UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _____________ to _____________
Commission
File Number:
(Exact Name of Registrant as Specified in Its Charter)
(State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) | |
(Address of Principal Executive Office) | (Zip Code) |
(Registrant’s Telephone Number, Including Area Code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Exchange Act:
(Title of class)
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. ☒
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files). ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non- accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, “non-accelerated filer”, “smaller reporting company” and “emerging growth” in Rule 12b-2 of the Exchange Act.
Large Accelerated filer ☐ | Accelerated filer ☐ |
Smaller
reporting company | |
Emerging
growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes
The number of shares of the Registrant’s common stock, $0.0001 par value per share, outstanding as of May 13, 2024, was .
Documents incorporated by reference: | None |
TITAN ENVIRONMENTAL SOLUTIONS INC.
TABLE OF CONTENTS
Page | ||
PART I – Financial Information | ||
Item 1. | Financial Statements | 5 |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 43 |
Item 3 | Quantitative and Qualitative Disclosures about Market Risk | 52 |
Item 4 | Controls and Procedures | 52 |
PART I – Financial Information | ||
Item 1. | Legal Procedures | 53 |
Item 1A. | Risk Factors | 53 |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 53 |
Item 3. | Defaults Upon Senior Securities | 53 |
Item 4. | Mine Safety Disclosures | 53 |
Item 5. | Other Information | 53 |
Item 6. | Exhibits | 54 |
SIGNATURES | 55 |
As used in this Quarterly Report on Form 10-Q, the terms “we”, “us”, “our” and the “Company” mean Titan Environmental Solutions Inc. and its wholly owned subsidiaries, taken as a whole (unless the context indicates a different meaning).
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Except for any historical information contained herein, the matters discussed in this quarterly report on Form 10-Q contain certain “forward-looking statements” within the meaning of the federal securities laws. This includes statements regarding our future financial position, economic performance, results of operations, business strategy, budgets, projected costs, plans and objectives of management for future operations, and the information referred to under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
These forward-looking statements generally can be identified by the use of forward-looking terminology, such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “continue” or similar terminology, although not all forward-looking statements contain these words. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, you are cautioned that any such forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Although we believe that the expectations reflected in such forward-looking statements are reasonable as of the date made, expectations may prove to have been materially different from the results expressed or implied by such forward-looking statements. Important factors that may cause actual results to differ from projections include, for example:
● | our prospects, including our future business, revenues, expenses, net income, earnings per share, gross margins, profitability, cash flows, cash position, liquidity, financial condition and results of operations, our targeted growth rate, our goals for future revenues and earnings, and our expectations about realizing the revenues in our backlog and in our sales pipeline; | |
● | our ability to successfully pursue strategic acquisitions and integrate acquired businesses; | |
● | our ability to hire additional personnel and to manage the growth of our business; | |
● | our ability to continue as a going concern; | |
● | environmental and other regulations, including developments related to emerging contaminants, gas emissions, renewable energy and environmental, social and governance (“ESG”) performance and disclosure; | |
● | significant environmental, safety or other incidents resulting in liabilities or brand damage; | |
● | failure to obtain and maintain necessary permits due to land scarcity, public opposition or otherwise; | |
● | diminishing landfill capacity, resulting in increased costs and the need for disposal alternatives; | |
● | failure to attract, hire and retain key team members and a high quality workforce; | |
● | increases in labor costs due to union organizing activities or changes in wage and labor related regulations; | |
● | disruption and costs resulting from extreme weather and destructive climate events; | |
● | public health risk, increased costs and disruption due to a future resurgence of pandemic conditions and restrictions; | |
● | macroeconomic conditions, geopolitical conflict and market disruption resulting in labor, supply chain and transportation constraints, inflationary cost pressures and fluctuations in commodity prices, fuel and other energy costs; | |
● | increased competition; | |
● | pricing actions; |
3 |
● | impacts from international trade restrictions; | |
● | competitive disposal alternatives, diversion of waste from landfills and declining waste volumes; | |
● | weakness in general economic conditions and capital markets, including potential for an economic recession; instability of financial institutions; | |
● | adoption of new tax legislation; | |
● | shortages of fuel and/or other energy resources; | |
● | failure to develop and protect new technology; | |
● | failure of technology to perform as expected; | |
● | the risks associated with the legislative, judicial, accounting, regulatory, political and economic risks and conditions; | |
● | claims, demands and lawsuits to which we are, and may in the future, be subject and the risk that our insurance or indemnities coverage may not be sufficient; | |
● | our ability to operate, update or implement our IT systems; | |
● | our ability to implement additional finance and accounting systems, procedures and controls in order to satisfy public company reporting requirements; | |
● | our ability to obtain additional financing when and as needed; | |
● | the potential liquidity and trading of our securities; and | |
● | the future trading prices of our common stock and the impact of securities analysts’ reports on these prices. |
Unless otherwise required by law, we also disclaim any obligation to update our view of any such risks or uncertainties or to announce publicly the result of any revisions to the forward-looking statements made in this quarterly report on Form 10-Q.
When considering these forward-looking statements, you should keep in mind the cautionary statements in this quarterly report on Form 10-Q and in our other filings with the Securities and Exchange Commission (the “SEC”). We cannot assure you that the forward-looking statements in this quarterly report on Form 10-Q will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may prove to be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time-frame, or at all.
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Item 1. Financial Statements
5 |
TITAN ENVIRONMENTAL SOLUTIONS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2024 (UNAUDITED) AND DECMBER 31, 2023
MARCH 31, | DECEMBER 31, | |||||||
2024 | 2023 | |||||||
(unaudited) | ||||||||
ASSETS | ||||||||
Current Assets: | ||||||||
Cash | $ | $ | ||||||
Accounts receivable, net of allowance for expected credit losses of $ | ||||||||
Other receivables | ||||||||
Prepaid expenses and other current assets | ||||||||
Inventory | ||||||||
Total Current Assets | ||||||||
Property and equipment, net | ||||||||
Intangible assets, net | ||||||||
Goodwill | ||||||||
Other assets | ||||||||
Operating lease right-of-use assets, net | ||||||||
Total Non-current Assets | ||||||||
TOTAL ASSETS | $ | $ | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
LIABILITIES | ||||||||
Current Liabilities: | ||||||||
Accounts payable and accrued expenses | $ | $ | ||||||
Customer deposits | ||||||||
Accrued payroll and related taxes | ||||||||
Derivative liability | ||||||||
Convertible notes payable, net of discounts | ||||||||
Convertible notes payable, net of discounts – related party | ||||||||
Notes payable, net of discounts and deferred financing costs | ||||||||
Notes payable, net of discounts – related party | ||||||||
Operating lease liabilities, current | ||||||||
Shares to be issued | ||||||||
Total Current Liabilities | ||||||||
Notes payable, net of current portion, discounts and deferred financing costs | ||||||||
Notes payable, net of current portion and discounts – related party | ||||||||
Convertible notes payable, net of current portion | ||||||||
Convertible notes payable, net of current portion – related parties | ||||||||
Operating lease liabilities, net of current portion | ||||||||
Total Non-current Liabilities | ||||||||
Total Liabilities | ||||||||
Commitments and contingencies (Note 15) | ||||||||
STOCKHOLDERS’ EQUITY | ||||||||
Preferred stock, | shares authorized:||||||||
Series A Convertible Preferred Stock, par value $ | , shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively||||||||
Common stock, par value, $ | , shares authorized, and shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively||||||||
Additional paid in capital | ||||||||
Accumulated deficit | ( | ) | ( | ) | ||||
Total Stockholders’ Equity | ||||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | $ |
The accompanying notes are an integral part of these consolidated financial statements.
6 |
TITAN ENVIRONMENTAL SOLUTIONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023 (UNAUDITED)
THREE MONTHS ENDED |
||||||||
MARCH 31, |
||||||||
2024 | 2023 | |||||||
REVENUE | $ | $ | ||||||
COST OF REVENUES | ||||||||
GROSS PROFIT (LOSS) | ( |
) | ||||||
OPERATING EXPENSES | ||||||||
Salaries and salary related costs | ||||||||
Professional fees | ||||||||
Depreciation and amortization | ||||||||
General and administrative expenses | ||||||||
Total operating expenses | ||||||||
OPERATING LOSS | ( |
) | ( |
) | ||||
OTHER (EXPENSE) INCOME: | ||||||||
Change in fair value of derivative liability | ||||||||
Interest expense, net of interest income | ( |
) | ( |
) | ||||
Other income (expense), net | ||||||||
Total other (expense) income | ( |
) | ( |
) | ||||
Provision for income taxes | ||||||||
Net loss | $ | ( |
) | $ | ( |
) | ||
Deemed dividend | ( |
) | ||||||
Net loss available to common stockholders | $ | ( |
) | $ | ( |
) | ||
Net loss per share | ||||||||
Basic and diluted | $ | ) | $ | N/A | ||||
Weighted-average common shares outstanding | ||||||||
Basic and diluted | N/A |
The accompanying notes are an integral part of these consolidated financial statements.
7 |
TITAN ENVIRONMENTAL SOLUTIONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY/MEMBERS’S EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023 (UNAUDITED)
Members’ Equity | Series A Preferred Stock (1) | Series B Preferred Stock (2) | Common Stock | Additional paid-in | Accumulated | |||||||||||||||||||||||||||||||||||
(Deficiency) | Shares | Amount | Shares | Amount | Shares | Amount | capital | deficit | Total | |||||||||||||||||||||||||||||||
Balance – January 1, 2024 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||||||
Issuance of Warrants | - | - | - | ( | ) | |||||||||||||||||||||||||||||||||||
Exercise of share rights (prefunded warrants) | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||
Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
Balance – March 31, 2024 | $ | $ | $ | $ | $ | $ | ( | ) | $ |
Members’ Equity | Series A Preferred Stock (1) | Series B Preferred Stock (2) | Common Stock | Additional paid-in | Accumulated | |||||||||||||||||||||||||||||||||||
(Deficiency) | Shares | Amount | Shares | Amount | Shares | Amount | capital | deficit | Total | |||||||||||||||||||||||||||||||
Balance – January 1, 2023 | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
Contributions, net of distributions | - | - | - | |||||||||||||||||||||||||||||||||||||
Net loss | ( | ) | - | - | - | ( | ) | |||||||||||||||||||||||||||||||||
Balance – March 31, 2023 | $ | $ | $ | $ | $ | $ | $ |
(1) | ||
(2) |
The accompanying notes are an integral part of these consolidated financial statements.
8 |
TITAN ENVIRONMENTAL SOLTUIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023
THREE MONTHS ENDED | ||||||||
MARCH 31, | ||||||||
2024 | 2023 | |||||||
CASH FLOW FROM OPERATING ACTIVIITES | ||||||||
Net loss | $ | ( | ) | $ | ( | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
Provision for (recovery of) bad debt expense | ( | ) | ||||||
Depreciation and amortization | ||||||||
Change in fair value of derivative liability and derivative expense | ( | ) | ||||||
Amortization of discounts and convertible options on debt | ||||||||
Changes in assets and liabilities | ||||||||
Accounts receivable | ||||||||
Prepaid expenses and other current assets | ||||||||
Other receivables | ( | ) | ||||||
Inventory | ( | ) | ||||||
Other assets | ( | ) | ||||||
Right-of-use asset | ||||||||
Accounts payable, accrued expenses and deferred taxes | ||||||||
Customer deposits | ||||||||
Accrued payroll and payroll taxes | ||||||||
Operating lease liability | ( | ) | ( | ) | ||||
Net cash used in operating activities | ( | ) | ( | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITES | ||||||||
Acquisition of fixed assets | ( | ) | ( | ) | ||||
Net cash used in investing activities | ( | ) | ( | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITES | ||||||||
Subscription receivable | ||||||||
Proceeds from issuance of warrants | ||||||||
Proceeds from convertible notes | ||||||||
Proceeds from convertible notes – related parties | ||||||||
Proceeds from notes payable | ||||||||
Repayments of notes payable | ( | ) | ( | ) | ||||
Proceeds from notes payable – related parties | ||||||||
Repayment of notes payable – related parties | ( | ) | ||||||
Net cash provided by financing activities | ||||||||
NET INCREASE (DECREASE) IN CASH | ( | ) | ||||||
CASH – BEGINNING OF PERIOD | ||||||||
CASH – END OF PERIOD | $ | $ | ||||||
CASH PAID DURING THE PERIOD FOR: | ||||||||
Interest expense | $ | $ | ||||||
Income taxes | $ | $ | ||||||
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
Settlement of note payable | $ | $ |
The accompanying notes are an integral part of these consolidated financial statements.
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TITAN ENVIRONEMENTAL SOLUTIONS INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 – ORGANIZATION AND NATURE OF OPERATIONS
Titan Environmental Solutions Inc., formerly known as TraQiQ, Inc. (“Titan” or along with its wholly-owned subsidiaries, referred to herein as the “Company”), is engaged in the full-service solution of waste management. Effective January 10, 2024, the Company redomiciled from a California corporation into a Nevada corporation (the “redomicile”). As a result of the redomicile, the Company’s name was changed from TraQiQ, Inc. (“TraQiQ”) to Titan Environmental Solutions Inc.
