renew such master service agreements on
favorable terms or at all; our ability to attract and retain key personnel and
skilled labor to meet the requirements of our labor-intensive business or labor
difficulties which could have an effect on our ability to bid for and
successfully complete contracts; the ultimate geographic spread, duration and
severity of the coronavirus outbreak and the effectiveness of actions taken, or
actions that may be taken, by governmental authorities to contain the outbreak
or ameliorate its effects; our failure to compete effectively in our highly
competitive industry, which could reduce the number of new contracts awarded to
us or adversely affect our market share and harm our financial performance; our
ability to adopt and master new technologies and adjust certain fixed costs and
expenses to adapt to our industry's and customers' evolving demands; our history
of losses, deficiency in working capital and a stockholders' deficit and our
inability to achieve sustained profitability; material weaknesses in our
internal control over financial reporting and our ability to maintain effective
controls over financial reporting in the future; our substantial indebtedness,
which could adversely affect our business, financial condition and results of
operations and our ability to meet our payment obligations; the impact of new or
changed laws, regulations or other industry standards that could adversely
affect our ability to conduct our business; and changes in general market,
economic, social and political conditions in the United States and global
economies or financial markets, including those resulting from natural or
man-made disasters.
Other important factors which could cause our actual results to differ
materially from the forward-looking statements in this document include, but are
not limited to, those discussed in this "Management's Discussion and Analysis of
Financial Condition and Results of Operations," as well as those discussed
elsewhere in this report and as set forth from time to time in our other public
filings and public statements. You should read this report in its entirety and
with the understanding that our actual future results may be materially
different from what we expect. We may not update these forward-looking
statements, even in the event that our situation changes in the future, except
as required by law. All forward-looking statements attributable to us are
expressly qualified by these cautionary statements.
Effects of COVID-19
The COVID-19 pandemic and resulting global disruptions have affected our
businesses, as well as those of our customers and their third-party suppliers
and sellers. To serve our customers while also providing for the safety of our
employees and service providers, we have adapted numerous aspects of our
logistics and transportation processes. We continue to monitor the rapidly
evolving situation and expect to continue to adapt our operations to address
federal, state, and local standards as well as to implement standards or
processes that we determine to be in the best interests of our employees,
customers, and communities.
The impact of the pandemic and actions taken in response to it had some effects
on our results of operations. Effects of the pandemic have included increased
fulfillment costs, primarily due to investments in employee hiring, pay, and
benefits, as well as costs to maintain safe workplaces, and higher shipping
costs. We expect to continue to be affected by possible procurement and shipping
delays, supply chain interruptions, higher product demand in certain categories,
lower product demand in other categories, and increased fulfillment costs and
cost of sales as a percentage of net sales and it is not possible to determine
the duration and spread of the pandemic or such actions, the ultimate impact on
our results of operations during 2022, or whether other currently unanticipated
consequences of the pandemic are reasonably likely to materially affect our
results of operations.
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Overview
Transportation and Logistics Systems, Inc. ("TLSS" or the "Company") was
incorporated under the laws of the State of Nevada, on July 25, 2008. The
Company operates through its active subsidiaries as a logistics and
transportation company specializing in ecommerce fulfillment, last mile
deliveries, two-person home delivery, mid-mile, and long-haul services for
predominantly online retailers.
We are primarily an asset-based point-to-point delivery company. An asset-based
delivery company, as compared to a non-asset-based delivery company, owns its
own transportation equipment. We employ our own drivers and use the services of
independent contractors who may use their own vehicles.
Between June 18, 2018 and September 30, 2020, we operated through two New
Jersey-based subsidiaries. Those subsidiaries were Prime EFS, LLC, which
conducted a last-mile business focused on deliveries to retail consumers for our
primary customer in New York, New Jersey and Pennsylvania ("Prime EFS"), and
Shypdirect, LLC ("Shypdirect"), which formed in July 2018 and focused on, and
conducted, our long-haul and mid-mile delivery businesses.
The great bulk of Prime EFS's business prior to September 30, 2020 was conducted
pursuant to the Delivery Service Provider program (the "Prime EFS DSP Program")
of Amazon Logistics, Inc., a subsidiary of Amazon.com, Inc. ("Amazon"). In June
2020, Amazon gave notice to Prime EFS that Amazon would not be renewing the
Prime EFS DSP Program agreement when that agreement terminated effective
September 30, 2020. Amazon made clear to Prime EFS that Amazon's decision not to
renew the DSP agreement was part of a well-publicized initiative by Amazon to
restructure how it would be delivering its last-mile services and did not
reflect the quality of the services provided by Prime EFS. Prime EFS ceased
operations on September 30, 2020 due to Amazon's non-renewal of the Prime EFS
DSP Program.