The Company is based out of Bloomfield Hills, Michigan and offers a comprehensive package of waste reduction, collection, recycling, and technology-enabled solutions to support customer demand. The Company operates two distinct lines of business. The Company’s wholly-owned subsidiary, Titan Trucking, LLC (“Titan Trucking”), is a non-hazardous solid waste management company providing waste and recycling collection and transportation services for industrial generators, commercial contractors and transfer station operators in Michigan. Titan Trucking maintains a fleet of roll off and tractor trailer trucks to perform its services. The Company’s wholly-owned subsidiary Recoup Technologies, Inc. (“Recoup”), provides technology-enabled solutions for food waste processing, including onsite digestors for food waste along with cloud-based software tracking and analytics solutions.
On May 19, 2023, the Company completed its acquisition of Titan Trucking and Titan Trucking’s wholly owned subsidiary, Senior Trucking, LLC (“Senior”). In accordance with ASC 805 - Business Combinations (“ASC 805”), the transaction was treated as a reverse acquisition for financial reporting purposes, with the Company treated as the legal acquirer and Titan Trucking treated as the accounting acquirer. The Company remains the continuing registrant and reporting company. Accordingly, the historical financial and operating data of the Company, which covers periods prior to the closing date of the Titan Merger, reflects the assets, liabilities, and results of operations for Titan Trucking and does not reflect the assets, liabilities and results of operations of the Company for the periods prior to May 19, 2023 (Note 3 – Business Combinations).
On
July 28, 2023, the Company, its wholly-owned subsidiary TraQiQ Solutions, Inc (“Ci2i”), and Ajay Sikka (“Sikka”),
a director of the Company and its former chief executive officer, signed an Assignment of Stock Agreement (the “Assignment Agreement”).
Under the terms of the Assignment Agreement, the Company assigned and transferred to Sikka all of the rights, title, and interests in
the issued and outstanding equity interests of Ci2i in exchange for consideration of $
Change in Equity Instruments and Share Authorizations Due to Redomicile
As a result of the redomicile, each share of TraQiQ’s’s common stock issued and outstanding immediately prior to the redomicile was exchanged for one share of Titan’s common stock. Additionally, each share of the TraQiQ Series C Convertible Preferred Stock issued and outstanding immediately prior to the effective time of the redomicile was exchanged for one share of Series A Convertible Preferred Stock of the Nevada corporation (the “Series A Preferred Stock”), which has substantially the same rights and preferences as the TraQiQ Series C Preferred Stock. Each of TraQiQ’s Series A Rights to Receive Common Stock issued and outstanding immediately prior to the redomicile was exchanged for one Series A Right to Receive Common Stock of Titan, which has substantially the same rights and preferences as the TraQiQ Series A Rights to Acquire Common Stock. Each of the TraQiQ Series B Rights to Receive Common Stock issued and outstanding immediately prior to the redomicile was exchanged for one Series B Right to Receive Common Stock of Titan, which has substantially the same rights and preferences as the TraQiQ Series B Rights to Acquire Common Stock.
10 |
As
a result of the redomicile, all of TraQiQ’s outstanding warrants were assumed by Titan and now represent warrants to acquire shares
of Titan’s common stock. The redomicile increased the Company’s authorized capital stock to
Going Concern
The Company’s consolidated financial statements as of March 31, 2024 and December 31, 2023 are prepared using accounting principles generally accepted in the United States of America (“GAAP”), which contemplates continuation of the Company as a going concern. This contemplates the realization of assets and liquidation of liabilities in the ordinary course of business.
For
the three months ended March 31, 2024, the Company had a net loss of $
Management’s
plans include raising capital through issuances of equity and debt securities, and minimizing operating expenses of the business to
improve the Company’s cash burn rate. On July 17, 2023, the Company converted $
NOTE 2 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Rule 8-03 of Regulation S-X. Accordingly, they do not include all the information and notes for complete financial statements. In the opinion of management, all adjustments (consistent of normal recurring accruals and adjustments) considered necessary for a fair presentation of the consolidated financial statements have been included. Results for the interim periods should not be considered indicative of results to be expected for a full year. Reference should be made to the consolidated financial statements and related notes thereto contained in our Form 10-K for the year ended December 31, 2023.
Principles of Consolidation and Basis of Accounting
The consolidated financial statements include the accounts of Titan Environmental Solutions Inc. and its wholly-owned subsidiaries. All material inter-company accounts and transactions have been eliminated. The Company’s policy is to prepare its consolidated financial statements on the accrual basis of accounting, whereby revenue is recognized when earned and expenses are recognized when incurred.
11 |
Accounting Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosures 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.
Business Combinations
Under the guidance enumerated in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805, if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, the set is not considered a business and is accounted for as an asset acquisition at which point, the acquirer measures the assets acquired based on their cost, which is allocated on a relative fair value basis.
Business combinations are accounted for utilizing the fair value of consideration determined by the Company’s management and external specialists. The Company recognizes estimated fair values of the tangible and intangible assets acquired and liabilities assumed as of the acquisition date. Goodwill is recognized as any excess in fair value over the net value of assets acquired and liabilities assumed.
Cash
The
Company considers all highly-liquid money market funds and certificates of deposit with original maturities of less than three months
to be cash equivalents. The Company maintains its cash balances with various banks. The balances are insured by the Federal Deposit Insurance
Corporation (“FDIC”) up to $
Accounts Receivable, net
Accounts receivables are recorded at the amount the Company expects to collect on the balance outstanding at year-end. Management closely monitors outstanding balances during the year and allocates an allowance account if appropriate. The Company estimates and records a provision for its expected credit losses related to its financial instruments, including its trade receivables and contract assets. The Company considers historical collection rates, the current financial status of its customers, macroeconomic factors, and other industry-specific factors when evaluating for current expected credit losses. Forward-looking information is also considered in the evaluation of current expected credit losses. However, because of the short time to the expected receipt of accounts receivable, the Company believes that the carrying value, net of expected losses, approximates fair value and therefore, relies more on historical and current analysis of such financial instruments.
As
of March 31, 2024 and December 31, 2023, the Company allocated $
Inventory
Inventories primarily consist of parts for our digester business purchased for resale. Inventory is stated at the lower of cost (first-in, first-out) or net realizable value. Management reviews the age of inventories for obsolescence and determined that a reserve for obsolescence was not required as of March 31, 2024 and December 31, 2023.
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Property and Equipment, net
Property and equipment is stated at cost. Depreciation is computed primarily using the straight-line method over the estimated useful lives of the assets. Expenditures for repairs and maintenance are charged to expense as incurred. For assets sold or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any related gain or loss is reflected in the condensed consolidated statement of operations or the period in which the disposal occurred. The Company computes depreciation utilizing estimated useful lives, as stated below:
Property and Equipment, net Categories | Estimated Useful Life | |
Tractors and trailers | ||
Containers | ||
Equipment | ||
Leasehold improvements |
Management regularly reviews property and equipment for possible impairment. This review occurs annually or more frequently if events or changes in circumstances indicate the carrying amount of the asset may not be recoverable. Based on management’s assessment, there were no indicators of impairment of the Company’s property and equipment as of March 31, 2024 and December 31, 2023, respectively.
Finite Long-lived Intangible Assets, Net
Finite long-lived intangible assets are recorded at their estimated fair value at the date of acquisition. Finite long-lived intangible assets are amortized on a straight-line basis over their estimated useful lives. Management annually evaluates the estimated remaining useful lives of the finite intangible assets to determine whether events or changes in circumstances warrant a revision to the remaining period of amortization. The Company recognized finite intangible intellectual property, noncompete agreement, customer list, and tradename assets from its reverse acquisition with Titan Trucking (Note 3 – Business Combinations).
Finite long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be fully recoverable. An impairment loss is recognized if the sum of the expected long-term undiscounted cash flows the asset is expected to generate is less than its carrying amount. Any write-downs are treated as permanent reductions in the carrying amount of the respective asset. Management assessed and concluded that no impairment write-down would be necessary for finite long-lived intangible assets as of March 31, 2024 and December 31, 2023.
The Company amortizes these intangible assets on a straight-line basis over their estimated useful lives, as stated below:
Finite Long-lived Intangible Assets Categories | Estimated Useful Life | |
Customer Lists | ||
Intellectual Property | ||
Noncompete agreement | ||
Tradenames |
Goodwill
Goodwill represents the excess of the acquisition price of a business over the fair value of identified net assets of that business. Goodwill has an indefinite lifespan and is not amortized. The Company evaluates goodwill for impairment at least annually and record an impairment charge when the carrying amount of a reporting unit with goodwill exceeds the fair value of the reporting unit. The Company has two reporting units, Trucking and Digester.
The Company assesses qualitative factors to determine if it is necessary to conduct a quantitative goodwill impairment test. If deemed necessary, a quantitative assessment of the reporting unit’s fair value is conducted and compared to its carrying value in order to determine the impairment charge.
13 |
Leases
The Company assesses whether a contract is or contains a lease at inception of the contract and recognizes right-of-use assets (“ROU”) and corresponding lease liabilities at the lease commencement date. The lease term is used to calculate the lease liability, which includes options to extend or terminate the lease when it is reasonably certain that the option will be exercised. The leases the Company currently holds do not have implicit borrowing rates, therefore the Company utilizes its incremental borrowing rate to measure the ROU assets and liabilities. Operating lease expense is generally recognized on a straight-line basis over the lease term. All leases that have lease terms of one year or less are considered short-term leases, and therefore are not recorded through a ROU asset or liability.
Loan Origination Fees
Loan
origination fees represent loan fees, inclusive of original issue discounts, relating to convertible note payables and note payables
granted to the Company. The Company amortizes loan origination fees over the life of the note (Note 9 – Notes Payable and Note
10 – Convertible Notes Payable). Amortization expense of loan issuance fees for the three months ended March 31, 2024 and 2023
was $
Fair Value Measurements
ASC 820 “Fair Value Measurements” defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosure about fair value measurements.
The following provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which fair value is observable:
Level 1- fair value measurements are those derived from quoted prices (unadjusted in active markets for identical assets or liabilities);
Level 2- fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
Level 3- fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).
Financial instruments classified as Level 1 quoted prices in active markets include cash.
These consolidated financial instruments are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment to estimation. Valuations based on unobservable inputs are highly subjective and require significant judgments. Changes in such judgments could have a material impact on fair value estimates.
In addition, since estimates are as of a specific point in time, they are susceptible to material near-term changes. Changes in economic conditions may also dramatically affect the estimated fair values.
14 |
Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management for the respective periods. The respective carrying value of certain financial instruments approximated their fair values due to the short-term nature of these instruments. These financial instruments include cash, short-term notes payable, accounts payable and accrued expenses. The carrying value of long-term debt approximates fair value, as the variable interest rates approximate current market rates. The Company measured its derivative liabilities at fair value on a recurring basis using level 3 inputs.
Convertible Instruments
The Company evaluates its convertible instruments, such as warrants and convertible notes, to determine if those contracts or embedded components of those contracts qualify as equity instruments, derivative liabilities, or liabilities, to be separately accounted for in accordance with ASC 815 “Derivatives and Hedging” (“ASC 815”) and ASC 480 “Distinguishing Liabilities from Equity” (“ASC 480”). The assessment considers whether the convertible instruments are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the convertible instruments meet all of the requirements for equity classification under ASC 815, including whether the convertible instruments are indexed to the Company’s own ordinary shares and whether the instrument holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of the instrument’s issuance, and as of each subsequent balance sheet date while the instruments are outstanding. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification.
Embedded conversion options and any related freestanding instruments are recorded as a discount to the host instrument. The Company allocates proceeds based on the relative fair values of the debt and equity components. The accounting treatment of derivative financial instruments requires that the Company record embedded conversion options and any related freestanding instruments at their fair values as of the inception date of the agreement and at fair value as of each subsequent balance sheet date. Any change in fair value is recorded in earnings each period as non-operating, non-cash income or expense.
Valuations derived from various models are subject to ongoing internal and external verification and review. The Company determined the fair value of the derivative liability as of December 31, 2023, using the Black-Scholes pricing model for its derivative liability from warrants. The inputs used involve management’s judgment and may impact net loss. As of March 31, 2024 the derivative liability was $0 (Note 11 – Derivative Liability).
Stock-Based Compensation
We account for stock awards to employees and non-employees by measuring the cost of services received in exchange for the award of equity instruments based upon the fair value of the award on the date of grant. The fair value of that award is then ratably recognized as expense over the period during which the recipient is required to provide services in exchange for that award.
Revenue Recognition
The Company records revenue based on a five-step model in accordance with FASB ASC 606, Revenue from Contracts with Customers, which requires the following:
1. Identify the contract with a customer.
2. Identify the performance obligations in the contract.
3. Determine the transaction price of the contract.
4. Allocate the transaction price to the performance obligations in the contract.
5. Recognize revenue when the performance obligations are met or delivered.
The Company’s operating revenues are primarily generated from fees charged for the collection and disposal of waste by its Trucking Segment. Revenues are recognized at a point in time immediately after completion of disposal of waste at a landfill or transfer station. Revenues from collection operations are influenced by factors such as collection frequency, type of collection furnished, type and volume or weight of the waste collected, distance to the disposal facility or material recovery facility and disposal costs. Fees charged at transfer stations are generally based on the weight or volume of waste deposited, including the cost of loading, transporting, and disposing of the solid waste at a disposal site. The fees charged for services generally include environmental, fuel charge and regulatory recovery fees, which are intended to pass through to customers as direct and indirect costs incurred. For waste collection and disposal services, the Company invoices its customers with standard 30-day payment terms without any significant financing terms.
15 |
The Company’s Digester Segment also recognizes operating revenues from its product sales, such as sales of digester equipment and parts. Performance obligations from product sales are satisfied at the point in time when products are shipped to the customer, which is when the customer has title and control. Therefore, the Company’s product sale contracts have a single performance obligation (shipment of product). The Company primarily receives fixed consideration for sales of products. When revenue is earned on digester equipment related services, such as management advisory fees and digester maintenance and repair services, fees are recognized as the services are performed based on service milestones. The Company offers customers subscriptions to software which aids in the use of its Digester products; software revenue is recognized over time for the course of the subscription. For product sales, the Company invoices its customers with standard 30-day payment terms without any significant financing terms.
The following is a summary of revenue disaggregated by type for the three months ended March 31, 2024 and 2023:
Three Months Ended | ||||||||
March 31, | ||||||||
2024 | 2023 | |||||||
Product sales and product related services | $ | $ | ||||||
Waste collection and disposal | ||||||||
Total revenue | $ | $ |
Concentration Risk from Revenues
A major customer is defined as a customer that represents 10% or greater of total revenues. The Company does not believe that the risk associated with these customers or vendors will have an adverse effect on the business. The Company’s concentration of revenue is as follows:
Three Months Ended | ||||||||
March 31, | ||||||||
2024 | 2023 | |||||||
Customer A | % | * | ||||||
Customer B | % | % | ||||||
* Represents amounts less than 10% |
Concentration Risk from Accounts Receivable
A major customer is defined as a customer that represents 10% or greater of total accounts receivable, net. The Company does not believe that the risk associated with these customers or vendors will have an adverse effect on the business. The Company’s concentration of accounts receivable is as follows:
As of March 31, 2024 | As of December 31, 2023 | |||||||
Customer A | % | * | ||||||
Customer B | % | % | ||||||
Customer C | % | * | ||||||
* Represents amounts less than 10% |
The Company maintains positive customer relationships and continually expands its customer base, mitigating the impact of any potential concentration risks that exist.
16 |
Basic net (loss) income per common share is computed by dividing net (loss) income by the weighted average number of vested common shares outstanding during the period. Diluted net income per common share is computed by dividing net income by the weighted average number of vested common shares, plus the net impact of common shares (computed using the treasury stock method), if dilutive, resulting from the exercise of dilutive securities. In periods when losses are reported, the weighted-average number of common shares outstanding excludes common stock equivalents because their inclusion would be anti-dilutive. As of March 31, 2024 and 2023, the Company excluded the common stock equivalents summarized below, which entitle the holders thereof to ultimately acquire shares of common stock, from its calculation of earnings per share, as their effect would have been anti-dilutive.
Three Months Ended | ||||||||
March 31, | ||||||||
2024 | 2023 | |||||||
Series A preferred stock | ||||||||
Warrants | ||||||||
Total common stock equivalents |
As further described in Note 3 – Business Combinations, under applicable accounting principles, the historical financial results of Titan prior to May 19, 2023 replace the historical financial statements for the period prior to May 19, 2023. Titan’s equity structure, prior to the combination with the TraQiQ, was a limited liability company, resulting in all components of equity attributable to the members being reported within Member’s Equity. Given that Titan was a limited liability company, net loss prior to the reverse acquisition is not applicable for purposes of calculating loss per share.
The Company has assessed the Series A Right to Receive Common Stock (“Series A Rights”) and the Series B Rights to Receive Common Stock (“Series B Rights”) for appropriate balance sheet classification and concluded that the Series A Rights and Series B Rights are freestanding equity-linked financial instruments that meet the criteria for equity classification under ASC 480 and ASC 815. In accordance with ASC 260 Earnings per Share the Company determined that the Series A Rights and Series B Rights should be included in the determination of basic and diluted earnings per share.
Income Taxes and Uncertain Tax Positions
The Company and its U.S. subsidiaries file a consolidated federal income tax return and are taxed as a C-Corporation, whereby they are subject to federal and state income taxes. The Company accounts for income taxes in accordance with ASC 740, “Income Taxes”. ASC 740 requires an asset and liability approach for financial accounting and reporting for income taxes, established for all the entities a minimum threshold for financial statement recognition of the benefit of tax positions, and requires certain expanded disclosures. The provision for income taxes is based upon income or loss after adjustment for those permanent items that are not considered in the determination of taxable income. Deferred income taxes represent the tax effects of differences between the financial reporting and tax basis of the Company’s assets and liabilities at the enacted tax rates in effect for the years in which the differences are expected to reverse. The Company evaluates the recoverability of deferred tax assets and establishes a valuation allowance when it is more likely than not that some portion or all the deferred tax assets will not be realized. Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In management’s opinion, adequate provisions for income taxes have been made. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary.
17 |
Advertising and Marketing Costs
Costs
associated with advertising are charged to expense as occurred. For the three months ended March 31, 2024 and 2023, the advertising and
marketing costs were $
Recently Issued Accounting Standards
The Company has reviewed the recent accounting pronouncements issued by the Financial Accounting Standards Board (“FASB”), including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the SEC, and determined that these pronouncements do not have a material impact on the Company’s current or anticipated consolidated financial statement presentation or disclosures.
In November 2023, the FASB issued Accounting Standard Update (“ASU”) 2023-07, Segment Reporting (Topic 280) – Improvements to Reportable Segment Disclosures (“ASU 2023-07”). ASU 2023-07 requires a public entity to disclose significant segment expenses and other segment items on an annual and interim basis and provide in interim periods all disclosures about a reportable segment’s profit or loss and assets that are currently required annually. Additionally, it requires a public entity to disclose the title and position of the Chief Operating Decision Maker (“CODM”). ASU 2023-07 does not change how a public entity identifies its operating segments, aggregates them, or applies the quantitative thresholds to determine its reportable segments. The new standard is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. A public entity should apply the amendments in this ASU retrospectively to all prior periods presented in the financial statements. The Company is currently evaluating the impact that adoption of ASU 2023-07 will have on its financial disclosures.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740) – Improvements to Income Tax Disclosures (ASU 2023-09). ASU 2023-09 requires that an entity, on an annual basis, disclose additional income tax information, primarily related to the rate reconciliation and income taxes paid. The amendment in the ASU is intended to enhance the transparency and decision usefulness of income tax disclosures. The ASU’s amendments are effective for annual periods beginning after December 15, 2024. The Company is currently evaluating the impact that adoption of ASU 2023-09 will have on its financial statements.
18 |
NOTE 3 – BUSINESS COMBINATIONS
Titan Trucking, LLC Reverse Acquisition
The Company’s subsidiary Titan Merger Sub Corp. (“Merger Sub”), Titan Trucking and the owners of Titan Trucking (“Titan Trucking owners”) entered into a merger agreement (the “Titan Merger Agreement”) on May 19, 2023 (the “acquisition date”). Pursuant to the terms of the Titan Merger Agreement, Merger Sub was merged with and into Titan Trucking on the acquisition date with Titan Trucking surviving as a wholly-owned subsidiary of the Company (the “Titan Merger”). For U.S. federal income tax purposes, the Titan Merger qualified as a tax-free “reorganization”. Under the terms of the Titan Merger Agreement, the Company agreed to pay the Titan Trucking owners shares of the Company’s Series A Preferred Stock. Concurrent to the Titan Merger, the Company’s chief executive officer and one of the Company’s directors resigned from their respective positions and a new chief executive officer, chief operating officer and chief financial officer were appointed. Additionally, the new chief executive officer and chief operating officer were both appointed as directors of the Company.
In accordance with ASC 805 – Business Combinations, the Titan Merger was accounted for as a reverse acquisition with Titan Trucking being deemed the accounting acquirer of Titan. Titan Trucking, as the accounting acquirer, recorded the assets acquired and liabilities assumed of Titan at their fair values as of the acquisition date. Titan Trucking’s historical consolidated financial statements have replaced Titan’s historical consolidated financial statements with respect to periods prior to the completion of the Titan Merger with retroactive adjustments to Titan’s legal capital to reflect the legal capital of Titan. Titan remains the continuing registrant and reporting company.
Titan Trucking was deemed to be the accounting acquirer based on the following facts and circumstances: (1) the Titan Trucking owners owned approximately 65% of the voting interests of the combined company immediately following the transaction; (2) the Titan Merger resulted in significant changes to the combined company’s Board of Directors; (3) the Titan Merger resulted in significant changes to the management of the combined company.
The Company accounted for the Titan Merger as a reverse acquisition using acquisition accounting. Because the Titan Merger qualifies as a reverse acquisition and given that Titan Trucking was a private company at the time of the Titan Merger and therefore its value was not readily determinable, the fair value of the merger consideration was deemed to be equal to quoted market capitalization of the Company at the acquisition date. The purchase consideration was as follows:
Titan Environmental Solutions Inc. market capitalization at closing | $ | |||
Total purchase consideration | $ |
The Company recorded all tangible and intangible assets and liabilities at their estimated fair values on the acquisition date. The following represents the allocation of the estimated purchase consideration:
Estimated | ||||
Description | Fair Value | |||
Assets: | ||||
Cash | $ | |||
Accounts receivable | ||||
Prepaid expenses and other current assets | ||||
Inventory | ||||
Fixed assets | ||||
Intangible assets | ||||
Goodwill | ||||
$ | ||||
Liabilities: | ||||
Accounts payable and accrued expenses | $ | ( | ) | |
Customer deposits | ( | ) | ||
Accrued payroll and related taxes | ( | ) | ||
Derivative liability | ( | ) | ||
Convertible notes payable | ( | ) | ||
Convertible notes payable – related parties | ( | ) | ||
Notes payable | ( | ) | ||
Notes payable – related parties | ( | ) | ||
$ | ( | ) | ||
Net fair value of assets (liabilities) | $ |
19 |
The Company assessed the fair values of the tangible and intangible assets and liabilities and the amount of goodwill to be recognized as of the acquisition date. Fair values are preliminary and were based on management’s estimates and assumptions. The intangible assets acquired were specific to the Company’s Recoup subsidiary.
The
fair value of the intellectual property intangible asset was measured using the multiple periods excess earnings method (“MPEEM”).
Significant inputs used to measure the fair value include an estimated useful life of ten (
The
fair value of the tradenames intangible asset was measured using the relief from royalty method. Significant inputs used to measure the
fair value include an estimated projected revenue from the tradename, a pre-tax royalty rate of
The
fair value of the customer list intangible asset was measured using the modified MPEEM. Significant inputs used to measure the fair
value include an estimated useful life of ten (
The
fair value of the noncompete agreement intangible asset was measured with a discounted cash flow analysis that compared projected cash
flows during the noncompete agreement period with and without the agreement. Significant inputs used to measure the fair value include
an estimate of time for the parties involved to identify the product, bring in the technology, and start the manufacturing process. As
well as the estimated risk that the parties involved would choose to compete without the agreement in place and a discount rate of
Goodwill
arising from the acquisition consisted of new customer relationships for the Company, access to new product market opportunities and
expected growth opportunities. Total acquisition costs incurred were approximately $
The
approximate revenue for Titan (excluding the operations of Titan Trucking) was $
The following supplemental pro-forma financial information approximate combined financial information assumes that the acquisition had occurred at the beginning of the year ended December 31, 2023:
Three Months Ended | Three Months Ended | |||||||
March 31, | March 31, | |||||||
2024 | 2023 | |||||||
Total revenue | $ | $ | ||||||
Net loss | $ | ( | ) | $ | ( | ) | ||
Pro forma loss per common share | $ | ( | ) | $ | ( | ) | ||
Pro forma weighted average number of common shares basic and diluted |
The
pro forma combined results of operations for the three months ended March 31, 2023, included stock-based compensation of $
20 |
NOTE 4 – PROPERTY AND EQUIPMENT, NET
Property and equipment consisted of the following as of March 31, 2024 and December 31, 2023:
March 31, | December 31, | |||||||
2024 | 2023 | |||||||
Containers | $ | $ | ||||||
Trucks and tractors | ||||||||
Trailers | ||||||||
Shop equipment | ||||||||
Leasehold improvements | ||||||||
Less accumulated depreciation | ( | ) | ( | ) | ||||
Net book value | $ | $ |
Depreciation
expenses for the three months ended March 31, 2024 and 2023 were $
NOTE 5 – INTANGIBLES, NET
Intangible assets consisted of the following as of March 31, 2024 and December 31, 2023:
March 31, | December 31, | |||||||
2024 | 2023 | |||||||
Customer Lists | $ | $ | ||||||
Intellectual Property | ||||||||
Tradenames | ||||||||
Noncompete Agreement | ||||||||
Less: accumulated amortization | ( | ) | ( | ) | ||||
Net book value | $ | $ |
Amortization
expense from intangible assets was $
As
a result of the Titan Merger, the Company recorded $
Future amortization expense from intangible assets as of March 31, 2024 were as follows:
For the Years Ended, | ||||
December 31, | ||||
Remainder of 2024 | $ | |||
2025 | ||||
2026 | ||||
2027 | ||||
2028 | ||||
Thereafter | ||||
Total remaining amortization expense | $ |
21 |
NOTE 6 – GOODWILL
The
Company has two reporting units, Trucking and Digester. As of March 31, 2024, and December 31, 2023, the goodwill for both reporting units
was $
During
the year ended December 31, 2023, and as a result of the financial performance of the Digester Segment, the Company concluded it was
more likely than not that the fair value of the reporting unit was less than it’s carrying amount.