Shypdirect conducted its business as a carrier under a relay program service
agreement with Amazon Logistics, Inc., last amended on August 24, 2020 (the
"Program Agreement"). Under that agreement, Shypdirect provided transportation
services, including receiving, loading, storing, transporting, delivering,
unloading and related services for Amazon and its customers. On July 17, 2020,
Amazon notified Shypdirect that Amazon had elected to terminate the Program
Agreement between Amazon and Shypdirect effective as of November 14, 2020 (the
"Shypdirect Termination Notice"). On August 3, 2020, Amazon offered to withdraw
the Shypdirect Termination Notice and extend the term of the Program Agreement
to and including May 14, 2021, conditioned on Prime EFS executing, for nominal
consideration, a separation agreement with Amazon under which Prime EFS would
agree to cooperate in an orderly transition of its Amazon last-mile delivery
business to other service providers, Prime EFS would release any and all claims
it may have against Amazon, and Prime EFS would covenant not to sue Amazon (the
"Aug. 3 Proposal"). On August 4, 2020, the Company, Prime EFS and Shypdirect
accepted the Aug. 3 Proposal. The Program Agreement expired on May 14, 2021. In
June 2021, Shypdirect ceased its tractor trailer and box truck delivery services
to Amazon, and in July 2021, Shypdirect ceased all operations.
For the six months ended June 30, 2022, four customers represented 70.0% of the
Company's total net revenues (19.8%, 20.4%, 19.8% and 10.0%, respectively). For
the six months ended June 30, 2021, two customers, Amazon and Federal Express,
represented 51.1% and 17.7% of the Company's total net revenues, respectively.
During the years ended December 31, 2021 and 2020, one customer, Amazon,
represented 28.5% and 96.7% of our total net revenues. Approximately 28.5% of
our revenue of $5,495,146 for the year ended December 31, 2021 was attributable
to Shypdirect's now terminated mid-mile and long-haul business with Amazon. The
termination of the Prime EFS last-mile business with Amazon on September 30,
2020 had a material adverse impact on the operations of Prime EFS beginning in
the 4th fiscal quarter of 2020 and the termination of Shypdirect's Amazon
mid-mile and long-haul business, which was effective on or about May 14, 2021,
had a material adverse impact on operations of Shypdirect beginning in the 2nd
fiscal quarter of 2021. This impact caused Prime EFS and Shypdirect to become
insolvent and to cease operations.
37
On August 16, 2021, Prime EFS and Shypdirect, executed Deeds of Assignment for
the Benefit of Creditors in the State of New Jersey pursuant to N.J.S.A.
§2A:19-1, et seq. (the "ABC Statute"), assigning all Prime EFS and Shypdirect
assets to Terri Jane Freedman as Assignee for the Benefit of Creditors (the
"Assignee") and filing for dissolution. An "Assignment for the Benefit of
Creditors," "general assignment" or "ABC" in New Jersey is a state-law,
voluntary, judicially-supervised corporate liquidation and unwinding similar to
the Chapter 7 bankruptcy process found in the United States Bankruptcy Code. In
an ABC, debtor companies, here Prime EFS and Shypdirect, together referred to as
the "Assignors," execute Deeds of Assignment, assigning all of their assets to
the Assignee chosen by the Company, who acts as a fiduciary similar to a Chapter
7 trustee in bankruptcy. On September 7, 2021, the ABCs were filed with the
Bergen County Clerk in Bergen County, New Jersey and filed with the Surrogate
Court in the appropriate county, initiating a judicial proceeding. The Assignee
has been charged with liquidating the assets for the benefit of the Prime EFS
and Shypdirect creditors pursuant to the provisions of the ABC Statute.
As a result of Prime EFS and Shypdirect's filing of the executed Deeds of
Assignment for the Benefit of Creditors on September 7, 2021, the Assignee
assumed all authority to manage Prime EFS or Shypdirect. Additionally, Prime EFS
and Shypdirect no longer conduct any business and are not permitted by the
Assignee and ABC Statute to conduct any business. For these reasons, effective
September 7, 2021, we relinquished control of Prime EFS and Shypdirect.
Therefore, we deconsolidated Prime EFS and Shypdirect effective with the filing
of executed Deeds of Assignment for the Benefit of Creditors in September 2021.
Further, on October 13, 2021, Prime EFS and Shypdirect filed for dissolution
with the Secretary of State of New Jersey. Our results of operations for the
years ended December 31, 2021 and 2020 include the results of Prime EFS and
Shypdirect prior to the September 7, 2021 filing of the executed Deeds of
Assignment for the Benefit of Creditors with the State of New Jersey.
On November 13, 2020, we formed a wholly owned subsidiary, Shyp FX, Inc., a
company incorporated under the laws of the State of New Jersey ("Shyp FX"). On
January 15, 2021, through Shyp FX, we executed an asset purchase agreement
("APA") and closed a transaction to acquire substantially all of the assets and
certain liabilities of Double D Trucking, Inc., a northern New Jersey-based
logistics provider specializing in servicing Federal Express over the past 25
years ("DDTI"), including last-mile delivery services using vans and box trucks.
The purchase price was $100,000 of cash and a promissory note of $400,000. The
principal assets involved in the acquisition were vehicles for cargo transport,
system equipment for vehicle tracking and navigation of vehicles, and delivery
route rights together with assumption of associated customer relationships. We
concluded that the operations of Shyp FX, which is exclusively dedicated to
servicing Federal Express routes in northern New Jersey, no longer fit into our
long-term growth plans. Shyp FX sold substantially all its asset and specific
liabilities in a transaction that closed in June 2022.
On November 16, 2020, we formed a wholly owned subsidiary, TLSS Acquisition,
Inc., a company incorporated under the laws of the State of Delaware ("TLSS
Acquisition"). On March 24, 2021, TLSS Acquisition acquired all the issued and
outstanding shares of capital stock of Cougar Express, Inc., a New York-based
full-service logistics provider specializing in pickup, warehousing, and
delivery services in the tri-state area ("Cougar Express"). The purchase price
was $2,000,000 of cash plus cash for the acquisition of security deposits, a
cash payment equal to 50% of the difference between cash and accounts receivable
acquired and accounts payable assumed, less the assumption of truck loans and
leases, and a promissory note of $350,000. The previous owner of Cougar Express
is barred from competing with the Cougar Express business for five years. Cougar
Express was a family-owned full-service transportation business that has been in
operation for more than 30 years providing one-to-four person deliveries and
offering white glove services. It utilizes its own fleet of trucks,
warehouse/driver/office personnel and on-call subcontractors from its convenient
and secure New York JFK airport area location, allowing it to pick-up and
deliver throughout the New York tri-state area. Cougar Express serves a diverse
base of approximately 50 commercial accounts, which are freight forwarders that
work with some of the most notable retail businesses in the country. We believe
that the acquisition of Cougar Express fits our current business plan, given
Cougar Express's demographic location, services offered, and diversified
customer base, and given that it would provide us with a long-standing, well-run
profitable operation as a step to begin replacing the revenue it lost as a
result of Amazon terminating its delivery service provider business.
Furthermore, we believe that, because Cougar Express is strategically based in
New York and serves the tri-state area, organic growth opportunities will be
available for expanding its footprint into our primary base of operations in New
Jersey, as well as efficiencies that could be derived by leveraging Shypdirect's
operational capabilities.
38
On February 21, 2021, the Company formed a wholly owned subsidiary, Shyp CX,
Inc., a company incorporated under the laws of the State of New York ("Shyp
CX"). Shyp CX does not engage in any revenue-generating operations.
On August 4, 2022, the Company's wholly-owned subsidiary, Cougar Express, closed
on its acquisition of all outstanding stock of JFK Cartage, Inc., a New
York-based full-service logistics provider specializing in pickup, warehousing
and delivery services in the tri-state area ("JFK Cartage"). Joan Ton, the sole
shareholder of JFK Cartage, from whom the shares were acquired, is an unrelated
party (the "Seller"). The effective date of the acquisition was July 31, 2022.
With annual revenues of $3.6 million in 2021 and approximately $2.0 million for
the first six months of 2022, JFK Cartage operates from a 30,000 square foot
warehouse with ten drive-in doors and is strategically located approximately six
miles from JFK International Airport. JFK Cartage has been in business since
2008 and has been providing warehousing, cross-dock services, pickup and
deliveries, and general trucking, handling airfreight, trade show freight,
expedited and hotshot demand work, LTL/cartage as well as FTL, reverse
logistics, white glove and residential delivery services to a broad base of over
95 commercial accounts and residential customers. JFK Cartage operates a
wide-ranging fleet of specialty vehicles, from its Sprinter vans to full 53-ft.
tractor trailers. JFK Cartage, with its assets, fleet and warehouse is believed
to be one of the largest leading cartage agents serving the New York Tri-State
area.
The total purchase price after closing adjustments was $1,098,487. The Company:
(i) paid $401,552 in cash at closing; and (ii) entered into a $696,935
promissory note with the Seller, $98,448 of which is payable weekly, in the
amount of 25% of accounts receivable collected, but in any event, no later than
October 4, 2022, with the remaining balance of $598,487, payable in three annual
installments of $199,496, with interest at 5.0% percent per annum on July 31
2023, 2024 and 2025, respectively. Additionally, Cougar Express assumed a
$503,065 Small Business Administration ("SBA") loan; and (iv) assumed $151,389
of accrued liabilities and other notes payable of the Seller.
The following discussion highlights the results of our operations and the
principal factors that have affected the Company's consolidated financial
condition as well as its liquidity and capital resources for the periods
described and provides information that management believes is relevant for an
assessment and understanding of the consolidated financial condition and results
of operations presented herein. The following discussion and analysis are based
on the unaudited condensed consolidated financial statements contained in this
Quarterly Report, which have been prepared in accordance with generally accepted
accounting principles in the United States. You should read the discussion and
analysis together with such unaudited condensed consolidated financial
statements and the related notes thereto.
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
unaudited condensed 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 unaudited
condensed consolidated financial statements and footnotes include the valuation
of accounts receivable, the useful life of property and equipment, the valuation
of intangible assets, the valuation of assets acquired and liabilities assumed,
the valuation of right of use assets and related liabilities, assumptions used
in assessing impairment of long-lived assets, estimates of current and deferred
income taxes and deferred tax valuation allowances, the fair value of non-cash
equity transactions, the valuation of derivative liabilities, the valuation of
beneficial conversion features, and the value of claims against the Company.
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.