Therefore, the Company performed an impairment assessment of the goodwill. The fair value of the Digester reporting unit was
estimated using an income approach and included assumptions related to estimates of future revenue and operating expenses, long-term
growth rates, a technology obsolescence rate, and a discount rate. The quantitative impairment test indicated a fair value of the
reporting unit that was lower than its carrying value, and as a result, the goodwill was impaired with an impairment expense
of $
The changes in the carrying value of goodwill by reportable segment for the three months ended March 31, 2023 and 2024 was as follows:
Trucking | Digester | |||||||
Gross goodwill: | ||||||||
Balance as of January 1, 2023 | $ | $ | ||||||
Goodwill recognized | ||||||||
Balance as of March 31, 2023 | ||||||||
Accumulated impairment | - | - | ||||||
Balance as of January 1, 2023 | ||||||||
Impairment | ||||||||
Balance as of March 31, 2023 | ||||||||
Net carrying value, as of March 31, 2023 | ||||||||
Gross goodwill: | ||||||||
Balance as of January 1, 2024 | ||||||||
Goodwill recognized | ||||||||
Balance as of March 31, 2024 | ||||||||
Accumulated impairment: | ||||||||
Balance as of January 1, 2024 | ( | ) | ||||||
Impairment | ||||||||
Balance as of March 31, 2024 | ( | ) | ||||||
Net carrying value, as of March 31, 2024 | $ | $ |
NOTE 7 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Detail of accounts payable and accrued expenses as of March 31, 2024 and December 31, 2023 was as follows:
March 31, | December 31, | |||||||
2024 | 2023 | |||||||
Accounts payable | $ | $ | ||||||
Credit card payable | ||||||||
Accrued interest | ||||||||
Accrued expenses and other payables | ||||||||
Total accounts payable and accrued expenses | $ | $ |
22 |
NOTE 8 – LEASES
As
of March 31, 2024, Titan Trucking maintained three leases classified as operating leases. Leases with an initial term of
Titan
Trucking has a
On
April 1, 2023, Titan Trucking entered into a
On
November 1, 2023, the Company entered into a
March 31, | December 31, | |||||||
2024 | 2023 | |||||||
Weighted average remaining lease term (in years) | ||||||||
Weighted average discount rate | % | % |
Future minimum lease payments required under operating leases on an undiscounted cash flow basis as of March 31, 2024, were as follows:
For the Years Ended, | ||||
December 31, | ||||
Remainder of 2024 | $ | |||
2025 | ||||
2026 | ||||
2027 | ||||
2028 | ||||
Total minimum lease payments | ||||
Less: imputed interest | ( | ) | ||
Present value of future minimum lease payments | ||||
Current operating lease liabilities | ||||
Non-current operating lease liabilities | $ |
The
Company had operating lease expenses of $
NOTE 9 – NOTES PAYABLE
The Company borrows funds from various creditors to finance its equipment, operations and acquisitions. The Company’s collateralized loans are secured by interest in the financed equipment.
23 |
On
December 15, 2022, Titan Trucking entered into a $
The Company’s notes payables balance as of March 31, 2024 and December 31, 2023, consisted of the following:
March 31, | December 31, | |||||||||||||||||||
2024 | 2023 | |||||||||||||||||||
Current | Non-current | Current | Non-current | |||||||||||||||||
Collateralized Loans: | ||||||||||||||||||||
M&T Bank | (a) | |||||||||||||||||||
Daimler Truck | (b) | |||||||||||||||||||
Ascentium Capital | (c) | |||||||||||||||||||
Balboa Capital | (d) | |||||||||||||||||||
Blue Bridge Financial | (e) | |||||||||||||||||||
Channel Equipment Finance | (f) | |||||||||||||||||||
Financial Pacific | (g) | |||||||||||||||||||
M2 Equipment | (h) | |||||||||||||||||||
Meridian Equipment Finance | (i) | |||||||||||||||||||
Navitas | (j) | |||||||||||||||||||
Pawnee Leasing Corp | (k) | |||||||||||||||||||
Signature Bank | (l) | |||||||||||||||||||
Trans Lease, Inc. | (m) | |||||||||||||||||||
Verdant Commercial Capital | (n) | |||||||||||||||||||
Western Equipment Capital | (o) | |||||||||||||||||||
Amur Equipment Finance | (p) | |||||||||||||||||||
CH Brown Company LLC | (q) | |||||||||||||||||||
TF Group, Inc. | (r) | |||||||||||||||||||
Issued prior to Titan Merger: | ||||||||||||||||||||
Michaelson Capital | (s) | |||||||||||||||||||
Loanbuilder | (t) | |||||||||||||||||||
Individual | (u) | |||||||||||||||||||
Kabbage Funding Loans | (v) | |||||||||||||||||||
Related Parties: | ||||||||||||||||||||
Titan Holdings 2 | (w) | |||||||||||||||||||
Titan Holdings 5 | (x) | |||||||||||||||||||
Miller | (y) | |||||||||||||||||||
Rizzo | (z) | |||||||||||||||||||
Total outstanding principal | ||||||||||||||||||||
Less: discounts | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
Total notes payable | ||||||||||||||||||||
Less: Notes payable – related parties | ||||||||||||||||||||
Notes payable | $ | $ | $ | $ |
24 |
(a) |
|
(b) | On
June 3, 2019, Titan Trucking entered into another collateralized loan agreement with Daimler Truck for $
On
June 14, 2019, Titan Trucking entered into another collateralized loan agreement with Daimler Truck for $
|
(c) | Between
May 5, 2022, and June 5, 2022, Titan Trucking entered into three equipment financing agreements with Ascentium Capital. The
agreements had principal amounts between $
On
December 25, 2023 Titan Trucking entered into an equipment financing agreement with Ascentium Capital for $
On
March 5, 2024 Titan Trucking entered into an equipment financing agreement with Ascentium Capital for $ |
(d) | |
(e) |
|
(f) | On
September 19, 2023, Titan Trucking entered into an equipment finance agreement with Channel Equipment Finance for $
On
October 31, 2023, Titan Trucking entered into an equipment finance agreement with Channel Equipment Finance for $
|
(g) | On
July 15, 2022, Titan Trucking entered into an equipment financing agreement with Financial Pacific for $
On
October 15, 2022, Titan Trucking entered into an additional equipment financing agreement with Financial Pacific for $ |
25 |
(h) | On
August 10, 2022, Titan Trucking entered into an equipment financing agreement with M2 Equipment for $
On
March 22, 2024, Titan Trucking entered into an equipment financing agreement with M2 Equipment for $ |
(i) |
(j) | |
(k) |
|
(l) | On
June 22, 2022, Titan Trucking entered into a collateralized loan agreement with Signature Bank for $
On
September 15, 2022, Titan Trucking entered into a collateralized loan agreement with Signature Bank for $
|
(m) | On
August 20, 2022, Titan Trucking entered into a collateralized loan agreement with Trans Lease, Inc. for $
On
January 20, 2024, Titan Trucking entered into a collateralized loan agreement with Trans Lease, Inc. for $ |
(n) | |
(o) | |
(p) | |
(q) | |
(r) |
26 |
Note Payables issued prior to Titan Merger:
(s) | On
January 5, 2023, the Company completed its asset acquisition of the Recoup Digester Assets and as part of the consideration, assumed
the liabilities of a $
|
In October 2023, the Company and Michaelson agreed to forbear the principal payments owed to Michaelson during the three months ended September 30, 2023 until October 30, 2023. On December 28, 2023 the Company and Michaelson signed a Forbearance Agreement (the “December Michaelson Amendment”) that was accounted for as a debt modification in accordance with ASC 470 – Debt. |
The
December Michaelson Amendment established a period ending on March 31, 2024 during which Michaelson agreed to forbear from
exercising its rights against the Company with respect to a default. Additionally, it set the following repayment terms: 1) on or
before December 31, 2023, the Company was to make a $
In
April 2024, the Company and Michaelson agreed to extend the term of the Michaelson Note until June 30, 2024, and forbear all other
terms until May 1, 2024. In exchange for such extension and forbearance, the Company agreed to: 1) pay $
| |
(t) | Between
January 14, 2022 and July 6, 2022, the Company signed four loan agreements with the Loanbuilder Service of Paypal, Inc (the “Loanbuilder
Notes”). Three of the four Loanbuilder Notes were settled prior to May 19, 2023. The remaining note (“Loanbuilder –
3”) was in default on May 19, 2023. On May 19, 2023, the outstanding liabilities owed due to the Loanbuilder Notes was $
On
June 15, 2023, the Company agreed to settle Loanbuilder – 3. In accordance with ASC 470-60, “Troubled Debt Restructuring
by Debtors,” each of the Loanbuilder Notes is accounted for as a troubled debt restructuring due to their respective settlement
agreements. As a result of the Loanbuilder - 3 settlement, the Company recorded a net gain on extinguishment of debt of $
Excluding
the Loanbuilder - 3 repayments, and as of December 31, 2023, the Company had 28 remaining required monthly repayments of $ |
27 |
(u) | |
(v) |
Related Parties:
(w) | On
April 30, 2023, Titan Trucking signed a promissory note (the “Titan Holdings 2 Note”) with Titan Holdings 2, LLC
(“Titan Holdings 2”), a stockholder of the Company. On November 10, 2023, Titan Trucking and Titan Holdings 2 agreed to
a restated promissory note (together the two notes are the “Titan Holdings 2 Note”). The Titan Holdings 2 Note has a
principal amount of $
Titan
has an informal agreement with Titan Holdings 2 to continually borrow from Titan Holdings 2 as working capital needs arise. These
additional funds are to be repaid as funding becomes available. As of March 31, 2024, Titan had borrowed $ |
(x) | |
(y) | On
October 30, 2023, Titan Trucking and the Company’s CEO, Glen Miller (“Miller”), agreed to a promissory note for a principal amount
of $
On
February 23, 2024, the Company and Miller agreed to a promissory note for a principal amount of $ |
(z) | On
November 30, 2023, the Company and its COO, Jeff Rizzo (“Rizzo”), agreed to a promissory note for a principal amount
of $
Titan
has an informal agreement with Rizzo to continually borrow from Rizzo as working capital needs arise. These additional funds are
to be repaid as funding becomes available. As of March 31, 2024, Titan had borrowed $ |
Interest
expense on these notes for the three months ended March 31, 2024 and 2023 was $
28 |
Principal maturities for the next five years and thereafter as of March 31, 2024 were as follows:
Remainder of 2024 | $ | |||
2025 | ||||
2026 | ||||
2027 | ||||
2028 | ||||
Thereafter | ||||
Total principal payments | $ | |||
Less: debt discounts | ( | ) | ||
Total notes payable | $ |
NOTE 10 – CONVERTIBLE NOTES PAYABLE
Convertible Notes Payable Issued Prior to Titan Merger
On
October 31, 2022, the Company issued a
Between
January 1, 2023 and April 6, 2023, the Company issued five
On
July 5, 2022, the Company issued an original issue discount Senior Secured Promissory Note (the “GS Capital Note”) to GS
Capital Partners, LLC (“GS Capital”) that was dated as of
On
February 16, 2023, the Company issued a
29 |
On
February 14, 2023 and March 14, 2023, the Company issued two
Between
February 16, 2023 and April 26, 2023, the Company issued four
Between
March 3, 2023 and April 18, 2023, the Company issued three
On
November 22, 2022, the Company issued an original issue discount Senior Secured Promissory Note (the “Diagonal Note”) to
1800 Diagonal Lending, LLC (“Diagonal”) with a principal balance of $
On
April 17, 2023, the Company issued a
30 |
Convertible Notes Payable – Related Parties Issued Prior to Titan Merger
On
May 12, 2023, the Company issued a
On
May 12, 2023, the Company issued a
Convertible Notes Payable and Convertible Notes Payable – Related Parties
The Company’s convertible notes as of March 31, 2024 and December 31, 2023 were as follows:
March 31, | December 31, | |||||||||||||||||||
2024 | 2023 | |||||||||||||||||||
Current | Non-current | Current | Non-current | |||||||||||||||||
Convertible Notes Payable: | ||||||||||||||||||||
Calvary Fund – Bridge Notes | (a) | $ | $ | $ | $ | |||||||||||||||
Evergreen – Bridge Note | (b) | |||||||||||||||||||
Keystone Capital – Bridge Notes | (c) | |||||||||||||||||||
Seven Knots – Bridge Notes | (d) | |||||||||||||||||||
Individual #2 – Bridge Notes | (e) | |||||||||||||||||||
Individual #3 – Bridge Notes | (f) | |||||||||||||||||||
Individual #4 – Bridge Notes | (g) | |||||||||||||||||||
Individual #5 – Bridge Notes | (h) | |||||||||||||||||||
Chambers - Bridge Note | (i) | |||||||||||||||||||
Schiller - Bridge Note | (j) | |||||||||||||||||||
Related Parties: | ||||||||||||||||||||
Miller – Bridge Notes | (k) | |||||||||||||||||||
Titan 5 – Bridge Note | (l) | |||||||||||||||||||
Celli – Bridge Notes | (m) | |||||||||||||||||||
FC Advisory – Bridge note | (n) | |||||||||||||||||||
Total outstanding principal | ||||||||||||||||||||
Less: discounts | ( | ) | ( | ) | ( | ) | ||||||||||||||
Total convertible notes payable | ||||||||||||||||||||
Convertible notes payable – related parties | ||||||||||||||||||||
Convertible notes payable | $ | $ | $ | $ |
31 |
Convertible Notes Payable:
(a) | |
(b) | |
(c) |
(d) | |
(e) | |
(f) | |
(g) |
32 |
(h) | |
(i) | |
(j) |
Related Parties:
(k) |
(l) | |
(m) | |
(n) |
Interest
expense due to convertible notes payable for the three months ended March 31, 2024 and 2023 was $