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Impairment of long-lived assets
In accordance with ASC Topic 360, we review 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. We recognize 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.
Leases
On January 1, 2019, we adopted ASU No. 2016-02, applying the package of
practical expedients to leases that commenced before the effective date whereby
the Company elected to not reassess the following: (i) whether any expired or
existing contracts contain leases and (ii) initial direct costs for any existing
leases. For contracts entered into on or after the effective date, at the
inception of a contract the Company assessed whether the contract is, or
contains, a lease. The Company's assessment is based on: (1) whether the
contract involves the use of a distinct identified asset, (2) whether we obtain
the right to substantially all the economic benefit from the use of the asset
throughout the period, and (3) whether it has the right to direct the use of the
asset. We will allocate the consideration in the contract to each lease
component based on its relative stand-alone price to determine the lease
payments. We have elected not to recognize right-of-use assets and lease
liabilities for short-term leases that have a term of 12 months or less.
Operating lease ROU assets represents the right to use the leased asset for the
lease term and operating lease liabilities are recognized based on the present
value of the future minimum lease payments over the lease term at the
commencement date. As most leases do not provide an implicit rate, we use an
incremental borrowing rate based on the information available at the adoption
date in determining the present value of future payments. Lease expense for
minimum lease payments is amortized on a straight-line basis over the lease term
and is included in general and administrative expenses in the unaudited
condensed consolidated statements of operations.
Revenue recognition and cost of revenue
We adopted ASC 606, Revenue from Contracts with Customers (Topic 606), which
supersedes the revenue recognition requirements in 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.
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 customers, however, if we
did, because all our 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.
Management has reviewed the revenue disaggregation disclosure requirements
pursuant to ASC 606 and determined that no further disaggregation disclosure is
required to be presented.
40
Stock-based compensation
Stock-based compensation is accounted for based on the requirements of ASC 718 -
"Compensation -Stock Compensation", which requires recognition in the financial
statements of the cost of employee, director, and non-employee services received
in exchange for an award of equity instruments over the period the employee,
director, or non-employee is required to perform the services in exchange for
the award (presumptively, the vesting period). The ASC also requires measurement
of the cost of employee, director, and non-employee services received in
exchange for an award based on the grant-date fair value of the award. We have
elected to recognize forfeitures as they occur as permitted under ASU 2016-09
Improvements to Employee Share-Based Payment.
Deconsolidation of subsidiaries
The Company accounts for a gain or loss on deconsolidation of a subsidiary or
derecognition of a group of assets in accordance with ASC 810-10-40-5. The
Company measures the gain or loss as the difference between (a) the aggregate of
fair value of any consideration received, the fair value of any retained
noncontrolling investment and the carrying amount of any noncontrolling interest
in the former subsidiary at the date the subsidiary is deconsolidated and (b)
the carrying amount of the former subsidiary's assets and liabilities or the
carrying amount of the group of assets.
RESULTS OF OPERATIONS
Our unaudited condensed 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 three and six months ended June 30, 2022 compared with the three and six
months ended June 30, 2021
The following table sets forth our revenues, expenses and net loss for the three
and six months ended June 30, 2022 and 2021. The financial information below is
derived from our unaudited condensed consolidated financial statements included
in this Quarterly Report.
Three Months ended Six Months ended
June 30, June 30,
2022 2021 2022 2021
Revenues $ 1,404,560 $ 1,574,494 $ 2,663,893 $ 3,066,193
Cost of revenues 1,013,550 1,345,538 1,984,552 3,244,316
Gross profit (loss) 391,010 228,956 679,341 (178,123 )
Operating expenses 1,395,470 1,948,375 3,484,654 3,177,680
Loss from operations (1,004,460 ) (1,719,419 ) (2,805,313 ) (3,355,803 )
Other income, net 295,494 5,402,276 59,116 4,769,480
Net (loss) income (708,966 ) 3,682,857 (2,746,197 ) 1,413,677
Deemed dividend related to
beneficial conversion features,
and accrued dividends (106,834 ) (156,097 ) (215,885 ) (985,933 )
Net (loss) income attributable
to common shareholders $ (815,800 ) $ 3,526,760 $ (2,962,082 ) $ 427,744
Revenues
For the three months ended June 30, 2022, our revenues were $1,404,560 as
compared to $1,574,494 for the three months ended June 30, 2021, a decrease of
$169,934, or 10.8%. This decrease was primarily a result of a decrease in
revenue attributable to Shypdirect's mid-mile and long-haul business with Amazon
of $412,656, a decrease in revenue from other customers of $9,010, and a
decrease in revenues generate from our Shyp FX business of $51,655. These
decreases were offset from an increase in revenues generated from our acquired
company Cougar Express, of $303,387.
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For the six months ended June 30, 2022, our revenues were $2,663,893 as compared
to $3,066,193 for the six months ended June 30, 2021, a decrease of $402,300, or
13.1%. This decrease was primarily a result of a decrease in revenue
attributable to Shypdirect's mid-mile and long-haul business with Amazon of
$1,567,927, a decrease in revenue from other customers of $45,723, and a
decrease in revenues generate from our Shyp FX business of $15,056, offset
business. These decreases were offset from an increase in revenues generated
from our acquired company Cougar Express, of $1,226,406.