33 |
Convertible note payables principal maturities for the next year as of March 31, 2024 were as follows:
Remainder of 2024 | $ | |||
2025 | ||||
Total principal payments | ||||
Less: debt discounts | ( | ) | ||
Total convertible notes payable | $ |
NOTE 11 – DERIVATIVE LIABILITIES
The
Company has issued certain convertible notes payable that contain conversion options with variable settlement features which make their
conversion options a derivative liability. The conversion option derivatives were embedded in their respective note payables and for
accounting purposes have been bifurcated from the host instruments. As of March 31, 2024 and December 31, 2023, the Company did not have
any of these convertible notes payable outstanding and the derivative liability from the related conversion options was $
On
February 12, 2021, the Company granted and
an exercise price of $
The fair value of the Platinum Point Warrants derivative liability is estimated using a Black-Scholes valuation model with a stock price of $ . Changes to the inputs used in the model could produce a significantly higher or lower fair value. The following assumptions were used as of March 31, 2024 and December 31, 2023:
Three Months Ended March 31, 2024 | Year Ended December 31, 2023 | |||||||
Expected term (years) | ||||||||
Expected volatility | % | % | ||||||
Expected dividend yield | % | % | ||||||
Risk-free interest rate | % | % |
The derivative liabilities as of March 31, 2024 and December 31, 2023 were as follows:
March 31, 2024 | December 31, 2023 | |||||||
Fair value of the Platinum Point Warrants ( | $ | $ | ||||||
$ | $ |
Activity related to the derivative liabilities for the three months ended March 31, 2024 were as follows:
Beginning balance as of December 31, 2023 | $ | |||
Change in fair value of warrant - derivative liability | ( | ) | ||
Ending balance as of March 31, 2024 | $ |
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On
December 28, 2023, the Company and Michaelson signed a Forbearance Agreement (the “December Michaelson Amendment”) that
amended the Michaelson Note and was accounted for as a debt modification in accordance with ASC 470 – Debt. The December
Michaelson Amendment states that following the payment of its other obligations owed to Michaelson, the Company shall issue Michaelson
$
The
Advance on Offering balance was $
In
April 2024, the Company and Michaelson agreed to extend the term of the Michaelson Note until June 30, 2024, and forbear all other terms
until May 1, 2024. Among other terms, the Company agreed to pay a $
NOTE 13 – BENEFIT PLAN
Titan
Trucking offers a 401(k) plan. Employees are eligible to participate in the plan on the first day of the month following the date of
hire. Employees may defer up to $
Employer
contributions for the three months ended March 31, 2024 and 2023 were $
NOTE 14 – STOCKHOLDERS’ EQUITY
As further described in Note 3 – Business Combinations, under applicable accounting principles, the historical financial results of Titan Trucking prior to May 19, 2023 has replaced the historical financial statements of Titan for the period prior to May 19, 2023. Titan Trucking’s equity structure, prior to the combination with the Titan, was a limited liability company, resulting in all components of equity attributable to the members being reported within Member’s Equity.
As
of December 31, 2023, the Company was authorized to issue a total of
shares of its Preferred Stock in one or more series, and authorized to issue shares of common stock. As a result of
the redomicile and effective January 10, 2024, the authorized capital stock of the Company was amended to
As of April 3, 2024, the Company’s board of directors designated a series of Preferred Stock (“Series B Preferred Stock”) consisting of
shares that were designated Series B Convertible Preferred Stock (Note 17 – Subsequent Events).
Members’ Equity
As
of December 31, 2022, Titan Trucking had members’ equity of $
On
February 1, 2023, in exchange for the settlement of the $
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Series A Preferred Stock
As a result of the redomicile and effective January 10, 2024, each share of the Company’s Series C Convertible Preferred Stock issued and outstanding immediately prior to the effective time of the redomicile was exchanged for one share of Series A Convertible Preferred Stock of Titan (the “Series A Preferred Stock”), which has substantially the same rights and preferences as the Series C Preferred Stock.
Each
outstanding share of Series A Convertible Preferred Stock has a par value of $
Series B Preferred Stock
As of March 31, 2024 and December 31, 2023, there were shares of Series B Preferred Stock issued and outstanding. As a result of the redomicile and effective January 10, 2024, the Company’s “Series B” class of preferred stock was eliminated. As of April 3, 2024, the Company’s board of directors designated a series of Preferred Stock (“Series B Preferred Stock”) consisting of shares that were designated Series B Convertible Preferred Stock (Note 17 – Subsequent Events).
Prior to the redomicile, each outstanding share of Series B Convertible Preferred Stock prior to the redomicile was convertible into the shares of the Company’s common stock at any time commencing after the issuance date. Series B Convertible Stock had no voting rights. Upon any liquidation, dissolution, or winding-up of the Company, whether voluntary or involuntary (a “Liquidation”), the Series B Holders were entitled to receive out of the assets of the Company, whether capital or surplus, the same amount that a holder of Common Stock would receive if the Series B Preferred were fully converted. Except for stock dividends or distributions for, Series B Holders were entitled to receive, and the Company was required to pay, dividends on shares of Series B Preferred equal (on an as-if-converted-to-common-Stock basis) to and in the same form as dividends actually paid on shares of the Common Stock when, as, and if such dividends are paid on shares of the Common Stock. No other dividends were required to be paid on shares of Series B Preferred.
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On July 17, 2023, the Company entered into Exchange Agreements (the “Series B Preferred Exchange Agreements”) with two accredited investors, including Sikka. Pursuant to the Series B Preferred Exchange Agreements, such investors exchanged shares of the Company’s Series B Convertible Preferred Stock into an aggregate of Series A Rights dated as of July 17, 2023. On July 20, 2023, the Company entered into an Exchange Agreement (the “REI Exchange Agreement”) with Renovare Environmental, Inc. (“REI”) pursuant to which REI exchanged shares of Common Stock and shares of Series B Preferred Stock for Series A Rights dated July 20, 2023 and Series B Rights dated July 20, 2023. As a result of the Series B Preferred Exchange Agreements and the REI Exchange Agreement the Company did not have any outstanding Series B Preferred Stock.
Common Stock
As of December 31, 2023, there were shares of common stock authorized. As a result of the redomicile and effective January 10, 2024, each share of the Company’s common stock issued and outstanding immediately prior to the effective time of the redomicile was exchanged for one share of common stock of Titan. Additionally, the authorized shares of common stock was increased to . As of March 31, 2024 the Company had shares of common stock authorized. As of March 31, 2024, and December 31, 2023 the Company had and shares of common stock issued and outstanding, respectively.
Under the terms of the Company’s articles of incorporation, holders of common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders, including the election of directors, and do not have cumulative voting rights. The holders of outstanding shares of common stock are entitled to receive dividends out of assets or funds legally available for the payment of dividends at such times and in such amounts as the Company’s board of directors from time to time may determine. The common stock is not entitled to pre-emptive rights and is not subject to conversion or redemption. Upon liquidation, dissolution or winding up of the Company, the assets legally available for distribution to stockholders are distributable ratably among the holders of common stock after payment of liquidation preferences, if any, on any outstanding shares of preferred stock and the payment of other claims of creditors. The rights, preferences and privileges of holders of common stock are subject to and may be adversely affected by the rights of the holders of shares of outstanding preferred stock and any series of preferred stock the Company may designate and issue in the future.
During the three months ended March 31, 2024, the Company issued shares of common stock due to exercises of share rights from common stock rights.
On
July 17, 2023, the Company also entered into Exchange Agreements (the “Series B Preferred Exchange Agreements”) with two
accredited investors, including Sikka. Pursuant to the Series B Preferred Exchange Agreements, Sikka exchanged
Warrants
As a result of the redomicile and effective January 10, 2024, all the Company’s outstanding warrants were assumed by Titan and now represent warrants to acquire shares of Titan’s common stock. The following schedule summarizes the changes in the Company’s common stock warrants during the three months ended March 31, 2024 and 2023:
Weighted | Weighted | |||||||||||||||||||
Warrants Outstanding | Average | Average | ||||||||||||||||||
Number | Exercise | Remaining | Aggregate | Exercise | ||||||||||||||||
Of | Price | Contractual | Intrinsic | Price | ||||||||||||||||
Shares | Per Share | Life | Value | Per Share | ||||||||||||||||
Balance at December 31, 2023 | $ | – | $ | $ | ||||||||||||||||
Warrants granted | $ | $ | $ | |||||||||||||||||
Warrants exercised | $ | - | $ | - | $ | - | ||||||||||||||
Warrants expired/cancelled | ( | ) | $ | – | - | $ | - | $ | - | |||||||||||
Balance at March 31, 2024 | $ | – | $ | $ | ||||||||||||||||
Exercisable at March 31, 2024 | $ | – | $ | $ | ||||||||||||||||
Balance at December 31, 2022 | $ | - | $ | - | $ | |||||||||||||||
Warrants granted | $ | - | $ | - | $ | - | ||||||||||||||
Warrants exercised/ exchanged | $ | - | $ | - | $ | - | ||||||||||||||
Warrants expired/cancelled | $ | - | $ | - | $ | - | ||||||||||||||
Balance at March 31, 2023 | $ | - | $ | - | $ | |||||||||||||||
Exercisable at March 31, 2023 | $ | - | $ | - | $ |
37 |
On
December 28, 2023, the Company issued
On
January 5, 2024, the Company issued
Right to Receive Common Shares
On
July 17, 2023, the Company entered into Exchange Agreements (the “Note Exchange Agreements”), with five holders of its convertible
note payables. Under the terms of the Note Exchange Agreements, $
On
July 17, 2023, the Company also entered into Exchange Agreements (the “Series B Preferred Exchange Agreements”) with two
accredited investors, including Sikka. Pursuant to the Series B Preferred Exchange Agreements, such investors exchanged
On July 20, 2023, the Company entered into an Exchange Agreement (the “REI Exchange Agreement”) with Renovare Environmental, Inc. (“REI”) pursuant to which REI exchanged shares of Common Stock and shares of Series B Preferred Stock for Series A Rights dated July 20, 2023 and Series B Rights dated July 20, 2023. The Series A Rights and Series B Rights were valued at their fair value at the time of grant, which was deemed to be $ per Series A Right Share and $ per Series B Right Share.
The
transactions contemplated by the Note Exchange Agreement, Series B Preferred Exchange Agreement and REI Exchange Agreement are together
referred to as the “Rights Exchanges”. As a result of the Rights Exchanges, the Company recognized a loss of $
The Company’s Series A Rights obligate the Company to issue common stock (“Series A Right Shares”) to the holder without any additional consideration. The number of Series A Right Shares is fixed, and is only subject to customary non-price based ratable adjustments, such as stock splits, and stock combinations. The Series A Rights are exercisable immediately and expire five years after the issuance date. The Series A Rights require the Company to hold in reserve the total number of shares of common stock that would need to be exercised in order meet the obligations of the Series A Rights.
38 |
The Company’s Series B Rights obligate the Company to issue Common Stock (“Series B Right Shares”) to the holder without any additional consideration. The number of Series B Right Shares is fixed and is only subject to customary non-price based ratable adjustments, such as stock splits, and stock combinations. The Company’s Series B Rights are currently exercisable and expire five years after the issuance date. The Series B Rights require the Company to hold in reserve the total number of shares of common stock that would need to be exercised in order meet the obligations of the Series B Rights.