During the six months ended June 30, 2021, one customer, Amazon, represented
51.1% of the Company's total net revenues which was attributable to Shypdirect's
now terminated mid-mile and long-haul business with Amazon.
On June 21, 2022, we sold substantially all the assets of Shyp FX in an all-cash
transaction. For the six months ended June 30, 2022 and 2021, we generated
revenues from our Shyp FX operation of $528,488 and $543,544, respectively.
Subsequent to June 21, 2022 we will no longer being generating this revenue.
We continue to: (i) seek to replace the lost Amazon business with other,
non-Amazon, customers; (ii) explore other strategic relationships; and (iii)
identify potential acquisition opportunities, while continuing to execute our
restructuring plan.
Cost of Revenues
For the three months ended June 30, 2022, our cost of revenues was $1,013,550
compared to $1,345,538 for the three months ended June 30, 2021, a decrease of
$331,988, or 24.7%. For the six months ended June 30, 2022, our cost of revenues
was $1,984,552 compared to $3,244,316 for the six months ended June 30, 2021, a
decrease of $1,259,764, or 38.8%. Cost of revenues consists of truck and van
rental fees, insurance, gas, maintenance, parking and tolls, and compensation
and related benefits. In the first quarter of 2021, Prime EFS received a bill
for approximately $304,000 for excess wear and tear on trucks that were rented
for its last-mile DSP business that terminated in September 2020, which is
included in cost of sales.
Gross Profit
For the three months ended June 30, 2022, we had a gross profit of $391,010, or
27.8% of revenues, as compared to gross profit of $228,956, or 14.5% of
revenues, for the three months ended June 30, 2021, an increase of $162,054, or
70.8%. For the six months ended June 30, 2022, we had a gross profit of
$679,341, or 25.5% of revenues, as compared to a gross loss of $(178,123), or
(5.8)% of revenues, for the six months ended June 30, 2021, an increase of
$857,464, or 481.4%.
As discussed above, during the three months ended March 31, 2021, Prime EFS
received a bill for approximately $304,000 for excess wear and tear on trucks
that were rented for its last-mile DSP business that terminated in September
2020. Additionally, during the three and six months ended June 30, 2021, the
gross profit (loss) primarily resulted from a decrease in revenues and a
decrease in operational efficiencies in Prime EFS and Shypdirect due to the
termination of the Amazon last-mile business and decrease in revenues from our
mid-mile and long-haul business.
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Operating Expenses
For the three months ended June 30, 2022, total operating expenses amounted to
$1,395,470 as compared to $1,948,375 for the three months ended June 30, 2021, a
decrease of $552,905, or 28.4%. For the six months ended June 30, 2022, total
operating expenses amounted to $3,484,654 as compared to $3,177,680 for the six
months ended June 30, 2021, an increase of $306,974, or 9.7%. For the three and
six months ended June 30, 2022 and 2021, operating expenses consisted of the
following:
Three Months ended Six Months ended
June 30, June 30,
2022 2021 2022 2021
Compensation and related benefits $ 693,343 $ 344,053 $ 2,049,753 $ 712,662
Legal and professional Fees
339,003 452,915 688,497 983,453
Rent 110,957 233,601 212,294 367,556
General and administrative expenses 252,167 301,732 534,110 497,935
Loss on lease abandonment - 616,074 - 616,074
Total Operating Expenses $ 1,395,470 $ 1,948,375 $ 3,484,654 $ 3,177,680Compensation and related benefits
For the three months ended June 30, 2022, compensation and related benefits
amounted to $693,343 as compared to $344,053 for the three months ended June 30,
2021, an increase of $349,290, or 101.5%. During the three months ended June 30,
2022, in connection with the issuance of common shares to executive officers and
directors, we recorded stock-based compensation of $204,034. Additionally,
compensation and related benefits increased by $145,256 which as primarily
attributable to the hiring of our chief executive officer and chief financial
officer in January 2022.
For the six months ended June 30, 2022, compensation and related benefits
amounted to $2,049,753 as compared to $712,662 for the six months ended June 30,
2021, an increase of $1,337,091, or 187.6%. During the six months ended June 30,
2022, in connection with the issuance of common shares to executive officers and
directors, we recorded stock-based compensation of $1,040,167. Additionally,
compensation and related benefits increased by $296,924 which as primarily
attributable to the hiring of our chief executive officer and chief financial
officer in January 2022.
Legal and professional fees
For the three months ended June 30, 2022, legal and professional fees were
$339,003 as compared to $452,915 for the three months ended June 30, 2021, a
decrease of $113,912, or 25.1%. During the three months ended June 30, 2022, we
had a decrease in accounting fees of $832, a decrease in consulting fees of
$28,641, a decrease in other professional fees of $62,081, and a decrease in
legal fees of $22,358.
For the six months ended June 30, 2022, legal and professional fees were
$688,497 as compared to $983,453 for the six months ended June 30, 2021, a
decrease of $294,956, or 30.0%. During the six months ended June 30, 2022, we
had a decrease in accounting fees of $7,234, a decrease in consulting fees of
$135,453, a decrease in other professional fees of $137,374, and a decrease in
legal fees of $14,895.
Rent expense
For the three months ended June 30, 2022, rent expense was $110,957 as compared
to $233,601 for the three months ended June 30, 2021, a decrease of $122,644, or
52.5%. For the six months ended June 30, 2022, rent expense was $212,294 as
compared to $367,556 for the six months ended June 30, 2021, a decrease of
$155,262, or 42.2%. These decreases were attributable to the abandonment of our
leased properties which were vacated due to the cessation of the operations of
Prime EFS and Shypdirect. As of December 31, 2021, we abandoned all of our
leased properties, except for the Cougar Express premises. The lease of our
subsidiary, Cougar Express, expired on December 31, 2021. Cougar Express is
holding over in the facility while it attempts to negotiate a lease renewal with
its landlord. In May 2022, we signed a stipulation of Settlement with the
landlord and we are paying monthly rent of $33,275 plus common area maintenance
and insurance through September 2022 at which time we must vacate the premises.
43
General and administrative expenses
For the three months ended June 30, 2022, general and administrative expenses
were $252,167 as compared to $301,732 for the three months ended June 30, 2021,
a decrease of $49,565, or 16.4%. For the six months ended June 30, 2022, general
and administrative expenses were $534,110 as compared to $497,935 for the six
months ended June 30, 2021, an increase of $36,175, or 7.3%. These (decreases)
increases were primarily attributable to the acquisition of Double D Trucking
and Cougar Express in 2021 and were offset by decreases in general and
administrative expenses due to cost-cutting measures taken. We expect general
and administrative expenses to decrease in 2022 due to these cost cutting
measures.
Loss from lease abandonment
Due to a reduction in our revenues and the loss of its Amazon revenues, during
the second quarter of 2021, we abandoned one of our leased premises.
Accordingly, during the three and six months ended June 30, 2021, we wrote the
remaining balance of this right of use asset and recorded a loss on lease
abandonment of $616,074. We did not have a loss from lease abandonment in the
2022 periods.
Loss from Operations
For the three months ended June 30, 2022, loss from operations amounted to
$1,004,460 as compared to $1,719,419 for the three months ended June 30, 2021, a
decrease of $714,959, or 41.6%. For the six months ended June 30, 2022, loss
from operations amounted to $2,805,313 as compared to $3,355,803 for the six
months ended June 30, 2021, a decrease of $550,490, or 16.4%.
Other Income (Expenses)
Total other income (expenses) includes interest expense, derivative expense,
gain on debt extinguishment, gain on sale of assets of subsidiary, settlement
expense, and other income. For the three and six months ended June 30, 2022 and
2021, other income (expenses) consisted of the following:
Three Months ended Six Months ended
June 30, June 30,
2022 2021 2022 2021
Interest expense $ (1,895 ) $ (135,450 ) $ (9,762 ) $ (218,959 )
Interest expense - related party - (22,438 ) - (44,630 )
Gain on debt extinguishment - 1,505,088 - 1,564,941
Gain from sale of assets of
subsidiary 296,689 - 296,689 -
Settlement income (expense) 700 - (227,811 ) -
Other income - 75,787 - 183,822
Derivative income - 3,979,289 - 3,284,306
Total Other Income (Expenses) $ 295,494 $ 5,402,276 $ 59,116 $ 4,769,480For the three months ended June 30, 2022 and 2021, aggregate interest expense
was $1,895 and $157,888, respectively, a decrease of $155,993, or 98.8%. For the
six months ended June 30, 2022 and 2021, aggregate interest expense was $9,762
and $263,589, respectively, a decrease of $253,827, or 96.3%. The decrease in
interest expense was attributable to a decrease in interest-bearing loans due to
the conversion of debt to equity and repayment of debt, and a decrease in the
amortization of original issue discount.
During the three and six months ended June 30, 2022, we recorded a gain from the
sale of assets of our subsidiary, Shyp FX, of $296,689.
For the three and six months ended June 30, 2021, the aggregate net gain on
extinguishment of debt was $1,505,088 and $1,564,941. We did have any gain from
debt extinguishment in the 2022 periods. The gains on debt extinguishment in
2021 were attributable to the settlement of convertible debt and warrants, the
conversion of convertible debt, and the settlement of other payables.
During the three and six months ended June 30, 2022, we recorded settlement
income (expense) of $700 and $(227,811) in connection with the settlement of a
lawsuit, respectively.
44
During the three and six months ended June 30, 2021, we recorded other income of
$75,787 and $183,822, respectively, compared to $0 in the 2022 periods. Other
income was primarily related to the collection of rental income from the
sublease of excess office, warehouse, and parking spaces. We no longer receive
sublease income.
For the three and six months ended June 30, 2021, derivative income was
$3,979,289 and $3,284,306, respectively. During the three and six months ended
June 30, 2021, we recorded a derivative expense related to the adjustment to
derivative liabilities to fair value.