The Company assessed the Series A Rights and Series B Rights for appropriate balance sheet classification and concluded that the Series A Rights and Series B Rights are freestanding equity-linked financial instruments that meet the criteria for equity classification under ASC 480 and ASC 815. Accordingly, they are classified as equity and accounted for as a component of additional paid-in capital at the time of issuance. The Company also determined that the Series A Rights and Series B Rights should be included in the determination of basic and diluted earnings per share in accordance with ASC 260, Earnings per Share.
As a result of the redomicile and effective January 10, 2024, each of the Company’s Series A Right to Receive Common Stock issued and outstanding immediately prior to the redomicile was exchanged for one Series A Right to Receive Common Stock of Titan, which has substantially the same rights and preferences as the Company’s original Series A Rights to Acquire Common Stock. Also, each of the Company’s Series B Right to Receive Common Stock issued and outstanding immediately prior to the redomicile was exchanged for one Series B Right to Receive Common Stock of Titan, which has substantially the same rights and preferences as the Company’s original Series B Rights to Acquire Common Stock.
NOTE 15 – COMMITMENTS AND CONTINGENCIES
Commitments
On
March 21, 2023, Titan Trucking entered into a consulting agreement (the “March 2023 Agreement”) with a consultant for consulting
services related to the consolidated waste industry.
On
May 20, 2023, the Company entered into a management consulting agreement (the “May 2023 agreement”) with a related party
consultant. The consultant agreed to assist the Company identify acquisition and merger targets, as well provide other merger and acquisition
related services, such as due diligence services, and services related the integration of acquisition targets. The May 2023 Agreement
has a term of
39 |
Contingencies
From time to time, the Company is involved in routine litigation that arises in the ordinary course of business. Currently, there is no litigation pending against the Company that could materially affect the Company other than as follows:
In July 2022, a complaint was filed against Titan Trucking in the Circuit Court for Macomb County, Michigan for breach of contract. In the complaint, the plaintiff alleges that Titan Trucking has breached a contractual agreement between Titan Trucking and the plaintiff pertaining to the transport of certain non-hazardous solid waste or recyclables from plaintiff’s transfer station to the locations identified in the contract. The complaint seeks unspecified damages, attorney and expert fees and other unspecified litigation costs. Titan Trucking has denied the claims of the plaintiff, and in May 2023, Titan Trucking filed amended counterclaims against the plaintiff alleging that plaintiff breached the contractual agreement by preventing Titan Trucking’s performance of its obligations under the agreement by failing to, among things, provide the necessary volumes of materials for shipment and the personnel sufficient to permit Titan Trucking to provide its services and by failing to pay certain invoices and to reimburse Titan Trucking for equipment damaged by plaintiff’s employees and for overweight trailer tickets. This matter is presently set on the court’s non-jury trial docket. As of March 31, 2024 and December 31, 2023, no accruals for loss contingencies have been recorded as the outcome of this litigation is neither probable nor reasonably estimable.
In
July 2023, a complaint was filed against the Company and Sikka in the Circuit Court of the Nineteenth Judicial Circuit, Lake County,
Illinois for breach of contract. In the complaint, the plaintiff alleges that the Company breached contracts for the payment of compensation
for investor relations and web development and copyright services allegedly provided by the plaintiff, which payment obligation was personally
guaranteed by Sikka. The complaint seeks damages in the amount of $
NOTE 16 – SEGMENT REPORTING
Operating segments are components of an enterprise about which separate financial information is available and is evaluated regularly by management, namely the Chief Operating Decision Maker (“CODM”) of an organization, in order to determine operating and resource allocation decisions. By this definition, the Company has identified its COO as the CODM. The Company operates and reports in two segments: Trucking and Digester.
Trucking Segment: The Trucking Segment generates service revenues and incurs expenses by transporting environmental and other waste for customers.
Digester Segment: The Digester Segment primarily generates revenues and incurs expenses through the production and sale of ‘digester’ equipment to customers. The segment also generates revenue through related services such as digester maintenance and software services.
40 |
The Company believes that this structure reflects its current operational and financial management, and that it provides the best structure for the Company to focus on growth opportunities while maintaining financial discipline. The factors used to identify the Trucking and Digester operating segments were the difference in revenue streams and customer base for each segment, the reporting structure for operational and performance information within the Company, and management’s decision to organize the Company around the different revenue generating activities of the segments. Total revenues for each reportable segment is as follows:
Three Months Ended | Three Months Ended | |||||||
March 31, | March 31, | |||||||
2024 | 2023 | |||||||
$ | $ | |||||||
Trucking | ||||||||
Digester | ||||||||
Corporate / Other | ||||||||
Total Company | $ | $ |
Gross profit (loss) for each reportable segment was as follows:
Three Months Ended | Three Months Ended | |||||||
March 31, | March 31, | |||||||
2024 | 2023 | |||||||
$ | $ | |||||||
Trucking | ( | ) | ( | ) | ||||
Digester | ||||||||
Corporate / Other | ||||||||
Total Company | $ | $ | ( | ) |
Net income (loss) before provision for income taxes for each reportable segment was as follows:
Three Months Ended | Three Months Ended | |||||||
March 31, | March 31, | |||||||
2024 | 2023 | |||||||
$ | $ | |||||||
Trucking | ( | ) | ( | ) | ||||
Digester | ||||||||
Corporate / Other | ( | ) | ||||||
Total Company | $ | ( | ) | $ | ( | ) |
Total assets, capital expenditures, and depreciation and amortization expense for each reportable segment was as follows:
Assets | Capital expenditures | Depreciation and amortization (1) | ||||||||||||||||||||||
March 31, | December 31, | For the three months ended March 31, | For the three months ended March 31, | |||||||||||||||||||||
2024 | 2023 | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
Trucking | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Digester | ||||||||||||||||||||||||
Corporate / Other | ||||||||||||||||||||||||
Total Company |
(1) |
41 |
NOTE 17 – SUBSEQUENT EVENTS
Subsequent events were evaluated through the issuance date of these financial statements. There were no subsequent events other than those described below:
Designation of Series B Preferred Stock
As of April 3, 2024, the Company’s board of directors designated a series of Preferred Stock consisting of shares that were designated Series B Convertible Preferred Stock (“Series B Preferred Stock”).
The
Series B Preferred Stock ranks senior to the Series A Preferred Stock with respect to dividend rights and rights on the distribution
of assets upon liquidation, dissolution and winding up. Holders of Series B Preferred Stock are entitled to receive dividends accruing
on a daily basis in arrears at the rate of
Warrants and Securities Purchase Agreement
On
April 5, 2024, the Company and an investor conducted a first closing under a Securities Purchase Agreement (the “SPA”). Under
the terms of the SPA the investor is to receive
Forbearance of Michaelson Note
In
April 2024, the Company and Michaelson agreed to extend the term of the Michaelson Note until June 30, 2024, and forbear all other terms
until May 1, 2024. In exchange for such extension and forbearance, the Company agreed to: 1) pay $
42 |
ITEM 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
The discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which we have prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported revenues and expenses during the reporting periods. On an ongoing basis, we evaluate estimates and judgments, including those described in greater detail below. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
As used in this “Management’s Discussion and Analysis of Financial Condition and Results of Operation,” except where the context otherwise requires, the term “we,” “us,” “our,” or “the Company,” refers to the business of Titan Environmental Solutions Inc.
The following discussion should be read in conjunction with the condensed consolidated financial statements as of and for the three months ended March 31, 2024 and 2023, including the notes to those statements, appearing elsewhere in this report, as well as management’s discussion and analysis and the consolidated financial statements included in our 2023 Annual Report on Form 10-K. This section and other parts of this quarterly report on Form 10-Q contain forward-looking statements that involve risks and uncertainties. See “Forward-Looking Statements.”
Overview of Our Company
We operate two distinct lines of business. The first is Titan Trucking, LLC (“Titan Trucking”), a non-hazardous solid waste management company providing waste and recycling collection and transportation services for industrial generators, commercial contractors and transfer station operators in Michigan. Titan Trucking maintains a fleet of roll off and tractor trailer trucks to perform its services. Titan Trucking operates in a highly recession resistant industry given the ongoing generation of waste and recyclable materials. Titan Trucking’s goal is to provide our customers with safe and efficient options for the disposal and recycling of their waste streams. Titan Trucking has begun to create the infrastructure needed to expand its operations organically and through strategic acquisitions and market development opportunities across the Midwest, Northeast and Southeast regions of the United States. The second is Recoup Technologies, Inc., which provides technology enabled solutions for food waste processing including onsite Digestors for food waste along with cloud-based software tracking and analytics solutions.
Reverse Acquisition with Titan Trucking, LLC
On May 19, 2023, we and our wholly-owned subsidiary, Titan Merger Sub Corp. (“Merger Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”), with Titan Trucking, Titan 5, LLC, a Michigan limited liability company (“Titan 5”), Titan National Holdings 2, LLC, a Michigan limited liability company (“Holdings”), Jeffrey Rizzo, an individual (“JR”), William McCauley, an individual (“WM”, and, together with Holdings, Titan 5 and JR, the “Sellers”), and Jeffrey Rizzo, as the Seller Representative, pursuant to which, Merger Sub was merged with and into Titan Trucking, with Titan Trucking continuing as the surviving entity and as a wholly-owned subsidiary of our company (the “Titan Merger”).
For U.S. federal income tax purposes, the Titan Merger qualified as a tax-free “reorganization”. Under the terms of the Titan Merger Agreement, upon the closing of the Titan Merger, we paid the Titan Trucking owners 630,900 shares of our Series A Preferred Stock. Concurrent to the Titan Merger, our chief executive officer and one of our directors resigned from their respective positions and our current chief executive officer, chief operating officer and chief financial officer were appointed. Additionally, the new chief executive officer and chief operating officer were both appointed as directors of our company.
In accordance with ASC 805 – Business Combinations, the Titan Merger was accounted for as a reverse acquisition with Titan Trucking being deemed the accounting acquirer of our company. Titan Trucking, as the accounting acquirer, recorded the assets and liabilities of our company at their fair values as of the acquisition date. The historical consolidated financial statements of Titan Trucking have replaced our historical consolidated financial statements with respect to periods prior to the completion of the Titan Merger with retroactive adjustments to Titan Trucking’s legal capital to reflect the legal capital of our company. We remain the continuing registrant and reporting company.
Titan Trucking was deemed to be the accounting acquirer based on the following facts and circumstances: (1) the Titan Trucking owners owned approximately 65% of the voting interests of the combined company immediately following the transaction; (2) the Titan Merger resulted in significant changes to the combined company’s board of directors; (3) the Titan Merger resulted in significant changes to the management of the combined company.
43 |
We accounted for the Titan Merger as a reverse acquisition using acquisition accounting. Because the Titan Merger qualifies as a reverse acquisition and given that Titan Trucking was a private company at the time of the Titan Merger and therefore its value was not readily determinable, the fair value of the merger consideration was deemed to be equal to the quoted market capitalization of our company at the acquisition date. The purchase consideration was as follows:
TraQiQ, Inc. market capitalization at closing | $ | 27,162,222 | ||
Total purchase consideration | $ | 27,162,222 |
We recorded all tangible and intangible assets and liabilities at their estimated fair values on the acquisition date. The following represents the allocation of the estimated purchase consideration:
Estimated | ||||
Description | Fair Value | |||
Assets: | ||||
Cash | $ | 69,104 | ||
Accounts receivable, net | 369,338 | |||
Prepaid expenses and other current assets | 17,893 | |||
Inventory | 64,894 | |||
Fixed assets, net | 1,134 | |||
Intangible assets, net | 6,471,621 | |||
Goodwill | 26,880,916 | |||
$ | 33,874,900 | |||
Liabilities: | ||||
Accounts payable and accrued expenses | $ | (1,009,993 | ) | |
Customer deposits | (311,544 | ) | ||
Accrued payroll and related taxes | (21,077 | ) | ||
Derivative liability | (219,171 | ) | ||
Convertible notes payable | (1,466,382 | ) | ||
Convertible notes payable – related parties | (102,851 | ) | ||
Notes payable | (3,579,160 | ) | ||
Notes payable – related parties | (2,500 | ) | ||
$ | (6,712,678 | ) | ||
Net fair value of assets (liabilities) | $ | 27,162,222 |
Disposal of TraQiQ Private Solutions, Inc (“Ci2i”)
On July 28, 2023, we and our wholly-owned subsidiary, TraQiQ Solutions, Inc (“Ci2i”), and Ajay Sikka (“Sikka”), a director and our former chief executive officer, entered into an Assignment of Stock Agreement (the “Assignment Agreement”). Under the terms of the Assignment Agreement, we assigned and transferred to Sikka all of our rights, title and interests in the issued and outstanding equity interests of Ci2i in exchange for consideration of $1. We additionally assumed from Ci2i loans and short-term debts valued at $209,587 plus fees and interest. Other than the liabilities assumed from Ci2i, the balance sheet amounts and operations of Ci2i as of the date of sale were insignificant.