Net Loss
Due to factors discussed above, for the three months ended June 30, 2022 and
2021, net (loss) income amounted to $(708,966) and $3,682,857, respectively. For
the three months ended June 30, 2022 and 2021, net (loss) income attributable to
common shareholders, which included a deemed dividend related to beneficial
conversion features on preferred stock and the dividends accrued on Series E and
Series G preferred stock of $106,834 and $156,097, amounted to $(815,800), or
$(0.00) per basic and diluted common share, and $3,526,760, or $0.00 per basic
and diluted common share, respectively. For the six months ended June 30, 2022
and 2021, net (loss) income amounted to $(2,746,197) and $1,413,677,
respectively. Additionally, for the six months ended June 30, 2022 and 2021, net
(loss) income attributable to common shareholders, which included a deemed
dividend related to beneficial conversion features on preferred stock and the
dividends accrued on Series E and Series G preferred stock of $215,885 and
$985,933, amounted to $(2,962,082), or $(0.00) per basic and diluted common
share, and $427,744, or $0.00 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. On June 30, 2022 and December 31, 2021, we had a cash balance of
$5,778,706 and $6,067,692, respectively. Our working capital was $5,736,499 on
June 30, 2022. We reported a net decrease in cash for the six months ended June
30, 2022 as compared to December 31, 2021 of $288,986 primarily as a result of
net cash proceeds received from the sale of Series G preferred stock units of
$855,000, cash proceeds from the exercise of warrants of $245,714, and net cash
proceeds received from the sale of the assets of Shyp FX of $748,500, offset by
the use of net cash for the repayment of notes payable of $295,596, and by cash
used in operations of $1,818,604.
We believe that our existing working capital and our future cash flows from
operating activities will provide sufficient cash to enable us to meet our
operating needs and debt requirements for the next twelve months.
Additionally, 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 shares of common stock, the sale of
Series E and Series G preferred stock, and from the issuance of convertible
promissory notes and notes payable, 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 future, management expects that we will need to
curtail our operations.
Recent Financing Activities
Sale of Series G Preferred Stock
On December 31, 2021, the Company entered into Securities Purchase Agreements
with investors pursuant to which the Investors agreed to purchase units,
severally and not jointly, which consisted of an aggregate of (i) 615,000 shares
of Series G and (ii) Warrants to purchase 615,000,000 shares of the Company's
common stock which are equal to 1,000 warrants for each for each share of Series
G purchased (the "December 2021 Series G Offering"). The gross proceeds to the
Company were $6,150,000, or $10.00 per unit. The Company paid fees of $615,507,
paid cash of $54,933 for the settlement of disputed penalties related the Series
E, and received net proceeds of $5,479,560 The initial exercise price of the
Warrants related to the December 2021 Series G Offering is $0.01 per share,
subject to adjustment. Additionally, the Company issued 123,000,000 warrants to
the placement agent at an initial exercise price of $0.01 per share.
45
On January 25, 2022, the Company entered into Securities Purchase Agreements
with investors pursuant to which the Investors agreed to purchase units,
severally and not jointly, which consisted of an aggregate of (i) 70,000 shares
of Series G and (ii) Warrants to purchase 70,000,000 shares of the Company's
common stock which are equal to 1,000 warrants for each share of Series G
purchased (the "January 2022 Series G Offering"). The gross proceeds to the
Company were $700,000, or $10.00 per unit. The Company paid placement agent fees
of $70,000 and received net proceeds of $630,000. On March 4, 2022, the Company
entered into a Securities Purchase Agreement with an investor pursuant to which
the Investor agreed to purchase units, severally and not jointly, which
consisted of an aggregate of (i) 25,000 shares of Series G and (ii) Warrants to
purchase 25,000,000 shares of the Company's common stock which are equal to
1,000 warrants for each for each share of Series G purchased (the "March 2022
Series G Offering"). The gross proceeds to the Company were $250,000, or $10.00
per unit. The Company paid placement agent fees of $25,000 and received net
proceeds of $225,000. The initial exercise price of the Warrants related to the
January 2022 and March 2022 Series G Offerings is $0.01 per share, subject to
adjustment. Additionally, the Company issued 19,000,000 warrants to the
placement agent at an initial exercise price of $0.01 per share. The aggregate
cash fees of $95,000 was charged against the proceeds of the offering in
additional paid-in capital and there is no effect on equity for the placement
agent warrants.
Cash Flows
Operating activities
Net cash flows used in operating activities for the six months ended June 30,
2022 amounted to $1,818,604. During the six months ended June 30, 2022, net cash
used in operating activities was primarily attributable to net loss of
$2,746,197, adjusted for the add back (reduction) of non-cash items such as
depreciation and amortization expense of $377,500, stock-based compensation of
$1,040,167, stock-based professional fees of $8,333, and a non-cash gain from
the sale of the assets of Shyp FX of $296,689, and changes in operating assets
and liabilities such as a decrease in accounts receivable of $8,094, an increase
in prepaid expenses and other current assets of $156,126, an increase in
security deposit of $6,245, an decrease in accounts payable and accrued expenses
of $50,014, an increase in insurance payable of $42,424, and a decrease in
accrued compensation and related benefits of $39,151.