Redomicile as Titan Environmental Solutions Inc.
Effective January 10, 2024, the Company redomiciled from a California corporation into a Nevada corporation (the “redomicile”). As a result of the redomicile, the Company’s corporate name was changed from TraQiQ, Inc. to Titan Environmental Solutions Inc. The individuals serving as our executive officers and directors as of the effective time of the redomicile continued to serve in such respective capacities with Titan following the effective time of the redomicile.
44 |
Change in Equity Instruments and Share Authorizations
As a result of the redomicile, each share of our common stock issued and outstanding immediately prior to the redomicile was exchanged for one share of Titan’s common stock. Additionally, each share of our Series C Convertible Preferred Stock issued and outstanding immediately prior to the effective time of the redomicile was exchanged for one share of Series A Convertible Preferred Stock of Titan (the “Series A Preferred Stock”), which has substantially the same rights and preferences as the Series C Preferred Stock. Each of our Series A Rights to Receive Common Stock issued and outstanding immediately prior to the redomicile was exchanged for one Series A Right to Receive Common Stock of Titan, which has substantially the same rights and preferences as our original Series A Rights to Acquire Common Stock. Each of our Series B Rights to Receive Common Stock issued and outstanding immediately prior to the redomicile was exchanged for one Series B Right to Receive Common Stock of Titan, which has substantially the same rights and preferences as our original Series B Rights to Acquire Common Stock.
As a result of the redomicile, all of our outstanding warrants were assumed by Titan and now represent warrants to acquire shares of Titan’s common stock. The redomicile increased our authorized capital stock to 425,000,000 total shares, consisting of 400,000,000 shares of common stock, par value $0.0001 per share, and 25,000,000 shares of “blank check” preferred stock, par value $0.0001 per share, of which 630,900 shares were designated “Series A Convertible Preferred Stock”. In connection with the redomicile, we also adopted the “Titan Environmental Solutions Inc. 2023 Equity Incentive Plan.”
Authorization of Reverse Stock Split
In connection with the redomicile, our board of directors was authorized to effect a reverse stock split (the “Reverse Stock Split”) on the basis of one share of our common stock for up to 50 shares of our common stock, at an exact ratio at the discretion of the board of directors, at any time prior to the first anniversary of the effective date of the redomicile. In connection with the Reverse Stock Split, if one is approved by our board of directors, our board of directors may also amend our articles of incorporation to reduce the number of authorized shares of common stock to a number of shares, as determined by the board of directors, that is not less than 110% of the number of outstanding shares of common stock on a fully-diluted basis after giving effect to the Reverse Stock Split.
Change in Trading Symbol of Common Stock
Following the redomicile and effective on January 16, 2024, the trading symbol of our common stock changed from “TRIQ” to “TESI”.
Going Concern
For the three months ended March 31, 2024, we had a net loss of $2,258,944. We had a working capital deficit of $13,123,723 as of March 31, 2024 (deficit of $10,935,108 as of December 31, 2023). The March 31, 2024 working capital deficiency included $2,257,090 of principal repayments related to the Michaelson Note due by June 30, 2024; we currently do not have sufficient funds to repay this debt. These conditions raise substantial doubt about our ability to continue as a going concern for a period of time within one year after the date on which our consolidated financial statements were issued.
Management’s plans include raising capital through issuances of equity and debt securities, and minimizing operating expenses of the business to improve our cash burn rate. On July 17, 2023, we converted $1,944,000 of principal and $75,263 of accrued interest related to our outstanding convertible note payables into Series A Rights, resulting in the extinguishment of almost all of our convertible note embedded derivative liabilities. In addition, we have been successful in attracting substantial capital from investors interested in the current public status of our company that has been used to support our ongoing cash outlays. This included $250,000 of convertible notes and $650,000 of warrants during the three months ended March 31, 2024. We believe, but cannot guarantee, we will continue to be able to attract capital from outside sources as we pursue a move to a national stock exchange. We have engaged a qualified investment bank to assist in the uplisting of our common stock and simultaneous raise of capital. In addition, our revenue continues to grow and we expect to shrink our net losses over the upcoming quarters through organic and acquisitive growth. We have identified a plan to decrease expenses going forward to reduce our cash burn.
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Employee Benefit Plan
Titan Trucking offers a 401(k) plan. Employees are eligible to participate in the plan on the first day of the month following the date of hire. Employees may defer up to $23,000 per year. Titan Trucking is required to contribute on behalf of each eligible participating employee. Titan Trucking will match 50% of the participants deferral not to exceed 3% of employee compensation. Employees will share in the matching contribution regardless of the amount of service completed during the plan year. Employees will become 100% vested in the employer matching contributions after one year of service.
Employer contributions for the three months ended March 31, 2024 and 2023 were $3,129 and $2,858, respectively.
Results of Operations and Financial Condition for the Three Months Ended March 31, 2024 as Compared to the Three Months Ended March 31, 2023
Three Months Ended | ||||||||||||
March 31, | ||||||||||||
2024 | 2023 | Percent Change | ||||||||||
Revenue | $ | 1,755,750 | $ | 1,080,237 | 63 | % | ||||||
Cost of revenues | 1,623,156 | 1,161,112 | 40 | % | ||||||||
Gross profit(loss) | 132,594 | (80,785 | ) | (264 | )% | |||||||
Operating Expenses | ||||||||||||
Salary and salary related costs | 487,031 | 189,316 | 157 | % | ||||||||
Professional fees | 873,439 | 194,779 | 348 | % | ||||||||
Depreciation and amortization | 192,867 | 6,419 | 2,905 | % | ||||||||
General and administrative expenses | 401,640 | 131,646 | 205 | % | ||||||||
Total Operating Expenses | 1,954,977 | 522,160 | 274 | % | ||||||||
Operating Loss | (1,822,383 | ) | (602,945 | ) | 202 | % | ||||||
Other Income (Expense): | ||||||||||||
Change in fair value of derivative liability | 17,500 | - | 100 | % | ||||||||
Interest expense, net of interest income | (510,454 | ) | (79,652 | ) | 541 | % | ||||||
Other income (expense) | 56,393 | 300 | 18,698 | % | ||||||||
Total other income (expense) | (436,561 | ) | (79,352 | ) | 450 | % | ||||||
Provision for income taxes | - | - | 100 | % | ||||||||
Net loss | $ | (2,258,944 | ) | $ | (682,297 | ) | $ | 231 | % |
Revenue
Three Months Ended | ||||||||
March 31, | ||||||||
2024 | 2023 | |||||||
Product sales and related product services | $ | 568,168 | $ | - | ||||
Waste collection and sales | 1,187,582 | 1,080,327 | ||||||
Total revenue | $ | 1,755,750 | $ | 1,080,327 |
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For the three months ended March 31, 2024 compared to March 31, 2023, our revenues increased by $675,423, or 63%, from $1,080,327 to $1,755,750. The increase was the result of the Titan Merger on May 19, 2023, and the resulting revenue generated by the combined operations of our company and Titan Trucking. The Titan Merger resulted in the development of our Digester Segment and our revenue from product sales and related product services. We also expanded the operations of the Trucking Segment with the acquisition of new containers and other fixed assets which, as a result, increased the revenue generated.
Cost of Revenue
For the three months ended March 31, 2024 compared to March 31, 2023, our cost of revenue increased by $462,044, or 40%, from $1,161,112 to $1,623,156. The increase was the result of the Titan Merger on May 19, 2023, and the resulting increased revenue caused by the combined operations of our company and Titan Trucking. Additionally, we have continued to expand the Trucking Segment operations which also resulted in increased cost of revenues.
Operating Expenses
For the three months ended March 31, 2024 compared to March 31, 2023, our salary and salary-related costs increased by $297,715 or 157%, from $189,316 to $487,031. The increase was due to the increased personnel costs associated with the Titan Merger and increases to the operational activity of Titan Trucking.
For the three months ended March 31, 2024 compared to March 31, 2023, our professional fees increased by $678,660, or 348%, from $194,779 to $873,439. The increase was attributed primarily to consulting, accounting and legal fees incurred due to our acquisition activities.
For the three months ended March 31, 2024 compared to March 31, 2023, our depreciation and amortization expense increased by $186,448, or 2,905%, from $6,419 to $192,867. The increase in depreciation and amortization expense was the result of the intangible assets recognized from the Titan Merger.
For the three months ended March 31, 2024 compared to March 31, 2023, our general and administrative expenses increased by $401,640, or 205%, from $131,646 to $401,640. The increase was primarily due to our increased operational and sales activities, the addition of leases, and the Titan Merger.
Impairment of Goodwill
Due to the reverse acquisition with Titan Trucking, we recognized goodwill of $26,880,916 for the Digester reporting unit on our consolidated balance sheet. As a result of the historical net losses of the Digester Segment, we concluded it was more likely than not that the fair value of the reporting unit was less than its carrying amount as of June 30, 2023. We performed an impairment assessment of the goodwill. Our quantitative impairment test indicated a fair value of the reporting unit that was lower than its carrying value, and as a result, the goodwill was impaired with an impairment expense of $20,364,001 during the year ended December 31, 2023. There was no goodwill impairment expenses for the three months ended March 31, 2024.
Interest Expense, net of Interest Income
For the three months ended March 31, 2024 compared to March 31, 2023, our interest expense, net of interest income increased by $430,802, or 541%, from $79,652 to $510,454. The increase was due mainly to a large increase in debt instruments accruing interest on our consolidated balance sheet as a result of the Titan Merger. We have also issued and sold new debt instruments following the Titan Merger, which has resulted in increased interest expense.
Net Loss
For the three months ended March 31, 2024 compared to March 31, 2023, our net loss increased by $1,576,647, or 231% from $682,297 to $2,258,944 due to the large increase in overall operating expenses, the increased professional fees, the increased depreciation and amortization expense, and the other additional expenses incurred due to the Titan Merger.
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Segment Analysis
Operating segments are components of an enterprise about which separate financial information is available and is evaluated regularly by management, namely the Chief Operating Decision Maker (“CODM”) of an organization, in order to determine operating and resource allocation decisions. By this definition, we have identified our Chief Operating Officer as the CODM. We operate and report in two segments: Trucking and Digester.
Trucking Segment: The Trucking Segment generates service revenues and incurs expenses by transporting environmental and other waste for customers.
Digester Segment: The Digester Segment primarily generates revenues and incurs expenses through the production and sale of ‘digester’ equipment to customers. This segment also generates revenue through related services, such as digester maintenance and software services.
We believe that this structure reflects our current operational and financial management, and that it provides the best structure for our company to focus on growth opportunities while maintaining financial discipline. The factors used to identify the Trucking and Digester operating segments were the difference in revenue streams and customer base for each segment, the reporting structure for operational and performance information within our company, and our decision to organize our company around the different revenue generating activities of the segments. Total revenues for each reportable segment was as follows:
Three Months Ended | ||||||||
March 31, | March 31, | |||||||
2024 | 2023 | |||||||
Trucking | $ | 1,187,582 | $ | 1,080,327 | ||||
Digester | 568,168 | - | ||||||
Corporate / Other | - | - | ||||||
Total | $ | 1,755,750 | $ | 1,080,327 |
Gross profit (loss) for each reportable segment was as follows:
Three Months Ended | ||||||||
March 31, | March 31, | |||||||
2024 | 2023 | |||||||
$ | - | $ | - | |||||
Trucking | (278,887 | ) | (80,785 | ) | ||||
Digester | 411,481 | - | ||||||
Corporate / Other | - | - | ||||||
Total | $ | 132,594 | $ | (80,785 | ) |
Net income (loss) before provision for income taxes for each reportable segment was as follows:
Three Months Ended | ||||||||
March 31, | March 31, | |||||||
2024 | 2023 | |||||||
Trucking | $ | (1,074,722 | ) | $ | (682,297 | ) | ||
Digester | 69,068 | - | ||||||
Corporate / Other | (1,253,290 | ) | - | |||||
Total | $ | (2,258,944 | ) | $ | (682,297 | ) |
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Total assets, capital expenditures, and depreciation and amortization expense for each reportable segment was as follows:
Assets | Capital Expenditures | Depreciation and Amortization (1) (2) | ||||||||||||||||||||||||
March 31, | December 31, | For the three months ended March 31, | For the three months ended March 31, | |||||||||||||||||||||||
2024 | 2023 | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||
Trucking | (1 | ) | $ | 8,911,424 | $ | 8,804,653 | $ | 734,923 | $ | 50,050 | $ | 129,264 | $ | - | ||||||||||||
Digester | 13,114,803 | 13,122,976 | - | - | 175,679 | - | ||||||||||||||||||||
Corporate / Other | 881,567 | 247,845 | - | - | - | - | ||||||||||||||||||||
Total | $ | 22,907,794 | $ | 22,175,474 | $ | 734,923 | $ | 50,050 | $ | 304,943 | $ | - |
(1) | Trucking Segment depreciation and amortization includes $112,076 of depreciation expense that is classified as cost of services on the consolidated income statement because it is information reviewed by the CODM |
Adjusted EBITDA (Non-U.S. GAAP Financial Measure)
We have included in this report Adjusted EBITDA, a measure of financial performance that is not defined by U.S. GAAP. We believe that this measure provides useful information to investors and include this measure in other communications to investors.
For this non-U.S. GAAP financial measure, we are providing below a reconciliation of the differences between the non-U.S. GAAP measure and the most directly comparable U.S. GAAP measure, an explanation of why our management and board of directors believe the non-U.S. GAAP measure provides useful information to investors and any additional purposes for which our management and board of directors use the non-U.S. GAAP measures. This non-U.S. GAAP measure should be viewed in addition to, and not in lieu of, the comparable U.S. GAAP measures.
We define Adjusted EBITDA as net loss before interest expense (net of interest income), income taxes, depreciation and amortization, and certain non-recurring and non-cash transactions such as goodwill impairments, loss on extinguishment and issuance of share rights, stock-based compensation, and the change in fair value of derivative liabilities. Our management believes that this presentation provides useful information to management and investors regarding our core trends by providing a more direct view of the underlying costs and performance. In addition, management uses this measure for reviewing our financial and operational results. Adjusted EBITDA is a non-U.S. GAAP measure and may not be comparable to similarly titled measures reported by other companies.
We do not consider Adjusted EBITDA in isolation or as an alternative to financial measures determined in accordance with U.S. GAAP. The principal limitation of Adjusted EBITDA is that it excludes certain expenses and income that are required by U.S. GAAP to be recorded in our consolidated financial statements. In addition, Adjusted EBITDA is subject to inherent limitations as this metric reflects the exercise of judgment by management about which expenses and income are excluded or included in determining Adjusted EBITDA. In order to compensate for these limitations, management presents Adjusted EBITDA in connection with U.S. GAAP results. A reconciliation of net loss to Adjusted EBITDA is as follows:
Three Months Ended | ||||||||
March 31, | ||||||||
2024 | 2023 | |||||||
Net loss | $ | (2,258,944 | ) | $ | (682,297 | ) | ||
Interest expense, net of interest income | 510,454 | 79,652 | ||||||
Income taxes | - | - | ||||||
Depreciation and amortization (a) | 304,942 | 119,826 | ||||||
(1,443,548 | ) | (482,819 | ) | |||||
Non-recurring, non-cash transactions: | ||||||||
Change in fair value of derivative liability (b) | (17,500 | ) | - | |||||
Adjusted EBITDA | $ | (1,461,048 | ) | $ | (482,819 | ) |
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(a) | This amount includes $112,076 and $113,407 of depreciation expense included in cost of revenues in the consolidated statement of operations for the three months ended March 31, 2024 and 2023, respectively. |
(b) | This amount reflects the change in fair value of our derivative liability during the period ended (Note 11 – Derivative Liability). |
Liquidity and Capital Resources
Liquidity is the ability of an enterprise to generate adequate amounts of cash to meet its needs for cash requirements. As of March 31, 2024, we had $3,427 in cash compared to $103,578 at December 31, 2023, a decrease of $100,151, resulting primarily from increased operating activities. As of March 31, 2024, we had approximately $935,000 in accounts receivable compared to approximately $971,000 at December 31, 2023, a decrease of approximately $36,000 primarily caused by the increased collections activities of our Trucking Segment, offset by the increased sales activities of our Digester Segment.
As of March 31, 2024, we had total current assets of approximately $1.4 million and total current liabilities of approximately $14.5 million, or negative working capital of approximately $13.1 million, compared to total current assets of approximately $1.5 million and total current liabilities of approximately $12.4 million, or negative working capital of $10.9 million at December 31, 2023. This is a decrease in working capital of approximately $0.7 million over the working capital balance at the end of 2023 driven primarily by an increase in accounts payable and accrued expenses, an increase in related party note payables, and an increase in customer deposits.
As of March 31, 2024, we had undiscounted obligations in the amount of approximately $8.4 million relating to the payment of indebtedness due within one year. We anticipate meeting our cash obligations on our current indebtedness as of March 31, 2024, primarily through the issuance of debt and equity securities, as well as through earnings from operations.
Our future capital requirements for our operations will depend on many factors, including the profitability of our businesses, the number and cash requirements of other acquisition candidates that we pursue, and the costs of our operations. We plan to generate positive cash flow from Titan Trucking to address some of our liquidity needs. However, to execute our business plan, service our existing indebtedness, finance our proposed acquisitions and implement our business strategy, we anticipate that we may need to obtain additional financing from time to time and may choose to raise additional funds through public or private equity or debt financings, a bank line of credit, borrowings from affiliates or other arrangements. We cannot be sure that any additional funding, if needed, will be available on terms favorable to us or at all. Furthermore, any additional capital raised through the sale of equity or equity-linked securities may dilute our current stockholders’ ownership in us and could also result in a decrease in the market price of our common stock. The terms of those securities issued by us in future capital transactions may be more favorable to new investors and may include the issuance of warrants or other derivative securities, which may have a further dilutive effect. Furthermore, any debt financing, if available, may subject us to restrictive covenants and significant interest costs. There can be no assurance that we will be able to raise additional capital, when needed, to continue operations in their current form.
During the three months ended March 31, 2024 and 2023, our capital expenditures were approximately $0.7 million and approximately $50,000, respectively.
We expect our capital expenditures for next 12 months will grow as we continue to expand the Titan Trucking operational activity. These capital expenditures will be primarily utilized for equipment needed to generate revenue and for office equipment. We expect to fund such capital expenditures out of our working capital.
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Cash Flows
Three Months Ended March 31, | ||||||||
2024 | 2023 | |||||||
Net cash used in operating activities | $ | (822,475 | ) | $ | (397,459 | ) | ||
Net cash used in investing activities | (734,923 | ) | (50,050 | ) | ||||
Net cash provided by financing activities | 1,457,247 | 473,622 | ||||||
Net increase (decrease) in cash and cash equivalents | $ | (100,151 | ) | $ | 26,113 |
Operating Activities. The net cash used in operating activities for the three months ended March 31, 2024 was primarily used to fund a net loss of approximately $2.2 million, adjusted for non-cash expenses in the aggregate amount of approximately $461,000. Non-cash expenses were primarily made up of approximately $305,000 of depreciation and amortization expense and approximately $180,000 of debt discount amortization. Approximately $975,000 of cash was generated from net changes in the levels of operating assets and liabilities, primarily related to an increase in accounts payable and accrued expenses, an increase in customer deposits, and a decrease in the right-of-use asset. The cash generated was offset by an increase in other assets, a decrease in the operating lease liability and an increase in inventory.
The net cash used by operating activities for the three months ended March 31, 2023 was primarily used to fund a net loss of approximately $682,000, adjusted for non-cash income in the aggregate amount of approximately $124,000. Approximately $160,000 was generated by net changes in the levels of operating assets and liabilities, primarily related to increases in accounts payable and accrued payroll, decreases in accounts receivables, decreases in prepaid expenses, and decreases in right-of-use assets, which was offset in part by decreases in operating lease liability and an increase in other receivables.
Investing Activities. During the three months ended March 31, 2024, our cash used in investing activities was composed of approximately $735,000 used for the acquisition of property and equipment. During the three months ended March 31, 2023, our cash used in investing activities was due to approximately $50,000 used for the acquisition of property and equipment.
Financing Activities. There was approximately $1.5 million in cash generated from financing activities during the three months ended March 31, 2024. This was primarily due to proceeds from notes payable of $675,000, proceeds from the issuance of warrants of $650,000, proceeds from related party note payables of $290,000, proceeds from convertible notes payable of $150,000, and proceeds from related party convertible note payables of $50,000. Cash provided from financing activities was offset by approximately $328,000 of repayments of notes payable and $30,000 of repayments of related party notes payable. There was approximately $474,000 of cash generated from financing activities during the three months ended March 31, 2023. The cash provided by financing activities was due to approximately $512,000 in proceeds from notes payable, and $200,000 from a subscription receivable, offset by repayments of notes payable of approximately $239,000.
Non-Cash Investing and Financing Activities. We note that we settled a note payable as a contribution to equity for $170,000 during the three months ended March 31, 2023.
Cash Payments for Interest and Income Taxes. We had approximately $172,000 and $79,000 of cash payments for interest expense for the three months ended March 31, 2024 and 2023, respectively. There were no cash payments for income taxes for the three months ended March 31, 2024 and 2023, respectively.
Critical Accounting Policies and Estimates
Our significant accounting policies are more fully described in the notes to our consolidated financial statements. Those material accounting estimates that we believe are the most critical to an investor’s understanding of our financial results and condition are discussed immediately below and are particularly important to the portrayal of our financial position and results of operations and require the application of significant judgment by our management to determine the appropriate assumptions to be used in the determination of certain estimates.
Management exercises judgment in making important decisions pertaining to choosing and applying accounting policies and methodologies in many areas. Not only are these decisions necessary to comply with GAAP, but they also reflect management’s view of the most appropriate manner in which to record and report our overall financial performance. All accounting policies are important, and all policies described in Note 2 to the consolidated financial statements in our 2023 Annual Report on Form 10-K should be reviewed for a greater understanding of how our financial performance is recorded and reported.
During the first quarter of 2024, there were no significant changes in the manner in which our significant accounting policies were applied or in which related assumptions and estimates were developed.
Off-Balance Sheet Arrangements
We have no off-balance sheet financing arrangements.
Contractual Obligations
As a smaller reporting company we are not required to provide the information required by this Item.
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Item 3. Quantitative and Qualitative Disclosures about Market Risk
None.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Based on an evaluation as of the date of the end of the period covered by this report, our chief executive officer and our chief financial officer (collectively, our “Certifying Officers”) conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as required by the Securities Exchange Act of 1934, as amended (the “Exchange Act”) Rule 13a-15. Based on that evaluation, our Certifying Officers concluded that, because of the disclosed material weaknesses in our internal control over financial reporting, our disclosure controls and procedures were ineffective as of the end of the period covered by this report to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms.
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Certifying Officers, to allow timely decisions regarding required disclosure. Based upon the evaluation of the disclosure controls and procedures at the end of the period covered by this report, our Certifying Officers concluded that our disclosure controls and procedures were not effective as a result of continuing weaknesses in our internal control over financial reporting principally due to the following:
- |
We have not established adequate financial reporting processes or monitoring activities to ensure adequate financial reporting and to mitigate the risk of management override, specifically because there are few employees and only two officers with management functions and therefore there is lack of segregation of duties. | |
- |
An outside consultant assists in the preparation of the annual and quarterly financial statements and partners with us to ensure compliance with U.S. GAAP and SEC disclosure requirements. | |
- |
We did not maintain a sufficient complement of qualified accounting personnel and controls associated with segregation of duties over complex transactions. |
Changes in Internal Control over Financial Reporting
There have been no change in our internal control over financial reporting that occurred during the period ended March 31, 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
The term “internal control over financial reporting” is defined as a process designed by, or under the supervision of, the registrant’s principal executive and principal financial officers, or persons performing similar functions, and effected by the registrant’s board of directors, management and other personnel, 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 registrant; |
(b) | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the registrant are being made only in accordance with authorizations of management and directors of the registrant; and |
(c) | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the registrant’s assets that could have a material effect on the financial statements. |
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There have been no material developments in any of the legal proceedings discussed in Item 3 of our Annual Report on Form 10-K for the year ended December 31, 2023.
As of March 31, 2024, no accruals for loss contingencies have been recorded as the outcomes of such litigations is neither probable nor reasonably estimable.
Item 1A. Risk Factors
Not required under Regulation S-K for smaller reporting companies.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
There have been no sales of unregistered securities within the last two years that would be required to be disclosed in this Report pursuant to Item 701 of Regulation S-K.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
(a) Not applicable.
(b) During the quarter ended March 31, 2024, there have not been any material changes to the procedures by which security holders may recommend nominees to the Board of Directors.
(c) During the three months ended March 31, 2024, none of our directors or officers (as defined in Rule 16a-1(f) of the Exchange Act) adopted, modified or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement” as such terms are defined under Item 408 of Regulation S-K.
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Item 6. Exhibits
* Schedules, exhibits and similar supporting attachments to this exhibit are omitted pursuant to Item 601(b)(2) of Regulation S-K. In addition, certain portions of this exhibit have been omitted pursuant to Regulation S-K Item 601(a)(6) promulgated under the Exchange Act. The Company agrees to furnish a supplemental copy of any omitted schedule or similar attachment to the Securities and Exchange Commission upon request.
+ Certain portions of this exhibit have been redacted pursuant to Item 601(b)(2)(ii) of Regulation S-K. The omitted information is (i) not material and (ii) is treated as private and confidential by the Company. The Company agrees to furnish a supplemental copy of any omitted portions to the Securities and Exchange Commission upon request.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Titan Environmental Solutions Inc. | ||
Date: May 15, 2024 | By: | /s/ Glen Miller |
Glen Miller | ||
Chief Executive Officer (principal executive officer) | ||
Date: May 15, 2024 | By: | /s/ Michael Jansen |
Michael Jansen | ||
Chief Financial Officer (principal financial and accounting officer) |
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