Net cash flows used in operating activities for the six months ended June 30,
2021 amounted to $1,919,434. During the six months ended June 30, 2021, net cash
used in operating activities was primarily attributable to net income of
$1,413,677, adjusted for the add back (reduction) of non-cash items such as
depreciation and amortization expense of $293,616, derivative income of
$(3,284,306), amortization of debt discount of $83,548, gain on debt
extinguishment of $(1,564,941), and loss on lease abandonment of $616,074, and
changes in operating assets and liabilities such as a decrease in accounts
receivable of $226,268, a decrease in prepaid expenses and other current assets
of $34,917, a decrease in security deposit of $61,000, an increase in accounts
payable and accrued expenses of $264,692, a decrease in insurance payable of
$14,720, and a decrease in accrued compensation and related benefits of $28,330.
Investing activities
Net cash provided by investing activities for the six months ended June 30, 2022
amounted to $748,500 and consisted of net cash proceeds received from the sale
of the assets of Shyp FX.
Net cash used in investing activities for the six months ended June 30, 2021
amounted to $2,123,115 and consisted of net cash used for the acquisition of
DDTI and Cougar Express.
Financing activities
For the six months ended June 30, 2022, net cash provided by financing
activities totaled $781,118. During the six months ended June 30, 2022, we
received proceeds from the sale of Series G preferred shares of $855,000, and
cash proceeds of $245,714 from the exercise of warrants, offset by the repayment
of notes payable of $295,596 and the payment of liquidating damages of $24,000.
For the six months ended June 30, 2021, net cash provided by financing
activities totaled $4,095,147. During the six months ended June 30, 2021, we
received proceeds from the sale of Series E preferred shares of $3,590,500, cash
proceeds of $685,714 from the exercise of warrants and an increase in amounts
due to related party of $14,630, offset by the repayment of notes payable of
$195,697.
46
Risks and Uncertainties
The accompanying unaudited condensed consolidated financial statements have been
prepared on the basis of continuity of operations, realization of assets and the
satisfaction of liabilities and commitments in the ordinary course of business.
Historically, we have primarily funded our operations with proceeds from sales
of convertible debt and convertible preferred stock. Since our inception, we
have incurred recurring losses, including a loss from operations of $2,805,313
and $3,355,803 for the six months ended June 30, 2022 and 2021, respectively.
Until such time that we implement our growth through acquisition strategy, we
expect to continue to generate operating losses in the foreseeable future,
mostly due to corporate overhead and costs of being a public company.
During the year ended December 31, 2021, we issued an aggregate of 343,118
shares of our Series E preferred stock for net proceeds of $3,590,500 and issued
an aggregate of 615,000 shares of our Series G preferred stock for net proceeds
of $5,479,560. The proceeds were used for the acquisition of Cougar Express and
DDTI, the repayment of debt, and for working capital purposes. Additionally,
during the year ended December 31, 2021, we received proceeds of $4,226,383 from
the exercise of stock warrants. Additionally, during the six months ended June
30, 2022, we issued an aggregate of 95,000 shares of our Series G preferred
stock for net proceeds of $855,000 and received proceeds of $245,714 from the
exercise of stock warrants. As such, we expect that our cash as of June 30, 2022
will be sufficient to fund the Company's operations for at least the next twelve
months from the date of the issuance of the financial statements.
The COVID-19 pandemic and resulting global disruptions have affected the
Company's businesses, as well as those of the Company's customers and their
third-party suppliers and sellers. To serve the Company's customers while also
providing for the safety of the Company's employees and service providers, the
Company has adapted numerous aspects of its logistics and transportation
processes. The Company continues to monitor the rapidly evolving situation and
expect to continue to adapt its operations to address federal, state, and local
standards as well as to implement standards or processes that the Company
determines to be in the best interests of its employees, customers, and
communities. The impact of the pandemic and actions taken in response to it had
some effects on the Company's results of operations. Effects include increased
fulfilment costs and cost of sales, primarily due to investments in employee
hiring, pay, and benefits, as well as costs to maintain safe workplaces, and
higher shipping costs. The Company continues to be affected by possible
procurement and shipping delays, supply chain interruptions, higher product
demand in certain categories, lower product demand in other categories, and
increased fulfilment costs and cost of sales as a percentage of net sales and it
is not possible to determine the duration and spread of the pandemic or such
actions, the ultimate impact on the Company's results of operations during 2022,
or whether other currently unanticipated consequences of the pandemic are
reasonably likely to materially affect the Company's results of operations.
We believe that our existing working capital and future cash flow from operating
activities will provide sufficient cash to enable us to meet our operating needs
and debt requirements for the next twelve months. 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
and preferred shares and from the issuance of convertible promissory notes and
notes payable, 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.
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.
47
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.
Effects of Inflation
We do not believe that inflation has had a material impact on our business,
revenues, or operating results during the periods presented.
Recently Enacted Accounting Standards
For a description of accounting changes and recent accounting standards,
including the expected dates of adoption and estimated effects, if any, on our
consolidated financial statements, see "Note 2: Recent Accounting
Pronouncements" in the unaudited condensed consolidated financial statements
filed with this Quarterly Report.
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